Nascon Allied Industries Consolidates

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Goddy Egene writes that diversification and financial discipline have helped Nascon Allied Industries Plc to consolidate on its impressive performance despite the challenging environment

“We remain optimistic for the future of our business. Our product lines remain a huge value driver for us as we play in categories that are life-necessities for average Nigerian and for which significant supply gaps continue to exist in the market. This situation enhanced by our renewed focus on capacity building, operational efficiency, financial discipline and aggressive trade along with consumer marketing across our active categories will position Nascon Allied Industries Plc now more than ever to access and achieve sustainable growth in the future.”

The above are the words of assurance by the Managing Director of Nascon Allied Industries Plc to shareholders of the company during the annual general meeting (AGM) held recently. These words have been validated by an impressive financial performance for the first quarter (Q1) ended March 31, 2016.
While the company recorded a growth of 11 per cent in profit after tax (PAT) for the 2015 financial year, the Q1 performance showed a better faster growth with 36 per cent PAT growth.

Corporate background
Nascon was established as a salt refinery at Ijoko, Ogun Sate in 1973 as a joint venture between the federal Government of Nigeria and Atlantic Salt & Chemical Incorporated of Los Angeles, California, United States, due to an identified need for self-sufficiency in the production of salt, an essential commodity. The company was privatised in 1991 and got listed on the Nigerian Stock Exchange (NSE) in 1992. Dangote Salt Limited (DSL) bought majority shares in the company in 2007 and it became a member of the Dangote Industries Plc group.

Nascon is engaged in the refining and marketing of salt of different grades including kitchen, table and industrial salt. It also engages in the production and refining of seasoning, tomato paste and vegetable oil. The company has a combined production capacity for salt of 567,000 metric tonnes (MT) from plants located in Lagos and Port Harcourt, Rivers State. It boasts of 65 per cent market share in the salt market.
Nascon entered into the production of tomato paste in response to an identified supply gap within the Nigerian market. It inaugurated its tomatoes plant in Q3, 2015. Before then it had entered the seasoning market and inaugurated its product Dan-Q in Q2 2015, which is a brand of seasoning, producing two distinct flavours. The company also generates revenue from its freight business.

First quarter performance
Despite the challenging operating environment, Nascon posted an impressive performance for the Q1 ended March 31, 2016 on an impressive note. It recoded revenue of N4.46 billion, up by 55.2 per cent from N2.87 billion in 2015. Gross profit rose by 68.5 per cent from N920 million to N1.55 billion. Profit before tax (PBT) and PAT grew by 36 per cent from N695.91 million to N953.26 million and N473.22 million to N648.22 million respectively.

Analysts at FSDH Merchant Bank research said the company’s strategy to diversify product lines, push more volumes, increase prices and market share led to the huge improvement in revenue. Despite the growth in top line, the foreign exchange restriction policy which led to the temporary suspension of operations in its vegetable oil and tomato paste businesses impacted on company’s profit margin. The company’s cost of sales increased by 48.98 per cent to N2.91 billion in Q1 2016 from N1.95 billion in Q1 2015. Its cost of sales as a percentage of T/O decreased to 65.26 per cent from 68 per cent as at Q1 2015.

“This means that the company was able to pass on the increase in cost of production to customers and still grow sales. The administrative, selling and distribution expenses increased by 97.05 per cent to N599.90 million. These expenses as a percentage of turnover increased to 13.45 per cent in Q1 2016 from 10.60 per cent in Q1 2015. This increase was due to increase in company costs required to drive volumes especially in its new product line and increased costs associated with the refurbishment of worn-down trucks,” FSDH said.

The significant increase of 946 per cent in selling and distribution costs resulted in lower margins compared with the corresponding period of 2015. Gross profit margin improved from 32 per cent in Q1 2015 to 34.74 per cent in Q1 2016.
“This showed that the company was able to manage its cost of sales more effectively. However the company’s earnings before interest and tax (EBIT) margin dropped from 24.22 per cent in Q1 2015 to 21.32 per cent in Q1 2016. The PBT margin in Q1 2016 decreased over the Q1 2015. The PBT margin decreased to 21.37 per cent in Q1 2016 from 24.22 per cent as at Q1 2015. The PAT margin currently stands at 14.53 per cent in Q1 2016, down from 16.47 per cent in the corresponding period of 2015,” analysts said.

Full year 2015 performance
In 2015 the company posted a turnover of N16.18 billion for the year ended December 31, 2015, which showed 43.8 per cent increase above N11.25 billion in 2014. The PBT grew to N3.02 billion in 2015, from N2.86 billion in 2014, while PAT stood at N11.82 billion, up from N7.46 billion in 2014. There was a decline in the company’s profit margins in 2015, compared with 2014. This was a reflection of the macroeconomic challenges within the country prompting the rise in operating costs. The increase in the company’s cost of sales significantly impacted the ability of its revenue to trickle down, as direct material costs grew substantially between 2014 and 2015.

Gross profit margin declined from 33.65 per cent in 2014 to 26.94 per cent in 2015 and is at a four-year low. Also the company’s EBIT margin dropped from 25.12 per cent in 2014 to 18.72 in 2015. The PBT Margin in 2015 decreased over the 2014. The PBT margin decreased to 18.65 per cent in 2015 from 25.39 per cent in 2014. The PAT margin stood at 13.02 per cent in FY 2015, down from 16.60 per cent in the corresponding period of 2014.
“The decline in the company’s profit margins in FY 2015, compared with FY 2014 reflects the difficult macroeconomic challenges faced within the country,” analysts said.

The company rewarded shareholders with a dividend of N1.46 billion that translated to 55 kobo per share. Immediate past Chairman of the Nascon, Alhaji Aliko Dangote, said the dividend was an improvement on the 50 kobo or N1.32 paid the previous year.

According to him, for the 2015 financial year, turnover grew by 43 per cent to N16.2 billion, while profit after tax rose 11 per cent to N2.1 billion.
“The overall financial stability continued to remain strong with N2.5 billion of cash and its equivalents as reserves. We achieved this by becoming more customer focused, managing our costs and improving our efficiencies,” he said. Dangote resigned as the chairman of the company at the AGM.

New chairman
Mrs. Yemisi Ayeni is the new chairman of Nascon. Ayeni is the immediate past Managing Director of Shell Nigeria Closed Pension Fund Administration Limited, a position she held for 10 years. She was recently appointed a non-executive director on the board of Stanbic IBTC Pension Managers Limited. A graduate of Accounting and Business Finance from the University of Manchester, United Kingdom, she is also a member of the Institute of Chartered Accountants in England and Wales. In her address to the shareholders, Ayeni said it was an honour to succeed Dangote. According to her, Dangote’s passionate and dedicated leadership has re-positioned Nascon as not just undisputed market leader in salt refining and distribution but also a producer of other food-related products.

Ayeni said going forward, the company would continue to invest appropriately in existing and new products lines to achieve its strategy of growing revenues within the context of improved profit margins and enhanced shareholder returns.
“We will ensure we conclude ongoing plant upgrades that will enhance the efficiency of the production lines and guarantee consistently high product standards,” Ayeni said.

Performance forecast
Considering some favourable factors including large and increasing market size, favourable federal government policy, leverage on existing distribution network, positive brand image, relationship with numerous subsidiaries and related companies, increased volume and prices and diversification into other products, FSDH has made a robust forecast for the company’s future performance.

According to the analysts, looking at the company’s medium and long-term outlook, they are of the opinion that the impact of the factors would be higher on both the revenue and the profitability of the company.

“We therefore estimate a turnover of N21.87 billion, N30.22 billion, N43.27 billion, N59.37 billion and N80.85 billion for the periods ending December 2016, 2017, 2018, 2019 and 2020,” they said. The analysts projected PBT of N3.45 billion, N5.35 billion, N7.92 billion, N10.89 billion and N14.84 billion and PAT of N2.33 billion, N3.61 billion, N5.35 billion, N7.35 billion, and N10.03 billion for the respective years.