Nascon Allied Industries Plc moved against the general downward trend in corporate earnings results in the second quarter and generated an after tax profit of N1.1 billion in the quarter. This figure is three times the N386 million profit the company reported for the first quarter, lifting half year profit to N1.5 billion.
The second quarter profit represents a marked growth of 58 per cent quarter-on-quarter, which is a rebound from a profit drop of 46.6 per cent in the first quarter. This has rekindled the company’s full year profit outlook from possible drop to a reasonable improvement.
The half year interim report of the salt manufacturing firm shows that a strong gain in sales revenue and a slowdown in costs underlie the upturn in profit in the second quarter. Turnover grew from N10.8 billion in the first quarter to N14.4 billion in the second and quarterly growth accelerated from 4.2 per cent to 55.7 per cent across the quarters.
Reinforcing the gain in sales revenue is a slowdown in cost of sales in the second quarter from 61.3 per cent in the first quarter to 54.4 per cent in the second to N8.8 billion for the quarter.
With the stronger growth in sales also in the second quarter, cost of sales claimed a reduced share of sales revenue at 61 per cent compared to 74 per cent in the first quarter.
The favourable developments on sales and cost of it yielded a robust increase of 58 per cent in gross profit quarter-on-quarter to N5.6 billion in the second quarter. This is a turnaround from a drop of about 44 per cent in gross profit to N2.8 billion in the first quarter.
The second quarter accounts for 66.4 per cent of the company’s half year gross profit figure of N8.4 billion and also delivered 75 per cent of the after tax profit of N1.5 billion for the six months of trading.
The challenge the company faced in the second quarter is distribution cost that rose by over 91 per cent quarter-on-quarter to N3 billion. This is a major upsurge compared to an increase of 14.6 percent in distribution expenses in the first quarter.
The gain in sales revenue and the slowdown in input cost helped the company to absorb the increase in distribution cost and stretch out profit margin. Profit margin improved from 3.7 per cent in the first quarter to 8 per cent in the second.
The gains in sales revenue and profit margin therefore accounted for the elevated profit position that Nascon Allied realised in the second quarter.
The company’s half year earnings reading shows sales revenue of over N25 billion, which is a year-on-year growth of 43 per cent. It closed full year operations with a turnover of N33.3 billion in 2021.
Despite the moderation in cost of sales in the second quarter, the half year figure of N16.76 billion still represents a stronger growth of 57.7 per cent than sales. Gross profit improved by 20 per cent to N8.4 billion over the period.
Another favourable development is a major change from other operating loss of N165 million in the same period last year to a gain of N411 million this year. This helped to moderate the impact of a major increase of 52 per cent in distribution cost to almost N5 billion at half year.
Yet the high growth in distribution cost weakened operating profit performance, which grew by less than 11 per cent to N2.3 billion at the end of June 2022.
Rising finance cost added to the pressure, advancing from N25 million to N222 million over the review period. The company’s borrowings are only slightly up from N3.1 billion at the end of 2021 to N3.4 billion at half year.
Nascon Allied closed the half year operations with an after tax profit of N1.53 billion, an improvement of 5.5 per cent year-on-year.
Earnings per share amounted to 58 kobo for the half year, up from 54 kobo per share for the 2021 half year period.
The ability of the company’s management to keep sales accelerating and cost of sales moderating will be the key points to watch on the company in the second half. Also, whether distribution cost would keep its incursion on sales revenue or slow down in the second half will also impact the bottom line.
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