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Dangote Cement Beats Expectation

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By OLUSHOLA BELLO, Lagos –

The management of Dangote Cement Plc recently presented its third quarter financial results ended September 30, 2017 to the investing public, revealing that profit after tax (PAT) grew at a faster pace than revenue from sales for the period, when compared to that of prior year.

Nigeria attained self-sufficiency in the production of cement and is now an exporter of the commodity due to the vast investments by the Dangote Cement Group.

According to the result, sales revenue increased by 36.52 per cent from N442.09 billion in the corresponding period of 2016 to N603.58 billion, with revenue from sale of cement, its core business contributing N603.38 billion of the income, up from N441.98 billion; while production cost of sales increased to N259.85 billion from N241.68 billion, driven by N87.60 billion in material consumed, up from N64.25 billion and N85.98 billion in cost of fuel and power consumed, as against the previous N86.98 billion. This resulted in gross profit of N343..72 billion, as against the N210.41 billion recording in the first nine months of 2016.

During the nine-month period, while revenue and net profit from Nigeria stood at N416.11 billion and N251.09 billion respectively; N191.85 billion came from Dangote Cement’s pan-African operating units, which sustained a N14.65 billion net loss; which was further hampered the group’s N8.49 billion represented the group’s central administrative cost.

Administrative expenses climbed to N32.67 billion from N29.97 billion; just as selling and distribution expenses rose from N62.03 billion to N80.82 billion, with haulage expenses contributing N54.47 billion, from just N14.9 billion; while depreciation rose to N14.6 billion from N15.7 billion in the 2016 nine-month.

Other income slowed down to N2.62 billion from N10.54 billion; resulting in profit from operating activities of N233.14 billion, compared with the N122.37 billion in 2016; finance income dropped also to N26.96 billion from N55.70 billion, as foreign exchange gains, arising from the translation of foreign currencies denominated balances at the end of the period across the group fell to N20.87 billion from N54.37 billion, while interest income improved to N6.09 billion from N1.34 billion. Finance costs rose from N29.35 billion to N39.91 billion, the bulk of which was the N39.42 billion interest expense, up from N29.28 billion.

Profit before tax stood at N220.18 billion from N148.72 billion and profit after tax move from N133.52 billion to N193.14 billion, representing a 44.64 per cent growth for the period. The net profit resulted in Earnings Per Share of N11.30, up from N8.13 each.

5% y/y and q/q each) in per tonne production cost.

Group opex rose by 14 per cent year-on-year and 16 per cent quarter-on-quarter. In Nigeria, opex remained well contained while sharp increases were recorded overseas. At the Group level, the EBITDA margin of 47.5 per cent was higher by 1649 basic points year-on-year, with Nigerian realised 62.4 per cent.

Commenting on the score-card, analysts at FBN Capital Limited, noted that “Despite the stellar sales growth, what is clear is that the unit volumes in Nigeria continue to be under pressure, due to the effect of weak private demand and elevated prices.

“Similar to second quarter, we believe that the marked expansion in gross margin in Nigeria was driven by the combination of higher pricing and a favourable fuel mix in favour of coal and gas as compared with low-pour fuel oil (LPFO),”.

Analysts at GTI Capital noted that this was due to the effect of a price hike in cement price that was done towards the end of 2016 which has greatly impacted revenue this year.

“The performance was further stimulated by the cost optimization strategy of the firm as evidenced by the reduction in operating expense ratio. Also the percentage of growth of the net income is higher than that of the revenue.

“In addition to this, the firms Q3 2017 net income which came in at N193 billion has already surpassed the full year net income achieved in 2016 which was N187 billion. This may result to an increase in dividend that will be paid,” they said.

They however noted, the firm’s capacity to meet its short term obligations weakened due to a decrease in its current and acid test ratio.

Analysts at Cordros Capital said, Dangote Cement’s performance over the nine months of 2017 was very strong, and consistent with the broadly expected impressive year for the Group, saying “We look for positive investor reaction to the result.”

The chairman of the company, Aliko Dangote, said the company’s strategy in every country of operations is to be the leader on costs, quality and service.

He said the company build large, modern, highly efficient plants that combine the latest equipment from Europe, China and beyond to enable it make higher-quality cement at lower costs, thereby giving it strong competitive advantages.

Group managing director of Dangote Cement, Onne Van der Weijde, recently said the company exported nearly 0,4 tonnes into neighbouring countries and in doing so, achieved a great milestone by transforming Nigeria into a net exporter of cement. “This is a remarkable achievement, given that only five years ago, in 2011, Nigeria was one of the world’s largest importers, buying 5,1Mt of foreign cement at huge expense to our balance of payments. We will increase our exports substantially in 2017,” said Weidje.

Dangote Cement is Africa’s leading cement producer with nearly 46Mt capacity across Africa. Its Obajana plant in Kogi, Nigeria, is the largest in Africa with 13,25Mt of capacity across four lines. The Ibese plant in Ogun has four cement lines with a combined installed capacity of 12Mta. The Gboko plant in Benue state has 4Mta. The company plans to build new factories in Ogun State (3-6Mta) and Edo State (6.0Mta). In addition, it has invested several billion dollars to build manufacturing plants and import/grinding terminals across Africa in Cameroon, Congo, Ghana, Ethiopia, Senegal, Sierra Leone, South Africa, Tanzania and Zambia.

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