Nigerian cement makers showed improved efficiency in first quarter of the current year despite feeling the pangs of a slowing economy, which has grown less than 1 percent on average in the last four years.
Analysis of the first quarter earnings reports of Nigerian-listed cement producers, Dangote Cement Plc, Cement Company of Northern Nigeria (CCNN) Plc and Lafarge Africa Plc, showed betterment in key efficiency indicators namely return on assets, return on equity, asset turnover, cost margin and operating margin.
The said companies showed improvement in converting each naira invested in total assets to higher profit as the industry’s return on asset (ROA), the ratio of net income to total assets, increased to 1.67 percent in the review quarter, 0.27 percent points higher than 1.40 percent recorded in the previous corresponding quarter.
This connotes that for every thousand naira dissipated to assets, cement makers realized N167 as profit in first quarter, N27 more than N140 generated a year ago. Nigeria’s most-capitalized firm, Dangote Cement, led the pack with ROA figure of 3.46 percent in the review quarter, compared to CCNN (1.01%) and Lafarge (0.53%).
Lafarge Africa showed most improvement on this basis as its ROA figure moved from -0.37 percent a year ago to 0.53 percent in the review quarter. CCNN also jerked up from 0.31 percent to 1.01 percent, while Dangote Cement dipped marginally by 0.8 percent.
A company can be financed either through debt or owners’ equity. Shareholders’ equity represents the amount of financing the company get through ordinary and preferred shares. Investors consider a return on equity to gauge a company’s ability to utilize owners’ fund for profit generation.
Return on equity (ROE) of the cement industry jumped 72 basis points to 2.74 percent in the review quarter from 2.05 percent in the previous corresponding quarter, with Dangote Cement (5.76%) leading peers, trailed by Lafarge (1.4%) and CCNN (1.08%).
This implies for every thousand naira of owners’ funds in the industry, cement makers generate an average profit of N274 in three months to March 2019, N72 more than N205 last year.
While CCNN and Lafarge’s ROE increased by 0.75 percent and 2.89 percent respectively, Dangote Cement slumped by 1.55 percent given a 16 percent contraction in its bottom-line and 6.1 percent appreciation in total equity.
Further analysis into the cement maker’s balance sheet revealed that the capital structure of CCNN (94%) and Dangote Cement (60%) are majorly by financed by equity, while debt account for 62 percent in Lafarge’s capital ownership.
Meanwhile, the industry’s asset turnover, which measures how much a firm generates as revenue from every thousand naira invested in assets, increased to 10.55 percent in the review quarter, from 10.25 percent in the previous period, championed by CCNN as it is the only firm to record positive growth in revenue in the review quarter.
While CCNN tripled the amount generated as revenue from N155 to N471 from each thousand naira invested in total assets, Dangote Cement and Lafarge dipped 0.5 percent and 1.8 percent respectively.
The industry players bettered operational profitability in the review quarter given the ample reduction in cost margin to 57.58 percent from 58.64 percent. Cost margin indicates the portion of each revenue naira expended on direct production of goods and services.
Lafarge’s production cost accounted for 76.84 percent in revenue in 2018, the highest in the industry, albeit an improvement from 77.68 percent reported in the previous year. CCNN also saw cost margin improved from 58.04 percent to 54.47 percent in the review quarter, while Dangote Cement emerged the most efficient with 41.42 percent cost margin figure.
The cement industry expanded at faster pace than the broader economy prior to recession-tainted year in 2016. The sector which mirrors growth in the broader economy, contracted 5.4 percent and 2.2 percent in 2016 and 2017 respectively, and rebounded to 4.6 in 2018, but growth has remained underwhelming compared to pre-recession levels.
The cement sector grew 2.4 percent in Q1 2019, according to the National Bureau of Statistics.
Israel Odubola
