By Aduragbemi Omiyale
Dangote Cement Plc’s national scale long-term issuer rating of AA+(NG) has been affirmed by GCR Ratings, a notable rating company recently acquired by Moody’s.
This was due to the cement maker’s strong earnings and cash generation, which are enough to offset liquidity pressures from high dividend payouts, “elevated short-term debt, and the consequent increase in finance cost.”
In a statement from GCR, it was disclosed that it expects the organisation to keep the metrics “at strong levels over the review period on the back of robust earnings and cashflows.”
Gross debt spiked to N1.3 trillion as of March 31, 2024, from N736 billion last year and N588 billion in 2022, following the issuance of commercial papers in 2023 to fund the cement company’s share buyback scheme, as well as the impact of devaluation on the USD-denominated debt.
However, net debt to EBITDA was maintained below 1x (2023: 0.7x; 2022: 0.6x), with the debt metrics moderated by its very strong cash flows, underpinned by favourable credit terms with suppliers from an average of 38 days in 2022 to 67 days in 2023.
As a result, operating cash flows (OCF) covered an improved 91 per cent of debt in Q1 2024 compared with 56 per cent in 2023 and 48 per cent in 2022.
GCR identified substantial operational scale, higher production capacity and greater geographical diversification relative to peers as Dangote Cement’s competitive strengths.
The company’s current total installed capacity is 52 million tonnes, across 10 African countries, in contrast to its closest peers who operate solely in Nigeria and have a combined 21.5 million tonnes capacity.
Despite pan-African revenue doubling in recent years, Nigeria still accounts for over 70 per cent of the company’s EBITDA.
“Looking ahead, the focus is to facilitate export operations from Nigeria to other West African markets, which would diversify operations and could create better competitive advantages over the long term,” a part of the note stated.