manaksia ltd Management discussions

G L O B A L E C O N O M I C R E V I E W

Overview: The global economy was estimated to have grown at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve. The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.8% in 2022, among the highest in decades. US consumer prices increased about 6.5% in 2022, the highest in four decades. The

Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds, and crypto assets reported an aggregated value drawdown of USD26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.

Gross FDI inflows – equity, reinvested earnings and other capital – declined 8.4% to USD55.3 Billion in April-December. The decline was even sharper in the case of FDI inflows as equity – these fell 15% to USD36.75 Billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI (benchmark for commodity investments and a measure of global commodity performance) fell from a peak of 4,288 in June 2022 to 3,233.4. There was a sharp decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realizations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

Performance of major economies

United States:	China: GDP	United Kingdom:	Japan: Reported	Germany:
Reported GDP growth of 2.1%	growth is expected to contract from	GDP is expected to grow 4.1% in	growth of 1.7% in 2022 compared to	Reported GDP growth of 1.8%
compared to 5.9% in 2021	8% in 2021 to 3% in 2022.	2022 compared to 7.6% in 2021	1.6% in 2021	compared to 2.6% in 2021

Source: PWC report, EY report, IMF data, OECD data

Outlook: The global economy is projected to grow a weak 2.9% in 2023, marked by sustained Russia-Ukraine conflict and higher interest rates. Global inflation is projected to be 6.5% in 2023 (Source: IMF). On the positive side, the reopening of Chinas economy after the waning of the pandemic, the decline in the European energy crisis and robust US consumption outlook (despite high inflation) remain positives. Interestingly, even as the global economy is projected to grow less than 3% for five years, India and China are likely to account for half the global growth in 2023 (IMF).

N I G E R I A N E C O N O M I C R E V I E W

Nigerias annual Gross Domestic Product (GDP) growth was expected to slow from 3% in 2022 to 2.7% in 2023 due to inflationary pressure that triggered a cost-of-living crisis. Inflation was projected to steady at 19.2% in 2023 compared with 19.1% in 2022. Agriculture, industry and services sectors contributed 23.6%, 32.2% and

44.2%, respectively, to the gross values added (GVA) in 2022. The three sectors are forecast to grow by 12.2%, 14% and 12.2% in 2023, compared to 13%, 14.9% and 12.9%, respectively, in 2022. In October 2022, the country allocated a budget of NGN 20.5 trillion (USD51.5 Billion) for FY2023 of which more than 60% will be used to finance debt repayment. This will curtail the expenditure on other developmental sectors. The Naira per US dollar depreciated by 8.7% year-on-year. Nigerias foreign exchange (forex) remained depressed amid the declining crude oil production and lower exports.

Real GDP growth

2019	2020	2021	2022e	2023f	2024f
2.2%	(1.8)%	3.6%	3.0%	2.7%	3.4%
Inflation
2019	2020	2021	2022e	2023f	2024f
11.4%	13.2%	17.0%	19.1%	19.2%	14.2%

In 2022, the non-oil sector in Nigeria showed positive growth, expanding by 4.84% YoY, compared to 4.44% in 2021 and -1.25% in 2020. Key drivers of this growth were the information and communication sector, which grew by 9.76%, trade which grew by

5.13%, financial services which grew by 16.36% and agriculture which increased by 1.88%. Nigerias fiscal deficit may widen to 6.2% of its Gross

Domestic Product (GDP) in 2022 as a result of continuous fuel subsidy. Nigerias inflation was high at 21% in 2022 (10.6% for emerging and developing economies and 8.8% for the world).The increase in inflation resulted from higher global commodity prices, the sharp depreciation of the parallel market exchange rate, floods that impacted several states, and the monetization of the fiscal deficit. The central bank increased the reference rate by 600 basis points since May 2022, but inflation continued rising through the year. While banking sector indicators remained sound at the systems level, the deteriorating fiscal and external environment could expose the financial system to shocks. The fiscal position deteriorated. In

2022, the cost of the petrol subsidy increased from 0.7% to 2.3% GDP. Low non-oil revenues and high interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0% of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3%. This has kept the public debt stock at over 38% of GDP and pushed the debt service-to-revenue ratio from 83.2% in 2021 to 96.3% in 2022. The current account balance recorded a deficit of 0.3% of GDP in Q1-Q3 2022. The increase in crude oil exports reflecting higher oil prices was outpaced by higher imports of refined petroleum products and lower remittances and capital inflows. As of December 2022, foreign exchange reserves were adequate to cover 6.9 months of imports, compared to 7.5 months in end-2021.

Outlook

The Nigerian economy is projected to grow by an average of 2.9% per year between 2023 and 2025, only slightly above the population growth rate of 2.4%. Growth is likely to be driven by services, trade, and manufacturing. Oil production is projected to remain subdued in part because of inefficiencies and insecurity. The conflict between Russia and Ukraine, rising food, gas, and diesel costs, and continuous supply disruptions are all anticipated to play a part in keeping inflation high in 2022 at 16.9% and above pre-pandemic levels in 2023. While oil exports are anticipated to slightly increase and capital inflows to rebound, an expected positive oil price shock on exports may be substantially outweighed by a poor output effect caused by lower oil production, which is fueled by inadequate infrastructure and increased insecurity. The anticipated 0.1% of GDP marginal current account surplus in 2022 could turn into a 0.2% deficit in 2023. With greater revenue collection, the budget deficit could drop to 4.5% of GDP.

(Source: dailytrust.com, World Bank)

N I G E R I A N C O N S T R U C T I O N S E C T O R R E V I E W

It is projected that the construction sector in Nigeria could experience an average yearly increase of 4.3% from 2023 to 2026, due to investments in transport, power, water and sewage systems, as well as housing infrastructure. However, the overall production in the construction industry may not exceed the amount produced in 2019 until 2023. In December 2021, the federal government unveiled the National Development Plan 2021-2025, which prioritizes economic revitalization and emphasizes the enhancement of industrialization. The government is dedicated to investing in crucial infrastructure areas like communications, transportation, power and housing. The government has set a goal of attracting foreign direct investment (FDI) worth NGN2 trillion (USD4.8 Billion) by 2025, which is an increase from the NGN605.8 Billion (USD1.5 Billion) received in 2020. Additionally, the government aims to increase the contribution of non-oil exports by 2025 through the implementation of effective trade policies and strategies. (Source: finance. yahoo.com)

N I G E R I A N M E T A L PA C K A G I N G S E C T O R R E V I E W

It is anticipated that Nigerias metal packaging market could experience significant growth from 2020 to

2026 due to continuous urbanization and rising disposable incomes. The growth of the market is being driven by shifts in lifestyle focused on health and hygiene, which has led to an increased demand for sustainable packaging. Growing awareness and concern for environmental issues, coupled with government initiatives to promote the use of metal packaging, are contributing to market expansion. The need for metal packaging is being catalysed by a shift of manufacturers towards lighter eco-friendly and recyclable packaging options.

A growing popularity of aerosol packaging is also contributing to the growth of the aluminum packaging market. Additionally, a growing demand for recycled products, urbanization and mobility are growing the demand for packaged and frozen food. (Source: 6w research.com)

C O M PA N Y R E V I E W

Manaksia Limited operates largely in Nigeria through subsidiaries and is involved in the production of galvanized steel coils and sheets, color coated steel and aluminum coils and sheets, metal closures, paper packaging, and nonferrous alloys (for automotive applications). The Companys subsidiary in Nigeria is equipped to manufacture white and kraft paper. The Companys subsidiary in Ghana specializes in the manufacture and sale of galvanized, color coated steel.

F I N A N C I A L O V E R V I E W

Analysis of the profit and loss statement

Revenues: Revenues from operations stood at Rs.1,165.45 Crore in FY 2022-23. Other income of the Company reported a 28% growth and accounted for a 6% share of the Companys total income, reflecting the Companys reliance on core operations.

Expenses: Total expenses increased by 8% from Rs.946.07 Crore in FY 2021-22 to Rs.1,019.22 Crore due to increased scale of operations. Cost of raw material and stock increased by 3% from Rs.748.62 Crore in FY 2021-22 to Rs.772.04 Crore in FY 2022-23 owing to an increase in the operational scale. Employees expenses increased by 9% from Rs.46.21 Crore in FY 2021-22 to Rs.50.17 Crore in FY 2022-23.

Analysis of the Balance Sheet

Sources of funds

The capital employed by the Company increased by 5.87% from Rs.1,086.72 Crore as on March 31, 2022 to Rs.1,150.47 Crore as on March 31, 2023 owing to increased accruals.

The net worth of the Company increased by 5.87% from Rs.1,086.72 Crore as on March 31, 2022 to Rs.1,150.47 Crore as on March 31, 2023 owing to an increase in reserves and surpluses. The Companys equity share capital, comprising 6,55,34,050 equity shares of Rs.10 each, remained unchanged during the year under review. The Company has no Long-term debt as on March 31, 2023.

Finance costs of the Company increased by 58% from Rs.9.71 Crore in FY 2021-22 to Rs.15.39 Crore in FY 2022-23 following the increment of short-term borrowings. The Companys net debt / equity ratio stood at a comfortable 0.05x at the close of FY 2022-23 (0.10x at the close of FY 2021-22).

Applications of funds

Fixed assets (gross) of the Company decreased by 9% from Rs.132.89 Crore as on March 31, 2022 to Rs.120.87 Crore as on March 31, 2023 owing to depreciation during the year. Depreciation on tangible assets decreased by 16% from Rs.24.72 Crore in FY 2021-22 to Rs.20.75 Crore in FY 2022-23 .

Investments

Non-current investments of the Company increased from Rs.1.42 Crore as on March 31, 2022 to Rs.1.49 Crore as on March 31, 2023.

Working capital management

Current assets of the Company increased by 3.30% from Rs.1,196.89 Crore as on March 31, 2022 to Rs.1,236.38 Crore as on March 31, 2023. The Current and Quick Ratios of the Company stood at 5.88 and 5.55 respectively at the close of FY 2022-23, compared to 4.74 and 4.14 respectively at the close of FY 2021-22. Inventories including raw materials, work-in-progress and finished goods, among others, decreased from Rs.151.76 Crore as on March 31, 2022 to Rs.69.89 Crore as on March 31, 2023. The inventory cycle improved from 75 days of turnover equivalent in FY 2021-22 to 50 days of turnover equivalent in FY 2022-23. Growing business volumes resulted in an increase of 60.20% in trade receivables from Rs.86.20 Crore as on March 31, 2022 to Rs.142.90 Crore as on March 31, 2023. The Company contained its debtors turnover cycle within 36 days of turnover equivalent in FY 2022-23 compared to 22 days in FY 2021-22. Cash and bank balances of the Company stood at 196.12 Crore as on March 31, 2023. The EBIDTA margin of the Company stood at 18% in 2022-

23 while the net profit margin of the

Company stood at 900 basis points.

Key ratios

Regional growth (%)	2022-23	2021-22
EBITDA/turnover (%)	19	25
Debt-equity ratio	0.05	0.10
Return on net worth (%)	10	18
Book value per share (H)	175.55	165.82
Earnings per share (H)	16.30	27.93
Debtors turnover ratio	10.17	16.22
Inventory turnover (days)	7.34	5.28
Interest coverage ratio (x)	14.52	29.71
Current ratio (x)	5.88	4.74
Net profit margin (%)	9	16

R I S K M A N A G E M E N T

Currency risk: Manaksias manufacturing activities are mainly based in Africa. The stability and success of operations of the Company may be impacted by fluctuations in foreign currencies. Such changes can alter the cost structure and earning potential, as well as affect the Companys capacity to settle foreign currency debts. This instability can lead to economic insecurity and impede the growth prospects of the Company.

Mitigation: To reduce the impact of this risk, Manaksia has taken measures to hedge its short-term and long-term foreign exchange exposures.

Regulatory risk: The regulatory environment can impact Manaksias operations. Changes in regulations can affect the Companys business practices and operations, potentially leading to uncertainty and hindering growth.

Mitigation: Manaksia stays abreast of the evolving regulatory environment and ensures compliance with all relevant regulations, in order to facilitate growth for its business. By staying current with changing regulations, the Company can continue to operate efficiently and effectively.

Political risk: Any changes in the political landscape or policies in Nigeria can negatively affect Manaksias business performance. This can lead to instability and uncertainty, potentially hindering the growth and success of the Company.

Mitigation: As Manaksias products cater to the needs of a large audience, a shift in the political structure is likely to only have a minor impact on the operations of the Company. The products of the Company address the demands of the masses, which helps insulate it from the effects of political changes.

Finance risk: Inability to mobilize cost-effective funding for capital expenditures could impede Manaksias performance. Inability to finance these investments effectively could negatively impact the operations of the Company and growth prospects.

Mitigation: The Company reinforced its debt-equity ratio to 0.05 times in 2022-23 as against 0.10 times in 2021-22; interest cover stood at 14.52x as on March 31, 2023.

Cultural risk: Manaksias inability to effectively manage cultural, linguistic, and regional differences between its importers and customers could negatively impact business performance. Mitigation: Manaksia has established strong relationships with its importers and customers, transcending language and cultural barriers. Approximately 50% of the Companys importers and customers have been working with the

Company for over five years, which is a testament to the successful and long-lasting relationships built by the Company.

Quality risk: Damage or degradation of the quality of products during transportation could harm Manaksias business.

Mitigation: To mitigate the risk of product damage or loss of quality during transportation, Manaksia has implemented quality control measures. These checks ensure that the products are in good condition during transportation and reach the customers as expected.

Competition risk: There has been a surge of small players entering the caps and crowns market in Nigeria, serving local beverage brands.

Mitigation: With decades of experience in the industry and a deep understanding of the market and consumer preferences, Manaksia is well positioned to take advantage of economies of scale. This gives the Company a competitive edge over smaller firms, helping it to maintain its position in the market and grow its business.

I N T E R N A L C O N T R O L S Y S T E M S A N D T H E I R A D E Q U A C Y

The internal control and risk management systems of Manaksia are structured and implemented based on the principles outlined in the Companys corporate governance code. These systems are integrated into the overall organizational structure of the Company and involve multiple personnel who work together to carry out their respective responsibilities.

The Board of Directors provides guidance and oversees the actions of the Executive Directors and management, with support from monitoring committees.

H U M A N R E S O U R C E S

Manaksia Limited places significant value on its workforce, recognizing them as the source of its competitive advantage. The Companys employees possess a diverse range of experiences across various sectors and industries, as well as specialized technological knowledge and expertize. The Companys HR philosophy is rooted in a commitment to innovation and progress, challenging traditional norms to maintain its competitiveness. Manaksia consistently makes decisions that support both the professional and personal aspirations of its employees, promoting a healthy work-life balance and fostering a sense of pride and belonging within the Company.

C A U T I O N A R Y S T A T E M E N T

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward– looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.