… FY16 sales up 25.05%
Dangote Cement plc’s full-year profit surpassed analysts’ estimates, but rising production costs fuelled by shortages of gas at the factory squeezed margins.
For the year December 2016, the company’s net profit rose 2.92 percent to N186.62 billion, compared with N181.32 billion in the previous quarter, according to its filing on the stock exchanges. The consensus of analysts’ estimates tracked by BusinessDay stood at N175.25 billion.
Revenue increased by 25.05 percent to N615.10 billion, below analysts’ forecast of 29.89 percent and markets consensus of 26.10 percent, year on year.
The Earnings Per Share (EPS) of N11.34 beats our expectation of N8.88 and the market consensus of N10.71 on lower-than-expected interest expense and tax credit, according to Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited, in a note to BusinessDay.
“The proposed Dividend per Share (DPS) of N8.50 is also ahead of our forecast of N6.2,” Ibrahim said.
While a cement price increase of N650/bag between September and December 2016, sustained energy pressure forced sector players to jettison their low price strategy.
Firms in the sector used to have a low-cost margin and increased profit margins but shortages of gas at the factory, fuelled by pipeline vandalism by militants in the Niger Delta region, forced cement makers to change energy mix and switch to Low Pour Fuel Oil (LPFO), an expensive source of energy.
Dangote Cement’s cost of sales or production costs increased by 60.40 percent to N323.81 billion, the highest since 2013, data gathered by BusinessDay show.
Africa’s largest producer of the building material is spending more to produce each unit of product as cost of sales ratios increased to 52.64 percent in December 2016, from 41.39 percent as of December 2015.
Earnings before interest taxation depreciation and amortisation (EBITDA) margins, a measure of profitability and efficiency fell to 41.80 percent in December 2016, as against 53.40 percent as of December 2015.
The company’s return on capital employed (ROCE), another measure of profitability and efficiency, fell to 14.80 percent in December 2016, from 19.97 percent as of December 2015.
The year 2016 was tough and horrendous for industry player because a sharp drop in oil price crimped government revenue and allocations for capital expenditure suffered.
Also, the devaluation of the currency exposed some industry giants to foreign exchange revaluation loss.
For the fullyear 2016, Nigeria’s economy contracted by 1.50 percent, its worst recession in 25 years, according to a recent report by the National Bureau of Statistics (NBS).
There was a year on year decline in real construction activities in the fourth quarter of 2016, according to the latest NBS report.
“Compounding the situation, gas prices in Nigeria were hiked 66% in early 2016 as part of reform efforts to boost investment in gas infrastructure,” said analysts at ARM Research in a February 28 note to BusinessDay.
Analysts at ARM Research said cement makers would have less pains in 2017 as the recent peace accord between the federal government and militants in Niger Delta region could bolster gas supplies and bolster energy.
Firms are also intensifying efforts to boost power supply at factory by investing in alternative energy mix.
“In addition, sector initiatives towards greater energy flexibility are starting to take shape with DANGCEM having significantly progressed with its local coal mill project, which looks set to become operational before the end of 2017,” said analysts at ARM Research.
Dangote Cement share price closed at N169 as of 2:00pm Wednesday, valuing the company at N2.88 trillion.
BALA AUGIE
