Dangote Cement Profit Falls as Gas Supply Issues Boost Costs

Dangote Cement Plc, Nigeria’s largest company and the continent’s biggest producer of the building material, said first-half profit declined 11 percent as operating costs increased due to gas supply disruptions.

Net income was 95.4 billion naira ($586 million) in the six months through June, compared with 107.7 billion naira a year earlier, the Lagos-based company said today in a filing to the Nigerian Stock Exchange. Revenue rose 5.3 percent to 209 billion naira while cost of sales gained 14 percent to 75.4 billion naira.

“Disruption to our gas and low-pour fuel-oil supplies has weighed on both our sales and margins and hampered our ability to supply Nigeria’s healthy demand for cement,” Chief Executive Officer Devakumar Edwin said in an e-mailed statement today. “Across Africa we continue to make progress in opening new plants to serve the continent’s growing need for cement and later this year we will open our plants in Zambia, Ethiopia, Cameroon and Sierra Leone.”

The company, controlled by billionaire Chairman Aliko Dangote, has capacity of 29 million metric tons in Nigeria as new lines at its Ibese and Obajana plants are under trial production, Edwin said. Dangote plans to expand in 13 other countries on the continent, bringing total capacity to as much as 60 million metric tons by 2016.

Nigeria’s gas disruptions to last through the year and that the supply situation is “quite precarious,” Edwin said on a conference call today. The company is seeking alternatives, he said.

Heavy Oil

“Gas supply challenges resulting in use of heavy oil for the plants is increasing its costs,” Pabina Yinkere, an analyst at Lagos-based Vetiva Capital Management Ltd., said by phone today. “Gas has a cost reduction effect.”

Parent company Dangote Industries Ltd. is looking at mining coal near its Obajana and Gboko plants to reduce the need for imports and is bidding for gas assets in Nigeria, Africa’s top oil producer, according to the statement.

Aliko Dangote, Africa’s richest man with an estimated fortune of $24.7 billion, is constructing a $9 billion oil refinery in Nigeria and said last week he plans to partner with the world’s two biggest private-equity firms, Blackstone Group LP and Carlyle Group LP, to invest in the African energy infrastructure.

Transport Constraints

Dangote Cement shares fell 2.6 percent to 226 naira at the close in Lagos, the commercial capital. The stock has advanced 3.2 percent this year, compared with a 0.1 percent increase in the Nigerian Stock Exchange All-Share Index.

Edwin said some staff had left Liberia on concern over the spread of Ebola and increased air transport constraints into and out of the West African country. The company is reviewing plans in Liberia for an import terminal and considering whether a larger grinding facility in the country would be a better investment, according to the statement today.

Dangote Cement doesn’t expect Ebola, which has killed more than 1,000 people in the latest outbreak in Guinea, Liberia, Sierra Leone and Nigeria, to have a “big impact” on its operations as previous outbreaks have been “short term,” Edwin said on the conference call.

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