Historical Background
Cement Company of Northern Nigeria (CCNN or the company) started operations in the 1960s, with federal government as the major investors.
The company was listed on the Nigerian Stock Exchange in 1993 and the FG soon fully divested to a private investors in 2000. The company is the only cement company in the North West.
The total installed capacity of the company was 500,000 Mt/a and the plant ran at almost full capacity of 92.30 percent between 2016 and 2017.
But in 2017, the company entered into a merger with Kalambaina Cement with a capacity of 1.5 Mt/a, owned by BUA, the majority shareholder in CCNN via stake in Damnaz Cement Company Limited (50.70 perent). This brings the total installed capacity of the company 2.0 Mt/a.
Analysts are optimistic that the merger will spur the cement company to growth while shareholders wealth will be maximized.
Operational Strategy and Outlook
Following the merger of CCCN and Kalambaina Cement that saw total capacity surge to 2.0 Mt/a, the company’s shares outstanding now stands at 13.10 million shares, from 1.30 million shares previously held. If the new shares are multiplied by N17 market price as at Friday, the new market value of the cement maker will be N223.14 billion, this compares with N22.10 billion pre merger.
The upside of the marriage cannot be overemphasized as it would underpin operating efficiency, as the company had migrated from the use of LPFO that was very expensive and susceptible to disruptions, to coal, a strategic plan that is responsible for lower costs and strong margins.
Financial performance for q1
For the first three months through March 2019, CCNN’s revenue surged by 213.17 percent to N16.88 billion from N5.39 billion as at march 2018, the highest revenue in the firm’s history.
The growth at the top line (revenue) was driven by price adjustment in the aftermath of the recession. Also, the company was able to leverage on the country’s infrastructure deficit to grow volumes, underpin earnings and magnify shareholders’ wealth.
In the past four years, CCNN has been spending less on input cost to produce each unit of products as cost of sales ratio fell to 54.45 percent in March 2019 from 58 percent in the corresponding period of 2018, and 62.50 percent in 2017.
Expectedly, gross profit followed the same growth trajectory as it moved to 45.50 percent in March 2019 from 42 percent in 2018, 37.50 percent in 2017, and 22.60 percent in 2016.
The improvement in operating performance is due to the new cement plant for which energy costs is cheaper due to coal usage.
Gross profit surged by 239.82 percent to N7.68 billion as at March 2019 from a year ago; which means the cement maker has minimized direct cost attributable to projects.
In the last five years, CCNN’s profit has been growing steadily although there were periods in which the bottom line slowed. Between 2015 and 2016,profit after tax fell to N632.04 million to N242.52 million, but profit began to rise after the country existed a recession brought on by lower crude price that stoked a severe dollar scarcity.
For the first three months through March 2019, profit after tax surged by 236.11 percent to N6.36 billion, as against N1.08 billion the previous year.
CCNN has been able to turn each Naira invested in sales into higher profit as net margin increased to 21.50 percent in March 2019 from 20.10 percent in March 2018, 11.80 percent in 2017, and 6.80 percent in 2016.
Prex tax margin also followed the same growth trajectory as it increased to 31.70 percent in March 2019, from 27.90 percent in 2018, 15.70 percent in 2017, and 9.40 percent in 2016.
Operating profit margin, otherwise known as EBIT increased to 31.90 percent in March 2019 from 26.30 percent in March 2018, 16.40 percent in 2017, and 10.60 percent in 2016.
CCNN is utilizing shareholders’ equipment to generate higher sales. Its fixed asset turnover increased to 7.74 times in the period under review from 2.54 times as at March 2018.
The cement maker is liquid and it can easily pay off its current liabilities. Current ratio improved to 1.5 7 times in March 2018 from 1.50 times the previous year. A current ratio of 1.57 times means that CCNN has 1.57 more current assets than current liabilities. But the firm will have to strengthen its debtor collection strategy if it wants to further bolster liquidity and magnify revenue as trade receivables surged by 191.33 percent to N11.77 billion in March 2019 from N4.04 billion as at March 2018.
CCNN has reduced debt in its capital structure as total debt (long and short term) fell by 33.90 percent to N348.61 billion in March 2019 from N52.43 billion the previous year.
CCNN has enough cash to pay debts, reward shareholders in form of dividend, and fund future expansion plans as net cash flow from operating activities surged by 1,881 percent to N7.31 billion a year ago.
Shareholders and investors of the Northern cement giant will continue to drink ale poured from a flagon into a golden goblet. This is because the company’s strong working capital position, consistent earnings growth, solid margins means it has the financial strength to tap into the country’s huge infrastructure deficit.
BALA AUGIE
