Michel Puchercos, Dangote Cement new MD

…as BUA cement lead in industry profitability

By ADEBAYO OBAJEMU

The global pandemic has taken its toll on businesses and the economy in general. The cement industry has suffered the effects of the pandemic like every sector of the economy.  The truth is  that federal government’s restrictive measures and near total lockdown imposed in  the second quarter to stem the global pandemic greatly affected the financial performance of three of the nation’s major players in the cement industry (Dangote Cement, Lafarge and Bua) as Revenue was pressured.

Though, Dangote claimed the effects were mitigated. Dangote Cement’s unaudited results for the six months ended 30th showed a little promise, as Group revenue went up by 2.0% to ₦476.9 billion, while Group EBITDA slightly rose to ₦218.1 bn, showing a45.7% margin. The Pan-Africa firm’s EBITDA grew 31.6% to ₦31.5B; 21.7% margin, while Profit before tax up by 4.7% to ₦162.9B  Earnings per share rose by 6.3% to ₦7.45.

The company claimed that Group sales volumes was down by 1.5%. It admitted that the lockdown in South Africa, Congo, Ghana and Nigeria in most of April to June affected  their operations. Dangote Cement recorded a decline of 15% in Sales volume in its Nigerian Operations while Lafarge reported a decline of 10%.

BUA Cement announced an impressive 2020 half-year results declaring revenues of N101.3billion and a Profit After Tax of N34.82billion representing an increase of 12.7% and 13.74% respectively from the corresponding period in 2019. This was contained in a filing to the Nigerian Stock Exchange.

Commenting on the results, Yusuf Binji, Managing Director of BUA Cement  disclosed that the continued impressive performance in 2020 despite the challenging operating environment occasioned by the COVID-19 pandemic, was a pointer to the value and strength of the BUA Cement brand and product offerings.

He attributed the success  to the full execution  of the company’s Business Continuity Plan which ensured that BUA Cement was able to withstand the impact of the pandemic in the period under review.

“Our resilient performance continues to showcase the value and strength in our product offering alongside our strategic business model. Our revenues increased by 12.7% to N101.3 billion from the corresponding period in 2019 whilst Operating profits increased by 7.0%, from N38.1 billion in H1’2019 to N40.8 billion in H1’2020. Equally, EBITDA margin improved in this quarter to 48.1% – an improvement from 45.6% in Q1, 2020.”

“In a bid to further drive cost efficiencies and sustainability, we entered into strategic alliances for the supply of Liquefied Natural Gas (LNG) at the Kalambaina, Sokoto State and the management of our mining operations. Given these deliberate and strategic choices amongst other cost management efforts, we continue to combine development and innovation into our offerings and activities,” Binji added.

He noted that the pandemic has presented unusual challenge but was optimistic that, “despite the prevailing economic conditions, we are quite sure 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.”

Management of Lafarge on its own said that the sale of cement weakened significantly in the month of April due to the outbreak of COVID-19. Amusa Yusuf, Chief research  officer at Statistica said “Overall, the cement subsector presented a mixed bag, the lockdown has had its  toll on the cement industry, but nevertheless, we can give it to them that they still managed to stay afloat.”

Significantly,  revenue in Q2 was affected by slowdown in cement volumes, owing to subdued activities in the construction sector caused by the social distancing measures. Ambrose Omordion, Chief research officer at Investa Consulting said, “Lafarge, like no Dangote was able to weather the storm in spite of the weaker Q2 Revenue, the company’s earnings received a boost from significantly lower finance cost due to the improved leverage position of the company (Debt/equity ratio moderated to 0.19x in FY 2019 compared with 2.25x in FY 2018 and 1.83x in FY 2017). The key risk to our outlook is the possibility of a second wave of lockdown due to growing numbers of new cases of COVID 19.”

Significantly, the CBN Manufacturing PMI revealed that demand for new orders in the cement subsector slowed to 63.6 points at the end of Q2 from 70 points in Q1. This is a huge setback for the industry.

Recall that the pandemic and the concomitant oil crises forced  federal government to reduce the amount budgeted for capital expenditure by 20% in the revised 2020 budget .

According to a recent disclosure by the Minister of Finance on budget implementation, Mrs. Zainab Ahmed, the sum of N253.3bn has been spent on CAPEX as at end of May, which pales in comparison to the pro-rated revised budgeted capital spending of N816.70bn and translates to a performance ratio of 31%.

“Looking ahead, our outlook for the cement industry is mixed due to a plethora of factors ranging from subdued private investment in gross fixed capital formation, rising inflationary pressures on essential food items (which could dampen the quest for capital goods such as housing), increased energy costs due to the devaluation in the local currency amidst heightened competition in the industry that may limit industry players from hiking prices to preserve margins”, analysts said.

“Although, we expect pressure on volume growth to persist in the short term until there is a significant pick-up in economic activities, we note that the relaxation of lockdown measures and the low interest rate environment are positive factors that will support the earnings of industry players”.