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DANGOTE CEMENT PLC Q1'22 Earnings Release - Still on course to impressive 2022 performance

Last week, DANGCEM released its unaudited Q1’22 results, reporting an impressive PAT growth of 18% y/y to ₦105.8 billion, bolstered by higher cement prices amid volume decline.  For the Nigerian operations, cement volume declined by 1.5% to 4.8 million tons, amid ongoing capital projects by the government. However, revenue printed at ₦321.9 billion (+34% y/y), as higher cement prices offset the volume decline. On the flip side, the Pan African operations reported a revenue decline of 2% y/y to ₦91.2 billion, underpinned by a lower sales volume of 2.4 million tons (down 7.6% y/y). Altogether, Group revenue jumped by 24% y/y to ₦413.1 billion, ahead of ₦375.5 billion estimate.

Energy and plant maintenance costs grew markedly by 36% and 87% respectively, buoyed by rising inflationary pressures and the unabating FX scarcity issues. Thus, cost of sales climbed higher by 20% y/y to ₦154.1 billion. Nonetheless, gross profit advanced by 27% y/y to ₦259 billion with gross margin increasing by 1ppt to 63%. This growth was anchored on higher cement prices during the period.  While EBITDA increased by 19% y/y to ₦211 billion in absolute terms, EBITDA margin declined by 2ppts to 51%, dragged by a 37% y/y rise in operating expenses to ₦77.6 billion. This was fueled by the hike in diesel prices, causing a 58% increase in haulage expenses.

Turnover growth to tame opex lines With the commencement of the rainy season, demand may further weaken albeit softer, as we expect the FG’s continued capital projects to support demand in Q2. Additionally, we expect rising diesel prices to exert continuous pressure on cost lines like haulage expenses alongside the consistent FX challenges and the upward trend in inflation. However, our expectation of marked improvements in turnover growth should help subdue the effect of opex increases in the coming quarters.