Dangote Industries' Revenue Soars 30% to N3trn in 2023, Despite EBITDA Margin Decline

Dangote Industries Limited revenues grew by 30% to N3 trillion in the 2023 financial year, but EBITDA margin compressed to 31.4%, largely attributable to the spike in energy costs and imported inflation on inputs, according to data from its financials.

Dangote Industries a diversified and fully integrated conglomerate, is the holding company of Africa’s richest man Aliko Dangote.

Although the core earnings remain strong, net profit was deeply impacted by foreign exchange loss of c.NGN3 trillion (USD3.3Bn) and high finance cost (NGN544Bn) in DIL’s financial year which ended 31 December 2023.

“We expect revenue to double to NGN6 trillion in 2024 and further by c.60% in 2025, driven by additional income streams from the refinery. We expect EBITDA margin to reduce to the 22%-27% range in 2024 and 2025 reflecting the inherently lower profitability attributable to refining operations, but the absolute earnings should increase materially. We also expect the steep foreign exchange loss to be moderated by gains from export sales over the next 18 months,” said analysts at GCR Ratings.

DIL’s gross debt spiked by NGN1.6 trillion to NGN5.4 trillion in 2023, reflecting the underlying vulnerability to foreign currency loans which contributed over 70% of total debt as of 31 December 2023.

Consequently, interest coverage deteriorated to 1.8x (2022: 3.3x) and net debt to EBITDA weakened to 4.1x (2022: 3.2x) in financial 2023.

However, operating cash flow (OCF) improved slightly to 21.1% (2022: 17.2%) on the back of large working capital releases related to creditors accumulation.

Refinancing risk remains heightened by the high proportion of short term debt maturities (over 50% of debt) most of which relate to foreign debt.

However, this risk is mitigated somewhat because 75% of the foreign debt is shareholder loans, which are subordinated to external creditors and are being deferred until the refinery becomes financially viable.

DIL had cash holding of NGN1.5 trillion as of 31 December 2023.

To increase liquidity flexibility, the group is renegotiating the external loans for more favourable terms.

Impact of Dangote Refinery on DIL finances

Dangote Industries Limited revenue is forecast to double to NGN6 trillion in 2024 by GCR due to prospects of significant growth in earnings following the commencement of operations at the new petrochemical refinery and robust earnings expectation from the other businesses.

However, currency devaluation could negatively impact on the profitability and financial position of the group, given its significant foreign debt exposure.

The group’s business profile is bolstered by the commencement of refining operations in February 2024 (with the production of diesel, Naphtha, heavy fuel oil, and aviation fuel), which now complements the already well-diversified group businesses.

DIL’s business fundamentals is expected to become increasingly tilted towards oil refining, given its size as the largest refinery in Africa and Europe.

GCR also expects strong export sales potential given the recent debut exports of refined oil to Europe.

The non-oil businesses continue to demonstrate strong earnings generating capacity and market leaderships in their respective sectors, underpinned by the above-peer production capacities and favourable demographics.

However, the group remains highly exposed to volatile energy cost dynamics and is reliant on importation of gypsum for cement, raw sugar input, and crude oil for the refinery.

About DIL

DIL is a diversified conglomerate in Nigeria with a leading share in the cement business and a key operator in the petrochemical industry through its fertiliser and oil refinery businesses.

Its strategy is to gradually establish a downstream industry in Nigeria and be the largest urea producer in Nigeria. It also aims to make Nigeria a net exporter of refined petroleum products and petrochemicals by 2026.

The main operating companies including Dangote Cement Plc and Dangote Sugar Refinery Plc, Dangote’s fertiliser and Dangote Oil Refinery.

Dangote Cement was the major contributor to consolidated EBITDA at an estimated 72% and 77% for 2022 and 2023, respectively.

Dangote plans a merger of Dangote Sugar with NASCON Allied Industries Plc, (NASCON) and Dangote Rice Limited (DRL), to form a new entity to be known as Dangote Foods.

Two firms within the Dangote Industries Group including the refinery and fertilizer companies are also set to be listed on the Nigerian exchange shortly, according to Umaru Kwairanga, Chairman of the Nigerian Exchange Group.