DANGCEM says rivalry, pricing pressure affect earnings, awaits consents for share buyback

Dangote Cement Plc. (DANGCEM) has stated that pricing pressure in Nigeria, increased competition and other factors affected the company earnings in 2019.

Traded at N170 to a share on Friday, DANGCEM market capitalisation settled at N2.896 trillion on 17,040,507,405 share outstanding. Out of this, Aliko Dangote, Chairman Dangote group owns

The cement company’s audited statement for financial year 2019 shows that the group revenue dropped off due to sales volume reduction.

Dangote Cement revenue declined marginally by 1.1% to N891.7 billion in 2019. Also, group earnings before interest, depreciation and amortisation (EBITDA) went down 9.2% to N395.4 billion when compared to the previous year 2018.

“Revenue sloped down owing to flat volumes and the aggressive discounting by the competition that impacted the markets to which we have to respond”, the management said.

Speaking at the earnings call with analysts, the retired Group Managing Director and Chief Executive Office, Joseph Makoju said our financial performance by the end of 2019 was affected by several factors, including intense competition across key markets.

The management noted that Nigeria’s macro environment remains subdued in 2019, followed with weak consumer demand.

Makoju said this situation was further worsened by the border closure that we had in almost 2019, the management stated.

“For majority part of the 2019, we didn’t have the export volumes which we were having in the previous year”, he added.

Analysts attribute the weak demand for Dangote Cement to increase capacity brought forward by BUA Cement and Lafarge Africa’s activities –the cement company’s major rivals.

Speaking further, Makoju said: “We had pricing pressure in Nigeria and had some challenges in Ethiopia, a very crucial market for Pan-Africa.

“On the operational side, group volumes were up marginally 0.6% to 23.7 metric tonnes during the year.

“We saw a ramp-up of volumes in Pan-Africa, most notably in Tanzania where volumes, including clinker sales, increased by 94% year-on-year. So Tanzania was very good for future, so the improvement in Pan-Africa”.

The management said in Nigeria, it successful promotion, Bag of Goodies launched in July helped to drive strong growth in volumes in the third quarter.

“Nationwide, the volumes remained relatively flat at 14.1 million tonnes in spite of a new capacity from BUA, one of our competitors.

“We are optimistic about the cement market in 2020. We expect to see some increase in infrastructure spending.

The management did raise prices by N159 in April, 2019. The impact of that is there from about mid-May because of this expansion of free sales at the old price.

“If you remember, in 2018, we recorded a tax credit, a special tax credit of N133.7 billion from prior year Pioneer taxes.

“That helped refurbish our 2018 earnings per share to N 22.83. However, excluding this one-off tax credit, our EPS is down 21% to N11.7 per share”, the retired GMD said.

Pan-African market review

Dangote cement said Pan-Africa volumes were up 1.9%, due to good performance noticeably in Tanzania and Senegal.

Speaking further, Makoju said in 2019, Dangote Cement plant in Congo remains challenged in terms of positive contribution at EBITDA level.

The management said Dangote Cement average realized price came in at N43,103 a tonne for the fourth quarter and this in fact actually confirms the ability of the market to continue to offset price increases.

On costs, which was $33.6 per tonne in the full year 2019. Kiln fuel and power plant cost which both represent 44% of our total cash cost in 2018 reduced to 39% in 2019, he said.

Pan-Africa revenues of N282.7 billion were 0.2% lower than N283 billion of 2018, while EBITDA was down 2.5% to N47.9 billion.

However, sales volumes were up 1.9% up to 9.6 billion tonnes in 2019. Tanzania volumes were up by 94% from 2018.

A ramp-up in Sierra Leone have increased volumes there by over 116%, too small but still very satisfied with the performance there.

In addition, Senegal is now running at more than 100% rated capacity due to use of a higher proportion of our 42.5-grade cement.

However, Ethiopia’s volumes were down, going through some technical challenges, and we also had a period of power rationing.

The group enjoyed extremely good market share in Cameroon, with 39% market share.

There was still a decrease in volume against the security challenges in the Northwest and Southwest region of the country as well as the pressure from a new competitor that entered the market.

In Congo, sales were up 11.5%. The market in Congo, as you know, is still very small, and we have been looking at growing exports to neighboring countries.

In Ethiopia, sales in the full year ’19, as I told you, fell by 4% affected by the shortage of raw material due to some challenges with the quarry at this time.

Ghana produce was down 34%, owing to our deliberate strategic intend to play in only profitable regions of the country.

As such, Ghana contributed profitability at EBITDA level which is an improvement from the previous year.

“Our sale output in Senegal was more than 100% of the plant’s rated capacity.

“We sold more than 1.4 million tonnes of cement in full year 2019 and this is up 8.4% compared to the previous year.

“Our market share improved to 23% from 19% in 2018, and we have continued our exports to Mali”, the GMD added.

The management said the cement market in Sierra Leone continues also to improve.

South Africa’s economy remains subdued and the cement market still relatively depressed, owing to lack of investment and the lack of competitive markets where we still see some import coming in and distorting the market.

“Our sales there were down 9% year-on-year”, the management remarked.

Tanzania’s GDP growth remains strong, and we are witnessing an increase in infrastructure spending. Our sales volume were up 94% to 1.2 million tonnes.

We expect our cash cost to further reduce once our Mtwara gas-powered plant is completed later this year.

Market demand in Zambia is expected to grow due to increase there in spending on infrastructure projects.

Dangote in Zambia increased volumes by 5.6% to 975,000 tonnes for the year. Management said the company has implemented the use of sawdust as an alternative to coal in its on-site power station to help reduce cost.

“We still enter 2020 feeling very financially strong, and we continue to position ourselves as Africa’s leading cement company, ready to take advantage of the growth in Africa when economic conditions recover in our key markets.

“So we remain positive, and we continue to do our best against competition and keep our share of the market, the management held.

Analysts however queried where the cash to pay dividend and estimated N280 billion for share buyback programme would come from.

The management said regarding the buyback, technically, we are still in the middle of the process of securing the regulatory authorizations.

So once we secure these authorizations, we will look at deploying this program over time. So it will not be a one-off movement, but something we will deploy over the coming 12 months.

Arvind Pathak, Deputy Group MD, COO responding to the query on the Senegal said we’re operating at full capacity.

Our kiln capacity is almost around 1.5 million tonnes. With that, we can get a grinding capacity of almost 2 million tonnes, Pathak said.

“In Ethiopia, we are almost at clinkering capacity of 1.9 million tonnes, which gives us a cement grinding capacity of 3 million tonnes.

“Pricing challenges, in most of the countries, we could see some improvement in the pricing in the local currency, except for few selected markets that were mainly in Zambia and in South Africa, to an extent also in Nigeria”, he added.

On sustainability of price increases sustainable, our reading is that the market is strong. There’s a lot of untapped demand in Nigeria, the management said.

“When you compare the capital consumption in Nigeria with some of the neighboring countries, sure there is a lot of room. So we’re going to be driving for, reaching out into the untapped areas, the demand will increase.

“We are confident too that as the markets also firms up, we continue to have opportunities to gradually adjust our prices to keep up our margins”, Makoju stated.

The firm said going forward, prospects are strong that the market will be able to take moderate price increases over a period of time.

“Volume for BUA is not new. It’s already stabilized. It’s already been in the market for over a year now.

“So, there’s really no new incremental volume coming in, in the last 1 year. The market can pretty well decide now between these 3 big players”, he added.

The management recognised that the government spending has slowed. The company said what we find is the private sector consumption is predictably stable and gradually increasing.

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Makoju said: “lots of housing construction privately funded and we’re beginning to see some more Public-Private Partnership projects where private sector are funding infrastructure projects.

“The good news is, adding to this year, we’re beginning to see government spending on infrastructure improving…government consumption of cement this year definitely will be a big improvement on last year.

“If you take the general Nigeria market altogether, 2020 is looking good compared to 2019 as we expect to see volumes increase”, Makoju said.

DANGCEM says rivalry, pricing pressure affect earnings, awaits consents for share buyback