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Dangote Cement Plc’s first quarter profit surged on the back of higher pricing amid rising cost of production. The country’s largest producer of building materials plan to intensify its exports to other countries.
For the first three months through March 2017, Dangote Cement’s net income increased by 34 per cent to
N71 billion, above the N53 billion average estimates of 8 analysts in a BusinessDay survey.
The company hopes aggressive expansion plan across Africa will translate to huge sales in due course, boosting the bottom line and adding to shareholders’ wealth. Sales for the period rose 49 per cent to N208 billion, driven by up to 76 per cent increase in products prices in the first quarter of last year.
Pan-African businesses accounted for company’s sales growth, even though earnings from the business segment suffered a hit in the period.
“In terms of contribution by the geographic business divisions, unit volume for Nigeria declined by 17% year-on-year to 3.8mmt,” said Tunde Abidoye equity research analyst at FBNQuest Limited.
“In contrast, volume for the Pan-African business grew by 21% year-on-year to 2.3mmt,” Abidoye said.
Analysts say the price increases impacted positively on profit margins.
Earnings Before Interest, Taxation, Depreciation, and Amortization for Nigeria (EBITDA) margin moved to 65 per cent in March 2017 from 62percent the previous year.
However, EBITDA margins of the Group declined due to a 49 per cent contraction in the EBITDA margin of Pan Africa business as the segment posted a net loss of N11.38 billion.
Company’s margins benefitted from reduced energy cost arising from management’s decision to switch to cheaper sources of energy such as coal.
However, vandalisation of oil facilities by militants in the Niger Delta region, which caused severe shortages of gas to the plants, ballooned production costs of the Group. Cost of sales increased by 41 per cent to N88 billion in the period.
Dangote cement is profitable and efficient in deploying capital as return on capital employed (ROCE) increased to 5.20 per cent in March 2017 compared to 3.88 per cent return earned the previous year.
The cement producer’s capacity for the year was close to N43 million metric tonnes in the period; sales volumes dropped 7 per cent to 6.0 million metric tonnes as the company said its foreign sales have turned Nigeria into a net exporter.
“We exported nearly 0.4Mt into neighbouring countries and in doing so, we achieved a great milestone by transforming Nigeria into a net exporter of cement,” Dangote Cement’s chief executive officer, Onne van der Weijde said in a statement.
“This is a remarkable achievement, given that only five years ago, Nigeria was one of the world’s largest importers, buying 5.1Mt of foreign cement at huge expense to our balance of payments. We will increase our exports substantially in 2017.”
Weijde said that despite some local but temporary disruptions in Ethiopia and Tanzania, the cement producer strengthened its market share in every country. Operations are also due to start in the Republic of Congo and Sierra Leone in 2017.
BALA AUGIE
