FSDH Initial Reaction: Dangote Cement 3Q22 results 
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November 1, 2022/FSDH Research

Key Performance Highlights:

• Dangote Cement posted an 11.3% YoY revenue growth in 3Q22, underperforming its competitor, Bua cement (+18.2% YoY) and Lafarge Africa (+12.2% YoY). The revenue growth was led by Nigeria (+13.7%) and supported by single-digit revenue growth in Pan-Africa (+4.1%). The sales growth was driven primarily due to better price realization to offset rising costs. At the same time, the company recorded a 4.7% YoY drop in sales volume due to significant inflation, rising interest rate, and energy supply disruptions which impacted production. The energy disruptions were largely due to low gas generation in the country.
   
• The company’s Nigerian operations sold over 4.0Mt (-2.5% YoY) cement during 3Q22. When looking at the domestic sales alone, the Nigerian operations sold 4.2Mt, down 3.2% 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 global supply chain disruption and increased global commodity prices. The Nigerian business recorded a volume decline of 3.2% YoY (-8.2% QoQ) in 3Q22, and Pan Africa recorded a 7.0% YoY (+2.4% QoQ) drop in volume. Furthermore, the company recorded a 2.5% YoY fall in Cement Volume (-9.4% QoQ), and Pan Africa recorded a 9.2% YoY drop in Cement volume in 3Q22 (+3.5% QoQ).
   
• The gross profit increased 1.7% YoY to N207.8 billion in 3Q22, resulting from a relatively higher rise in the cost of sales due to a 59.4% YoY jump in fuel & power consumed to N68.2 billion due to increasing energy costs, especially AGO and coal. The group EBITDA margin contracted 1056 bps YoY to 38.6% in 3Q22. The total administration and selling expenses vaulted 39.7% YoY in 3Q22, driven by an increase in haulage expenses due to the significant rise in AGO costs. Inflationary pressure and the foreign currencies’ conversion to Naira are also driving part of this increase. The administrative costs for the company were marginally down 2.6% YoY to N16.3 billion in 3Q22. The Selling and Distribution expenses spiked 53.8% YoY to N77.6 billion in 3Q22. The company’s other income rose 30.2% YoY to N1.5 billion in 3Q22 from N1.2 billion in 3Q21 due to an increase in sundry income, resulting in a 16.4% YoY decrease in operating profit to N115.5 billion in 3Q22. The company’s operating margin sank 1037 bps YoY to 31.3% in 3Q22.
   
• The company’s finance income jumped 53.8% YoY to N6.8 billion in 3Q22, offset by a massive 179.9% YoY rise in finance cost to N51.3 billion in 3Q22, primarily due to an N31.7 billion foreign exchange loss in 3Q22. During the period, there was a depreciation in the CFA and Ghana Cede which resulted in significantly increased exchange losses. Consequently, profit before tax was reported at N71.0 billion, a 42.8% YoY decrease. Due to an increase in the effective tax rate to 42.3% in 3Q22 compared to 30.3% in 3Q21, the profit after tax further deteriorated to N41.0 billion in 3Q22 against N86.6 billion in 3Q21. The earnings per share for the quarter came in at N2.30/share compared to N5.02/share in the prior-year quarter.
   
• On 5 October 2022, local vigilantes from the Kogi State Government invaded and sealed the Obajana Cement plant over a dispute between Dangote Industries Limited and Kogi State Government. This development led to several of our staff being harmed by these local vigilantes. The Obajana Cement Plant was shut for one day and re-opened on 7 October 2022, with suboptimal operations. It became fully operational from 14 October 2022, when the Federal Government ordered the full re-opening of the plant. Thus, production at the Obajana Cement plant has been running at optimal levels.

Market Reaction: Investor reaction to the 3Q22 results was subdued as the stock remained unchanged at N220.50 versus a 0.17% fall in the All-Share Index (31/10).

Dangote Cement Earnings Highlight 3Q22

Source: Company Financials, FSDH