Dangote Cement Plc – Resilient Q1 2020 results amid early impacts of COVID-19

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Dangote Cement Plc grew revenue YoY by 4% in its Q1 2020 result. Gross profit rose YoY by 3% on account of faster growth in production cost. Operating profit increased YoY by 4% due to marginal savings in administrative expenses. However, profit before tax (PBT) grew double-digit by 12% owing to a YoY reduction in finance cost and gains from foreign exchange adjustment. But due to the surge in income tax, profit after tax (PAT) grew mildly by 1%. EPS for the period stood at N3.60k (Q1 2019: N3.54k).

Volume growth and higher pricing in Nigeria anchor group revenue growth

The group’s revenue grew YoY from N240.16bn to N249.18bn in Q1 2020 anchored by Nigeria’s performance. Income from Nigeria increased YoY by 6% from N169.89bn to N179.34bn, driven by both volume and price increase. Volume grew mildly by 1%, while the average realized prices rose by 5% from N42,567 per metric ton (MT) to N44,633/MT in Q1 2020. Overall, revenue from Nigeria accounted for 72% of the group’s revenue in Q1 2020.

On Pan Africa front, aggregate revenue declined YoY by 1% from N70.27bn to N69.85bn in Q1 2020 on account of lower volumes. Volume decreased YoY by 3% from 2.35MT to 2.28MT in Q1 2020. The volume decline was due to technical issues in Tanzania, as well as lockdown in South Africa at the end of March. Though the average realised prices for the period increased by 2% from N29,941/MT to N30,634/MT in Q1 2020, it was not enough to offset the decline in output.

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Consequently, the group’s volume declined by 60bps from 6.34MT to 6.30MT in Q1 2020 but owing to the higher realised prices in Nigeria, the group’s revenue advanced by 4%.

Higher production cost compresses gross profit margin

Cost of sales rose YoY by 5% from N99.48bn to N104.33bn in Q1 2020 driven by personnel cost and other production expenses. Salaries and related staff costs increased by 13% from N7.89bn to N8.94bn in Q1 2020. Also, other production costs grew from N1.45bn to N4.04bn in Q1 2020. As a result, gross profit increased by 3% from N140.68bn to N144.86bn in Q1 2020 and gross profit margin weakened by 50bps to 58% from 59% in Q1 2019.

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Operating expense grew, but other income supports operating income

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The group’s operating expense increased YoY by 3% from N52.83bn to N54.20bn in Q1 2020, driven by selling and distribution expenses. Selling and distribution expenses grew YoY from N40.70bn to N41.36bn due to a 96% spike in advertisement and promotion cost. Though administrative cost decreased by 3% for the period, the 4% growth in selling and
distribution expenses bloated operating costs. Notwithstanding, operating income increased by 4% from N88.38bn to N91.78bn in Q1 2020 due to a 109% surge in other revenue.

FX gains amid lower finance cost lift PBT, but gains eroded by a higher effective tax rate

PBT grew double-digit by 12% from N78.96bn to N88.06bn in Q1 2020 on the back of foreign exchange adjustment by the CBN and lower finance cost for the period. The group recorded an FX gains of N3.75bn in Q1 2020. Also, finance cost decreased by 23% to N9.01bn in Q1 2020 due to the lower yield environment and reduction in the group’s borrowings. Nevertheless, PAT grew mildly by 1% to N60.59bn in Q1 2020 (Q1 2019: N60.25bn) due to a higher effective tax of 31% (Q1 2019: 24%).

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We note the group’s resilience in growing revenue in Q1 2020 despite the early impact of the coronavirus (COVID-19) pandemic. Lockdown in South Africa, Ghana, Congo and in Nigeria began late March. Thus, sales in Q1 2020 were least impacted. Even at that, sales volume declined, but for higher pricing in Nigeria, revenue grew. Looking forward, however, we expect to see the full impact of the pandemic from Q2 2020 result.

Historically, though, Q2 and Q3 sales are usually the weakest due to raining season. We expect a profound decline in these periods given the pandemic. That said, we expect the group to leverage its market leadership status, advertisement, and promotional activities to cushion the impact.

We have a revised EPS of N12.16k informed by lower sales and a higher effective tax rate. Given the current market price of N137.30k, the stock is trading at 1% discount to our fair value estimate of N138.71k. Thus, we recommend a HOLD.

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Dangote Cement Plc - Resilient Q1 2020 results amid early impacts of COVID-19 - Brand SpurDangote Cement Plc - Resilient Q1 2020 results amid early impacts of COVID-19 - Brand Spur

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Dangote Cement Plc - Resilient Q1 2020 results amid early impacts of COVID-19 - Brand SpurDangote Cement Plc - Resilient Q1 2020 results amid early impacts of COVID-19 - Brand Spur

Latest News

Asia Pacific Rayon Raises US$300m from National and International Affiliated Banks to Expand Production Capacity

  • Continued capital expenditure aims to boost production and support the recovery of Indonesian economy
  • Loan agreements aligned with Indonesian Government's strategy to drive investment growth in 2021
  • APR is a member of the RGE group of companies
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JAKARTA, INDONESIA - Media OutReach - 12 April 2021 - Asia Pacific Rayon (APR), the largest integrated rayon fiber producer in Indonesia, today announced that it has secured a syndicated loan facility of Rp 4.5 trillion (US$300 million) with national and international affiliated banks. The funding will be used to support continued capital investment in the company's production facilities at Pangkalan Kerinci, Riau Province, Sumatra.

APR is vertically integrated through its supply chain, from renewable fiber plantations to high-value textile development. It commenced operations in 2019 and was formally inaugurated by President Jokowi Widodo in February 2020. APR plans to increase its production capacity over the coming year to capture the strong growth potential of viscose staple fiber (VSF), strengthening its market position in Indonesia and in export markets across the region. APR is a member of the RGE group of companies. Founded by Sukanto Tanoto, RGE manages a group of resource-based manufacturing companies with global operations.

The syndicated loan participating banks are PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Central Asia Tbk, PT Bank Pan Indonesia Tbk, PT Bank Pembangunan Daerah Jawa Barat, PT Bank Woori Saudara Indonesia 1906 Tbk and PT Bank KEB Hana Indonesia

The joint mandated lead arrangers and bookrunners for the syndicated loan are PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Central Asia Tbk, and PT BANK Pan Indonesia Tbk.

Basrie Kamba, Director, Asia Pacific Rayon, said: "This funding will be used to support continued investment in our operations in Kerinci. Rayon fiber, or viscose, is a textile raw material derived from sustainably managed plantations. As rayon is both renewable and biodegradable, it supports the trend towards sustainable fashion in Indonesia and in other markets around the world."

APR's planned expansion is aligned with the Indonesian Government's strategy to increase investment and boost employment to support the recovery of the country's economy and address the continued impact of the COVID-19 pandemic. Following the passing into law of the Omnibus Bill in October last year to streamline investment and stimulate job creation, President Widodo said last month that investment would be the key factor in achieving 5% economic growth in 2021.

"This loan facility and our continued investment in our operations are evidence of the growth potential of the viscose rayon sector in Indonesia and around the world. We are committed to supporting the Indonesian Government's efforts to improve the investment climate in export-oriented manufacturing industries, and its efforts to create upstream jobs in plantations and the processing of raw materials, and downstream opportunities in textile factories and related businesses," said Basrie.

Hari Setiawan, Executive Vice President of PT Bank Rakyat Indonesia (Persero) Tbk said : "As Representative of JMLAB and all lenders, I hope this collaboration will be useful to support the growth and development of PT Asia Pacific Rayon in increasing production and operations and also supporting the recovery of Indonesia's export growth."

"Support from BCA and other Banks reflect our confidence in APR, and as our contribution to promote a sustainable and environment friendly industry. We hope this cooperation will tighten our relationship as well," said Susiana Santoso, Executive Vice President of PT Bank Central Asia Tbk.


About Asia Pacific Rayon

Asia Pacific Rayon is the first fully integrated viscose rayon producer in Asia. Located in Pangkalan Kerinci, Riau, the company uses the latest production technology to produce high-quality rayon to meet textile needs. APR is committed to becoming a leading viscose rayon producer with the principles of sustainability, transparency and operational efficiency, serves the interests of the community and the country, and provides value to customers. APR is part of the RGE (Royal Golden Eagle) group of resource-based manufacturing companies. Sustainability is fundamental to APR. The APR Sustainability Policy, updated in September 2020, include additional commitments on pulp sourcing and clean manufacturing.


About RGE

RGE Pte Ltd manages a group of resource-based manufacturing companies with global operations. Our work ranges from the upstream, comprising sustainable resource development and harvesting, to downstream, where our companies create diverse value-added products for the global market. Our commitment to sustainable development underpins our operations, as we strive towards what is good for the community, good for the country, good for climate, good for customer, and good for company. RGE was founded in 1973. The assets held by RGE companies today exceed US$20 billion. With more than 60,000 employees, we have operations in Indonesia, China, Brazil, Spain and Canada and continue to expand to engage newer markets and communities. www.rgei.com

Dangote Cement Plc - Resilient Q1 2020 results amid early impacts of COVID-19 - Brand Spur
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