Dangote Cement: Capacity Building Across Africa Drives Financial Strength

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By OLUSHOLA BELLO, Lagos

Two global rating agencies, Moody’s Investors Service and Global Credit Ratings (GCR), have rated Dangote Cement high for its financial strength and corporate outlook.

In the reports published, both global rating agencies described the outlook of the Africa’s largest cement producer as stable. Moody’s assigned three respective high ratings to the cement company including a first time Ba3 Local Currency Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating and Aaa.ng National Scale Rating (NSR).

Global Credit Ratings assigned long-term and short-term national scale issuer ratings of AA+ (NG) and A1+ (NG) respectively to Dangote Cement.

Assistant vice president and lead analyst for Dangote Cement at Moody’s, Douglas Rowlings, said the ratings reflect Dangote Cement’s strong standalone credit profile and track record of demonstrated financial support from a larger and more diversified parent Dangote Industries Limited.

Chief executive officer, Dangote Cement, Onne van der Weijde noted that the ratings highlight the financial strength the company had achieved through unwavering focus on the profitable expansion of its business.

Dangote Cement from its onset in its sector and on the Nigerian Stock Exchange (NSE) since 2010 when it became the market’s most capitalised equity upon listing its shares, demonstrating high quality corporate governance, especially in the area of consistently keeping to its post-listing requirement. This has helped the investing public to plan their investment while the company continues to create value for shareholders by way of dividend payment and capital appreciation. To achieve this, the company has continued an ambitious expansion across the African continent and the process supporting its growth and development today for increased sales revenue and sustained profit in the future.

The continued investment across the continent is fast turning it into Africa’s cement manufacturing hub, especially with capacity expansion and widening of its distribution network across the continent and beyond to support its growing revenue, equally impacting on the profitability ratios on quarterly and yearly basis. This is regardless of its huge operating cost and challenges in the economies of African countries as a result of the fall in commodity prices, particularly crude oil in 2016 before the rebound that is now inspiring hope again to the region, despite security challenges in some of these countries.

Stock market analysts noted that, “The Company’s influence on the stock market is noticeable, especially being the most capitalised stock, a position it continues to retain with its huge revenue and profit continues to be acknowledged by the market. It has gained the interest of traders and institutional investors who use the stock to manage risk in their portfolio. It is also generally known that the stock continues to swing the market along its trending pattern.

According to them, Dangote Cement forex earnings from its operation in 25 countries across Africa will further strengthen its earnings and balance sheet over the coming years.

Analyzing the company, the chief operating officer of InvestData Limited, Mr. Ambrose Omordion said, “The company operating cash flow is looking up in the same direction as earnings, an indication that Dangote Cement can sustain its earnings growth in subsequent quarters of this year and in the process drive price during this current financial year.

“We see an improvement in government expenditure, especially with the bigger budget size for capital projects, particularly in the area of road and rail projects captured in the 2017 budget recently signed into law by Acting President, Prof. Yemi Osinbajo. This is also not forgetting the company’s partnership with the federal government in the area of concrete road construction, which is central to further earnings growth in this and coming years. Also, important are factors such as tax credit and concessionary plans, especially as the federal government plans to accelerate infrastructure development in the current year by partnering with the private sector. Dangote Cement will be a net beneficial of this for which it is better positioned to sufficiently drive growth in 2017 and afterwards.”

He pointed out that with the impending implementation of the 2017 budget and reconstruction of the insurgency ravaged North East geo-political zone, we see a lot of opportunities for the company to further boost its top and, more importantly, bottom line at the end of the day.

Looking at the company’s financials over the past five years, its continued investment in capacity building to meet the growing cement demand for development of infrastructure has further helped to turn Nigerian into an exporter of clement. Today, its deep penetration into the African continental market has helped the company to significantly boost revenue as a result of the increase in metric tons produced per annum. The company’s good corporate governance remains the driver, helping it to sustain performance that creates value for shareholders thereby supporting the share price. In the process, investors are better able to forecast with improved measure of accuracy for enhanced returns on their investment.

Over the five-year period, sales revenue grew consistently from N298.45 billion in 2012 to N615.1 billion in 2016, representing an increase of 106.1 per cent. Also, profitability level was up by 29 per cent from N145.02 billion in 2012 to N186.62 billion after hitting a profit level in excess of N200 billion in 2013, while net Asset for the period was up by 97 per cent to N797.35 billion in 2016 from N404.54 billion in 2012. Over the period also, the company has consistently rewarded shareholders with dividend, supported by the improving numbers. In the period, Dangote Cement distributed a total dividend of N32.50 per share to shareholders.

Recently at the 2016 annual general meeting of the company, the chairman, Aliko Dangote said the company’s strategy in every country of operations was to be the leader on costs, quality and service. He said the company built large, modern, highly efficient plants that combined the latest equipment from Europe, China and beyond to enable it make higher-quality cement at lower costs, thereby giving it strong competitive advantages.

Dangote Cement recently completed its Congo plant, making its total production capacity across Africa now stands at over 40 million metric tonnes.