We have extracted below the Chairman’s Statement from the 2018 annual report of Mechanical Lloyd Company Limited (MLC.gh), listed on the Ghana Stock Exchange:
In 2018 the Government of Ghana steadfastly continued with the three-year International Monetary Fund (IMF) fiscal stabilization and Extended Credit Facility Program which began in April 2015. As widely acknowledged and reported, the program has led to tight government recurrent and capital expenditure control over the past three and a half years and is aimed at restoring the Country’s economic slippage over the period preceding the commencement of the stabilization program. The challenges associated with the program were (and are still) being felt throughout the nation.
The national overall revenue mobilization was below government target by 2.9% in 2018 (2017: -14.9%). The stock of public debt increased to GH¢172.9bn (from GH¢142.5bn in 2017). As a percent of GDP, total public debt increased to 57.9 percent in 2018, compared with 54.3 percent at the end of 2017, placing the Country at high risk of suffering debt distress once again.
The Bank of Ghana meanwhile continued with the restructuring exercise of the nation’s financial sector in general and the commercial banks in particular – which led to the reduction of licenced Banks from 34 to 23 by the end of the year. The effects of the restructuring exercise are beginning to impact the economy and will continue throughout this year and beyond. Against this background, the automobile industry as a whole struggled to grow. As a result, reduced pricing and promotions were necessary to move vehicle stocks.
FORD AND BMW DEALERSHIP
In 2018, Ford Motor Company (Ford) and BMW-ZA (BMW) embarked on a “Cluster/ Regional Hub Strategy” for the Sub-Saharan African market. The roll-out of these Strategies was “to achieve economies of scale and efficiencies, whilst addressing regional complexity and market volatility’’. This was to be achieved by grouping countries/ markets in the same geographical area as a block and assigned to one ‘Super Distributor/Dealer’. Ford and BMW have divided Africa into four (4) and two (2) clusters/ regions respectively and Tractafric Ghana Ltd. has been appointed the Super-Distributor for the cluster/region Ghana falls within.
Our Company has exclusively represented Ford and BMW in Ghana for many decades. Indeed, we Mechanical Lloyd PLC are responsible for the outstanding and enviable reputation (goodwill) these brands have enjoyed and continue to enjoy in our market. This has been done through the systematic investment in our people, construction of world-class office and workshop facilities, acquisition of modern equipment and the deployment of advanced automobile and communication technology. The planning, structuring and implementation of the ‘one Super-Distributor’ strategy by Ford and BMW was not shared with us adequately in advance as expected of our partners to enable us to prepare fully for and address its business implications and associated impact on all our stakeholders. The implications of this strategy on our business has been and continues to be enormous, throwing our 2018 budget and mid to long-term plans/commitments out of line.
MASSEY FERGUSON (MF)
In 2017 the Governments of Ghana and Brazil commenced with the implementation of the More Food Program (MFP) Phase 1 in Ghana. This is a cooperation aimed at strengthening the productive capacity of small-scale Ghanaian farmers with one hundred and fifty (150) Massey Ferguson tractors through the utilization of a Brazilian government grant. The second phase of the MFP has commenced with the delivery of an additional eighty (80) tractors to the Government of Ghana through the Ministry of Food and Agriculture (MoFA). Mechanical Lloyd PLC is responsible for the provision of the aftersales support under the program and provides the service through our Adenta, Kumasi and Tamale branches.
SALE OF WHOLE GOODS
Revenue for the year under review was GHS 49,536, 401 (2017: GHS34,552,736) representing an increase of 43% over 2017. However, the constraints on the local market listed earlier on coupled with the restructuring commenced by Ford and BMW in 2018 negatively impacted on our sales prices and thereby shrinking our gross margin.
In 2018, our After sales achieved GHS11.1m turnover representing 93% of 2017 reported revenue. This shortfall was primarily due to system-related challenges arising out of the new market strategy being implemented by Ford and BMW – leading to significant delays in shipment of our parts orders.
Our operating expense for 2018 as a proportion of revenue was 24.15% as against 35.20% for 2017. After adjusting for Other Income of GHS 1,156,880 (2017: GHS 2,530,572), we ended the year with an operating loss of GHS1,618,865 which after adding Finance Income and deducting Finance Costs, resulted in a Loss Before Income Tax of GHS 3,547,085 and after adjusting for an Income Tax credit of GHS 624,839 we ended the year with a Loss of GHS 2,922,246 (2017: GHS 2,760,365).
The Board of Directors do not recommend payment of dividend for the year ended December 31, 2018.
With the appointment of the Super-Distributor by Ford and BMW for our market, our business model and structures are currently under review by the Board and Management. This process will take some time and effort and may continue well into 2020.
On behalf of the Board of Directors, I wish to thank our Shareholders and Customers for their continued support. I also wish to express my gratitude to Management and staff of the Company for their hard work and dedication.
Thank you for your attention.
TERENCE RONALD DARKO