August 19, 2024/InvestmentOne Report

Dangote Cement PLC recently released its unaudited financial report for the first half of 2024, revealing a significant year-on -year (YoY) revenue growth of 85.11%, reaching NGN1.76trn, from NGN950.83bn in the previous year.

This impressive growth is attributable to a combination of double-digit growth in Nigeria (+60.28% YoY) and improved sales performance from Pan-Africa (+139.93% YoY), driven by higher pricing strategies and volume expansion.

The total group volume in H1:2024 modestly improved by 3.80% to 13.93 million metric tonnes relative to H1:2023, with sales volumes in Nigeria and Pan-Africa increasing by 10.93% YoY and 1.23% YoY respectively.

However, cost of sales significantly rose by 117.51% YoY to NGN833.27bn, largely due to increased inflationary pressures, elevated energy cost, depreciation and amortization as well as plant maintenance cost during the period. This escalation in cost led to a 705bps contraction in gross profit margin, decreasing to 52.66% from 59.71% in the previous year, and resulting to a gross profit of NGN926.78bn for H1:2024. Despite the challenging business environment, operating profit remained robust at NGN551.60bn, owing to the support from an increase in other income. Nevertheless, the operating margin declined by 840bps to 31.57% YoY, following the material increases in administrative expenses as well as selling and distribution costs.

Finance Cost Limit Bottomline Growth:

Despite the increasing finance cost, Profit Before Tax (PBT) printed at double digit levels to grow by 22.13% YoY to NGN292.96bn. However, PBT margin shrank by 858bps YoY as the tough macroeconomic conditions continue to exert pressure on company performance. Finance cost grew by 103.94% YoY to NGN322.52bn due to the high interest rate environment and the devaluation of foreign exchange-based loans. This resulted in a net foreign exchange loss of NGN201.30bn in H1:2024. Following the expiration of pioneer tax status on the company’s 3.0 MT Okpella line and the consequent rise in income tax expense to NGN103.05bn in H1:2024 (vs NGN61.26bn in H1:2023), Dangote Cement Plc grew its Profit After Tax (PAT) by 6.33% YoY to print at NGN189.90bn at the end of H1:2024. Nevertheless, strong topline performance supported earnings growth with Earnings Per Share (EPS) increasing by 8.37% YoY, to reach NGN11.26 kobo from NGN10.39 kobo in the corresponding period in 2023.

Sequential Performance:

On a quarterly basis, gross profit increased by 21.09% to NGN507.59bn despite rising cost pressures with cost of sales up by 9.28% amid the relatively improved revenue growth of 15.34%, totalling NGN942.71bn – owing to the impact of higher pricing. Consequently, gross margin rose by 256bps. However, PBT moderated by 23.95% to NGN126.55bn due to the 69.85% increase in net finance costs during the quarter. Consequently, PAT fell by 31.46% QoQ to NGN77.23bn, leading to a shrinkage in PAT margin to 8.19%.

Balance Sheet:

As of 30th June 2024, Dangote Cement Plc achieved a total asset growth of 68.60% YoY to NGN5.36trn, following increases in plant and machinery (+62.38% YoY to NGN3.27trn), inventories (+66.12% YoY to NGN585.66bn) and strong cash generation with cash and cash equivalent rising by 84.09% YoY to NGN590.48bn. The rebound in sales amid increases in exports likely contributed to these. On the other hand, total liabilities rose faster by 71.22% YoY to NGN3.21trn, due to the surge in financial liabilities. The financial liabilities include USD denominated loans from Bulk Commodities International, publicly issued bonds amounting to NGN266bn, bank loans including letters of credit obtained to finance inventories, property, plant and equipment, etc. At the end of the reporting period, net asset stood at NGN2.16trn.

Outlook: Going forward, we expect the positive momentum in revenue growth to be sustained as Dangote Cement Plc remain focused on volume expansion and more export especially as a strategy to reduce tax. With respect to managing production cost, we anticipate seeing the impact of the arrival of 300 full Compressed Natural Gas (CNG) trucks for the Nigeria business going forward. Nevertheless, we still believe that the prevailing macroeconomic headwinds may continue to weigh on bottom line numbers, particularly the fluctuations in the foreign exchange rate.

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