nigerian cement industry april 2011

8/2/2019 Nigerian Cement Industry April 2011

1/16

PanAfricanCapitalPlc8A,ElsieFemiPearse, IndustryReport

AdeolAdeolaOdeku,VictoriaIsland,Lagoswww.panafricancapitalplc.com

NigerianCementIndustryareviewofopportunitiesandrecurrentpricehike

April2011


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PanAfricanCapitalPlc

2|P a g e P a n A f r i c a n C a p i t a l R e s e a r c h

PowerSectorReform:UnlockingtheInvestmentOpportunities

Contents

ExecutiveSummary 3

GlobalCementMarket:HighDemandlinkedtoRisingInfrastructure 4

CementProductionCapacityDynamicsinAfrica 4

CementIndustryinNigeria:AnIndustryXrayandHighCostofCement 5

CementProductionProcess 5

NigerianCementIndustryandDistributionSystem 6

Causesof

Upward

Rise

in

Price

of

Cement

in

Nigeria

7

MajorCharacteristicsofCementIndustryinNigeria 8

HomogenousProduct 8

CapitalIntensive 8

RequiresHighEnergyUsage 8

HeavyMaterialInputandOutput 8

MajorPlayers

in

Nigerian

Cement

Industry

9

DangoteCementPlc 10

AshakaCementPlc 11

CementCompanyofNorthernNigeria(CCNN) 12

LafargeWAPCOPlc 13

InvestmentOpportunities 14

InvestmentandProductionChallengesinNigerianCementIndustry 14

Conclusions 15

Prognosis 15

Appendixi:ComparisonBetweenIndianandSubsaharanAfrica 16

Appendixii:LimestoneBlocksandACementFactoryinU.S. 16


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ExecutiveSummary

Risinginvestmentininfrastructureindevelopingcountriesoftheworldmayleadtoanincrease inglobal

demand for hydraulic and Portland cement by 2013. Demand for cement has dropped in the leading

consumer countries of cement, such as China, Brazil, Russia and other leading consumers prior to the

recessionperiodbutstillhigherthantheworldaverage.Nigeriancement industryestimatedvaluegrew

fromaboutN26billion in2004toN134billion in2008.Statisticshasshown thatNigeriahas the largest

demandforcementinsubSaharanAfricaandabout95percentoftheinputsforcementproductionare

sourced for locally, Liberias demand also grew tremendously postconflict so a to rebuild damaged

infrastructure.

Therewereover190productionplantsandaboutonequarterofthemareintegratedcementproduction

units while others produce some other raw material inputs. It has been identified that global cement

majors such as Lafarge, Holcim, Heidelberg cement, and Italcement controls about 45 percent of the

Africasinstalledcapacity.NorthAfricadominatesAfricasproductioncapacitywith55percentofthetotal

cementoutputpotential.However,WestAfricanSubregionhaswitnessedappreciablegrowthincement

industry(byemergenceofDangote)whichraiseditssharetoabout20percentandthismaychangethe

regionalmixinthenextfewyears.

Establishingacement factory ishighlycapital intensivewhichmakesacement factoryveryexpensiveto

installandmaintain.Thecostofcementproduction isveryhighallovertheworldwithenergybeingthe

major cost center. As a result of the backward integration policy on cement production in Nigeria by

federalgovernmentin2002,thelocalmanufacturingoutputofcementhasrisenfrom2milliontonnesto

10.5 million tonnes in 2010. Stakeholders have highlighted the following as the causes of high price of

PortlandcementinNigeria:

Hugesupplygapofcementwheredemandishigherthansupplymayforcethepriceup Toomanymiddlemeninthesupplyanddistributionofcement Unstablepowersupplywhichleadstooverdependenceonexpensivealternativefuelwhichcarries

about50percentoftotalcostofproduction

Hoardingofcementbymarketerstosustainimportation Hugecostoftransportationofcementfromfactorytoendusersvisvispoordistributionnetwork

ofsomecementcompanies

Sheermonopolyofimportationbyafewplayers Hightaxburdenonproductionandimportation Highcapitalinvolvedinsettingupmorefactoriesmayleadtocementsupplygap

Playersin

the

Nigerian

cement

industry

comprises

of

manufacturers

and

importers.

There

are

about

six

manufacturers and seven importers of cement in the industry and still there is huge supply gap.

Consumption of cement in Nigeria is determined by the level of housing and industrial construction,

irrigation projects, roads, laying of water supply pipes, railways, drainage pipes, establishment of new

universities by federal government and private individuals. Investigations have shown that road

transportationofcementwithtrucksbeyond200kmisnoteconomicallyviableformovementofcement

within the country. Our future report on cement industry will Xray environmental effects of cement

production. We suggest that government should promote the newest technologies among cement

manufactures inthecountrybyencouragingalltoswitchontodrymethodofcementproductionrather

thantheoldwetmethodwithincreasedemissionoftoxicgasintotheenvironment.


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GlobalMarket:HighDemandlinkedtoRisingInvestmentinAfricasInfrastructure

ResearchhasforecastthattheglobaldemandforhydraulicandPortlandcementmayriseby4.1percent

per year to 3.5 billion metric tons in 2013, valued $246 billion. This is believed to be stimulated by the

risinginvestmentininfrastructureindevelopingcountries(mostlyAfrica)oftheworld,drivenbyeconomic

growth and increased national income due to more and more discovery of mineral resources (such as

recentdiscoveryofcrudeoilinGhanaandAngola,furtherdiscoveryofLiquefiedNaturalGasandbitumen

inNigeria,furtherdiscoveryofDiamondsinSouthAfricaanddiscoveryofothermineralresourcesinother

partsofAfrica).Duetoglobaleconomicrecessionthatcommencedin2007/2008,demandforcementhas

dropped in the leading consumer countries of cement, such as China, Brazil, Russia and other leading

consumerspriortotherecessionperiodbutstillhigherthantheworldaverage(figure1).

Figure1:WorldCementdemandByRegion Figure2:GlobalCementConsumption(20062009)

Source:IMF,PACResearchEstimates Source:Cemnet

Estimated

value

of

Nigerian

cement

industry

grew

from

about

N26

billion

in

2004

to

N134

billion

in

2008.

A

cement manufacturer stated that the total consumption of cement grew by 8 per cent to 14.8 million

tonnes in 2009 and approximately 10.5 per cent annually over the last six years. Recent happening has

evenconfirmed that theaggregatedemand forcement in Nigeria is inexcessofsupplyand thecurrent

estimateddemandstandsat18milliontones.

StatisticshasshownthatNigeriahasthe largestdemandforcement insubSaharanAfricaandabout95

per cent of the inputs for cement production are sourced for locally, Liberias demand also grew

tremendouslypostconflictsoatorebuilddamagedinfrastructure.Ghanacementindustryisdisadvantage

comparedtoNigeriabecausetherearetwocompaniesproducingcementinGhana,GhanaCementWorks

LimitedandDiamondCementGhanaLimited,whichusesimportedclinkerandgypsum,andlimestonefor

about37yearsformanufacturingofcementwhileNigerianmanufacturersimportonlygypsum.

CementProductionCapacityDynamicsinAfrica

A review of the Cement Facilities of Africa in relation to supply side including cement plants and their

manufacturingcapacityontheAfricancontinentshowstheneedfor industrialiststo intensiveexpanding

production capacity of thecommodity in Africa. As atDecember 2010, there were over 190 production

plantsandaboutonequarterofthemareintegratedcementproductionunits.Ithasbeenidentifiedthat

global cement majors such as Lafarge, Holcim, Heidelberg cement, and Italcement controls about 45

percentoftheAfricasinstalledcapacity.

Asia/Pacific,

69%

Africa/Middle

East,12%

Western

Europe,

6%

North

America,5%

Other

Regions,8%

Asia/Pacific

Africa/MiddleEast

WesternEurope

NorthAmerica

OtherRegions2,570

2,760

2,8502,895

2,400

2,500

2,600

2,700

2,800

2,900

3,000

2006 2007 2008 2009

GlobalCementConsumption(mt)


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Table1:CementMajorsinSubSaharanAfricaandtheirParentcountries

AfricasCementMajors NumberofPlantsinAfrica ParentCountries

Dangote 14 Nigeria

Lafarge 14 France

Holcim 11 U.S.A

Heidelberg 7 SouthAfrica

Italcement

13 Italy

Total 59

Source:IndustrySources,PACResearch

In terms of production capacity, North Africa dominates with 55 per cent of the total cement output

potential. Nevertheless, West African Sub region has witnessed appreciable growth in cement industry

whichraised itssharetoabout20percentandthismaychangetheregionalmix inthenext fewyears.

ConsideringtheageandnatureofcementplantsacrossAfricassubregion,theaverageoutputcapacity

alsovariesrangingfrom0.36milliontonsperyearperproductionlineinCentralAfricato1.10milliontons

inWestAfrica.Lafargeboaststhelargestnumberofoperationsin14Africancountriesandeveryregionof

Africa

with

concentration

in

Egypt,

Algeria

and

Morocco.

Apart

from

Lafarge,

Holcim

and

Heidelberg

Cement,ItalcementiandDangotemaintainthemajorityoftheiroperationsinonlyoneortworegions.

CementIndustryinNigeria:AnIndustryXRayandCausesofHighCostofCement

Establishingacement factory ishighlycapital intensivewhichmakesacement factoryveryexpensiveto

installandmaintain.Thecostofcementproduction isveryhighallovertheworldwithenergybeingthe

majorcostcenter.Energyaccountsforabout40percentoftotalcostofproductionofonetoneofcement

which requires 60 130 kg of fuel oil for total production process. The main source of raw material

necessary for production of cement includes limestone, gypsum, clay, sand etc. Cement manufacturing

plantsare

usually

located

near

quarries

of

limestone

in

order

to

avoid

the

cost

of

transporting

large

tones

ofthisessentialrawmaterialovera longdistance. InMarch2011,priceofcement inEgypt increasedby

6.65percentduetotransportationcost.

CementProductionprocess

The production starts with mining of limestone in the quarry which is crushed and analyzed in the

laboratorybeforetheyaregroundtoafinerformwithheavywheeltyperollers.Thematerialsarepreheat

beforetheyenterthekilntosaveenergy.Kiln istheheartofthecementmakingprocessandtheworld

largestmovingindustrialequipment.Fuelsuchaspowderedcoalandnaturalgasareusedtofiretheraw

materials

at

1480

degree

to

convert

the

raw

material

into

molten

form

called

clinker.

Clinker

is

cooled

by

forcedairandgroundintosuperfinepowder.Thefinishedproductisconveyedtosiloswhereitisbagged

orshippedinbulkbytrucksorrail.


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Figure3:CementProductionprocess

Source:PortlandCementAssociation

NigerianCement

Industry

and

Distribution

DuetothefederalgovernmentbackwardintegrationpolicyoncementproductioninNigeriabyPresident

OlusegungObasanjoin2002,thelocalmanufacturingoutputofcementhasrisenfrom2milliontonesto

10.5milliontonnesin2010.Continuousincreaseinlocalproductionwillpropelthecountryintoacement

exportingcountrylikemostAsiancountries.Nigeriancementmarketisoligopolisticinnaturethenumber

ofcementproducers is lessthan10.Requirementsforsettingupof factoryarethemajorentrybarriers

which include high cost of heavy machineries and equipment, highly skilled manpower, expensive

distributionchannelsandavailabilityoflimestoneindesiredlocations.

Figure4:

Per

Capital

Cement

Consumption

among

Selected

Countries

Source:Cemnet

100

280

230

420

300

150

0 50 100 150 200 250 300 350 400 450

Nigeria

S.Africa

Brazil

Russia

USA

India

PerCapitalCementConsumption(kg)

LimestoneQuarry

BlendingandGrounding

BaggingandShipping

ClinkerandFinishedGrinding

Kiln

Preheater


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Asaresultoftheprominententrybarrierwhich ledtotheexistenceoffewmanufacturersofcement in

Nigeria,demandfortheproductisfarhigherthansupplyandthishasresultedinupwardtrendinpriceof

Portlandcementdespitelowpercapitausage(consumptionperhead)byglobalstandards(Figure4).Abag

of cement, which was procured at between N1,500 and N1,600 in March 2010 currently sells between

N2,000andN2,200inLagosandN2,200andN2,400inAbuja.

Causesof

Upward

Rise

in

Price

of

Cement

in

Nigeria

Nigeriancitizenshavelamentedthehardshipbeingposedtothembytheskyrocketedincreaseinpriceof

cement.Inmanypartsoftheworld,pressureonthepriceofcementhasbeenattributedtovarioussource

of energy for different stages of production and transportation of cement to end users. Energy sources

suchaspetrol,diesel,electricityandcoalhavedirectimpactonthemarketpriceofcement;anychangein

price of any of these may affect the price of cement. Recent study in South American Cement industry

showsthatcostofenergyaccountsfor50percentcostofproduction.Thefollowinghavebeenhighlighted

asthecausesofhighpriceofPortlandcementinNigeria:

Hugesupplygapofcementwheredemand ishigherthansupply isa factorthatmay forceuptheprice

of

cement

Toomanymiddlemeninthesupplyanddistributionofcement Unstablepowersupplywhichleadstooverdependenceonexpensivealternativefuelwhichcarries

about50percentoftotalcostofproduction

Hoardingofcementbymarketerstosustainimportation Hugecostoftransportationofcementfromfactorytoendusersvisvispoordistributionnetwork

ofsomecementcompanies

Sheermonopolyofproductionandimportationofcementbyafewplayers Riseinpricesofotherrawmaterialsmayleadtohighcostcement Hightaxburdenmayalsoimpactonpriceofcement Unfavorablegovernmentpolicyonproductionandimportation Highcapitalinvolvedinsettingupmorecementfactoriesmayleadtothesupplygapofcement

Althoughcementmarket isnotaperfectmarketwherepriceofcommodity isalwaysatequilibriumand

demand isequaltosupplyforpricetoreallybedeterminedbymarketforcesi.e.pricecangoupwardor

downwardatanypointintime.Thismeansthepriceofcementcouldcontinuetogoupifurgentmeasures

are not taken bygovernment. High cost of cement has adverse effects on the economy and in the real

estatesector.Mostcontractorsdecidedtoreducethestandardnumberofcementformixingconcreteand

also in the block making process during construction of buildings so as to make up for the incessant

increasein

cost

of

cement.


8/16



Figure5:AverageCementPriceforSelectedCountries

Source:DangoteCementCompany

DistributionnetworkisverycriticaltocementbusinessinNigeriaandallovertheworldsincefactoriesare

locatednear limestonedepositswhichareusuallyfarawayfromtheirmarkets.Statisticshasshownthat

major Nigerian manufacturers have established distribution channels for their products to ensure that

cementgetstothedistributorsalloverthecountryatcompetitivepriceandeventuallytoendusers.For

instance, Dangotecement has invested massively in haulage toensure thatthe productgetsto the end

users

at

the

appropriate

rate.

Presently,

the

company

has

3,000

trucks

where

each

lifts

600

bags

of

cement. In the same vain, Lafarge WAPCO recently flagged off its Logistics Projectwith the planned

acquisitionofover1000stateofthearttruckstoenhance its logisticsystemwhere75brandnewtrucks

werecommissioned.

MajorCharacteristicsofCementIndustryHomogenousProductCement is considered as a standard product because of its homogeneity status, all kinds of Cement are

consideredtobehomogenouswhentheyareperfectsubstituteandconsumersperceivednoactualorreal

differences

between

the

products

offered

by

different

firms.

The

only

instrument

for

competition

in

a

cementindustryispricewhereifCompanyAlowersitspricetogainmarketshare,companyBmayfollow

suitsoastoretainitscustomers.

CapitalIntensiveThe high cost of constructing a cement plant has ranked the industry among the most capital intensive

industries in anycountry. Long time periods aretherefore needed before investmentscanberecovered

andplantmodificationshavetobecarefullyplannedandmusttakeaccountofthelongtermnatureofthe

industry. This makes cement industry to be low labour intensive due to the development of modern

automated machinery and continuous material handling devices. In the Europe, the cement factory

represents

58,

000

direct

jobs

but

a

modern

plant

is

usually

manned

by

less

than

150

people.

RequiresHighEnergyUsageCement manufacturing requires high consumption of fuel from the first stage of production till the last

stage. Each tonne of cement produced requires 60 to 130 kilogrammes of fuel oil or its equivalent,

depending on the cement variety and the process used, and about 105 KWh of electricity may be used

whichalsomeanshighcost.

HeavyMaterialInputandOutputCement production requires heavy material input such as limestone, transportation of limestone as a

majorrawmaterialincementproductioniscumbersomeandthisisthereasonwhilecementfactoriesare

locatedverycloseto limestonedeposit.Thefinishedgood,cement, isalsoveryheavyandrequireshuge

costoftransportationwhichimpactsonpriceofcement.

0

100

200

AverageCementPriceforSelectedCountries($)


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MajorPlayersinNigerianCementIndustryPlayers in Nigerian cement industry are mainly manufactures and importers. There are about six

manufacturers and seven importers of cement in the industry and still there is huge supply gap. The

volumeofproductionlocallywentupdramaticallyfrom2.5milliontonnesin2004to10.5milliontonesin

2010 due to the commencement of production by Obajana (Dangote) Cement and Unicem in 2007 and

2009 respectively. Dangote controls about 60 per cent of the cement market share while other

manufacturerssharetheremaining40percent(Figure4).

Figure4:CementManufacturersandtheirMarketShare

Source:IndustrySources,PACCapitalResearchEstimatesThebiggest player in Nigeriancement production isnoothercompany but Dangote Group , but several

othermajorentitiesdominatetheirrespectiveregions.LafargeWAPCOdominatesthesouthwestmarkets

whileAshakacementcontrolssales inthenortheasternregionofthecountry.BenueCement(BCC)and

ObajanaCementCompanyhavetheirsalesconcentrated inthenorthandcentralmarkets,bothrecently

mergedto

become

Dangote

Group.

The

UNICEM

cement

company

and

the

Cement

Company

of

Northern

Nigeria (CCNN) are strategically positioned to serve the southeastern and the northwestern markets

respectively. This scattered location of the cement factory the fragmentation of cement market in the

countryispartlyduetohighhaulagecostsasaresultofthelackofdurabletransportinfrastructuresuchas

rail and partly due to the availability of limestone, which is main raw material in cement production, in

differentpartsofthecountry.Capacitiesofmostofthecementmanufacturingcompaniesvaryfromone

companytotheother.

Table2:InstalledCapacitiesofCementManufacturersinNigeriaasat2009.Company ParentCompany InstalledCapacities (Milliontonnes)Ashaka LafargeSouthAfrica 0.80LafargeWAPCO LafargeSouthAfrica 2.20CCNN BUA 0.50BCC Dangote 0.50EdoCement BUA 0.35ObajanaCement Dangote 4.50Ibeshe Dangote 0.00UniCem Holcim/LafargeS.A./FlourMills 2.50Total 11.35

Source:CompaniesData,PACResearch

Expositoryreviewsofthequotedcementcompaniesaregivenbelowtodissecttheirbusinessbackground,

pricetrendontheflooroftheNigerianStockExchange,financialresultsandopportunities.

Dangote

BCC

CCNN

Ashaka

LafargeWapco

Unicem


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DangoteCementPlc

BusinessBackgroundDangoteCementPlc,incorporateasObajanaCementinNovember1992priortotheplannedspecialsale

of shares, is 95 per cent owned by Dangote Industries Limited. After a while, Dangote Industry Limited

decidedtoconsolidateallthecemententitieswithintheDangoteGroupintoasingleentitybytransferring

allthecementassetsintoDangoteCementPlc.Priortothis,DangoteCementofferedtomergewithBenue

CementPlcwiththegoalofconsolidatingthecementproducingentitiesofDangoteIndustriesLimited in

Nigeria under a single entity presenting a robust platform for the enlarged Dangote Cement Plc. The

current Dangote Cement Plc comprises of Obajana Cement Plant, Ibese Cement plant, Benue Cement

Plant, Lagos Cement Terminal and Dangote Onne Terminal. Further to plans for an African expansion,

DangoteIndustriesLimitediscurrentlyestablishingcementplantsandterminalacrossAfrica.Someofthe

countries includeLiberia,Angola,Ghana,SierraLeon,RepublicofBenin,DRC,CongoBrazaville,Senegal,

South Africa and Zambia. Back in Nigeria, recent merger between Dangote Cement and Benue Cement

CompanyonthefloorofNigerianStockExchangemadeDangoteCementtoconstitute25percentofthe

entiremarketcapitalization.

Figure5:DangoteCementPlcvsNSEIndex Figure6:CementIndustryPAT(Nb)

Source:NSE Source:CompaniesAnnualReports

AnalysisandRecommendation

DangoteCementPlchasenteredthe leagueofcementmajors inAfricawithtentacles ingreaterpartof

WestAfricansub regionandbeyond.ThecompanyhaspotentialtocaptureAfricancementmarketand

send nonAfrican Multinational cement companies back to their home countries. The cement giant

currently trade at N125.50 on the floor of the Nigerian Stock Exchange and recently gave wonderful

dividendto

shareholders

as

aresult

of

the

highest

PAT

in

the

industry,

this

shows

that

the

company

has

the

potential to perform better in the coming financial year. We encourage long term investment in the

company.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

DangoteCement NSEIndex

4.881

1.296

0.944

106.605

0 20 40 60 80 100 120

LafargeWAPCO

CCNN

Ashaka

Dangote

CementIndustryProfitafterTax(PAT)inN'b


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AshakaCementPlc

BusinessBackgroundAshaka Cement Plc is a subsidiary of Lafarge Group, a world leader in cement manufacturing. Ashaka

becamepartoftheLafargegroup inJuly2001aftertheacquisitionofBlueCircleIndustriesPlcandsince

thattimeLafargehascontinuedtosupportAshakasoperationstoimproveperformanceresultinginbetter

returns to all its stakeholders. Ashaka Cement values the partnership with Lafarge because of the

tremendous benefits we have derived from its corporate programs. This was seen to have resulted in

improved performance, better results and profitability for the benefit of Ashakas shareholders,

employees, customers and the hosting communities. Ashakacems principal activities are the

manufacturing and marketing of cement products. The Groupcontrols a unique portfolio of businesses,

Cement (57%); Aggregates and Concrete (35%); Gypsum (8%). Lafarge designs and produces building

materials to meet the requirements of people throughout the world for housing, transport, healthcare,

educationandessentialinfrastructureforeconomicgrowthandsocialprogress.

Figure 7: Ashaka Cement Plc vs NSE Figure 8: CementIndustryPAT(Nb)

Source:

Source:Companies

Annual

Reports


AshakaCementhasshownconsistentimprovedperformanceoveryears.Ashakacementsstrategicfocus

fallson improvedperformanceandsustainabledevelopmentof itsproduction facilities inorder togrow

output and enhance competence by a way of investment on some projects like power project, Kiln up

rating project, roller press refurbishment, coal project and water improvement project. All these are

expectedtoincreasethecompanyscapacitysothatitcanfurtherdeepenitsmarketshareandtranslateto

profitability.

Ashaka

cement

trades

at

N22.40,

we

recommend

long

term

investment

for

prospective

shareholders.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

NSEIndex AshakaCement

4.881

1.296

0.944

106.605

0 20 40 60 80 100 120

LafargeWAPCO

CCNN

Ashaka

Dangote

CementIndustryProfitafterTax

(PAT)


12/16



CementCompanyofNorthernNigerian(CCNN)Plc

BusinessBackgroundCementCompanyofNorthernNigeriaPlc(CCNN)wasestablishedbyAlhajiSirAhmaduBello,Sardaunaof

Sokoto. It was incorporated in 1962 and began production in 1967 with an initial installed capacity of

100,000tonnesperannum,usingthewetprocessofproduction.Theneedtomeettheincreasingdemand

for cement necessitated the expansion of the Plant with the commissioning of a Second line with an

installed capacity of 500,000 tonnes per annum in 1985 by, the then Head of state, Major General

MuhammaduBuhari. In1992,FederalGovernment,initsprivatizationandcommercializationprogramme,

disinvestedabout20%ofitsholdinginthecompanyandsold ittotheNigerianpublic.InJuly,CCNNwas

pencileddownbyBureauofPublicEnterprise (BPE) forfullprivatizationwhereScancem Internationalof

Norway,amemberofHeidelbergCementgroupwasappointedascoreinvestorandtechnicalpartnerof

theCompany.

Figure9:CCNNvsNSEIndex Figure10:CementIndustryPAT(Nb)



CCNNhasstandtestoftimetakingintoconsiderationitslongyearsofexistence.Thecompanysdesireto

embark on facility development programme is expected to improve performance. It is important to

acknowledge the fact that the company has been fair in rewarding shareholders over the years. The

existinginvestorscanholdontotheirinvestment.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

NSEIndex CCNN

4.881

1.296

0.944

106.605

0 20 40 60 80 100 120

LafargeWAPCO

CCNN

Ashaka

Dangote

CementIndustryProfitafterTax(PAT)


13/16



LafargeWAPCOPlc

BusinessBackgroundLafargeWAPCOwasestablishedasaresultofthecountrysvisiontogaineconomicfreedomalongsideits

nationalindependence.LafargeWAPCO,formerlyWestAfricanCementPlc(WAPCO),wasestablishedata

timewhenthecountrywassolelydependentonimportationinthefiftiesfromEnglandintothecountry.

Havingfulfilledthenationaldesiretoestablishacementmanufacturingcompany,LafargeWAPCO,since

its

operation

in

1960,

has

made

tremendous

contribution

to

the

availability

of

cement

in

Nigeria.

The

companys brand, Elephant Cement, is of impeccable standard and quality with strength, maturity,

resilience, durability and reliability. The company has consistently won the NIS Certificate for product

qualitybytheNigeriaStandardOrganizationforovertwodecadesnow.TheElephantbrandhashelpedto

buildedifices,broughtmonumentalprojectsto life,createasereneatmosphereandpositively impacted

thelivesofNigerianssocioeconomically.

Figure 11: Lafarge WAPCO vs NSE Index Figure 12:CementIndustryPAT(Nb)


Analysisand

Recommendation

PriortotheemergenceofDangoteCementPlcintheNigeriancementindustryinNigeria,WAPCOwasthe

industry leader with highest market share. At present, WAPCO market share covers the entire western

region.Ithasbeennoticedthatthecompanysdividendpaymenthasdecreasedconsiderablysince2006

and the reason could be linked to the entry of Lafarge into the company and commencement of

productionbyDangotegroup.Thecompanyhaspotentialforlongtermgrowth.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

NSEIndex LafargeWAPCO

4.881

1.296

0.944

106.605

0 20 40 60 80 100 120

LafargeWAPCO

CCNN

Ashaka

Dangote

CementIndustryProfitafterTax(PAT)


14/16



InvestmentOpportunities

In the current situation of cement industry in Nigeria, the industry has been perceived as a potential

investment hub for more international cement giants as demand supply gap continue to be on the increase.

In view of the upcoming massive infrastructure projects in Nigeria and the rest of Africa, the cement

consumptionisexpectedtoadvancewhichisanticipatedtostrengthenlongterminvestmentsviabilityof

theNigeriancement industry.Wehaveobservedthathousingsector iscurrentlythemajorconsumerof

cementinNigeriaandroughlyaccountsforover50%ofthetotalcementconsumptioninthecountry.Asa

resultofthehousingdeficitof17million,thedemandforcementisexpectedtogoupforthecountryto

fillthisgapandotherneedforcementconsumption.Ifmoreinvestorsareallowedintotheindustrybya

way of equity financing, the expected expanded capacity will not only enable players to tap the

opportunities in the domestic demand, but will also increase their export considerations. The following

formsofinvestmentopportunitiescanalsobeconsideredintheindustry:

Establishment of a Greenfield Cement plant, this can be done by sourcing for fund locally or byinvitinginternationalcementmajorsinformofForeignDirectInvestment(FDI).

Buying

into

an

existing

nonperforming

cement

plant

is

another

popular

option

in

Nigeria,

this

can

be

donebytheuseofSpecialPurposeVehicle(SPV),directequityfinancingetc.

Opportunitiesalsoaboundintheimportationofrawmaterialssuchasgypsumforproduction There can also be preinvestment due diligence for invited foreign investors before eventual

investment.

ThereareimmenseopportunitiesinimportationofcementandconstructionofterminalsforbaggingInvestmentandProductionChallengesinNigeria

a. Veryhighstartingandmaintenancecapitalofacementfactoryb.Poorpowerandenergysupplyforcementmanufacturingc. Highsupplygapwhichleadstohighpriceofcementd.Dwindlinggovernmentpolicieswhichisaffectinginvestmentintheindustrye.Lackofmoderntechnologiesintheproductionofcement


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ConclusionsThe consumption of cement in Nigeria is determined by factors influencing the level of housing and

industrial construction, irrigation projects, roads, laying of water supply pipes, drainage pipes,

establishmentofnewuniversitiesbyfederalgovernmentandprivateindividuals.Growthinpopulationand

levelofurbanizationinmajorcitieslikewhatwearecurrentlyexperiencinginLagosandPortHarcourtare

alsootherfactorsthatconfirmthe imminentdemandforcement inNigeriaandotherpartsofAfrica.All

these including the supply gap of cement in Nigeria shows that future investments in Nigerian cement

industrywillbeaviableventure.

Investigations have shown that road transportation of cement with trucks beyond 200 km is not

economicallyviableformovementofcementwithinthecountry.We implorefederalgovernmenttofast

trackconstructionofnewrailwaysandrehabilitationoftheexistingonesandprovisionofmanywagons

fortransportationofcementwithinthecountry,thismayalsorelaxthepressureonpriceofcement.

On a final note, our future report on cement industry will Xray environmental effects of cement

production. We suggest that government should promote the newest technologies among cement

manufacturesin

the

country

by

encouraging

all

to

switch

on

to

dry

method

of

cement

production

rather

thantheoldwetmethodwhichincreasesemissionoftoxicgasintotheenvironment.

PrognosisDuringthecourseofthiswork,wediscoveredthatcranesarebeen loosened intheMiddleEast (Dubai)

andEuropeinrelationtoconstructionandinfrastructural development.Ourprojectionisthatthosecranes

are coming down to the developing countries, most especially African continent, where infrastructural

facilities are lacking and civil wars which led to the destruction of buildings and structures are

predominant.

These

factors

are

contributing

to

the

high

demand

for

cement

in

Nigeria

and

the

continent.


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Appendix1:ComparisonbetweenIndianandSubSaharanAfricaCementIndustries

ComparisonElements India SubSaharan African(ExcludingSouthAfrica)

Characteristics of the cement

industry

140 large cement plants

365minicementplants

15 large cement plants

60minicementplants

Majormarketplayers Lafarge

ItalcementiGroup

HeidelbergCement

Holcim

AdityaBirlaGroup

Lafarge

Holcim

Heidelberg

Dangote

InstalledCapacity 210Mtpa(2008) 41.7Mtpa(2007)

Production

174Mtpa

(2008)

17.3

Mtpa

(2004)

Consumption 170Mt(2008) 44.8Mt(2007)

Percapitalcementconsumption 140kgpercapital 70kgpercapital

CapacityUtilization 94%(2008) 54%(2008)

AnnualGrowthRate 10% (2007) 9.4%(2007)

PriceofCement USD5.50(perbagof50kg) USD8.4 15.6(perbagof50kg)

Processtypes 98%dryprocess(2008) 66%dryprocess(WBCSD,2002)

Thermalenergyuse 760kcal/kgofclinker 800 1000kcal/kgofclinker

Electricenergyuse 85kWh/tofcement 105 140kWh/tofcement

Appendix 2

Limestoneblocksinacementfactory AcementfactoryintheU.S.

This report is produced by PanAfrican Capital Plc as a guide for clients mainly for information purposes about happenings in Nigerian economy and beyond. No

responsibilityorliabilityisacceptedforerroroffactoranyopinionexpressedherein.

INVESTMENTBANKING|SECURITIESTRADING|ASSETMGT.|STRUCTUREDFINANCE|REGISTRARSERVICESlREALESTATE

nigerian cement industry april 2011

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