Cement makers invest in fixed assets to raise output

Nigeria’s listed cement makers by market capitalisation efficiently used company funds by making new investments in property, plant, and equipment (PPE).

The new investments in PPE grew by 148.3 percent to N439.5 billion in the nine months of 2024, an increase from N177 billion recorded in the corresponding quarter of 2023, according to BusinessDay analysis.

Leading the pack is BUA Cement, which accounted for 319 percent of the new PPE investments in the period amounting to N204.1 billion. It was followed by Dangote Cement, which made new PPE investments worth N185.5 billion, and Lafarge Cement, which invested N49.9 billion in PPE at the end of the nine months of 2024.

Collectively, the cement makers grew their total PPE by 56.7 percent to N4.81 trillion from N3.07 trillion. From total PPE stock, DangCement led the firms accounting for 69 percent of the total PPE recorded by the listed cement makers in the country.

Investing activity is an important aspect of growth and capital, and while negative cash flow is often indicative of a company’s poor performance, a negative cash flow in investing activities connotes that significant amounts of cash are being invested in the long-term health of the company, such as purchases of physical assets, investments in securities, or the sale of securities or assets.

Cash flow from investing activities (CFI) is one of the sections on the cash flow statement that reports how much cash has been generated or spent from various investment-related activities in a specific period. It provides an account of cash used in the purchase of non-current assets or long-term assets that will deliver value in the future. Cash flow from investing activities is important because it shows how a company is allocating cash for the long term.

For instance, a company may invest in fixed assets such as property, plants, and equipment to grow its business or output. While this signals a negative cash flow from investing activities in the short term, it may help the company generate cash flow in the longer term. A company may also choose to invest cash in short-term marketable securities to help boost profit.

During the period recorded negative net cash flow generated from investing activities amounting to a negative N375.5 billion from a negative N18.4 billion.

BUA Cement

The cement manufacturer’s net cash flow generated from investing activities increased to a negative N219.7 billion 9M this year from a negative N44.4 billion in the corresponding quarter of 2023. This was due to cash outflow from the purchase of PPE during the period which amounted to N204 billion.

Other sources of inflow for the cement maker from investing activities during the period include proceeds from interest received which amounted to N14.6 billion; and intangible assets N1 billion.

BUA Cement Plc is engaged in the production and marketing of cement under the brand name “BUA Cement”. Presently the company produces CEM II type of cement in accordance with the Nigerian Industrial Standards.

Dangote Cement

The cement company reported a net cash flow used in investing activities totalling a negative N109.3 billion, an 82.6 percent increase from -N45.4 billion.

This was because its cash outflow was more than the inflow. In the 9M of this year, the company purchased property, plant, and equipment which amounted to N185.5 billion. Its cash inflow from investing activities during the period amounted to N16 billion.

In January 2024, DangCement invested more of its funds in plants and machinery, buildings, and motor vehicles, as cement is more capital-intensive than labour.

In 2023, DangCement said it has plans to expand its production capacity through the construction of a six new metric tonnes integrated cement plant in Itori, Ogun State.

The construction of a new 6 million metric ton cement plant in Itori, Ogun State, is expected to be completed in the first half of 2025. The plant will have its power plant and two clinker production lines.

On the flip side, DangCement is building a second cement plant in Zambia, which is expected to be commissioned soon. The plant is expected to have a cement production capacity of 1.5 million tons and is scheduled to reach full capacity by the end of 2024.

Lafarge Cement

The cement manufacturer’s net cash flow generated from investing activities increased to a negative N47.5 billion 9M this year from a negative N19.4 billion in the corresponding quarter of 2023. This was due to cash outflow from the purchase of PPE during the period which amounted to N49.9 billion.

Other sources of inflow for the cement maker from investing activities during the period include proceeds from interest received which amounted to N801 million; and proceeds from PPE amounting to N19.4 billion.

According to the financial statement, the company invested more in its production plants and buildings amounting to N179.3 billion and N80.1 billion as of September 2024.

In a statement, Lafarge Africa disclosed that it unveiled Water-shield Cement in Q1 2024 which prevents water from permeating into buildings, thus ensuring the durability of the structure.

“Lafarge Africa will launch a new product this month, named Supa whyte, a Gypsum plaster (POP) product, to further extend its range of products in the building Solutions applications. The product is set to improve versatility in design, allowing a wide range of decorative designs,” it said.

BusinessDay earlier reported that Holcim AG will sell its 83.8 percent stake in Lafarge Africa to a Chinese cement maker, Huaxin Cement Co., in a deal that values Lafarge Africa at $1 billion.

According to a media release by the group, the deal is to be finalised in 2025, subject to regulatory approval.

With a market capitalisation of N934 billion (around $556 million), the deal will see Lafarge’s valuation almost double on the NGX if the new owners do not move to delist Lafarge from the NGX. The move by Holcim follows a trend of divestments that the company has adopted.