Dangote Cement: Significant Increase in Revenue Thrusts Profits

Darasimi Adebisi

Dangote Cement Plc unaudited result and accounts for half year ended June 30, 2021 (H1) showed impressive performance in revenue and modest performance in net finance that impacted positively on profit before tax and profit after tax.

The company’s double-digit increase in revenue was largely driven by higher sales volumes, as well as improved cost management during the period, which drove margin expansion.

The cement manufacturing company recorded increase in volume of both cement and clinker volumes to 14,550,000 tonnes in H1 2021 from 11,674’000 tonnes to drive revenue from sales of cement & clinker to N690.55billion in H1 2021 from N476.84billion reported in H1 2020.

During the H1 2021 period, Dangote cement revenue increased by 44.8 per cent to N690.5billionn from N476.85billion recorded in H1 2020, supported by a 26.1per cent surge in volumes sold to 15,277 metric tonnes in H1 2021 from 12,114 metric tonnes and 14.5 per cent increase in revenue-per-tonne to N45,133.66 which was attributed to lower rebates and price increment during the period.

The impressive growth was reflected in both the Nigerian and Pan-African market segments, as sales volumes were up by 33.2per cent and 15.5 per cent, respectively.

In Nigeria alone, Dangote cement generated N494.14billion in revenue from N332.38billion reported in H1 2020, while Pan Africa revenue closed at N198.6billion in H1 2021 from N145.03billion

The substantial growth in revenue reflected a sustained strength in construction activities post-Covid-19 in Nigeria and sub-Saharan Africa, which continued to drive cement demand across the sector.

Notably, the company resumed clinker exports from the Apapa and Onne terminals in second quarter of 2021 with volumes up 103.6per cent to 57.0Kt. Additional analysis showed that the new 3mmt Obajana line supported volume of growth.

Operational Efficiency in OPEX

The company also weathered the storm of cost pressures, aided by price increments, with production cost of Sales increasing by 36.4 per cent to N276.12billion in H1 2021 from N202.42billion in H1 2020.

The pressure on Cost of Sales mostly spring from material consumed that grew by 46.7per cent to N93.97billion in H1 2021 from N64.06billion reported in H1 2020 and Fuel & power costs that rose by 53.5per cent to N98.98billion in H1 2021 from N64.5billion reported in H1 2020. Plant maintenance cost also increased by 45.13per cent to N20.68billion in H1 2021 from N14.25billion reported in H1 2020. The Key factor that contributed to hike in production cost of sales was the weakening naira and persistent price pressure on energy sources.

As revenue growth outpaced growth in Cost of Sales, Gross Profit grew by 51 per cent to N414.4billion in H1 2021 from N274.4billion in H1 2020 as gross margin to 60 per cent in H1 2021 from 57.6per cent in H1 2020.

However, Gross Margin came under more pressure from energy costs in Q2 2021 (58.6per cent compared with 61.5per cent in Q1-2021), which was attributed to global supply chain bottlenecks which impacted freight costs of imported energy (coal) and material (gypsum) inputs.

Conversely, Dangote Cement’s total operating expenses (OPEX) rose by 14.1per cent to N118.28billion in H1 2021 from N103.69billion reported in H1 2020.

The increase in total operating expenses was driven by 17.9 per cent increase in administrative expenses to N30.71billion in H1 2021 from N26.05billion in H1 2020 and 13 per cent rise in selling and distribution expenses to N87.6billion in H1 2021 from N 77.64billion reported in H1 2020.

As gross profit growth printed ahead of OPEX growth, Dangote cement proved operationally efficient with OPEX/revenue ratio contracting from 21.7per cent in H1 2020 to 17.1 per cent in H1 2020. This supported a 5.1 per cent expansion in group EBITDA margin to 50.8per cent, as EBITDA expanded 61per cent to N351.1billion.

The company’s other income grew significantly by 120.8 per cent to N6.05billion in H1 2021 from N2.74billion recorded in H1 2020, buoyed by N5.84billion Sundry income in H1 2021 from N2.4billion reported in H1 2020. Profit from operating activities for the period closed H1 2021 at N302.2billion from N173.5billion reported in H1 2020.

From the company’s loss & figures, finance income for the period closed at N9.4billion from N10.23billion reported in prior period as finance costs also dropped to N30.35billion reported in H1 2021 from N20.85billion reported in H1 2020. The increase in Net debt coupled with a N10.6bilion foreign exchange loss in Q1 2021 led to a 32.1per cent spike in Net finance cost to N20.4billion in H1 2021.

With decline in finances, Profit Before Tax rose by 72.7 per cent to N281.3billion in H1 2021 from N162.85 billion in H1 2020. Notably, a 141.2 per cent increase in tax income to N89.6biillion in H1 2021 from N36.71billion in H1 2020, dragged profit to N181.6billion in H1 2021 from N126.14billion reported in H1 2020. Earnings per share (EPS) increased to N11.21 kobo in H1 2021 from N7.45 kobo in H1 2020.

Balance Sheets

During the period under review, Dangote Cement’s Total Assets inched up by three per cent to N 2.07 trillion as at June 30, 2021 from N2.02billion in reported in full year ended December 31, 2020. The company’s total balance sheet dropped by nearly 10 per cent to N805.03billion as at June 30, 2021 from N890.97billion reported in 2020.

Outlook

According to analysts at United Capital, “Going into H2 2021, we remain optimistic on Dangote cement and expect the company to sustain double-digit growth, albeit at a slower pace relative to H2 2020, given the relatively high base from the period. On a macro-scale, we are optimistic about economic recovery in Nigeria and Sub-Saharan Africa, as well as sustained cement demand, which has driven capacity expansion plans. Additionally, price increases actioned in the first half of the year will help sustain topline growth and margins, as costs remain pressured.

“Furthermore, we see further room for price increments during H2-2021 as demand remains strong and inflationary pressures persist. However, risks to a more robust H2 2021 performance include disruptive rains in Q3-2021, an intensified third wave of Covid-19 in SSA and attendant lockdowns, persistent disruptions in global supply chains, higher freight prices, further naira devaluation and elevated inflationary pressures. However, we observe that Dangote cement has done particularly well in the face of rising expenses and this bolsters our optimistic outlook.

Specifically, we project FY 2021 Revenue growth of 28.7per cent to N1,330.9billion (prev. N1,168.3billion) and expect EPS to grow by 31.9 per cent to N21.4/s in FY 2021.”

They, however, recommended that investors should HOLD the stocks of Dangote cement with upgraded target price.

“We updated our forecasts for Dangote cement in light of the H1 2021 numbers which exceeded our expectations, as well as our optimistic prognosis for cement demand in H2-2021. Accordingly, we raise our target price on Dangote cement to N270.28 (previous: N253.70). This revision reflects our expectation of upbeat sales volumes, further price increases and sustained cost management, as well as favourable adjustments in computing the cost of equity. Our target price implies a HOLD rating and an upside potential of 11.9 per cent.”

Commenting on the results, the Group Managing Director, Dangote Cement, Michel Puchercos, said: “We are pleased to report a solid set of the good results for the first half of the year. Our performance reflects the strong demand across the Group, with increases in revenue and profitability, compared to the same period last year.

“This strong intrinsic performance is magnified by the lower Q2 2020 results because of COVID-19. The growth trend continues, and we are focused on meeting the strong market demand across all our countries of operation.”

On the steps taken by the company to protect the stakeholders, Puchercos said: “We also continue to maintain a strong focus on health and safety measures in all our engagements with stakeholders. We have learned a lot over the past year on how to mitigate risks associated with COVID-19.

“We remain committed to protecting our team members and communities by being fully compliant with local laws and regulations. We recommenced clinker exports in the second quarter after taking the strategic decision to pause our clinker exports.This was to ensure we met the historic volume growth in the Nigerian domestic market since mid-2020. We are improving the output of our existing and new assets and I am happy to announce that our 3 Mt Okpella Plant, Edo State, is on track to come on stream in the next quarter.”

Puchercos stated that the company’s Alternative Fuel project, which focuses on leveraging waste management solutions, reducing CO2 emissions and sourcing material locally, is at an advanced stage, while procurement and installation of the necessary equipment across all plants is ongoing.

He added that Dangote Cement is focused on sound governance, saying: “We are leading the way with our commitment to sustainability and best practices.

“We are driven by the goal of achieving the highest level of governance and building a sustainable brand for all stakeholders. Transparency and consistency are at the core of every part our business culture, ”he stated.

Dangote Cement Plc is Sub-Saharan Africa’s largest cement producer with an installed capacity of 45.6Mta capacity across 10 African countries and operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales, and distribution of cement.The Group has a production capacity of 32.3Mta in its home market, Nigeria.

It has three cement plants in Nigeria, Obajana plant in Kogi State, with 16.3Mta of capacity across four lines; Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta; and Gboko plant in Benue state has 4Mta.

Through recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighbouring countries.

In addition, Dangote Cement has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), Zambia (1.5Mta).