TUE 27 JULY, 2021-theGBJournal-NASCON Allied Industries Plc published Q2-21 unaudited financials after market close Monday. The result showed that the company’s EPS declined by 15.5% y/y to NGN0.27 in Q2-21 (Q2-20: NGN0.32). The EPS decline was underpinned by a sturdy growth in cost of sales (+31.4% y/y) amidst higher operating expenses (+21.1% y/y).
Revenue grew by 20.7% y/y to NGN9.23 billion and 20.9% y/y to NGN17.57 billion in Q2-21 and H1-21, respectively. The growth in the company’s revenue was mainly supported by higher salt volumes, following the expansion of its refined salt plant capacity from 72kmt to 250kmt.
Across NASCON’s regional footprint, revenue from the West (33.6% of total revenue) recorded its highest quarterly outturn in Q2-21, as it surged by 58.5% y/y to NGN3.10 billion. We highlight that this reflects management’s strategy to penetrate other regions asides from the North (60.4% of total revenue). Similarly, revenue from the East (6.0% of total revenue) recorded a growth of 20.6% in the period.
Gross margin dipped by 117bps to 38.2% (Q2-20: 43.2%), as the cost of sales (+31.4% y/y) grew faster than the topline (+20.7% y/y). The increase in the cost of sales was influenced by the growing cost of raw materials consumed in the period, which increased by 37.3% y/y to NGN4.81 billion (Q2-20: NGN3.50 billion) – the highest consumption in any single quarter.
EBITDA and EBIT margins declined by 338bps and 374bps to 25.0% and 11.6% (Q2-20: 37.8% and 18.5%) following the gross margin decline and a 21.1% y/y expansion in operating expenses. The higher OPEX number was influenced by an expansion in both the general & admin (+34.2% y/y) and selling & distribution (+16.3% y/y) expense lines.
Further down, the company recorded a net finance income of NGN1.00 million in Q2-21 (vs net finance cost of NGN60.00 million in Q2-20), underpinned by an 82.2% y/y contraction in finance cost to NGN12.00 billion (Q2-20: NGN71.00 million), following the full repayment of the NGN3.30 billion loan obtained in 2019. Thus, the company’s total debt as of H1-21 declined by 38.8% y/y to NGN3.70 billion (H1-20: NGN6.04 billion).
Overall, profit before tax fell sharply by 21.1% y/y to NGN1.07 billion (Q2-20: NGN1.36 billion). Following a tax expense of NGN494.86 million, profit after tax printed NGN727.33 million (Q2-20: NGN860.24 million).
NASCON’s Q2-21 performance is reflective of the high cost of operation in the business environment, given the heightened inflationary pressure and currency depreciation during the period.
Similarly, we highlight that management’s adoption of a low-price strategy to drive volume growth has limited revenue growth despite refined salt plant expansion. Going forward, we expect the ballooning costs to continue to weigh on profitability in the near time. Our estimates are under review.-With Cordros Research.
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