Business

Nigeria cement industry bows to rising cost, records N556bn revenue

The cement sector of the economy emerged stronger with better financial performance in second quarter of the financial year ending December 31, 2021 but top three players in the industry are battling with rising cost of doing business. Cost of sales which otherwise is known as cost of doing business spiked year- on –year by 39 percent in second quarter ended June 30, 2021 as total figure for the top three players rose to N259billion compared to N186billion recorded in the comparable period of 2020. Cost of sales in the review period accounts for about 47 percent of the total revenue accrued by the cement producers in the review period.

Total revenue recorded by the top three players in the industry (Dangote Cement Plc, Lafarge Africa Plc and BUA Cement Plc) stood at about N556billion increasing by 44 percent year-on-year compared to N386billion sales recorded in the industry in second quarter in 2020. Operators in the industry have attributed the surge in sales volume to an increase in housing infrastructure and commercial constructions in the country. Despite the rising cost of sales which took its toll on profit in the review period, investors in the industry have reasons to jubilate as profit after tax (PAT) increased by 42 percent from N116billion as at June 30, 2020 to N164billion as at June 30, 2021. This implies that the industry was able to retain about 30 percent of its sales in the review period as profit, a development which could be regarded as cheery for shareholders.

A breakdown of the data obtained from the Nigerian Exchange Limited (NGX) indicated that Dangote Cement Plc, a subsidiary of Dangote Industries Limited (DIL) remains a leading force in the Nigerian cement sector and by extension in Sub-Saharan Africa (SSA) as it accounts for over 64 percent of sales recorded in the industry in the review period. Dangote Cement grew its revenue by 57 percent YoY from N227.67 billion in Q2, 2020 to N357.89billion in the review second quarter financial period.

The leading cement manufacturer with presence in a number of some other African countries also accounted for about 62 percent of the industry’s profit in the review period. Meanwhile Dangote cement also was accounted for more than half Cost of Sales in the industry at N148billion, representing 57 percent. Yet the company remains toast of investors with Earnings per Share (portion of a company’s profit attributed to share-holders) increased by 54 percent from 385Kobo in Q2, 2020 to 592Kobo as at second quarter ended June 30, 2021. Group Managing Director, Dangote Cement, Michel Puchercos, explaining the facts behind the performance said, “We are pleased to report a solid set of the good results for the first half of the year. Our performance reflects the strong demand across the Group, with increases in revenue and profitability, compared to the same period last year.

This strong intrinsic performance is magnified by the lower Q2 2020 results because of COVID-19. The growth trend continues, and we are focused on meeting the strong market demand across all our countries of operation.” On the steps taken by the company to protect the stakeholders, he said, “We also continue to maintain a strong focus on health and safety measures in all our engagements with stakeholders. We have learned a lot over the past year on how to mitigate risks associated with COVID-19.

We remain committed to protecting our team members and communities by being fully compliant with local laws and regulations. We are improving the output of our existing and new assets and I am happy to announce that our 3 Mt Okpella Plant, Edo State, is on track to come on stream in the next quarter.”

Puchercos stated that the company’s Alternative Fuel project which focuses on leveraging waste management solutions, reducing CO2 emissions and sourcing material locally is at an advanced stage while procurement and installation of the necessary equipment across all plants is ongoing. He added that Dangote Cement is focused on sound governance, saying, “we are leading the way with our commitment to sustainability and best practices.

We are driven by the goal of achieving the highest level of governance and building a sustainable brand for all stakeholders. Transparency and consistency are at the core of every part our business culture” The Dangote Cement group sales volumes hit 15.3 metric tons as at end of second quarter in 2021. According to the company’s unaudited results for the period under review, Nigerian operations accounted for a sales volume of 9.87 Mt while pan African operations contributed the balance of 5.5Mt. Dangote Cement became the first Nigerian listed company to report its financial results using XBRL format with the IFRS taxonomy.

Adopting XBRL reporting format will strongly benefit Dangote Cement’s existing and potential investors. It represents another step in continuing efforts to modernize and enhance transparency of, and access to, companies’ disclosures. Dangote Cement Plc is Sub-Saharan Africa’s largest cement producer with an installed capacity of 45.6Mta capacity across 10 African countries and operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales, and distribution of cement. The Group has a production capacity of 32.3Mta in its home market, Nigeria. It has three cement plants in Nigeria, Obajana plant in Kogi state, with 16.3Mta of capacity across four lines; Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta and Gboko plant in Benue state has 4Mta.

Through recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighboring countries. In addition, Dangote Cement has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), Zambia (1.5Mta). Dangote Cement has a long-term credit rating of AAA(NG+) by GCR and Aa2.ng by Moody’s due to its market leading position, significant operational scale and strong financial profile evidenced by the Company’s robust operating and net profit margins relative to regional and global peers, adequate working capital, satisfactory cash flow and low leverage. BUA Cement Plc is emerging a force to reckon with in industry as ii comes behind Dangote Cement, with revenue standing at N124.28billion representing a year-on-year growth of 23 percent. Cost of sales increased by 19 percent to N66. 1billion in the same period while PAT at N43.4billion increased by 25 percent from N34.8billion in Q2, 2020.

Earnings per share went up by 24 percent to 128Kobo in the period under review. Industry experts have applauded the extra capacity and healthy competition brought into the cement industry by BUA Cement to have kept cement prices stable despite increased production cost profiles which increase the financial power of consumer to get more volume.

In what analysts tagged strategic maneuvering of fierce competition, BUA generated third largest capacity, trailing Dangote and Lafarge Cement closely in the market. Chief Executive of Lafarge Africa Plc, Khaled El Dokani, also commenting on the performance of the company in the review period said: “Our performance remained resilient in Q2 2021, with net sales (revenue) of 29.4 percent, recurring EBIT of +11.1 percent and net income of 25.7 percent, compared to previous year. We are equally pleased with the progress we are making on sustainability; our use of affordable clean energy and our agro-ecology footprint are in accordance with the acceleration of our net zero pledge”. Lafarge Africa’s recorded the second largest cost of sales at N44.6billion, 36 percent increase YoY over N32.76billion recorded in Q2, 2020.

The company’s PAT and EPS increased by 26 percent and 25 percent to N19.2billion and 119kobo respectively in the review period. Speaking on the outlook for the second half of the financial year ending December 31, 2021, El Dokani expects good demand momentum to drive revenue adding that Lafarge will continue to maximize volume opportunities across our markets and actively manage our costs. “We will consolidate our efforts in Sustainability,” he added. Lafarge Africa is a member of Holcim Limited, a world leader in building solutions accelerating world’s green transformation. Listed on the Nigerian Exchange Group, Lafarge Africa is actively participating in the urbanization and economic growth of Nigeria, the largest economy in Africa.

 

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