The management of Dangote Cement (DANGCEM) has published unaudited financials for first quarter of 2022 through the Nigerian Exchange to the investing community. The report showed Profit After Tax (PAT) growth of 18.0% year on year to NGN105.85 billion while EPS grew by 17.0% year on year to N6.18per share. The growth in EPS according to the report was driven mainly by the strong topline growth up by 24.2% year on year, which proved sufficient in offsetting the spikes in cost of sales ex-depreciation up by 23.3% year on year while OPEX ex-depreciation up by 39.4% year on year.
The report showed group’s aggregate revenue up by 24.2% year on year to NGN413.18 billion in first quarter of 2022, driven mainly by expansion in Nigeria operations up by34.3% year on year as revenue from Pan African operations declined by 1.8% year on year faltered. The revenue growth in Nigeria was primarily driven by the increase in price per tonne by 36.4% year on year as volumes decline by 1.5% year on year to 4.83MMT declined marginally. Management noted that the decline in Nigerian sales volumes was due to the high base of first quarter 2021, further exacerbated by energy supply disruptions which impacted production in first quarter of 2022. On Pan African Operations, we understand that the decline in volumes decline by 7.6% year on year to 2.40MMT was occasioned by global supply chain disruptions and increasing commodity prices, shut down of its Congo plant for over two months and extended plant maintenance in Senegal. Overall, the group’s sales volume declined by 3.6% year on year to 7.25MMT in first quarter 2022.
while Group EBITDA grew by 18.4% year on year in first quarter 2022, as the growth in revenue up by 24.2% year on year overshadowed the increases in the cost of sales ex-depreciation up by 23.3% year on year and operating expenses ex-depreciation growth by 39.4% year on year. However, the Group EBITDA margin declined by 2.5ppts to 51.0% in first quarter 2022. We attribute the weakness in margins to cost pressures in Nigerian Operations, evident by the faster increase in cash cost/tonne up by 49.9% year on year compared to the price per tonne up by 36.4% year on year. Management revealed that costs were pressured by the surge in commodity prices (particularly gas), which led to a spike in energy cost/tonne in Nigerian Operations grew by 46.7% year on year. In addition, margins were impacted by the deterioration in OPEX/sales ratio of 17.2% in first quarter 2022 compare with 15.3% in first quarter of 2021.
Other indicators are: Net finance cost grew by 22.0% year on year to NGN26.41 billion in first quarter of 2022, following the surge in finance income up by 183.4% year on year to NGN10.36 billion, which outweighed the increase in finance cost grew by 45.3% year on year to NGN36.76 billion. The finance cost growth reflects the impact of higher interest expenses on debt grew by 27.6% year on year to NGN18.35 billion and FX loss up by 71.6% year on year to NGN18.22 billion. On the other hand, we imagine the growth in finance income was supported by increased deposit rates and growth in cash and cash equivalents growth by 47.6% year on year to NGN218.30 billion.
Overall, the company grew its PBT by 20.2% year on year in the period under review. There were significant increase in tax charge which up by 25.1% year on year in first of 2022 while PAT grew slower by 18.0% year on year in the first quarter of 2022.
Comment: Analysts at Cordros Research said they are impressed that DANGCEM was still able to deliver growth in revenue and bottom line in the face of the challenges that constrained operations in its home market and across Pan African Operations. According to them we expect margins to remain under pressure in the near term, given supply chain disruptions, as well as elevated gas and diesel costs.
However, we remain cautiously optimistic that the increase in cement prices in its home market will continue to limit the magnitude of the decline in margins, given rising cost pressures. We would engage with management to gain insights on progress made with the usage of alternative fuels and the extent to which one-off challenges relating to the shutdown of the Congo plant and maintenance activities have been addressed.