CCNN: Expect outstanding profit growth

Cement Company of Northern Nigeria (CCNN) shows a pattern of rise and fall in profit but this year looks very much like a big upturn for the cement manufacturing firm. Sales volume has been static for the company in the past two years but an accelerated growth in sales revenue looks likely from 2014 operations. Accelerating sales and cost savings have given a big push to profit performance. The weak profit recovery seen last year can therefore be expected to strengthen and the company can look forward to closing its 2014 operations with an outstanding profit growth.

Alf Karlsen, managing director/chief executive officer of the company, is in the process of rebuilding profit after a major drop in 2012. He had made an impressive headway as at the end of the third quarter with after tax profit well ahead of the 2013 full year figure at the end of September. He has achieved an all-round cost reduction with which he has improved profit margin. With growing revenue and improved profit margin, he can be expected to close 2014 operations with one of the strongest profit advances in the year.

The company closed third quarter operations with sales revenue of over N12.27 billion, which is a marginal increase of 1.7% year-on-year. The full year outlook is indicating a much stronger growth based on the growth rate at the end of the third quarter.

If the current growth rate is maintained to full year, turnover is expected to stand in the region of N17.8 billion for CCNN in 2014. This will be an increase of 12.7% over the sales revenue figure of N15.79 billion in the preceding year. This will be the strongest revenue growth since 2011.

After tax profit amounted to N1.73 billion at the end of the third quarter, which is a major advance of 56.8% over the corresponding figure in 2013. This represents a slowdown however from N1.59 billion the company posted in the second quarter. Based on the current growth rate, net profit is projected at N2.6 billion for CCNN at the end of the year. This will be an exceptional growth of 83.1% in 2014, leading to a new peak in profit for the company and also representing a full recovery from a drop of about 48% in after tax profit in 2012.

The full year profit projection is subject to variations that might arise from loss of revenue growth momentum or profit margin in the final quarter. Profit growth slowed down significantly in the third quarter and a further slowdown in the final quarter may not be ruled out.

The company has no established trend in profit performance and this has been the experience for many years. Profit outcomes have followed a random walk of rise and fall. The closing profit figure of N1.42 billion in 2013 is below the N1.81 billion reported in 2009 and the N1.20 billion in 2012 was down from the 2008 figure of N1.53 billion. If the projected profit for 2014 is attained, the company will be able to beat its profit peak of N2.30 billion attained since 2011.

The high growth in profit against moderate improvement in sales revenue indicates that a significant cost reduction has occurred in the company’s operations this year. It is indeed an all-round cost reduction for the company in the third quarter. The biggest cost saving came from distribution/administrative expenses, which dropped by 35.4% to N1.88 billion year-on-year at the end of the third quarter. That is followed by interest expenses, which went down by 21.6% and then cost of sales, which declined marginally at 2.4% during the same period.

Profit margins have improved significantly mainly from the cost reductions achieved. Gross profit margin improved from 33.7% to 36.4% over the review period. Net profit margin has improved from 9.1% in September last year to 14.1% at the end of the third quarter of this year.

The drop in interest expenses follows a drop of 48% in short-term financial liabilities from the last year’s closing figure but a long-term borrowing of over N800 million has been contracted this year. Other major changes in the balance sheet during the period include a rise of 77.8% in trade debtors and other receivables and a drop of 31.2% in trade creditors and other payables.

The changes in the balance sheet resulted in a strong cash flow position for the company with net cash generated from operating activities advancing by 113% to nearly N2.0 billion. This was much more than the cash requirements for investing and financing activities, leaving net cash increase of over N470 million at the end of September.

The company earned N1.38 per share at the end of the third quarter, up from 88 kobo in the corresponding quarter in 2013. The full year outlook is N2.07 per share for CCNN in 2014, an anticipated leap from N1.13 at the end of 2013. The company paid out 70 kobo per share in cash dividend for its 2013 operation on August 20, 2014.