Dangote Cement is set to record an increase in profit in 2015 unlike the revenue drop it suffered last year
| By Anayo Ezugwu | Oct 5, 2015 @ 01:00 GMT |
DANGOTE Cement Company is likely to raise its profit to a new high at the end of 2015, making up for the drop it suffered last year. The company’s profit may grow by more than 40 percent if the current growth rate is maintained to full year, according to the second quarter interim report. The company closed second quarter operations in June with a sales revenue of N242.21 billion, which is an increase of 20.7 percent year-on-year.
Based on the second quarter growth rate, adjusted for a likely slowdown in the second half, the company is expected to close the 2015 financial year with a turnover of N448.6 billion. This will be a growth of 14.5 percent over the sales revenue of N391.64 billion the company posted at the end of 2014. It will be an accelerated growth compared with a flat growth of 1.7 percent in the preceding year.
The company posted an after-tax-profit of N121.81 billion at the end of the second quarter, which is a growth of 27.6 percent year-on-year. After-tax-profit is expected to be in the region of N225.6 billion for Dangote Cement at full year. This will be an increase of 41.4 percent over the net profit figure of N159.5 billion the company earned in 2014. This will be a new peak in the company’s profit records after its profit dropped by 21 percent in 2014 from the 2013 high of N201.20 billion.
The company has rebuilt its profit margin that its loss in the preceding year when cost of sales grew ahead of sales revenue. Cost of sales has moderated as at the end of the second quarter at an increase of 14.9 percent compared with the growth of 20.7 percent in sales revenue. This is a reversal of the records of last year when cost of sales grew by 9.6 percent against the 1.7 percent increase in turnover. Gross profit margin has therefore stretched out from 63.5 percent at the end of 2014 to 65.1 percent at the end of June this year.
Another major positive development on the income statement is a change from a net interest expenses position last year to a net interest income at the end of the second quarter. There are rapid increases in both finance income and finance costs in the current year but a shift from a net interest cost of N2.41 billion at the end of 2014 to a net interest income of N6.32 billion in the second quarter has boosted the bottom line significantly in the current year.
There is therefore a new strength for the company this year in terms of ability to convert revenue into profit. Net profit margin has improved from 45.7 percent in the same period last year and from 40.7 percent at the end of 2014 to 50.3 percent at the end of the second quarter. Moderating cost and accelerating revenue are the underlying strengths for the strong profit growth shown by Dangote Cement so far in the current year.
The company’s short-term debts grew by almost 60 percent to N176.44 billion within the six months of the year, which explains a tripling of finance costs to N24.38 billion year-on-year at the end of the second quarter. However, a robust increase in cash resources enabled the company to grow interest income ahead of interest expenses.
Cash and bank balances rose by 151 percent over the closing figure last year to N51.63 billion at the end of June. This follows a rise of 23.7 percent in net cash flow generated from operating activities to N179.8 billion against declines in net cash used for both investing and financing activities during the review period.
The company earned N7.22 per share at the end of the second quarter, up from N5.63 in the same period last year. The full year earnings per share expectation are N13.24 for Dangote Cement in 2015. The company earned N9.42 per share at the end of 2014 and paid a cash dividend of N6.0 per share. This is a reduction from the dividend per share of N7.0 it paid for its 2013 operations.
The cement manufacturing company has maintained strong growth in profit in recent years until last year when sales revenue was flat and profit dropped by about 21 percent. Sales revenue is accelerating and a new peak in profit can be expected from the company at full year. The profit drop last year followed a loss of profit margin, which was caused by a slowdown in sales revenue and an increase in cost of sales. This year, the company has regained its profit margin following accelerating sales revenue, a moderation in cost of sales and a shift from a net interest expenses to a net interest income.