Dangote Cement Plc’s margins have improved the most in two years, signalling the decision of management to switch to a cheaper source of energy has yielded fruit.
Dangote Cement now uses coal to the power plant at factory, a cheaper source of energy compared to Low Pour Fuel Oil (LPFO). The strategic decision led to cost savings and improved margins.
The largest producer of the building materials in Africa’s most populous nation and largest economy recorded a 63.16 percent Year on Year (y/y) surge in gross margin to N343.16 billion as at September 2017.
In short, on a quarter on quarter basis, gross margins spiked by 90 percent, the highest since the second quarter of 2015.
Gross profit margin increased to 56.47 percent (y/y) in September 2017 as against 47.15 percent as at September 2016.
For the first time since 2016, the company’s cost margins improved. Recall that an economic downturn had undermined production cost as rising inflation and a shortage of dollars impacted negatively on the firm’s input costs.
Cost of sales ratio, fell to 43.05 percent in the period under review as against 52.01 percent the previous year, thanks to investment in the alternative energy mix.
This means the firm has spent less on input cost in producing each unit of product.
It must be noted that the flexibility in the foreign exchange market as evidenced by increased dollar supply has been a boon to Dangote Cement.
“Elsewhere, we observed signs of life from the business’ energy flexibility investment with input cost decelerating faster than volumes in Q3 17,” said analysts at ARM Research Limited.
The cement maker’s double-digit growth in at the top line (sales) and bottom line (profit) shows management is steadfast in its primary objective of adding value to shareholder’s wealth.
Net income spiked by 44.64 percent to N193.13 billion while sales surged by 36.52 percent to N603.57 billion as at September 2017. The growth in sales was underpinned by higher average prices that compensated for lower volumes.
A tax charge of N15.50 billion was recorded in the third quarter of the year (Q/Q) from a tax credit of N6 billion. This means the tax concession the company enjoyed on some assets has expired.
“Notwithstanding the lower-than-expected Q3 earnings, DANGCEM’s performance over the nine months of 2017 was very strong and consistent with the broadly expected impressive year for the Group,” said analysts at Cordros Capital Limited.