Across the globe, the aim of corporate structuring is to increase a company’s value, underpin efficiency, and improve on distribution and marketing network.
Cement Company of Northern Nigeria (CCNN), the only cement company in North West Nigeria, is in a growth spurt as earnings are growing at a double digit since successfully implementing a corporate structuring exercise that consolidated its balance sheet.
Following the merger with Kalambaina (owned by BUA cement, the majority shareholder in CCNN via a stake in Damnas Cement Limited ) in 2017, the company’s installed capacity increased to 1.5 million Mt/a from 500 million Mt/a.
The new capacity has resulted in improved operating efficiency for the cement maker, making it more cost efficient, as the Kalambaina plant runs on coal, a cheap source of energy supply that can be sourced locally.
The company recently released its half year financial statement that showed improvement in key performance metrics, a stellar performance that validates management and board of directors’ focus and market penetration strategies.
For the first six months through June 2019, CCNN’s revenue surged by 166.02 percent to N32.14 billion, the highest in the company’s history. The growth was laregly driven by both price increase in recovery in volume. CCNN is the only company that magnified sales among its peer rivals as Dangote Cement and and Lafarge Africa saw revenue reduce by 3.04 percent and 1.23 percent, respectively.
CCNN has been controling direct costs attributable to projects since 2016, even amid a precipitous drop in crude oil price that stoked a severe dollar scarcity that tipped the country in its first recession in 25 years. See chart.
Gross profit surged by 163.05 percent to N14.38 billion in the period under review as against N5.46 billion the previous.
Gross margin stood at 44.15 percent in the period under review, a figure that is higher than the 38.43 percent recorded in 2015. In the past five years, cement maker has been turning top line inpresssive performance to bottom line growth.
As at June 2019, operating profit stood at N9.62 billion, which is eight times the 2017 levels, supported by improvement brought by the new plant.This translates in an ooperating profit margin (otherwise known as earmigs before interest and tax ) of 30.0 percent as at June 2019, which is nearly double 2017 level.
CCNN’s profit after tax surged by 140 percent to N3.64 billion as at June 2019, that compares with Dangote Cement’s profit growth of 5.03 percent to N119.0 billion.
Profit before tax followed the same growth trajectory as it surged by 102.05 percent to N43.36 billion in June 2019 from N2.15 billion the previous year.
CCNN has utilized its investment investment in property plant and equipment to generate higher sales as evidenced in increased fixed asset turnover ratio.
Fixed asset turn over (FAT) increased to 14.37 percent in June 2019 from 10.47 percent the previous year. Investors pay attention to this ratio because it tells them how new assets purchased by a company generates higher sales.
The cement maker has produced more income from the use of assets as its return on assets increased to 2.06 percent in June 2019 from 1.42 percent the previous year.
The return on assets ratio (ROA), often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets.
It is calculated as net income divided by total asset. A higher ratio shows a company has put its resources to work in generating profit, and shareholders crave a corporation that deliver a higher return on investment in form of bumper dividend and share appreciation.
CCNN has financial strength to expand its operations, develop new product, pay dividend, and reduce debt as cash flow from operating activities surged by 705.88 percent to N10.96 billion from N1.36 billion the previous year.
Operating cash flow margins increased to 34.11 percent in the period under review from 11.27 percent the previous year, which means the cement maker, is able to turn its sales into cash. It also shows how well the company is in managing its working capital.
Investors prefer the free cash flow yield as a measure of valuation for a firm than the price to earnings ratio because unlike profit that can be manipulated, it difficult to tinker with cash.
While CCCN has been recording strong earnings in the last 3 years, it operates in a tough and unpredictable macroeconomic environment.
The cement industry has not been spared from the pains of a slow growing economy, with the sector recording precipitous drop in growth given that it tracks the performance of the economy, closely.
Between 200-2014, the cement industry expanded at a robust CAGR of 13.70 percent. However, growth has averaged -1.0 percent in the past three years, with only a marginal recovery in growth to 4.50 percent in 2017.
Similar, the other sectors that support the cement industry- real estate and construction – have been recording slower growth.
Amid the harsh operating environment, analysts are upbeat that the federal government proposed infrastructure spend will spur CCNN to growth as the demand for cement is expected to spike.
Nigeria requires $15bn (N4.59tn at N306 to a dollar) worth of investments annually for 15 years in order to adequately develop its infrastructure nationwide, the Financial Derivatives Company, an economic and financial research firm, has said.
Rising urbanization and a growing population is portends immense opportunity for CCNN and its peer rivals.
The tax credit granted to companies for the provision of infrastructure will reduce tax liability hence bolstering the profit of cement makers in Africa’s largest economy.
Historical Background
Cement Company of Northern Nigeria Plc manufactures and sells cement in Nigeria under the brand name Sokoto Cement. The company produces CEM II type cement which is used by the home building and construction sectors in Nigeria for making cement blocks as well as for plastering and concrete works. CEM II type cement is renowned for its high early strength, rapid setting and low heat of hydration which is ideal for major construction works.
The cement brand name is taken from the founder of the company, the Premier of the then Northern Region, Alhaji Sir Ahmadu Bello, Sardauna of Sokoto. It was incorporated in 1962 and started producing cement in 1967 to meet the demand for cement needed for the expansion of Kalambaina Plant. Cement Company of Northern Nigeria Plc was privatised and a member of Heidelberg Cement Group, Scancem International ANS of Norway, was elected core investor and technical partner in 2000.
A Nigerian-based firm, Damnaz Cement Company Limited, became the new core investor in 2008 when Heidelberg divested its stake in the business. BUA International Limited acquired Damnaz Cement Company and became the majority shareholder in Cement Company of Nigeria plc and its technical partner. The company’s head office is in Lagos, Nigeria.
