National Salt Company of Nigeria is losing both sales revenue and profit this year and that could lead to a stronger fall in profit at full year. The company lost sales revenue last year and further losses have been reported in the first quarter. It may be able to prevent turnover from declining for the second year but with loss of profit margin, the profit slip in 2013 could accelerate to a wider decline at the end of the current year.
The salt manufacturing company is experiencing a bitter taste of declining earnings and rising cost. These adverse developments constitute the challenges that shareholders will be looking up to Mr. Ade Adeniji, the company’s managing director/chief executive officer to overcome this year. Unless he succeeds in either propping up sales volume or pegging costs, shareholders should expect another year of inability to improve their lot.
At the end of the first quarter, sales revenue amounted to N2.69 billion, which is a decline of 3.2% over the first quarter figure in 2013. If the first quarter growth rate is maintained, full year turnover is projected to be in the region of N11.5 billion for Nascon in 2014. This will be an improvement of 6.0% over the full year turnover of N10.84 the company posted at the end of 2013. Part of the earnings weakness reflects a drop over 73% in investment income during the period.
Sales revenue had dropped by 19.2% in 2013 from the company’s peak revenue figure of N13.41 billion in 2012. Revenue growth needs to accelerate in the subsequent quarters for the full year earnings outlook to improve. Revenue growth had been fairly stable for the company until last year. A reasonable growth is needed this year for the company to be able to defend its bottom line position.
The company earned a net profit of N553 million in the first quarter, a drop of 19.5% year-on-year. After tax profit is projected at N2.3 billion for Nascon in 2014. This indicates a drop of 14.8% from the full year net profit figure of about N2.7 billion recorded in 2013. Profit growth is therefore expected to accelerate in the course of the year.
The company’s profit record in the past five years shows a pattern of declines and improvements. That seems to underscore the dicey profit prospects for the company this year. Profit margin is under attack as costs fail to moderate.
Cost of sales is the major culprit, which has claimed an increased share of sales revenue. It grew by 5.3% against the decline in sales revenue during the first quarter. That caused a drop of 13.5% gross profit during the period with gross profit margin slashed from 44.7% in the corresponding period last year to 39.9% this year. It accounted almost exclusively for the drop in profit during the review period.
The company’s ability to convert revenue into profit has weakened. Net profit margin is down from 24.7% in the first quarter of last year to 20.6% in the current period. The company had converted 25% of sales revenue into net profit in the 2013 full year.
Earnings per share is down from 26 kobo in same period last year to 21 kobo at the end of the first quarter. Full year outlook indicates earnings per share in the region of 87 kobo for Nascon in 2014. This will be a decline from the earnings per share of N1.02 the company recorded at the end of 2013. The company repeated a cash dividend of 90 kobo per share for the second year at the end of 2013. The company register closes on 10/11th June while payment is slated for 22nd June 2014.
For the company to at least keep current year’s profit at par with the N2.70 billion is realised in 2013, it has to step up growth in the remaining quarters. It has to earn a minimum of N716 million in net profit in each of the remaining three quarters of the year.
For management to defend net profit margin at 20.6% recorded in the first quarter, it has to step up revenue growth to an average of N3.48 billion per quarter for the remaining period of the year. This will require sales revenue of N13.12 billion for the year, indicating a minimum revenue growth of 21% in 2014.
