Johnsons & Phillips (Pakistan) Limited (PSX: JOPP) was incorporated in Pakistan as a public limited company in 1961. The principal activity of the company is the manufacturing, sale and installation of electrical equipments.
Pattern of Shareholding
As of June 30, 2022, JOPP has a total of 5.449 million shares outstanding which are held by 1114 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 79.89 percent in JOPP. This category is followed by General public holding 17.92 percent shares. The remaining shares are held by other categories of shareholders each accounting for less than 1 percent outstanding shares of JOPP.
Performance Trail (2018-22)
The sales revenue of JOPP had been dropping since 2014. In 2018, it registered a drastic year-on-year dive of 72.5 percent and kept shrinking until it made no sales at all in 2021. However, 2022 shows resumption in the company’s operations. The bottomline which had been in the red zone since 2015 also boasted a net profit in 2022. Delving into the details of financial statements will expose the rationale behind the lackluster performance over the years.
In 2019, JOPP registered a 35 percent year-on-year decline in sales on the back of low demand from the private sector. Tamed demand also reduced the cost of sales by 64 percent year-on-year. The company could not produce a gross profit in 2019; however, its gross loss nosedived by 74 percent year-on-year in 2019. Operating expenses also slid mainly on account of lower salaries and legal and professional fee during 2019. The result was a slide in the operating loss by 46 percent year-on-year in 2019. Finance cost grew by 61 percent as discount rates rose during the year and also because the company obtained long-term loans from a related party. Other income also considerably dropped during the year due to high base effect as the company made gain on the disposal of fixed assets in 2018. JOPP posted a net loss of Rs.31.84 million 2019 which was 35 percent lesser than the net loss reported in 2018. The loss per share stood at Rs.5.84 in 2019 versus Rs. 9.02 in the previous year.
In 2020, the topline further thinned down by 78 percent year-on-year to clock in at a mere Rs.0.95 million. The cost of sales also dropped, however, it is still greater than its sales and hence translated into a gross loss of Rs.5.78 million which is 21 percent higher than that of the previous year. The main culprit behind the high cost of sales is depreciation which forms over 56 percent of the total of sales and is increasing every year. Repair and maintenance also continued to rise due to wear and tear of machinery as it stayed idle for the most of the year. Operating expenses considerably reduced during the year mainly on the back of reduced salaries and wages, no advertising and sales promotion drive undertaken during the year and lesser legal and professional fee. Repair and maintenance expense, however, continued to rise. The operating loss of Rs.22.80 million recorded by JOPP in 2020 was 12 percent lower than that of 2019. Finance cost rose by 14 percent year-on-year on the back of discount rate hike during the initial quarters of 2020. The outstanding loans of the company increased during the year; however, they are interest free loans obtained from the directors of the company and are repayable on demand. Other expense multiplied by over 350 times during the year mainly on the back of provision booked for doubtful sales tax refund. This magnified the net loss by 71 percent year-on-year to clock in at Rs.54.39 million in 2020. The loss per share stood at Rs.9.98 in 2020. Due to making persistent losses, JOPP is facing financial and operational difficulties and its current liabilities are exceeding its current assets which cast serious doubts on its ability to discharge its liabilities and continue as a going concern.
In 2021, the company was unable to make any sales. The cost of sales also dropped by 42 percent year-on-year and comprises of only depreciation charge. This trimmed down the gross loss of the company by 32 percent year-on-year in 2021. JOPP didn’t incur any distribution expense during the year while its administrative expense plunged by 56 percent year-on-year. Consequently, its operating loss shrank by 51 percent year-on-year in 2021. The company didn’t incur any financial charges during the year. The loan portfolio of JOPP comprises of borrowings from sponsors, directors and related parties with repayment terms and markup rescheduled from time to time. Other expense also nosedived by 83 percent year-on-year and comprises of exchange loss incurred during the year. The net loss of the company thinned down by 74 percent year-on-year to clock in at Rs.14.25 million with a loss per share of Rs.2.62 in 2021.
2022 appears to be a silver lining in the cloud. The sales revenue as high as Rs.86.58 million made by the company was never seen since 2014. The revenue growth was the result of JOPP’s engagement in the trading of textile machinery. The company had been looking for new avenues to stay in business and to turn into profitable concern. The revenue earned by the company in 2022 was due to export sale of machineries. It appears that the company is making strides in the right direction as it made a gross profit of Rs.27.45 million in 2022 which was the first time the company recorded a gross profit after 2014. The GP margin stood at 32 percent in 2022 versus 10.34 percent in 2014. Distribution charges which were zero a year earlier, increased to Rs.4.25 million in 2022 and comprises of freight and export service charges. Administrative expense also grew by 2 percent year-on-year on account of an increase in salaries and wages. The operating profit was recorded at Rs.15.75 million in 2022 with an OP margin of 18 percent. The company also made other income of Rs. 27.26 million as it wrote back an accrued markup on loans from related parties. This played a pivotal role in achieving a net profit of Rs.33.67 million in 2022 with an EPS of Rs.6.18. NP margin of 39 percent achieved by JOPP is even higher than its GP margin – thanks to other income.
Recent Performance (1HFY23)
It appears that the new source of revenue identified by JOPP in 2022 i.e. export sale of machineries is no longer viable. During 1HFY23, the company couldn’t make any sales. The cost of sales also dropped by 94 percent year-on-year and culminated into a gross loss of Rs.2.17 million in 1HFY23 as against a gross profit of Rs.16.16 during the same period of last year. The company didn’t incur any distribution cost while its admin cost also slid by 6 percent year-on-year. JOPP made an operating loss of Rs.5.32 million in 1HFY23 as against an operating profit of Rs.12.81 million during 1HFY22. After accounting for a meager other income of Rs.0.19 million, the bottomline posted a net loss of Rs.4.336 million in 1HFY23 as against a net profit of Rs.9.44 million in 1HFY22. The loss per share was recorded as Rs.0.80 in 1HFY23 as against an EPS of Rs.1.73 during the same period last year.
Future Outlook
It appears that the initial business model of JOPP is no longer viable due to lack of demand and the company is unable to identify any new course of business. The export sale of textile machinery which proved to be a ray of sunshine for the company in 2022 and pushed its bottomline to the profit zone after a history of net losses was also discontinued during 1HFY23. The current liabilities of the company have exceeded its current assets by Rs.334.611 million as of December, 2022. The company is totally dependent on financial support from its sponsors, directors and associated companies. This wouldn’t work in the long run and the management has to look for some fresh business ideas to instill life into a company biting the dust.