Pandemic adds to the woes of HeidelbergCement
HeidelbergCement Bangladesh, the German cement maker, has been incurring losses since the second quarter of 2019 due to fierce competition in the market, higher prices of clinker, the imposition of advance income tax and higher interest cost.
The situation was aggravated further amid a plunge in sales due to the two-and-a-half-month-long countrywide general shutdown starting from 26 March to flatten the spread on coronavirus. The shutdown screeched construction works to a halt across the country.
The listed cement manufacturer incurred a loss of Tk 14.4 crore in the first half of this year, in contrast to a profit of Tk 15.2 crore a year earlier.
However, the cement maker that markets two brands namely Scan and Ruby made a profit in the first quarter of 2020.
The company's profits and sales declined because of the price hike of raw materials in the international market, low income and the imposition of minimum tax on import of raw materials, according to its Chairman Kevin Gerard Gluskie. The government imposed a 5 per cent advance income tax on the import value of raw materials in fiscal 2019-20.
"Furthermore, the existing market competition forced us to adjust our prices significantly," Gluskie said in the company's annual report.
Though the advance income tax has been reduced to 3 per cent at the beginning of 2020, many cement producers blame their losses on the tax.
Earnings per share of MI Cement, another local listed cement manufacturer, was Tk 1.6 in the negative between July 2019 and March 2020, which was Tk 1.1 in the same period a year earlier.
Consolidated EPS of HeidelbergCement was Tk 2.5 in the negative in the January-June period. A year earlier, it was Tk 2.7.
As HeidelbergCement Bangladesh, which was listed in 1989, did not provide any dividend to its shareholders last year due to losses, the company was downgraded to Z category shares in the Dhaka and Chattogram stock exchanges. Along with its depressing performance, the company's stock prices plunged 58 per cent to Tk 150 in the last two years.
HeidelbergCement, which operates in more than 50 countries, is facing the same problem that other multinational firms face in Bangladesh: unfair competition, said an official of the company asking not to be named to speak candidly on the matter.
HeidelbergCement's sales dropped 38 per cent to Tk 176.6 crore in the second quarter of the year.
Another top official of the cement maker said it had to borrow a huge amount of money to buy Emirates Cement and Emirates Power but the company's sales did not rise to that extent.
"So, it is struggling to make profits," he said.
HeidelbergCement acquired 100 per cent ownership of the companies from UltraTech Cement Middle East Investments Ltd, a UAE-based company, in December 2019 at a cost of Tk 182.5 crore.
Emirates Cement Bangladesh generated sales of Tk 35.9 crore in the first half of the year.
HeidelbergCement Bangladesh's net interest cost was Tk 9 crore in the first six months of the year while its interest income was Tk 4 crore a year earlier.
"The entire cement industry is not in a good shape due to higher production capacity than demand," the official added.
Bangladesh has the capacity to produce more than 60 million tonnes of cement a year against the demand for about 35 million tonnes, according to industry insiders.
The cement producers were raising their production capacity seeing the burgeoning economic growth of the country, the official said, adding that when the GDP of a country accelerates, cement companies see huge potential.
The annual per capita cement consumption in Bangladesh has grown from 45 kilograms to 200 kilograms in the last two decades, while the country's gross domestic product growth stayed around 7 per cent in the last few years.