Cement Company of Northern Nigeria Plc
The performance of Cement Company of Northern Nigeria Plc in 2011 shows that there is hope for its shareholders in the years ahead despite the glut in the cement industry, writes Eromosele Abiodun
In the last few years, local manufacturers of cement have had to battle to survive following the negative impact of cheap imported cement on their profitability. Only last week, Dangote Cement Plc, the undisputed leader in the cement industry shut down its factory in Gboko, Benue State, saying that it was no longer profitable to continue local manufacturing due to the activities of importers.
Also last week, there were reports in the media that Ashaka Cement Plc has in the last few months suffered massive price depreciation due to glut in the industry. Another player in the sector, Cement Company of Northern Nigeria (CCNN) Plc, has also had its fair share of the situation in the cement industry in the last few years.
But its performance in 2011 reflects the success of sustained growth initiatives and reassured on the prospects of the company in the years ahead.
Similarly, the continued optimisation of existing production capacity and planned erection of a new production line to increase production capacity up to 1.5 million tonnes per annum as well as investments in energy would come to bear on future performance. Also, the planned recapitalisation of the company, which is expected to inject N45 billion, would impact positively on the operations of the company, putting it in strong position to sustain expansive growth strategy without falling into the trap of financial mismatch.
Over the years, CCNN has benefited from a stable management under a value-minded chief executive and the commitment of the core investor to long-term growth is expected to provide appreciable impetus for stable growth.
CCNN recorded a well-rounded performance in the immediate past year with significant improvements in profitability and strong balance sheet. Audited report and accounts of CCNN for the year ended December 31, 2011, showed a more efficient cost management and appreciable growth in sales underpinned substantial growth in profit and returns to shareholders.
With gross and pre-tax profit margins improving from 36.8 per cent and 15.7 per cent in 2010 to 45.2 per cent and 23.7 per cent respectively in 2011, return on equity increased from 26 per cent to 33 per cent while return on total assets improved from 16.3 per cent to 26.2 per cent.
The report also showed considerable improvements in financing structure and liquidity, providing a positive balance sheet support that enabled top-line performance to trickle down into substantial earnings to shareholders.
CCNN emerged with a better financing position with zero financial leverage and significant improvement in equity funding. The company’s debt-to-equity ratio dropped from 23 per cent in 2010 to zero in 2011 while the proportion of equity funds to total assets increased to 56 per cent as against 45 per cent in 2010. Current liabilities/total assets ratio improved from 41 per cent to 31 per cent while long-term liabilities/total assets stood at 13.2 per cent in 2011 as against 14 per cent in 2010.
CCNN’s total assets had increased by 17 per cent from N10.72 billion in 2010 to N12.6 billion in 2011. Permanent assets improved marginally by 5.0 per cent from N5.41 billion to N5.68 billion while current assets grew by 30 per cent from N5.3 billion to N6.9 billion.
Total liabilities dropped marginally from 5.87 billion to N5.57 billion. Current liabilities had dropped by 11 per cent from N4.4 billion to N3.9 billion corresponding with similar increase in long-term liabilities from N1.5 billion to N1.65 billion. The paid-up share capital remained unchanged at N628 million but shareholders’ funds grew by 44.5 per cent to N7 billion as against N4.85 billion in 2010.
CCNN recorded improvement in cost management and productivity during the year. Total cost of business-excluding finance charges, dropped by six percentage points from 88 per cent in 2010 to about 82 per cent in 2011. At constant estimate, there were improvements in employee productivity and overall productivity.
However, there were no enough data to determine the actual average contribution of each employee in relation to staff cost in the immediate past year.
Both actual and underlying profitability measures showed well-rounded improvement in profitability. With sales growing by 24.5 per cent, improved cost management impacted significantly on the bottom-line as profit before tax jumped by 88 per cent.
Turnover rose from N11.2 billion to N13.92 billion. Cost of sales meanwhile inched up by 8.0 per cent to N7.63 billion in 2011 as against N7.07 billion in 2010. Gross profit grew by 53 per cent from N4.11 billion to N6.3 billion. Operating expenses stood at N3.74 billion in 2011 compared with N2.76 billion in 2010.
Non-core business income improved by 33 per cent from N715 million to N948 million. Interest expenses however dropped by 37 per cent from N312 million in 2010 to N195 million in 2011.
With these, profit before tax nearly doubled at N3.3 billion in 2011 in contrast with N1.75 billion in 2010. Profit after tax also jumped from N1.3 billion to N2.30 billion, indicating earnings per share of N1.83 in 2011 as against N1.01 in 2010.
The board of the company has recommended distribution of about 25 per cent of net profit to shareholders, translating into a gross dividend of N566 million and cash dividend per share of 45 kobo. Dividend cover stood at 4.07 times. With the company’s earnings retention policy, net assets per share rose by 44.3 per cent from N3.86 to N5.57.
Besides, underlying profitability indices showed a generally positive outlook. Gross profit margin improved from 37 per cent in 2010 to 45 per cent in 2011. Average pre-tax profit per every unit of sales increased from about 16 per cent to 24 per cent. Return on equity appreciated from 26 per cent to 33 per cent while return on total assets increased from 16 per cent to 26 per cent.
The liquidity position of the cement company improved considerably. Current ratio, which broadly indicates ability of the company to meet emerging financing needs, improved from 1.21 times in 2010 to 1.76 times in 2011. The proportion of working capital to total sales also improved from 8.1 per cent in 2010 to 21.4 per cent in 2011. Debtors/creditors ratio stood at 32 per cent in 2011 as against 20.7 per cent in 2010.
Control and Structures
CCNN is a wholly-owned Nigerian company with more than 36,000 shareholders. BUA International Limited-through its wholly-owned subsidiary-Damnaz Cement Company, holds 50.72 per cent majority equity stake. Nasdal Bap Nigeria Limited holds the second largest equity stake of 11.48 per cent.
The President of BUA International, Alhaji Abdulsamad Rabiu, chairs the board of directors while Mr. Alf Karlsen remains the Managing Director and Chief Executive. CCNN has signed on to the code of corporate governance. Broadly, the company complied with relevant provisions of the code.