Ashaka Cement Plc’s profit margins have upswing in the first quarter of the year, thanks to a favorable season that drove product volumes in Africa’s most populous nation.
The upturn in sales helped cushion the effects of rising production costs on profitability.
Investors reacted positively to the stellar performance as the company’s share price gained 10.19 percent to close at N9.95 as of 2:00pm, valuing the cement maker at N22.83 billion.
Analysts say the impressive results show the cement industry, which had hitherto suffered slow sales as a result of an economic downturn, is on the path of growth.
For the first three months through March 2017, Ashaka Cement’s net profit surged by 1285.63 percent to N2.51 billion from N155.30 million the previous year.
The growth at the top line was underpinned by a strong growth at the top-lines (Sales). Sales spiked by 144.60 percent to
N8.83 billion as the company continues to intensify its marketing and distribution network with a view to increasing share of the market.
Ashaka Cement’s net margin, a measure of efficiency and profitability increased to 24.48 percent in March 2017 as against 4.39 percent as at March 2016.
The producer of the building material’s gross margins moved to 37.37 percent in the period under review as against 11.87 percent the previous year; despite rising cost of production.
Analysts attribute the upsurge in sales to seasonality as construction activities usually pick up during the dry seasons.
Cement volume increased by +6 percent in the first quarter compared to the last, according to a recent report by Lafarge Africa Plc, Nigeria’s second largest producer of the building material.
In spite of the improved performance by cement markers in the first quarter, they still grapple with huge energy costs as militant attack on oil facilities in the Niger Delta Region forced them to switch to an expensive source of energy like the Low Pour Fuel Oil (LPFO).
A change in energy mix was a burden on Ashaka Cement as cost of sales spiked by 73.58 percent to N5.52 billion in March 2017 from N3.18 billion as at March 2016. Operating expenses were up 217.54 percent to N1.15 billion.
However, the company’s cost of sales ratios reduce to 62.54 percent in March 2017 from 88.08 percent the previous year.
Last year was horrendous for cement makers in the country as the delay in the passage of the budget, pressured consumer wallets, a weak naira and dollar scarcity undermined growth.
Nigeria’s economy shrank by 1.50 percent in 2016 due to a sharp drop in oil price, according to report by the National Bureau of Statistics (NBS).
A shortage of dollars hindered many construction firms from importing plant and machinery to meet the ever challenging demand.
Construction activities was grounded to a halt as Federal Government was unable to execute capital projects due to dwindling revenue while states couldn’t embark on capital projects due to a shortage of federal allocations.
Experts are of the view that an economic recovery will see construction activities pick by mid-year on the back of government’s economic road map.
This means the demand for building material will upturn and impact positively on the top lines (sales) of cement makers.
BALA AUGIE
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
