--Advertisement--

Ashakacem: Defending profit with cost-saving measures

'Price will crash' -- FG threatens cement producers with mass importation 'Price will crash' -- FG threatens cement producers with mass importation

Ashakacem has not been able to achieve a reasonable growth in sales revenue for the past five years running and that remains the operating story for the cement manufacturing company in the 2015 financial year. The company has been applying cost saving measures to defend profit, which enabled it to lift profit by 62% in 2014 out of a 2.6% decline in sales revenue. Sales revenue looks likely to decline for the third year running in 2015 but the company’s profit defensive strategies may still enable it to push profit up to a new high.

A drop of 15.8% in sales revenue in the third quarter was more than countered by a drop of 39.3% in administrative expenses and a fall of 45% in finance charges. Some improvement in investment income also countered an increase of 25% in selling and distribution expenses during the period.

A successful balancing of costs and incomes is the summary of the company’s operating story at the end of the third quarter. This enabled the company to defend profit margin at 25.4%, as sales revenue and profit went down at virtually equal pace.

The company closed third quarter operations with sales revenue down by almost 16% to N14.55 billion. The drop in sales revenue reflects a general slowdown in building and construction activities in line with the general slide in economic activities. Based on the performance in the third quarter, sales revenue is estimated at N20 billion for Ashakacem for the 2015 financial year. This will be a decline for the third year running and the lowest sales revenue for the company in five years. Sales volume has been sliding from the peak figure of N21.82 billion in 2012.

Advertisement

The company posted an after tax profit of N3.7 billion at the end of the third quarter, which is a year-on-year drop of 15.3%. Despite the drop, the full year profit outlook is promising based on the annualised growth rate. This reflects a sharp slowdown in profit growth in the final quarter in 2014. Of the closing net profit of N4.57 billion in 2014, as much as N4.37 billion was earned at the end of the third quarter.

The final quarter slowdown isn’t expected to reoccur in the 2015 financial year. Net profit is expected to grow by about 14% to a new peak of N5.2 billion for Ashakacem in 2015. That will be the second year the company will be growing profit against declining revenue.

The drop in profit at the end of the third quarter is accounted for by the drop in sales revenue, a relative increase in cost of sales and a rise in selling and marketing expenses. Cost of sales failed to decline as fast as turnover and therefore claimed an increased share of sales revenue. Gross profit margin therefore declined from 41.5% to 35.9% over the review period. Selling and marketing expenses rose by 25% and also claimed an increased share of sales revenue.

Advertisement

The company achieved significant cost savings in two major expenditure lines, which are administrative expenses and interest charges. It cut administrative expenses by more than 39%, which enabled it to moderate the impact of cost of sales on operating profit. Interest cost also dropped by nearly 45% during the period, which further countered the impact of the cost increases on the bottom line.

The company had no interest bearing financial obligations in the balance sheet as at the end of the third quarter. An exceptional growth in other operating income and a moderate improvement in investment income also strengthened revenue performance in the year.

Earnings per share amounted to N1.65 at the end of the third quarter, which is a drop of 15.4% yea-on-year. The company is expected to earn N2.30 at the end of the year, which will be an improvement from N2.04 in 2014. It paid a cash dividend of 45 kobo per share for the 2014 trading.

Ashakacem is one of the few companies that closed 2015 on the positive side of the share price table. Its share price advanced by 14.2% – one of the top price gainers against a drop of 17.4% in the all-share index of the Nigerian Stock Exchange in 2015.

Advertisement
Add a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected from copying.