Background
Dangote Cement plc 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 19.25 million tons a year in Nigeria.
At 10.25 million tons per annum, its Obajana plant in Kogi State is the largest cement plant in sub Saharan Africa. It Ibese plant, located 100 kilometres from Lagos, has 6 million tons annual capacity.
The group’s Gboko plant, in Benue State, is expected to be upgraded from 3 million tons per annum to 4 million tons per annum in 2014.
Dangote Cement is investing more than $4 billion to expand its production and import capacity to about 50 million tons a year by the end of 2015. The investment will increase capacity to at least 32 million tons a per annum, with new capacities being added at Ibese and Obajana, and a new factory being planned for Sagamu, Ogun State.
Dangote Cement listed its shares on the Nigerian 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 N599.66 billion at the end of March 2014.
Financial performance for March 2014
Undoubtedly, the fastest growing sector in Nigeria is the cement industry. This is so because the infrastructural deficits in areas such as housing and roads are driving the demand for cement.
Dangote Cement, Nigeria largest company and the continent’s biggest producer of building material, has released first quarter 2014 results that slow growth in bottom-line performance.
Based on BusinessDay’s analysis, the slow growths in profits were caused by huge costs and soaring tax liability.
For the three months through March 2014, Dangote Cement grew revenue by 8.53 percent year-on-year to N103.56 billion, from N95.42 billion as of Q12013.
Despite the impressive performance at the top-line level, the company was unable to translate it to bottom-line growth as profit before tax (PBT) slid by 1.2 percent to N53.01 billion in Q1’14, compared with 53.68 billion as of Q1’2013.
Based on further analysis, huge tax liability further hit bottom-line level as profit after tax (PAT) declined by 10.66 percent to N47.62 billion in Q1’14, compared with N53.75 billion as of Q1’2013.
Analysts are saying that the tax holiday the company enjoys on some of its plants such as Obajana cement factory may have ended and as such any further usage of those plants exposes it to tax liability.
Net margin, a measure of profitability and efficiency, dropped to 45.97 percent in the review period from 56.30 percent in 2013.
It would be recalled that the company, in its full year 2013 results recorded higher margins, which was 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)
Input costs also jumped as cost of sales margin climbed to 35.82 percent in 2014, as against 30.80 percent as of Q1’1, while gross margin reduced to 64.18 percent in Q1’14, from 69.20 percent as of Q1’13.
Operating expenses in the review period were up by 24.64 percent to N13.43 billion in Q1’2014, compared with N10.79 billion in Q1’ 2013, while operating expense ratio climbed to 12.96 percent in Q1’14 from 11.30 percent Q1’13.
Income tax liability crimped after tax profits surged by 10411 percent to N5.39 billion in Q1’14 from N51.3 million in Q1’13.
Return on average equity (ROaE) and return on average assets and return on assets (ROaA) were 35.57 percent and 23.35 percent, respectively.
Earnings per share (EPS) reduced by 11.39 percent to 280k in Q1’14, from 316k as of Q1’13.
Finance costs were also up by 7.4 percent to N3.18 billion in Q1’14, compared with N2.96 billion as of Q1’13.
Dangote’s total assets for the three months period through March 2014, spiked by 7.1 percent year-on-year to N903.09 billion as against N843.20 billion as of Q1’2013.
Share performance and outlook
Shares in the Dangote Cement closed at N225 as of May 6, 2014, representing a capital gain of 27.94 percent in the past one year. The company’s price-to-book ratio and price-to-sales ratio were 7.0x and 9.96x, respectively.
With a market capitalisation of N3.85 trillion, this makes the company the largest company in Nigeria by market value. Its operations will include cement plants in Senegal, South Africa, Cameroon, Gabon, Benin Republic, Ethiopia, Tanzania, Zambia, and the Republic of Congo. Import and bagging facilities are planned for countries including Sierra Leone, Liberia, Cote d’ Ivoire, and Togo.
BALA AUGIE
