Dangote Cement Company has rebuilt strength in profit
performance in the current year after a profit drop
last year. Against a drop of 21% in profit in the
preceding year, the cement manufacturing company
may raise after tax by over 40% in 2015 based on the
current growth rate.
The drop in profit in 2014 was due to inability to grow
sales revenue – which was only 1.7% up at N391.64
billion. This year sales revenue is accelerating and this
has spurred profit performance as well. Three
favourable developments explain the improved profit
outlook for the company this year- accelerating sales
revenue, a moderation in cost of sales and a shift from
a net interest expenses to a net interest income.
The company closed second quarter operations in June
with a sales revenue of N242.21 billion, which is an
increase of 20.7% year-on-year. It is expected to
close the 2015 operations with a turnover in the region
of N450 billion. This will be an accelerated growth
compared with a flat growth of 1.7% in the preceding
year.
After tax profit amounted to N121.81 billion for
Dangote Cement at the end of the second quarter, an
increase of 27.6% year-on-year. Full year projection
indicates an increase of over 40% in net profit for the
company in 2015. It posted a net profit of N159.5 billion
at the end of 2014. A new peak in profit is therefore
expected from the company this year. Its peak profit so
far is the N201.20 billion it reported in 2013.
Compared with last year when cost of sales grew ahead
of sales revenue, cost of sales has moderated as at the
end of June. Cost of sales grew by 14.9% compared with
the growth of 20.7% in sales revenue, which has
improved gross profit margin from 63.5% at the end of
2014 to 65.1% at the end of June.
Another major positive development on the income
statement this year is a change from a net interest
expenses position last year to a net interest income at
the end of the second quarter. A shift from a net
interest cost of N2.41 billion at the end of 2014 to a
net interest income of N6.32 billion in the second
quarter has boosted the bottom line significantly in the
current year.
These developments have provided a new strength for
the company this year in terms of ability to convert
revenue into profit. Net profit margin has improved
from 45.7% in the same period last year and from
40.7% at the end of 2014 to 50.3% at the end of the
second quarter. Accelerating revenue and moderating
cost are the summary of the operating story of
Dangote Cement so far this year.
The company’s short-term debts grew by almost 60% to
N176.44 billion within the six months of the year, which
caused a tripling of finance costs to N24.38 billion
year-on-year at the end of the second quarter.
However a robust increase in cash resources enabled
the company to grow interest income ahead of interest
expenses.
Cash and bank balances rose by 151% over the closing
figure last year to N51.63 billion at the end of June.
This follows a rise of 23.7% in net cash flow generated
from operating activities to N179.8 billion against
declines in net cash used for both investing and
financing activities during the review period.
The company earned N7.22 per share at the end of the
second quarter, up from N5.63 in the same period last
year. The full year earnings per share expectation is
above N13 for Dangote Cement in 2015 against N9.42 in
2014.
FBN Holdings: rising cost constrains profit capacity
FBN Holdings raised gross earnings by 28% year-on-
year at the end of June but could not convert the
increased earnings into profit. Two major cost
increases accounted for this – loan loss charges and
interest expenses. Profit grew by just 7.7%, which
leaves the company with full year prospects of a profit
decline.
Non-interest income spurred revenue growth during
the period with exceptional growth in income from
investments and net gains on foreign exchange trading
as well as other operating income. The bank requires a
step up in revenue growth in the second half without
which earnings growth will most likely slow down
considerably this year.
The bank posted an after tax profit of N40.06 billion at
the end of June, an increase of 7.7% year-on-year.
Profit growth is expected to slow down in the second
half and the full year prospects indicate a likely drop in
profit for FBN Holdings in 2015. The company had grown
after tax profit by 13.7% in 2014 to N82.84 billion. A
decline in profit in the current year will mean a rise and
fall pattern for FBN Holdings since 2013 when the
bank’s profit went down by 6.7%.
Gross earnings amounted to N271.82 billion at the end
of the second quarter, an increase of 28% in year-on-
year. Based on the growth rate in the second quarter,
gross income is expected to stand in the region of 547
billion for FBN Holdings at the end of 2015. Revenue
growth is expected to slow down from the growth rate
of 21.3% in the preceding year.
The moderate increase in profit against a strong
growth in revenue is explained by rising cost. All the
bank’s three main expense lines are on the rise but loan
loss expenses and interest cost appear to be out of the
control of management.
Loan loss provisions grew by 239% year-on-year in the
second quarter to N22.58 billion, which is already quite
close to the N25.94 billion impairment charge the bank
made in all of last year. The proportion of gross
earnings claimed by impairment charge rose sharply
from 3.1% to 8.3% over the review period. Up to 11% of
interest income was applied as impairment charges for
credit losses against 4% in the same period last year.
Interest expenses also rose by 47.1% to N73.10 billion
in the second quarter, far ahead of the 24.8% growth
in interest income. Interest cost therefore claimed an
increased share of gross earnings of the bank from
23.4% in the same period last year to 26.9% at the end
of June this year. Interest expenses and impairment
charges claimed virtually all the increase in interest
income during the period.
The contribution of fee-based earnings to gross
earnings increased from 22.4% in the same period last
year to 24.3% this year. This provided the strength for
the moderate improvement in profit. Customer deposits
increased marginally by 2.5% to N3,126.16 billion
compared with the growth of 47.1% in interest
expenses. This means the average cost of deposits
increased during the review period.
The third major cost element – operating expenses
moderated relative to gross earnings at an increase of
15.1% to N118.40 billion at the end of the second
quarter. With a more rapid growth in gross income, the
bank was able to reduce operating cost margin from
48.4% to 43.6%. This provided the little cost saving
that permitted the moderate increase in profit.
The bank lost profit margin, as costs grew generally
faster than revenue during the period. Net profit
margin declined from 17.5% in June last year to 14.7%
this year. This is equally below the 17.2% net profit
margin the bank generated at the end of 2014. Loss of
profit margin follows the rapid growths in loan loss
provisions and interest expenses.
FBN Holdings closed the second quarter operations with
a net loan portfolio of over N2.08 trillion, which is a
decline from the closing figure of N2.19 trillion for
2014. Its investment portfolio amounted to over N795
billion at the end of the second quarter.
The bank earned N1.10 per share at the end of the
second quarter, which is a decline from N1.14 in the
same period last year. Earnings per share is likely to
decline from the N2.55 the bank recorded at the end of
2014.
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