Dangote reports strong sales growth in 2016

Aliko Dangote

Dangote Cement saw its sales volumes rise 25% in 2016 to 23.6 million t, despite challenging market conditions in its home market, Nigeria. But higher costs and lower pricing helped to bring the company’s earnings down slightly.

Growing sales volumes

In Nigeria, where overall cement demand increased by 5.7% over the year, the company saw an 11% increase in volumes to 14.8 million t. This resulted in an increased market share in Nigeria of 65% from 62% the year before.

“We were very proactive in generating demand and taking share,” said Dangote’s CEO, Onne van der Weijde, in the company’s annual report, pointing to an increase in sales and marketing staff and a focus on promoting the Dangote brand.

The company also exported cement from its Nigerian plants to Ghana, an important turnaround for a country that was once the largest importer of cement. Exports brought total sales from Dangote’s Nigerian plants to 15.1 million t – and will be a focus for 2017, according to van der Weijde.

In addition to continuing its truck-based shipments to Ghana, the company expects to establish an export terminal at Apapa in Lagos to enable to shipment of clinker to Cameroon.

In the rest of Africa, the company reported sales of more than 8.6 million t, a 54% increase on the previous year. The company currently operates plants in Cameroon, Ethiopia, Ghana, Senegal, South Africa, Tanzania and Zambia, with plants under developing in Congo and Sierra Leone.

Fuel prices hit earnings

On the financial side, the company’s results were hit by disruptions to gas supply following attacks on pipelines in the south of Nigeria. This forced the company to use higher-cost fuel oil in its kilns to keep operations running. According to the company’s annual reports, the company’s fuel costs rose by around 40.8% to NGN112.3 billion last year.

Coupled with lower pricing over most of the year, the rise in fuel costs saw the company’s earnings fall slightly to NGN257.2 billion, despite a 25% increase in revenues.

Although fuel prices rose over the year as a result of the enforced switch to fuel oil, the use of fuel oil was not a high as it could have been, following the company’s decision to install coal milling facilities at its plant’s in Nigeria. Installation was completed in September last year, enabling the company to end its reliance on fuel oil.

A sign of things to come?

Earnings for the last quarter of the year were thus significantly better than the rest of that year, boosted further by an increase in prices.

“The final quarter was very strong and EBITDA rose sharply compared to the quarter before because of the price adjustment in Septembers and a better fuel mix,” said van der Weijde. “In fact, in financial terms, it was out strongest ever quarter, so that gives a sense of how 2017 could evolve.”

The company also said it would begin sourcing coal from domestic mines in 1H17, further strengthening its ability to manage fuel costs. The coal, which will be mined by Dangote’s parent company, Dangote Industries, will be priced in the local currency, removing any exchange-rate risk resulting from its current reliance on dollar-denominated coal imports.