What was your overview of the operating environment last year?

The operating environment was characterised by lots of headwinds. The year 2023 actually started with the currency devaluation.

In effect, it affected the purchasing power of most people because consumption of cement in Nigeria mostly comes from the private sector, and people were out of cash, or those that were able to pay for cement were not able to get cash to pay for the labourers using the cement, especially at construction sites, especially during the first few months of 2023.

The development led to a significant drop in the consumption of cement. We also had the presidential election last year in the month of February and other elections. It took time before the new government came on board.

This slowed down a lot of things because of the restrictions on movement and the uncertainty due to what we in Nigeria call the election fever. So, demand was a bit slow.

When things started picking up in early June, there was the deregulation/removal of fuel subsidies, and that also eroded consumers’ purchasing power. Basically, the year 2023 was very turbulent.

The devaluation of the naira also had a big impact for most companies like ours that are energy dependent. The source of this energy is linked to the dollar, even though we pay in Naira.

Energy sources like gas and LNG are all linked to the dollar, so we suffered in terms of paying more in naira terms than we would have done ordinarily, and this actually affected our cost of production. In 2023, we witnessed lower margins because we couldn’t pass on all these costs directly to the consumers, so we had to absorb some.

In October 2023, out of our patriotic commitment and zeal, we also reduced the price of cement to N3,500 per bag with the hope that other consumers will follow suit so that we could lessen the burden on the ordinary Nigerians.

Unfortunately, the benefits did not pass directly to the consumers. The middlemen and retailers had a filled day and continued to sell at the old price and made huge margins.

So, by the beginning of 2024, when we realized such, we had to look back at that decision; we went back on it and adjusted it. Now our prices are upward in tune with the exchange rate to the naira.

BUA cement is undertaking expansion across its plants. Could you give us updates and completion timelines?

As of today, BUA cement has an installed capacity of 17 million tons, and this is divided among the two plants. We started building two new lines—one in Sokoto and one in Edo State— about three years ago.

We are very happy both lines have been completed 100 per cent and have been commissioned. They have round-up production, and they are in full operation.

Today in Sokoto, we have a total production capacity of 8 million tons comprising three lines, and in Edo State, we have three lines comprising three million metric tons each. We have a total capacity of nine million tons.

But then this year we relocated the Adamawa plant that we signed some years ago to Ososo, Edo State, and that is also a three million metric tons plant per annum.

Construction has already started, and we are very optimistic that within the next twenty-two months it will achieve full completion. In summary, we are going to have a total installed capacity of 20 million tons within the next two years.

The energy challenge is a major bottleneck to the manufacturing sector; how is BUA tackling this? You alluded earlier to factory price; could you throw more light?

On the energy cost, you are aware cement production is a highly energy-intensive process. What it means is that our cost of production is between 50 per cent and 60 per cent depending on the type of plant and the fuel it uses.

The cost of cement mostly comes from the cost of energy. Energy can be in the form of gas that we are buying, coal, or liquid fuel such as diesel or LPFO. Now because 50 to 60% of the total cost of production is related to energy, and this energy is actually paid for at a price that is linked to the dollar.

This is a big challenge for us. It has a substantial impact on how we price our cement. With respect to the price of cement, after the adjustment made in the first two months of 2024, we have seen relative stability between then and now.

I believe all the players have moderated their prices, and when the dollar stabilizes and starts to come down, it will

The devaluation of the naira also had a big impact for most companies like ours that are energy dependent

price. We are watching. There are little fluctuations in our cost of production. We have not really changed the price since February.

We are happy that the whole industry met with government agencies, and we listened to the pleas of Mr. President and the consumers; we had a meeting with the Minister of Trade and Industry, and we made a promise that cement will be available to end users between N7000 and N8000 per bag.

I believe that has been the case in the last five months, and for places that are close to the cement plants, you can get it for less than N7,000 per bag. So, our factory price has been stable since then between N6,000. You just have to add the cost of transportation.

Price has moderated, and availability of cement in the market has also increased. With the commissioning of two new lines during the second quarter, those two lines have brought in additional capacity of six million metric tons per year.

We believe with the moderation in the price of the dollar and exchange rate and the increased capacity, the outlook for 2024 looks very positive. And when the naira appreciates, that will also give us some room to adjust our prices in favour of the consumers.

You spoke of the acquisition of a miniLNG plant to supplement your power needs. How do you intend to achieve the plan?

We are building a mini-LNG plant. This will make us self-sufficient in our energy supply to our plant in Sokoto. Like I mentioned earlier, the cement production is energy intensive. Like in Edo, where we have a gas pipeline that draws all the way to the plant.

We use quite a lot of natural gas to power our turbines for generating electricity. Don’t forget we generate our own electricity 100 per cent and also use the gas to process the transformation of the raw material into the finished product (cement).

The second factory in Sokoto—you know we do not have gas pipelines up north. So, it’s not possible to get natural gas all the way up to Sokoto. We came up with this novel idea that we are going to use natural gas called LNG.

There’s a company in Port Harcourt that buys natural gas and liquifies it. It then puts it in trucks that are refrigerated so that it remains in liquid form, and these trucks are transported all the way to Sokoto.

We built a re-gasification plant where we convert this liquid LNG from the storage tanks and pipe it to all the various units within the factory that use the LNG. These units use generators to convert; in fact, we bought a completely new generator.

There are a number of challenges associated with moving these gases over thousand kilometres in Nigeria. In order to insulate ourselves and mitigate some of the risk associated with the transportation of this very vital energy source, we decided to build our own energy plant somewhere mid way.

This plant has a capacity of 700 tons per day, which we believe will be sufficient for us to power our machines in Sokoto and even send them elsewhere.

How much is the cost of this project?

It’s in hundreds of millions of dollars.

Cement dealers have been fingered for inflating the price of cement. What can BUA cement do so that these dealers don’t get to determine the price?

Regarding the end user prices, there is a business model adopted for cement transactions. The concept we adopt is to sell to distributors. There are two more layers between us and the end users.

The distributors sell to retailers, and the retailers sell to end users. It’s really difficult to enforce pricing for a private company. We believe this is where the government can play a vital role.

When there is a gap between demand and supply during the peak season, when most times demand far exceeds the supply, in such cases you might have the tendency where retailers exploit consumers by charging them higher because the product is scarce.

What we are doing is increasing the capacity, which we have done. We believe the prices will be highly moderated next year because of the high capacity we have brought on through our various plants.

Other players have completed their plants so that the pressure you usually have during the peak season will not be as much as we have seen in the past.

Your company declared a dividend of N2 per share for the 2023 financial operations. Could you give a background to the BUA cement performance in the year under review?

We declared N69 billion, and the company is paying N2 per share. We have over 33 million shares for the company. Graciously, this has been ratified by the shareholders, and the dividend has already been paid out.

The performance has been very impressive. Don’t forget there was a devaluation of the naira in June last year. Almost all the companies that have liabilities that are dollar-denominated have had to declare unrealized foreign losses.

We were not isolated from it. We have a facility from the International Finance Corporation (IFC), from which we have already drawn about $300 million.

It has had to be revalued at the current price of the naira, and that resulted in a significant unrealized foreign exchange loss to be deducted in line with the accounting principles from our total profit.

That’s why the net profit and dividend payable to the shareholders were less than what we paid out in the year 2022.

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