As Nigerians grown over the rise in cement price which makes it almost impossible to embark on construction projects, the major manufacturers of the commodity are having a good time their combined profit after tax at the end of the financial year ended 2023 rising by 7.3 percent to N576.18 billion from N536.97 billion in 2022, this is despite the rising cost of production reported by the firms in the review period. BAMIDELE FAMOOFO writes.
The profit after tax of the three major cement makers in Africa’s largest economy in 2023, Dangote Cement Plc, BUA Cement Plc and Lafarge Africa Plc moved up by 7.3 percent from N536.97 billion in the financial year ended December 31, 2022 to N576.18 billion in the period ended December 31, 2023.
Across board, all the players in the industry recorded growth in sales, leading to improved revenue, driven largely by increases in price. On the average, the cement industry pushed up the price of the commodity by 20 percent year on year, making it become out of reach for poor Nigerians.
According to the National Bureau of Statistics, Nigeria has 133 million people who are multidimensionally poor, or 63 percent of the population as of 2023.
According to Nigeria’s National MPI of 0.257, little over one-quarter of all potential deprivations are experienced by the poor.
In a separate report on poverty in Nigeria, the World Bank said more people have fallen below the poverty line due to sluggish growth and rising inflation.
“Sluggish growth and rising inflation have increased poverty from 40 percent in 2018 to 46 percent in 2023, pushing an additional 24 million people below the national poverty line,” the World Bank said.
In the past couple of months, the price of cement has continued to rise across the country, selling for as much as N13, 000 per bag in some states.
“Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc spent a sum of N598.137 billion on fuel and power during the full year ended December 31, 2023”
Some weeks ago, major cement manufacturers in Nigeria, Dangote, BUA and Lafarge reached an agreement with the Federal Government to peg the price of a bag of cement between N7, 000 and N8, 000.
The resolution was reached following a meeting between the Minister of Works, David Umahi, the Minister of Industry, Trade and Investment, Doris Uzoka-Anite as well as representatives of BUA Cement, Dangote Cement, Lafarge and Cement Producers Association.
Howbeit, some Nigerian lawmakers have alleged that cement producers are capitalising on exchange volatility to arbitrarily increase the price of the product, whose cost of production has not changed significantly since last year, adding that “the cement cabal is unconscionably inflicting hardship on Nigerians as the prices of rent and associated services have increased.”
The concerns were expressed when the House of Representatives moved a motion last week to summon the major cement manufacturers over the spike in the price of the product in the country.
The summon followed a motion jointly moved by Gaza Gbefwi (SDP, Nasarawa) and Ademorin Kuye (APC, Lagos), during plenary on Wednesday.
The manufacturers are to appear before the entire House to brief the lawmakers on the ‘arbitrary increase in cement price’.
“The increase is a direct affront and sabotage of President Bola Ahmed Tinubu administration’s effort to bring comfort to the populace and should be resolved immediately,” Gbefwi added.
Speaking in support of the motion, Aliyu Madaki (NNPP, Kano) said the “arbitrary” price increase by manufacturers is nothing but “corruption and abuse of power.”
He added, “We must not allow a few individuals to control the economy.”
Meanwhile, the major manufacturers have also argued that their profitability in 2023 was impacted by the rise in production cost of sales which was driven mainly by an uptick in raw materials cost and cost of energy.
According to financial experts, “The rising cost of sales swallowed much of the earnings following rising inflation and high exchange rates. The cost of sales for the firms stood at N1.481 trillion for the year 2023 as against N1.038 trillion in 2022, accounting for a growth of 42.68 percent.
Energy costs
Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc spent a sum of N598.137 billion on fuel and power during the full year ended December 31, 2023.
This represents a 42.45 percent increase from N419.879 billion recorded during the comparable period of 2022. This amount spent represents 40.39 percent of the total cost of sales of N1.481 trillion recorded by the cement firms during the period under review. This is on the back of a high inflationary period in 2023 which has seen the cost of goods and services rise across the country.
The information is contained in the audited half-year results of the companies. Some of these cost pressures were due to the removal of fuel subsidies, harmonization of the exchange rate, and depreciation of the Naira while others were due to macro-economic inflationary pressure, especially in the domestic market where inflation heightened.
Cement manufacturers in Nigeria mostly self-generate their power as the state power grid infrastructure does not generate enough stable power to meet their needs.
Despite nearly a decade after the privatization of the power sector, manufacturers are yet to see any appreciable improvement in electricity supply, forcing them to rely heavily on self-generation often at a huge cost. Yet, power constitutes the single critical infrastructure to boost the manufacturing sector and create jobs.
Financial performance
A cursory look at the financials showed that Dangote Cement consumed fuel, and power valued at N399.205 billion during the year 2023 as against N266.486 billion in 2022 representing a growth of 49.80 percent.
Following the high cost of sales, profit after tax grew by 19.16 percent to N455.583 billion for the year 2023 as against N382.311 billion in 2022. The cost of sales grew by 51.76% to N1.006 trillion from N662.890 billion.
BUA Cement spent N123.269 billion on energy in FY ‘2023, representing an increase of 35.19% over N91.185 billion reported in 2022. Profit after tax was N69.454 billion in 2023 as against N101.010 billion in 2022, accounting for a decrease of 31.24% while the cost of sales stood at N276.043 billion in the year 2023 from N198.379 billion in 2022, representing a growth of 39.15%.
“While most Nigerians are groaning over the high price of cement, shareholders of these cement companies listed in the Nigeria Exchange Limited will smile to their banks with proceeds of dividends from their investments after their respective annual general meetings”
Lafarge Africa Plc incurred fuel; power valued at N75.663 billion during the year 2023 as against N62.208 billion in 2022 representing a growth of 21.5%. Profit after tax dropped by 4.67% to N51.141 billion for the year 2023 as against N53.647 billion in 2022. The cost of sales grew by 12.29% to N198.786 billion from N177.023 billion.
Management views
Group Managing Director, Dangote Cement, Arvind Pathak speaking on the results said, “This positive full-year outcome is a combination of the strength in the diversity of our operations across Africa and our sustained drive to contain cost amidst an accelerating inflationary environment. The Group achieved double-digit growth in revenue at N2, 208.1 billion, while Group EBITDA reached a record high, increasing 25.1 percent to N886.0 billion.”
He added, “Despite the challenging macroeconomic conditions, 2023 was yet another testament to the effectiveness of our diversification strategy. Our diverse operations acted as a cushion, providing resilience to country-specific risks. Pan-African volumes were up 12.7 percent and now account for 41.2 percent of Group volume. Consequently, pan-African revenue increased by a record 123.2 percent to N925.9 billion, while EBITDA surged by over four-fold to N263.7 billion.
“In response to the heightened inflationary environment, we implemented new and innovative business strategies that helped to drive up revenues, contain costs, and protect margins. These initiatives included fuel mix optimisation, propelling the use of alternative fuels to replace more expensive fossil fuels. We also began the phased transition from diesel power trucks to full Compressed Natural Gas (CNG) trucks.”
CEO of Lafarge Africa, Lolu Alade-Akinyemi, while commenting on the company’s 2023 results cited spiraling inflation and unprecedented Naira devaluation as major challenges.
“The fundamentals of our business remain strong. Despite extremely challenging macroeconomic headwinds, we grew the top line by 8.6% and improved the Operating Margin from 22.6% to 25.3% in FY 2023. In the face of very material FX devaluation losses and a higher effective tax rate, Profit After Tax declined YoY by 4.7%. Our performance was largely impacted by spiraling inflation and unprecedented Naira devaluation, with the attendant pressure on energy and supply chain costs.”
In its investor presentation in October 2023, BUA Cement cited disruptions in energy markets and an increase in raw materials as a major challenge.
Cost of sales per ton rose by 23.9% to N38, 047/ton from N30, 713/ton, as of 9M ‘2022. This was due to increases in raw materials costs, energy product costs, operations, maintenance & technical fees, repair & maintenance costs, and depreciation charges.
“Energy cost per ton increased by 20.2 percent to N16,803/ton from N13,978/ton during the corresponding period ended 9M’2022. This resulted from energy price increases and the depreciation effect of the Naira. Selling, Distribution & Administration cost (net) per ton increased by 37.5 percent to N6,069/ton from N4,413/ton for the nine months ended 2022. The drivers of the increase were distribution costs, led by an increase in fueling costs and a larger number of trucks, alongside repair & maintenance costs; depreciation charges; staff costs, and advertisement & promotion costs,” Alade-Akinyemi said.
Analysts’ comments
Dangote Cement
“Sales performance in the Pan African region was remarkable and we like the business’ resilience in ensuring profitability in the face of slow sales in its Nigerian operations amid inflationary and currency pressures. For 2024FY, we envisage that Pan African sales will maintain its uptrend while higher cement prices will remain the key driver of turnover in Nigerian operations. Furthermore, we point to DANGCEM’s costs controlling efforts, including fuel mix optimisation, shifting towards alternative fuels and gradual transition from diesel delivery trucks to full Compressed Natural Gas (CNG) trucks and believe these initiatives will help sustain margins in the near term,” Arvind Pathak said.
BUA Cement
“We like that BUACEMENT was able to sustain revenue expansion despite the dampened industry-wide demand in the year as the adjustment of its ex-factory price in Q3-23 supplemented topline performance. However, sticky production and operating cost pressures continued to weigh on the group’s margins amid the naira devaluation in 2023FY further diminishing earnings growth. Going into 2024E, we anticipate the group will maintain its topline growth as it ramps up production volume from its newly commissioned 3.00mmtpa lines at the Sokoto and Obu Plants. Furthermore, we envisage the new 70MW gas power plant in Sokoto and planned activation of the 70MW gas power plant at Obu in Q1-24 will likely reduce energy costs in the near term and provide some needed respite for profit margins,” the Managing Director/CEO of BUA Cement Plc, Yusuf Haliru Binji said.
Lafarge/WAPCO
“WAPCO’s 2023FY performance highlighted challenges from economic headwinds within the cement industry, particularly stemming from reduced demand and local currency depreciation. Additionally, the shutdown of its major plant further hindered sales volume amid the group’s elevated tax expense in the year. In our view, we like that WAPCO remained resilient, as it curtailed operating cost pressures and remained profitable. Further out, we anticipate the group would deliver a stellar performance underpinned by our expectation of strong public and private sector demand coupled with management’s strategic focus on cost management and unlocking more capacity utilisation from its plants,” Alade-Akinyemi said.
Shareholders win
While most Nigerians are groaning over the high price of cement, shareholders of these cement companies listed in the Nigeria Exchange Limited will smile to their banks with proceeds of dividends from their investments after their respective annual general meetings.
For instance, the board of Dangote Cement Plc has proposed a final dividend per share of N30.00, implying a dividend yield of 4.4 percent based on the last closing price of N686.70 per share (29 February).
BUA Cement’s board proposed a final dividend of N2.00 per share, translating to a dividend yield of 1.3 percent, based on the closing price of N150.00 per share as of February 29, 2024.
WAPCO’s board also proposed a final dividend of N1.90 per share, translating to a dividend yield of 5.9 percent based on the closing price of N31.95 per share on February 29, 2024.
In absolute terms, the shareholders got the highest reward with N30 per share dividend but in reality, WAPCO gave more to its shareholders considering a dividend yield of 5.9 per cent compared with Dangote’s 4.4 percent.
