Analysis: Three Nice Takeaways From An Otherwise Poor Quarter For Nascon

Nascon released another poor interim results for 2014. The result is poor not because they did not make a profit (they made N2.3billion in pre-tax profits) but because this was yet another year on year drop in profits. Margins also got squeezed out as the company struggles to navigate through dwindling global commodity prices which have affected Salt as well. Despite the not so happy profits, there was a tiny bit of silver lining that I see.

Revenue

Nascon reported N2.79billion in revenues for the three months leading to September 2014 which on the back of dwindling margins is a good thing. Nascon has in the last six quarters posted not less than N2.6billion per quarter except for one. It posted N2.7billion this quarter which at least suggest they have been able to maintain a support for revenues.

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Operating Expenses

Operating expenses came down came down lower this quarter to N190million compared to N258million and N272million in the prior two quarters respectively. Operating profit margin was also 27.5% better than 25.6% in Q2 of 2014. Keeping cost stable is very important in a market where prices are falling and market share is shrinking. It’s important to note that the non payment of management fees may have also been a factor. The press release did not include notes to the account.

Margins

Margins have been dropping since 2012 and this quarter was the worst since 2012 with 18.3%. However, the next worst was 18.5% in Q1 2012 and even though they hit a high 27.5% last year it is still within the 2012 levels, suggesting 2013 may have been an exceptional year. You start to get very (very) worried when profit margins drop below 2012 levels.

Finally

Whilst these are not enough succor for a shareholder, it just helps put into better perspective what the company is facing. The industry appears to be cyclical and dependent on global commodity prices which makes keeping cost and margins weakness contained very important. Nascon also plans to diversify away from Salt, a move that is likely to materialize in a couple of years.