Barely six months after Cement Company of Northern Nigeria (CCNN) Plc successfully consummated a landmark merger; the company is growing by leaps and bounds.
Cement Company of Northern Nigeria took a major leap in December 2018 through its business combination with Kalambaina Cement Company, a larger and newer Sokoto-based cement company.
With the receipt of shareholders’ approvals and all necessary regulatory and statutory approvals, the listing of the scheme shares to herald the new CCNN was done late December 2018.
Since the then, the Sokoto-based cement company appears to be reaping early gains of the business combination and recent strategic initiatives as shown in its recently released impressive first-half (H1) results.
With almost a consensus on the positive outlook for CCNN, the company appears to be on the right track to further consolidate its impressive growths over the years and increase returns to shareholders.
Advantages of the business combination
A larger installed capacity not only provided CCNN with the necessary platform to compete in the Nigerian cement industry, it gave the company the ability to produce the volume for aggressive expansion in Nigeria and beyond.
As a listed company, the immediate competitive advantage was the leapfrogging of CCNN as the 12th largest quoted company in Nigeria.
But several compelling competitive advantages, which supported almost unanimous acceptance of the business combination by all stakeholders, were obvious.
With CCNN’s pre-merger 500,000 metric tonnes per annum capacity and Kalambaina Cement Company’s 1.5 million metric tonnes per annum capacity, the emergent CCNN’s installed capacity rose to 2.0 million metric tonnes capacity, strengthening CCNN’s dominance as North-West Nigeria’s largest cement company.
Kalambaina Cement plant uses primary fuels such as coal, heavy oils and AGO, which helps to solve the power problem with limited downtime and further opportunities for growth and expansion.
CCNN and Kalambaina Cement Company had related core investor. Damnaz Cement Company Limited held 50.7 per cent majority equity stake in CCNN.
Abdulsamad Rabiu, who chairs the board of CCNN, holds the majority equity stake in Damnaz while his company-BUA International Limited held the 100 percent stake in Kalambaina.
This strategic ownership ensured seamless integration, especially given that the two merging companies had relevant experience and know-how in the cement industry. The business combination not only made 57 years old CCNN a stronger competitor in the cement market, but it also strengthened the company to deliver better returns to shareholders. Incorporated in August 1962, CCNN had commenced business operations in 1967 and was listed on the Nigerian Stock Exchange (NSE) in October 1993. With some 40,000 shareholders, the business combination opened a new vista of growth and opportunities for the Sokoto-based cement company.
Impressive results
CCNN is one of the highpoints of this earnings season at the stock market. With three-digit growth in all key performance indices, the company recorded well-rounded performance in the first half (H1) of 2019.
The six-month report for the period ended June 30, 2019 released at the Nigerian Stock Exchange (NSE) showed that total turnover rose by 166.14 percent to N32.15 billion in first half 2019 as against N12.08billion in comparable period of 2018. Gross profit grew by 163.07 percent from N5.47 billion to N14.39 billion.
Profit before tax (PAT) jumped by 165.3 percent from N3.66 billion to N9.71 billion. After taxes, net profit leapt by 180 per cent from N2.60 billion in first half 2018 to N7.28 billion in first half 2019.
Underlying performance ratios showed a generally stable outlook. Gross profit margin stood at 44.76 percent. Pre-tax profit margin was steadied at 30.21 percent while net profit margin improved to 22.64 per cent.
The balance sheet also showed a stronger and better-positioned company with reduced leverage and increased working capital.
Total assets rose to N356.75 billion in June 2019 compared with N347.75 billion recorded for the year ended December 31, 2018. Total equity increased from N333.49 billion in December 2018 to N340.77 billion in June 2019.
Current assets had risen from N17.28 billion to N23.13 billion while non-current assets had increased from N330.46 billion to N333.6 billion.
The first half 2019 performance places CCNN in good stead to sustain its impressive year-on-year growth and cement its leading position as the fastest growing cement company.
The company had increased total dividend payout for the 2018 business year by 235 per cent to N5.26 billion after turnover and net profit jumped by 62 per cent and 77 percent respectively.
In the audited report and accounts for the year ended December 31, 2018, CCNN’s turnover rose to N31.7 billion in 2018 as against N19.58 billion in 2017. The top-line growth was due largely to increased domestic sales and exports.
CCNN produced 0.76 million metric tonnes of cement and sold over 0.74 million metric tonnes, an increase of about 59 per cent. Sale of cement in Nigeria rose by 49 percent to N28.9 billion while exports jumped from N0.2 billion in 2017 to N2.9 billion in 2018.
Earnings before interest and taxes rose by 86 per cent to N7.9 billion profit before tax (PBT) increased by 81 percent to N7.6 billion. Profit after tax rose to N5.86 billion in 2018 as against N2.91 billion in 2017.
Most analysts believe the business combination would further boost efficiency, productivity, output and better returns for CCNN.
Stakeholders hopeful it will sustain positive growth trajectory
“The opportunities within CCNN’s key markets and its export potential are almost endless. Situated just about 100km from Niger Republic and as the nearest cement plant to key markets in Northern Nigeria, the enlarged CCNN is now poised to compete effectively and serve those markets better at a lower cost with more energy efficiency through our use of coal,” Rabiu said.
Rabiu also hinted of plan to increase the company’s production capacity, while pointing out that the merger has led to introduction of new technology, reduction in operational costs and increase in the number of transport fleet.
He said: “The Company recorded its highest domestic exports sale during the year (2018). This was facilitated by the additional output from the enlarged entity. In 2019, we hope to have the full combined capacity of the two entities. With the new capacity, CCNN is now the dominant player in its home market of North West Africa”.
The Founder and Chief Executive Officer of BUA Group said CCNN is taking advantage of its proximity to the neighbouring West African borders, which has opened a new window for the export operations and revenue generation in foreign exchange.
Yusuf Binji, Managing Director, Cement Company of Northern Nigeria (CCNN) Plc said the company will sustain its positive growth trajectory as it is now in better and more competitive position to drive growth in its home market and exports.
He said the more benefits of the 2018 business combination and ongoing strategic initiatives will become more pronounced in the period ahead as the company continues to growth with economies of scale, enhanced operations and administrative efficiencies.
Most analysts are positive about CCNN’s outlook. On the back of the first half 2019 performance, analysts at Investment One Financial Services Limited said they remained positive about the outlook for CCNN, citing the synergies from its recent business combination and market advantage.
Analysts optimistic CCNN has potentials to grow sales, improve profitability
While noting the decline in margin due to increased costs, analysts at Lagos-based Investment One said CCNN has potential to deliver improved sales and profitability.
Analysts believe that while the third quarter (Q3) may be a tepid quarter due to the rainy season, which slows construction, the company’s top-line performance may see support from potential increase in Federal Government capital expenditure spending following the appointment of executive cabinet and implementation of 2019 budget.
“In addition, the cement producer should continue to reap benefits of its merger with Kalambaina Cement if its plans to enter new market and expand market share continues to be successful,” Investment One noted
“We also draw attention to a potential drop in cost in the medium term as its new factory is designed to run on multiple energy sources (such as gas and coal); this is unlike its old factory which is run predominantly with Low Pour Fuel oil (LPFO) which is the most expensive of all energy sources. If a switch in energy sources is effectively implemented, we see potential improvements in margin performance of CCNN as we have previously seen in other players operating in the sector,” Investment One stated.
They believe the top-line growth in first half 2019 suggests the company may be recording success in its plan to expand market share to other northern regions of Nigeria, “as the North-west region may not have the capacity to absorb new volumes”.
