Since the ban on importation of bagged cement into the country, Cement makers have deployed embarked on various expansion plans aimed at capturing the huge market available in the country.
The competitive structure in the cement industry has allowed for a non-aggressive rivalry as each cement maker appear to serve distinct market, CCNN is focused on the Northern market, the other two cement makers serve the Southern part of the country.
Going by a recent publication by the Center for Affordable Housing Finance in Africa (CAHF), housing production in Nigeria is at approximately 100,000 units per year compared to minimum 1,000,000 units needed yearly to bridge the estimated 17 million housing deficit by 2033 at current annual population growth rate of 3.5% with the cost estimated at nearly N6 trillion (US$16 billion). This huge gap provides a goldmine for cement makers in the country to tap.
CCNN was incorporated as a Limited Liability Company on the 15th August 1962 and commenced business in 1967, listed on the Nigerian Stock Exchange (NSE) in 1993.
Cement Company of Northern Nigeria Plc finalized its merger with Kalambaina Cement Company Limited in December 2018, to enlarge its business operation. The merger resulted in BUA Cement Company Limited, being the major owner of Kalambaina Cement Company Limited, Sokoto to have 87.42% stake in the enlarged entity.
Since its entrance into the market, CCNN has evolved from being a niche cement operator into one of the key suppliers of cement in Nigeria, operating 2 million Metric Tonnes Per Annum (MTPA) across its two lines namely 0.5 million MTPA plant, installed in 1985, 1.5 million MTPA plant, commissioned in 2018 configured to operate on multiple fuel sources including coal and LPFO.
It also has added a 32MW captive power plant to power its non-kiln operations In December 2018.
Figures from its nine months result for the period ended 30th September shows that the cement is already reaping the gains of merger exercise with Kalambaina Cement Company consummated earlier this year.
The period saw its net profit ballooned 118.3percent to N8.76bn from 4.01bn the the same period in 2018.
The company recorded strong growth in revenue in Q3’19 up 38.5percent, buoyed by a ramp-up in volumes, as capacity utilization increased at the Kalambiana plant.
However, energy cost almost doubled from N7.45bn in third quarter 2018 to N13.65bn the same period this year. 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.
After the merger, CCNN’s installed capacity rose to 2.0 million metric tonnes capacity, strengthening CCNN’s dominance as North-West Nigeria’s largest cement company.
The Sokoto-based cement company’s Net cash flow from operations improved to N14.6 billion in Q3 from N10.9 billion in half-year. The improvement in this front was primarily supported by cash proceeds from sales of cement in the third quarter.
According to analysts at Cordros Capital, CCNN’s significant cost pressure did not come as a surprise considering its expensive imported coal which still dominates its energy mix, and the fact that the company still relies on third-party transportation to move the coal to its plants.
“Thus, despite the strong topline performance, the uninspiring PAT run-rate could spike a negative reaction to the stock in today’s trading,” the report said.
Last week, CCNN released a proposed scheme of merger with Odu Cement Plc. After this scheme merger has been approved by shareholders, all the assets, liabilities, licenses and undertakings of CCNN, including employees, real property and intellectual property rights, would be transferred to Obu Cement, while the entire issued share capital of CCNN comprising 13.14bn would be cancelled and CCNN be dissolved without being wound up, lastly, each shareholder in CCNN shall be entitled to receive one scheme share for each CCNN share held as at the terminal date.
Going by the scheme document, the total value of shares to be issued for the 13.1 billion shares owned by the scheme shareholders is N460. This implies that the transaction values CCNN at N35per share, compared to its current market price of N17.50 at the close of trading on Friday.
The 6MTPA Obu Cement, owned by Abdulsamad Rabiu and Isiaka Rabiu is located in Okpella, Edo-State and configured to operate on multiple fuel sources including gas and liquid pour fuel oil.
Its main source of gas is a 30km gas pipeline built by Obu Cement from the Ajaokuta gas line to Okpella. The cement plant is also equipped with a 50MW captive gas power plant which will supply the plant’s non-kiln operations.
The new entity will now have installed capacity of 8MT, split across Obu Cement (6MT), Kalambaina (1.5MT), and CCNN (0.5MT).
According to the scheme of merger, CCNN will be delisted from the Exchange, while Obu Cement will be listed on an indicative date of January 8, 2020. From a 12.6percent ownership of CCNN, minority shareholders will now hold an 11.0percent stake in the enlarged Obu Cement, while BUA Cement Company Limited and Abdulsamad Rabiu will hold 33.9percent and 55.1percent stakes, respectively.
According to the CCNN, the new merger in addition to meeting the demand from customers in the core regions in the country would also position the company to distribute its products in new geographical markets, creating the potential for additional shareholder value creation.
In its notice of merger, the proposed merger would provide opportunities for significant cost savings and improved operational efficiencies by streamlining operations and optimising the use of combined resources.
OLUFIKAYO OWOEYE
