Michel Puchercos, Dangote Cement new MD

It is rare if not difficult to move against the tide and succeed. With the ravaging effect of Covid-19 and the plunging price of crude, the economic tide has clearly not been favourable to businesses except the sturdy few. The tide has strongly and steadily been blowing southward in recent times. Fortunately, Dangote Cement belongs to the formidable few that have pushed against the tide.

Despite all odds, the largest cement manufacturer in Africa has beat industry expectations in its third quarter performance.

Dangote Cement Plc recorded a pre-tax profit of N271.96 billion in the third quarter as cement sales rose by double-digits during the period.

Details of the nine-month results for the period ended September 30, 2020 revealed that gross revenue rose to N761.44 billion in third quarter of 2020 as against N679.79 billion in the third quarter of 2019.

Poring through the books of the most capitalized company on the Nigerian Stock Exchange (NSE) discovered that its Pan-African operations contributed N232.61, representing an increase of 9.1 percent over the N213.20 billion achieved in 2019.

Profit before tax jumped 37.5 per cent from N197.68 billion to N271.96 billion while profit after tax rose 35.2 per cent from N154.35 billion to N208.69 billion.

At the end of the nine months, its earnings stood at N12.25 in 2020, representing 34 per cent higher than the N9.10 recorded in 2019.

Despite the weak economy and high inflation which has shrunk the income of many in Nigeria, finance income – interest increased by 8 per cent and finance income – others also rose by 497 per cent. Overall, finance costs went up by 48 per cent from N15.726 billion in 2019 to N23.320billion in 2020.

On a quarter-on-quarter basis, the firm’s Nigerian sales volumes went up by 39.9 per cent in the third quarter, driven by strong demand and the pull effect of its Bag of Goodies Season 2 National Consumer Promotion.

Group Chief Executive Officer, Dangote Cement, Michel Puchercos, said it was delightful to see Dangote Cement experiencing its strongest quarter in terms of earnings before interest, tax, depreciation and amortization (EBITDA) and indeed its strongest third quarter in term of volumes.

According to him, despite a challenging environment, group volumes for the nine months were up 6.6 per cent and group EBITDA was up 17.1 per 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 second quarter. 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, “ Puchercos said.

He said that clinker exports in particular have steadily been ramping up in the third quarter after their maiden shipment in June 2020, whilst land exports have also resumed.

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

He assured that the group remains committed to protecting its staff and communities by being fully compliant with health and safety measures in all its territories of operation, noting that the group is focused on adapting to the rapidly evolving markets in which it operates.

Dangote Cement has not always had it very smooth. Its group’s revenue had declined by 1.1 per cent to N891.7billion in its full year 2020 report. Group EBITDA was also down 9.2 per cent to N395.4 billion. As a result, earnings per share decreased by 48.4% to ₦11.79 (2018: ₦22.83).

Again, while dividend remained flat at ₦16.00 per share, Net debt was ₦227.5B and net debt/EBITDA was 0.58x

Cordros analysts said, “Q3 EPS more than doubled to N4.80 (+129.9% y/y) underpinned by solid revenue growth and foreign exchange gains, despite the surge in tax charge (NGN26.6bn in Q3-20 versus NGN7.1bn in Q3-19). The robust growth in Q3-20 EPS drove 9M-20 EPS higher to NGN12.25 (+34.6% y/y) from NGN7.45 in H1-20. On an annualized basis, the 9M-20 EPS is 36.7% ahead of our FY 2020E forecast of NGB11.95.”

”The group’s aggregate revenue grew by 34.2% y/y in Q3-20, driven by the improvement in revenue from its Nigerian operations (+45.5% y/y) and Pan African operations (+19.8% y/y). The solid topline performance in Q3-20 provided a tailwind for a faster expansion in 9M-20 Revenue (+12.0% y/y) from 2.0% y/y in H1-20. While we await confirmation from management, we believe the strong growth in revenue from Nigeria was volume-driven, buoyed by the relaxation of restrictive measures which drove cement demand.

” That said, we highlight that the revenue growth (for Nigeria) is in tandem with the topline growth reported by the other two major players in the industry (WAPCO: +31.4% y/y and BUACEMENT: +39.7% y/y) during the third quarter. On Pan African Operations, we think the confluence of (1) the re-opening of regions challenged (South Africa, Ghana and Congo) during the second quarter, and (2) higher realized prices due to the devaluation of the local currency supported topline growth. We note that the group’s overall production volume rose to 6.7MMT in Q3-20 from 5.45MMT in Q3-19.

” Accordingly, 9M-20 EBITDA rose to NGN355.02 billion (+17.1% y/y). However, we note that the company faced input cost pressures during Q3-20 arising from dollar-linked cost items. This is evidenced in the rise in energy cost (+32.2% y/y) in Q3-20. However, the company kept a lid on operating expenses as it grew below the inflation rate (+5.8% y/y). We applaud the company’s operational efficiency, as we understand that it now delivers volumes directly to customers to reach untapped markets. Overall, EBITDA margin strengthened by 7.9ppts to 48.1% in Q3-20.

”Further down, earnings received a boost from the moderation in net finance cost (-71.6% y/y) in Q3-20. This was supported by the blend of higher interest income (+1.43x), a foreign exchange gain of NGN4.76 billion in Q3-20 which was absent in Q3-19, and the high base finance cost in Q3-19 due to foreign exchange losses of NGN6.99 billion. Adjusting for the impact of the FX gain in Q3-20 and FX loss in Q3-19, net finance cost would have declined by 14.4% y/y in Q3-20.

”DANGCEM’s net operating cash flow rose by 27.9% y/y to NGN376.60 billion in 9M-20, supporting the growth in cash and cash equivalents (+1.31x) which fed into the expansion in finance income (+43.2% y/y) despite the lower yield environment.

” The above-market revenue growth (for Nigeria operations) delivered by the company in the third quarter is a testament to its market leadership position. With the better-than-expected EPS growth in Q3-20, we expect consensus estimates for FY 2020 EPS to be reviewed upwards. From a market standpoint, we believe savvy investors took a cue from the strong earnings delivered by WAPCO and BUACEMENT in re-pricing DANGCEM as the share price has gained 16.3% over the past 10 trading days. Nonetheless, we expect a positive reaction from investors. Our estimates are under review”, concluded Cordros.

With the new development which has given Dangote the powers to export its products, the end of year performance is expected to be highly bullish. Meanwhile its shareholders have gained 16.2 per cent this year as stock appreciated from N172.00 on January 10, 2020 to N200.00 per share on November 13, 2020.

Dangote Cement is Sub-Saharan Africa’s largest cement producer with an installed capacity of 45.6Mta capacity across 10 African countries and operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales and distribution of cement.

The Group has a production capacity of 29.3Mta in its home market, Nigeria. It has three cement plants in Nigeria, Obajana plant in Kogi state, with 13.3Mta of capacity across four lines; Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta and Gboko plant in Benue state has 4Mta. Through recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighboring countries.

In addition, Dangote Cement has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), and Zambia (1.5Mta).

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, pasta, beverages, and real estate, with new multi-billion dollar projects underway in the oil and gas, petrochemical, fertilizer and agricultural sectors.