Q1 result: Strong Topline Growth but Rising Finance Costs Erode Bottom Line

Q1 result: Strong Topline Growth but Rising Finance Costs Erode Bottom Line

The latest unaudited results for the period ended 31 March 2025 reflect a business navigating a delicate balance between robust revenue growth and escalating finance costs. Despite an impressive top-line surge, bottom-line profitability was significantly pressured by debt-related expenses, leaving room for both cautious optimism and strategic reassessment.

🔑 Key Highlights (March 2025 vs March 2024)

Indicator Q1 2025 Q1 2024 % Change

Revenue ₦10.80 billion ₦7.14 billion ▲ 51.3%

Cost of Sales ₦9.27 billion ₦6.04 billion ▲ 53.4%

Gross Profit ₦1.53 billion ₦1.10 billion ▲ 39.7%

Operating Profit ₦1.07 billion ₦739.93 million ▲ 44.8%

Finance Costs ₦1.01 billion ₦469.92 million ▲ 116%

Profit Before Tax ₦57.04 million ₦270.25 million ▼ 78.9%

Net Profit ₦38.22 million ₦181.06 million ▼ 78.9%

EPS (Kobo) 1.27 6.04 ▼ 79%

📊 Narrative Analysis

📈 Revenue and Operating Momentum

• The company recorded over 50% year-on-year revenue growth, highlighting improved demand, price adjustments, or expanded market footprint.
• Gross margin slightly declined from 15.4% to 14.2%, suggesting that input costs rose proportionally with sales, likely due to inflationary pressures or increased volumes.
• Operating profit rose by nearly 45%, driven by modest increases in selling and administrative expenses relative to the revenue gain.

💸 Mounting Finance Costs Drag on Earnings

• Finance costs more than doubled, up by ₦545 million, significantly eroding profitability.
• Net finance cost (₦1.01 billion) nearly wiped out the gains from operating activities, culminating in a 78.9% drop in net profit.
• The business’s interest-bearing debt remains high, with short-term loans totaling ₦8.37 billion, though reduced from ₦13.71 billion in March 2024.

💼 Balance Sheet Overview

Item 2025 2024 Total Assets ₦23.05 billion ₦23.39 billion Equity ₦3.42 billion ₦3.38 billion Total Liabilities ₦19.62 billion ₦20.00 billion Cash & Cash Equivalents ₦879.8 million ₦1.19 billion

• Although equity edged up slightly, persistent high leverage (debt-to-equity > 5x) remains a red flag.
• Cash reserves declined, and working capital strain may be building, given elevated trade payables and still substantial tax liabilities.

🧠 Conclusion: Strong Growth Undermined by Financial Leverage

The company has demonstrated impressive sales expansion and operational resilience. However, ballooning finance costs and dependence on short-term borrowings are weighing heavily on earnings.

If left unchecked, this high-interest burden could neutralize operational gains, especially in a rising rate environment. Strategic deleveraging, refinancing at lower costs, or equity injection could prove pivotal.

Investor Watchpoint: While the 1.27 kobo EPS reflects marginal profitability, the underlying strength in revenue and operating profit implies that with debt management, stronger earnings recovery is possible in subsequent quarters.