July 31, 2023/Cordros Report
Dangote Cement Plc (DANGCEM) released its Q2-23 unaudited financials on Friday (28 July), reporting a modest standalone EPS growth of 0.7% y/y to NGN3.95 (Q2-22: NGN3.92), bringing the H1-23 EPS to NGN10.39 (H1-22: NGN10.10). The EPS growth was inhibited by the surge in net finance cost (+377.6% y/y).
DANGCEM’s aggregate revenue grew by 37.8% y/y in Q2-23 (H1-23: +17.7% y/y), inspired by a broad-based expansion across its Nigerian (+32.9% y/y) and Pan African (+95.1% y/y) operations. During the review period, Nigerian operations revenue growth in Q2-23 was largely driven by the increase in its price per tonne (+34.1% y/y) and volumes (+25.0% y/y to 4.5MMT). Management noted that the increase in Nigerian sales volumes was due to the uptick in economic activities in the quarter. On Pan African operations, we highlight a volume decline (-21.1% y/y to 3.36MMT) in Q2-23, but cumulative volume for H1-23 (+11.6% y/y to 5.4MMT) increased as the region saw robust demand in Q1-23 (+84.5% y/y to 2.8MMT), especially from Ethiopia, Senegal, Zambia and Congo. Overall, the group’s sales volume advanced by 2.8% y/y to 7.15MMT in Q2-23 (H1-23: -5.5% y/y to 13.42MMT).
Gross margin expanded by 22bps y/y to 64.7% (vs Q2-22: 62.5% y/y), attributable to management’s efficient cost management and robust revenue growth strategies. We note that the increase in the cost of sales stemmed from the rise in raw materials (+17.7% y/y) and energy (+34.7% y/y) costs in the period.
The group’s EBITDA advanced by 58.8% y/y, underpinned by an increase in government grants (NGN4.93 billion vs Q2-22: 8.00 million) and sundry income (NGN4.29 billion vs Q2-22: 160.00 million), outweighing the higher OPEX ex-depreciation (+22.5% y/y). Accordingly, EBITDA (+62bps y/y) and EBIT (+67bps y/y) margins increased to 47.3% and 41.0%.
Net finance costs surged by 377.6% y/y to NGN223.17 billion, primarily driven by a 66.5% y/y increase in finance costs amid a 50.7% y/y decline in finance income. This increase was due to the group recording a considerable net exchange loss on foreign-denominated transactions (+362.8% y/y to NGN103.84 billion) from third-party loans and payables in the Nigerian entities, exacerbated by the devaluation of the naira in mid-2023.
Following the preceding, PBT declined by 14.2% y/y in Q2-23 to 93.04 billion (vs Q2-22: NGN108.49 billion). Nonetheless, a lower income tax expense (-43.3% y/y) caused the PAT to grow by 4.3% y/y to NGN69.10 billion (vs Q2-22: NGN66.25 billion).
Comment: Notwithstanding headwinds from rising costs and currency depreciation, DANGCEM demonstrated its resilience by maintaining profitability, underscoring its market leadership in the industry. For 2023FY, we believe the company will continue solidifying its revenue generation capabilities from local and export sales as it further enhances its presence in the African market. Our estimates are under review.
