Notore: Weak Revenue, Cost of Sales Exacerbates Losses

Kayode Tokede
Notore Chemical Industries in its unaudited fourth quarter (Q4) result and accounts for period ended September 30, 2021 reported decline in revenue and increase in the cost of sales to position its profits to losses.

Also, most financial parameters for the period showed that the agro-allied & chemicals recorded poor performance in the year under review and it is an indication that the company is not going to pay dividend to shareholders soon.

The listed company on the main board of the Nigerian Exchange Limited (NGX), known for producing fertilizer for sale within Nigeria and for export to West Africa, South Africa, and Europe, continued to record recurring losses since the last economic downturn in 2016.

The top line performance showed that cost of sales outpaced revenue from contracts with customers, two major factors contributing to the company’s woes.

Revenue from contracts with customers for Q4 2021 dropped by 7.1 per cent to N17.47billion from N18.8billion reported in Q4 2020, while cost of sales gained 0.96 per cent to close Q4 2021 at N21.89billion from N21.68billion reported in Q4 2020.

The breakdown of revenue revealed that Nitrogen Phosphorus & Potassium (NPK) sales moved to N3.35billion in Q4 2021 from N249.6million reported in Q4 2020, while sales of Urea and other chemicals dropped by 31.1per cent to N12.57billion from N18.25billion in Q4 2020.
Ammonia sales closed Q4 2021 at N359.2million from N298.6million in 2020 and infrastructure services, for the period added N1.19billion to revenue.

Analysis by geographical location showed that revenue generated within Nigeria rose by nearly 20 per cent to N17.03billion in Q4 2021 from N14.21billion reported in Q4 2020, while revenue Outside Nigeria dropped significantly by 86per cent to N439.2 million in Q4 2021 from N3.22billion in Q4 2021
The company maintained that the weak revenue is due to Turnaround Maintenance Programme (TAM) on the fertilizer plant that impacted on its revenue in the year under review.

From the group’s profit & loss figures, growth in Haulage cost and Infrastructure services cost drive per cent increase in cost of sales that closed Q4 2021 at N21.89billion from N21.68billion reported in Q4 2020.
Consequently, the company reported gross loss of N4.42 billion in Q4 2021 from N2.88billion in Q4 2020.
Notore Chemical industries’s total operating expense, however, dropped by six per cent to N5.96billion in Q4 2021 from N6.31billion reported in Q4 2020.

From the profit & loss figures, administrative expenses dropped by 4.5 per cent to N5.74billion in Q4 2021 from N6.02billion in Q4 2020 while selling and distribution expenses also dropped by 25.5 per cent to N218.79million from N293.7million.

Other income dropped by 63 per cent to N6.89billion from N18.68billion in Q4 2020.
The weak performances in revenue, among others weaken operating profit that gained N9.49billion in Q4 2020 from operating loss of N3.49billion in Q4 2021.

The company in the period reported N388million finance income as against N1.07billion reported in Q4 2020, while finance cost dropped by 29 per cent to N16.7billion in Q4 2021 from N23.41billion reported in Q4 2020.
In the last Q4 2021 results, the company paid N7.7billion as exchange difference on bank borrowing but in the current period, such money was not paid.

However, the management paid NN16.69billion for interest and fees on borrowing in Q4 2021 as against N15.66billion reported in Q4 2020.

Loss before income tax, however, closed N20.19billion in Q4 2021 from N13.9billion reported in Q4 2020. In the same vain, the company reported N20.19billion loss for the period in the Q4 2021 from N6.4billion loss reported in Q4 2020.

Swimming in negative Territory
The group total debt amounted to N122.18billion as at September 30, 2021, an increase of 12 per cent from N108.35billion reported in full year ended September 30, 2020.
It has also seen debts rising very fast as the fertilizer marker continues to struggle with its long and short-term financial obligations.

Long-term borrowing dropped by 12.4 per cent to N78.55billion from N89.67billion reported in 2020, while short-term borrowing grew by 133.5 per cent to N43.6billion from N18.68billion reported in 2020.
Meanwhile, Notore Chemical industries’s total assets grew by three per cent to N226.65billion as at September 30, 2021 from N220.76billion.

In the period, Non-current assets grew by six per cent to N210.34 billion as at September 30, 2021 from N98.62billion reported in 2020, driven by 11.3 per cent and 4.1 per cent growth in investment property and Property, plant and equipment.

Total current assets dropped by 26.35 per cent to N16.31billion as at September 30, 2021 from N2.14billion reported in September 30, 2020.
The group’s total liabilities gained 16.5 per cent to N183.73billion as at September 30, 2021 from N157.7billion reported in 2020.

From the financial statement, total equity of Notore Chemical industries depreciated by 31.9 per cent to N42.9billion as at September 30, 2021 from N63.06billion reported in prior period.
The group reported negative retained earnings of N49.35billion as at September 30, 2021 from N29.16billion.
Analysts View

Analysts have expressed that the closure of the company’s plant impacted on revenue and the management needed to expand in its revenue to boost profit and probably pay dividend to shareholders

The Notore’s Group Managing Director, Mr. Ohis Ohiwerei in a statement had said that the relentless effort and focus of our team on attaining plant reliability has enabled the business to maintain daily production volume outpout at 1,000 MT. The emphasis going forward is to maintain the current daily production volumes and ramp up over the next few months to nameplate capacity.

With the current in export prices in the fertilizer around the globe, the company’s focus is to optimise its sales distribution in order to cushion the rising cost of imported production input raw materials occasioned by the devaluation of the naira.

The strategy is expected to retain the company to profitability in the last quarter of the current financial year as we continue to diversify our market outreach in both Urea and NPK fertilizer.
“We expect to see an increase in the demand for NPK fertilizers in Q5 as we approach the dry season farming period. We also expect to harvest, mill and package the Notore Premium Rice Brand from the phase two pilot scheme for sale in this quarter.”

He noted that beyond 2021, the company’s outlook remains to attain the name plate production capacity while expanding reach of Urea and NPK fertilizer in the west Africa sub region as the copany collaborates with governments across the region.

While commenting on the plant, company secretary, Notore Chemical Industries, Otivbo Saleh, had maintained that: “Upon completion, we expect a significant improvement in the Plant’s reliability index and sustained daily production output of 1,500MT.

“Attaining this level of production will guaranty improved cash flow, increase in annual revenue as well as return the Company to profitability.”

On the outlook for the year, the company forecasted revenue growth of between 25per cent and 30per cent in the last quarter of the financial year, reflecting stability and reliability in the plant.