Dangote Cement sustains impressive growth trajectory amid headwinds

Leading cement producer, Dangote Cement Plc, is navigating macroeconomic headwinds to remain on the right track to its growth aspirations both in assets and profitability.

Riding on what analysts attribute to be improved efficiency and a diversified business model, the multinational cement manufacturer has defied the storms of elevated inflation, high borrowing costs, and a further weakening of the naira to report an 85 percent rise in revenue in the first six months of the year 2024.

According to the company’s latest unaudited financial result, its revenue increased to N1.76 trillion in the first half of 2024 from N950 billion in the same period of last year.

Although data from the Nigeria Exchange Ltd (NGX) on Friday, July 26, 2024, showed that a sizeable number of investors sold off their Dangote Cement shares, the company however statistically remains Nigeria’s most valuable on The Exchange at the moment.

The revenue growth significantly impacted the fortunes of the cement giant, with its profit increasing by 6.2 percent to N189 billion within the review period. This marks the highest profit in at least four years, up from N178 billion in the same period last year.

Business Hallmark’s comparative analysis of the results of Dangote Cement Plc, BUA Cement Plc and Lafarge Africa Plc, for the period showed that Dangote emerged a more profitable cement manufacturing company, generating N292.96 billion profit before tax (PBT) in H1 2024, about 22 per cent increase from N239.86billiion in H1 2023.

Given the current inflationary environment and persistent naira depreciation which have negatively impacted operating costs, the company’s operating expenses rose to N403.1 billion from N198.6 billion in the same period of last year.

The cement manufacturer also saw its net foreign exchange loss widen to 77.2 percent in the first half, the highest in at least nine years, to N201.3 billion in the first half of 2024 from N113.63 billion a year earlier.

In June last year, the Central Bank of Nigeria (CBN) merged the segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model. The development weakened the naira from 463.38/$ to N1,603.80/$1 as of Thursday, June 25. At the parallel market, the naira depreciated to N1,620/$1 from 762/$.

The increase in petrol prices following petroleum subsidy removal and foreign exchange costs contributed to the surge in the country’s headline inflation rate, which rose to 34.19 percent in June, the highest level since March 1996, according to the National Bureau of Statistics (NBS).

To cushion the inflation rate, the apex bank started its monetary policy tightening cycle in May 2022, with its benchmark interest rate rising from 11.5 percent to 26.75 percent in July 2024. This has seen the cost of borrowing more than double, with negative implications for profitability in the real sector.

Further analysis of the company’s statement disclosed that Its net finance cost increased by 109.6 percent to N307.72 billion from N146.84 billion in H1 2023.

“We attribute the topline performance to a 79.7 percent increase in cement prices despite a 3.6 percent decline in group volumes to 6.89 million tonnes in the second quarter. Nevertheless, sales volumes in H1 expanded by 3.8 percent to 13.93 million tonnes, supported by the low base from H1 last year,” analysts at Cordros Securities said in a recent note.

The Chief Executive Officer, Dangote Cement, Arvind Pathak in a statement said: “We effectively navigated macroeconomic headwinds to deliver positive results in the first half of the year. Group volumes were up 3.8per cent, with our Nigeria operations achieving double-digit volume growth of 10.9per cent.

“This growth was driven by improved efficiency across our operations and supported by increased market activity levels compared to the election year and cash crunch in 2023. Despite the challenges of elevated inflation, high borrowing cost and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience. This was due to our rigorous focus on cost minimisation and our diversified business model.

Looking ahead, he added, “we remain bullish about the growth prospect of the African region, evident in our increased capital investments. We continue to prioritise innovation, cleaner energy transition, and cost leadership towards achieving our vision of transforming Africa and building a sustainable future.”