If there’s one factor Dangote Cement – and the complete Dangote Group has in abundance, it’s foresight. That is, little doubt, a serious motive the Group is the biggest within the recreation, making up about a fifth of the market capitalisation of the Nigerian Stock Change (NSE). Its cement enterprise alone is likely one of the largest companies on the Nigerian bourse by way of its complete property and income.
The corporate’s H1 financials
Simply final week, the cement conglomerate reported its H1 and Q2 2020 outcomes, revealing a 1.95% improve in income to N476.85 billion, up from N467.73 billion recorded throughout the comparable interval final yr. Isolating its Q2 outcomes, we will see a fair smaller progress in income of 0.04% within the quarter, attaining N227.7 billion from N227.6 billion in Q2 final yr. The profitability of the corporate was, nonetheless, bolstered by a 47.3% lower in earnings tax expense.
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The storm that’s the COVID-19 pandemic expectedly had its affect on Dangote Cement. Chief on the checklist is the devaluation of the naira from N366 to N388 on the NAFEX window, a improvement that value the corporate extra in repaying its international debt. Along with this, Dangote Cement recorded decrease gross sales volumes resulting from restrictions on development actions throughout the lockdown interval.
However then once more, the corporate’s low income progress has extra to do with its Pan-African operations dragging it down, greater than any of the aforementioned. And whereas the corporate, forward-thinking as ever, has made plans to additional develop its operations with the addition of 4 new vegetation in (not less than) 5 nations together with Cameroon and Ghana, lots of its operations throughout Africa have confirmed to be extra liabilities than property.
Pan African Operations and its Rising Pains
Dangote Cement has a manufacturing capability of 45.6 million tonnes per yr throughout nations in Sub-Saharan Africa. Particularly, there are factories in additional than seven nations, together with a clinker-grinding plant in Cameroon, in addition to import and distribution amenities for bulk cement in Ghana and Sierra Leone. Collectively, these operations make Dangote Cement the biggest cement producer in Sub-Saharan Africa.
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Over time, nonetheless, the Group has had challenges in Tanzania, Zambia, Senegal, and Ethiopia. Plenty of the challenges are attributable to the macroeconomic situations of the precise places, together with the controversial regulation insisting that the federal government should personal half of the corporate in Zambia in addition to the killing of the corporate’s CEO in Ethiopia in 2018. Others level solely to the restricted market share the corporate possesses in these different places, in addition to the existence of competing items. Additionally, the extreme borrowings positioned on the Pan-African enterprise has carried out extra hurt than good as they’re masking its sturdy home feats.
The N85 billion loss Dangote Cement reported from its Pan African companies in FY 2019 was the fourth consecutive yr for the reason that financial recession of 2016. In simply Q2 2019, the corporate recorded N17 billion in losses. Whereas there was a big discount in losses within the second quarter of 2020 of about 75% because it made losses of N4.3 billion in 2020, a juxtaposition of the general efficiency of the Nigerian firm which made income of N74 billion in the identical interval, reveals a relationship that is nearly parasitic.
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Home gross sales of cement in Nigeria elevated by 2.2% to 13.7Mt in 2019, together with exports coming to 14.1Mt. The Group famous in its monetary statements that its Pan African operations, together with clinker, contributed 9.6Mt in volumes. The full Pan-African quantity represents 40.1% of Group volumes with the vast majority of its positive factors coming from Nigeria alone. Pan-African revenues of N282.7 billion have been 0.2% decrease than FY 2018 and represented 31.7% of complete Group revenues. Sturdy performances in Senegal, Tanzania, and Sierra Leone have been in a position to assist offset non permanent challenges in Congo, Ethiopia, and a depressed financial surroundings in South Africa. But, its headwinds nonetheless lurk.
The corporate’s expansions plan additionally requires vital funding, which is why the corporate’s debt profile has been on the rise. Internet finance value has gone from N1.5 billion in 2016 to over N50 billion in 2019. Finance value is prone to improve as soon as the total impact of devaluation units in. To maintain its growth plans going, it might want to discover sourcing funds within the practical foreign money within the nation of operation.
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To date, the corporate has solely famous its need to additional deploy its clinker and cement export technique throughout West and Central Africa. For one, the completion of its 1.5Mta grinding plant in Cote d’Ivoire is anticipated by the tip of 2020. But, its expansionary goals aren’t sufficient to redirect its general strategic intent. Versus additional dissipating restricted sources into growth of its operations, the group must brainstorm efficient methods to cut back its value in these African nations while additionally enhancing income sufficient to sustainably strengthen its general enterprise.