Rising inflation, foreign exchange pressures, naira devaluation, and increasing operational and finance costs continued to impact Nigeria’s cement makers in the first half of 2024. While these economic pressures are not isolated, the country’s cement industry is being squeezed from all sides despite growing its revenue base.
BusinessDay’s analysis of data from their financial statements revealed that Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc reported a combined after-tax profit of N253.4 billion, a decline from N277.6 billion in H1 2023.
This is despite the three firms growing their combined revenues to N2.42 trillion, an increase of 76.6 percent from N1.37 trillion. Dangote Cement was the only manufacturer to record an increase in its after-tax profit, which grew to N189.9 billion in H1 2024 from N178.6 billion in H1 2023.
Lafarge’s earnings declined to N29.3 billion from N35.4 billion, and BUA Cement’s earnings fell to N34.2 billion from N63.6 billion.
Read also: Here’s how Dangote Cement fared in first half of 2024
“Despite the challenges of elevated inflation, high borrowing costs, and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience,” said Arvind Pathak, chief executive officer of Dangote Cement.
“Group revenue rose by 85.1 percent to N1.7 trillion, while Group’s Earnings Before Interest, Taxes, Depreciation, and Amortisation rose 50.3 percent to N666.2 billion, respectively.”
Pathak added that during the six months, the group intensified their emphasis on exports, dispatching fourteen ships of clinker from Nigeria to Ghana and Cameroon.
“As a result, our Nigerian exports surged by 55.2 percent, reflecting our commitment to expanding our presence in regional markets and capitalising on our export-to-import strategy,” the company said in its earnings report.
For Lafarge, foreign exchange losses due to further naira devaluation in the first half of the year resulted in an after-tax decline of 17.3 percent.
“We sustained Net sales growth in the second quarter of 2024 but saw H1 2024 after-tax profit decline 17.3 percent due to foreign exchange losses resulting from Naira devaluation in H1 2024,” the company said.
Since the Central Bank of Nigeria (CBN) liberalised the foreign exchange market in June 2023, the country’s official exchange rate has fallen from N463.38/$ to N1,570/$1 as of August 2, 2024.
This high cost of sourcing FX caused Lafarge to incur a high net foreign exchange loss of N19.9 billion in H1. In the second quarter, the company didn’t incur any FX loss but recorded an FX gain of N1.89 billion. The reported FX loss stems from Q1 2024.
On the other hand, BUA Cement reported an FX loss of N90.6 billion in the first six months from N2.1 billion in H1 2023.
The company’s net finance cost decreased by 87.1 percent to N1.08 billion in H1 2024 from N8.38 billion in the same period last year.
Lafarge recorded a net finance cost of N32.3 billion in H1, compared to a net finance income of N3.03 billion in the same period of 2023, while Dangote cement’s net finance cost increased by 109.6 percent to N307.72 billion from N146.84 billion in the same period last year.
Analysts at Cordros Research wrote in a note that “Persistent cost challenges due to inflationary pressures and heightened foreign exchange exposure will further exert downward pressure on margins.”
Profit margins
Profit margins denote the share of a company’s sales revenue retained as profit after deducting all costs. After facing a challenging business environment in H1, 2024, cement manufacturers experienced a decrease in their bottom lines.
While Dangote Cement led in profitability, earning N189.9 billion compared to N178.6 billion, its profit margin fell to 10.8 percent, down from 18.8 percent.
Lafarge’s profit decreased to N29.3 billion from N35.4 billion, and its profit margins declined to 9.92 percent from 17.9 percent.
BUA Cement’s profit declined to N34.2 billion in H1 from N63.6 billion in the same period of 2023, and profit margins fell to 9.4 percent from 28.8 percent.
Read also: Dangote Cement eyes 1,500 CNG trucks for Nigeria operation
EBITDA margin
EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortisation, margin is a key metric that focuses on a company’s core profitability and cash flow generation
It is calculated by dividing EBITDA by total revenue. This metric offers insights into a company’s financial health as it excludes the impact of unique decisions and tax regulations when evaluating performance.
Dangote Cement’s EBITDA margin declined to 37.9 percent from 46.6 percent. BUA Cement’s EBITDA margin was 26.2 percent, compared to 45.2 percent. Lafarge Africa achieved an EBITDA margin of 31.3 percent, from 33.35 percent.
A low EBITDA margin indicates that a business has profitability problems and issues with cash flow, while a high EBITDA margin suggests that the company’s earnings are stable.
Earnings per share
Earnings per share (EPS) measure a company’s ability to generate returns for shareholders. A low EPS can indicate trouble generating profits, which may make the company less attractive to investors and cause its stock price to drop.
While higher or increasing EPS indicates profitability, meaning the company may increase dividend payout over time.
Dangote Cement’s basic earnings per share stood at N11.26 from N10.39. Lafarge Africa’s earnings per share amounted to N1.82 from N2.20. BUA Cement’s earnings per share amounted to N1.01 from N1.88.
Projection for Q3
According to a statement from Lafarge Africa, the Nigerian infrastructure and construction sector is expected to continue growing despite inflationary pressure on purchasing power. In Q3, the company will launch its first ECOPlanet cement, which is expected to further reduce the company’s carbon footprint.
“Lafarge Africa is also set to introduce CALCINED CLAY, which is low carbon raw material, into its cement manufacturing process, which will, in turn, reduce our CO2 emission and carbon footprint,” the company said.
For Dangote Cement, analysts at Cordros expect revenue growth to remain healthy despite the expected slowdown in sales in Q3’24 due to expected heavy rainfall in the quarter.
“However, we expect pressures on margins to remain intact as underlying headwinds continue to wipe out gains from topline,” they said.
Pathak, the CEO of Dangote Cement, said the company would continue to prioritize innovation, cleaner energy transition, and cost leadership to achieve its vision of transforming Africa and building a sustainable future.
Similarly, Cordros anticipates that BUA Cement will see continued revenue growth in the next quarter, bolstered by increased sales volume amid contributions from the new factory lines.
