Dangote Cement Plc is on track to surpass its 2022 revenue and earnings in 2023 despite macroeconomic headwinds induced by Naira devaluation, removal of subsidies, etc.
However, the decline in sales volume and low production volume compared to production capacity should be a thing of concern.
The company’s 9M 2023 financial report reveals significant growth, with reported revenue reaching N1.515 trillion. This impressive figure accounts for about 94% of the company’s full-year revenue in 2022.
Additionally, the profit after tax for the same period stood at N277.548 billion. This PAT represents 72.6% of the full-year PAT for 2022, or N104.763 billion less.
With the average trailing twelve months revenue and PAT at N488.917 billion and N110.169 billion, respectively, Dangote Cement appears positioned to surpass its 2022 performance.
While Dangote Cement’s 9M 2023 financial results are impressive, it is important to recognize that these achievements have come in the face of challenging macroeconomic conditions.
The devaluation of the Naira from ₦461.1/$ at the end of 2022 to ₦776.8/$ at the end of September 2023, coupled with the removal of the petrol subsidy, inflation, etc. exerted significant pressure on companies’ revenue, operating costs and bottom line.
In the case of Dangote Cement, sales volume from its Nigerian operations declined by 10.9% to 12 million metric tons in 9M 2023 from 13.5 million metric tons in the corresponding period of 2022.
Domestic sales volume alone amounted to 11.5 million metric tons, marking a 10.3% YoY decrease. This decline contributed to the 2.4% reduction in the group’s total sales volume, which reached 20.288 million metric tons during the same period.
Despite the 28.7% year-on-year growth in group revenue, Nigeria’s portion of the overall group revenue diminished, falling to 61.61% from 75.66% in 9M 2022.
Additionally, while the Group’s EBITDA grew by 28.5% to N662.762 billion with a margin of 43.8%, the pre-tax profit margin declined by 6.31%, underscoring the influence of Naira devaluation and other prevailing macroeconomic challenges.
For example, the company recorded N99.016 billion in foreign exchange losses and gross interest expenses of N92.166 billion.
No doubt, the Nigerian market remains a cornerstone of the group’s operations. Dangote Cement’s dominant position, where it controls over 60% of the cement market in Nigeria, underscores its significance in the country’s construction and infrastructure landscape. The fact that the company’s 9M 2023 revenue accounts for about 71% of the combined revenue of three major cement producers in Nigeria highlights its substantial market presence.
Given this market leadership, a decrease in sales volume within Nigeria, especially when sales volume declines but revenue increases, is undoubtedly a matter of concern.
While Dangote attributed the revenue growth to a strong pan-Africa performance, which resulted in a remarkable revenue and EBITDA growth of 103.9% and 255.4%, respectively, it’s essential to consider that besides these factors and the influence of macroeconomic headwinds, the decline could also be linked to high-margin pricing strategies.
This observation raises questions about the dynamics of pricing and profitability within the Nigerian market. It suggests that Dangote Cement might be leveraging its market position, including its near-monopoly status, product inelastic demand, and other factors, to command higher prices for its products.
While this strategy might contribute to revenue growth, it also underscores the need for a balanced approach that considers market dynamics, customer affordability, and competition. Striking the right balance is crucial for both the company’s financial performance and its role in supporting vital infrastructure and construction projects in Nigeria.
In Nigeria, the cement industry plays a pivotal role as one of the largest contributors to the country’s economy, with an estimated market size of over 40 million tons per year.
Dangote Cement, a major player in this industry, operates with a robust production capacity, boasting 52 million Mta across its plants in 10 countries, with Nigeria alone accounting for a significant 35.3 million Mta.
However, according to the notes accompanying the 9M 2023 financials, the production volume for the 9-month period stood at 19.825 million tons compared to the company’s production and bagging capacity of 52 million tons.
Alongside other strategic measures such as market expansion and product diversification, the deployment of pricing strategies can serve as a valuable tool to boost demand and increase sales volume.
Dangote Cement’s key competitor, the second-largest producer, BUA Cement, took a noteworthy step in October by announcing a reduction of their ex-factory price to N3,500 per bag. This move aims to ensure that Nigerians can reap the advantages of the price reduction.
While this is a positive step, its impact might be somewhat limited by the fact that Dangote Cement holds a more substantial market share. To maximize the effect of such measures, it might be beneficial for Dangote Cement to complement its competitor’s efforts.
Nigeria has a comparative advantage, primarily driven by its abundant raw materials. In its 9M 2023 results presentation, Dangote Cement emphasized this fact; highlighting Nigeria’s relative abundance of high-quality limestone, concentrated in key southern regions of the country, and located near both demand centers and export facilities.
This provides Dangote Cement with a robust foundation for achieving cost-effective production while reducing high margins.
Dangote Cement is a strong brand and has demonstrated resilience and sustained growth despite prevailing economic challenges, as underscored by its 9-month financial results.
The company’s performance in recent years has been consistently outstanding, and the data released for the first three quarters of 2023 further solidifies its prominence.
Dangote Cement has maintained a strong track record of generating returns from both its equity and assets, with a combined measure that includes Return on Equity and Return on Assets standing at 32.13%.
Moreover, over the past 12 years, Dangote Cement has distributed over $6.7 billion in dividends to its shareholders, making its stock a compelling investment opportunity.
