Competition a drag on Confidence Cement’s business

Confidence Cement Limited - a sister concern of the Confidence Group - posted losses in the last three consecutive fiscal years, due to price fluctuations with intense competition and high financing costs.

In its annual financial statement for fiscal 2019-20, the company said the cement industry boomed in the early 2000's and new competitors started to enter the market in large numbers.

According to the Bangladesh Cement Manufacturers Association (BCMA), there are more than 75 cement companies, but now only 37 companies produce cement for local and overseas markets.

BCMA data shows annual demand for cement at around 33 million tons with a capacity of 78 million tons in the country. Total investment in the cement sector stood at Tk30,000 crore till fiscal year ending 30 June 2020, of which Tk19,000 crore came from bank loans.

A senior officer of Confidence Cement told The Business Standard that cement demand is increasing due to urbanisation, real estate development, and government projects. That is why, many investors came into the market to capitalize on market business opportunities.

But because of intensive competition, the company could not raise prices even though the cost of producing cement was rising.

Cement production depends on the price of clinker, a raw material used to produce cement. Because Bangladesh has to import clinkers, periodic international market price fluctuations raise production costs, he added.

As such, it has become very difficult to make a profit in the cement business, he continued.

"We are trying to reduce costs by installing new technologies and introducing water transportation systems."

"This is especially important for turning a profit in the current competitive market. This is why the company is going to invest Tk500 crore to set up a new plant," he added.

Rezaul Karim, chairman of Confidence Cement said in the company's 2019-20 annual report, that it is going to establish a third unit near Dhaka with an annual production capacity of 1.5 million tons.

Confidence Cement Limited was established on 2 May 1991 and went into commercial operation in 1994. At present, the company has an annual production capacity of 12 lakh tons.

In the first half of this fiscal year, the company has managed to make a profit of Tk8.71 crore, after adjusting for its worker profit participation fund (WPPF) - thanks to a reduction in the price of clinker and other operational costs.

The company was listed on both stock exchanges in 1995 and paid a handsome dividend to shareholders each fiscal year from its investment income.

Despite the Covid-19 situation, the company has paid a 20% dividend – 15% cash and 5% stock – to shareholders for the last fiscal year.

The company earned good profits from Confidence Battery Limited and Confidence Power Holdings Limited, where they invested a total of Tk24 crore.

As of February this year, general shareholders hold 52.70% of the company's shares.