NASCON Increased Market Penetration Drives Revenue Growth

NASCON Allied Industries Plc: Cost optimisation strategy and FX gains boost bottom-line
NASCON Allied Industries Plc: Cost optimisation strategy and FX gains boost bottom-line -

NASCON Allied Industries Plc delivered double-digit revenue growth of 21% YoY to N8.34bn in Q1 2021 from N6.88bn in Q1 2020, driven by increased market penetration across all regions.

Gross profit grew at a higher rate of 36% YoY to N3.41bn in Q1 2021 from N2.51bn in Q1 2020 due to a lower cost margin in Q1 2021.

However, as a result of a 24% rise in operating expense, operating profit grew by a slower rate of 5% to N1.06bn in Q1 2021 from N1.01bn in Q1 2020. Notwithstanding, profit before tax as well as profit after tax grew in tandem by 15% on the back of deleveraging efforts.

Market Penetration Efforts Weighs in Broad-Based Growth Across All Regions

In our previous report for FY 2020, we noted NASCON’s market penetration effort.

The momentum seen in revenue growth intensified in Q1 2021 as evidenced by the 21% YoY growth which was strongly driven by broad-based growth across all regions. Notably, the Western region revenue soared by 49% to N2.59bn in Q1 2021 from N1.74bn in Q1 2020.

Both the Northern and the Eastern regions’ revenue rose by 12% YoY to N5.23bn in Q1 2021 (Q1 2020: N4.67bn) and N517mn in Q1 2021 (Q1 2020: 463mn), respectively. We attribute the Group’s total revenue growth to its increased market penetration efforts,
as evidenced in its higher selling expense (+14% YoY to N109mn in Q1 2021 from N97mn in Q1 2020).

Also, a 15% increase in trade receivables to N14.85bn in Q1 2021 (Q1 2020: N12.87) suggests an increased effort of the Group to boost sales.

Earnings Grow Amid Cost Optimisation Effort

Production cost grew by 13% YoY, on the back of an increase in cost of raw materials and other manufacturing expenses. In Q1 2021, raw materials cost rose by 12% to N4.12 bn from N3.69bn in Q1 2020, while other manufacturing expenses rose by 38% to N314mn in Q1 2021 from N227mn in Q1 2020. However, cost margin improved by 400 basis points to 59% in Q1 2021 from 63% in Q1 2020.

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As a result of production cost optimization, gross profit spiked by 36% to N3.41bn in Q1 2021 (Q1 2020: N2.51bn). Operating cost rose by 24% to N2.35bn in Q1 2021 from N1.90bn in Q1 2020. Notably, selling and distribution expenses rose by 23% to N1.68bn in Q1 2021 from N1.36bn in Q1 2020 on the back of higher delivery and selling expenses.

Also, administrative expenses rose by 26% to N671mn from N534mn in Q1 2020 as a result of higher employee costs, security costs, and travel expenses.

However, the operating cost margin remained flat at 28% YoY in both Q1 2020 and Q1 2021. As a result of the operating cost margin position, operating profit grew by 5% to N1.06bn in Q1 2021 from N1.01bn in Q1 2020.

Deleveraging Effort Spurs Growth in Bottomline Profit

In FY 2020, NASCON repaid a loan worth N3.30bn. Consequently, average borrowings lowered markedly by 49% to N1.73bn in Q1 2021 from N3.37bn in Q1 2020. Due to the decline in borrowings, finance costs fell by 86% to N13mn in Q1 2021 from N96mn in Q1 2020.

On the other hand, investment income grew by 84% to N14mn in Q1 2021 from N7mn in Q1 2021.

Notably, treasury bills jumped 76% to N13mn in Q1 2021 from N7mn in Q1 2020. Therefore, both profit before and after-tax returned a positive 15% growth to N1.64bn and N723mn in Q1 2021, respectively.