July 26, 2024/Cordros Report
Dangote Cement Plc (DANGCEM) released its Q2-24 unaudited financials yesterday (25 July), reporting an EPS growth of 15.8% y/y to NGN4.57 (Q2-23: NGN3.95), bringing H1-24 EPS to NGN11.26 (H1-23: NGN10.39). The increase in EPS in the quarter was supported by a 73.3% y/y growth in topline, underpinned by higher revenue from the Nigerian (+59.2% y/y, including exports) and Pan-African (+102.8% y/y) markets.
DANGCEM’s revenue advanced by 73.3% y/y to NGN942.71 billion in Q2-24 (H1-24: +85.1% y/y). Across the group’s operational footprint, the sales in the Nigerian market grew by 59.2% y/y (57.1% of revenue | H1-24: +60.3% y/y), while the Pan-African market surged by 102.8% y/y (45.9% of revenue | H1-24: 139.9% y/y). We attribute the topline performance to a 79.7% y/y increase in cement prices despite a 3.6% y/y decline in group volumes to 6.89 million tonnes in Q2-24. Nevertheless, sales volumes in H1-24 expanded by 3.8% y/y to 13.93 million tonnes, supported by the low base from H1-23.
Gross margins declined by 563bps y/y to 59.1% (H1-24: -706bps y/y), driven by a 100.9% y/y uptick in the cost of sales (ex-depreciation). Notably, we attribute the increase in production costs to the higher costs of raw materials (+87.9% y/y | 26.6% of COGS) and energy (+92.3% y/y | 50.0% of COGS) in Q2-24, driven by FX volatility, persistent inflation and rising fuel (diesel, natural gas and coal) costs.
Consequently, EBIT and EBITDA margins contracted by 958bps y/y and 960bps y/y to 31.4% and 37.7%, respectively, in Q2-24, further pressured by a 94.6% y/y expansion in OPEX (ex-depreciation). We highlight that the increase in OPEX was largely driven by the higher haulage expenses (+115.4% y/y) in the period, reflecting the increase in the group’s distribution fleet and the cost of diesel.
Further down, net finance costs rose by 57.0% y/y to NGN195.89 billion. We highlight that this was driven primarily by the FX losses (+32.5% y/y to NGN137.54 billion) in the review period due to the naira depreciation and a 169.9% y/y increase in interest expenses. For the half-year period, net finance costs grew by 109.6% y/y to NGN307.72 billion, owing to the higher FX losses (+77.2% y/y) and interest expenses (+166.6% y/y).
Finally, profit before tax increased by 36.0% y/y to NGN126.55 billion in Q2-24. After accounting for a higher tax expense (+106.0% y/y | Effective tax rate: 39.0%), profit after tax grew by 11.8% y/y to NGN77.23 billion.
Management call today (July 26) at 4.00 p.m. Nigerian time. Click here to register.
Comment: DANGCEM sustained its robust revenue growth momentum in Q2-24, even as unfavourable operating conditions continue to impact margins. For the rest of the year, we expect revenue growth to remain healthy despite our expectation of a possible slowdown in sales in Q3-24 due to expected heavy rainfall in the quarter. However, we expect pressures on margins to remain intact as underlying headwinds continue to wipe out gains from topline. Our estimates are under review.
