Dangote Cement recently released its unaudited Q3 2022 financial result, with revenue increasing by 11% YoY to N369.22bn from N311.64bn in Q3 2021. According to the management, price realisation factored into the revenue growth. Volume sales continued its downward trend quarter-on-quarter, as inflationary pressures and gas supply disruptions remain major headwinds. Specifically, volume sales declined by 4% to 6.59Mta in Q3 2022 from 6.89Mta in Q3 2021.
Elevated Cost and FX losses Drag Bottom-line
Heightened energy costs exacerbated cost lines, driving cost of sales 27% higher YoY to N161.37bn. As a result, gross profit grew marginally by 2% to N207.85bn from N204.37bn in Q3 2021 and gross margin declined to 56% from 62% in Q3 2021.
Another pain point for the cement producer was the persistent inflationary pressures which drove diesel prices higher, causing a 61% YoY increase in haulage expenses in Q3 2022. By implication, operating expenses spiked by 40% YoY to N93.87bn (Q3 2021: N67.19bn). Hence, operating profit dipped by 17% YoY to N115.50bn from N138.35bn in Q3 2021.
We expect a stable demand in Q4 2022, as construction activities get boosted on the back of improved climatic condition (unfavourable weather contributed to volume decline in the previous quarter). Looking ahead, FX crisis and the inflationary environment may remain detrimental to cost of sales and operating expenses, thereby constraining profitability margins. Nonetheless, the management plans to mitigate the effect of the FX crisis through hedging and combating the rise in energy costs, using alternative fuel and local energy sources at its plants.
Please follow the link “Dangote Cement Plc Q3 2022 Earnings Update – Energy Disruptions Induce Deteriorating Margins” to view the whole report.
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