Notwithstanding the challenging business environment and the drop in consumer spending power, cement producers continue to grinned at the banks.

Leading businesses in the industry have reported improved sales volume, revenue, and profitability in their most recent operational reports.

Additionally, investors have maintained their positive holdings in the stocks, coinciding with the release of enticing projections by investment experts regarding the 2024 year-end financial positions of the cement businesses listed on the Nigerian Exchange Limited’s, NGX, equities board.

According to Financial Vanguard’s analysis of the companies’ operational environments, since the start of the year, macroeconomic headwinds such inflationary pressures, volatile foreign currency markets, rising production costs, and declining purchasing power have gotten worse.

However, over the same time frame, cement manufacturers reported exceptional financial results, suggesting that certain consumers continue to have significant purchasing power and are able to spend money on things other than food and other essentials.

Due to the wider macroeconomic difficulties, domestic cement costs have remained high, with retail pricing per 50 kg bag ranging between N7,400 and N8,000, up from the market average of almost N6,000 a year ago.

However, in spite of these difficulties, demand for the product—which is seen as non-essential by the majority of Nigerians—has continued to grow.

All of the top producers saw a notable growth in the number of products sold, with Dangote Cement Plc, the industry leader, expanding volume by 3.8 percent in just six months.

The biggest cement producers saw a tremendous gain in net sales revenue, which increased by 76.6 percent in the first half of the year (H1’24), as a result of both rising sales volumes and product price increases during the time.

The businesses, which include Lafarge Africa Plc, BUA Cement Plc, and Dangote Cement Plc, reported sales revenue of N2.419 trillion in H1’24, up from N1.049 trillion in the same period in 2023.

Investment experts ascribed these advancements to increases in revenue per tonne and volume growth.

They expect outstanding outcomes throughout the entire year.

The combined volumes of the three major players are expected to rise by 14.6 percent Year-on-Year, or YoY, to 32.8 million metric tonnes, or MMT, according to analysts at CardinalStone Finance, an investment house with offices in Lagos. Capacity utilisation is predicted to reach 52.2 percent, up from 50.4 percent for the entire year 2023.

The output volume of the cement industry saw a 3.5 percent YoY fall to 28.6 MMT in 2023, although industry experts ascribed the trend to the drag from the election period and the financial pressure brought on by the poorly executed Naira devaluation strategy.

BUA Cement, Lafarge Africa, and the other two top producers all anticipate achieving significant volume growth.

Variations in net sales

According to a cheque from Financial Vanguard, Dangote Cement had the greatest net sales at N1.76 trillion, up 85.1% from N950.83 billion in H1’23.

Lafarge Africa Plc’s sales revenue increased to N295.58 billion from N197.68 billion in 2023, indicating a 45 percent increase, while BUA Cement followed with N363.94 billion in total sales, representing a 64.6 percent growth from N221.07 billion obtained in the same time in 2023.

Volume of sales increases. Cement Dangote

The largest participant in the market, Dangote Cement Plc, reported an overall 3.8 percent increase in sales volume, from 13.420 MMt in the equivalent period of 2023 to 13.934 MMt in H1’24.

However, its Nigerian operation saw a massive boost in volume from 8.108mmts in H1 2023 to 8.994MMT, a 10.93 percent increase.

“We successfully navigated macroeconomic headwinds to deliver positive results in the first half of the year,” stated the company’s CEO, Arvind Pathak. Volumes across the board increased by 3.8%, with our Nigerian business recording double-digit growth of 10.9%.

Compared to the election year and financial crunch in 2023, this growth was fuelled by greater market activity levels and enhanced operational efficiency throughout the board.

In the first half of the year, our company showed remarkable resilience in the face of high borrowing costs, higher inflation, and additional currency depreciation. This resulted from our diverse business strategy and our unwavering focus on cost minimisation.

“To N1.760 trillion and N666.2 billion, respectively, group revenue and earnings before income tax, depreciation, and amortisation, or EBITDA, increased 85.1% and 50.3%.”

BUA Cement

BUA Cement anticipates a significant rise in sales volume within the year thanks to the capacity growth from its recently commissioned 6.0 MT units.

Due to the reduction in the ex-factory price, the business claimed a 4.8% increase in sales volume to 6.6MT in 2023 and projected a further increase in 2024.

Lafarge in Africa

Lolu Alade-Akinyemi, GMD/CEO of Lafarge Africa, discussed the cement industry’s prognosis and stated: “The Nigerian infrastructure and construction sector is expected to continue to grow despite inflationary pressure on purchasing power.” We thus continue to have a bullish perspective and anticipate a market recovery in the second part of the year.

“We’ll keep taking advantage of volume possibilities in all of our areas and aggressively controlling our expenses. The business is still dedicated to achieving its sustainability goals and “Accelerating Green Growth” through creative construction methods and providing value to stakeholders, he continued.

Bullish investors in stocks

Given predictions of higher capacity, robust volumes, and favourable prices, which are anticipated to raise profitability with industry returns averaging 51 percent in the second half of this year, investors are responding warmly to the companies’ shares in the meantime.

An analysis of the players’ return on investment (RoI) reveals that Dangote Cement saw returns of 105.3 percent, with its share price rising from N319.90 at the start of the year to N656.70 at the close of business on Friday, September 27, 2024.

Conversely, 40.4 percent of returns were generated by BUA Cement Plc, and 8.1 percent by Lafarge Africa.

Commentaries from analysts

Financial analysts, meanwhile, have linked the participants’ positive net sales and volume growth to a rise in construction activities by both public and private sector operators, particularly higher capital expenditure (CapEx) from the federal government.

Investment banking firm Cordros Capital analysts claim that FG’s higher capital expenditure allocation of N13.77 trillion, with an expected implementation rate of 37.8 percent, boosted demand for the goods.

“We believe the significant increase in sales volume observed in H1-24 indicates a complete recovery from last year’s downturn,” they stated.

“The local cement market is still experiencing strong demand, driven by significant investments from the public and private sectors, as well as increased construction activities from ongoing housing developments and road infrastructure projects.”

They stated as follows: “With an expected implementation rate of 37.8%, the FG’s increased capital expenditure allocation of N13.77 trillion supports our optimistic outlook on domestic demand.”Thus, we anticipate that in 2024, sales volume growth would be 3.1% y/y for Dangote Cement, 10.4% y/y for Lafarge Africa, and 21.7% y/y for BUA Cement.

It was stated that the producers planned to increase sales volume along with an increase in prices by taking advantage of the expected ramp-up in the FG’s capital expenditure allocation from the various ongoing construction projects nationwide and investments in private construction activities, especially in urban areas.

“We can attribute these volume increases among the cement manufacturers to the current administration’s capital projects,” stated Chinazom Izuorah, Senior Associate at Parthian Partners, “looking at recent developments, policy pronouncements and government initiatives, even without insight into partnerships or collaborations between these firms and contractors.”

There have been reports of multiple contracts connected to construction being given out, as well as Nigeria moving towards using cement instead of stone for road building. All these contribute to the observed increase in sales.

Additionally, the increase was ascribed to “a higher activity level compared to the previous year when election and cash crunch stifled businesses” by Victor Chiazor, Head of Research at FSL Securities.