Dangote Cement's growth slowed in 2022 as its net earnings slipped by -17.16% from N405.48bn in 9M 2021 to N335.9bn in 9M 2022. The cement producer experienced declining sales and production volume due to inflationary pressure, energy supply disruption, and plant maintenance in specific regions. Nonetheless, the group recorded an +15.17% appreciation in revenue, primarily driven by higher prices of products, an improvement in liquidity, and asset turnover ratio.   

During a recent Investor's conference call, the group attributed the fall in sales and production volume to the global supply chain disruption that affected imports to specific locations and scarcity of gas despite the Okpella plant commissioned in August. Regarding production, Congo and Senegal are expected to grow at the highest rate with the completion of the plant maintenance, which should alleviate the group's overall performance in Q4 2022. 

The group had a shares buyback at the beginning of the year, bringing back 0.74% of its issued and fully paid-up ordinary shares. Following tranches 1 and 2, DCP has repurchased a total of 0.98% of its outstanding shares. According to the Manager, the group recently approved a new share buyback programme subject to a re-approval and shareholders' approval at AGM, indicating a future decline in equity in subsequent quarters. 

Key Highlights

• Dangote Cement's Revenue grew by +15.2% (Y-o-Y) from N1.02trn in 9M 2021 to N1.18bn in 2022
• Profit before tax fell by -17.16% (Y-o-Y) to N335.9bn in 9M 2022 from N405.5bn in 9M 2021
• Finance income rose by +108.2% (Y-o-Y) in 9M 2022 relative to 2021
• Profit after tax dipped by -23.4% (Y-o-Y) to N213.1bn in 9M 2022 from N278.3bn in 2021
• Earnings per share fell from N16.23K to N12.41K by -23.5% (Y-o-Y) in 9M 2022
• Asset turnover increased from 0.45 in 9M 2021 to 0.50 in 9M 2022
• Total assets rose by +3.7% (Y-o-Y) from N2.23trn to N2.33trn in 9M 2022
• Total equity dropped  by -7.4% (Y-o-Y) between 9M 2021 and 9M 2022
• Nigeria's 9M sales volume fell by -4.7%, while Pan-Africa volume is down by -9.7% 

Dangote Cement's Share Price as of September 30, 2022

Dangote Cement's year-to-date (YTD)  share price movement imitated a staircase with regular and irregular stair landings. The landings stayed mostly flat with mild irregularities at different periods. The group's share price saw major dips in the first 9M 2022, firstly on June 20, 2022, to N249.30k per share and again on August 9 at N241.00k, falling from the resistance price of N300 in May. Analysts observed that the Obajana closure in mid-October by the Kogi State government had minimal impact on the group's share price during the period, as it remained flat at N245k (see chart below). 

Chart 1:

Revenue 

The Limestone Crusher saw an improvement in revenue by +15.17%, increasing from N1.02trn in 9M 2021 to N1.18trn in 2022. The adjustment in price to offset rising costs supported the growth in revenue despite the decline in sales and production volume. Geographically, Nigeria contributed the most to the growth, with a +22.1% rise in revenue to N890.7bn. In comparison, Pan-Africa had a -3.1% decline in revenue to N288.5bn due to low sales volume and plant maintenance in Congo and Senegal (see chart 2 below). 

Chart 2:

Profitability

Similar to the H1 2022 result, Dangote cement's profit before tax plummeted in the 9M 2022 from N405.5bn in 9M 2021 to N335.90bn. The significant decline justifies the severe impact of inflation, gas disruption, plant maintenance, and supply chain challenges on the group's earnings. According to the figures, other income slumped by -56.8%, finance costs spiked by +590% as the foreign exchange loss rose exponentially, cost of sales rose by +19.9%, sales volume declined by -6.16%, and production volume dropped by -3.32%. The group's profit after tax dipped by -23% despite declining income tax expense (see chart 3 below). 

Chart 3:

Acid Test Ratio 

With the exclusion of inventories, the group's financial capacity improved in 9M 2022 as the ratio rose to 0.64 from 0.56 in the preceding period. The increase shows a better ability to cover its obligations than in previous periods (see chart 4 below).   

Chart 4:   

Current Ratio

The current ratio, which measures the group's ability to cover its current liabilities with current assets, moved up to 0.87 in 9M 2022, close to the optimal value of 1. The growth in current assets from N736.5bn in 9M 2021 to N905.9bn in 9M 2022 backed up the increase in the ratio despite the high short-term liabilities (see chart 5 below). 

Chart 5:

Leverage Ratio

For 9M 2022, Dangote Cement financed its operations mainly from debt through the bond issuance in April, where it raised N116bn. The group's total borrowings increased from N543.6bn in 9M 2021 to N709.8bn in 9M 2022, while equity fell by -7.4% to N838.2bn with the share buyback programme in January. The debt-to-equity ratio of the cement producer rose significantly to 0.87 in 9M 2022 from 0.60 in the preceding period (see chart 6 below). 

Chart 6:

Asset Turnover

The group's asset usage improved in 9M 2022 to 0.50 from 0.45 in 9M 2021. The +3.7% and +15.2% rise in total assets and revenue supported the growth, indicating that for every N1 of assets employed, 0.50k was generated (see chart 7 below).     

Chart 7:

Competitive Analysis of the Cement Industry

Amidst weakening currencies and rising energy prices, the cement industry coined out a +20% growth in revenue from N1.43trn in 9M 2021 to N1.7trn in 9M 2022, with the oldest cement producer contributing the highest at N1.2trn while the competitors (BUA and Lafarge) had N269.9bn and N262.6bn respectively. Despite the squeeze in Dangote's net earnings, the group led the pack in profitability, followed by BUA cement and Lafarge. 

With Dangote's debt acquisition this year, the group had the highest leverage ratio among the cement trio. At the same time, Lafarge retained its position as the least leveraged clinker manufacturer with its low debt-to-equity ratio and greater reliance on equity finance in its capital structure. 

Regarding liquidity, Dangote cement had the second largest after Lafarge cement. The large size of the group's financial liabilities and inventories reduced its liquidity and ability to cover debt obligations with available assets. However, BUA cement had the lowest ratio as its current liabilities increased significantly in 2022.  

Relative to other competitors, Nigeria's oldest cement producer remained the major driver of the industry in terms of revenue and production volumes. However, the recent drop in net earnings shows the weight of high operating costs on the group, which might continue in Q4 2022 with rising inflation expectations (see chart 8).

Chart 8: