Dangote Cement Plc Q1 2021: Great Start to a Promising Year

May 5, 2021/InvestmentOne Report

·         Turnover Performance: up by 21.96% q/q, up by 33.50% y/y.

·         Gross margin performance: up by 568bps q/q and 339bps y/y.

·         OPEX/Sales ratio: down by 295bps q/q, down 467bps y/y.

·         PBT Margin Performance: up by 195bps q/q and 377bps y/y. 

Dangote Cement published its Q1 2021 results displaying an impressive overall performance, with topline and bottom-line recording impressive growth on a year-on-year and quarter-on-quarter basis.  

More Volume Demand

Just as we saw improved cement demand in 2020, despite the pandemic, 2021 seems set to follow suit on that with Dangcem’s Q1 2021 performance reflecting growth in overall volume sales (up 18.74% y/y to 7.52mmt) across its Nigerian and Pan-African market.  

While Nigerian sales were up 22.15% y/y to 4.91mmt, Pan-African volumes increased by 12.82% to 2.61mmt. For Nigeria, we believe the strong demand growth during the quarter is a continuation of the strong recovery from H2 2020, fostered by construction activities as well as government capital expenditure. We highlight that, the firm paused its clinker exports (through its ports) to meet rapidly growing demand in the Nigerian market, however, road cement export continued. In its Pan-African markets, the cement producer enjoyed increased cement demand on the back of increase in government infrastructure expenditure and housing construction in Senegal Cameroon and Ghana. 

Due to lower rebates, Dangote Cement recorded higher realized price, up by about 9.41% y/y and 17.97% y/y in the Nigerian and Pan-African market respectively. This offset the rise in COGS (up 3.33% y/y to N17,018.48/ton) to push GPM up by 339bps to 61.52%. We point out that, the increase in COGS during the quarter resulted from an increase in materials cost (N6,557.37/ton, up 34.17% y/y) and energy cost (N5,411.65/ton, up 2.27% y/y). We opine that material costs may have been impacted by the inflation in the local economy. 

Improved Margin Performance supports Bottomline

Following through from above, the company’s OPEX inched up by 4.84% y/y to N58.82billion. Nonetheless, OPEX/sales ratio dropped by 467bps y/y to 17.08% on the back of positive impact of cost optimisation programmes across its Nigerian and Pan-African operations.  

Moving on, despite a c.487% y/y rise in net finance cost to N21.64billion – on the back of increased finance cost – PBT margin was up by 377bps to 39.11%, owing to improvements in gross profit margin and OPEX/Sales ratio. The jump in the company’s finance cost resulted from a 66.12% y/y rise in interest expense to N14.87billion and an FX loss of N10.62billion (N3.75billion FX gain recorded in the same period last year). The increase in interest expense may not be unconnected with increase in the firm’s total borrowings which stood at N405.76billion as at end of Q1 2021, up 38.38% from Q1 2020. Elsewhere, FX loss may be as a result of translation of Pan-African accounts to Naira. 

Sequential Performance

On Q/Q basis, the firm continues to deliver strong performance at the top and bottom line. While topline grew by 21.96% q/q to N332.65billion, PBT rose by 28.37% to N130.10billion. 

The cement producer was able to improve its gross margin performance by 568bps q/q even as we saw continued improvement in the firms cost optimisation strategy with OPEX/sales ratio declining by 295bps q/q to 17.08%. 

Despite recording a net finance cost of N21.64billion, as opposed to a Net finance income of N1.79billion in Q4 2020, PBT margin improved by 195bps q/q, thanks to earlier mentioned improvements in gross margin and OPEX/Sales ratio. 

Outlook

For the rest of the year, we expect the company’s topline performance to remain strong as the overall economy continues to recover. Furthermore, the resumption of clinker export in Q2 2021 should slightly support topline performance. 

Elsewhere, 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. 

The cement producer’s management affirmed that one of its priorities in 2021 is to adopt an alternative fuel initiative to reduce its exposure to foreign currency fluctuations. If successfully implemented, we believe this should bode positively for the company’s cost management especially as the naira remains weak and susceptible to devaluation – although not to the same extent as in 2020.

Source: Company’s Financials, Investment One Research

Source: Company’s Financials, Investment One Research