November 21, 2023/CSL Research
Despite the barrage of macroeconomic issues currently confronting the country, the cement industry has remained resilient in 2023. The country faced a cash shortage in Q1 2023 as a result of the naira redesign program, which greatly distorted commerce. This, combined with the uncertainty surrounding the general elections, caused a pause in essential corporate and government infrastructure construction. As a result of these circumstances, the cement growth rate fell from 3.89% in Q4 2022 to 1.58% in Q1 2023. Similarly, related sectors such as real estate and construction also saw a sharp decline, with growth rates falling in Q1 2023 to 1.70% and 3.27% respectively from 2.78% and 3.80% in Q4 2022.
Commercial activities picked up in Q2 2023 as the economic environment stabilized with the inauguration of a new administration. This resulted in an increase in the cement GDP growth rate to 3.34% in Q2 from 1.58% in Q1. Furthermore, related sectors such as real estate and construction also grew by 1.87% and 3.42% respectively. Despite the uptick in business activities in the sector, the numerous macroeconomic economic problems facing the country,
most especially the depreciation of the Naira has impacted the profitability of the industry players significantly. In 9M 2023, the three major players in the industry; BUA Cement, Dangote Cement, and WAPCO (Lafarge) witnessed a significant increase in their foreign exchange losses totaling about N135.38bn, a 441% y/y growth.
Despite the losses, two of the three companies reported strong pre-tax profit growth. Dangote reported a pre-tax profit of N404.89bn, a 20.54% year-on-year growth. WAPCO’s pre-tax profit increased by 13.36% to N61.17bn, while BUA Cement recorded a marginal 3.5% y/y decline to N85.748 billion. We attribute the strong bottom-line performance among these cement companies to Revenue growth driven by price increases in the face of diminishing sales volumes. Y/y Dangote cement, Bua cement, and Lafarge Africa reported price hikes of 17.5%, 21%, and 23% respectively while Dangote cement and Lafarge Africa saw 2.3% and 8.9% decline in sales volume, respectively. Conversely, Bua Cement volumes increased by 6.5%y/y.
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