Published On: Sun, May 27th, 2018

Bigger prospects for Cement firms as govt pursues infrastructural development

…Dangote still dominates the industry

By Okey Onyenweaku

Cement manufacturers in the country are on the edge of an unprecedented explosion in product demand as the federal government gets set to heavily increase expenditure on infrastructure as a prelude to convincing voters to give it a second bite at the governance cherry in 2019.

Dangote cement factory

To be sure, cement manufacturing in Nigeria has become a goldmine for manufacturers with first mover advantages as competition among top players grows stiffer. The foray of cement companies into other African countries has also attracted huge attention. Three major Cement companies with competitive dominance include Dangote Cement, Lafarge Africa(Wapco) Cement and the Cement Company of Northern Nigeria (CCNN).

As the three companies go for bigger slices of blossoming market analysts note that Nigerian companies collectively produce over 60million metric tonnes of Cement annually. Dangote produces 45.6million metric tonnes annually, Lafarge has a capacity of 12 million metric tonnes while the BUA group with its subsidiary, Cement Company of Northern Nigeria (CCNN) has a production capacity of 10million metric tonnes. A few smaller companies make up the balance.

Corporate finance specialists have noted that despite growing sales prospects the operating performance of the market major behemoths has been mixed. For instance, Dangote Cement performed impressively in the first quarter of 2018, Lafarge recorded a startling loss of N2billion. But the BUA Group which is not listed on the local bourse, Nigerian Stock Exchange (NSE)shows a modest but optimistic result.

Dangote Cement Beats the odds

…Posts N108.4b pre-tax Profit

Dangote Cement Plc, posted a profit before tax of N108.4 billion in the first quarter of 2018.

This was in contrast to the N77.3 billion posted in the corresponding period of 2017, indicating a 40.2 percent growth year-on-year.

Despite the harsh operating environment, management of the cement producer proved to be focused and strategic as it generated significant revenue in the first three months of 2018.

Dangote Cement’s revenue in Q1 2018 appreciated by 16.3 percent to N242.1 billion compared with N208.2 billion in Q1 2017.

The company which dominates cement production in Africa grew its gross profit by 20.3 percent to N144.8 billion in Q1 2018 from N120.4 billion in Q1 2017, while profit from operating activities closed the business year at N103.8 billion as at March 31, 2018, against N83.3 billion achieved previously.

The company’s statement of account showed that after-tax deduction, administrative expenses, selling and distribution expenses notwithstanding, its profit grew 29.1 percent to N72.1 billion from N55.9 billion posted in March 2017.

While the firm’s total assets stood at N1.72 trillion compared with N1.67 trillion in the corresponding period of last year, the total liabilities stood at N854.7 billion as at March 31, 2018, against N884.5 billion as at March 31, 2017.

At the end of the business period, the firm’s Earnings Per Share (EPS) increased in Q1 2018 by 23.9 percent to N4.20k from N3.39k in Q1 2017.

Dangote Cement Plc had in December 2017 rewarded shareholders with higher dividend as revenue increased by 31per cent to N805.6 billion from N615.1 billion in 2016. Details reveal that while sales from the three plants in Nigeria contributed N552.36 billion to the group’s revenue, the balance of N258.44 billion was accounted for by plants in other African countries. Revenue attributable to Nigeria grew by 29.6 percent while that from Pan-African operations rose by 32.5 percent.

Profit before tax rose by 60.1 per cent from N180.9 billion to N298.6 billion, while profit after tax grew by 43 per cent to N204.2 billion, from N142.9 billion in 2016. Shareholders of the company took home a dividend of N10.50 per share, which translate to N178.9 billion as against a dividend of N8.70 kobo per share that was paid the previous year.

Dangote Cement also plans to invest heavily to the tune of $350 million on capital projects as its shares gained 6.08 Year -To -Date.

Huge debt pulls Lafarge Africa to a loss

Investors in Lafarge Africa Plc, have kept a long face as the company faltered in operating performance as it posted a disappointing loss in the first quarter, 2018.  The company recorded a loss after tax of N2.0 billion in the first quarter (Q1), 2018 compared to a profit after tax (PAT) of N5.16 billion recorded in the same period of 2017.

It also posted a loss before tax (LBT) of N2.94 billion from a profit before tax (PBT) of N9.44 billion recorded a year ago.

Revenue of the cement producer dipped 0.8 percent to N80.64 billion in the Q1 of 2018 from N81.31 billion in the same period of 2017.

Shares of the company depreciated last year to date by 9.1 percent to N40.50 from N44.89 traded the previous session, losing N4.39 kobo per share.

Whereas Lafarge Africa Plc is finetuning strategies to cut debt in the next two years and try to enhance its chances of returning to profitability.

Reportedly, the company is looking for avenues of expanding its frontiers and boost its profitability in future. This strategy may include raising additional funds to the tune of N100bn.

Lafarge Africa’s problem had worsened last year as reflected in the loss after tax of N34.601 billion for the year ended December 31, 2017, compared with a profit after tax of N16.898 billion in 2016. But the audited results showed that Lafarge had achieved revenue of N299.153 billion, up 36 per cent from N219.714 billion in 2016.

Its problem was compounded when its total loans and advances increased to N256.546 billion, from N104.709 billion in 2016.

The company was still able to pay a dividend of N13.010 billion, translating to 150 kobo per share, up from 105 kobo paid the previous year despite the loss. The company plans to raise N100 billion in the future.

BUA GROUP (CCNN)Plans new 1.5m metric tonnes

Cement Company of Northern Nigeria (CCNN) financial statements for the year ended December 2017 showed that Revenue rose up 35% from ₦14 billion in 2016 to ₦19.5 billion in 2017.

Profit before tax also leapt 141% from ₦1.7 billion in 2016 to ₦4.2 billion in 2017. Similarly, Profit after tax increased by 157% from ₦1.2 billion in 2016 to ₦3.2 billion in 2017, the highest in the company’s history.

CCNN has paid a dividend per share of ₦1.25 per share amounting to ₦1.57 billion.

The company’s impressive results came as a result of the increase in sales price. The company’s average price per tonne rose by 46% from ₦28.8 million in 2016 to ₦41.9 million in 2017. This magic balanced out the fall in production and cement deliveries. CCNN’s production for the year fell slightly from 486,655 tonnes in 2016 to 466,220 tonnes in 2017.

Cement Company of Northern Nigeria, CCNN, which is a subsidiary of BUA Group had planned a new 1.5million metric tonnes per annum plant to be completed before the third quarter (Q3) of 2017.

Investors in the shares of CCNN have gained 152 per cent year to date.

Production of Cement in Nigeria dates back to 1957. Before the new entrants into the market, three cement plants were commissioned by the Northern, Eastern, and Mid-Western regional governments.   Ashaka Cement, Benue Cement Company (BCC), West African Portland Cement Company (WAPCO) and Cement Company of Northern Nigeria (CCNN), Dangote Cement, BUA Group which now owns CCNN and others came on stream later.

Demand for cement was estimated at over 10 million metric tonnes in the year 2006.  This gradually grew to 11 million and 13million tonnes in 2010 and 2015 respectively. Recently, the cement companies have acquired higher production capacities.

The cement industry had suffered challenges which include high initial setup costs, High distribution costs and unfavourable Government Policies.

Other impediments in the cement industry have been insufficient Local Capacity, Erratic Power Supply, and Technological Inadequacies.

However, the sector has the potential to grow if the promises of the new government to commit funds and build massive infrastructure in the country.

Managing Director of HIGHCAP Securities Ltd, Mr. David Adonri reckons that Cement industry would benefit from the massive infrastructure projects of the government.

‘’Lafarge Africa’s problem is company specific’’, he said adding that there is a huge market for the cement industry in Africa.

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