Forex Losses Drag Nascon Allied’s Profit To N1.2bn In Q1

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Nascon Allied Industries Plc has opened the 2024 financial year with after-tax profit down by a quarter to N1.2 billion in the first quarter, as foreign exchange losses – which it escaped last year, have caught up with it.

Net foreign exchange losses over N3 billion hit the salt manufacturing company in the first quarter, the first time it experienced devastating foreign exchange losses that undermined company results across sectors and industries in 2023.

The company closed last year’s operations with a defiant net foreign exchange gain of N267.5 million, which set the tone for a favourable cost-income combination to power a two-and-a-half-time jump in after-tax profit to N13.7 billion this year.

The company’s interim financial report for the first quarter ended March 2024 shows that the favourable cost-income pattern in operations is being sustained. Still, the foreign exchange loss is the spanner in the works so far.

Sales revenue is again growing well ahead of production costs with a big boost to the gross margin.

At N23.6 billion, turnover is up by roughly 40 per cent year-on-year, slightly ahead of the 37.5 per cent increase to N80.8 billion at the end of last year.

At the same time, management is maintaining cost savings from production costs – which keeps lagging the growth in sales.

At N12.5 billion, the cost of sales grew by 25 per cent over the same period compared to the 40 per cent rise in turnover.

This underscores the company’s low-cost advantage – the average cost of producing the naira of sales is down from almost 59 kobo in the same quarter last year to less than 53 kobo in the first quarter of the 2024 financial year.

Maintaining last year’s pattern, the cost saving enabled a major increase of 60.5 per cent in gross profit, which amounted to over N11 billion at the end of March 2024.

That is the end of the good side of the company’s operating story in the first quarter, followed by the impact of the foreign exchange losses that sent the rest of the operating results on a downside slope.

Two other cost increases reinforced the adverse impact of the foreign exchange losses, resulting in a drop in operating profit.

Distribution cost is one of the two revenue-consuming lines, which grew by 44 per cent to almost N5 billion. The other is administrative expenses which rose by 41 per cent to close at N1.4 billion for the first quarter.

The cost increases consumed more than all the gains in gross profit and slashed operating profit by 30.3 per cent to close at less than N1.8 billion.

Some strength was added from finance income, which leapt about three times to nearly N419 million during the quarter. The increase overturned net finance costs of over N117 million to a net finance income of roughly N61 million over the review period.

Strong growth in finance income is happening for the company for the second year after a rise of 135 per cent to N927 million at the end of 2023.

Nascon Allied Industries’ borrowings and leases are down from N9.8 billion at the end of 2023 to N8.2 billion at the end of the first quarter of 2024.

The company ended the first quarter with a pre-tax profit of N1.8 billion, a drop from N2.4 billion in 2023.

Also, after-tax profit went down from N1.6 billion to N1.2 billion over the period after a top record growth of 151 per cent to N13.7 billion at the end of last year.

Net profit margin is down from 9.7 per cent in the same quarter last year to 5.2 per cent at the end of March 2024 – a big slash from the closing net profit margin of 17 per cent in 2023.

Improved sales and profit margin gains produced the company’s impressive performance in 2023. While sales stayed up in the first quarter, the loss of profit margin accounted for the profit drop for the period.

The company earned N1.86 per share at the end of the first quarter, dropping from N2.48 per share in the same quarter in the preceding financial year.

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