Dangote Cement boosts output capacity, lifts revenue to N1trn in 2020

Dangote Cement Plc expanded cement production and bagging capacity by 3 million tonnes in 2020 and closed the year with an output capacity of 48.55 million tonnes.

That boosted cement production by 1.9 million tonnes to close at 24.7 million tonnes for the year.

The enhanced capacity and production pushed up sales volume by over 2 million tonnes to 25.7 million tonnes at the end of the financial year. The gains in production and sales volume recharged sales revenue from a drop in the preceding year to a new peak in excess of N1 trillion.

The capacity expansion provided some economy of scale benefits that enabled the cement producing company to achieve substantial cost moderation. Cost reduction and moderation were recorded across the key expenditure lines of the company in 2020.

Increased sales revenue with cost saving was the favourable combination that Dangote Cement applied to power a major profit recovery in the 2020 financial year. Turnover grew by 16percent to over N1 trillion in the year, representing an increaseof over N142 billion. This is a function of two favourable factors of increase in sales volume and a substantial mark up of productprices.

A fundamental improvement in the year is that the company used a reduced cost to generate an increased naira of sales revenue. This enabled the company to change direction from aprofit drop of nearly one-half in the preceding financial year toregister a rebound of more than 37 percent in profit in 2020.

The cost reduction began with cost of sales, which grew by 15 percent  to N438 billion. This is a slightly reduced rate of growth compared to sales. The favourable effect is that the company saved costs from input expenses – which constitute a major cost element.

Management therefore was able to reduce the proportion of sales revenue devoted to cost of sales at 42 percent in 2020 compared to the prior financial year. The moderation in cost of sales enabled the company to improve gross profit slightly ahead of sales revenue at 16.5 percent to N596 billion at the end of the year.

The company also extracted a major cost saving from selling and distribution expenses, which declined by 4.4 percent to about N154 billion. Additional costs were saved from administrative expenses, which moderated relative to sales.

Administrative cost rose well below the rate of sales at 11.5 percent  to close above N60 billion for the year and claimed a reduced share of the naira of sales revenue realised during the year.

The cost savings boosted operating profit – which grew by over 29 percent to close at roughly N387 billion for the year. That is significantly ahead of the 16 percent increase in turnover, representing an additional N87 billion raked into operating profit during the year.

The favourable cost behaviour for the company last year was crowned by a drop of close to 24 percent in finance expenses to close at N44 billion. This was extended by a robust growth in finance income. The company generated finance income of almost N30 billion for the year, four times the corresponding figure it realised at the end of 2019. 

The developments lowered net finance expenses from N50 billion to less than N14 billion over the review period. The cost saving powered a growth of 49 percent in pre-tax profit to N373 billion at the end of 2020. This represents an increase of more than N123 billion in pre-tax profit in the year.

The drop in finance expenses reflects the absence of foreign exchange loss in the year that accounted for 23 percent of finance costs in 2019. The company’s interest bearing debts grew from N368 billion at the end of 2019 to stand at N494 billion at the end of 2020.

Dangote Cement closed last year’s operations with an after tax profit of N276 billion. This is an increase of 38 percent from N200.5 billion after tax profit in 2019. It is a marked recovery from a profit drop by nearly one-half in the preceding year. The company’s profit had dropped in 2019 from the peak of over N390 billion in 2018.

The twin factors for the upturn in 2020 are the improvement in revenue and cost savings achieved in key spending areas. The combined effect is an improvement in net profit margin from 22.5 percent in 2019 to 26.8 percent at the end of the 2020 financial year.

Earnings per share amounted to N16.14 at the end of the 2020 financial year for Dangote Cement and it is giving out a cash dividend of N16 per share to shareholders.