The recent inauguration of a 3mmta cement plant in Tanzania by Dangote Cement Plc will boost the company’s bottom line and increase returns to shareholders in the near future, writes Goddy Egene
When Dangote Cement Plc (DCP) declared its plan to make a massive expansion across Africa, many investors probably doubted the company. But the expansion programme is not only on track but is also moving faster than many stakeholders had expected.
Early this month, DCP inaugurated the Tanzania Plant, which is a three million metric tonnes of cement per annum (3mtpa) plant located in Mtwara, Southern Tanzania.
The Tanzania plant is the seventh integrated plant outside Nigeria and it followed that of Zambia that was inaugurated by Vice President of Nigeria, Yemi Osinbajo.
The plan of DCP is to create 16 cement plants across Africa to produce at least 80 million tons of cement and address the infrastructure needs of the continent.
In June, 2015, the company inaugurated its cement plant in Ethiopia, which was followed in August with the inauguration of two cement plants- in Zambia and Cameroon.
And October 10 witnessed the inauguration of Tanzania plant, while the next port of call would be Senegal and South Africa plants before the end of the year.
With the inauguration of the Tanzania plant, the bottom-line of DCP will be enhanced. Already, the half year results of the company had reflected the benefits of the expansion.
Benefits of Tanzania Plant
According to the President of Dangote Group, Alhaji Aliko Dangote, the company is currently consolidating its cement businesses across Africa to reap the benefits of scale, adding that its operational offshore cement plants have started to make substantial contributions to our group revenue.
He said the company’s Pan-African drive will aid the cement company’s plan to do a listing in London and Johannesburg in the near future, with an intention to consolidate the cement assets into one company that will have the scale and resources to compete globally.
Speaking at the inauguration of Tanzanian cement plant, Dangote explained the choice of Tanzania for investment, stating that the existing supply gap had been inadequate in meeting local demands, noting the need to boost export supply in the eastern Africa regional bloc.
“The construction sector is a major emergent component of the Tanzanian economy that has been receiving the attention of investors. This makes it an ideal market for cement production. The existing cement manufacturers have historically been unable to satisfy local demand, which has been filled by imports. As essential economy-driven infrastructure continues to be built to improve electricity supply and the transport network, additional demand for cement can be expected,” he said.
Dangote added that the investment will certainly contribute to Tanzania’s on-going story of infrastructure development, job creation, and broad economic development.
“Our strategy is to invest in countries that offer investors attractive returns on investment as well as provide them with an enabling environment to operate. It is our sincere belief that our $600million investment in Tanzania will further speed up infrastructural development and complement the government’s efforts in stimulating economic growth and creating jobs for the people. When in full production, this plant will make Tanzania self-sufficient in cement, with a lot of cement for export to neighbouring countries,” Dangote added.
Presidential Commendations
Nigeria’s President, Muhammadu Buhari and his Tanzanian counterpart, Dr. Jakaya Mrisho Kikwete commended Dangote for the investment, which is the largest private investment so far made in Tanzania.
According to Kikwete, there was no better way of rejuvenating and sustaining a nation’s economy if not through investment sustain which opens the door of for job creation and opportunity for people to express their creative abilities.
He described the 3 mtpa cement plant as the largest cement plant in the Eastern and Central Africa, noting that the investment is a huge one that would have a huge impact as well as bilateral relation between Tanzania and Nigeria.
Kikwete pointed that the timing of the citing of the cement plant was very auspicious, coming at a time when the demand for cement is on the upsurge and increasing both locally and regionally.
The President disclosed that cement price has been on the increase because of the shortages in supply as opposed to increasing demands, saying Dangote Cement is coming to fill the gap.
On his own part, Buhari, who was represented by the Kaduna State Governor, Mallam Nasir El-Rufai said Dangote is a key role player in the economic development of Africa and his investment model is in tandem with the unfolding economic policy of his government.
He said Dangote by his investment is teaching Africa nations the need to adopt an economic integration policy which will encourage Africans to invest in their continent rather than waiting endlessly for the elusive foreigners to come and help invest and develop Africa.
Buhari pointed out that Dangote has proved a point that though there could be challenges but there are huge returns for African investment in Africa.
“Others should emulate him and partner the government the onerous task of job creation. As our son, we are proud of Dangote. Nigeria is very proud of him,” Buhari said.
2015 Half Year results and Expansion Impact
DCP had grown its revenue for the half year ended June 30, 2015 by 16 per cent to N242 billion, from N208 billion in 2014. It ended the H1 with profit after tax of N121.8 billion, showing an increase of 28 per cent compared with N95 billon recorded in 2014.
Analysts at Dunn Loren Merrifield (DLM) had said the second quarter‘s revenue exceeded its eight quarters average of N102.15billion, reinforced by improvement in asset turnover.
According to DLM, “the growth in revenue indicates the company‘s drive to grow revenues generated outside of Nigeria and reduce its concentration risk. While it sees good potential in sub-Saharan Africa where infrastructure spending is high, we believe the Ethiopia, Cameroon and Zambia plants will improve sales and enhance competitive advantage.”
It is believed that with the addition of Tanzania and Senegal and South Africa being expected before the end of the year, DCP performance will definitely witness and major boost that will translate into higher returns in the years ahead.
Analysts had noted the company‘s strategy is to enter markets with higher-quality cement produced at lower- cost plants.
“This has enabled the company to build strong shares in key African markets, despite well-established competition. With this in mind, we believe the company will build on these successes in Africa and continue to expand its business across the continent most especially in Cameroon where the government recently banned importation of cement as part of measures to encourage domestic producers,” they said.
Positive Outlook
DLM had said with production capacity already at 40mmtpa following the inauguration of the Zambia and Ethiopia factories, additional 3mmtpa will come on-stream in the remaining half of 2015.
“Hence, the company‘s total capacity will move to 43mmtpa,as a result, we raised our expected sales volume for the year to 17,500 tonnes with an average price of N30,000/tonne, and other African operations accounting for 27.14 per cent of the total volume,” they said.
The analysts expect revenue growth of 35 per cent in FY‘15, with a Compound Annual Growth Rate (CAGR) of 13.24 per cent, that is from N528.71billion in 2015 to N869.55billion in 2019, driven largely by expected better regional sales matrix, economies of scale and energy mix strategy initiated by the company resulting to lower energy used/tonne and unit cost of power.
“The operating profitability or EBITDA of DCP remains strong as it currently trade above the minimum break-even EBIDTA/tone of $ 21 - which is the minimum a cement capacity must earn in order to provide for depreciation and interest costs,” they said.
