Infrastructure deficits in Nigeria, Africa’s largest economy and most-populous nation, have spiked the demand for cement, leading to double-digit growth in both top and bottom-line performance for the four dominant players in the industry in the 2013 financial year.
The four cement makers – Dangote Cement Nigeria plc, Lafarge Wapco Nigeria plc, Cement Company of Northern Nigeria (CCNN) and Ashaka Cement Nigeria plc – collectively grew revenue by 23 percent y/y to N522.45 billion in FY13, from N423.37 billion in FY12, while profits surged by 36 percent to N164.03 billion, according to data compiled by BusinessDay.
Nigeria’s cement industry grew production by 15.6 percent to nearly 21.2 million tonnes in 2013.
The 2013 revenues of the four cement firms are equivalent to 0.65 percent of Nigeria’s 2013 GDP of N80.22 trillion.
Nigeria’s GDP grew by 6.81 percent in the third quarter of 2013, according to data from the National Bureau of Statistics (NBS).
“As with previous quarters, growth in building and construction remained strong at 14.31 percent and this continued to drive strong demand for cement. Likewise, the real estate sector rose by 10.35 percent and has achieved double-digit growth every quarter since Q1 2012,” said Dangote Cement in a statement released with its full-year 2013 results.
“The outlook for Nigeria remains strong and we believe that its economy is capable of sustaining double-digit growth in cement sales as investments are made in infrastructure and housing,” the statement said.
The emerging middle class in Nigeria is slowly filling the latent housing gaps, as people in this income class crave for better accommodation, said Abiola Rasaq, an equity research analyst with UBA Capital Limited, a Lagos-based investment firm.
“It is a trend which should gradually increase owner-occupancy rate in Nigeria, with resultant impact on cement demand,” Rasaq said.
The Nigeria Mortgage Refinancing Company (NMRC) is copying the model of the United States estate giant, Fannie Mae and Freddie Mac, to reduce the 17 million housing deficit confronting the country.
According to the United Nations, Nigeria’s urbanisation rate was estimated at 51 percent in 2012, which suggests that over 80 million people live in the cities. The UN estimates that this number is growing at an annual rate of 3.5 percent.
The present government’s commitment to infrastructure development is demonstrated by the increasing number of public-private partnerships (PPP) in the economy, according to Renaissance Capital, a financial firm, in a note released November 25, 2013.
“As well as the consistent increase in budget allocations to this segment of the economy, these will remain a major driver of demand for cement in the industry, in our view,” said Roy Mutooni, a research analyst with Renaissance Capital.
The higher margins and improved profitability of the cement firms is attributable to the state-of-the-art technologies and relatively cheap gas – a cleaner and cheaper alternative source to LPFO, according to Rasaq.
The four cement companies are located in the northern and southern parts of the country, each a significant player in its region of operation, although intense competition is affecting some firms.
Intense competition from rival companies such as Cement Company of Northern Nigeria (CCNN), along with the insurgency and inability to switch to alternative source of energy to save cost, has stifled Ashaka’s 2013FY financial performance.
The competition in the North, along with the company’s inability to manage its costs, explains the downside performance, according to Ronke Akinsola, a research analyst with Meristem Limited, a Lagos-based investment firm, in a telephone interview with BusinessDay.
“The increase in administrative expenses could have arisen as a result of cost incurred on maintenance work carried out on its plants and machinery,” Akinsola said. “Unrest in the North, fuelled by the Boko Haram insurgency, also continued to shrink its market share.”
Dangote Cement plc, Africa’s leading cement producer, however, grew revenue by 29 percent to N380.17 billion in 2013. The Africa cement giant has also elevated its product line to the 42.5 cement grade which is low in porosity and makes building more durable.
BALA AUGIE
