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Dangote Cement keeps shareholders happy with impressive dividend payout

By on April 24, 2014

Having recorded a revenue of N386.2 billion in 2013 and a profit after tax of N201billion, Dangote Cement Plc has recommended a record N119 billion dividend payout to shareholders, writes Goddy Egene
Operating in the Nigerian economy is difficult due to poor infrastructure. Operators in the economy, especially manufacturing firms, have high cost of energy, transportation, and bank charges to contend with.

These challenges have always affected the financial performance of most companies. In the 2013 financial year, for instance, some companies’ profit levels were depressed by the high cost of doing business. But some still ended the year with improved results. Dangote Cement Plc (DCP) is one of the companies that recorded impressive growth in its major performance indicators, the challenges notwithstanding.

DCP  posted  a revenue of N386.2 billion in 2013, showing an increase of  29.4 per cent from the  N298 billion in 2012. Profit before tax stood at N191 billion compared with N135 billion, while profit after tax rose to N201 billion due to a tax credit of N10 billion.

Corporate Profile
DCP was initially incorporated as Obajana Cement Plc in 1992 by the Kogi State Government, to operate the eponymous cement plant. But Dangote Industries Limited (DIL) bought out the state government in 2002, and started building the Obajana cement plant.

The plant was inaugurated in 2007 with capacity of five million tonnes per annum (tpa). However, the DCP’s current status took root in 2009 when it transferred its equity holding in the former Benue Cement Company Plc to Dangote Cement.

After DIL transferred its shares in BCC in 2009 to DCP, BCC was delisted while DCP listed on the exchange in October 2010 and has been highly instrumental to the significant growth the market has witnessed.

DCP is currently is a fully integrated cement company and has projects and operations in Nigeria and 14 other African countries. Its current total production capacity in Nigeria from its three existing cement plants in  Obajana(Kogi State), Ibese(Ogun State) and Gboko(Benue State).

DCP’s Board of Directors comprises eight members. Dangote is the chairman.  Mr. Devakumar Edwin is the Chief Executive Officer.Tim Surridge is an executive director. Other non-executive directors include: Sani Dangote; Adbu Dantata; Joseph Makoju; Olusegun Olusanya and Olakunle Alake, Emmanuel Ikazoboh.

The company’s vision is to become Africa’s  leading cement producer and a global force in cement, while its mission is to  help Nigeria and other African countries towards self-reliance and self- sufficiency in cement production, through strategically located cement manufacturing plants and cost-effective operations and distribution.

Also, part of its mission is to provide economic benefits to local communities by way of direct and indirect employment opportunities in all the countries in which we operate.  In addition, DCP wants to  build its position as a global force in cement production, delivering high-quality products that generate substantial value for shareholders.

Financial Performance
DCP ended 2013 financial year with a revenue of N386 billion, up from N298.45 billion in 2012. Cost of sales rose from N118.3 billion to N142.52 billion. Gross profit grew from N180 billion to N243.66 billion. Finance income stood at N8.60 billon, a jump from N2.41 billion in 2012, while financing charges was almost flat at N13.72 billion, compared to N13.26 billion in 2012. Profit after tax rose from N145 billion to N201 billion.

A further look at the company’s performance ratios showed improvement in 2013 above 2012 levels. For instance, gross margin improved from 60.36 per cent to 63.10 per cent in 2013. Cost of sales margin fell from 39.64 per cent to 36.9 per cent.

However, operating expenses margin rose from 12.75 per cent to 12.82 per cent. PBT margin also witnessed an improvement, rising 45.45 per cent to 49.40 per cent.  PAT margin recorded a higher growth, from 48.59 per cent to 52.10 per cent.

Return on assets, which shows how efficient the assets of the company were put to use, improved from 41.74 per cent to  42.15 per cent, while earnings per share was N11.81, up from N8.51 in 2012. Out of the N11.81, the directors recommended a dividend per share of N7, as against N3 the previous year. The dividend reflects pay-out ratio of 59 per cent.

Chief Executive’s Comments
Commenting on the results,  the Group Chief Executive, DCP, Mr.  Devakumar Edwin expressed satisfaction at the performance of the company and attributed the impressive run  to  strategies deployed  by the management which surpassed the  prevailing economic situation.

“Dangote Cement made excellent progress in 2013. As the Nigerian cement market grew by a strong 15.6 per cent we managed even better growth of 28.2 per cent with our revenues increasing by 29.4 per cent  to N386.2 billion.

“Our direct-delivery strategy is proving very popular with customers and I am pleased to report that direct-to-customer deliveries now account for more than half of our sales,” he said.

Edwin noted that   the company increased its margins despite continuing disruption to  its gas supply and believe that the gas distribution infrastructure will be more robust in 2014, enabling  DCP to  improve  its  margins even further.

He disclosed that the company is looking at ways to diversify its fuel supplies to mitigate the impact of any future disruption and reduce the cost of using alternative fuels to gas.

“Our financial strength has allowed us to increase our dividend by 133 per cent to N7.0 per share and the coming year will see our new factories opening across Africa as we begin to deliver on our promise to become Africa’s leading cement producer, generating strong and sustainable returns for our shareholders,” he added.

DCP, which is reputed to be  Africa’s leading cement producer, is a fully integrated quarry-to-customer producer with production capacity of 20.25 million tonnes in Nigeria with three in the country and plans to expand in 13 other African countries with new operations beginning to come on stream across the rest of Sub-Saharan Africa.  DCP plans to have around 60 million tonnes of production, grinding and import capacity in Sub-Saharan Africa by 2016.

Edwin stated that Dangote Cement would be investing several billion dollars to build manufacturing plants and import terminals across Africa. Current plans are  on for integrated or grinding plants in Cameroon, Ethiopia, Republic of Congo, Liberia, Senegal, South Africa, Tanzania, Kenya and Zambia, as well as Ivory Coast and Ghana, and import/packing facilities in Ghana and Sierra Leone.

Analysts’ Assessment
Meanwhile, analysts at FBN Capital Limited, said following DCP’s Q4 2013 results, they  have cut our EPS forecasts by 13 per cent on average over the 2014-15 period due to  lower utilisation rate forecasts, underpinned by a weaker outlook for gas supply and b the inclusion of income taxes driven by the expiration of the pioneer status on Obajana lines 1 and 2 and Gboko.

Despite the EPS cuts, our price target of N243.6 is only five  per cent below our previous target because we utilise a higher P/E multiple of15.3x (previous 14.6x) in our fair value derivation. We have retained our Neutral rating on the stock.
Looking at the four months performance, they said sales and PBT up 31 per cent  y/y and 34 per cent  y/y respectively.

They said: “DCP’s  Q4 sales of N97.2 billion which were up 31 per cent y/y more than offset a gross margin contraction of -411bps to 55.8 per cent  and led to PBT growth of 34 per cent y/y. However, the growth on the PAT line was much weaker at 12 per cent  y/y because a tax credit of N6 billion was 31 per cent lower than the credit that the company benefited from in Q4 2012.

On a sequential basis, sales were up  seven q/q. However, PBT and PAT declined by 11 per cent and 15 per cent q/q respectively. Q4 2013 PBT of N39 billion came in 23 per cent lower than the average PBT run-rate of N51 billion achieved over the  nine months 2013 period and is the lowest since Q4 2012.”

Analysing further, the FBN Capital analysts said the subdued growth in PAT was due to factors including one-off items in Senegal, gas supply issues at Obajana and year-end provisions.

“In contrast, DCP’s Nigerian unit volume grew strongly by 28 per cent y/y to 13.3 million metric tonnes (mmt) vs.16 per cent y/y to 21.1mmt for the Nigerian market. Sometime in February, DCP increased prices by 10 per cent to $186 per metric tonne from an average price of $170 to better reflect the quality of its cement – the 42.5 grade relative to the 32.5 grade being sold by rivals,” they said.

 

 

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One Comment

  1. Josiah Ilori

    April 24, 2014 at 8:55 pm

    This is a giant company whose success story will continue to encourage other Africans with resources to embark on industrialization of Africa South of the Sahara. I have always admire the aspirations, goals, and objectives of Alhaji Dangote. He had a modest beginning and with perseverance and unassuming demeanor he has made it as the African rich chest man. What I like most about Dangote is committed desire to industrialize Africa through high quality cement productions. So far, he has achieved this objective and I sincerely wish him success in all his objectives in life. My appeal to others with resources like Alhaji Dangote is to invest their resources in capacity building rather than laundering their illegal wealth overseas. Well done Dangote and his teams.