Story highlights

• Amidst macroeconomic headwinds of heightened inflation rate, interest rates and volatile exchange rates due to Naira devaluation, cement companies have managed to sustain profitability.
• Despite sustaining profitability, unlike other sectors, particularly, the consumer goods, cement companies experienced a decline in profitability attributed to elevated foreign exchange costs and high-interest experiences.
• Consequently, this decline is reflected in the profit margin, return on equity, indicating the impact of the macroeconomic challenge.

Since 2023, the business landscape has been turbulent, characterized by macroeconomic challenges of heightened inflation, fluctuating interest rates, and volatile exchange rates.

As a result, many companies have suffered significant losses, some resulting in retained losses and the erosion of shareholders’ funds.

Nevertheless, amidst these challenges, Dangote Cement, BUA Cement, and WAPCO (Lafarge) have sustained profitability, although not without encountering some impacts.

An examination of the companies’ results reveals the varying degrees of impact caused by these headwinds.

Revenue Analysis

The combined revenue of the three companies in 2023 amounted to N3.074 trillion, reflecting a notable 31% year-on-year growth.

This positive trajectory continued into Q1 2024, witnessing an impressive surge of 85% in aggregate revenue, reaching N1.116 trillion. Notably, this Q1 figure represents 36% of the total aggregate revenue recorded in 2023.

Dangote Cement led in revenue for 2023, reporting N2.208 trillion out of the total N3.074 trillion revenue, marking a 36.4% YoY growth.

It continued its strong performance in Q1, with revenue surging by 101% YoY to N817.350 billion, representing about 73% of the three companies’ revenue in Q1. This highlights its continued market dominance.

The growth in Dangote Cement’s revenue appears to be primarily driven by pricing strategies, as the company’s sales volume experienced a decline of 1.8% to 27 million tons in 2023.

BUA Cement secured the second position in both revenue value and growth. Its revenue grew by 27% YoY in 2023, reaching N459.999 billion. The company further improved its performance in Q1 with a growth of 52%, outpacing its long-term growth trajectory.

On the other hand, WAPCO (Lafarge) experienced marginal revenue growth of 8% YoY in 2023, amounting to N405.5 billion. This trailed its 5-year compound annual growth rate of 17%, indicating a slowdown in revenue expansion momentum. However, there was a notable improvement in Q1 as revenue surged by 50% to N137.77 billion

Profitability and Margins

Despite revenue growth, there’s a noticeable decline in profitability and margins.

In 2023, aggregate pre-tax profit decreased by 2% to N699.114 billion, with a further 4% decline to N196.300 billion in Q1 2024.

This decline can be attributed to increased power costs, foreign exchange losses, and interest expenses.

Collectively, the companies reported a surge in foreign exchange losses, reaching N255.362 billion in 2023, a 246% YoY increase, and escalating to N95.624 billion in Q1 2024, marking a significant 1,133% rise.

Additionally, they incurred significant expenses on fuel and power, totaling N598.137 billion in 2023, representing a substantial 42.45% increase from the previous year.

These trends suggest that the companies are grappling with operational inefficiencies and external economic pressures. Effective cost management strategies are crucial to sustain and improve profitability in the long run.

Dangote Cement stands out as the only company that achieved profitability growth in both 2023 and Q1 2024.

Despite grappling with a substantial 204% surge in foreign exchange losses, amounting to N164.077 billion in 2023, and a subsequent 551% year-on-year increase to N63.765 billion in Q1, Dangote Cement managed to maintain profitability.

In 2023, the company saw a 6% year-on-year increase in pre-tax profit, followed by an even more impressive 13.34% growth in Q1 2024.

However, this increase in profitability was accompanied by a decline in pre-tax margin. This suggests that although the company’s earnings grew, it also faced escalating costs at a faster pace, squeezing its profit margins.

Notably, Dangote Cement’s cost of sales grew by 143%, outpacing its revenue growth of 101% in Q1. This indicates that the company is indeed experiencing rising costs at a faster rate.

BUA Cement faced a notable decline in profitability, with a 44% YoY decrease to N67.220 billion in 2023, followed by a further 39.97% decline in Q1 2024.

This decline can largely be attributed to the accelerated growth in the cost of sales, driven by escalating material input costs that outpaced revenue growth.

Additionally, the company recorded significant foreign exchange losses. In 2023, BUA Cement incurred a significant N69.956 billion in FX losses, marking a substantial 1,172% YoY increase. This trend continued into Q1 2024, with FX losses growing by 688% YoY to N10.1 billion.

These factors collectively contributed to a significant decline by 2,013 basis points in the pre-tax margin, which dropped to 13% in Q1 2024.

With a pre-tax profit margin of 13% in Q1 2024, lower than Dangote Cement’s 20%, means that BUA Cement retains a smaller portion of its revenue as profit. This also could indicate higher expenses or lower revenue relative to costs.

WAPCO (Lafarge) reported the lowest revenue among the three companies in 2023 of N405.502 billion. However, despite this, it achieved the highest growth rate of 13% YoY in pre-tax profit. Additionally, it was the only company that recorded growth in pre-tax profit margin of 4%.

Nevertheless, in Q1 2024, WAPCO encountered challenges as it faced a substantial foreign exchange loss of N21.804 billion. Consequently, this led to a significant decline of 61.26% in pre-tax profit, decreasing to N8.709 billion, and contracting the profit margin to 6.32%.

The profit and profit margin decline of these companies likely contributed to the decrease in return on equity.

In 2023, the average return on equity for the three companies fell by 23% to 19%. Dangote Cement maintained the highest return at 26.40%, albeit with a 27% year-on-year decrease, followed by BUA Cement at 18%, marking a 27% year-on-year decline, and WAPCO at 12%, down 9% from the previous year.

This decline signals challenges in operational efficiency, financial health, and investor confidence, necessitating strategic adjustments.

Despite this, the companies’ share prices have surged, indicating ongoing investor optimism. Dangote Cement leads with a year-to-date gain of 105.28%, surpassing its 2023 gain of 31.25%, followed by BUA Cement at 48% and WAPCO at 39%.