Ashaka Cement Plc’s first quarter profit fell despite reduced production costs as the Northern Nigeria cement giant grapples with lengthy rainy rains and insurgency in the north of country that disrupts operations.
For the first three months through March 2015, Ashaka’s net income reduced by 53.45 percent to N889.01 million from N1.91 billion the previous year. Sales slid by 29.84 percent to N4.56 billion as the company seek organic growth through merger and acquisition.
Ashaka have had its operations disrupted by Boko Haram as the company is located in Gombe State, the hot spot of the insurgents.
Boko Haram has waged a six-year campaign to impose Islamic law, or Shariah, in Africa’s largest economy and biggest oil producer.
While Ashaka’s profits flounder due to political risk, it was able to reduce costs to the barest minimum.
Cost of sales reduced by 11.74 percent to N2.93 billion in 2015 as against 3.32 billion the previous year as the company increased the use of local coal in place of the expensive LPFO to power plant at factories.
This is a major cost cutting measure by cement makers in Africa largest economy.
Gross profit was down by 48.87 percent to N1.63 percent due to the sharp fall in sales. Gross profit margin reduced to 35.74 percent in 2015 compared with 48.74 percent the previous year.
Net margin, a measure of profitability and efficiency slid to 19.50 percent in the review period as against 29.50 percent last year.
Analysts say the lengthy rains witnessed in the second and third quarters of 2014 which culminated in slow construction activities resulted in weak demand for cement products.
Ashaka will be in growth spurt as it plans to invest in a significant expansion of its cement production capacity to about 4 million metric tons from the current approximately 1 million metric tons, according to the company’s website. The company will use its internally generated funds to finance the expansion plan.
The expansion in capacity will comprise debottlenecking of the existing line for additional 0.5 million metric tons and installation of a new line of 2.5 million metric tons of cement per annum, according to Suleiman Yahyah, Chairman of the board of Directors of the company, during the its Annual General Meeting held in the capital city Abuja.
“As part of the expansion project, a captive coal-fired power plant of 64 megawatts capacity will be built in order to allow a reliable and sufficient source of power for the existing plant and the new cement line”, said Yahyah.
The minority shareholders of Ashaka are part of pan- Africa entity as its parent company Lafarge Africa increased its stake in the northern cement company.
Lafarge Africa has increased its stake in Ashaka Cement through a Mandatory Tender Offer (MTO) to all minority shareholders of Ashaka Cement.
Ashaka’s EPS reduced by 53.52 percent to 33k in 2015 compared with 71k last year. Total assets increased by a mere 1.01 percent to N72.31 billion.
Analysts see the company rebound to growth if government can intensify its fight as against the insurgents.
Ashaka’s share price closed at 21.50 2:30 pm on the floor of the NSE while market capitalization was N48.14 billion.
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