Jos Steel Rolling Company

JOS STEEL ROLLING COMPANY LTD,
AZI NYAKO INDUSTRIAL AREA JOS
PLATEAU STATE

BACKGROUND

The Company is one of the three inland steel rolling mills established solely by the Federal Government of Nigeria as part of the efforts to enhance the development of the steel sub-sector. It was constructed by Mannessman Demag and electrified by AEG-Telefunken. It was incorporated on 23^rd January 1981 and commissioned in 1983.The Mill has an installed capacity of 210,000 metric tonnes per annum of finished steel products.

The Company was established with a mission to jointly transform the economy of Nigeria. The steel sector as a backbone of any industrial development, the Company has made positive contributions to the economy through key areas such as:

• Provision of employment opportunities for Nigerians, which has also served as an avenue for technological transfer.
• Promotion of industrialization through the setting up of down-stream industries that depend on it for raw materials. Such companies include: High Steel and Allied Products Ltd, Jos, Kuda Nails Ltd, Bauchi, Leman Industries Ltd, Kaduna and Oscar Steel Ltd, Kabba, among others.
• Increase in commercial activities through the haulage of materials and finished products and distribution of finished products.
• Conservation of foreign exchange which otherwise could have been spent through the importation of rolled steel products.
• Provision of input for infrastructural development such as the construction of bridges, buildings etc

PRODUCTS

The products of the Company are:

• Bars: Plain mild steel bars or deformed high tensile bars for structural or concrete reinforcement respectively. Product size ranges from 10mm to 40mm
• Coils: Water and Air-induced cooled wire coils either plain or deformed with size ranges of 6mm to 12mm

The Company, by strategic design, and in direct relationship with other Federal Government Steel companies, markets its products in the North – Eastern parts of the country. However, due to high demand for steel products from the eastern part of the country, the company also supplies its products to that axis of the country.

EQUITY STRUCTURE:

100%FG OWNERSHIP.  Jos Steel Rolling Company was incorporated by a decree. It was under National Steel Council Decree (N0 60) 1979 now revised as National Steel Council Act Cap.281 Laws of the Federation of Nigeria, 1990. The Federal Government wholly owns the company.

PLANNED MODE OF privatisation:Liquidation

The Market environment:

The companies’ products are sold through registered distributors, government contractors and down stream industries e.g. nail manufacturers. The market has growth potentials especially in the middle belt as the Federal Capital City of Abuja is still under construction. There is no local competition yet since the private steel companies are small comparatively and are incapable of meeting local demand. The competition however is strictly on the importation of billets and finished steel products.

The company is constrained by its location in having a wider distribution channel. The demand for the company’s products is more in the Eastern part of Nigeria. Cost of transportation is thus a constraint to the company in the importation of machinery, spare parts and in its effort to reach more costumers.

ENTERPRISE DATA

The Business Opportunity:

Product Type:

1. Bars: plain mild steel bars of deformed high tensile bars for structural or concrete reinforcement
2. Coils: water and air – induced cooled wire coils either plain or deformed with size ranges of 6mm too 12 mm
3. Scraps: These are cut – billets cropped ends, twisted profiles which are incidentals from production

The core users of the company’s products are construction firms and civil engineering contractors. The company operates a well-equipped modern laboratory for performing the tasks of quality control and analysis. Both the raw materials and finished products go through the quality control process.

Non-destructive Testing (NDT) involves physical and visual inspection for the purpose of detecting internal and external flaws, piping, cast-interruption, cracks, ‘over-lengths’ and other defects which are judged to hamper production smoothness. Magnaflux/Ultrasound Tests are designed to detect micro and macro internal cracks of finished products. Tensile, compression, impact bending and hardness tests and rib control as mechanical and physical methods quality control of finished products are carried out to conform to international standards e.g. DIN 17100, DIN 488, NIS etc Photometric, volumetric and gravimetric methods of chemical analysis to ascertain the chemical composition of incoming material and finished products while Metallographic examinations are carried out to ascertain structural conformity to specifications.

The status of the facilities in the Company

Over 80% of the Company’s mechanical and electrical facilities as well as the auxiliary Installations and plants for production are in functional working conditions.

The Performance of the Enterprise

The performance of the Enterprise has been severely affected by several infrastructural and operational problems similar to those of other Public enterprises, including:

•     Lack of linkage of the enterprise power supply to the national grid of NEPA
•     Acute shortage of working capital.

However, as a prime industrial enterprise in the city of Jos which, like some other cities in the North, has otherwise suffered commercial dislocation from the sudden development of the new Federal Capital Territory of Abuja in the last decade, its workforce has been well trained to maintain the machinery and equipment in excellent condition for the successful bidder who is expected to breathe life into this otherwise dormant industrial complex.

Hence, its performance can be assessed both from the scope of utilization of its installed capacity and the financial results thus generated over the years as follows:

History of actual capacity utilization:

Year	Input	Capacity Utilization (%)	Output (tonnes)
1983	39,091.00	18.6	37,136.16
1984	26,010.00	12.4	24,709.50
1985	70,301.00	33.5	66,785.77
1986	27,630.6	13.2	26,246.06
1987	21,485.2	11.9	20,410.93
1988	18,650.21	10.4	17,717.7
1989	21,076.57	11.7	19,221.16
1990	22,771.97	12.7	20,386.60
1991	13,063.97	7.3	11,766.03
1992	11,294.12	6.3	10,089.89
1993	6,497.43	3.6	5,815.30
1994	10,733.80	6.0	9,625.43
1995	13,109.42	7.3	11,967.67
1996	3,213.66	1.8	2,894.31
1997	Nil	0	0
1998	1,540.71	0.86	1,285.44
1999	Nil	0	0
2000	Nil	0	0
2001	2,552	1.4	1,568.89
2002	2,391	1.3	1,498.04

 Financial Summary: 1998-2002

Year	2002 N 000	2001 N 000	2000 N 000	1999 N 000	1998 N 000
Sales	25,667	12,000	–	27,532	6,081
Other Income	1,812	1,820	5,912	2,722	1,372
Cost of sale	(177,509)	(132,126)	(46,034)	(66,082)	(47,039)
Loss Posted	(1,507,644)	(1,126,538)	(859,413)	(672,903)	(520,145)

Accordingly, the financial results are a good lens for the operational handicaps the Enterprise’s management has been experiencing i.e. from the ‘half-filled cup’ perspective: if the Enterprise achieved operational losses of N1.1 billion and N1.5 billion respectively in 2001 and 2002 respectively from utilizing only 1.4% and 1.3% of its installed capacity, what profit prospects await the right investor who can increase the company’s capacity utilization to 90% or even 100%.

PROSPECTS

The prospects for the Company’s fast turn-around depends on how fast the enterprise’s operational challenges are contained to jump-start it’s effective utilization of its production facilities on a large scale to increase its operational efficiency through the absorption of its largely fixed costs in addition to its modest variable costs. The following forecast is premised on the gradual increase of its capacity utilization level from 50% in 2005, and 90% in each of 2006, 2007 and 2008 respectively.

PROFIT FORECAST: 2004-2008

Years	2004 N 000	2005  N‘000	2006 N ‘000	2007  N‘000	2008 N ‘000
Turn Over	3,591,000	6,583,500	13,035,330	14,338,863	15,772,746
Less cost of sales	4,314,338	6,720,558	11,625,897	12,323,155	1,067,467
Gross profit/(loss)	(723,338)	(137,058)	1,409,433	2,015,708	2,705,282
Overheads	608,792	917,926	1,049,974	886,892	745,670
Net profit/ (loss)	(1,332,130)	(1,054,985)	359,459	1,128,816	1,959,612
Taxation	12,841	24,063	107,838	338,645	587,884
Profit after tax	(1,344,971)	(1,079,048)	251,621	790,171	1,371,729