NASCON Allied Industries Plc tackled the problem of rapidly growing cost of raw materials in its 2020 operations and succeeded in stemming the tide of two years of profit drops. Management slashed input cost by 35 per cent quarter-on-quarter in the third quarter ended September 2020.
The cost-saving enabled the salt and food seasoning producing company to nearly double gross profit quarter-on-quarter against a decline in sales revenue over the same period.
Distribution cost, however, grew massively in the third quarter, which claimed a good part of the savings from input cost. The cost-saving still permitted an increase of over 28 per cent in operating profit for the quarter.
The company also recorded a massive increase in other operating gains during the quarter and finance expenses equally declined during the period. In all, it was an impressive outing for the company in the third quarter with an after-tax profit of N801 million to show for the quarter.
The profit for the quarter accounts for 35 per cent of the closing after-tax profit of N2.2 billion for Nascon Allied for the nine months of trading in 2020. This has raised hopes for a rebound for the company in the year after its profit dropped from N5.3 billion in 2017 to N4.4 billion in 2018 and further to N1.8 billion in 2019 – the lowest profit figure in five years.
The profit drops were driven by input cost, which grew well ahead of sales revenue in 2018 and still rose while sales declined in 2019. A change of trend happened in 2020 with a drop in input cost against an increase in turnover at the end of the third quarter.
Cost of sales went down by close to 19 per cent year-on-year to N12.9 billion at the end of the third quarter while sales revenue grew by 4 per cent to nearly N22 billion. Input cost per naira of sales revenue declined from 78 kobo at the end of 2019 to 59 kobo at the end of the third quarter in 2020.
The development has strengthened Nascon’s profit capacity with gross profit margin rising from 21 per cent in 2019 to 41 per cent at the end of September 2020. The improvement in gross profit was boosted further by an apparent windfall in other operating gains.
Other operating gains soared from only N2.3 million in the same period in 2019 to over N579 million at the end of September 2020. The gains enabled the company to dilute partially a massive increase in distribution expenses.
Distribution expenses posed a big challenge to the company last year, advancing by 641 per cent year-on-year to N4.2 billion. The massive increase was spurred by external haulage and deprecation and impairment of trucks.
The increase in distribution expenses claimed a significant part of the revenue gains and cost savings during the review period. Nevertheless, operating profit still increased by 18.6 per cent year-on-year to N3.6 billion at the end of the third quarter.
NASCON Allied Industries closed the third quarter operations in 2020 hopeful of some improvement in sales revenue for the second year. The company sells edible, refined and bulk industrial salt as well as seasoning and vegetable oil. It also renders freight services to clients for the delivery of products.
Despite that revenue improvement is expected to be moderate, further pruning of input cost in the final quarter is expected to enhance the company’s profit capacity in 2020. Net profit margin picked up from 6.7 per cent at the end of the 2019 operations to 10 per cent at the end of September last year.
NASCON Allied closed the third quarter operations with an after-tax profit of N2.3 billion, which is an increase of 13 per cent year-on-year. This is a turnaround from a drop of 47 per cent in after-tax profit in the same period in 2019.
The company earned N1.15 per share at the end of the third quarter of 2020, an increase from N1.02 per share in the same period in 2019. It earned 70 kobo per share for the 2019 full year.
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