Established in May 1981 as trading business with an initial focus on cement, the group over time diversified into a conglomerate trading cement, sugar, flour, salt and fish. By the early 1990s, the company had grown into one of the largest trading conglomerates operating in the country.

In 1999, following the transition to civilian rule and after an inspirational visit to Brazil to study the emerging manufacturing sector, the Group made a strategic decision to transit from a trading based business into a fully-fledged manufacturing operation. In a country where imports constitutes the vast majority of consumer goods, a clear gap existed for a manufacturing operation that could meet the ‘basic needs’ of a vast and fast growing population.

The company ended 2015 financial year on an impressive note as it recorded tremendous improvement at the top and bottom line level amid economic doldrums or lethargy that dampened consumer spending and caused a slow down in construction activities.

This means the strategy deployed by the owner and the management of the company has yielded fruits as the bellwether cement company has consolidated its share of the market with an aggressive expansion in its home market and sub-Saharan Africa. Dangote Cement has 17.041 billion shares outstanding as at March 4, 2015, while net assets stood at N644.72 billion. With a N2.86 trillion in market capitalisation, the company is the most capitalised firm in the country. Its share price stood at N168, 1:45pm; on the floor of exchange.

Investments in new plants help catapults sales  

For the year ended December 2015, the company’s sales increased by 25.54 percent to N491.72 billion compared with N391.64 billion, the same period of the corresponding year [FY] 2014.

The growth at the top line can be attributed to the company’s copious investments in new plants in Nigeria and other sub-Saharan Africa countries like Cameroon, Ethiopia, Senegal, South Africa, Tanzania and Zambia; this helps bolster sales volume. Also, the price cut announced by the largest company by market value boosted consumption- a strategic decision that impacted positively on sales.

Of the total sales of N491.72 billion, Dangote Cement’s Nigeria operations contributed the lion share with N389.21 billion; West Central operations contributed, N42.27 billion, while South and East Africa contributed N61.20 billion to the group’s sales.

Africa’s largest producer of the building materials recorded a 41.07percent rise in production cost of sales to N201.80 billion as against N143.05 billion in 2014. This was driven by disruption in gas supply at the factories; an unexpected and unpredictable event that swelled overhead costs.

Additionally, production cost of sales ratio moved to 41.04 percent in 2015 as against 36.25 percent in 2014. This means that out of every N100 generated in sales the company spends N41.04 on production costs. Despite the high cost margins and production costs, gross profit increased by 16.62 percent to N289.91 billion in December 2015 compared with N248.58 billion in 2014. Gross profit margins however, fell to 57.33 percent in the period under review compared  with 63.40 percent in 2014.

Lower taxes help boost profit amid rising finance costs.

For the year ended December 2015, the cement maker’s net income rose by 13.68 percent to N181.32 billion as at December 2014. The profit before tax moved by 1.90 percent to N188.30 billion in December 2015 as against N184.70 billion in December 2014. The double-digits growth in net income was as result of a significant reduction in income tax expense by 261.26 percent to N25.18 billion compared with N6.97 billion in 2014. Operating profit moved by 11.07 percent to N207.82 billion in the period under review as against N187.10 billion in 2014.

Dangote cement has been enjoying tax relief in form of capital allowance on some of its newly acquired plants in home country and other sub-Saharan countries.

Capital allowances [CA] are incentives given to a tax payer who incurs qualifying capital expenditure in a basis period. They are given in lieu of depreciation on certain types of assets, especially plant.

New factories mean more plants will be purchased for the purpose of production and that means more capital allowance will be charged on qualifying capital expenditure.

The company’s operating expenses were up by 32.20 percent to N86.04 billion in December 2015 compared with N65.08 billion as at December 2014.Operating expenses margin [OPEX Margin] moved to 22.10 percent in December 2015 compared with 16.17 percent, as at December 2014.

Finance costs were up by 64.81 percent to N54.34 billion in the period under review as against N32.97 billion as at December 2014. Total loans paid for, increased by 39.30 percent to N116.18 billion in December 2015 compared with N83.40 billion as at December 2014.

Returns to shareholders increased despite depressed margins.

Return on Equity [ROE] increased to 28.10 percent in the period under review as against 26.10 percent in 2014. Return on assets [ROA] remained flattish at 16 percent, as at December 2014.

Net margin, a measure of profitability and efficiency, fell to 36.37 percent in 2015, compared with 40.72 percent in 2014. Pre-tax margin also dipped to 38.30 percent in 2015 as against 40.72 percent in 2014. Operating profit margin was down to 42.26 percent in the period under review from 47.74 percent in 2014.

Investments in Property Plants and Equipment’s bolster balance sheet

Total assets grew by 22.65 percent to N1.1trillion in the period under from N984.47 billion in 2014. This was driven by a 22.67 percent increase in property plant and equipment to N917.21 billion as against N747.79 billion in 2014.

Dangote Cement has spent as much N157.09 billion on the acquisition of property plants and equipment [PPE]. Asset turnover increased to 0.44 times in 2015; from 0.39 times in 2014. This means the company is using or utilising its PPE to generate higher sales, profits and dividends.

The cement maker’s current ratio, which measures the ability of firm to meeting its short term obligations to suppliers and overdraft jumped to 0.82x in the period under review as against 0.59x in 2014; lower than the industry average of 2.1x.

Cement production spikes on aggressive expansion.

Cement production capacity increased by 86.90 percent to 42.55 million tons in 2015 compared with 22.76 million tons as at December 2014. Also, cement sales volume moved by 34.90 percent to 18.855 million tonnes in 2015 from 13.97 million tons.

The company last year, announced plans to add 25 million metric tonnes of capacity through investments in sub-Saharan Africa and a new plant in Nepal. It is projecting an increase in annual capacity to about 77.3 million tons of cement by the end of 2019, compared with 43.6 million tons last year.

Government investment in infrastructure to spur growth.

The intentions of the new Buhari led government to increase the capital expenditure side of the budget by N700 billion is seen as boosting the revenues of cement companies like Dangote cement. This is because such economic stimulus will drive construction activities; hence increase the demand for building materials.

In order to stimulate an economy straggling with more than 60 percent fall in the price of oil, the Federal Government of the most populous nation in Africa is planting on spiking spending in 2016 fiscal budget by 81.88 percent to N8 trillion, from N4.4 trillion last year.

Vice President Yemi Osibanjo revealed that the Federal Government is proposing a capital expenditure of N2 trillion next year, up from N1.3 trillion in 2015, representing N700 billion increase.

Analysts say such economic stimulus will help the country plagued by huge infrastructure deficits catch up with BRIC counties in terms of cement production.

The BRIC, an acronym invented by investment banker Jim O’Neil, for the association of five major emerging national economies, comprise Brazil, Russia, India, and China.

Cement production per capital in Brazil and Russia are 349kg and 480kg respectively, according to the US Geological Survey (USGS) data, compared with 112kg for Nigeria.

The country needs as much as $300 billion (N60 trillion) within the next 30 years to close its housing deficit. According to the United Nations, Nigeria’s urbanization rate was estimated at 51 percent in 2012, which suggest that over 80 million people live in the cities. The UN estimates that this number is growing at an annual rate of 3.5 percent.

While immense speeding will boost revenue of cement makers, shortage of gas, scarcity of cheap alternative energy such as LPFO and borrowing costs will hinder the stimulus from trickling down to the bottom lines of these firms.


Source: Business Day


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