Cement makers see profit surge to 10-year high

Nigeria’s largest cement makers, Dangote Cement Plc, Lafarge Africa Plc and BUA Cement Plc saw their profit surge to the highest in 10 years in 2021, boosted by higher cement sales.

The three cement producers made a combined profit of N507 billion in 2021, a 33 percent increase from N379 billion in 2020.

Compared to 2020, when the COVID-19-induced lockdown halted building projects, the companies were able to increase cement sales in 2021 and this helped their revenues.

The trio’s combined revenue grew 31 percent to N1.93 trillion last year, compared to N1.47 trillion in 2020.
“The strong growth across the board was a result of price increment.

The cement makers have been compelled to increase price significantly just to preserve margins from the impact of FX devaluation,” said Gbolahan Ologunro, a research analyst at Lagos-based Cordros.

According to the International Cement Review, retail cement prices in Nigeria reportedly rose from around N2,400-N2,600 per 50kg bag in 2020 to N3,500 at the end of April 2021 and sold for around N4,000 towards the end of the year.

Ologunro said since the third quarter of 2020, there had been strong demand from the private sector as individuals increased activities in the real estate sector.

Dangote Cement, Nigeria’s largest producer of cement and the most capitalised firm in the country, saw a 32 percent surge in its profit to N364 billion in 2021 from N276 billion in the previous year.

The cement giant made N1.38 trillion from sales of building materials and cement, up from N1 trillion in 2020.
At N273.50 per share as at Friday, Dangote Cement’s share price was up 6.4 percent year to date.

The company announced a final dividend of N20 per share for 2021, up 25 percent from the N16 per share announced in 2020.

Lafarge Africa saw its profit after tax surge to N51 billion last year from N30.8 trillion in 2020.
Its revenue rose by 27.1 percent to N293.1 billion in 2021 from N230.5 billion a year earlier.

The company’s borrowing cost plunged by 45.7 percent to N5.27 billion in 2021 from N9.71 billion in 2020.
Lafarge doubled dividend payout to N2 per share in 2021.

BUA Cement saw a 26.8 percent increase in profit to N91.7 billion in 2021 from N72.3 billion in 2020
The company’s revenue surged by 23 percent to N257 billion from N209 billion in 2020.

While Dangote has continued to retain its spot as the largest cement manufacturer with plant capacity of 35.2 million metric tonnes (mmt), BUA has overtaken Lafarge to the second position, with a total plant capacity of 11mmt while Lafarge stays at 10.5mmt.

BUA inaugurated Kalambiana 3mmt line three plants in 2021. BUA’s plant capacity has been projected by FBNQuest to reach 20mmt by 2024, when the company commissions an additional 9mmt.

How pre-election binge will affect cement makers in 2022

Pre-election capital expenditure will help cement makers stay resilient in 2022, according to a report by FBNQuest.
In the 2022 Appropriation Bill, the Federal Government intends to spend N6.0 trillion on capital projects, up 61 percent on an annualised basis from the first 11 months of 2021, the report said.

According to official announcements, the government will construct 1,804.6km of federal highways at an estimated cost of N621bn.

The report also predicts that subnational governments have the incentive to complete road and other infrastructure projects which will drive demand for cement.

The sector has also benefitted from supportive Federal Government policies such as the Presidential Executive Order 7 on Road Infrastructure Development and Refurbishment Investment Tax Credit. This is a form of tax incentive granted to Nigerian companies that engage in refurbishment of roads.

Read also: Nigeria’s biggest firms’ profits outpace inflation in 2021

The use of tax credits for the private sector to take part in road building will further support cement demand.
FBNQuest predicts annual cement volume growth of 10 percent in 2022, driven by demand for roads and real estate.
However, cement makers might struggle to sustain the current pricing environment.

“This year, we are likely to see increased sensitivity from the private sector and also taking into account that this is a pre-election year. In pre-election years, you tend to see more cautious activities in the real estate sector because of uncertainties in the world economy,” Olugunro said.

“For public sector demand as well, we don’t expect any significant effect in that space as we see preparation for the coming elections distracting policymakers from implementing the capital expenditure in the budget for 2022. Industry players might struggle to implement the price increase in the last two years; we are likely going to see a decrease in price per ton in 2022,” he added.

Major risk for cement makers in 2022

There are occurrences that could threaten the bullish outlook for the cement makers in 2022. While they were able to keep costs under control in 2021, FBNQuest noted that it might not be so easy in 2022 as the rising oil prices would mean the industry would have to battle with high energy costs.

Another potential risk identified is the potential hike in interest rate in 2022.

The US Fed has announced an acceleration in interest rates to combat the country’s inflation, which has surged to a 40-year high at 7.5 percent.

According to FBNQuest, if the Central Bank of Nigeria (CBN) follows the International Monetary Policy’s advice to raise interest rates, the construction industry will decline, especially if this happens too soon.

On the contrary, if the CBN moves too slowly, naira devaluation could lead to capital flight, it added.