Dangote Cement: Profit breaks free from flat growth

Dangote Cement Company’s third quarter operations ended with a breakout in profit performance after a marginal improvement in 2016. The cement producing company was unable to grow profit last year despite a 25% growth in sales revenue. This year, the company is growing profit ahead of sales revenue and revenue is growing against declining sales volume.

At the end of the third quarter in September, sales volume was down by 9.6% to 16.61 million tonnes but price increases have more than countered the loss in volume. Sales volume began to pick in the third quarter, which is expected to sustain in the final quarter, as the negative impact of rainy season on sales eases off.

The company posted an after tax profit of N193.20 billion at the end of the third quarter, representing a year-on-year growth of 44.6%. This is already ahead of the full year after tax profit of N186.62 billion the company reported in 2016.

Based on the third quarter growth rate and possibly a gain in sales volume in the final quarter, after tax profit is expected to stand in the region of N260 billion for Dangote Cement at the end of 2017. That will be a rebound in profit growth from 2.9% in 2016 to 39% in 2017.

Sales revenue amounted to N603.58 billion at the end of the third quarter, a year-on-year growth of 36.5%. The company is expected to close the year with a turnover of about N806 billion – an anticipated increase of 31%. It ended last year’s trading with an increase of 25% in sales revenue to over N615 billion.

The company has made substantial cost savings in two major cost areas – cost of sales and administrative expenses. This has stretched out profit margin after a decline last year and has enabled the company to recharge profit performance. Finance expenses however remain a challenge for the company, as a drop in finance income fuelled an expansion of net finance expenses during the review period.

The company saved cost from cost of sales, which grew at a significantly lower rate of 12% than the increase of 36.5% in sales revenue at the end of September. That lifted gross profit by 63.4% to N343.72 billion and raised gross profit margin from 47.6% in September 2016 to 57% at the end of September 2017.

There were further cost savings from administrative expenses, which increased marginally and also from selling and distribution cost, which grew significantly below sales revenue at 30.3%. The cost savings enabled Dangote Cement to push up operating profit by 90.5% to N233.14 billion at the end of the third quarter trading.

Finance expenses moved against the favourable cost behaviour and grew by 36% to almost N40 billion at the end of September. A drop of 51.6% in finance income extended the impact of rising cost of finance on operations but the company still improved profit margin.

Net profit margin improved slightly from 30.2% to 32% year-on-year at the end of September 2017. The strength to grow profit in the current year rests on growing sales revenue and improved profit margin.

The company earned N11.30 per share at the end of the third quarter, improving from N8.13 per share in the same period in 2016. The full year expectation is N15.26 per share. The company closed 2016 operations with earnings per share of N11.34 and gave out N8.50 per share in cash dividend.