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Monday, March 27, 2023

NASCON Allied Profit Margins Fall Below Pre-pandemic Level on Cost Pressures

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Elevated cost pressures brought on by deteriorating foreign exchange conditions, inflationary pressures and higher commodity prices at the international market are responsible for the decline in Nascon Allied profit margins from pre-pandemic level.

Analysts say consumer goods firms will continue to struggle with the supply and demand side constraint if the government fails to formulate policies that are capable of unlocking potentials in the economy.

For instance, Nascon Allied’s net income was down 8.70 percent to N386.37 million in March 2022 from N423.19 million as at March 2020.

Profits have been shrinking since 2018 when it was N1.06 billion as the company has been spending more on input cost to produce each unit of product.

Elevated cost that squeezed margins means cost of sales margin increased to 74.30 percent in the period under review from 59.03 percent the previous year.

Cost of sales or input cost spiked by 62.09 percent to N8 billion, which is way higher than the 16 percent inflation rate.

The cost breakdown revealed that the bulk of the increase in cost of sales emanated from higher raw materials (+73.6% y/y), according to data obtained from the financial statement.

Shareholders no longer get a higher return for investing their money in the entity as the return on average equity dipped to 2.71 percent in the period under review from 3.36 percent in 2021, and that is a sharp drop when compared with 31.42 percent recorded in 2015.

Gross margin reduced to 25.70 percent in March 2022 from a six year high of 40.93 percent in 2021. Earnings before interest and taxation (EBIT) margin reduced to 5.46 percent in the period under review from 12.75 percent the previous year.

There are concerns that the company may find it difficult to pass rising input costs in the form of higher price to consumers whose wallets have already been squeezed.

The outlook is not propitious as the war in Eastern Europe is ballooning the price of grains that both Russia and Ukraine are major global suppliers.

And that is on top of the energy crisis brought by a spike in diesel price due to the rally on crude oil price.

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