Nigerian Billionaire and Africa’s richest man Aliko Dangote has a lot of admirers and he inspires many in the corporate world. However, he also has his own critics some of whom either do not like his aggressive way of competing with foes or his often cozy relationship with politicians who are in power.
The latest results released by one of his biggest investments, Dangote Cement, might further exacerbate their feelings towards Africa’s richest man and his Cement making behemoth.
In the latest result released by the company on Tuesday, it reported a pretax profit of N108 billion in the first quarter of 2018 compared to N77 billion reported a year earlier. Revenues also rose from N208 billion in the same period in the first quarter of 2017 to N242 billion in the first quarter of 2018. The margin between the profit and revenue is a staggering 44.6%.
By now you should be used to Dangote Cement’s legendary profit margins, so this is not one of those metrics that could get critics riled up. Instead, the results throw up some interesting data points.
The reason Dangote Cement was able to grow its revenues to N242 billion was due to a major spike its earnings from its Nigerian Entity. Dangote Cement makes a ton of cash from its Nigerian entity and this quarter it made a staggering N173.9 billion, 14% higher than the same period last year. Ebitda margin alone was an astonishing N115.3 billion.
It was able to achieve this by first increasing Cement prices and increasing its volumes. This quarter alone, Dangote Cement increased Cement prices by +8% YoY to N43,816/tonne. This was also completed by a surge in volumes of Cement sold which rose +5.3% YoY to 4.0MMT.
Critics of Dangote Cement have often complained bitterly about the company’s knack for raising prices when they believe prices should indeed be dropping. With this price increase, it was able to sustain its higher profit margins, giving it enough buffer to continue with its expansion plans abroad. Some analysts actually think Nigerians are subsidizing Cement prices in other countries as Dangote pushes on to fight competition on all fronts.
A second issue that critics might find a little disturbing is that the company realized N12 billion from foreign exchange gain. This was 305% higher than it did a year earlier. According to the company, Foreign exchange gains arose as a result of the translation of foreign currencies denominated balances at the end of the period
across the group.
The third item is a bit of a contradiction as his critics should have a bit of respite. Dangote Cement is also often criticized for not paying enough taxes, however, we have observed a spike in tax charges. In its latest result, the company incurs a tax charge of N36.3 billion compared to N21.4 billion a year earlier. The company explained why it incurred an additional N15 billion compared to the year earlier.
It claims that it incurred higher taxes because of a change in the way it classified the profits earned from the Ibese 3&4 and Obajana line 4 plants which it has assumed as qualified for a pioneer status incentive. This drove effective tax rate to 33.5% compared to 27.7%.
While this realisation has resulted in higher taxed this year, his critics wonder why if there has been an opportunity cost lost from not recognizing these higher taxes earlier.
