FSDH Initial Reaction: Dangote Cement 2Q22 results 
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August 4, 2022/FSDH Research

Key Performance Highlights:

• Dangote Cement posted a 10.3% YoY revenue growth in 2Q22, underperforming its competitor, Bua cement (+45.2% YoY) by a wide margin. The revenue growth was led by Nigeria (+18.3%), while the Pan-Africa (-11.1%) segment experienced a decline. The sales growth was driven primarily due to better price realization to offset rising costs. At the same time, the company recorded an 11.0% YoY drop in sales volume due to energy supply challenges in Nigeria, exacerbated by increased supply chain challenges and maintenance activities in Pan Africa. Nevertheless, the demand remained strong across the majority of markets.
   
• The company’s Nigerian operations sold over 4.5Mt of cement during 2Q22. The company exported 201Kt of cement during the quarter, down 1.8% YoY. When looking at the domestic sales alone, the Nigerian operations sold 4.3Mt, down 8.3% YoY. The lower volume, elevated by the high base, was due to significant inflation, rising interest rates, and energy supply disruptions which impacted production. These challenges were amplified by the global supply chain disruption and increased global commodity prices. The Nigerian business recorded a volume decline of 9.1% YoY (-6.7% QoQ) in 2Q22, and Pan Africa recorded a 14.1% YoY (+1.4% QoQ) drop in volume. Furthermore, the company recorded an 8.1% YoY fall in Cement Volume (-6.7% QoQ), and Pan Africa recorded a 14.2% YoY drop in Cement volume in 2Q22 (+1.6% QoQ). This quarter, the company continued the production ramp-up at the 3Mta Okpella plant and is progressing well to deploy grinding plants in Ghana and Cote d’Ivoire.
   
• The gross profit increased 8.0% YoY at N226.5 billion in 2Q22, resulting from a relatively higher rise in the cost of sales resulting from a 27.8% YoY jump in fuel & power consumed to N74.5 billion due to increasing energy costs, especially AGO and coal. The group EBITDA margin contracted 730 bps YoY to 41.1% in 2Q22. The total administration and selling expenses vaulted 49.3% YoY in 2Q22, driven by a significant rise in AGO costs, also affected by inflationary pressure and the foreign currencies conversion to Naira. The administrative costs for the company grew by 15.1% YoY to N17.2 billion in 2Q22. The Selling and Distribution expenses spiked 60.3% YoY to N74.6 billion in 2Q22. In comparison, the company’s other income sank 72.7% YoY to N584 million in 2Q22 from N2.1 billion in 2Q21 due to a decrease in sundry income, resulting in a 10.1% YoY decrease in operating profit to N135.3 billion in 2Q22. The company’s operating margin sank 777 bps YoY to 34.3% in 2Q22.
   
• The company’s finance income increased a steady 1.9% YoY to N11.6 billion in 2Q22, offset by a massive 258.7% YoY rise in finance cost to N38.5 billion in 2Q22, primarily due to an N22.4 billion foreign exchange loss in 2Q22. Consequently, profit before tax was reported at N108.5 billion, a 28.2% YoY decrease. Due to an increase in the effective tax rate to 38.9% in 2Q22 compared to 32.6% in 2Q21, the profit after tax further deteriorated to N66.3 billion in 2Q22 against N101.9 billion in 2Q21. The earnings per share for the quarter came in at N3.92/share compared to N5.92/share in the prior-year quarter.
   
• On June 29, 2022, Dangote Cement announced the resignation of Mr. Guillaume Moyen as Group Chief Finance Officer with effect from June 30, 2022. Dr. Gbenga Fapohunda has been appointed as the Acting Group Chief Finance Officer with effect from July 1, 2022. He joined the Group as the Regional Chief Finance Officer (CFO) in Nigeria, effective February 1, 2021.

Market Reaction: Investor reaction to the 2Q22 results was subdued as the stock remained unchanged at N265.00 versus a 1.35% gain in the All-Share Index (2/8). Moreover, the stock closed flat even on Wednesday (3/8) versus a 0.06% fall in the All-Share Index.

Dangote Cement Earnings Highlight 2Q22

Source: Company Financials, FSDH