Plant efficiency, rising production stimulate Dangote Cement’s growth

Background

Dangote Cement Plc (DCP) is Nigeria’s largest cement manufacturer with ambitious plans to expand into 14 other Africa countries. A fully integrated quarry-to-deport cement producer, the group has production capacity of about 20.25 million tonnes a year in Nigeria.

At 10.25 million tons per annum, its Obajana plant in Kogi State is the largest cement plant in sub Sahara Africa. It Ibese plant located 100 kilometer from Lagos has 6 million tones annual capacity.

The group’s Gboko plant, in Benue State, is expected to be upgraded from 3 million tonnes per annum to 4 million tonnes per annum in 2014.

Dangote Cement is investing more than $4bn to expand its production and import capacity to around 60 million tonnes a year by the end of 2016. The investments will increase capacity by least 32 million tonnes a per annum, with new capacities being added at Ibese and Obajana, and a new factory being planned for Sagamu, Ogun.

Dangote Cement listed its shares on the Nigeria Stock Exchange (“NSE”) in October 2010 and is the largest company on the NSE.

The company has 17.0 billion shares outstanding, with shareholder funds standing at N550.1 billion at the end of December 2013.

BALA AUGIE

Financial Performance for December 31 2013

Dangote cement Plc, Nigeria’s largest company and the continent’s biggest producer of building material just released its 2013 audited financial statement which showed gross revenue grew by 29.36 percent to N386.18 billion from N298.45 billion in the same period in the prior year (FY12).

The double digit growth in revenue is attributable to the high demand for cement as Hotel; Building & Construction have become part of the new growth poles of the Nigerian economy over the past half decade, growing at an average of c.11percent per annum.

Furthermore, the infrastructure deficit such as the housing gap will remain growth drivers for Dangote Cement Company.

For the year ended December 2013, the company’s profit before tax (PBT) spiked by 40.63 percent y/y to N190.76 billion compared with N135.65 billion in the same period of the prior year (FY12).

Gross profit margin expanded to 63.1 percent in 12M13 from 60.0 percent in 12M13, while operating margin remained stable at 50 percent in the review period.

Net margins a measure of profitability and efficiency in the review period climbed to 52.95 percent in 2013 as against 49.88 percent in 2012.

The higher margin could be attributed to the efficiency of its plants coupled with cheap gas supply which is an inexpensive alternative energy source to low pour fuel oil (LPFO¬)

Dangcem is also currently investing in coal processing facilities at both of its Obajana and Ibese plants, and is exploring the possibility of converting Gboko to gas.

Operating expenses in the review period were up by 30.07 percent to N49.50 billion as against N38.06 billion in 2012, while expenses margin remained stable at 12 percent as at FY13.

Cost of sales margin reduced to 36.90 percent in 12M13 from 39.60 percent in 2M12 thus gross profits grew by 35.25 percent y/y to N243.66 billion in the review period.

The company is giving satisfactory returns on investment as return on equity (ROE) climbed slightly to 36.57 percent in 2013 from 35.84 percent in 2012, while return on assets remained stable at 23 percent.

Current ratio a measure of liquidity reduced to 0.70 xs in 2013 as against 0.73 xs in 12M12, which is lower than the 2.1x industry average.

Debtors are paying promptly as collection period was 12 days in 2013, which explains the reduction in trade and other receivables by 40 percent y/y to N10.26 billion in FY13 from N15.77 billion as at FY12.

Dangote Cement’s total assets increased by 28.11 percent year on year to N843.20 billion in FY13 as against N658.20 billion as at FY12- thanks to aggressive expansion.

Earnings per share EPS grew by 39.80 percent to 1185k in 2013 from 852k recorded in the corresponding period of 2012.

Share Performance and Outlook

Shares in the Dangote Cement Plc closed at N230 as at March 27 2014 representing a capital gain of 60.86 percent in the past one year.

The company’s Price to Book Ratio (PBR) and Price to Sales Ratio (PBS) were 7.3x and 10.4 respectively.

DANGCEM operations will in the future include cement plants in Senegal, South Africa, Cameroon, Gabon, Benin, Ethiopia, Tanzania, Zambia and the republic of Congo. Import and bagging facilities are also planned for countries including Sierra Leone, Liberia, Cote d’ Ivoire and Togo.