Friday, April 5, 2019

Dangote Cement: Revenue growth amidst FX challenges

Dangote Cement: Revenue growth amidst FX challenges
January 29
11:21 2019

Dangote Cement group could not recover from a huge foreign exchange loss in the second quarter and a further slowdown in profit performance happened in the third quarter. The cement producing company however made substantial progress to change a foreign exchange loss of N15.4 billion in the second quarter to a modest gain of N2 billion in the third.

The improvement still could not redress the impact on profit growth at the end of the third quarter. Net finance expenses that undermined profit growth at half year still rose from N15 billion at the end of June to nearly N20 billion in September 2018.

The effect on the bottom line is a sustained loss of momentum from a 29% profit advance in the first quarter to 3% in the second quarter and further to 2.6% in the third.

Sales revenue growth slowed down from 17% year-on-year at half year to 13.5% at the end of the third quarter. Sales volume growth however picked up slightly from 7.4% year-on-year in the second quarter to 7.6% in the third to 17.8 million tonnes. The company closed the third quarter with sales revenue of N685.29 billion.

The company closed the 2017 financial year with a 31% growth in sales revenue to N806 billion. With the slowdown in the third quarter, the full year sales revenue estimate for the company has moderated. Turnover is expected to be in the region of N920 billion for Dangote Cement for the 2018 operations, a mark down from the one trillion-naira mark initially forecast.

The company could not convert a good part of the revenue growth into profit during the review period. After tax profit edged up 2.6% year-on-year to N158.28 billion at the end of the third quarter operations. This is against the increase of 13.5% in turnover, indicating that costs grew well ahead of earnings during the period.

Three major cost lines accounted for the decline in profit capacity in the third quarter. The biggest impact came from tax expense, which grew by 35% to N89 billion at the end of September – more than two and half times the increase in turnover.

Selling/distribution expenses followed, rising by 20% to N97.15 billion and claimed a significantly increased share of sales revenue. Administrative cost equally grew ahead of sales revenue at about 17% to N38 billion.

Cost of sales remains the only cost line that afforded the company some cost saving. It remains moderated relative to sales and therefore permitted gross profit to grow ahead of sales revenue at 15.7% to about N398 billion. That raised gross profit margin slightly to 58% over the review period.

Finance income gained momentum in the third quarter after a sharp drop in the second quarter. It grew from N3.6 billion at the end of June to N10.62 billion at the end of September. That still represents a huge drop of nearly 61% year-on-year.

Finance expenses dropped less rapidly than income at 24.5% to over N30 billion, which raised net finance cost from N13 billion to N19.5 billion over the same period and from N15 billion at the end of the second quarter.

Net profit margin went down from 25.5% in the same period in 2017 to 23% at the end of the third quarter. The moderate growth in profit is expected to have continued in the final quarter. A full year profit of N209 billion is estimated for Dangote Cement for 2018, an improvement of 2.5% over the 2017 after tax profit figure of about N204 billion.

The company earned N9.25 per share at the end of September, improving from N9.01 per share in the same period in 2017. It posted N11.65 per share at the end of 2017 operations and paid a final cash dividend of N10.50 per share.


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