Dangote Cement is a fully integrated cement company and has projects and operations in Nigeria, Benin and Ghana; with total existing production and import capacity of 14 million tons per annum and new production projects in development with 11.1 million tons per annum additional capacity.
The Company operates the Obajana Cement Plant (OCP), the largest cement plant in sub-Saharan Africa. Aggressive growth plans target a strong pan-African presence as Dangote Cement evolves to become a truly multi-national corporation.
As part of this drive, Dangote Cement is committed to making Nigeria a net exporter of cement. The company owns four terminals, two in Lagos and two in Port Harcourt through which it currently imports cement. These operations will progressively be replaced and converted into export terminals as new production capacity comes online in Nigeria.
Slight increase in turnover
For the period ended December 2014, the Nigerian cement giant’s turnover grew marginally due to lengthy rainy season, weak demand for cement and delay in the passage of 2014 budget. This challenges slowed construction activities and the demand for cement products.
Turnover for Dangote Cement moved by a paltry 1.43 percent to N391.64 billion from N386.17 billion the same period of the corresponding year (FY) 2013. The company was unable to manage direct costs attributable to projects as gross profit reduced by 2.78 percent to N248.58 billion as against N255.70 billion as at December 2013.
Additionally, gross profit margin fell to 63.47 percent in 2014 as against 66.21 percent as at December 2014, which means the firm did not produce at relatively lower costs.
Erratic fuel supply, Currency Volatility, finance costs and increased tax weigh on pretax profit.
Dangote cement had production hurt by erratic fuel supply thus culminating in rising production costs. Additionally, the company succumbed epileptic power supply, which crimps growth of manufacturers. This has remained one of the major challenges of manufacturers in Africa’s largest economy, Nigeria.
The bellwether cement company also had growth stunted by the devaluation of the naira that spiral material costs thus leading to rising cost of production.
Nigeria devalued its target rate for the naira to N168 per dollar from 155 in November. After failing to stabilize the currency, it scrapped the RDAS rate on Feb. 18, moving all transactions on to the interbank market.
The currency volatility hit Dangote Cement, which has to import goods ranging from explosives for limestone mining to packaging for cement bag. The country’s currency weakened along with the price of oil, which accounts for 90 percent of Nigeria’s export earnings.
Consequently, cost of sales increased by 9.64 percent to N143.05 billion in December 2014 compared with N130.47 billion in 2103 while operating expenses rose by 5.75 percent to N 65.08 billion in 2014 as against N61.54 billion in 2013. Cost of sales margin, which measures every unit of input costs expended to generate each unit of sales, increased to 36.52 percent in December 2014 from 33.78 percent as at December 2013.
Also dealing a blow on pretax profit is a 140 percent surge in finance costs to N32.97 billion in December 2014 compared with N13.71 billion in December 2013.
The surge in the company’s finance cost can be attributed to loans obtained to finance the acquisition of assets for purpose of expansion of operation with a view to consolidating its share of the market.
Dangote has launched new plants in South Africa, Cameroon, and Senegal, investing $600 million, $150 million and $300 million respectively in these countries.
This capital spending resulted in huge debt in the capital structure of the firm as analysis of cash flow statement showed the cement maker obtained loans to the tune of N138.90 billion which represents a 549.06 percent spike from N21.40 billion recorded last in December of 2013.
As a result, the aforementioned challenges weighed on bottom line as profit before tax reduced by 3.81 percent to N184.68 billion in December 2014 compared with N190.76 billion as at December 2013.
Increased tax payment hurts after tax profit
For the year ended December 2014, the company’s profit after tax (PAT) reduced by 20.64 percent to N159.50 billion in December 2014 as against N201.20 billion as at December 2013.
The sharp fall in pretax profit was due to increased income tax expense as the company stopped enjoying tax holidays in the form of pioneer status on some of its plants at Obajana.
The company paid a N25.2 billion income tax bill compared with a credit of 10.4 billion naira in 2013 as the tax-exempt status of some Nigerian operations expired.
Pioneer status is a tax holiday granted to qualified companies in eligible industries anywhere in Nigeria. It includes a seven-year tax holiday in respect of industries located in economically disadvantaged local government areas and a five-year holiday in economically sound areas.
Strong balance sheet validates growth strategy
Dangote Cement Plc total asset was over its liabilities, which culminated in improved shareholders wealth.
Total assets increased by 11.30 percent to N984.72 billion in December 2014 as against N844.42 billion as at December 2013.
The improvement in assets can be attributed to a 27.74 percent increase in property, plant and equipment, 54.30 percent rise in inventories, and 36.20 percent increase in trade and receivables, while current liability was largely affected by a 96 percent rise in deferred tax liability, 964.0 percent spike in finance debt and 9.60 percent increase in long term provision charges. Shareholders’ fund increased by 7.60 percent to N591.88 billion in 2014 against N550.09 billion in December 2013.
Utilizing shareholders resources in generating higher profit
Dangote remains one of the few firms that use shareholders resources in generating higher profit. The company’s average return on equity (ROAE) of 27.90 percent and return on average assets of 17.40 percent is the highest among peers rival company. However, these figures are lower than the 42.15 percent and 26.80 percent ROAE and ROAA recorded in 2013.
Rapid urbanization and rising middle class to drive cement growth
The poor state of housing and road infrastructure in Nigeria will push the demand for construction materials, thereby bringing about tremendous growth potential for a company like Dangote Cement that operates in the building and industrial goods sector.
According to the United Nations, Nigeria’s urbanisation rate was estimated at 51 percent in 2012, which suggests that over 80 million people live in the cities. The UN estimates that this number is growing at an annual rate of 3.5 percent.
BALA AUGIE
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