In six months, Africa’s largest Cement manufacturer, Dangote Cement Plc recorded revenue of N1.76 trillion from its operations across the continent of Africa, Nigeria being the biggest market.
Barring any unforeseen occurrences, management has its eyes on a N2trillion mark at the end of the financial year ending December 31, 2024.
Background
Dangote Cement is Africa’s leading cement producer with 52.0Mta capacity across Africa.
A fully integrated quarry-to-customer producer, it boasts of a production capacity of 35.25Mta in its home market, Nigeria.
Its Obajana plant in Kogi State, Nigeria, is the largest in Africa with 16.25Mta of capacity across five lines; the Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta while Gboko plant in Benue State has 4Mta; and Okpella plant in Edo State has 3Mta.
Through its recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement and clinker, serving neighbouring countries.
In addition, it has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (2.0Mta clinker grinding and import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), and Zambia (1.5Mta).
Half year financial performance
Dangote Cement Plc revenue rose 85.1 percent to N1.76 trillion in H1 2024 from N950.8 billion in H1 2023, owing to moderate volume growth and price increases in line with inflationary realities.
Both its Nigeria and pan-Africa operations recorded volume growth in the period. Sales volumes from its core Nigerian operations rose 10.9 percent to 9.0Mt in H1 2024 from 8.1Mt in H1 2023.
The rebound in Nigeria volumes is due to an uptick in economic activities in comparison to last year when the combined effect of election uncertainties and currency crunch caused a slowdown of infrastructural projects and impacted the retail end of the market.
As a result, Nigeria revenue rose 60.3 percent to N991.4 billion in H1 2024 from N618.5 billion in H1 2023.
Gross margins declined by 563bps y/y to 59.1 percent (H1-24: -706bps y/y), driven by a 100.9 percent y/y uptick in the cost of sales (ex-depreciation).
Notably, analysts attribute the increase in production costs to the higher costs of raw materials (+87.9% y/y | 26.6% of COGS) and energy (+92.3% y/y | 50.0% of COGS) in Q2-24, driven by FX volatility, persistent inflation and rising fuel (diesel, natural gas and coal) costs.
Consequently, EBIT and EBITDA margins contracted by 958bps y/y and 960bps y/y to 31.4 percent and 37.7 percent, respectively, in Q2-24, further pressured by a 94.6 percent y/y expansion in OPEX (ex-depreciation).
Financial experts at Cordros Research highlight that the increase in OPEX was largely driven by the higher haulage expenses (+115.4% y/y) in the period, reflecting the increase in the group’s distribution fleet and the cost of diesel.
Further down, net finance costs rose by 57.0 percent y/y to N195.89 billion.
It is noted that this was driven primarily by the FX losses (+32.5% y/y to N137.54 billion) in the review period due to the naira depreciation and a 169.9 percent y/y increase in interest expenses.
For the half-year period, net finance costs grew by 109.6 percent y/y to N307.72 billion, owing to the higher FX losses (+77.2% y/y) and interest expenses (+166.6% y/y).
Finally, profit before tax increased by 36.0 percent y/y to N126.55 billion in Q2-24.
After accounting for a higher tax expense (+106.0% y/y | Effective tax rate: 39.0%), profit after tax grew by 11.8% y/y to N77.23 billion.
Nigeria region
In its financial reporting, Dangote Cement noted that Nigeria is still navigating a series of policy reforms introduced by the new administration.
It disclosed that borrowing costs have risen, with the monetary authorities delivering three consecutive hikes in benchmark interest to 26.75 percent.
This marks an 800-basis point increase from the 18.75 percent last year, aimed at addressing spiraling inflation which accelerated to 34.19 percent in June.
Notwithstanding, its Nigerian business navigated the challenging environment with volume growth rebounding to 9.0Mt, a 10.9 percent increase from the 8.1Mt sold in the first half of 2023.
This was supported by the uptick in business activities in comparison to last year when the combined effect of election uncertainties and currency crunch caused a slowdown of construction and investment activities. In addition, the steep currency devaluation further escalated commodity prices, impacting purchasing power.
Consequently, revenue from the Nigerian operations increased by 60.3 percent to N991.4 billion in H1 2024, while EBITDA rose by 29.1 percent to N463.6 billion, excluding central costs and eliminations (H1 2023: N359.1B, margin of 58.0%).
“Our Nigerian operation recorded an EBITDA margin of 46.8%. Our lower EBITDA margin was impacted by the significant devaluation of the Naira compared to the same period last year; this resulted in a significant increase in both our variable and fixed costs. During the period, the Nigeria region shipped 412.2Kt of clinker to Cameroon and Ghana. However, cement exports were reduced to 155.8Kt due to a halt in exports with neighbouring Niger. Yet, total Nigerian exports were up 55.2% to 568kt,” it said.
Pan-Africa Region
The pan-African region includes all operations outside Nigeria.
Its pan-African operations maintained a growth trajectory with volumes slightly up 1.2 percent to 5.5Mt in H1 2024 from 5.4Mt in the corresponding period of 2023.
This growth was driven by robust demand from key markets, such as Congo, Zambia and Ghana.
As a result, total pan-African revenue of N807.1 billion in H1 2024 was up by 139.9 percent from H1 2023.
The region’s revenue accounted for 45.9 percent of total Group revenue, supported by volume growth in addition to price increases in some selected countries.
Pan-Africa EBITDA came in at N220.4B (before central costs and eliminations) in H1 2024, a strong 135.4 percent growth from the N93.6 billion recorded in H1 2023.
This strong EBITDA performance was also supported by the reduction in coal prices which impacted positively on some of our operations.
“We continue to see positive diversification benefits coming from the strong performance across our pan-Africa operations. We are at full capacity in Senegal and Ethiopia, while Cameroon is close to full capacity,” it explained.
Adventure into Gabon
“We continue to see positive diversification benefits coming from the strong performance across our pan-Africa operations. We are at full capacity in Senegal and Ethiopia, while Cameroon is close to full capacity”
President Brice Oligui Nguema of Gabon has invited the President and Chief Executive Officer of Dangote Industries Limited (DIL), Aliko Dangote, to invest in Cement and Fertiliser production in Gabon.
The President urged Dangote to explore potential investment opportunities in the country’s cement and fertilizer sectors, specifically urea and phosphate production.
During the visit, Dangote engaged in discussions with President Nguema and other top government officials.
The talks focused on how Dangote Industries could contribute to Gabon’s economic growth by establishing cement and fertilizer plants, which are vital for the country’s infrastructure development and agricultural productivity.
President Nguema expressed enthusiasm about the potential partnership, highlighting Gabon’s commitment to creating a conducive environment for foreign investments.
He noted that the collaboration with Dangote Industries would bring significant benefits, including job creation, technology transfer, and enhanced industrial capacity.
Dangote, renowned for his successful business ventures across Africa, underscored his company’s dedication to fostering economic development in the continent.
He emphasized that investing in Gabon’s cement and fertilizer sectors aligns with Dangote Industries’ strategic vision of expanding its footprint and supporting sustainable development across Africa.
“We are excited about the opportunity to invest in Gabon. Our goal is to contribute to the country’s economic diversification and industrialization efforts. By leveraging our expertise in cement and fertilizer production, we aim to support Gabon’s infrastructure and agricultural sectors,” Dangote stated.
The visit marks a significant step towards strengthening economic ties between Nigeria and Gabon.
As Dangote Industries continues to explore and finalize investment opportunities, both nations anticipate mutual benefits that will drive economic progress and regional integration.
The potential investment by Dangote Industries in Gabon is expected to bolster the country’s industrial landscape, ensuring a steady supply of essential materials for construction and agriculture. This development aligns with President Nguema’s vision of transforming Gabon into a diversified and self-sustaining economy.
In the coming months, further discussions and assessments will be conducted to finalize the investment plans.
The collaboration between Dangote Industries and the Gabonese government holds promise for a robust partnership that will significantly impact Gabon’s economic landscape.
Analyst’ comments
Commenting on the result, experts at Cordros Research noted, “DANGCEM sustained its robust revenue growth momentum in Q2-24, even as unfavourable operating conditions continue to impact margins. For the rest of the year, we expect revenue growth to remain healthy despite our expectation of a possible slowdown in sales in Q3-24 due to expected heavy rainfall in the quarter. However, we expect pressures on margins to remain intact as underlying headwinds continue to wipe out gains from topline.”
Management’s comments
Arvind Pathak, Chief Executive Officer, said: “We effectively navigated macroeconomic headwinds to deliver positive results in the first half of the year. Group volumes were up 3.8%, with our Nigeria operations achieving double-digit volume growth of 10.9%. 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.
“Despite the challenges of elevated inflation, high borrowing cost and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience. This was due to our rigorous focus on cost minimisation and our diversified business model. Group revenue and EBITDA rose 85.1% and 50.3% to N1,760.1B and N666.2B, respectively. Our PAT reached N189.9 billion, marking a 6.3% increase. I am pleased with the performance of our business, as key financial indicators are showing positive trends. By leveraging our 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% surge in our Nigerian exports, underscoring our commitment to fostering African self-sufficiency. Looking ahead, 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.”
Red flags
1. Rising cost of production
2. Inconsistent government policies
Green flags
1. Positive diversifications from pan-African operations
2. Improved production efficiency.
