Dangote Cement achieved an accelerated growth in profit in 2013 with profit for the year growing more than twice as fast as in the preceding year. Three main developments on the income statement of the cement manufacturing firm spurred the improved profit performance during the year. These are significant cost savings in three principal expenditure lines, an accelerated growth in sales revenue and a windfall from interest income. Cost moderation permitted a recovery in profit margin from a decline in the prior year.
The company’s turnover grew by 29.3% to N386.18 billion in 2013, accelerating from the growth of 26.5% in the preceding year. Revenue growth has been strong for the second year after a slowdown was recorded in 2011. The stronger growth in turnover in 2013 was anticipated as per our full year projection of N387.4 billion for the company in 2013. The actual figure is only 5.0% below the projected figure. Lafarge Cement WAPCO Nigeria, its closest rival in the building materials group, improved sales revenue by 12% in 2013.
In addition to the impressive growth in sales revenue, Dangote Cement achieved cost moderation in respect of cost of sales, administrative expenses and finance cost, which enabled it to grow profit well ahead of revenue. Cost of sales grew by 20.5% to N142.52 billion in 2013 and therefore moderated relative to sales revenue. It accounted for a reduced proportion of turnover at 36.9% in 2013 compared to 39.6% in the preceding year.
Consequently, the company improved gross profit margin during the review period. Gross profit margin improved for Dangote Cement from 60.4% in 2012 to 63.1% in 2013. This enabled it to grow gross profit well ahead of sales revenue in the year at 35.3% to N243.66 billion.
The second cost element that enabled the company to grow profit in the year is administrative cost. At N25.99 billion, administrative expenses grew at a comparatively lower rate of 13.2% than the 29.3% growth in turnover. This took a lot of pressure off the company’s earnings in 2013. The company therefore devoted a reduced proportion of its sales revenue at 6.7% to administrative expenses compared with 7.6% in the preceding year.
The third area of major cost saving is in respect of interest expenses, which was virtually flat at N13.72 billion in 2013. This is a move against the trend of rising interest cost that eroded profit margins of companies generally last year. Moderation of interest expenses afforded the company a good revenue saving opportunity in the year.
The flat growth in interest expenses was against an upsurge of 255.9% in interest income at N8.60 billion in the year. With that, the company reduced its net interest cost from N10.85 billion in 2012 to N5.12 billion in 2013. This is by far the main factor in the company’s favourable cost behaviour and therefore the accelerated profit growth it achieved in 2013.
The significant cost saving plus the improved earnings performance in the year enabled the company to grow profit for the year by 38.4% to N201.20 billion. This is an accelerated growth from the improvement of 15.2% in profit in the preceding year. Lafarge Cement WAPCO Nigeria lifted after tax profit by 92% during the year.
Actual profit achieved is well below our full year forecast of N224.2 billion for Dangote Cement in 2013. The deviation of 11.4% is due to a loss of profit margin by the company in the final quarter. Its profit margin declined from 54% at the end of the third quarter to 52.1% at full year. This caused a slowdown in the profit growth rate in the fourth quarter. Net profit margin however improved from 48.6% in 2012 to 52.1% in 2013.
The flat growth in interest expenses is in spite of a continuing expansion of the company’s balance sheet debts. Long-term borrowing rose by 11% to N124.85 billion while shot-term borrowings increased by 9.9% to N55.43 billion during the year. This is an indication that interest expenses could rise going forward rather than continue to moderate.
Other major developments in the company’s balance sheet include a decline of 14.8% in inventories to N27.67 billion, a drop of almost 35% in trade and other receivables to N10.27 billion and an advance of 58.7% in cash and bank balances to N70.50 billion. Trade and other payables grew by 30.1% to N82.22 billion while retained earnings rose by 43.6% to N496.45 billion during the same period. These changes resulted in a favourable cash flow position for the company.
Dangote Cement earned N11.85 per share in 2013 against N8.52 per share in 2012. It has lifted dividend per share from N1.25 in 2012 to N7.0 per share for the 2013 operations. This is a dividend pay-out of 59% and a dividend yield of about 3.0%. The company’s register is scheduled to close between 22nd – 25th April and payment date is 5th May 2014.
