Most of the manufacturing companies in Nigeria are suffering from the multiplier effects of global fall in crude oil prices and foreign exchange rate, with revenues cut short, profits disappearing in some cases and the cost of doing business stifling growth.
But the situation seems different for Dangote Cement as the company maintained its performance at the end of financial year of 2016 and reaping from its effort of turning Nigeria to an exporter of cement.
Dangote cement has finally ended the era of Nigeria’s dependence on importation following it continuous increase in production capacity, as the company exported 0.4 million tons of the product to other countries in 2016.
In its 2016 full year audited results presented on the floor of the Nigerian Stock Exchange (NSE), Dangote Cement sold 8.6 million metric tons of cement outside Nigeria, which is 54 per cent more than what was sold in 2015.
The export is significant given that the nation used to be a net importer of cement. As at 2011, Nigeria was one of the world’s largest importers of cement, buying 5.1 million metric tons of foreign cement at huge expense to the country’s balance of payments.
The company’s Pan-African cement plants continued to perform well, contributing significantly to its turnover and profitability. Dangote Cement is Africa’s leading cement producer with nearly 46 million metric tons’ capacity across Africa
The company’s audited results for the year ended December 31, 2016, outperformed analysts’ expectation across metrics.
Reviewing the results by Afrinvest Limited, showed four quarter (Q4) standalone revenue growth of 37 per cent Year-on-Year (Y-O-Y) to N173 billion, bringing full year, 2016 turnover to N615.1 billion, up 25.1 per cent. Similarly, the Q4 profit before tax grew at an astonishing rate of 170.4 per cent Y-o-Y to N78.7 billion as margins expanded due to higher mark-up on Nigerian sales and a more efficient kiln fuel mix.
The impressive Q4, 2016 operating result was however not enough to completely offset under performance in Q2 and Q3, 2016 as profit before tax declined slightly by 3.9 per cent Y-o-Y to N180.9 billion. Nonetheless, full year, 2016 earnings per share rose by 4.5 per cent Y-o-Y to N11.34.
The Group also declared dividend of N8.50 per share, 4.0 per cent higher than 2015 dividend and exceed analysts prediction of N8.
According to Afrinvest, the impressive full year, 2016 revenue numbers were primarily driven by sales ramp-up in Pan-African operation and pricing hike effected in Nigeria in September 2016.
Group sales volume rose 25 per cent Y-o-Y to 23.6MMT as Pan-African (ex-Nigeria) sales volume rose 50.6 per cent Y-o-Y to 8.4MMT 35.8 per cent of group sales from 29.7 per cent in full year, 2015. Nigeria’s volumes also expanded 13.8 per cent to 15.1MMT, supported by a demand boost in the first nine months of the year following cuts in cement prices and commencement of export to neighbouring countries, 0.4MMT exported to Benin in 2016.
Margins were however pressured all through the year with cost of sales ratio up 11.6ppt Y-o-Y to 52.6 per cent, while Earnings before interest, tax, depreciation and amortization (EBITDA) and net margin fell 11.6 and 6.5 ppt Y-o-Y to 41.8 per cent and 30.3 per cent in full year, 2016 respectively.
The margin pressure according to Afrinvest, reflects low revenue mark-up in Nigeria due to intense price competition till September 2016, higher cost of sales due to inefficient fuel mix as gas supply clipped in Nigeria following attacks on oil & gas installations by militant groups and subsistent weak margins from pan-African operation partly due to price competition in oversupplied markets like South Africa and Ghana and high energy cost in Tanzania.
“The 236 per cent Y-o-Y increase in net FX gains to N41.2 billion as well as deferred tax credits in Pan-African operation buffered the impact of the weak operation margins on net income which rose 2.9 per cent Y-o-Y to N186.6bn.”
While presenting the results, the chief executive officer of Dangote Cement, Onne van der Weijde, assured the investors of better returns on their investment in the Dangote Cement.
According to him, the New Year has started well and we expect much higher profitability in Nigeria in 2017, even though we may not see the volume growth we achieved in 2016. I am confident that we will deliver an even stronger performance in 2017 as we increase market share and extend our reach across Africa.
The economic challenges notwithstanding, Onne revealed that Dangote Cement achieved sales and revenue growth of 25 per cent and consolidated its position as Africa’s leading producer of cement.
On outlook for the company’s performance in 2017, analysts at Cordros Capital said, Dangote Cement has invested significantly on logistics in the newly entered markets, helping to strengthen product reach to consumers ahead of competitors.
“But having already claimed visible market shares within a short period, and given a less aggressive African cement consumption outlook, we forecast volume to grow, supported by Sierra Leone and Congo coming on stream, as well as export opportunities.
“We forecast EBITDA to reach N33.6 billion compared to N26.4 billion in 2016 on less disruptive energy issues in Tanzania where resolution will likely be reached with the government over gas pricing, stable average price, and volume growth,” they said.
While analysts at Afrinvest, said, “The company remains poised to grow operating income in 2017 on the back of the pricing action taken in its biggest market, Nigeria in Q3, 2016 and dividend from diversification of energy sources in Nigeria into coal to reduce vulnerability to supply shocks in the Niger Delta.
According to them, all production lines in Nigeria now have coal capacity with Dangote Cement’s parent company, Dangote Industries Limited (DIL) investing in coal mines in Kogi State to supply the plants with coal feedstocks which are cheaper than imported coal and domestic gas supply.
“However, a key source of concern to us is the expiring tax holidays on production plants in Nigeria.”