Merger drives CCNN’s profit margin to 5-year  

Merger drives CCNN’s profit margin to 5-year  

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The cement industry is facing increasing competitions as leading players brace up capacity to bargain for better share of the growing cement sector.

The industry saw two giants leverage mergers and acquisitions between 2017 and 2018 to expand capacity and intensify competition.

Cement Company of Northern Nigeria (CCNN) saw an improved performance in 2018 on the back of its merger with Kalambaina Cement. The performance in 2018 was sustained in the first quarter of 2019 and possibly heralds a better full year outing for the cement maker.

Corporate information

Cement Company of Northern Nigeria Plc (CCNN) is one of the oldest players in the Nigeria’s cement industry and was founded by Alhaji Sir Ahmadu Bello, the Premier of the then Northern Region and Sardauna of Sokoto.

CCNN engages in the production and marketing of CEM II type of cement in accordance with the Nigerian Industrial Standards under the brand name “Sokoto Cement”.

Incorporated on August 15, 1962 as a Limited Liability Company, CCNN commenced production of Cement five years after, with an initial installed capacity of 100,000 tons per annum at the Kalambaina plant in Sokoto state, Northern Nigeria.

The capacity of CCNN was expanded in 1985 after current president – the then Head of State, Major General Muhammadu Buhari -commissioned a second line with an installed capacity of 500,000 tons per annum brining CCNN’s total capacity to 600,000 tons per annum.

However, CCNN was forced to shut down its first line in 1986 on account of production inefficiencies, thus reducing its total capacity to 500,000 tons per annum.

 Under the administration of Ibrahim Badamasi Babangida in 1992, the Federal Government disinvested about 20% of its holding in CCNN and sold it to the Nigerian Public in a bid to improve operational efficiencies and as part of its privatization and commercialization programme.

The full privatization of CCNN would come about a decade later under the civilian administration of Chief Olusegun Obasanjo.

In 2000, Scancem International ANS of Norway, a member of Heidelberg Cement Group was appointed as core investor and technical partner of the CCNN after a public bidding for the cement company.

But with the exit of Heidelberg Cement Group in 2008, Damnaz Cement Company Limited, a Nigerian company, became CCNN’s new core investor.

Ten years after, CCNN seeking to expand its operations and take advantage of Nigeria’s growing cement sector, finalized its merger with Kalambaina Cement Company on the 24 December 2018.

With Kalambaina Cement as a subsidiary of BUA Cement Company, the latter owned by Alhaji Dr. Abdulsamad Rabiu, CON  effectively has 87.42 percent stake in the enlarged entity (CCNN PLC).

CCNN was listed on the Nigerian Stock Exchange (NSE) on October 4th 1993 and currently has a market capitalisation of N182.695 billion as at Friday, 17 May 2019.

Presently it is the only cement manufacturer in the North West region of Nigeria, giving the company easy access to markets in Sokoto, Kebbi, Zamfara, Katsina, Kano, and Kaduna states.

Yusuf Haliru Binji currently sits at the helms of affair as Managing Director and Chief Executive Officer of CCNN.

Cement Industry snapshot

Nigeria’s cement industry is facing steeper competition especially in more recent times as the three largest players- Dangote Cement, Lafarge and CCNN strategize to remain in leading positions.

Lafarge in 2017 acquired Unicem as part of efforts to boost its operations and has a total of 10.5 million tons per annum in Nigeria.

In comparison, CCNN by virtue of the 2018 merger has a total installed capacity of 2.0 million tons per annum while Dangote Cement remains undisputed leader in the market with total installed capacity of 15.0 million tons per annum.

Although the cement industry comprises some other privately held companies, the three listed companies- inclusive of BUA, parent company of CCNN-drive the local market in terms of volume and value with a minimum combined market share of 90 percent.

As CCNN and Lafarge eye greater market share through consolidation to increase capacity between 2017 and 2018, the cement continues to expand to accommodate more capacity-and more importantly, better utilisation of existing capacities.

The Cement industry outgrew the economy at 4.5 percent (vs. economy +1.93%) in 2018, recording positive growth for the first time since 2016 where the impact of lower demand and scarcity of foreign exchange as well as decline in other supporting sectors of the economy (Real Estate and Construction) resulted in cement sector contracting faster than the broader economy between 2016 and 2017.

Although growth remains far below pre-recession levels (an average of 25% between 2014 and 2015), stability seen since the introduction of I&E window, increasing reliance on local sourcing, transitioning to cost efficient energy, a growing domestic economy and infrastructure spending of the government provides room for better expansion of cement industry going forward.

 

 

Impact of merger on cement production, export market

CCNN, owners of Sokoto Cement Plant finalized its merger talk with BUA’s owned Kalambina Cement Company six months ago in a bid to expand the former’s business operations and market penetration.

Ibrahim Aliyu, former Chief Executive Officer of CCNN said last year that his company has always been outstripping the cement industry in terms of capacity utilization, however growth remains a threat due to limited expansion and absence of alternative fuel sources. Therefore, this prompted the Sokoto Cement Plant owner to acquire Kalambaina Cement’s 1.5 million metric multi-powered plant, to tackle this challenge.

The deal saw BUA Cement Company emerging the major shareholder with 87 percent stake in the enlarged entity, and elevated total installed capacity to 2 million metric tonnes (mts).

Consequently, production of the cement maker hits 5-year high at 764, 506 tonnes in 2018, indicating 64 percent rise over 466, 220 tonnes produced with 500, 000 mts in 2017. Also, volume of deliverables grew 59 percent to 764, 506 tonnes last year.

The goal of the company’s export market expansion was achieved as proceeds from Non-Nigeria markets grew astronomically to N2.85 billion in full year 2018, an uptick from N155 million recorded in the previous year.

Financial Performance

The 2018 earnings scorecards of the cement maker showed impressive performance, the best since the previous five financial years.

Top-line of the firm hits its 5-year high at N31.72 billion in 2018, having grown 62 percent from N19.59 billion, with 91 percent coming from domestic market.

Given the revenue surge, net-earnings jumped 78 percent from N3.2 billion in 2017 to N5.7 billion last year, despite elevated operational expenses and doubled tax expense.

CCNN maintained similar momentum in the first quarter of 2019. Proceeds from cement sold to customers up N16.89 billion from N5.39 billion, and jump 237 percent to N3.64 billion against N1.08 billion in the corresponding period a year earlier.

The cement maker posted stronger profitability in full year 2018, and even in first quarter 2019.

Operating and profit margin rose to a record high at 24.81 percent and 18.07 percent respectively in 2018, compared with 22.87 percent and 16.46 percent in 2017, and 12.86 percent and 8.9 percent in 2016.

This implies that the cement maker was able N248 as profit from every thousand naira earned from revenue after settling operating expenses and N180 after paying interest and taxes.

CCNN bettered margins in Q1 2019 than FY 2018, with operating and profit margin settling at 31.9 percent and 21.5 percent respectively.

Cost efficiency of the cement maker was the best in five years as the merger afforded the firm with multi-input sourcing (coal, heavy oils & gas).

Cost-of-sales to revenue ratio, which measures the fraction of production cost in total proceeds, decelerated for three straight years to 55.20 percent in FY 2018, and slimly to 54.47 percent in Q1 2019.

CCNN’s merger with Kalambaina cement skyrocketed its asset base from N24.7 billion in FY 2017 to over N340 billion in FY 2018, resulting in declines in return on asset and asset turnover.

The company, which realized N131 as profit from every thousand naira invested in assets, earned N16 in 2018 full year, and N10 in first quarter of 2019.

In similar vein, going by asset turnover metrics, the cement maker generated N9 as revenue from every thousand naira invested in 2018, compared to N96 in 2014, N76 in 2015, and N70 & N79 in 2016 and 2017 respectively. This figure fell to N5 in 2019’s first quarter.

The company’s return on equity faltered substantially in 2018 buoyed by equity expansion from N14.4 billion in 2017 to N333 billion in 2018, on the back of the merger.

In 2017, a unit of shares held translates to a return of 22 percent. This however shed to 1.72 percent last year, 1.08 percent in the first three months of 2018.

CCNN traded flat at N13.9 to bringing year to date to -28.35 percent on Friday, underperforming the NSE industrial average which has returned 2.31 percent since the 2019’s start.

 

 Israel Odubola & Segun Adams



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