April 26, 2024/Cordros Report
Dangote Cement Plc (DANGCEM) published its Q1-24 unaudited financials yesterday (April 25), reporting an EPS of NGN6.68 (Q1-23: NGN6.44). The improvement in earnings was supported by the robust topline expansion (+101.0% y/y) in Q1-24, even as pressures from costs (+152.2% y/y), operating expenses (+121.0% y/y) and net finance costs (+407.3% y/y) softened net profit growth (+2.9% y/y).
Dangote Cement Plc reported a remarkable 101.0% y/y rise in group revenue to NGN817.35 billion in Q1-24, driven by the favourable price/volume mix across its operational footprint. For context, management hiked cement prices by 78.9% y/y while group volumes also expanded by 12.3% y/y. We highlight that volumes for Nigerian operations saw an increase of 26.1% y/y to 4.59 million tonnes, which according to management, was underpinned by the recovery in business activities as opposed to the preceding year when the cash crunch impeded sales. Thus, Nigerian revenue printed higher by 61.6% y/y as prices increased by 28.1% y/y. In the Pan-African region, volumes rose moderately by 3.1% y/y to 2.71 million tonnes as upward price adjustments (+192.5% y/y) largely supported topline growth (+201.6% y/y). We highlight that the moderate uptick in sales in this region is due to most plants being either at full capacity or close to full capacity.
Gross margin contracted by 877bps y/y to 56.8% in Q1-24, following the heightened cost of sales ex-depreciation (+152.2% y/y) in the review period. The notable strain on gross margin emanated from sustained growth in fuel & power (+220.9% y/y) and material (+103.9% y/y) consumed, driven by higher energy prices, naira devaluation and rising inflation.
The group’s operating expenses ex-depreciation increased by +121.0% y/y in Q1-24 due to higher haulage expenses (+115.4% y/y | c. 69.3% of the total OPEX) and salaries and related staff costs (+143.3% y/y | c. 14.5% of the total OPEX). As a result, the group’s EBIT (-733bps) and EBITDA (-780bps) margins weakened significantly to 31.2% and 37.9%, respectively, in Q1-24.
As witnessed in prior quarters, the group’s net finance cost surged by 407.3% y/y as net foreign exchange losses (+551.4% y/y) and gross interest expense (+162.7% y/y) remained elevated. We attribute the FX losses in the review period to the significant depreciation of the local currency early in the year amid the group’s financial liabilities increasing by 24.3% y/y to NGN1.26 trillion.
Further down, PBT grew by 13.3% y/y to NGN166.40 billion in Q1-24, buoyed by the gains on the group’s net monetary positions (NGN22.94 billion) in the hyperinflationary economies of Ethiopia, Sierra Leone, and Ghana. However, the expiration of some of the group’s pioneer tax incentives in Nigeria triggered a higher tax expense (Effective tax rate: 32.3% vs 25.4% in Q1-23). Overall, PAT settled 2.9% higher at NGN112.67 billion.
Management call on Tuesday (April 30) at 3.00 p.m. Nigerian time. Click here to register.
Comment: We like that DANGECM recorded stellar group revenue expansion in addition to sales volume in the Nigerian market improving in Q1-24. However, we highlight that worsening cost pressures undermined the trickle-down effects of topline growth as earnings advanced moderately. For the rest of the year, we anticipate that the group will maintain its drive to ramp up sales in the Nigerian market as volume growth in the Pan-African market is fast approaching its peak. Also, we expect management to continue leveraging recovery in construction activities in the local region and export potential to regional markets to boost group volumes. Nonetheless, we note that sustained cost pressures remain a significant threat to margins and earnings growth as rising costs continue to besiege management’s efficiency efforts. Our estimates are under review.
