Company Analysis

CCNN: Assets multiply, dwarf profit

 

Cement Company of Northern Nigeria (CCNN) multiplied the size of its
balance sheet more than 14 times to almost N348 billion in 2018. A
corresponding increase in earnings however failed to happen in the
year, which left returns crashing. Despite strong increases of 62% in
sales revenue and 78% in profit, the cement producing company showed
gross inability to convert the assets into earnings in 2018.
The development followed the merger with Kalambaina Cement Company Ltd
during the year, which added more than N200 billion in fixed assets to
the balance sheet. CCNN issued additional shares of 11.88 billion,
which swelled the equity portion of the balance sheet, multiplying
outstanding shares ten and half times to over 13 billion.
The additional assets may yet contribute to the company’s earnings but
that didn’t happen in 2018. Asset turnover – the ability to convert
assets into revenue fell from 0.8 in 2017 to 0.1 in 2018. This means
the revenue produced by the naira of assets dropped from roughly 80
kobo to 10 kobo during the year. Whether this drop would be redressed
in the current financial year is the development to watch out for on
CCNN in 2019.
The company finished the 2018 financial year on strong profit growth
as expected. After tax profit grew by 78% to N5.73 billion – just on
target of the projected profit region of N6 billion. This is a strong
profit growth for the company for the second year, having raised after
tax profit by more than one and half times in 2017.
The profit growth was however dwarfed by over 1,000% expansion in the
volume of shares. A sharp drop in rates of return and loss of earnings
and dividend per share capacities by existing shareholders are the
fallouts of the merger. Their gain however is the increased productive
capacity for future earnings.
Sales revenue grew by 62% to N31.72 billion for CCNN at the end of the
2018 financial year. This is an accelerated growth from the 39%
increase in 2017. It is slightly ahead of the projected sales revenue
region of N27 billion for CCNN in 2018. The company gained a new
momentum in sales revenue in 2017, which it sustained in 2018.
The strength to defy economic slowdown to grow sales revenue came from
the advantage of being in the building materials business. The company
counts on firm product demand hinged on the ability to pass on
increased costs to consumers.
Some major costs moderated amidst strong revenue growth, which enabled
the company to grow profit ahead of sales revenue. As in the preceding
year, the ability to convert revenue into profit was significantly
enhanced in 2018. Net profit margin improved from 16% at the end of
2017 to 18% in 2018.
Significant cost moderation happened in respect of cost of sales,
which grew by 48% against the 62% growth in sales revenue. The cost
per unit of sales therefore declined from 60 kobo in the preceding
year to 55 kobo at the end 2018. This enabled the company to lift
gross profit by a clear 83% to N14.21 billion in 2018. Net finance
cost was flat at N283 million, which also saved cost for the company.
Other main cost elements however grew well ahead of sales revenue and
did not afford the company any cost savings during year. These are
selling/distribution expenses, which grew by over 80% to N1.57 billion
and administrative cost, which doubled to over N5 billion.
The massive increase in the volume of shares diluted the company’s per
share data considerably. Earnings per share dropped from N2.57 per
share at the end of 2017 to 44 kobo in 2018. Dividend per share also
dropped from N1.25 per share to 40 kobo per share during the same
period. Qualification date for the dividend is 1st July and payment
date is 26th July 2019, according to the company’s statement.

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