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Wednesday, February 1, 2023

Notore Needs Fresh Capital Injection as Massive Debt Tsunami Beckons

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As a massive tsunami of debt and mounting financial obligations beckon, the board of directors of Notore Chemical Industries Plc may have to tap the capital market for funds to help salvage a loss-making entity.

The market is paying attention to leverage ever since China’s economy was shaken by a debt laden developer, Evergrande.

Notore Chemicals, which produces and sells fertilizers, has a total debt stock of N122.17 billion in its balance sheet that is 2.84 times equity, according to MoneyCentral data gathered from its fourth quarter ended September 2021.

That translates to a debt to equity ratio of 284 percent as at September 2021, which indicates a levered firm, and it is inimical to Notore Chemicals whose earnings are on the decline.

A loss position was inevitable in the period as total cost (cost of sales + operating expenses) of N27.83 billion exceeded revenues of N17.46 billion.

The company posted a net loss of N20.18 billion and negative retained earnings validates the deteriorating bottom line (profit).

The company attributes rising input cost of raw materials to the devaluation of the Naira currency.

Of course, the fertilizer producer has been recording recurring losses amid rising interest payments.

For instance, finance cost stood at N16.68 billion as at September 2021, albeit 28.67 percent lower than 2020’s N23.40 billion.

Analysts say the stewards of Notore Chemical have the herculean task of implementing strategies capable of turning around the company.

It is generally accepted that huge debt and inability to service the interest on it is a harbinger of bankruptcy and it is more severe in a country where the government doesn’t bail out firms even during a financial crisis.

The optimistic tidings is that the company can still tap the debt market for capital to retire part of existing debt and underpin the balance sheet.

 Managing director of Notore Chemicals, Ohis Ohiwerei is sanguine that the continued diversification of the market outreach and NPK fertilizers will help revert the company’s return to profit.

“We expect to see an increase in the demand for NPK fertilisers 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 this quarter,” said Ohiwerei.

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

“Beyond 2021, our outlook remains to attain the nameplate production capacity, while expanding the distribution of Urea and NPK fertilisers,” he added.

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