Dangote Cement's pan-African expansion boosts financial strength

Dangote Cement's strategy of rapid capacity build across Africa with prudent financial management has led the company to recently be recognised for its financial strength. The next wave of development sees Dangote almost doubling capacity, further consolidating its position as sub-Saharan Africa's leading cement supplier.

Earlier this month two global rating agencies, Moody's Investors Service and Global Credit Ratings (GCR), rated Dangote Cement positively for its financial strength and corporate outlook. Both agencies described the outlook of the Africa’s largest cement producer as stable.

Moody's assigned three respective high ratings to the cement company, including a first time Ba3 Local Currency Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating and Aaa.ng National Scale Rating (NSR). Assistant vice president and lead analyst for Dangote Cement at Moody's, Douglas Rowlings, said the ratings reflect Dangote Cement’s strong stand-alone credit profile and track record of demonstrated financial support from a larger and more diversified parent Dangote Industries Ltd. The ratings factor in the diversification of the company's revenue streams as Dangote Cement's new cement production plants are commissioned in Africa with pan-African volumes expected to reach 40 per cent of total sales volumes by 2020. The stable ratings outlook in part reflects Moody's expectation that Dangote Cement will continue to maximise output from existing plants outside Nigeria, while continuing to observe conservative financial policies.

Global Credit Ratings assigned long-term and short-term national scale issuer ratings of AA+ (NG) and A1+ (NG) respectively to Dangote Cement. The ratings recognise the evolution of Dangote Cement into one of the world’s top 20 cement companies by installed capacity, and its position as the largest corporate on the Nigerian Stock Exchange.

Dangote Cement's CEO, Onne van der Weijde, noted that "the publication of these credit ratings highlights the financial strength we have achieved through our unwavering focus on the profitable expansion of the business, underpinned by our belief that we must remain prudent in our financial management."

In recent years the company has swiftly but surely built up a sizeable presence across sub-Saharan Africa to become the continent's leading cement producer with nearly 46Mta of capacity. In its home market of Nigeria, Dangote has a production capacity of 29.25Mta and almost single-handedly turned the country from a net importer to a net exporter. In addition, the company has invested almost US$3bn to build manufacturing plants and import/grinding terminals. It has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.7Mta import), South Africa (2.7Mta), Tanzania (3Mta), Zambia (1.5Mta).

Despite its domestic market falling into recession in 2016, the group increased its total cement sales volume by 25 per cent that year to nearly 23.6Mt, compared to 18.9Mt in the previous year. In 1Q17 Nigerian operations total sales volumes went down from 4.5Mt to 3.8Mt while pan-African volumes rose by 21 per cent to 2.3Mt, with a 23,000t maiden contribution from Sierra Leone, over 0.5Mt of cement sold in Ethiopia, almost 0.4Mt sold in Senegal, 0.3Mt sold in Cameroon, 0.3Mt in Ghana, 0.2Mt in Tanzania and 0.15Mt in Zambia. As at the end of 1Q17, pan-African operations accounted for 38 per cent of group volumes and provided nearly 28 per cent of group revenue.

The next wave of expansion
Going forward, a senior company executive has said Dangote Cement aims to almost double the size of its Africa plants in three years. Devakumar Edwin told Reuters last week that the company was seeking to expand across the continent, stating: "Our focus in the next three years is that we should be going toward 80Mta of cement production," he said, adding that the expansion would be funded through loans from Chinese and Indian banks and cash flows. 

By 2023 the company plans to expand its existing operations in Nigeria, Cameroon, Ethiopia, Senegal and Zambia, as well as establishing new facilities in Kenya (3Mta), Liberia (0.5Mta), Mali (1.5Mta), Niger (1.5Mta) and Zimbabwe (1.5Mta). Commenting on future growth plans, Global Credit Ratings said: "Dangote Cement's aspirational medium-term target of over 75Mta of installed capacity will substantially increase free cash flow as plants across several territories are completed and bedded down. While this represents material investment risk, comfort is taken from management’s proven execution with respect to identifying new markets and the timely completion of large capex projects. Dangote Cement will pace the rest of its capex, depending on foreign currency availability."