Dangote Cement Sees 2016 Earnings Rising as Sales Increase

  • First quarter 2016 cost of sales advanced by 56 percent
  • Cement volumes increased 70 percent to 6.4 million tons

Dangote Cement Plc, Africa’s largest producer of the building material, said it expects to increase earnings in 2016 as cement volumes rise, despite an economic downturn in its home market of Nigeria and pressures elsewhere on the continent.

Demand in the company’s home market of Nigeria should remain “robust” this year, following a price cut announced by Dangote in September and supported by government infrastructure development plans, the Lagos-based company said in a statement on Monday.

“We are confident that as we progress through 2016 we will be able to improve over last year on volume, earnings before interest, taxes, depreciation and amortization and all the way through to earnings per share,” the company said.

While group cement volumes surged 70 percent in the three months through March, Dangote’s profit margins have come under pressure as a result of the price cut and as it ramps up new factories that operate in countries with lower charges. Dangote reported group operating margins of 40 percent for the first quarter, compared with 51 percent a year ago, while its cost of sales rose 56 percent.

Profit Declines

Profit for the period was 52.8 billion naira ($266 million) in the three months through March, compared with 68.6 billion naira a year earlier. The decline was largely a result of a considerable foreign-exchange gain last year that wasn’t repeated. Revenue rose 23 percent to 140.5 billion naira.

Profit in the period “was affected by manufacturing and operating costs that rose significantly” due to gas shortages, said Philip Anagbe, an analyst at Lagos-based Asset & Resource Management Co. “It is an area the company has to work on.”

Dangote Cement, controlled by Africa’s richest man, Aliko Dangote, cut Nigerian prices in September to boost consumption of the building material and protect its market share against imports amid slowing economic growth in Africa’s biggest economy. The company’s cement volumes grew to 6.4 million metric tons in the period and its  “absolute” earnings before interest, taxes, depreciation and amortization increased slightly to 72.4 billion naira.

‘Economic Malaise’

“We are still achieving very good 51.5 percent Ebitda margins at group level despite the price cut in Nigeria and the general economic malaise that has affected a number of countries in which we operate,” Chief Executive Officer Onne van der Weijde said in the statement. “We achieved record sales growth in Nigeria following the price reduction we implemented in September 2015 and this helped drive volumes up by 45 percent in our core market.”

Dangote, which is expanding rapidly across sub-Saharan Africa, said last month it plans to increase annual cement capacity to about 77 million tons by the end of 2019, from 43.6 million tons last year. It’s already more than doubled cement capacity since 2013, adding new factories in Cameroon, Ethiopia, Senegal, South Africa, Tanzania and Zambia.

The company recently started work on new plants in Nigeria and Ivory Coast and signed a memorandum of understanding for the financing and construction of its next string of projects in Nigeria and elsewhere, Van der Weijde said.

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