Despite having a strong balance sheet that provides them the firepower to ward off macroeconomic headwinds, Nigeria’s largest cement makers, Dangote Cement Plc, Lafarge Africa Plc and BUA Cement Plc are struggling to keep cash for financing activities, according to findings by BusinessDay.
Nigeria’s cement makers recorded a combined net cash flow used in financing activities of N-95.37 billion in the first quarter of 2022.
This represents a decline of 48.86 percent from N-186.49 billion combined net cash flow used in financing activities in the first quarter of 2021.
Why does this matter
Cash flow from financing activities (CFF) is a section of a company’s cash flow statement, which shows the net flows of cash that are used to fund the company.
The line item on the cash flow statement provides investors with insight into a company’s financial strength and how well a company’s capital structure is managed.
A positive number for cash flow from financing activities means more money is flowing into the company than flowing out, which increases the company’s assets, while a negative number can mean the company is servicing debt, but can also mean the company is retiring debt or making dividend payments and stock repurchases.
Sub-Saharan Africa’s largest cement producer, Dangote Cement Plc, reported net cash flow used in financing activities of N-91.49 billion, an 11.28 percent decrease from N-103.12 billion reported in the corresponding period of 2021.
Sesan Adeyeye, an analyst at CSL Stockbrokers Limited attributed the negative figure to an attempt to deleverage by trying to cut back their debt stating that cash outflows are more than cash inflows in the company.
Dangote cement total borrowings for the first quarter of 2022 amounted to N528.02 billion.
Findings by Businessday show that loans repaid by Dangote cement contributed the bulk of outflows by the company in financing activities, followed by shares bought back by the company, interest paid, and lease payment.
Loans repaid, shares bought back, interest paid and lease payments amounted to N78.91 billion, N33.32 billion, N11.45 billion, and N175 million respectively.
Adeyeye explained that Dangote cement bought back its shares in January, during its second tranche of a buyback program set to return cash to shareholders.
In the first quarter of 2022, the company recorded an inflow in its financing activities when it obtained a loan to the tune of N34.37 billion.
Dangote Cement is one of Africa’s cement producers with operations in 10 African countries with a production capacity of up to 48.6 million tonnes per annum (Mta) across Africa as of 2020.
Lafarge Africa also recorded a negative cash flow used in financing activities as its cash outflows exceeded its cash inflow.
Net cash flow used in financing amounted to N-7.19 billion in the first quarter of 2022, a 223.87 percent decline from N-2.22 percent recorded in the corresponding quarter of 2021.
“In recent times, Lafarge Africa has been trying to deleverage their balance sheet. Good for the firm, because they have been having issues with their subsidiary in South Africa and had to sell in 2019,” said Adeyeye.
Adeyeye reiterated that going forward, Lafarge will continue to repay the debt because its aim is to deleverage.
The cement company recorded total loans and borrowings amounting to N24.64 billion in the first quarter of 2022.
Cash outflows recorded by the company used in financing activities include dividends paid to equity holders of the company of N7.68 billion, repayment of loans and borrowings of N3.47 billion, and interest paid of N480 million.
The cement company recorded cash inflow used in financing activities of N4.44 billion from proceeds it derived from loans and borrowings.
Lafarge Africa is a member of the Holcim Group – the world’s leader in innovative and sustainable building solutions. With plants in Ewekoro and Sagamu in the South-West, Mfamosing in the South-South, and Ashaka in the North-East of Nigeria, the company currently has an installed cement production capacity of 10.5mtpa and has plans to grow in the near term.
Amongst the cement makers, BUA cement is the only one with a positive net cash flow used in financing activities. This means that more money is flowing into the company than it is flowing out.
The cement company recorded net cash flow used in financing activities to the tune of N3.31 billion in the first quarter of 2022 as against N-81.15 billion recorded in the first quarter of 2021 when its cash outflow was more than its cash inflow.
The cement company recorded total borrowings of N88.23 billion in the first quarter of 2022.
Proceeds from borrowings amounting to N3.92 billion formed cash inflow used in financing activities in the quarter.
Interest payment and lease liabilities decrease worth N595.26 billion and N12.57 billion represent the cash that flowed out of the company in financing activities during the period.
BUA Cement PLC is a Nigeria-based cement manufacturing company and has its plants located in Northern and Southern Nigeria. Its subsidiaries are Kalambaina Cement Company Ltd, which has a manufacturing capacity of 1.5 million metric tons (MT), OBU & EDO Cement Company Ltd has a combined installed capacity of manufacturing 3.5 million MT, and Cement Company of Northern Nigeria has an installed capacity of manufacturing 500,000 MT of cement.
What experts are saying
Sesan Adeyeye, an analyst at CSL Stockbrokers Limited, explained that net cash flow used in financing activities relates to the capital structure of the company and a negative figure in the cement industry means that they are deleveraging their balance sheet.”
“It also suggests that cash outflows from the company are more than the inflows in the company,” he added.
Innocent Unah, executive director at Graham Lynch Capital, explained that companies may choose to buy back their shares because they feel underpriced and that a negative figure for net cash flow used in financing activities does not necessarily connote the company is in a bad state.
“The company is probably seeing opportunities in the industry which they feel they need to take advantage of, hence the increase in cash outflow than inflow but when examining negative net cash flow used in financing activities, one needs to look at the dividend situation, and how the share is doing in the market,” he added.
Unah further stated that the cash position of the company might be challenged if they are not paying dividends but are buying back shares.