March 26, 2021/InvestmentOne Report

·         Turnover Performance: down by 4.16% q/q, up by 28.73% y/y.

·         Gross margin performance: down by 370bps q/q and 169bps y/y.

·         OPEX/Sales ratio: up by 46bps q/q, down 565bps y/y.

·         PBT Margin Performance: jumped to 37.16% from 24.92% in Q4 2019 but down from 38.34% in Q3 2020. 

Dangote Cement published its FY/Q4 2020 results displaying an impressive topline performance, with total turnover for the year crossing the N1trillion mark on the back of improved volume sales, despite the pandemic. Furthermore, the cement producer was able to keep a lid on its costs as lower OPEX/sales, as well as improved finance income, supported bottom-line performance. 

Appreciable Volume Performance

Dangcem’s Q4 2020 performance reflected the growth in overall volume sales (up 17.43% y/y to 6.52mmt) across its Nigerian and Pan-African market. While Nigerian sales were up 21.04% y/y to 3.99mmt, Pan-African volumes increased by 12.12% to 2.52mmt. While the improved volume performance is in line with the overall recovery in the economy following the outbreak of the pandemic, we highlight that it is also not unconnected from a lower base in the same period in 2019 in both Nigeria and Pan-African markets. In addition, following its maiden shipment of clinker from its new Apapa port in Q2 2020, the company exported about 23kt of clinker in the period under review. 

Nonetheless, despite higher realized price, up by about 7.03% y/y and 10.45% y/y in the Nigerian and Pan-African market respectively, faster rise in COGS (up 33.85 % y/y) in the quarter pushed GPM down by 169bps to 55.85%. We point out that, the increase in COGS during the quarter resulted from increase in energy cost (N6,418/ton, up 17.31% y/y). We point out that energy costs was largely impacted by the devaluation of Naira, which increased the gas price as it is priced in dollars. 

Bottom line Holds Stable

Following through from above, the company’s OPEX inched up slightly by 0.40% y/y to N56.64billion on the back of positive impact of cash and cost optimisation programmes across its Nigerian and Pan-African operations. However, OPEX/sales ratio dropped by 565bps y/y to 20.03% as the producer saw rapid growth in topline. 

Moving on, a c.111% y/y fall in net finance cost – fostered by increased FX gains – pushed PBT margin up to 37.16%, from 24.92% recorded in the same period last year. The company recorded a net finance income of N1.79billion in Q4 2020 relative to a net finance cost of N16.26billion in Q4 2019; this was on the back of N6.87billion FX gain recorded during the quarter (FX loss Q4 2019: N2.46billion). We posit that FX gains may be as a result of translation of Pan-African accounts to Naira. In addition finance cost also declined by 45.83% y/y to N9.69billion on the back of lower interest rate on borrowed funds. 

Cementing its Position as Market Leader

Group volume sales reached 25.72mmt in 2020, up by 8.6% y/y despite the COVID-19 pandemic and lockdown measures imposed during the year. The cement manufacturers’ FY numbers came in bright with topline increasing by 15.98% y/y to N1.03trillion, as a 6.79% y/y increase in average price combined positively with rapid recovery in group volume sales post-lockdown.  

Furthermore, gross profit margin improved by 27bps y/y to 57.65%, while we saw OPEX/sales and net finance cost drop by 339bps y/y and 71.69% y/y respectively; these filtered into the bottom-line as PBT margin improved by 801bps y/y to 36.10%. 

Outlook

For 2021, we expect the company’s topline performance to remain strong as the overall economy continues to recover. In addition, management pointed out that there was an increase in cement price in early 2021; we believe this should be supportive of topline growth.  

In addition, we opine that its export strategy should bode well for topline performance in the medium and long term given the existing demand for cement and clinker in West Africa. The Africa continental free trade agreement (AfCFTA) and duty-free trading of goods and services in Africa could also be supportive of topline growth. In addition, the exclusion of cement from the trading phase under the AfCFTA should protect the Nigerian cement space from competition from other African countries. Elsewhere, we expect cost reduction efforts across its Pan-African operations to support bottom-line performance.

Source: Company’s Financials, Investment One Research