Dangote Cement (DangCem) reported its highest revenue in eleven (11) years driven mainly by price increases which offset a decline in volumes in the third quarter (Q3) of 2022.
The group’s sales volume declined by 4.3 percent year on year (y/y) to 6.59 million tonnes (Mt) in the third quarter of 2022 from 6.89 million tonnes in the third quarter of 2021, driving the overall nine-month period of 2022 volume down by 6.2 percent year on year to 20.8Mt.
According to management, volumes declined because of disruptions in global supply chains, rising commodity prices, the extended shutdown of its Congolese plant due to maintenance, and extended power plant maintenance in its Senegalese operation.
Below are five (5) things to note;
Revenue and profit
DangCem’s revenue grew by 11.33 percent to N369.22 billion in the three-month period that ended September 2022 from N331.64 billion in the corresponding period of 2021.
The growth reported was driven by growth in both Nigeria (up 13.7 percent y/y) and Pan-African operations ( up 4.1 percent y/y).
According to Coronation Research, “Nigerian revenue was mainly driven by price increases (the average price per tonne rose by 17.4 percent y/y) which offset a decline in volumes (-3.2 percent y/y to 4.14Mt) in the period.”
According to management, its national consumer promotion “Bag of Goodies – Season 3” improved market share during the quarter and cushioned the impact of continued disruptions in energy supply as witnessed in the second quarter (Q2) of 2022, rising inflation, and the effects of unusually heavy rainfall and flooding on cement demand.
“In the Pan-African region, price increases were also implemented (the average price per tonne rose by 12.0 percent y/y) which offset the substantial volume decline (-7.0 percent y/y to 2.51Mt),” Coronation Research.
However, the profit reported by Dangcem declined during the period by 52.68 percent to N40.99 billion in the third quarter of 2022 from N86.62 billion in the same period of 2021, on the back of rising input costs, operating expenses (OPEX), and finance costs.
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Rising input costs driven by inflationary pressures
Input costs reported by DangCem claimed 43.71 percent of the total revenue reported during the period, and on account of rising prices of raw materials and energy costs, Dangote’s production cost of sales grew faster than its revenue by 26.79 percent to N161.37 billion in Q3’2022 from N127.27 billion in Q3’2021.
Nigerian inflation, now at 21.09 percent, has been on the rise and has caused a surge in raw materials for Nigerian companies. Further analysis of DangCem’s financials shows that raw materials and fuel & power consumed by the firm accounted for the bulk of production cost of sales reported during the period.
Raw material consumed reported by DangCem contributed 29.68 percent to the total production cost of sales for the period. It grew by 19.16 percent to N47.89 billion in Q3’2022 from N40.19 billion in Q3’2021.
On account of the increased price of Automotive Gas Oil (AGO), fuel and power consumed grew by 59.43 percent to N68.19 billion in Q3’2022 from N42.77 billion in Q1’2021, contributing 42.26 percent to the total production cost of sales reported during the period.
Rising OPEX and increased cost of doing business
DangCem’s operating expenses (OPEX) grew by 39.75 percent in the third quarter of 2022 to N93.87 billion from N67.17 billion in the corresponding quarter of 2021.
As is the case with production costs, the rise in AGO prices was the primary driver of elevated Haulage expenses (up 61.2 percent y/y), making up over 82 percent of selling and distribution costs. Management also highlighted substantial freight costs in Cameroon, Ghana, and Sierra Leone, causing volatility in the landing cost of cement and clinker.
Selling and distribution expenses grew by 53.77 percent to N77.59 billion in Q3’2022 from N50.46 billion in Q3’2021, while administrative expenses declined by 2.6 percent to N16.28 billion in Q3’2022 from N16.71 billion in Q3’2021.
Furthermore, there was an unusual rise in advertisement and promotions, by 486.9 percent y/y, owing to the 3rd season of the company’s National Consumer Promotion “Bag of Goodies 3” in efforts to drive consumer engagement.
Finance costs surge on high-interest rate, FX volatility
Finance costs reported by DangCem jumped 179.88 percent to N51.33 billion in the third quarter of 2022 from N18.34 billion in the third quarter of 2021.
Further analysis of the financial results shows that foreign exchange loss was the major driver of the increase as FX losses reported by the cement maker surged by 839 percent to N31.73 billion in Q3’2022 from N3.38 billion in Q3’2021.
Interest expenses on the other hand grew by 32 percent during the period to N19.33 percent in Q3’2022 from N14.66 billion in Q3’2021.
Declining profit and EBITDA margin
On account of rising input costs, DangCem’s profit margin declined by 1,502 basis points in the third quarter of 2022 to 11.10 percent from 26.12 percent in the third quarter of 2021.
Earnings before interests, tax, depreciation, and amortization reported by DangCem were down by 12.8 percent to N142.72 billion in Q3 2022 from N163.7 billion in Q3’2021.
Consequently, the EBITDA margin declined by 1,072 basis points to 38.65 percent in Q3’2022 from 49.37 percent in Q3’2021.
