Penultimate week, the Nigerian Stock Exchange (NSE) placed the shares of DN Tyre & Rubber Plc, FTN Cocoa Processors, International Energy Insurance Plc, Thomas Wyatt Nigeria Plc, Union Dicon Salt Plc and Unic Diversified Holdings Plc on suspension.
The companies were suspended for failure to submit their results when required.
The Head, Listings Regulation, NSE, Godstime Iwenekhai, in a statement said the suspension was in pursuant to Rule 3.1, which is meant for filing of accounts and treatment of default filing and rulebook of the Exchange.
The rules provide that if an issuer failed to file the relevant accounts by the expiration of the cure period, the Exchange would send to the issuer a second filing deficiency notification within two business days after the end of the cure period.
Union Dicon and Thomas Wyatt have since responded with the release of most recent results. However, Union Dicon has become a frequent defaulter in this regard in the last six years.
“In accordance with the rules set forth above, the suspension of the above listed companies will only be lifted upon the submission of the relevant accounts, provided the Exchange is satisfied that the accounts comply with all applicable rules,” the statement read.
In 2012, the Council of the Nigerian Stock Exchange approved the regulatory delisting of nine moribund companies from the daily official list due to their persistent non compliance with post listing requirements. Prominent amongst them was Union Dicon Salt Plc.
The management of the NSE noted that the delisting of the moribund companies would commence three months from when notice was served to the company.
The chief executive officer of the NSE, Mr. Oscar Onyema, explained that the organisation had adopted a proactive approach by calling on companies to understand the challenges they were facing; making them to go contrary to post-listing requirements.
He explained that the idea was to give companies all the support to comply with rules, and to also allow the investors know the companies that were struggling by putting out symbols next to their names. “But at some point, if a company is not going to be able to turnaround, or a company is just going to be there, then we have to get them delisted,” he added.
The concerns of the NSE are not far-fetched. Imagine owning a business that posts no revenues? This is often synonymous with startups and businesses still at conceptualisation stages. However, this business is decades old and publicly listed on the Nigerian Stock Exchange.
Union Dicon Salt Ltd, a publicly quoted Nigerian company, for 23rd straight quarter (5 years and 3 quarters), posted no revenues dating back to December 2012.
The company also posted negative shareholder funds for over five years, and only in 2017 revalued its assets, thus reverting to a positive shareholders’ funds.
As a listed company, the NSE rules do not require that the company posts revenues after it has been listed. However, it is not a requirement before a company is listed on it. Companies that are bankrupt are, however, expected to be de-listed.
Despite this, some opine that it is the responsibility of the NSE to inform investors of listed companies who are technically insolvent or at the risk of doing so.
The company also has serious backers (TY Danjuma, CBO Capital Partners), so it appears the NSE believes they might be an injection of capital in the near term.
Dicon Salt Limited and Union Salt Limited were incorporated as private limited liability companies on October 11, 1984 and May 30, 1991 respectively.
The companies were merged and simultaneously converted into a public limited liability company on May 7, 1993 to become Union Dicon Salt Plc. The company became listed on the official listing of the Nigerian Stock Exchange on September 23, 1993.
Danjuma holds 23 per cent equity stake in Union Dicon. Taraba Fisheries Limited holds 8.0 per cent equity stake. Aims Limited holds the single largest equity stake of 28 per cent while Defence Industries Corporation and UDS Staff Trust Fund hold 19 per cent and 4.0 per cent respectively. Minority shareholders hold 18 per cent equity stake.
The principal activity of the company is the processing of crude salt. The company is also involved in the sale of packaged water in sachets and plastic bottles.
In its 2016 report, external auditors raised the red flag that there was uncertainty over the ability of Union Dicon Salt Plc to continue on going concern, as the then 33-year-old company struggled with dormancy and continuing expenses. In that audit and the latest audit, external auditors to Union Dicon Salt, BDO Professional Services, noted that while write-backs dressed up the company’s account with a profit of N398.96 million, the subsisting negative shareholders’ funds and working capital raised material uncertainty on the going concern status of the company.
The audit committee of the company aligned with the position of the external auditors. The audit committee headed by Mr Lawal Jinadu stated that it had noted the concern on material uncertainty raised by the external auditors in their report “and agreed with their opinion and confirmed that management was taking necessary steps to address the issues.”
“The external auditors had discharged their duties conscientiously and satisfactorily,” the audit committee stated.
According to the audit, while the company recorded pre-tax profit of N398.96 million in December 31, 2016, the net current liabilities stood at N723.39 million while negative shareholders’ funds stood at N774.52 million.
Key extracts of the audited report and accounts of Union Dicon in December 31, 2016 showed no activities over the comparative years. However, the company recorded other operating income of N471.12 million in 2016 as against N78.66 million in 2015. With this, it appeared to rebound from pre-tax loss of N2.29 million in 2015 to pre-tax profit of N398.96 million in 2016. After taxes, net profit stood at N388.03 million in 2016 as against net loss of N2.63 million in 2015.
The write-backs were mainly write-off of long outstanding liabilities, which have become statute-barred, including N146.37 million payables to related parties, N80 million obligations to employees and N201.56 million of accrued expenses.
The directors of the company, under the chairmanship of Lt. Gen Theophilus Danjuma (retd), agreed that the company was experiencing “difficulty in maintaining a positive working capital position.” They noted that the board had decided on the immediate need to address the impact of the negative working capital and net liabilities by approving the diversification of the company from its core business into agriculture.
According to the Board, Union Dicon had, in 2016 invested about N25.5 million on acquisition of land for agriculture in Edo State.
The management of the company, led by Mr Chuka Mordi, anticipates that farming activities will commence on the land in the immediate future once the title documentation has been perfected.
The Board also noted that as part of measures to sustain the going concern status of the company, the amount due to the related parties will not be required for immediate repayment until the company returns to profitable position.
The company is owing some N341.46 million on its directors’ current account, which is largely believed to be due to Danjuma.
“The financial statements have, therefore, been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that the actions being taken by the directors as explained above would yield positive results and that the realisation of assets and settlement of liabilities would occur in the ordinary course of business,” the company stated.
The audit report, which was included in a regulatory filing submitted by Union Dicon Salt, noted that the salt company made a loss of N87.62 million and current deficit of N1.01 billion and negative shareholders’ funds of N1.17 billion.
Recently, Union Dicon Plc (UDS) announced it had struck a deal with the Federal Government, that it was replacing Cargill as the core investor in the $100m Alape Staple Crop Processing Zone in Kogi State.
While the Federal Government did not provide details of how much UDS was going to invest, the Minister of Agriculture, Audu Ogbeh, expressed delight at the signing of the deal.
The managing director of the company also expressed confidence on its ability, and was quick to reveal that they were an indigenous company and quoted on the Nigerian Stock Exchange. What he did not reveal, however, was the financial health of his company.
In 2016, UDS had N54.5 million as employee salaries and benefits, up with 10.5 per cent from N49.7 million despite not engaging in any manufacturing in the period. The UDS has informed that it’s undergoing some form of restructuring to bring it back to profitability, but the recently announced deal with the FRDA is a source of concern for stakeholders.
The company only had N137,000 in cash as at the end of 2015, rendering it technically insolvent.
From a negative equity of N1.1 billion and cash of N137,000, the company was primed to be a core investor in a government asset worth about $100m.
Keen watchers of the market have said the UDS made some money but not from its core functions of manufacturing; thus, it may make better sense to classify it as a real estate company rather than a manufacturer of industrial salt.