Cutix Plc, the cable and wire manufacturers, slowed down the cost of sales in the second quarter, which powered recovery from a 30 per cent profit drop in the first quarter to about a 4 per cent improvement in profit to N369 million at the half-year.
The company’s half-year interim financial report for the period ended October 2022 shows an outstanding improvement from an after-tax profit of N96 million in the first quarter to N279 million in the second quarter.
Compared to the 30 percent profit drop in the first quarter, the company recorded a leap of 27.5 percent in after-tax profit quarter-on-quarter in the second quarter. The strong growth in the second quarter has overwritten the drop in the first quarter to produce a moderate increase in the bottom line at the half year.
A stronger second quarter that management had expected has therefore been realised with targets even exceeded. Sales revenue is N500 million above the N2 billion projected for the second quarter and after-tax profit is N87 million above the N192 million target for the same period.
The company’s challenge in the current financial year ending April 2023 remains rising input costs, which consumed revenue and caused a profit drop in the first quarter. There was a slowdown in the cost of sales in the second quarter but the challenge of the cost growing well ahead of sales revenue has remained.
Input cost grew by 71 percent to N1.8 billion in the second quarter compared to a 53 percent improvement in sales revenue to N2.5 billion for the quarter. The continuing encroachment of the cost of sales eroded margins and permitted an improvement of about 19 percent in gross profit to N662 million for the second quarter.
Input cost still claimed an increased share of sales revenue at 73.6 percent in the second quarter against less than 66 percent in the same quarter in 2021 though it declined from 79 percent in the first quarter.
The company’s management supported the slowdown in the cost of sales in the second quarter with a moderated increase in administrative costs and a sharp cut in finance expenses – which worked to boost profit for the quarter.
Half year position of the company at the end of October 2022 shows a turnover of N4.4 billion, which is an increase of 26.6 percent year-on-year. The second quarter accounted for 56.7 percent of the earnings.
Cost of sales maintained its more rapid growth than sales at an increase of 35.6 percent year-on-year to N3.3 billion at the half year. The increase in the cost of sales claimed a good part of the revenue gain and permitted only a moderate increase of 4.8 percent in gross profit to a little over N1 billion.
Gross profit margin went down from 29.3 percent to 24.3 percent over the review period.
Management kept all the other costs in check from distribution costs to tax expenses, including a drop in cost of finance from N121.4 million to N92.6 million over the review period. All the costs moderated relative to revenue, which afforded cost savings that enabled the improvement in gross profit to get down to the bottom line.
Operating profit is up from a 22.6 per cent drop in the first quarter to a marginal improvement of 1.8 percent to N605 million at the half year. Also, from a drop of 30 per cent in pre-tax profit at the end of the first quarter, the figure is up by 4.5 percent to almost N547 million at the half year.
After-tax profit has also revived from a 30 per cent plunge to an improvement of 3.7 per cent to N369 million for Cutix at the half year.
Profit margin remains down from 10.2 per cent in the same period in 2021 to 8.3 per cent at the half year, improving however from 5 per cent in the first quarter.
The company closed the half-year operations with earnings per share of 10 kobo, down from 20 kobo per share in the same period in 2021. The drop reflects the doubling of the volume of shares from the scrip issue.
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