One day during summer 2016, I was driving over a bypass in Lomé in the Republic of Togo. Suddenly, I began seeing flatbed trailer trucks on both sides of the road. I did not need to guess which company they belonged to. The emblematic light gray color reminded me of only one company. Surely enough, I glanced closer at the trucks and they were all stamped with “DANGOTE CEMENT”. Realizing that there were many trucks lined in a queue, this piqued my interest. I finally began to count the trucks as fast as I could. One, two, ten, 20, 30, 40, 50…I counted over 85 trucks until I stopped the madness to focus on the road ahead.
On a second occasion and somewhere else in Lomé, I saw the Dangote Cement trucks lined up off the road. This time, I did not count them. I simply zipped past them while I admired an African conglomerate. I do not personally know Aliko Dangote or his associates and I do not own any shares in his companies, but I was proud. I was delighted to see a truly African company with operations extending 400 kilometers away from its base country and on such a large scale. It made my day.
When I later returned home that day, I could not stop thinking about the number of Dangote Cement trucks that I saw. It reminded me of the FedEx Freight or Walmart trucks that I was used to seeing in the United States. I wanted to know more about the operations of Dangote Cement. I had to dig into the company’s numbers.
Fortunately, Dangote Cement has been listed on the Nigerian Stock Exchange since 2010 and given it is a well-structured entity, there was a wealth of information publicly available for me to explore. I downloaded all the annual reports and financials that were available since 2011 and poured over them. I quickly realized that the company had undergone a dazzling growth since 2010 and it was a particularly profitable entity for Dangote Industries, the parent company of Dangote Cement.
In this brief document, I wanted to share some information I have learned about Dangote Cement while examining the company’s files. I am aware that not everyone reads companies’ financials, hence the purpose of this paper is to simply summarize some key data on the company. Many young Africans aspire to establish large enterprises like Aliko Dangote’s, but most do not know much about his companies. I encourage them to read this paper to learn a few things about Dangote Cement. In fact, I urge them to study the operations of large African enterprises instead of solely focusing on knowing the net worth and magnificent lifestyle of their owners. That is where the value is hidden.
The scope of this paper does not do justice to the scale of Dangote Cement’s operations, but on another occasion, we will discuss another aspect of the firm.
Aliko Dangote established a cement trading firm in 1981 when he was about 24 years old. The firm specialized in the importation of bagged cement for the Nigerian market. The company was profitable, and it gradually transitioned into importing bulk cement that was bagged and sold under Dangote’s brand. According to some reports, it was during a business trip in Brazil in the late 1990s that Dangote was inspired to shift into the manufacturing of cement and some of the other products that the Group was involved in.
After deciding to focus on the manufacturing of cement locally, the company did not aim to grow organically right away. There was a couple of important acquisitions. The first occurred in 2000 after Dangote Industries acquired Benue Cement Company from the Federal Government of Nigeria through a privatization scheme. Two years later, Dangote Industries acquired Obajana Cement from Kogi State Government. How was the company able to make these acquisitions? In a couple of interviews, Aliko Dangote stated that prior to its venture into local manufacturing, Dangote Industries was flush with cash from its trading activities.
It was only in 2004 that the company began the construction of its firm cement plant, the Obajana Cement Plant which is still the largest cement plant in the group. The plant was operational in 2007 with a capacity of 5 million tons per year. It was already the largest cement plant in Sub-Saharan Africa.
Expansion within Africa
2010 was another transitional year for Dangote Industries’ cement business. The group changed the Obajana Cement Plc to Dangote Plc and merged Dangote Cement with Benue Cement Company. In October 2010, Dangote Cement was listed on the Nigerian Stock Exchange (NSE), issuing 15.5 billion shares at 135 naira each. The value of the listing was 2.09 trillion naira ($14 billion at the time). It remains the largest listing in the NSE’s history.
Following its listing on the NSE, Dangote Cement’s growth has been impressive. Its growth is characterized by maintaining its leadership in its base Nigerian market while expanding operations in other African countries. Already a leader in the cement industry in Nigeria, Dangote Cement eventually expanded into nine other countries which are Ghana, South Africa, Senegal, Sierra Leone, Cameroon, Congo, Zambia, Ethiopia, and Tanzania. Although these are countries in which the firm has built factories, it still operates in other countries through an extensive distribution network. Recall I counted over 85 Dangote Cement trucks somewhere in Lomé.
Since its introduction on the NSE, Dangote Cement’s revenues have grown exponentially. Between 2010 to 2014, the company’s revenues nearly doubled from US$ 523 million to just over US$ 1 billion. By 2017, Dangote Cement exceeded US$ 2 billion in revenues. From 2010 to 2019, the company’s revenues grew at a CAGR of 17.9%. It is an impressive feat considering it is a veteran firm and given how challenging it is for companies to undertake regional expansion in Africa.
Still, the most striking element of Dangote Cement’s financial performance is not its impressive revenue growth. Instead, it is the operating efficiency of the firm which is reflected in remarkable profit margins. The company has remained very profitable even in years of depressed sales, particularly from its non-Nigerian market. In 2018, it exceeded a profit of one billion dollars. As expected, the company’s profit margin has gradually slipped over the years, but it remains a highly profitable company when compared to its industry peers.
Dangote Cement’s average income margin during the past decade is nearly 41%. It has consistently exceeded its peers in this performance metric. In 2019, the company’s profit dipped by nearly 50%. However, in the first half of 2020 and despite the impact of the COVID-19 pandemic, Dangote Cement’s profit was US$ 326 million compared to US$ 308 million over the same period last year.
Note from the graph above that during many years, Dangote Cement’s net income exceeds its operating revenues. There are a couple of reasons for this. First, the company’s investment strategy is clear. Dangote Cement is not likely to build a factory in a country where the government is not providing incentives. Therefore, in addition to studying the competitive landscape, local demand, and availability of primary resources, the company also explores investment incentives that the government offers.
Often, these incentives are in the form of tax holidays which reflect a positive tax line item on the group’s income statement. Evidently, the company took advantage of the Nigerian Federal Government’s Backward Integration Policy (BIP) which aimed to develop a domestic cement manufacturing industry in Nigeria. I surmise that beginning from 2002 when the policy was initiated, Dangote Cement significantly benefited from the policy because from 2010 to 2013, the company’s tax line item was positive.
Furthermore, Dangote Cement earns a healthy income from financial investments and its cash reserves. These interest incomes slightly offset the company’s significant interest expenses. The sum of the tax credits and finance income consistently contribute to lifting the bottom line of Dangote Cement. As long as the company maintains its investments, it will continue to take advantage of these incentives.
Finally, due to its exposure to international markets, the company gains and sometimes looses money on currency translation. Although it does not emanate from its core operations, this line item is sometimes material and affects the company’s bottom line. During the first half of this year for example, it gained nearly US$ 13 million on currency exchange.
The cement importation business generated substantial cash flow for Dangote Cement. After building many factories over the years, the company continued to amass cash. The following figure shows the amount of cash that Dangote Cement has been generating from its operations.
As illustrated, Dangote Cement generates robust cash flows. Over the past five years, the company’s cash flow from operations has surpassed US$ 700 million, exceeding US$ 1 billion in 2019. The company’s cash balance has also been robust. It has steadily grown to reach US$ 417 million in 2017. It should be noted that although Dangote Cement is a veteran company, ever since its listing on the NSE, the company has been aggressive in executing its growth strategy. As a result, we can observe that in some years, although the company generates healthy cash flows from its operations, its cash balance is much lower.
A case in point are the years prior to 2016. The company’s cash balance is much lower than cash flow from operations during this period. A major contributing factor was that in 2014 and 2015, Dangote Cement opened new cement plants in six different countries. Evidently, the company invested some cash into these operations, which began to boost the firm’s revenues by 2016.
Nigeria: protecting its bread and butter
Despite its adventure into other countries, Dangote Cement has continued to invest massively in Nigeria, its home market. With a population of over 200 million people, Nigeria is the cornerstone market of Dangote Cement. With sustained investments, extensive distribution networks, and aggressive marketing, the company currently controls just over 60% of the cement market in the country. This is important given Nigeria is the biggest economy in Africa and the infrastructure deficit is high. The annual sales figures demonstrate the importance of the Nigerian market to the company.
Despite the importance of Nigeria to Dangote Cement’s operations, the company’s diversification efforts appear to pay off. After its expansion into seven other countries by 2015, the company’s Nigeria operations revenue was 279% higher than its pan-African revenue. By 2019, the Nigeria operations’ revenue was only 116% higher than the pan-African revenue. Basically, although Dangote Cement still makes more money in Nigeria than other African countries, this is rapidly changing. But this is a good trend for Dangote Cement. It appears the company’s objective is to reduce its exposure to a single market by quickly diversifying into other markets that are favorable to its business.
Takeaway: create and support African conglomerates
Dangote cement is a formidable company and rightfully so. Inasmuch as the Nigerian market is critical to the company, Dangote Cement is the bread and butter of Aliko Dangote’s wealth. Some articles indicate that Aliko Dangote derives 90% of his wealth from the cement business. This may not be exactly true because some of his investments are private and he has diversified a bit from cement. Nonetheless, cement does represent a considerable portion of his wealth. For this reason, the magnate and his team run the Dangote Cement operations with a fine execution. For now, cement is his fortress.
We should begin to use companies such as Dangote Cement as case studies in African management schools. It is a multinational entity; it is listed on an African stock exchange; there is a wealth of publicly available information on the firm; and its performance is on par with global standards; it has succeeded in some of the most challenging business environments. Those are ideal elements needed to use a company as a case study. Furthermore, it has an additional advantage: it factors in the local context, which is nonnegligible in a firm’s success.
When you analyze the business case studies published by the Harvard Business review for example, most (maybe none) are African owned. This is fine, but in African business schools, students should be exposed to the operations of high-caliber African firms. This way, the case studies are more contextualized, and this does not take away from the global standard of the learning experience.
I should note that not all Africans are fans of Aliko Dangote. Some view him as a merciless business tycoon whose sole focus is the bottom line. Others argue that had Dangote not controlled the cement business in Nigeria and other markets, someone else — possibly non-African — would have done it. The objective of this article is not to promote Dangote, the man. It serves to merely introduce the operations of a company that I admire and which many Africans only know about by name. But my take on that debate is this: some countries have their Jeff Bezos and Bill Gates while others have their Aliko Dangote. To each its own. Till next time to discuss more on Dangote Cement.