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DANGOTE CEMENT PLC H2'20 - Forging ahead in spite of pressure

Earnings surge despite lockdown

Dangote Cement wrapped up the first half of the year in impressive fashion, reporting a 6% y/y jump in Group bottom line to ₦126.1 billion, 22% ahead of our ₦103.2 billion estimate. The earnings expansion was achieved amidst a pandemic-induced slowdown in economic activity in April. On a quarterly basis, operating earnings came under pressure, with the Nigerian business reporting a 6% y/y drop in EBITDA to ₦91.1 billion, dragged by higher energy costs, wages, haulage costs and selling and distribution costs. EBITDA margin moderated 190bps y/y to 59.5%. On the other hand, the Pan African business reported a 40% y/y jump in EBITDA to ₦16.9 billion, a record quarterly operating profit from the region. This was largely due to increased volumes, higher pricing in Zambia, reduced haulage and depreciation costs in Tanzania, Zambia and Ethiopia.

Exports, promotions to drive volume growth

At the end of March 2020, Lagos State announced a partial lockdown in movement of citizens in a bid to curb the spread of the ongoing COVID-19 pandemic. The rest of the country soon followed, with the resulting lockdowns limiting economic activity across the country. Lockdowns were also enacted across the Pan African countries. We had anticipated a sharp drop in public and private sector infrastructure spend as a result, with government and corporate treasuries directly or indirectly impacted in the short term. Thus, it came as no surprise to see a 28% y/y drop in cement sales in Nigeria in April, the month of the lockdown. Revenue was also impacted across the Pan African business due to similar shutdowns. However, by the start of May, lockdown restrictions had eased across Africa, leading to a resurgence of economic and more importantly, construction activities.