GCR accords an initial National Scale rating of AA+(NG) to Dangote Cement Plc; Outlook Stable

09 Jun 2017 In Rating Notifications

GCR accords an initial National Scale rating of AA+(NG) to Dangote Cement Plc; Outlook Stable

Lagos, 09 June 2017—Global Credit Ratings has accorded initial long term and short term national scale issuer ratings of AA+(NG) and A1+(NG) respectively, to Dangote Cement Plc, with the outlook accorded as Stable. The ratings expire in September 2017.


RATING RATIONALE OF THE ISSUER

Global Credit Ratings has accorded the above credit rating(s) to Dangote Cement Plc (“DCP or the Group”) based on the following key criteria:

Dangote Cement Plc is one of Africa’s leading integrated cement companies, with plants in eight countries. In addition, three export markets are served from Nigeria. DCP is a subsidiary of Dangote Industries Limited (“DIL”), a diversified multinational company with interests in building materials, packaging, logistics, real estate, food and beverages, as well as real estate. Growth is conservatively funded, mainly via shareholder loans from parent, DIL, which has a 91% shareholding. The ratings take cognisance of the evolution of DCP 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 (“NSE”). This has been achieved through rapid fixed capital formation, which increased its capacity to c.44 million tonnes per annum (“mtpa”) across eight countries by FYE15, from 8mtpa in 2011.

The Group achieved 19% CAGR in revenue in the five years under review, registering turnover of N491.7bn in FY15. Revenue went up by 21% YoY to N292.2bn in the six month period to June 2016 (“1H FY16”). While this traction is palpably expansion driven, turnover will stabilise well above the FY15 level once the ongoing capex programme is completed. DCP is also comfortably profitable at 55% capacity utilisation because of its low fixed cost model, scale economies, and clinker sufficiency in Nigeria, which allow DCP to price its product competitively. While the EBITDA margin has retreated from the FY13 high of 59% to 53.3% in FY15 and 45.3% in 1H FY16, due to, inter alia; aggressive pricing and lower margin contributions in certain territories, DCP’s margins remain well above those of its peers. Operating profit increased 11.2% to N207.4bn in FY15, before declining 20% YoY to N97.8bn in 1H FY16.

DCP has increasingly made recourse to debt to fund growth, which saw total borrowings nearly double from N181.2bn at FY13 to N348.6bn at 1H FY16, of which 72% represented DIL (Naira-denominated) loans. Gearing metrics are moderate, with net gearing reported at 44% at 1H FY16 (FYE15: 34%) and net debt to EBITDA peaking at 113.3% at 1H FY16 (FY15: 82%). Treating shareholder loans as equity, net gearing would be stable at just 5% at FY15 and 1H FY16, while net debt to EBITDA would register below 20%.  DCP is expected to maintain moderate gearing metrics in the medium term to sustain the strong Issuer ratings.

DCP’s aspirational medium term target of over 75mtpa 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. DCP will pace the rest of its capex, depending on foreign currency availability.

Positive rating action is unlikely in the medium term, with the long term rating already at the industry ceiling. Conversely, downward rating pressure could result from earnings underperformance and liquidity strain, which could emanate from adverse regulatory changes, slower than anticipated economic growth, delays in rolling out public infrastructure projects and increased competitive threats.  In addition, foreign exchange scarcity may impede debt service of foreign currency denominated loans and could result in negative rating action.


NATIONAL SCALE RATINGS HISTORY
Initial/last rating (September 2016)
Long term rating: AA+(NG)
Short term rating: A1+(NG)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Adekemi Adebambo
Senior Credit Analyst
.(JavaScript must be enabled to view this email address)
Lagos
+23 41 462 2545


Committee Chairperson
Dave King
Chairman
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated February 2017
Glossary of Terms/Ratios (February 2017)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument. The ratings expire in September 2017.

Dangote Cement Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Dangote Cement Plc with no contestation of the ratings.

The information received from Dangote Cement Plc and other reliable third parties to accord the credit ratings included:
- the 2015 audited annual financial statements (plus four years of comparative numbers),
- budgeted income statements for the Group,
- unaudited management accounts to June 2016,
- a completed rating questionnaire containing additional information on Dangote Cement Plc,
- Insurance schedule for Dangote Cement Plc,
- breakdown of facilities available and related counterparties
- corporate governance and enterprise risk framework

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES.  GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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