Solid Bet

Dangote Cement’s profits rose 28% in 1H2015 despite a weakening macro-environment. What drove those strong results?

The collapse in oil prices, the devaluation of the naira, the uncertainties around the national elections, the continuing insurgency in the North East, disruptions in petroleum products supplies, and continued import dependence of the economy for many basic necessities have all negatively impacted consumer spending power and behavior. This led to a decrease in sales volumes in our home market. Despite all the above challenges, our strong results can be attributed mainly to the increased diversity of our business. Our cement sales volume increased by 13.7% YoY, with 22% of the volumes sold coming from Senegal and Cameroon, and Sephaku Cement, Ethiopia, and Zambia. Our strategy has been to enter new markets with a higher-quality product produced at lower-cost factories, and as a result we are rapidly gaining market shares in key African markets, in spite of well-established competition. Nevertheless, despite the reduction in sales volumes in the country, revenue from our Nigerian operations rose by 2.7%. This was due in large part to increases in average selling prices, at about 11%, and improvements in the energy mix.

One of Dangote’s most important projects—Nigeria’s first full-scale privately-owned domestic refinery—just received a near $1 billion dollar grant from the U.S. Trade and Development Agency (USTDA) for the development of human resources; how will this project change the economic status quo in Nigeria?

Nigeria’s economy is heavily dependent on oil revenue, which makes it vulnerable to fluctuating crude oil prices. Nigeria is one of the world’s largest producers and exporters of crude oil, yet due to our low refinery utilization rate, we are one of the largest importers of refined petroleum products. This opportunity and challenge was a major driver in my decision to embark on the $9 billion, 650,000bopd refinery project. The generous grant from USTDA will provide essential training of the critical human capital needed for this extremely technical project, particularly given that this has previously been a largely inactive sector with little to no opportunities to build up the necessary practical skills. The project will eliminate Nigeria’s dependence on foreign refined petroleum products and therefore reduce costs of all goods and services. The government subsidy on imported petroleum products is under review and is unsustainable in the longer term. Resources freed up from this expense will ensure that more export revenues are used in-country to fund government projects like infrastructure, power, and education.

How are plans progressing to list Dangote Cement on the London and Johannesburg stock exchanges, and what impact do you expect it to have on the company’s operations?

A listing on either the LSE or the JSE, or both, remains a vital component of our vision for DCP. These listings will potentially fund further growth from a pan-African firm to a truly global cement powerhouse, as they could allow us to continue to raise capital from new, deeper sources at more competitive rates. Shares on the JSE and LSE are traded by a wide array of institutional and professional investors that would further diversify our existing investor base. In addition, Western individual and institutional investors are continuously looking for ways to engage in the African consumer growth story, from which we have benefited greatly. These listings would allow for that broader participation and would drive awareness to the global public about our firm and what we have built thus far. However, when it comes to public exchange listings, timing is of the utmost importance, regardless of the strength of a firm’s fundamentals. Thus, given the negative sentiment around and the perceived risk of investing in Nigeria and Africa today, we are not in a hurry to go to market just yet.

What are your expectations for the year ahead?

It is difficult to predict what will happen in the coming year, given the fluid nature of regional and global developments, but projections for 2016 from various sources suggest that the global economy will rebound slightly next year after the slow-down experienced in 2015. Across Africa, a number of countries like Nigeria and Zambia that are historically resource-dependent will likely continue to face the after effects of lower commodity prices.