Dangote Cement H1 profit falls on higher tax

Dangote Cement plc, Nigeria’s largest company and Africa’s biggest producer of cement, had its half-year profit dampened by tax liability, analysis of the financial statement shows.

For the first six months of the year, the company’s net income fell by 11.37 percent to N95.43 billion from N107.68 billion in the same period of the corresponding year (Q2) 2013.

The fall in net income was caused by a N11.63 billion tax payment in the review period.

Analysts say the tax holiday (pioneer status), which the company enjoyed on its Obajana and Gboko plants have lapsed thereby exposing it to tax payment.

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.

Sales grew by a single-digit 5.26 percent to N208.90 billion in Q2 2014, from N198.46 billion the preceding year.

Cement firms usually record lower turnover during the rainy season.

Also, the delay in the passage of the 2014 budget culminated in low government spending in the first quarter, thus slowing construction activities and this led to decline in the demand for the product.

Net margin, measure of efficiency and profitability, reduced to 45.68 percent in HY 2014 from 54.25 percent as of HY 2013.

Cost of production rose as cost of sales margin slid to 33.67 percent in the review period from 36.07 percent last year, while cost of sales shrank by 13.63 percent to N75.37 billion.

Gross margins were down to 63.91 percent in 2014 from 66.57 percent last year, signifying a weak management of direct material attributable to projects.

The reduction in income margin was caused by spiking production costs as most firms in the industry are ramping up on capacity utilisation from capacity additions to plants and cost of turnaround maintenance.

Additionally, the relatively weak gas supply led to an increase in the use of more expensive alternative energy sources, such as Low Pour Fuel Oil (LPFO), this also led to increased energy cost.

Operating expenses were up by 7.41 percent to N23.48 billion from N21.86 billion, as of HY 2013, while operating expense margin remained flattish at 11 percent.

Finance cost increased by 27.17 percent to N8.14 billion in HY 2014, compared with N6.37 billion last year, while total borrowings increased by 30 percent to N235.83 billion in the period under review.

Dangote Cement plans to start operations in Sierra Leone, Cameroon and Zambia.

There are opportunities in the Nigeria economy of 170 million people as infrastructure deficits and rapid urbanisation will drive the demand for cement and this will bolster the company’s performance.

Return on average equity (ROAE) and the return on average assets (ROAA) were 35.68 percent and 21.67 percent respectively.

The company’s share price closed at N231.95 – August 15 2014 – on the floor of the Nigerian Stock Exchange, while market capitalisation was N3.95 trillion.

BALA AUGIE