• Saturday, April 20, 2024
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Cement makers rake in highest profit in 8 years in Q3’20

Nigerian Exchange open for business with BUA Cement’s N115bn bond

Dangote Cement, Lafarge WAPCO and BUA cement, the largest cement makers by market value appear to have weathered the storm of the pandemic by raking in their biggest profit since 2013 despite the economy slump triggered by the pandemic.

The three cement producers saw their combined net profit double to N106.16 billion in Q3 2020 up from N52.49 billion in Q3 2019, driven by improved sales.

The trio combined recorded 20 percent growth in revenue to N399.2 billion from N331.8 billion in Q2 2020.

However, in the year 2020, cost grew by 22 percent to N190.9 billion within April to June from N155.9 billion in 2020 between July and September.

Nonetheless, revenue grew by 12.9 percent to N1 trillion in 2020 from N972 billion in 2019 while cost increased by a smaller 12.2 percent to N526 billion up from N469 billion within the same period on a 9-month basis.

In the same vein, revenue jumped by 34 percent to N399.2 billion in Q3 2020 from N296.8 billion in Q3 2019, surpassing cost which rose by 26.8 percent to N190.9 billion from N150.6 billion within the same period.

According to Mustapha Wahab, an infrastructure analyst at Chapel Hill Denham, the story of higher sales across all cement makers is similar as they are all recovering from a period where COVID-19 disrupted their sales.

Read Also; Dangote Cement soars on tough turf

Meanwhile, the two bigger cement makers, Dangote Cement and Lafarge WAPCO had their net profit accelerate by 119 percent to N87.4 billion in Q3 2020 from N39.8 billion of the same period last year.

On a 9-month basis, Dangote Cement and Lafarge WAPCO recorded N236.8 billion net profit in 2020, a 35 percent hike from N174.9 billion in 2019.

Wahab highlighted several key reasons for the increased general performance of all three cement makers as well as reasons unique to each company.

“For Dangote Cement, the accelerated sales volume for Q3 2020 which was quite huge that it masked the lags of decline in previous quarters, especially Q2; in fact, the company grew its sales volume by 40 percent in Q3 alone”, said Wahab.

He also mentioned that “the Management of Dangote Cement also stated that most of the volume growth came from the private sector.”

Explaining further, Wahab stated that “currently, we are in a low-yield environment, and oil price is lower alongside economic activities that are still slow, and this is weighing on public demand”.

“As such, it is private demand that is driving volume growth for cement players, as people are now investing more in road construction, which gave room for a greater number of real-estate investors”, said Wahab.

Similar growth trends were seen for the three cement producers combined.

When compared with the previous quarter, the three biggest cement makers saw a much slower increase in combined net profit by 10.9 percent to N106.16 billion in Q3 2020 from N95.68 billion in Q2 2020.

This speaks to the gradual easing that these cement companies faced in coming out of the Covid-induced difficulties.

The second main factor for the top cement makers is the favorable price-volume growth as most players in the cement industry were able to successfully increase prices.

Specifically, “Dangote cement was able to raise price by 2.9 percent from last year while the price increased by 5.8 percent across other Pan-african countries”, said Wahab.

“However, this was not because the price increase was higher among Pan-african countries, but due to currency transmission gains”, continued Wahab.

He proceeded to explain that “when Dangote Cement sells cement in dollars across other African countries, this has to be converted to naira, which is the currency denomination used in their financials.”

“In the process of converting values from dollar to naira, due to the naira devaluation, naira appears to be much bigger compared to their Nigerian counterparts, which were originally valued in naira”, said Wahab.

Lastly, the largest cement producers were able to recover from the COVID- 19 pandemic and “the lower interest environment helped to ease credit accessibility”, stated Wahab.

He also stated that “there was better cost management on the part of these cement makers despite naira devaluation, which could have otherwise pressured tax prices”.

Outlook for the Cement makers

Wahab is optimistic that Q4 2020 will be much stronger because October to December is a traditionally stronger period for cement producers in general due to reduced rainfall, which significantly encourages building and consequently, cement production and demand.

He also strongly believes that “export opportunities, specifically for Dangote Cement is going to be the next growth impetus because the Federal Government of Nigeria (FGN) has given them some sort of approval and leadway to export cement across the border”.

“This is asides the export terminal to Senegal and Cameroon, especially because most west African countries are importing cement products from Asian markets”, noted Wahab.

“The opening of Nigeria’s borders will make it possible for Dangote Cement to supply cement at cheaper prices than any other company in the Asian market and eventually boost their capacityutilisation due to improved cement exporters both on land border and ship” Wahab added.