Dangote Cement: Growth in revenue, drop in finance cost drive profits
By Kayode Tokede
Dangote Cement Plc reported 2020 result and accounts with significant increase in revenue amid the COVID-19 and drop in finance cost that impacted positively on profits.
The cement manufacturing company defied the pandemic by printing impressive topline growth in 2020, despite economic restrictions in Nigeria and its markets across Africa.
Despite the pandemic-induced disruption to its activities, group Revenue increased by 16per cent to N1.03trillion in 2020 from N891.7 billion reported in 2019.
Resilient local demand boosts revenue
Dangote Cement’s Nigerian operations during the period sold 15.9Mt for the full year 2020, compared to 14.1Mt in 2019. This includes both cement and clinker sales, which implies a 12.9 per cent growth for the full year 2020.
Looking at the domestic sales alone, Nigerian operations sold 15.6Mt, up by 14.3 per cent year on year and resulting in an increase in market share.
The company’s fortunes were boosted by a V-shaped recovery in cement demand through H2-2020, a result of pent-up demand from Q2-2020, when construction activity was restricted due to pandemic-induced total lockdowns.
Furthermore, in Nigeria, volume rose by 14.3per cent more than compensated for a drop in export volumes (-27.3per cent), which was subdued by pandemic-related pan-African trade restrictions and the land border closure in Nigeria.
On further analysis, the Dangote Cement saw increased price realization (average selling price per tonne) due to inflationary pressures, which persisted through the fiscal year, and the impact of exchange rate devaluation on costs.
Revenue per tonnes in Nigeria increased by 4.5per cent to N45,165 in 2020. The company also kicked off clinker exports with about 197kt exported from Nigeria through the year.
As seen in Nigeria, the Pan African business saw improved sales volume growth, particularly following the lockdowns, with 2020 sales rising 12.7 per cent to N318.7billion, supported by strong performance in Cameroon, Congo, Ethiopia and Senegal.
The company also weathered the storm of cost pressures, aided by price increments, with Cost of Sales increasing 15.3 per cent, slower than revenue growth.
Operational efficiency in OPEX, Non-Core business transaction drive profits
Dangote Cement’s Cost of Sales rose significantly by 15.3per cent to N468.4billion in 2020 from N379.99billion reported in 2019 , albeit outpaced by 16 per cent Revenue growth.
Consequently, Gross Margin expanded to 57.7per cent in 2020 from 57.4per cent in 2019.
The increase in Cost of Sales was mainly driven by an increase in energy costs from N122.8billion in 2019 to N146.3billion in 2020, an expected manifestation of the Naira’s devaluation. Notably, the cost of material consumed increased by 15.1per cent to settle at N134.9billion amid inflationary and foreign exchange pressures.
This pushes Dangote Cement gross profit to N596.23billion in 2020, 16.5 per cent increase over N511.68billion reported in 2019.
Dangote Cement’s total operating expenses (OPEX) declined marginally by 0.2per cent to N214.2billion in 2020 from N214.8billion reported in 2019, reflecting successful cost curtailment in the face of pandemic-related constraints.
Specifically, lower haulage expenses (-7.7per cent) led to a moderation in Selling and Distribution expenses down by 4.2per cent to N153.7billion in 2020 from N160.8billion reported in 2019 and counteracted the surge in Administrative expenses that rose by 11.5 to N60.34billion in 2020 from N54.12billion reported in 2019.
The group’s non-core business income grew by about 60 per cent to N4.75billion in 2020 from N2.98billion reported in 2019.
Despite an increase in financial liabilities, the company saw a 23.7per cent reduction in Finance Costs to N43.99billion in 2020 from N57.67billion in 2019, on the back of the low interest rate environment.
Foreign exchange gains also drove increased finance income by 291.8 per cent to N29.8billion in 2020 from N7.6billion in 2019.
Dangote Cement posted a record high Pan-African EBITDA of N71.3 billion, which went up by 49per cent. Within the period under review, the cement group commissioned its gas power plant in Tanzania. Group earnings per share was up by 36.9per cent to N16.14.
With this, Profit Before Tax closed 2020 financial year at N373.3billion, 49per cent increase over N250.5billion reported in 2019.
Notably, a 94.6 per cent increase in the effective tax rate to N97.2biillion in 2020 from N49.96billion in 2019, which management explained was due to manufacturing lines exiting Pioneer status in February 2020 and thus being unable to take advantage of tax credits for the remainder of the year.
This pushes Profit After Tax (PAT) to 37.7per cent to N276.07billion in 2020 from N200.52billion reported in 2019.
In line with the huge bottom-line growth, the board of directors have proposed a dividend of N16.0/share, same as the preceding years’ payout to shareholders.
The firm’s Return on Equity (ROE) showed that despite a marginal moderation in Asset Turnover (0.50x in 2020 from 0.51x in 2019), a surge in Net Margin (from 22.5 per cent to 36.1per cent) and increased leverage (2.3x in 2020 vs 1.9x in 2019) boosted ROE.
Strong balance sheet position
Dangote Cement’s Total Assets rose by 16.1 per cent to N2.02billion in 2020 from N1.74trillion in 2019.
The company’s debt portfolio continues to grow as the company looks to expand across its markets and boost its export capabilities.
In the year under review, the company’s total Borrowings grew by 33.7 per cent to N503.76billion from N376.77billion while Total Debt closed 2020 at N1.13trillion, an increase of 34 per cent to N844.5billion reported in 2019. Net Debt 357,929 252,863 41.6per cent
Debt/Equity and Leverage ratio increased to 1.3x (vs a 5-year average of 0.9x) and 2.3x (vs. 1.9x 5-year average), respectively, majorly driven by aggressive growth in financial liabilities.
The rise in leverage is primarily attributable to the N100.0billion bond issued in April 2020, the proceeds of which are being used to fund capital expenditures related to the Company’s 3Mt plants in Okpella and Obajana (completed), as well as working capital and debt refinancing needs.
However, the company’s interest coverage is very robust, at 8.8x, above the 5-year average of 5.6x.
2020 FY results reaction
Dangote Cement recorded strong performance not only at the top line but also at the bottom line, owing to cost saving measures. Despite inflationary pressures and foreign exchange volatility, disciplined cost control measures enabled the company to maintain a relatively flat cash cost per tonne. The cost control measures include improved plant efficiency, better fuel mix and general overhead optimization
Chief Executive Officer, Dangote Cement Plc, Michel Puchercos, in his comments on the results, said: “2020 was a good year for Dangote Cement across board. Several firsts made 2020 a productive year such as our maiden clinker shipment, maiden bond issuance and successful buyback programme. We increased our capacity by 3Mt in Nigeria, commissioned our two export terminals and commissioned our gas power plant in Tanzania. All these were achieved whilst we focused on protecting our people, customers and communities from the impact of the pandemic.
“Dangote Cement recorded strong top-line growth supported by strong cement demand. Profitability was further bolstered by our disciplined cost control measures in what we believed to have been a highly inflationary and volatile year. These measures resulted in a 37.7per cent increase in profit after tax to N276.1 billion.
“I am delighted to report that Dangote Cement experienced its strongest year in terms of EBITDA and strongest year in terms of volumes. Despite a challenging environment, Group volumes for the year were up 8.6% and Group EBITDA was up 20.9per cent.
“Looking ahead, we have strengthened our Alternative Fuel initiative which focuses on leveraging the circular economy business model and reducing exposure of our cost base to foreign currencies fluctuations. We continue to embed Dangote Cement’s 7 sustainability pillars into every aspect of our operation and culture.
“We remain committed to keeping safe our staff and communities by being fully compliant with health and safety measures in all our territories of operation. We are focused on adapting to the rapidly evolving markets in which we operate.”
Analysts at United Capital Research said, “Our outlook on Dangote Cement for 2021 is positive as we expect Nigeria’s economic recovery to continue to support local demand for cement and buoy continued group revenue growth.
“Our expectation is also predicated on recovery in exports – given 2020’s relatively low export base (due to the land border closure), the new Apapa and Onne sea export terminals and the additional 3Mt Obajana capacity.
“However, we do not expect any significant growth in local Real Estate demand, as interest rates rise towards pre-pandemic peaks, even as public infrastructure investment recovers. Accordingly, we expect revenue growth for the Nigerian segment to moderate to 14.4per cent (from 18.0 per cent) to N801.2bn, owing to the high base of 2020 volumes.
“For its Pan Africa business, we see the expected SSA-wide post-pandemic recovery sustaining volume growth, forecasted at five per cent (vs. 4.4 per cent in 2020), as more volumes are sold in Congo, Tanzania, Ethiopia and South Africa. Overall, we project a 13.0 per cent y/y increase in Group revenue to N1,168.3bn.”
About the company
Dangote Cement Plc is sub-Saharan Africa’s largest cement producer with an installed capacity of 45.6Mta across 10 African countries and operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales and distribution of cement.
Dangote Cement has a long-term credit rating of AA+ by GCR and Aa2.ng by Moody’s due to its market leading position, significant operational scale and strong financial profile evidenced by the company’s robust operating and net profit margins relative to regional and global peers, adequate working capital, satisfactory cash flow and low leverage.
Dangote Cement is a subsidiary of Dangote Industries Limited, a diversified and fully integrated conglomerate as well as a leading brand across Africa in businesses such as cement, sugar, salt, beverages, and real estate, with new multi-billion dollar projects underway in the oil and gas, petrochemical, fertiliser and agricultural sectors.
