The cement industry has always felt the pang of an economic downturn over the past few years, owing to reduced fiscal spending on capital projects as well as reduced private investments in capital formation due to feeble macro conditions.
In 2016 when the economy went into a recession, the construction sector declined by 5.9 percent compared to the growth of 4.4 percent recorded in 2015.
Despite these challenges inhibiting the growth of the industry, BUA Cement Plc is thriving as the company recorded strong earnings growth while contemporaneously magnifying shareholders’ earnings.
BUA’s revenue increased by 47.47 percent to N175.51 billion in December 2019, that compares with -1 percent reduction in revenue for Dangote Cement, and Lafarge Africa (-2.20 percent).
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The growth at the top line (sales) was largely driven by capacity increase (s) from 2mmtpa in 2018 to 8mmtpa in 2019; the company said its differentiation strategy has translated to an increased appreciation of the ‘value’ imbued in the product offering.
Last year, BUA merged two of its subsidiaries (Obu Cement and Cement Company of Northern Nigeria) into a single entity to become the second largest producer of the building material.
It became the third largest most capitalized company after it listed 33.86 billion ordinary shares on the bourse, and its market capitalization as at June 3 stood at N1.42 trillion.
BUA is reaping the benefits of merger synergy as it is making more profit on sales and is more efficient in converting raw materials into sales than peer rivals. What this is means is that there is more to invest, save, and/or cover indirect expenses.
The company’s gross profit increased by 39.59 percent to N82.44 billion as at December 2019 from N59.06 billion as at December 2018.
On the other hand, Dangote Cement, the largest producer of the building material and most capitalized company in Nigeria saw a 1 percent reduction in gross profit while Lafarge Africa’s profit was up by 4.20
BUA cement has a profitable operation, and it is running its operations smoothly than peer rivals, as its operating profit margin increased to 40.67 percent in December 2019 from 36 percent the previous year.
However, Dangote cement’s operating profit declined to 33.63 percent in the period under review from 37.58 percent the previous year while Lafarge Africa’s fell to 16.38 percent in December 2019 as against 17.68 percent as at December 2018.
Despite the harsh and unpredictable macroeconomic environment, BUA cement recorded double digit growth in at the bottom line (profit).
Pre-tax profit increased by 69.11 percent to N66.23 billion as at December 2018, while Dangote cement saw profit dip by 16.73 percent and Lafarge Africa (-12.40 percent|)
BUA cement’s cash flow from operating activities rose by 46.77 percent to N82.38 billion in December 2019 from N56.13 billion as at December 2018.
What is this means is that the company has the financial strength to pay future dividend, settle debt, and finance future expansion plans.
“Through the adoption of a focused and disciplined approach, we continue to record strong revenue growth, even as we derive revenue and cost synergies from the merger across: pricing, scale and operational efficiencies; all supported by a sustainable business model and a value-oriented strategy,” said Yusuf Binji Managing Director of BUA Cement.
“Going forward, our focus is to further harness the full benefits of the merger while making further in-roads to “new markets” both locally and outside Nigeria,” said Binji
There are tough times ahead for cement makers as Federal Government has reduced the amount budgeted for capital expenditure by 20 percent in the 2020 budget due to coronavirus pandemic shocks on revenue and crude oil price.
Constructions activities have been suspended across the country due to lockdown measures impose by government to curb the spread of the virus.
The International Monetary Fund says Nigeria’s economy is expected to shrink by 3.4 percent this year and Africa’s largest economy could face a recession lasting until 2021.
insidious virus has shattered Nigeria’s economy as Brent crude oil fell from $70 per barrel at the dawn of 2020 to $20 per barrel as of April 22, 2020.
That forced the ministry of Finance to cut the budget benchmark to $25 a barrel from $57, which further compounds the woes of operators in the industrial goods sector that depend on government capital expenditure spending to jerk up revenue.
The external foreign reserve has shed over 12 percent from $38.54 billion on January 1, 2020, to $33.63 billion as of April 23, 2020.
To shield the external reserves from continued bleeding, the central bank was forced to weaken the currency to $360 from $306.
The first quarter GDP report released by the National Bureau of Statistics (NBS) shows Nigeria’s economy grew 1.87 percent but that represents deterioration from the previous quarter as oil prices and international trade fell due to the coronavirus pandemic.
Chief Executive of Lafarge Africa, Khaled El Dokani said the cement company will freeze capital expenditure as it forecast a drop in second-quarter sales as the coronavirus pandemic hits demand.
