Despite the challenges of elevated inflation, high borrowing costs, and a further weakening of the naira in the first six months of the year, Dangote Cement Plc, a multinational cement manufacturer, reported an 85 percent rise in revenue, a BusinessDay analysis has shown.
According to the company’s latest unaudited financial result, its revenue increased to N1.76 trillion in the first half of 2024 from N950 billion in the same period of last year.
“We attribute the topline performance to a 79.7 percent increase in cement prices despite a 3.6 percent decline in group volumes to 6.89 million tonnes in the second quarter. Nevertheless, sales volumes in H1 expanded by 3.8 percent to 13.93 million tonnes, supported by the low base from H1 last year,” analysts at Cordros Securities said in a recent note.
The revenue growth significantly impacted DangCem, with its profit increasing by 6.2 percent to N189 billion in the first half of the year. This marks the highest profit in at least four years, up from N178 billion in the same period last year.
Arvind Pathak, the company’s chief executive officer, said in a statement “We effectively navigated macroeconomic headwinds to deliver positive results in the first half of the year. Group volumes were up 3.8 percent with our Nigeria operations achieving double-digit volume growth of 10.9 percent.”
“This growth was driven by improved efficiency across our operations and supported by increased market activity levels compared to the election year and cash crunch in 2023,” he added.
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Further analysis of the company’s statement disclosed that in H1, the cost of sales increased by 117.4 percent, rising to N833 billion from N383 billion in the same period of 2023.
This growth was primarily driven by a significant increase in plant maintenance costs (141.54 percent). Additionally, the increase in fuel and power consumed (138.71 percent) and materials consumed (95.4 percent) contributed to the higher cost of Sales during the reviewed periods.
Given the current inflationary environment and persistent naira depreciation which have negatively impacted operating costs, the company’s operating expenses rose to N403.1 billion from N198.6 billion in the same period of last year.
However, the cement manufacturer saw its net foreign exchange loss widen to 77.2 percent in the first half, the highest in at least nine years, to N201.3 billion in the first half of 2024 from N113.63 billion a year earlier.
In last year June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The liberalisation of the foreign exchange regime weakened the naira from 463.38/$ to N1,603.80/$1 as of Thursday, June 25. At the parallel market, the naira depreciated to N1,620/$1 from 762/$.
The increase in petrol prices and foreign exchange costs contributed to the surge in the country’s headline inflation rate, which rose to 34.19 percent in June the highest level since March 1996, according to the National Bureau of Statistics.
To cushion the inflation rate, the apex bank started its monetary policy tightening cycle in May 2022, with its benchmark interest rate rising from 11.5 percent to 26.75 percent in July 2024.
As a result of the elevated interest rate environment in the economy, the cost of borrowing funds has more than doubled for companies which can reduce their profitability.
Further analysis of the company’s statement disclosed that Its net finance cost increased by 109.6 percent to N307.72 billion from N146.84 billion in H1 2023.
“The increase in finance cost is attributed to FX losses resulting from the further devaluation of the naira. FX losses rose by 77.16 percent to N201.30 billion from N113.63 billion in H1 2023. Finance income on the other hand, also increased to N24.80 billion from N16.21 billion,” said analysts at CSL Research on Friday.
Pathak, in the earnings report also disclosed that by leveraging the robust export-to-import strategy, Dangote Cement completed 14 shipments of clinker from Nigeria to Ghana and Cameroon. This effort resulted in a 55.2 percent surge in our Nigerian exports, underscoring our commitment to fostering African self-sufficiency.
Looking ahead, he said,” We remain bullish about the growth prospect of the African region, evident in our increased capital investments. We continue to prioritise innovation, cleaner energy transition, and cost leadership towards achieving our vision of transforming Africa and building a sustainable future.”
“Normally Q3 is supposed to be a quarter where we get rains, but we have seen some respite. Q3 performance will depend on the rains. We expect to do better than what we did in H1,” the company said during the earnings call on Friday.
