The 2020 financial year is one of a big rebound for Dangote Cement after profit plunged by nearly one-half last year to the lowest figure in three years. The closing profit of over N208 billion for the third quarter has already exceeded the cement company’s full-year profit of about N200 billion in 2019.
The new strength for the year is coming from an expansion in cement production capacity and increased sales volume – which is reinforced by significant cost saving from key expenditure lines. The company’s cement production and bagging capacity have gone up by 3 million tonnes this year to 48.55 million tonnes at the end of the third quarter.
Sales volume grew by 1.2 million tonnes to 19.2 million tonnes over the same period. With gains in both volume and selling price of products, sales revenue rose by 12 per cent year-on-year to over N761 billion at the end of the third quarter. This represents an addition of about N82 billion to sales revenue over the period.
The capacity expansion came along with economy of scale benefits that lowered costs generally relative to sales. Input cost grew at a slower pace of 9.5 per cent than the 12 per cent improvement in sales. At N317.5 billion, the cost of sales claimed a reduced proportion of sales revenue at the end of September 2020 compared to the same period last year.
The moderated input cost enabled the company to raise gross profit ahead of sales revenue at 14 per cent to N444 billion at the end of the third quarter. A major cost-saving also came from selling and distribution expenses, which declined by 2 per cent to N119 billion.
This means the company used a reduced cost to generate an increased naira of sales revenue over the nine months of the current financial year. This underlies the performance boost the company is experiencing this year.
Apart from the cost-saving from production and sales, the company’s administrative function also happened at a relatively lower cost than recorded last year. An increase of just 4 per cent to less than N40 billion in administrative cost also means paying less for the naira of revenue generated during the period.
The savings achieved from operating cost boosted operating profit – which grew by over 24 per cent year-on-year to roughly N288 billion at the end of September 2020. That is twice the 12 per cent increase in turnover, an addition of N57 billion to operating profit year-on-year.
A further boost in the company’s profit performance came from robust growth in finance income and a drop in finance expenses. The company raked in finance income of over N18 billion at the end of the third quarter, which is three times the corresponding figure it realised at the end of the third quarter of 2019.
At the same time, finance expenses dropped by 14 per cent year-on-year to N34 billion, cutting net finance expenses from about N34 billion to less than N16 billion over the review period. The cost-saving powered growth of 37.6 per cent in pre-tax profit to N272 billion at the end of the third quarter. This represents an increase of more than 74 billion in pre-tax profit.
The drop in the company’s finance expenses is despite increasing interest-bearing debts in the balance sheet so far this year. Its borrowings have grown from N368 billion at the end of 2019 to stand at N451 billion at the end of September 2020. The drop reflects the absence of foreign exchange loss so far this year, which accounted for 39 per cent of finance costs in the same period last year.
Dangote Cement closed the third quarter operations with an after-tax profit of N208.7 billion, up from N154 billion in the same period in 2019. The company is on a fast recovery this year after losing nearly half of the preceding year’s profit in 2019. The net profit margin that fell from 43.3 per cent in 2018 to 22.5 per cent in 2019, was looking up at 27.4 per cent at the end of the third quarter.
The company’s profit had dropped from a peak of over N390 billion in 2018 to N200.5 billion at the end of 2019. Despite the rapid recovery this year, the full-year profit expectation for 2020 isn’t likely to come anywhere close to the 2018 profit high.
The company earned N12.25 per share at the end of the third quarter, rising from N9.10 in the same period last year. It earned N11.79 per share at the end of 2019 and paid N16 per share to shareholders in cash dividend.
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