Dangote Cement 9 Months 2020 Result: Robust Performance in Uncertain Times

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Wednesday, November 11, 2020 / 6.30PM / Adaeze Nwachukwu, Proshare Research/Header Image Credit: Dangote Cement


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As economic activities pick up post-lockdown, the group posted an impressive performance for its 9 months 2020 results. Strategic decisions were taken in H1 2020 to protect the group from the adverse effect of the COVID-19 pandemic which positioned the Lagos-based cement company for stronger financial performance in 9 Months 2020. 

 

Key Highlights

  • Sales volume increased Year-on-Year (Y-o-Y) by +6.59% to 19.21m tonnes in 9 months 2020 from 18.02m tonnes in 9 months 2019.
  • Revenue grew by +12.01% from N679.79bn in 9 months 2019 to N761.44bn in 9 months 2020.
  • EBITDA skipped forward ahead by +17.08% Y-o-Y from N303.22bn in 9 months 2019 to N355.02bn in 9 months 2020.
  • EBITDA margin fell to 44.6% in 9 months 2020 from 46.6% in 9 months 2019
  • Finance cost declined Y-o-Y by -13.79% from N39.79bn in 9 months 2019 to N34.29bn in 9 months 2020.
  • Profit before tax (PBT) rose Y-o-Y by +37.58% from N197.68bn to N271.96bn while Profit after tax (PAT) increased Y-o-Y by +35.20%
  • Total borrowings increased Y-o-Y by +14.99% between 9 months 2019 and 9 months 2020.
  • 7 clinker vessels exported to Cameron by September 2020 with the maiden vessel exported at the end of June 2020. Cross-border exports to the Niger Republic were approved by the federal government to assist in easing the building materials constraint in the neighbouring country. 

 

 

Illustration 1; Dangote A Picture in Time, 9 months 2020 Result

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Profitability

Gross revenue of Dangote Cement Plc grew Y-o-Y by +12.01%, from N679.79bn in 9 months 2019 to N761.44bn in 9 months 2020 which was supported by a +6.59% increase in sales volume. The Nigerian market contributed 62.04% in total sales volume and also accounted for 70.33% in total revenue of the Group. Revenue from sales of cement and clinker accounted for N761.42bn while revenue from sales of other products by the Group accounted for N21m for the period (see chart 1).

 

With Nigeria being the obvious largest market of the company, total volumes for the Nigerian market grew by +10.2% and revenue also increased by +14.5% between 9 months 2019 and 9 months 2020.

 

In USD terms, Dangote Cement's revenue declined by -9.77% from $2.21bn recorded in 9 months 2019 to $1.99bn in 9 months 2020 using the most recent official CBN exchange rate.

 

Chart 1: Dangote Cement Revenue 2015 - 2020 (N'bn)

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Source: Dangote Cement Financial Statement, Proshare Research

 

Profit before tax (PBT) of the company grew noticeably by +37.58% from N197.68bn recorded in 2019 to N271.96bn in 2020 which was driven by a -13.79% decline in finance cost, a +43.20% increase in finance income and a decline in selling and distribution cost of -2.07%. Gross profit grew Y-o-Y by +13.89% while profit after tax (PAT) bounced up by +35.20% (see chart 2).

 

Converting to USD, the cement and clinker maker recorded a +10.83% Y-o-Y growth in profit before tax (PBT) from $644.08m to $713.81m using the CBN official exchange rates.

 

Chart 2: Dangote Cement Profit Before Tax 2015 - 2020 (N'bn)

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Source: Dangote Cement Financial Statement, Proshare Research

 


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Avoiding Operational Chokeholds: A look at the Liquidity Problem

As a machinery/plant-based company, having a higher current liability to current assets ratio seems normal. The company's current ratio for 9 months 2020 declined marginally to 0.65 from 0.69 in 9 months 2020. The preferred current ratio for a cement company would be about 0.9, but for Dangote Cement, the current ratio indicates some liquidity tightness (see chart 3 below).

 

Chart 3: Dangote Cement Current Ratio 2015 - 2020

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Source: Dangote Cement Financial Statement, Proshare Research

 

The company's quick /acid-test ratio rose to 0.50 in 9 MONTHS 2020 from 0.47 in 9 MONTHS 2019, a quick ratio portrays a  more conservative liquidity position as it adjusts for a company's unsold stock of goods and inputs in storage, Dangote's quick ratio reconfirms tight liquidity (see chart 4 below).

 

Chart 4: Dangote Cement Acid Test Ratio 2015 - 2020

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Source: Dangote Cement Financial Statement, Proshare Research

 

Dangote's liquidity ratio for 9 months 2020 was 9.55% against 5.59% recorded in the corresponding period of 2019 (see chart 5). The increase in the liquidity ratio can be attributed to an increase in total borrowings for the period. Dangote Cement Plc has the largest corporate bond issuance and the largest commercial paper issuance in Nigeria's debt market which are both oversubscribed. Strategic decisions were also taken to address the liquidity position of the company, according to the latest results posted by the company, all non-strategic capital expenditure has been deferred although dividend has been paid.

 

 

Chart 5: Dangote Cement Liquidity Ratio 2015 - 2020

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Source: Dangote Cement Financial Statement, Proshare Research


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Making Debt Count; A Look at Dangote Cement's Leverage

The debt-to-equity ratio or leverage ratio for the period was 53.66% against 44.58% for the same period in 2019. This shows an increase in debt size as well as a decline in equity as posted by the company (see chart 6). According to the latest results posted by the Cement and clinker manufacturer about 19% of their total debt is exposed to US dollars thereby limiting foreign currency debt exposure.

 

Chart 6: Dangote Cement Leverage Ratio 2015 - 2020

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Source: Dangote Cement Financial Statement, Proshare Research


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Dangote Cement Plc: A Roller Coaster Price Movement in 2020

The share price of DANGCEM appears to have rocked back from a low threshold during the coronavirus lockdown from N117 in April to N185 in November 2020. The company's renewed focus on West and Central Africa and its broader continental vision may position it for increased sales and foreign exchange earnings in months ahead provided that a second wave of the coronavirus pandemic does not but a stub in the hinges of a growing continental outlook (see chart 7 below).

 

Chart 7: Dangote Cement Year-to-Date Share Price Movement (as of 10 November 2020)

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Source: Dangote Cement Financial Statement, Proshare Research

 

Edging Into New Markets; Beyond Border Closure

With relatively low limestone production capacity in other parts of West Africa, most of Nigeria's neighbouring economies have opted to import their cement or clinker needs from other parts of the world, Dangote Cement Plc has somewhat positioned itself to meet these demands hence increasing the company's foreign exchange earnings in 2020. The company has already exported 7 clinker vessels to Cameron for YTD September with the maiden vessel sent at the end of June 2020.

 

Illustration 2; Growth Strategy and The Export Agenda

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Related News

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3.     DANGCEM Notifies of Postponement of Board Meeting

4.     DANGCEM Notifies of Board Meeting Date and Commencement of Closed Period

5.     DANGCEM Appoints Ms. Berlina Moroole As Non-Executive Director

6.     DANGCEM Declares N126bn PAT in Q2 2020 Results, (SP:N134.20k)

7.     Moody's Announces Completion of a Periodic Review of Ratings of Dangote Cement Plc

8.     Dangote Cement Series 17 and 18 Commercial Paper Now Open

9.     Dangote Cement Q2 2020 Results Review: West and Central Africa Export Push Underpins Growth

10.  Dangote Cement H1 2020 Result; Paving A Difficult Path to Profitability

11.   Dangote Cement highlights its Socioeconomic Impact in 2019; Positioned to Create More Jobs

12.  NSE Lists Dangote Cement Plc Bonds

13.  COVID-19 Related Restrictions Limit Dangote Cement Near-term Growth in Q1 2020



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