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Displaying items by tag: Dangote Cement
Nigeria: Denmark-based FLSmidth has secured a contract with Dangote Cement for the supply of hot kiln alignment services for 16 kiln lines across Africa. 10 of the lines are installed across three plants in Nigeria, with the remaining six situated in Republic of the Congo, Ethiopia, South Africa, Tanzania and Zambia. The contract will endure until 2026.
Dangote Cement said that it chose FLSmidth to help it achieve ‘uninterrupted cement production and dispatch around the clock. Dangote Group deputy managing director Arvind Pathak said, “The equipment health audits, services, and support extended by FLSmidth have helped us maintain our pyro process equipment with good reliability. Hot kiln alignment is an excellent preventative maintenance strategy.”
FLSmidth says that it conducts 250 hot kiln alignments worldwide annually.
Nigeria: Dangote Cement has recorded earnings before interest, taxation, depreciation and amortisation of US$293m in the first quarter of 2020, up by 2.2% year-on-year from US$287m in the first quarter of 2019. Sales rose by 3.8% to US$639m from US$616m. Cement sales volumes fell by 0.6% amid a total suspension of South African operations from late March 2020 due to the coronavirus lockdown.
Dangote Cement chief executive officer (CEO) Michael Puchercos said, “2020 started strongly, with growth across the board despite the early effects of the COVID-19 pandemic. We are closely monitoring all markets according to the guidance provided by the authorities in each country. We continue to provide superior services and deliver high quality products to our customers.”
A short look at cement company debt
15 April 2020Yesterday, on 14 April 2020, the International Monetary Fund (IMF) forecast a 3% gross domestic product (GDP) growth contraction in 2020 due to negative economic effects from the coronavirus outbreak and its containment. Most regions around the world may experience negative growth in 2020 with exceptions only in so-called Emerging and Developing Asia and Low-income Developing Countries. This is just one projection among many coming out at the moment but the prognosis is downward. This begs the questions: how will cement companies cope?
Markets for building materials are not going to disappear in these conditions but demand looks likely to be reduced. Added to this, an industry that’s been facing increasing production overcapacity over the years may be challenged by additional competition effects. Here we will look at the debt profile of some of the major multinational cement producers outside of China. Please note that this is a cursory examination of corporate debt that only looks at simple financial indicators. Company financial officers want to present themselves in best possible light and will have alternatives that point to their strengths. For a detailed view we refer readers to the credit rating agencies and the companies’ published financial information directly.
Graph 1: Net debt and EBITDA for selected multinational cement companies in 2019. Source: Company financial reports and investor presentations. Note, Conversion for reporting currencies to US$, HeidelbergCement uses Result from Current Operations Before Depreciation and Amortisation (RCOBD) and UltraTech Cement results from 2018 – 2019 financial year.
Graph 1 presents a comparison between net debt and earnings before interest, taxation, depreciation and amortisation (EBITDA) in real terms. The bigger the gap between debt and earnings then the more one starts to wonder how it can be repaid. One feature to note in this graph is the size of the debt of the three largest producers – LafargeHolcim, HeidelbergCement and Cemex – despite the fact that the companies are of different sizes. Cemex’s high debt to earnings ratio has been much commented on previously following its acquisition of Rinker just before the financial crash in 2007 and 2008. Unfortunately though, despite strenuous mitigation efforts, it remains prominent. Other positions to note are those of Buzzi Unicem and Dangote Cement, which have higher earnings than debts. These are envious positions to be in.
Graph 2: Net debt/EBITDA and EBITDA Margin for selected multinational cement companies in 2019. Source and notes as in Graph 1.
Graph 2 shows the ratio of net debt and EBITDA and the EBITDA Margin, a company’s earnings divided by its revenue. This graph better shows the relationship between debt and earnings. This can be seen well in a comparison between LafargeHolcim and HeidelbergCement. The latter has higher debts with respect to its earnings. Its debt jumped in 2016 following its acquisition of Italcementi. LafargeHolcim’s debts ballooned followed its formation by merger in 2015 but this was in line with the jump in its equity. Where it struggled was with slow earnings in the years afterwards. However, bold divestments in South-East Asia in 2018 and 2019 appear to have fixed this.
Other companies to watch in the higher Net debt/EBITDA category include India’s UltraTech Cement and both of the large Brazilian multinationals, Votorantim and InterCement. In recent years UltraTech Cement has been busy buying up other cement producers in India. The difference between the Brazilian companies may reflect the fallout from their fight to buy Cimpor back in 2012. InterCement and its parent company Camargo Corrêa won the battle to acquire the Portuguese company but Votorantim was given selected international assets outside of Brazil. Unfortunately, the Brazilian market then collapsed and Camargo Corrêa has reportedly been trying to sell some or all of its cement assets ever since.
The other financial indicator in Graph 2 is EBITDA margin or earnings/operating profit as a percentage of revenue. Higher is generally seen as better here in comparison to other companies in the same sector. Note how LafargeHolcim is ahead of HeidelbergCement and Cemex, possibly due to its cost cutting and synergies since the merger. InterCement also has a relatively high EBITDA margin, boosted by a pickup by the Brazilian economy in 2019. Again, Buzzi Unicem and Dangote Cement stand out. Both of these are public companies but are associated with family or individual ownership, although in very different markets. Neither has really indulged in any large-scale acquisitions in recent years. Dangote Cement has been steadily expanding but through building its own plants and distribution networks.
We’ve not mentioned CRH as its figures seem ‘average’ compared to the other cement producers discussed here. Average is of course relative for one of the world’s biggest building materials manufacturers with a net of debt of US$7.4bn in 2019! Yet, despite battles with activist investors over board member pay aside, CRH might be the rare producer that knows when to stop expanding. Notably in 2018 after an expansion phase, including acquisitions of Ash Grove Cement and LafargeHolcim assets previously, it publicly decided in 2018 to take a pause. There may be weaknesses in the company’s balance sheets yet to be revealed but they are not apparent using these metrics.
In summary, we’ve focused on corporate acquisitions here as the main source of debt in cement producers. This is simplistic but timing is everything when taking on a large amount of debt. Cemex is still carrying the scars from buying Rinker over a decade ago and InterCement and HeidelbergCement, to a lesser extent, are ones to watch through the next bad patch. Other things to consider are a general move to a more regional model for these producers away from a global one. UltraTech Cement’s focus on the Indian sub-continent or Dangote Cement’s work in Africa are examples of this. This approach could go wrong if the sole regions they operate in suffer disproportionately from the economic fallout from coronavirus. Or, if any producer, even one with high debts, has the good fortune to be present in a territory that suffers less from the downturn it may benefit. On a final note, it is worth mentioning that government data reports that China’s domestic cement production capacity utilisation in the two-week period ending on 10 April 2020 bounced back to 95% following the relaxation of the lockdown.
Dangote to raise US$260m in new funds
07 April 2020Nigeria: Dangote Cement, Africa’s leading cement manufacturer, is seeking to raise up to US$260m in fresh funds from the bond market under its US$780m Debt Issuance Programme. The investor presentation document prepared by the company was themed ‘Building Prosperity in Africa.’
Dangote truck kills six in Lagos
03 April 2020Nigeria: A Dangote Cement truck overturned on the Epe Bridge in Lagos, landing on a taxi and killing six of its seven passengers. Punch Metro newspaper has reported the cause of the incident was a brake failure due to a mechanical fault with the truck. It is unknown whether the driver was operating illegally. The survivor is receiving hospital treatment.
Kenneth Capes re-elected CEO of Metier Mixed Concrete and Sephaku Holdings executive director
25 March 2020South Africa: The board of Sephaku Holdings, owner of Sephaku Cement and 36% owner of Nigeria-based Dangote Cement, has re-elected Kenneth Capes as chief executive officer (CEO) of Métier Mixed Concrete. The board also re-elected Capes as an executive director of Sephaku Holdings, a position he first attained in 2013. He co-founded Métier in 2007.
Dangote donates to explosion rebuild effort
23 March 2020Nigeria: Dangote Cement has donated cement worth US$270,000 to the Lagos State government to support the ongoing reconstruction process at the Abule-Ado site in Amuwo-Odofin Local Government area, which was affected by a deadly pipeline explosion on 15 March 2020. The donation was made by the chairman of Dangote Cement, Aliko Dangote, represented by the company’s Independent Non-Executive Director Emmanuel Ikazoboh.
Nigeria: Dangote Cement has shared plans for the installation of a fifth production line at its 13.3Mt/yr integrated Obajana plant in Obajana, Kogi State, that will raise the plant’s capacity to 16.Mt/yr. Business Day newspaper has reported that the upgrade will be a jointly private and public project aimed at ‘boosting the economy and creating jobs for the unemployed youth,’ with tax reliefs and other incentives available to investors. Dangote Cement executive director Edwin Devakumar said during a visit of the Nigerian Minister of State for Mining and Steel Development Samson Ogar that the company ‘will leverage on the state’s support.’
Dangote Cement plans pan-African exports from Congo
03 March 2020Congo: Nigeria-based Dangote Cement has announced that it will begin shipping cement produced at its 1.5Mt/yr integrated Mfila plant in Bouenza region, Congo, to other African countries.
Reuters News has reported that Dangote Cement’s Nigerian exports fell by 41% to 0.5Mt in 2019 from 0.8Mt in 2018. Dangote Cement CEO Joseph Makoju attributed the flop to the government’s closure of Nigeria’s border with Benin, part of a crackdown on smuggling and the illegal weapons trade.
Dangote Cement plans 1.1Mt/yr grinding plant in Gabon
02 March 2020Gabon: Dangote Cement has shared plans for the construction of a 1.1Mt/yr grinding plant on a greenfield site near the New Owendo Internation Port in Owendo, Komo-Mondah department. Dangote Cement has stated that the US$75m facility, scheduled for completion in early-2021, will ‘close the cement production gap in this emerging country.’ It will supply cement to Gabon and the central African region.