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How good cost management boosted Dangote Cement's 1H2013 results

By The Rainbow
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Dangote Cement PLC maintained a solid performance in the first half 2013It With profit before tax (PBT) of N107.7 billion for its half-year ended June 30, 2013, Dangote Cement looks set to almost double its last year's performance by year end.

The result which was sent the Nigerian Stock Exchange (NSE), showed a quantum leap in key profitability indices.

With revenue at N198.50 billion as against N154.47  billion in the corresponding  period of last year, gross profit came to  N132 b. In the first half of 2012, profit was N91.9 billion.

Earnings before interest, tax, depreciation and amortisation (EBITDA) stands at 127.30  in the half ended June 30 as against 90.16 in the corresponding period in 2012; while EBITDA margins came to 64 per cent as against 58 per cent in 1H2012.

EBIT stood at 111.19 as against 76.41 in 1H2012; while EBIT margins came in at 56 per cent as against 40 per cent in the corresponding period of 2012.

From investor's perspective, the result can hardly be better. With the Earnings Per Share (EPS) growing at a solid 51.8% to N 6.33, the company's shares in the months ahead are going to turn into a gold mine.

It is interesting to note that this significant growth in profitability and value indicators was achieved on moderate growth in volume, which rose 29.4% in Nigeria to 6.76mt, significantly outperforming the market's 14% growth. This means that sterling performance was not anchored on production growth only, but also better cost and pricing environment.

Dangote Cement supplied more than 60 per cent of the demand in the domestic market, where consumers gulped 11mt for the period.

Some significant issues that helped the company achieve this record performance, and which may play significant role on the sustainability of the performance trend  in the short and long run, include;

The speedy growth in direct deliveries, which nears 50% of group sales, helped in no small way to ensure that cost of sales was constrained , thereby enhancing margins.

Also, the company total 1H13 imports at 630000 tonnes were less than half of what was seen over 1H13 when the figure stood at  1.3mt last year.

Another significant contributor to the soar away profit figure by the Dangote Cem is the relative stability in, and improved  gas supply to the company's factories at Obajana and Ibese.

Although gas supply will remain an issue in the months ahead, the improving scenario  which is likely to sustained over the second half point to an overall improvements in the company's cost

Similarly, capacity utilisation levels came in handy to support the margins. Currently, Obajana runs at 80% capacity utilisation, while Ibese remains at 68% pointing to continuous production.

What these factors point to is that if the economic environment remains stable, Dangote Cement is yet to hit optimum capacity.

The Chief Executive of Dangote Cement Plc, Devakurma Edwin  underscored the contributions of some of the highlighted factors to strong growth achieved by the cement firm.

He said, 'The strong growth we achieved was satisfied by additional output from the Ibese plant, which opened in the first quarter of 2012, and higher output from Obajana (the new Line 3 came on stream in the first quarter of 2012). Furthermore we achieved this strong rate of growth despite the fact that our  Gboko plant was mothballed during January.'

'At the same time we are increasing our commitment to deliver cement directly to our customers and all of our plants,substantially increasing 'direct-to-customer' deliveries of all our dispatches.'

The interesting thing is that the company plans to continue to grow its capacity,  especially as it looks to be the dorminant cement company on the contienent of Africa. With its recent $2.5bn investment, Dangote Cement  also aims to increase current cement production capacity in Nigeria from of 19.25mta to29mta by 2015 and 55mta by the end of 2016 across its Obajana, Ibese and Gboko plants.

It also plans to establish an integrated/grinding plants in Cameroon, Ethiopia, Republic of Congo, Senegal, South Africa, Tanzania, Kenya, South Sudan and Zambia, as well as import/packing facilities in Ivory Coast, Ghana, Liberia and Sierra Leone.

With this solid delivery, where all the key performance indices port northward the company has set the tone  for a solid full year  result. The company, barring any major policy upheaval or natural occurrences, has set a growth path that will see it break its own records for some years to company.

Cement like food is an essential that will continue to enjoy huge demand. With company's capacity still below optimum, plus the planned additions in capacity overall in the years to come, Dangote Cement is a treasured stock which investors will be happy to hold.

 

align="right">2013

align="right">2012

Revenue NGN mn      198.50      154.47
Nigeria      190.80      147.70
Rest of Africa           7.70           6.77
Ebitda      127.30         90.16
Nigeria      128.80         87.70
Rest of Africa         (1.50)           2.46
Ebitda margins align="right">64%

align="right">58%

Nigeria align="right">68%

align="right">59%

Rest of Africa align="right">-19%

align="right">36%

EBIT      111.10         76.41
Nigeria      111.80         77.00
Rest of Africa         (0.70)         (0.59)
EBIT margins align="right">56%

align="right">49%

Nigeria align="right">59%

align="right">52%

Rest of Africa align="right">-9%

align="right">-9%

Cement sales Kt align="right">6761

align="right">5225