Cement makers in Africa’s largest economy are efficient in using their assets in generating higher sales and profit, thanks to the relaxation of lockdown measures that accelerated construction activities and private sector investment in real estate.
The average industry fixed asset turnover (FAT) ratio (for Dangote Cement, BUA Cement, and Lafarge Africa) increased to 0.51 in June 2021 from 0.41 as at June 2020, according to MoneyCentral calculation.
Fixed Asset Turnover (FAT) is an efficiency ratio that indicates how well or efficiently a business uses fixed assets to generate sales. This ratio divides net sales by net fixed assets.
The net fixed assets include the amount of property, plant, and equipment, less the accumulated depreciation. Generally, a higher fixed asset ratio implies more effective utilization of investments in fixed assets to generate revenue.
The improvement in the FAT ratio by the three dominant manufacturers signals that they can repay loans used to purchase investment, which validates their strong working capital position.
“It is noteworthy that favourable low base from the corresponding period of last year must have magnified the volume growth outturn as the Covid-19 induced measures by the government slowed down construction activities,” Gbolahan Ologunro, equity research analyst at Cordros Securities.
Since the country exited its second recession in 25 years in the fourth quarter of 2020, Dangote Cement, BUA Cement, and Lafarge Africa have been consistently growing earnings.
Little wonder they contributed significantly to the gradual economic recovery and helped lift the manufacturing sector out of recession in the first quarter, and some analysts see their earnings ascending on the back of the proposed government capital expenditure spending expected to spur demand for cement and other building materials.
The cement makers are generating enough profit from sales as cumulative average net margin increased to 27.40 percent in June 2021 from 26.76 percent as at June 2020, according to MoneyCentral.
Interestingly, the management of these companies are deploying shareholders’ resources in generating higher profit as average industry return on equity (ROAE) rose to 16.70 percent in the period under review from 12.50 percent as at June 2020.
Dangote Cement, the largest company by market capitalization and the prime producer of the building material, saw net income surge by 51.51 percent to N126.14 billion as at June 2020, thanks to a blend of favorable pricing.
Lafarge Africa’s net income increased by 21.40 percent in the period under review as the firm continues to benefit from deleveraging of the balance sheet.
BUA Cement’s net income spiked by 41.42 percent to N21.02 billion as the largest producer of the building material in the North-West continued to achieve improved capacity utilization.
Before the pandemic induced slow down, operators in the industry were reeling from subdued demand for residential properties partly due to shrinking real incomes, the higher cost of building materials due to devaluation of the local currency, and the reduced availability of building materials due to supply chain disruptions also contributed to the weakness in the real estate sector.
Nigeria’s cement industry has experienced significant growth over the years, transforming from import-dependent to self-sufficiency and currently poised to become a hub for cement exports on the continent.
In December 23, 2020, BUA Cement signed an agreement with Sinoma CBMI of China for the construction of three new cement plants of three million tons each per annum, a project valued at $1.05 billion.
The cement maker said the plants would be located in Edo, Sokoto and Adamawa states and were billed for completion by the end of 2022.
Upon completion, it said its cement’s capacity would increase to 20 million metric tons by 2022 in the statement titled ‘BUA to construct 3 cement plants of 9mmtpa in Sokoto, Edo and Adamawa’.