Surging operational expenses, high energy costs and stiff competition by rival companies have dampened growth of one of the four major cement makers Ashaka cement Plc.
For the year ended December 2013, Ashaka cement grew revenue by an abysmal 0.59 percent to N21.69 billion from N21.82 billion in 2012, while profits slumped by 48.08 percent to N2.84 billion.
The poor performance could be attributed to intense competition from peer rival company like Cement Company of Northern Nigeria (CCNN), whose end year results show it expanding both top line and bottom line performance.
The competition in the North coupled with the inability of the company to manage their costs explains the downside performance according to Ronke Akinsola a research analyst with Meristem Limited a Lagos based investment firm in a telephone interview with BusinessDay.
“The increase in administrative expenses could have arisen as a result of cost incurred on maintenance work carried out on its plants and machinery,” Akinsola said. “Unrest in the North fuelled by Boko Haram Insurgency also continued to shrink its market share.”
Based on BusinessDay analysis, administrative expenses climbed by 6.1 percent to N4.0 billion in 2013, while operating expense ratio (Opex ratio) moved from 21.21 percent in 2013 from 20.13 in 2012.
Further analysis reveal that sustained cost pressures caused cost of sales ratio to surge to 71.21 percent as against 61.8 percent in 2012, while cost of sales increased by 14.51 percent to N15.46 billion.
Gross margin shrank to 28.67 percent in 2013FY from 38.1 percent as at 2012FY, consequently hence gross profits were down by 25.2 percent to N6.32 in 2013.
Net margin, a measure of profitability also fell to 13 percent in 2013 from 14.3 percent in 2012 further showing the effects of high operation cost on bottom-line performance.
Return on Asset Equity (ROAe) and Return on Average Assets (ROAA) remained flat at 6 percent and 4 percent respectively, the lowest among the top four cement makers in Nigeria.
Earnings per share EPS slumped by 10 percent to 126k in FY13 from140k as at FY12.
“We attribute the weakness in profitability to likely slowdown in its coal substitution initiative at the cement plant (a cheaper energy source to LPFO),” said Abiola Rasaq, an equity based analyst with UBA, a Lagos based investment firm in an e-mailed statement to BusinessDay.
Low-pour fuel oil (LPFO) is a commonly used fuel in Nigeria, given its wide availability relative to other fuel sources, despite being the least efficient from a calorific-value perspective.
In 2009, Ashaka launched the Maiganga coal project to improve its operational costs, and has sufficient coal reserves to provide at least 25 years of energy for cement production.
Ashaka Cement Plc (Ashaka) is a 58.61 percent-owned subsidiary of Lafarge Nigeria (UK) Limited.
Headquartered in Gombe, in the North-east, the company was formed in 1974 and listed in 1990. It became part of the Lafarge Group in 2001 after the acquisition of Blue Circle by Lafarge in that year.
Analysts are saying that it is imperative for the company to go to the market for cheaper and more effective alternative source of energy such as gas in order to reduce cost, maximise profits and increase its share of industry turnover.
Ashaka’s share of industry turnover has declined to 4.2 percent in 2013 from 5.25 percent in 2012 according to Meristem Securities in note released April 9th 2013.
Ashaka’s total assets were N67.42 billion in the review period while total share holders fund stood at N47.16 as at December 2013.
Its shares closed trading-April 10th 2013 on the floor of the Nigeria Stock exchange at N16.55.
Total market capitalization on the same day was N37.06 billion, while shares outstanding was 2.24 billion ordinary shares
“The inability of Ashaka Cement to grow top-line reflects its capacity constraint. On our estimate, Ashaka Cement operates at about 95 percent capacity utilization, with less headroom for volume growth; thus explaining the relatively flat turnover level,” said Rasaq.
BALA AUGIE
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
