CCNN Loses High Speed Growth, Dashes Hopes On Returns
Cement Company of Northern Nigeria’s [CCNN] highway drive to profit lost much speed in the third quarter. The hopes for rebuilding rates of return and per share values in the post-merger trading have faltered.
Two key operating strengths had kept the high growth momentum up in the second quarter – growing sales revenue and improving profit margin. The company suffered great setbacks on both in the third quarter.
Third quarter operations looked much like a cooling off period for the cement producing company after finishing half year at top speed. Sales revenue generated per quarter dropped from an average of over N16 billion at half year to N10.4 billion in the third quarter.
An increase of 38 percent in sales against the corresponding quarter last year is relatively an upward creep compared to the year-on-year leap of 166 percent at the end of half year. That has lowered the year-on-year sales revenue growth to 117 percent at the end of the third quarter and the full year sales revenue outlook for the company has dimmed considerably.
A trend of improving profit margin entered a reverse gear in the third quarter. Net profit margin had improved from 18 percent at the end of last year to 21 percent in the first quarter and further to 22.6 percent at half year. It declined to 20.6 percent at the end of the third quarter following a sharp drop to 14 percent within the third quarter.
Rapidly growing revenue and improving profit margin were the functions of top speed growth in profit recorded at the end of half year. The loss of momentum in the two areas saw a sharp slowdown in profit at the end of the third quarter. After tax profit had grown by 168 percent year-on-year at the end of June; it decelerated to 118 percent at the end of September 2019.
The company generated an after tax profit of N1.48 billion in the third quarter, a sharp drop from a quarterly average profit of over N3.6 billion at the end of half year operations. With that, the full year profit expectation for CCNN has thinned down drastically.
The company needs the top speed growth in profit to enable it rebuild rates of return and earnings per share after sharp drops that resulted from its merger with Kalambaina Cement Company Ltd. High profit growth had raised hopes for a quick rebound in returns and per share numbers. The hopes are not completely dashed but they have been undermined by the comparatively poor outing in the third quarter.
The merger last year has put in the hands of management a big job of converting the big assets gained into big earnings. The managers did just that in the first half of the year but the strength of that accomplishment was lost in the third quarter.
The year-on-year position shows a turnover of N42.51 billion at the end of the third quarter operations in September 2019. That represents a major slowdown from 166 percent at half year to 117 percent at the end of the period.
This is contrary to the expectation that sales revenue growth would accelerate in the second half. Sales revenue projection is revised significantly downward from N70 billion to N53 billion for CCNN at the end of 2019. This means the year-on-year revenue growth is expected to slow down further to 67 percent at full year.
The company posted an after tax profit of N8.76 billion at the end of September 2019, which is a year-on-year growth of 118.5 percent, slowing down from 168 percent at half year. The profit figure is already ahead of the 2018 full year profit of N5.73 but fell far
short of expectation.
The full year profit projection is revised down from N15 billion to the region of N10 billion for CCNN in 2019. This indicates that a further sharp slowdown in profit growth to 74 percent is to be expected. The company raised after tax profit by 78 percent last year.
CCNN experienced pressure from rising costs in all the main cost areas in the third quarter. Cost of sales grew ahead of sales revenue at 120 percent to over N24 billion against the 117 percent rise in sales at the end of the third quarter. That encroached on gross profit margin during the period.
Selling/distribution expenses also grew well ahead of sales revenue at about 172 percent to N2.62 billion. This means the cost of producing and distributing/selling a naira of the company’s products has continued to increase.
Even administrative cost that provided a cost saving area at half year claimed an increased share of sales revenue in the third quarter. It grew slightly ahead of sales revenue at 119 percent to N4.21 billion.
The process of rebuilding rates of return, per share values and other key indicators in the post-merger trading has faltered. Asset turnover at 0.1 at the end of the third quarter is a far cry to the pre-merger ratio of 0.8 at the end of 2017. Return on equity was a piddling 2.6 percent at the end of the third quarter against 22.4 percent at the end of 2017.
Earnings per share amounted to 67 kobo at the end of the third quarter, which is already ahead of the 44 kobo earned in all of 2018. It is however nowhere close to the N2.57 generated at the end of 2017. The full year expectation is revised downward from N1.14 to 76 kobo per share for CCNN in 2019.
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