Dangote Cement: Resilient results amid pandemic

0

By Kayode Tokede

Despite macro-economic headwinds that have trailed the domestic and global economy in 2020,  Dangote Cement Plc has posted an impressive nine months unaudited result and accounts for period ended September 30, 2020.

The cement manufacturing company reported an increase both in its profit & loss figures and position to mark a all-round results for the period under review.

Currently, the group sales volumes was up by 6.6per cent to 19.2 million tonnes in nine months of 2020.

Nigeria volumes up 10.2per cent; up 39.9 per cent in the quarter driven by strong demand and pull effect of the National Consumer Promotion

Dangote Cement‘s Pan-African volumes up 3.7 per cent despite impact of COVID-19 in second quarter of 2020.

The company’s export strategy include, six clinker vessels exported in the quarter from Nigeria to Cameroon via the Apapa export terminal (2 vessels per month), maiden shipment in June, 7 clinker vessels have been exported to date and on track to commission the Port Harcourt export terminal before the end of the year

The company’s cement export by sea via Lekki export terminal being explored and land cement export restarted amidst gradual re-opening of borders.

Profitability

Dangote Cement’s revenue increased by 12per cent from N679.8billion in nine months of 2019 to N761.4 billion in the nine months of 2020 driven by increased volumes in both our Nigeria core market and the Pan Africa region.

Net revenue per tonne in Nigeria amounted to N44.94billion in the nine months of 2020 as compared to N43.3 billion in the nine months of 2019 representing an increase of 3.9per cent.

Volumes sold by Dangote cement in Nigerian operations increased by 10.2per cent from 10.8Mt to 11.9Mt driven by a very strong third quarter which offset the depressed Q2 volumes.

Despite the COVID-19 restrictions that occurred during Q2, Pan-African volumes increased by 3.7 per cent from 7.2Mt in the first nine months of 2019 to 7.5Mt. Increased volumes in Ethiopia, Senegal, Cameroon, Sierra Leone, South Africa and Congo were partially offset by the reduction in Zambia, Tanzania and Ghana.

In total, manufacturing costs increased by 9.5per cent from N290billion in the first nine months of 2019 to N317.5 billion in the first nine months of 2020. This was mainly as a result of an increase in the Nigeria manufacturing costs from N140.4 billion to N161.7 billion.

The increase in Nigeria manufacturing costs was mainly driven by energy costs due to increased production volumes and price increases for gas which is pegged to the Dollar. The Nigerian Naira depreciated from N365/$ at the end of 2019 to N386/$ at the end of September 2020.

Pan Africa manufacturing costs increased by 4.2per cent in line with the 3.7 per cent in the Pan Africa volumes. In addition, the depreciation of the naira also resulted in higher values in Nara when the local currencies are converted to naira.

Total selling and administration expenses for nine months of 2020 went down slightly by 0.6per cent as compared to nine months of 2019

The increase in administrations costs of N1.6billion was offset by a decrease of N2.5 billion in selling and  distribution costs.

In Nigeria, selling and distribution costs increased by 7.9per cent in line with the 10.2per cent increase in the volumes sold during nine months of 2020 compared to nine months of 2019. In addition, various promotion schemes were deployed in Nigeria which drove the increase in advertising and promotion costs.

Selling and distribution costs in Nigeria increased from N82.8billion in the first nine months of 2019 to N89.3 billion in the nine months of 2020.

The increase in Nigeria selling and distribution costs was offset by the decrease in Pan-Africa selling costs mainly as a result of reduced haulage costs in Tanzania and Zambia due to the reduced volumes as compared to the first nine months of 2019. In addition, there were reduced depreciation charges in Pan-Africa, mainly in Ethiopia, as some of our trucks approach the end of their useful lives.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) for the first nine months increased by 17.1per cent to N355 billion at a margin of 46.6per cent (9M 2019: 44.6per cent). Excluding eliminations and central costs, Nigeria EBITDA increased by 14.5per cent to N316.1 billion at a margin of 59.0% (9M 2019: 59.0per cent). The increase in Nigeria EBITDA is mainly as a result of the increased volumes in Q3 2020 compared to Q3 2019.

A portion of the 2020 performance is impacted by the tax exemption arising from the Pioneer Status Incentive scheme for Ibese lines 3 & 4 and Obajana Line 4 which ended in February 2020.

The amendment to the commencement rules as per the new Finance Act resulted in reduced effective tax rate for the first nine months of 2020 as compared to 2019 profits which were subjected to the commencement rules under the old regime. The effective tax rate for the Nigeria operations is 18.8per cent.

The Group’s effective tax rate is higher at 23.3per cent, mainly because of intercompany exchange gains reported in Other Comprehensive income for the group and Pan-African subsidiaries making losses that reduced the Group’s profit without direct tax benefits for those losses.

Stronger financial position

Dangote cement’s Non-current assets increased from N1.3trillion at the end of 2019 to N1.36trillion at 30th September 2020.

This was mainly as a result of additions to Property, Plant & Equipment which were partially offset by depreciation.

Additions to property, plant and equipment were N107.4 billion, of which N93.0 was spent in Nigeria and N14.4 billion in Pan Africa operations.

The increase in current assets is mainly due to amounts owed by related parties. Current liabilities increase is driven by current income tax charge, trade payables and amounts owed to related parties for trucks and the exchange impact due to the depreciation of the Naira from N365/$ to N386/$ during the first nine months of 2020.

All production lines in Nigeria are out of the Pioneer tax exemption and the deferred tax charge for the first nine months of 2020 resulted in the increase in Non-current liabilities.

The Group’s profit for the first nine months of 2020 increased by 35.2per cent to N208.7billion (9M 2019: N154.4billion). As a result, earnings per share increased by 34.6per cent to N12.25 (9M 2019: N9.10).

GCEO’s responding

The Group Chief Executive Officer, Dangote cement, Michel Puchercos said, “I am delighted to report that Dangote Cement experienced its strongest quarter in terms of EBITDA and strongest third quarter in term of volumes.

“Despite a challenging environment, Group volumes for the nine months were up 6.6 per cent and Group EBITDA was up 17.1per cent, at a 46.6 per cent margin.

“This quarter has really shown the ability of Dangote Cement to meet the strong recovery of the cement market in Nigeria and Pan-Africa after a challenging Q2. In Nigeria, we have witnessed a strong appetite for real estate investment and the recovery of infrastructure spending – including more concrete roads. Sales volumes in Nigeria were up 40 per cent in the quarter and Pan-Africa reached a record high EBITDA margin of 24 per cent in the quarter. In the quarter, our Group net profit was up 135.1 per cent.

“We continue to focus on our export strategy and are on track to ensure West and Central Africa become cement and clinker independent, with Nigeria as the main supply hub. Clinker exports have steadily been ramping up in Q3 after our maiden shipment in June 2020, whilst land exports have also resumed.

“Dangote Cement’s strategy to offer high quality products at competitive prices is meeting customers’ expectations in Nigeria and across the continent, where we continue to deploy excellent marketing initiatives and operational excellence across the continent.

“We remain committed to protecting 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.”