Dangote Cement Eyes 2023: Set to Surpass 2022 Revenue and Earnings Milestones

Dangote Cement Plc is poised to outperform its 2022 revenue and earnings projections in 2023, navigating successfully through challenging macroeconomic conditions marked by Naira devaluation and the removal of subsidies. Despite facing headwinds such as declining sales and production volumes in relation to capacity, the company’s 9M 2023 financial report showcases remarkable growth, with reported revenue hitting N1.515 trillion—equivalent to 94% of the full-year revenue in 2022.

The profit after tax for the same period stands at N277.548 billion, representing 72.6% of the full-year PAT for 2022, with a variance of N104.763 billion. The trailing twelve months revenue and PAT, averaging at N488.917 billion and N110.169 billion respectively, position Dangote Cement for a potential surpassing of its 2022 performance.

Amidst these impressive financials, it is crucial to acknowledge that Dangote Cement has achieved these milestones in the face of adverse macroeconomic conditions. The devaluation of the Naira from ₦461.1/$ at the end of 2022 to ₦776.8/$ by September 2023, coupled with the removal of the petrol subsidy and inflation, has exerted significant pressure on the company’s revenue, operating costs, and bottom line.

Specifically, the sales volume from Dangote Cement’s Nigerian operations experienced a 10.9% decline to 12 million metric tons in 9M 2023, down from 13.5 million metric tons in the same period of 2022. Domestic sales volume alone recorded a 10.3% YoY decrease, amounting to 11.5 million metric tons. This contributed to a 2.4% reduction in the group’s total sales volume, reaching 20.288 million metric tons during the same period.

While the group’s revenue witnessed a 28.7% year-on-year growth, Nigeria’s share of the overall group revenue decreased from 75.66% in 9M 2022 to 61.61%. Although the group’s EBITDA grew by 28.5% to N662.762 billion with a margin of 43.8%, the pre-tax profit margin declined by 6.31%, highlighting the impact of Naira devaluation and other macroeconomic challenges.

Foreign exchange losses of N99.016 billion and gross interest expenses of N92.166 billion further underscore the complexities faced by Dangote Cement. Yet, its dominant position in the Nigerian market, where it controls over 60% of the cement market, remains a cornerstone of the group’s operations.

The Nigerian market’s significance is evident as Dangote Cement’s 9M 2023 revenue accounts for about 71% of the combined revenue of three major cement producers in the country. However, the decrease in sales volume within Nigeria, despite increasing revenue, raises concerns and prompts a closer examination of pricing strategies and profitability dynamics.

Dangote Cement attributes its revenue growth to a strong pan-Africa performance, resulting in a remarkable revenue and EBITDA growth of 103.9% and 255.4%, respectively. However, alongside macroeconomic headwinds, questions arise about high-margin pricing strategies within the Nigerian market.

This observation prompts a consideration of Dangote Cement’s leverage of its market position, near-monopoly status, product inelastic demand, and other factors to command higher prices. While this may contribute to revenue growth, it emphasizes the need for a balanced approach that factors in market dynamics, customer affordability, and competition.

In Nigeria, the cement industry is a key contributor to the economy, with an estimated market size of over 40 million tons per year. Dangote Cement, with a production capacity of 52 million Mta across its plants in 10 countries, plays a significant role, with Nigeria alone accounting for 35.3 million Mta.

However, the 9M 2023 production volume of 19.825 million tons falls short of the company’s production and bagging capacity of 52 million tons. To bolster demand and increase sales volume, strategic measures such as market expansion, product diversification, and pricing strategies become crucial.

BUA Cement, a key competitor, made a noteworthy move by reducing its ex-factory price to N3,500 per bag in October, aiming to ensure Nigerians benefit from the price reduction. While positive, its impact may be limited by Dangote Cement’s more substantial market share. To maximize the effectiveness of such measures, collaboration and complementary efforts between competitors could prove beneficial.

Nigeria, with its abundant raw materials, holds a comparative advantage, as emphasized in Dangote Cement’s 9M 2023 results presentation. The country’s wealth of high-quality limestone concentrated in key southern regions, near demand centers and export facilities, provides Dangote Cement with a foundation for cost-effective production and reduced high margins.

Dangote Cement’s resilience and sustained growth, evident in its 9-month financial results, underscore its position as a strong brand. With a track record of generating returns from both equity and assets, the company’s combined measure of Return on Equity and Return on Assets stands at 32.13%. Over the past 12 years, Dangote Cement has distributed over $6.7 billion in dividends to shareholders, establishing itself as a compelling investment opportunity in the stock market.