Cement firms struggle amid weak demand, rising rates, high taxes

Infographic: TBS

Four leading listed cement manufacturers in the country reported weak performance in the July-September quarter of this year, primarily due to sluggish demand caused by floods and political uncertainty, rising interest rates, and a higher effective tax rate.

The companies – Crown Cement, Heidelberg Materials, LafargeHolcim Bangladesh, and Premier Cement – each reported declines in both revenue and profit for the July-September quarter, with Heidelberg Materials incurring a loss, according to their financial statements.

The share prices of these companies traded near one-year lows on the Dhaka Stock Exchange yesterday. Crown Cement traded at Tk54.80, down from its one-year high of Tk85; Heidelberg Materials at Tk227.10, compared to its peak of Tk371; LafargeHolcim Bangladesh at Tk54.60, down from Tk77.80; and Premier Cement at Tk54, against a high of Tk73.60.

Crown Cement

As per the financials of Crown Cement, its turnover inched down to Tk610 crore during the quarter, while the net profit dropped over 89% to Tk3.77 crore compared to the same quarter of the previous year.

The company stated in its price-sensitive announcement that profits have declined due to recent nationwide political turmoil and unprecedented floods, which led to a drop in sales and underutilisation of capacity. 

Additionally, profits have been negatively affected by higher depreciation and finance costs associated with the newly installed production unit, as well as the high effective tax rate resulting from the minimum tax regulation. 

The company's financial statement revealed an effective tax rate of 83.61% for the quarter, compared to just 28.13% in the same quarter last year.

Crown Cement's total bank borrowings stood at Tk1,530 crore, including short-term loans, at the end of September.

In October, the Bangladesh Bank hiked the policy or repo rate further by 50 basis points to 10% in its efforts to rein in inflation, which has been stubbornly high for the last two years.

This was the 11th time since May 2022 that the central bank hiked the repo rate to make money expensive for banks and tame demand to curb inflation. Banks borrow from the central bank at the repo rate.

Heidelberg Materials

According to the statement of Heidelberg Materials Bangladesh, it incurred a loss of Tk0.79 crore during the quarter, while its revenue dropped by 20% to Tk293 crore compared to the previous year in the same quarter.

Terence Ong Kian Hock, the newly appointed managing director of Heidelberg Materials Bangladesh, told TBS earlier that the declining demand for cement has persisted following the fall of the previous government, as political unrest continues to rise. 

Consequently, the country is experiencing significant economic uncertainty, leading to a near halt in construction activities across Bangladesh, he said.

LafargeHolcim

LafargeHolcim Bangladesh's profit for the July-September quarter dropped to Tk87.8 crore, which was Tk159.9 crore in the same period last year.

Its revenue also fell to Tk627 crore, which was Tk639 crore at the same time in the previous year, according to its statement.

Premier Cement

Premier Cement's profit for the quarter fell to Tk1.44 crore, down from Tk5.76 crore in the same period last year. Revenue also declined by 17% to Tk519.72 crore compared to the previous year.

Shafiqur Rahman, company secretary of Premier Cement, told TBS that the company faced declining sales in the quarter due to July's market slowdown, which impacted their sales targets and profit margins.

He added that rising interest rates further squeezed profits. To mitigate this, the company plans to issue preference shares to raise Tk161 crore in low-cost funds to reduce its debt burden.

Its total loans were Tk2,130 crore at the end of September this year, according to the financial statement of the company.