10 Year After, Investors Await Daar Communications First Dividend Payment

By Kingsley Ighomwenghian

When Daar Communications Plc opened its initial public offering (IPO) between February 25 and on March 31, 2008, expectedly, there was excitement in the air, especially given that Nigeria’s first private broadcast conglomerate was offering the public part ownership of a potential honey pot.
The icing on the cake, many reasoned, was that the owners of RayPower Fm and African Independent Television (AIT), which broke the monopoly of state-owned Nigerian Television Authority and Radio Nigeria would afterwards list its shares for trading on the Nigerian Stock Exchange (NSE) as an entry and exit window.
Raypower and AIT had attracted the best of Nigeria’s broadcasters from the various government owned organisations across the country, following which both new stations became instant household brands and toasts of advertisers.
So, when the Initial Public Offering opened, it was no surprise that investors seized the opportunity. The unique selling proposition of the company was its upgrade to international standards with Higher Definition (HD) production, PayTV, as well as the sole broadcast rights over the 2009 Under-17 World Cup for which Nigeria initially got the nod to host. Many had calculated that the broadcast rights would have meant Daar Communications literarily breaking the bank in terms of revenue generation, profit and Returns-On-Investment (ROI) to shareholders.

A Juicy Offer

The company offered 1,829,478,000 ordinary shares for subscription, which was expected to yield a net proceed of N8.752bn, and another 960,000,000 units for sale by Daar Investment & Holding Company Limited (the parent company), all at N5.00 per share, with BGL Securities Ltd, Skye Bank and Fidelity as lead issuing Houses.
In an offer for sale, the proceeds goes to the offeror, in this case- the parent company, while proceeds of an offer for subscription belongs to the company- the issuer.
As such, of the net proceeds of the offer for subscription, the digital multi-channel platform to be completed over a six-month period, was to receive the lion’s share of N4bn or 45.7%; followed by N1.134bn or 12.97% for immediate procurement of programme content; N762.905m or 8.8% for working capital; while development of mobile TV, was to get N700m or 7.9%.
Also, N520m or 5.94% of the net proceeds was for completion of 11 new stations in Adamawa, Benue, Borno, Cross Rivers, Katsina, Kano, Ogun, Osun, Oyo, Sokoto and Zamfara also from the proceeds and construction of a film village over a four-month period; followed by N607.944m or 6.95% for upgrade of existing facilities; and N566.974m or 6.48% for programmes and digital satellite system; while the remaining N459.946m or 5.25% was for building and equipping of new studios across the country, the UK, US and the Carribean.

Juicy Projections

According to the offer prospectus, Daar Communications’ financials were supposed to have turned green in the 2005 full year profit after tax stood at N146.798m, from prior year’s N30.268m loss; and then N168.689m in 2006. Thereafter, it galloped to N223.782m in the 2007 half year ended June 30, from a turnover of N1.071bn.
In its three-year forecast (2008-2010), Daar Communications projected profit before tax of N3.217bn from total turnover of N10.294bn in 2008; after which it would grow to N4.258bn from N13.686bn; and then N5.772bn profit from revenue of N17.668bn in the 2010 full year. For the period, directors expected to distribute N2.496bn dividend or N0.31 per share in 2008; N3.072bn or N0.38 each the following year; and N4.032bn or N0.50 each in 2010.
This forecast, if achieved, many prospective investors must have calculated, would also have significantly boosted share price on the NSE, resulting in huge capital appreciation opportunities for those wishing to take profit.
It was therefore not unexpected that investors fell for the offer, after crunching the numbers and probably salivating, based on the robust outlook.
What most did not however take into account was the risk of the various matrixes going sour; including the withdrawal of Nigeria’s hosting right for the Under 17 (U-17) FIFA World Cup for which the company had ploughed short-term borrowings into the otherwise long-term broadcast equipment and acquisition of the rights.

And Suddenly…

The company’s first headache was therefore the withdrawal of Nigeria’s hosting rights for the U-17 World Cup, following the expiration of a three-week grace period for Nigeria to fully meet all hosting requirements between October 24 and November 15, 2009. This was even after an extension of the deadline for final inspection of tournament venues from July 5 to 26th and 27th owing to a personal guarantee to FIFA by then President Umaru Yar’Adua of Nigeria’s preparedness to host the tournament.
As if this was not enough trouble, Daar Communications’ multimillion Naira PayTV investment launched in October 2008 with 50 local and international channels went off air for some weeks over alleged debts to the channel owners.
It is not known whether the Securities & Exchange Commission (SEC), the apex capital market regulator, made efforts to ascertain that the offer proceeds were utilized for the various projects for which they were meant at the time.
While a message to the WhatsApp number of Tony Akiotu, Managing Director/Chief Executive of Daar Communications Plc on at 9.53pm on October 13, 2017, seeking to clarifications on certain issues around poor corporate governance and the company’s inability to post record profit over the years, were neither acknowledged nor responded to, although read. Even a November 10 reminder had not been answered by 11pm on Thursday, November 16, 2017, just as neither the chairman nor his predecessor-father could be reached, despite various attempts by this newspaper.

Blinking Hope

Ten years after the offer was conclude however, Daar Communications’ forecasts have remained just that: Mere projections. It may never be known whether truly the directors sold a dummy to the market, or unforeseen circumstances and uncertainties in the economy moved against the company, or whether it is a combination of both.
According to the financials for the full-year ended December 31, 2016, revenue dropped by N3.356bn or 47.35% from N7.089bn; while after tax loss increased from N1.51bn to N2.139bn, representing a 41.62% rise. This translated to a loss per share of 27 kobo, up from the previous 19 kobo.
Over the years too, shareholders have watched helplessly as Daar Communications share price cascaded from N5 at IPO price to 50 kobo per today, with the possibility of touching a new floor soon as a result of the new NSE rule that allows share prices to fall to a new floor of one kobo
No one needs look too far reasons why Daar’s share price has remains on the floor. The company’s nine-month result presented last month offered no hope even of a brighter tomorrow, with revenue down by 7.87% from N2.765bn in September 2016 to N2.547bn. While the revenue margins continue to shrink, cost of sales jumped to N3.31bn from N3.1bn, resulting in a gross loss of N762.476m, more than double the previous N335.05m. Other income slowed down from N1.02bn to N642m.
Net loss for the period increased to N2.021bn from N1.659bn, representing a N361.805m or 21.8%, representing loss per share of 25 kobo, from 21 kobo.

Peer Comparison

For comparative analyses, investdata.com.ng has produced below a table of companies (using company data) that were listed on the NSE in 2008 just like Daar Communications and how much better an investor would have fared put their money in those alternative vehicles. Notice that the worst of the trio is Omatek Ventures, which paid a dividend of five kobo in 2009, (a year after listing 1.5bn units at N4.90 each) before going into comatose. Consolidated Hallmark Insurance listed six billion units at N1.85 each; while 1.25bn shares of Dangote Flour Mills were listed on February 4, 2008 at N15 each.



Governance Gaps

But then, many links what is going on at Daar Communications to an obvious none adherence to good corporate governance practices which the Securities & Exchange Commission (SEC) has at various times codified since the days following the collapse of global corporates like Enron, WordCom and Arthur Anderson, among others.
Enforcement of rules however remains the biggest problem in Nigeria today.
For instance, under “Family and Interlocking Directorship,” Section 7.1 of the SEC governance code says: “Not more than two members of the same family shall sit on the board of a public company at the same time.”
The SEC Nigeria seems to be ignoring the clear breach of this rule. Besides the annual reports, Daar Communication on its website lists four Dokpesis as directors namely: Chief Raymond Paul Dokpesi Jnr, Chairman; High Chief Raymond Aleogho Anthony Dokpesi, (Chairman Emeritus/Founder); Dr. (Mrs) Oluwatosin Dokpesi; and Barr. Mary Dokpesi.
The SEC may need to explain this regulatory complacence.

Caveat Emptor

Reacting, Mazi Okechukwu Unegbu, a lawyer, chartered stockbroker and former bank Managing Director and chief executive of Maxifund Investment & Securities Ltd, told Investdata News in a telephone interview that the governance code is not a law in itself, but an advice on how a company should be properly governed.
Investdata.com.ng however notes that one of the allegations against Oando Plc by the SEC is the breach of the same code of Good Corporate Governance.
On the forecast given by Daar Communications in its 2008 IPO, Unegbu, also a former President and chairman, Council of the Chartered Institute of Bankers of Nigeria (CIBN), explained that it was a forecast based on the conditions precedent at the time, which should usually be followed by the “All things being equal” caveat.
For those who lost money in the deal, his advice: “As an investor you have taken a risk and you will live with it.”
Agreeing with him, Adebayo Adeleke, a shareholder activist and former General Secretary of the Independent Shareholders Association of Nigeria (ISAN) told investdata.com.ng also on telephone that all that shareholders can do when dissatisfied with the state of their company, “is to vote out the board or sell their shares.”
Unfortunately, Adeleke was quick to add, there is little shareholders can do in this case because there is a dominant shareholder in High Chief Dokpesi, “who cannot be outvoted.”
According to the company’s annual report, High Chief Dokpesi owns 320m units or 4% stake directly and another 4,890,522,000 or 61.13% (through Daar Investment & Holding Company), leaving the general public with 34.87%.
While the dominant shareholder may also not be receiving dividend because the company is in loss position, he continued, Dokpesi is still in charge of the company’s management, as a result of which he could be earning some form of income.
The SEC and NSE, he believes, may not be able to call the board and management to account either, unless they have reason to believe there is a serious infraction, or a whistleblower calls their attention to one.
Like Unegbu also, he say: “In the capital market, the golden rule of equity investment is caveat emptor.”

I Disagree

Disagreeing with both Unegbu and Adeleke however, Nona Awoh, another shareholder activist, says it is not true that there is nothing minority shareholders can do about the situation.
The questions that require answers he told Investdata in an interview are: “What efforts have the shareholders made to correct the situation? What role did the media play before now? What role should they have played?”
For him, “it is not also true that corporate governance is not enforceable. If I stole company money, do you mean I won’t I go to jail?”

Going Concern

Indeed, SIAO (Chartered Accountants), the company’s external auditors, in its report, expressed concerns over the ability of Daar to continue as a going concern.
It noted: “The current financial state of the company raises the issue of the ability of the company to continue in business in the nearest future.”
This conclusion, it said, was reached based on indicators such as the N2.1bn loss in 2016, from N1.5bn a year earlier; the fact that current liabilities for 2016 exceeded its current assets by N3.5bn; as well as the N1.5bn accrued statutory charges: pension, Payee, VAT, etc.

But Why?

Meanwhile, shareholders have not earned returns on their investment for the umpteenth time, but according to the 2016 financial report, the company’s chairman earned N18m as fees, N10.936m or 154.81% more than previous year’s N7.064m. Executive directors got N70.657m for the period, a drop from the previous N97.202m, with the highest paid director taking home N8.428m, same as prior year.
Under staff costs, in the note to the 2016 account, the group put staff salaries and allowances at N1.246bn, up from N1.153bn, at a time Investdata learnt that the workers are owed salaries in arrears, a situation that requires explaining.
The company has also in the past had to grapple with allegations of fraud arising from weak internal controls and organisational structure.

Timely Warning

The board and management of Daar Communications, Awoh believes, must do things differently to salvage the company, “because if they continue in their old ways, in two years, there may not be that company in existence any more.
“I may not be able to tell you the company’s problems off hand, but the truth is: In our environment, if you want to play politics and do business at the same time, you may run into a problem,” Awoh stressed further.
The only options opened to the company today are recapitalization by the owners, or new investors, in which case the core investor would divest its holding and give up some control of management. Are the owners ready for the hard options? Time, like Awoh believes, would tell.


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