BUA embarks on production expansion

BY EMEKA EJERE

BUA Cement Plc is seeing a larger cement market in the coming years and expanding capacity to minimise potential supply deficit. Last week, its chairman, Abdulsamad Rabiu, projected that Nigeria’s cement consumption would rise to about 200kilogrammes per head in the coming years.
Rabiu, who said this in a statement titled ‘BUA Cement Plc declares FY2020 profits of N95bn’, noted that there was still room for immense growth in the Nigerian cement industry.
The statement said Nigeria with a population of about 200 million people was still greatly underserved by the cement industry, pointing out that the current consumption levels were at about 130kg per head compared to smaller African countries with consumption levels at about 170 to 180kg per head.
The cement firm, which reported N209bn revenue in its unaudited 2020 full year, is ramping up its investments in new plants to be able to meet this potential demand as well as take advantage of regional export opportunities through the African Continental Free Trade Area agreement which came into effect in 2021.
Following an agreement it signed with Sinoma CBMI of China, BUA Cement is constructing three new cement plants of three million tonnes each yearly in Edo, Sokoto and Adamawa states. The projects are to be completed by the end of 2022, according to the company. Upon completion, this will bring BUA Cement’s total capacity to 20 million metric tonnes.
The new projects will add nine million metric tonnes to the existing capacity. The three new plants are in addition to BUA Cement’s already existing 6 six mmtpa plants in Edo, 2mmtpa plants in Sokoto and another three mmtpa plant in Sokoto to be commissioned in Q2 2021.
BUA Cement sees a good opportunity to grow further in its domestic market of Nigeria, despite the presence of Dangote Cement, which has an installed capacity of 29.3Mta in Nigeria, and LafargeHolcim’s 10.5 Mta of production capacity.
In the first week of January, the company announced that it had successfully concluded its N115 billion Series 1 Fixed Rate Senior Unsecured Bond Issue under the company’s maiden N200 billion Bond Issuance Programme.
The development saw BUA Cement’s Series 1 Bond becoming the largest ever Corporate Bond issued in the Nigerian Debt Capital Markets and signposts growing investor confidence in Nigeria’s second largest cement company. According to the company, an application will be made to dual-list the Bonds on the relevant exchanges upon receipt of the necessary approvals.
The company’s N100billion Series 1, a 7-years Issue priced at a competitive fixed rate of 7.5%, was oversubscribed to the tune of N137.82billion just as the company announced that it would only utilize N115billion in line with regulatory guidelines.
Rabiu said: “Nigeria and the surrounding region are homes to huge opportunities in construction, housing, infrastructure and allied industries.
“Despite these opportunities, there is no doubt that there is still a huge deficit in supply while demand continues to increase. This situation has led to an increase in retail prices of cement despite ex-factory prices remaining partially unchanged.
“To bridge this huge deficit and in the absence of new major investments in the industry, we have taken this decision to invest and build the new plants at a total project cost of $1.05 billion, which will be completed by the end of 2022.”
The statement also quoted the managing director of BUA Cement Plc, Yusuf Binji, as saying, “Despite the prevailing economic conditions in 2020, BUA Cement remains quite optimistic about the future because it affords us not only with the opportunity to further evolve our business model but also provides an opportunity for accelerated development.
“We will continue to push to new markets aided by a focused distribution strategy.”
He added, “The Company increased its net revenues by 19 per cent to N209bn, with sales volumes up 13 per cent by about 600,000tons to 5,100,232 tons in 2020. Operating profits increased to N82.5bn whilst profit after tax rose to N70.5bn from N60.6bn in the corresponding year.”
Supply shortage
The new cement production capacity is expected to make life easier in several parts of Nigeria, where the price of cement rose at the end of 2020 due to a domestic supply shortage. Cement prices have risen by as much as 60 per cent in recent weeks due to a combination of supply disruptions, higher domestic freight costs and higher export volumes, findings have shown.
According to reports, in the 4Q20 Nigerian cement was sold for between N2400-N2500 in many states. But cement prices have increased significantly since January 2021 with a 50kg bag of cement now selling for N3600 in Lagos, N4000 in Enugu and Imo states, N4300 in Cross River state N3200 in Abuja and N3500 in Kano and Oyo states.
Distributors have hinted that the increase of ex-factory prices is a result of the economic situation of more supplies being sent across the borders. The federal government had authorised both Dangote Cement and BUA Cement to transport cement over the border to neighbouring countries that command higher prices. Niger, Cameroon and Chad are targets for Nigerian exports and northern Nigeria has also seen increased cement demand.
Other reasons for the cement shortage have been given as machine breakdown and an industrial strike by cement truck drivers for improved welfare. Dangote Cement also increased its ex-factory price to N3050 (US$8), due to logistics and production costs. Dangote Cement has blamed the shortage on electricity tariffs and the pump price of fuel.
Supply has been under pressure in some regions such as Kano, where cement production is said to have dropped drastically. In Cross River state, a cement dealer reported that the cost of delivery has risen for United Cement Co of Nigeria Ltd (LafargeHolcim).
Looking back
BUA Cement Plc, a publicly listed firm, which produces and markets cement products in Nigeria, is the second largest producer in the country after Dangote Cement. The company was formed through the consolidation of the cement interest of the BUA Group, promoters of Obu Cement Company and the Kalambaina Company majority-owned Cement Company of Northern Nigeria.
BUA Group’s entry into the cement market began in 2008 when the government gave the license to import cement to a selected group of entrepreneurs. BUA initially began operations with a floating cement clinker, re-bagging the products before it went on to purchase controlling interest in the struggling Edo Cement plant.
Majority of the firm’s raw materials are found close to its plant locations in Edo and Sokoto States. The company was listed on the Nigerian Stock Exchange in January 2020 with a market cap of $3.2 billion.