Dangote Cement’s GDP Grows by 12%

While the improved contribution of non-oil sector and by extension the manufacturing subsector to GDP growth have been applauded by economic pundits, the impact of Dangote Cement in the revival of the near comatose manufacturing space in Nigeria cannot be ignored.

Ostensibly, Dangote Cement, largest capitalised company on the Nigerian Stock Exchange with a market capitalisation of about N3.4trillion was a major contributor to growth in GDP in 2018 with record revenue of N901billion in its financial year ended December 31, 2018.

The ever expanding Dangote Cement Group with established manufacturing plants across major countries in Africa grew total revenue by 11.9 percent from N805.58billion in December 31, 2017 to N901billion in 2018.

Going by the details in the group’s audited financial records for 2018, revenue was largely driven by the Nigerian market where revenue grew by 11.9 percent from N552.36billion in 2017 to N618.30billion. The implication is that consumption of cement in Nigeria in the review year increased by 11.9 percent or about N66billion.

Dangote Cement accounted for 0.5 percent of nominal GDP in 2018 considering the N618.30billion total revenue generated from the local market in comparison to an aggregate nominal GDP of N127.76trillion recorded by Africa’s largest economy in 2018.

Financials

Dangote Cement Plc, Africa’s largest cement producer, announces a group’s revenue of N901.2billion as at December 31, 2018, which represents an increase of 11.9 percent compared to N805.52billion in the corresponding period of 2017.

Group’s earnings before Interest, taxes, depreciation, and amortisation (EBITDA), (used as an indicator of the overall profitability of a business), moved up 12.1 per cent to N435.3billion from N388.15billion in the preceding financial year.

Details of the report indicated that Nigeria EBITDA increased by 10.2 percent from N360.76billion in 2017 to N397.40billion in 2018, while margin also increased by 64.3 percent. Pan-Africa EBITDA surged by 28.2 percent from N38.28billion in 2017 to N49.1billion while margin growth was put at 17.3 percent in 2018.

Dangote Cement explained that the increase in EBITDA was helped by the more favourable fuel mix at Obajana and Ibese, both of which were able to use coal from mines operated by its parent, Dangote Industries Limited.

“The use of expensive LPFO has been eliminated and our reliance on imported coal has ended at Obajana and Ibese, where we are using own-mined and third-party Nigerian coal, with obvious benefits to both margins and foreign currency demands. All of our eight kilns at Obajana and Ibese are now capable running on coal, gas or LPFO, or a mixture of the three. Our two lines at Gboko run on coal or LPFO or a mixture of the two”, the leading cement company in Africa revealed.

Further breakdown of the audited 2018 financial figures showed that earnings per share (EPS) of the cement group went up by 95.9 per cent to N22.83. To reward its shareholders across board, Dangote Cement has proposed a dividend of N16.00 per share which represents a growth of 52.4per cent compared to the dividend paid in 2017.

Speaking on the performance, Group Chief Executive Officer, Joseph Makoju, said: “This is a record financial performance by Dangote Cement, driven by a strong increase in our home market, Nigeria, despite heavy rains and uncertainties about the election. Although Pan-African volumes were unchanged in 2018, I am confident that we will see an increase in 2019, driven by higher volumes in Tanzania, Ethiopia, Congo and Sierra Leone. Now that we have gas turbines operating in Tanzania we will also see increased profitability in the Pan-Africa region and this will help to improve overall Group margins.”

Operating Highlights

Dangote Group revenue was driven by sales volumes which went up by 7.4 per cent to 23.5 metric tonnes (Mt) in 2018 driven largely by the Nigerian operations, which increased volumes by 11.4 percent to 14.2Mt in 2018, including export sales of 0.7Mt. Domestic sales in Nigeria were 13.4Mt, compared to 12.0Mt in 2017, because of higher building activity as the economy recovered from recession.

“In Nigeria, our 13.3Mta Obajana plant sold 6.7Mt of cement in 2017, with the 12.0Mta Ibese plant also selling nearly 6.7Mt. Our 4.0Mta plant at Gboko, in Benue State, was mothballed for most of the year but sold more than 0.8Mt,” the group remarked.

Meanwhile, group manufacturing costs increased by 9.1percent, mostly as a result of increased volumes in Nigeria. Manufacturing costs in Nigeria increased by 7.4per cent from N158.6billion to N170.3billion, on the back of the 11.4 per cent increase in sales volume for 2018.

Although Pan-African volumes remained constant, manufacturing costs increased by 10.6 per cent from N192.7billion to N213.0billion, mainly due to exchange rate impacts as well as input price adjustments.

The naira traded at N359/$1 at the end of 2018 compared to N331/$1 at the end of 2017, a decline in value of 7.8percent. The depreciation also contributed to the overall increase in Pan-African operating costs when these were converted to naira. The average exchange rate and year-end exchange rate for the main currencies applied are as shown in the notes to the financial statements.

Besides, total administration and selling costs rose by 22.0 per cent to N189.4billion, mostly as a result of higher sales and associated distribution costs in Nigeria, which also include increased export sales from the country whose delivery costs are higher. Haulage expenses in Nigeria increased by N10.2billion to N56.7billion from N46.5billion. Haulage costs in Pan-Africa increased by N3.2billion, representing 11.3per cent increase.

Changes

Mr. Olusegun Olusanya resigned from the board after being with Dangote Cement for about 15 years. Another major change on the board in the financial year ended December 31, 2018 was the resignation of the Group Chief Financial Officer and Board member, Brian Egan. The Irish finally quit the organisation on February 28, 2019 after five years with Dangote Cement.

In the interim, Guillaume Moyen, who recently joined Dangote Cement as Group Chief Finance Officer (Operations) will be Acting Group Chief Financial Officer from March 1, 2019.

Outlook

Dangote Cement believes the year 2019 has started well with sales volumes in Nigeria more than 10 per cent ahead of last year in ongoing first quarter. It is also hinging its hope on federal government’s commitment to a strong programme of infrastructure investment and incentivisation that will drive increased road building, including the construction of concrete roads for better performance in 2019.