Dangote Cement’s revenue hits N442b in Q3

Profit slides on forex crisis

Cement manufacturer, the Dangote Cement Plc has declared increased revenue of N442.09 billion in the last nine months, the company’s financial report released yesterday at the Nigerian Stock Exchange indicated.

The revenue in the nine month ended September 30, 2016 was 20.97 per cent higher than the figure recorded during the same period in 2015, despite the harsh operating environment, a development attributed to management’s strategy to leverage on its pan-African status.

The report indicated that Dangote Cement increased the revenue by N76.642 billion from N365.450 billion it made during the same period in 2015.

Indeed, the foreign exchange crisis gulped a huge amount of its revenue, as it spent N231.684 billion on cost of sales during the review period of nine months 2016 as against N138.694 billion spent on the same purpose in nine months 2015.

The money spent on cost of sales affected the profit after tax of Dangote Cement from N157.993 billion it made in the comparable period of 2015 to end the current period with N133.521 billion.

Reflecting on its outlook, the Managing Director of the company, Onne Van der Weijde said the management is confident of delivering strong growth this year despite the challenging economic conditions facing Nigeria and the rest of Africa.

Dangote Cement achieved particularly strong sales growth in Nigeria, however expect the final quarter to be lower because of the high Q4 base in 2015 and also because of the price increase that became effective on 1st September 2016.

He said, “This price increase will have an immediate and positive impact on margins in Q4, as will the elimination of LPFO from our fuel mix, as we increase our use of coal and as higher gas levels return. We do not expect to use LPFO again this year. From January 2017, our use of own-mined coal, sourced in Nigeria and paid for in Naira, will further improve margins and significantly reduce our need for foreign currency.

“As we have previously made clear, our focus will be to improve margins through cost controls and the adjustment of prices. We have new capacity coming onstream in Congo and Sierra Leone and expect Tanzania to increase its market share in the coming months.

“Foreign exchange constraints in Nigeria have made us reconsider the pace of our expansion and we now believe that a longer-term building programme will enable a more measured approach that balances our ambition for growth with the realities of obtaining foreign currency in this difficult environment.”

The Cement firm’s results showed that profit before tax fell by 38 per cent year on year to N23.8 billion while profit after tax grew markedly by 147 per cent year on year to N68.3 billion.

Reviewing the third quarter results, analysts at FBN Quest are of the opinion that the stellar growth in profit after tax could be attributed to a strong positive result of N37.5 billion on the other comprehensive income line and to a lesser extent, a tax credit of N6.3 billion.

Excluding the comprehensive income line gains, the growth on the profit after tax line would have been more subdued at around 12 per cent year on year (mainly because of a comprehensive income line loss of –N21.9 billion in Q3 2015). Similar to Q2 2016, the comprehensive income line gains can be linked to currency translation effects of Dangote Cement’s overseas operations.”

Moving up the profit and loss, the marked declined in profit before tax was driven by a gross margin contraction of -1773 basis points year on year to 38.3 per cent and an 81 per cent year on year spike in operating expenses. The negatives on both lines completely offset a 22 per cent year on year growth in sales to N150 billion.

Similar to Q2 2016, the marked growth in sales during the quarter was driven by volume growth across all the major regions, particularly those of the West and central African region. While total volume despatches in Q3 grew by around 9 per cent year on year to 5.5 million metric tonnes, in Nigeria unit volume were up by 6 per cent year on year to about 3.2 million metric tonnes. On a nine months basis, Group and Nigeria unit volumes grew by 41 per cent year on year and 28 per cent year on year to 18.4 million metric tonnes and 11.9 million metric tonnes respectively.

Also similar to Q2 2016, the firm had to contend with high fuel costs due to disruptions to gas supplies as a result of the vandalized gas pipeline infrastructure. Although management effected a significant price hike of around 39 per cent for the Nigerian market in late August, it appears that the combination of slower sales growth in Q3 (relative to the months preceding the price review) and significantly higher fuel costs (+53 per cent year on year nine months 2016) more than offset the effect of the upward review in prices.