• Management Restructures Loans, Improving Working Capital
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The board of Notore Chemical Industries Plc, on Thursday, December 27, 2018, presented its audited financials for the full-year ended September 30, 2018, its first after listing its shares for trading on the Nigerian Stock Exchange (NSE) at a ceremony four months earlier in August.
The company’s external auditors- PricewaterhouseCoopers, in their review drew attention to the N2.01bn net loss, as well as the N9.11bn group net current liabilities, indicating “that a material uncertainty exists that may cast significant doubt on the group and company’s ability to continue as a going concern.”
The result however showed a drop in sales revenue, just as cost of sales, while administrative expenses increased, as a significant jump in other income helped to mitigate the effect, resulting in an increase in operating profit, when compared to prior year. Equally important is the loss after tax, compared to the profit recorded in 2017, which however arose from a huge N10.8bn tax rebate that wiped off the N2.148bn loss before tax. In all, the 2018 performance was relatively better.
Specifically, revenue for the year dropped by N9.069bn, or 25.27% from N35.893bn in the corresponding period of 2017, to N26.823bn; while cost of sales reduced from N25.461bn to N17.217bn, representing a decline of N8.244bn, or 32.38%. The bulk of the cost arose from the N10.956bn raw materials and other chemicals costs, which dropped from N12.59bn; depreciation was flat at N7.686bn, compared to N7.662bn; while employee benefit expense dropped slightly to N2.2716bn from N2.717bn. The biggest cut in cost of sales however came from the drop in haulage cost from N2.491bn to just N211.341m. This left gross profit at N9.606bn, down by N825.476m or 7.91% from N10.432bn.
Administrative expenses rose from N4.42bn to N6.213bn, an increase by about N1.792bn, or 40.54% from N4.42bn in 2017, the lion’s share of which was the N2.177bn employee benefit expense, compared to N1.561bn in 2017. Selling and distribution expenses increased to N530.825m from N320.439m in the period under review, all of which went into marketing expenses.
Other income however soared by N3.104bn or 247.99% from N1.251bn in 2017 to N4.356bn, arising from fair value adjustment on investment property worth N4.011bn, up from N564.281m, while rental income remained constant at N1.721m; just as “others” dropped to N342.341m, from N685.757m. This raised operating profit to N7.218bn, up by N276.049m or 3.98%, when compared to N6.942bn in prior year.
Net finance costs at N10.848bn, up from N9.09bn, resulted in loss before tax of N3.629bn, which increased by N1.481bn or 68.96% from N2.148bn.
The income tax rebate of N1.616bn however reduced the loss after tax, which stood at N2.013bn, compared with the N8.652bn net profit, which arose entirely from the N10.8bn rebate in 2017. The net profit translated to a loss per share of N1.25, as against previous year’s N5.37 earnings per share.
However, as part of efforts to improve working capital and return the group to profitability, the company noted management’s restructuring of short term loans amounting to N30.14bn and US$59.97m into fixed long-term loans of seven-year maturities and 12-month moratorium on principal repayments.
Also, current liabilities amounting to N3.16bn have been rescheduled to over 12 months, thereby reducing current liabilities significantly, freeing up significant cash flows to augment working capital.
The company also secured approval for a US$37m long-term loan facility repayable over a seven-year period with a one-year moratorium on principal repayment from Afrexim Bank to fund its plant turn around maintenance programme for the installation and back-up of critical equipment spares inventory.
“Upon the successful completion of the TAM programme in Q3 2019, management is confident that the company’s Urea production volume will increase to its nameplate capacity of 1.500 million tons per day (mtpd), translating to significant increases in future revenues and cash flows of the company and group,” the directors explained under the going concern segment in the annual accounts.
The directors also believe the August 6, 2018 listing of its entire 1.612bn shares for trading, which added N100.75bn to the market capitalization of the Nigerian Stock Exchange (NSE), will offer the company a broader financing opportunities for future expansion, besides helping to diversify ownership base capable of supporting future growth and stability.