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ALIKO DANGOTE : Exploiter Extraordinaire

In just one year, Dangote Cement PLC jerked up cement price with its near monopoly power by 40 per cent to deliver far above a trillion naira in just  nine months

A Nigerian comedian known with the stage name: Ambassador has called out Aliko Dangote, Africa’s richest man. In a recent video making the rounds on social media, Ambassador described Dangote as a very wicked businessman who takes advantage of people everyday for his own selfish and personal gains.

According to this angry comedian, it is immoral and utterly disgusting for one single person to own and control the cement market in a country of many enterprising people like Nigeria.

“There is no Nigerian that will be given the opportunity that Dangote has that will not be the richest man in the world. Only one person is supplying cement to over 200 million Nigerians. No wonder he slept and woke up one morning to increase the price of cement from 2,500 to 5,000 naira which is over one hundred percent increase.”

He accused Dangote of impoverishing and oppressing Nigerians with his monopoly. He also described him as a ruthless businessman who does not care about the suffering of common Nigerians.

The comedian therefore called on the government of Nigeria to come clean on the cement merchant who is obviously enjoying government protection and support.

According to this concerned Nigerian, every Nigerian irrespective of class or tribe remains the ultimate victim of Dangote’s wickedness. And for him, this is the time to speak out. There could not have been a better time.

It not only ambassador that is unhappy with Aliko Dangote . Even BUA  Foods Plc in a press release recently on the Suspension of the sales of  sugar alluded  the alleged unpatriotic attitude of  Dangote PLc . “Whilst the suspension of sales of Sugar by Flour Mills may be understandable because the 2022 raw sugar allocation has been declined by the government due to compliance issues, we do not understand why Dangote has joined. In our opinion, this stoppage may be intended to create scarcity, force the prices to artificially go up, profiteer even more, and blackmail the government to review the denial of allocation to Flour Mills due to compliance issues”.

The company however , urged the government not succumb to usual antics of Dangote and others “We believe that government should not be blackmailed into rescinding a compliance-based decision and the process should be allowed to follow its due and proper course in any event, we would like to reiterate that BUA does not intend to join this suspension of sugar sales nor increase prices between now and Ramadan (a peak demand period for Sugar) as the others have done.”

 It  i is not only the above two that  are angry ; many more are vituperating    .  Aliko Dangote , chairman Dangote Group , is highly  controversial .To some he is   a quintessential business man,  a phenomenon and  business luminary ;he is respected ,loved  and admired for his business ingenuity ,entrepreneurship ,philanthropy and success  ,not only in Nigeria but globally  .To  these  observers ,  he is a blessing and  a pillar to the nation’s economy. Paradoxically , however ,to others   he  is  mere  exploiter ,an  anointed  and institutional opportunist  . The controversial perception  of this global  personality  is usually  seen in the styles ,models  or operations of his business entities .  One of these is Dangote Cement Plc 

Dangote Cement Plc  ,the manufacturer of cement  ,  a flagship  product  of  Dangote group of companies , has  continued to deliver mega bulk for the business mogul year on year ;  no doubt, it  depicts a picture of a formidable enterprise. On the Nigerian Stock Exchange today, it remains one of the listed companies  with frightening profile with almost all the traits of a world-class corporate  champion ;its  market capitalization worths   over one trillion Naira; and most importantly , it is one of the  only two listed companies as at today with  a record of  a revenue of N1trn  .

 However ,as indicated above, while the whooping fortunes of this entity have continued  to generate accolades and jubilations from its investors  and some interest groups ,most times it  raise deep concerns  and questions  from the general  public  against  it and its founder: “ What is driving this mouth watering fortune  than its near monopolistic power” ? , some analysts would query; they believe  the cement  manufacturing  giant  relies  on this power  or industry structure  to  dictate  either the output or price  or both at expense of the near helpless consumers and masses who are at the receiving ends  

 Their grouse may not be farfetched .  Wholesale cement prices have risen by an average of 15.0% since the start of 2020 as marketers transferred some raw materials cost burden to consumers ;manufacturers believe elevated demand levels aided this cost burden transfer.Market intelligence  also revealed retail prices ballooned nearly by 40 percent since January ,2021 from an average of N3100 to N4000 in January ,2022 .The kernel of this argument is usually associated with oligopolistic structure of the industry it belongs which some aggrieved consumers believed this  manufacturer is exploiting against their interest .There are three major companies manufacturing cement in Nigeria out of which  Dangote almost occupies a monopolistic position . 

 Estimate by a reliable market analyst, in 2021  revealed  DANGCEM expanded its domestic market share by 2.5 ppts YoY to 62.5% while BUACEMENT and WAPCO’s market share contracted by 1.0 ppt YoY and 1.5 ppts YoY to 19.2% and 18.4%, respectively.  

Is Dangote cement not  exploiting its dominance against the general interest of the masses ?  This is a raging question against this business mogul and Africa’s  richest man.   Some observers noted that Dangote is allegedly dictating the market  supply to dictate the price or both at other time .This is a  natural attitude of a monopolist .  More so , the rest market share is shared by the other two manufacturers , a situation that further weaken the competition .

For this privilege allegedly enjoyed   by this company and its owner , the fortune  has been  sky-bound year on year. A look into its 9-month results shows that despite a difficult macroeconomic environment.; its 9month 2021 result shows double-digit revenue growth; it demonstrated resilience in its operations which  translated to significant improvement in its earnings.  Its revenue  inched  up Y-o-Y massively by +34.24% to N1.02trn from N761.44bn in 9months 2020.This is reflected in its sales volume  which rose moderately by +15.40% to 22.16 MMT in 9months 2021 from 19.21 MMT

Both its revenue and sales volume translated heavily into a gross profit of N618.79bn  in 2021 from N443.90bn in 9months 2020, a 39.40%  increase Y-o-Y. . Relative to its gross profit  from its nine month 2021 results  , its cost of sales  moved  up  only by +27.04% to N403.39bn from N317.54bn in 9months 2020 to give the company greater paces in gross profit

 Dangote Cement  fundamentals statistics summary shows  its market capitalization  is  ₦4.76t, Trailing twelve Months [TTM ] earnings  is  ₦342.23b  and Trailing Twelve months  revenue ,₦1.29t   Its Price Earning Ratio  is 12.5x while price to sales ratio is 3.3x  The above are  ,indeed ,  brilliant scorecards; some analysts believe this could be attributed  mostly  to its managerial ingenuity.

However ,not all  believe this resounding fortunes of Dangcem could be attributed to any skill but the market structure that favoured it . They are linking this fortune to the company ‘s near monopolistic power . This is a reason why this business outfit and its owner are  always at the centre of heated controversy particularly each time the prices of cement are increased .

Where does the truth lie ?  Is Dangote a friend  of the masses and Nigeria  or an agent of some  high profile corrupt  leaders in power  who connive with him to give him this privilege or a pillar driving Nigeria’s  economic engine  and holding this economy  from collapse ?

Ordinarily, in an oligopolistic setting ,the  industry is  dominated by a small number of large firms, firms that sell either identical or differentiated products, and  the industry has significant barriers to entry. As indicated above, in Nigeria,  there three companies in the cement industry and Dangote Cement  controls greater market share near to monopoly  level ; others are not large players . Sequel to those attributes , under  oligopoly,  with  a strong management , a firm can earn super-normal profits in the long run as there are barriers to entry like patents, licenses, control over crucial raw materials, etc. These barriers prevent the entry of new firms into the industry and gives them to expand their revenue base .. Dancem is exploiting these   advantages or privileges  in Nigeria ;with its strategic forward and backward integrations. Dancem has been able to firmly maintain its hold in the industry and grow its revenue  .

But the above initiatives are not  easy , they require  a lot intellectual energy and a lot of  robust resources and core competencies  . Still , some  critics believe this industry is tilted in favour of Dangote Cement  in Nigeria with massive market share relative to the rest players  as indicated above to bestow on him certain critical success factors  .

The question whose answer is difficult is whether in a  highly competitive environment  Dancem could achieve the same outstanding performance and be as much rich ?.   No doubt , Dangote’s market share could give it a  better advantage of economic of scale .Size  comes  with many advantages : First,   having a capacity to match the resources and global distribution of large competitors brings advantages. Second, large companies also tend to devote a disproportionate share of their resources to training ,research and education . Third, it opens the door to many of tomorrow’s mega-opportunities will require significant resources.  All these advantages are being duly exploited by Dancem  relative to its competitors .These ,however , come with the challenge of  its significant employees  . However, overall ,its  large scale or economic of scale bestows on it  cost leadership and large resources at its disposal is a fulcrum that drives its product innovation and  price leadership . In nutshell , these two opportunities have bestowed on it both cost and differentiation leadership unmatched by the other two competitors .

   By cost leadership ,  a company  becomes  the lowest cost producer in the industry and this is achieved by producing in large scale which enables the firm to attain economies of scale. High capacity utilization, good bargaining power, high technology implementation are some of factors necessary to achieve cost leadership  . Dangote Cement Plc enjoys these attributes .   With differentiation  strategy,  it  maintains unique features of its products in the market  , achieve market leadership and charges  a premium price for the products  due to high or perceived  value added features . Furthermore, superior brand and quality, major distribution channels, consistent promotional support etc. are the attributes of   Dangote cement that deliver it ever growing fortunes .

Dangote Cement Plc is exploiting this strategy to drive its leadership in this industry . To maintain   differentiation leadership ,investigations revealed its product  dries faster than its competitors’  after use . For this singular quality advantage , a bag of cement of Dangote is more expensive yet smaller in size than others ; and it sustain it with robust competencies and resources .These are advantages bestowed on the company by its size advantage against its weaker  competitors . 

.Al of them enjoy these advantages at various degrees relative to their sizes . What the three cement manufacturers  practice  is alleged to be collusive oligopoly ,a market situation wherein the firms cooperate with each other in determining price or output or both ,with Dangote Plc as the   leader in both ways .  

  .

 However, it will be highly myopic to attribute Danote Cement fortunes sigly to the market it enjoys . .While the above critical success factors (CSFs)  or  performance requirements  are fundamental to an organization’s success , core competences, mainly based on knowledge assets and intellectual capital, that align with and underpin  the key success factors of the market, give  competitive advantage, better performance and better market position needed to translate them to reality .

DANGCEM PROFIT ENGINE VS THE BIG FORTUNES

A look into  its current profit  engine  will shed the necessary lights on this when its current  books are analyzed . Resources are needed to undertake a strategy but only unique resources could deliver competitive advantages : Likewise, ” core competencies ” or  activities and processes or  things that  an organization uses to deploy its resources effectively which   are very difficult for  its  competitors to emulate , are  the assets  that deliver its leadership. A  critical analysis of  Dangote Cement  Plc  operation indicates this company is riding more on the wave of what is akin to a monopoly  with  unique industry structure rather than driven by robust resources and  competencies  ,though it combines the two .  

 One core observation which could easily attract the attention of good financial analysts is that Dangote Cement Plc could have been better at the bottom line if it had been more efficient than it is now .  But  perhaps , due to a near monopoly structure this chink in its amour could either  be attributed to its complacency .A look into Dancem’s profit engine , a decisive factor that defines its fortunes  confirms this  remark .     

 Although Dangote Cement made a whooping amount of revenue to the tune  above a trillion in nine months , the cement manufacturer’s asset turnover ratio has   not been impressive ;it has been stable at 0.44 between 9month 2017 to 9months 2020 ; for 9months 2021 it was 0.50  compared to  0.44 in the corresponding period of  2020 reflecting  the steady rise in the revenue of DANGCEM  . However, while this indicates an uptick in asset efficiency , it remains below an average standard   . The higher the asset turnover ratio, the higher the efficiency of the assets ; a  higher number indicates that  it is  using  its  assets more  efficiently. For instance, an asset turnover ratio of  0.50  means  it is  generating  50k  of sales for every  Naira  of assets   . Broadly, most analysts consider a ratio of above 1.0 to be good 

  For  Dangote Cement plc ,while driving revenue base appears to be easier as an industry price leader , it is finding it difficult to control costs  and the major spoiler is its ballooning finance cost . .One thing is to expand the revenue base another thing is  to possess world-class operating  skills that deliver better net income

Though  , after  all deductions including paying a tax man  its  profit grew by 33%  Year on Year  to N278bn from N209 Billion, its net  profit margin backtracked marginally  from 27.4 % in 2020 to 26.7 % in September 2021 , indicating making less than N27  as profit from every N100 made as its turnover 

The picture become clearer when compared to the giant trend of   its revenue which inched  up Y-o-Y massively  to N1.02trn from N761.44bn in 9months 2020 and  a gross profit of N618.79bn  in 2021 from N443.90bn in 9months 2020 .  Its gross profit margin  jumped to 60.5 %  from 58 %  year on year between 2020 and 2021 .This is ,no doubt , outstanding .

Again ,when its net profit margin  at 26%  is compared  to its operating margins  one could see that   its net operating margins  give  a better picture than its net profit margins as it inched up to 43% in 2021  from 38 % in 2020  

This could be traced to some  chinks  in its amour :its negative working capital  and high level of debt, the two issues raising serious concerns and mixed feelings against the management ,  despite the fact that its  turnovers   continue to take upward swing  seismically .To some observers and analysts  ,these are raising questions and one of these is whether   these are  not  tactical errors  . These are  believed to  be a threat to optimizing its potential profitability   

 .Its debt to equity ratio is 60.0% ; this is considered by analysts to be high .DANGCEM’s debt to equity ratio has increased from 51.7% to 60% over the past 5 years. However ,its  debt is well covered by operating cash flow  at 107.5% .Also , DANGCEM’s interest payments on its debt are well covered by EBIT (17.3x coverage).

The only danger is its rising finance costs that constitute a threat to its bottom line .In the last nine months both its Finance income nearly turned spoilers  .While  its finance income fell Y-o-Y by -24.44% to N13.85bn from N18.33bn  ,its  finance cost skyrocketed by +41.96% to N48.69bn in 9months 2021

 However , some analysts believed , a company like Dangote Cement could afford these luxuries due  to  the oligopolistic structure of the industry it belongs and its near monopolistic position or advantage since the industry structure low threat of entry .   

 Whatever may be the views of the analysts on both sides of the divides , one thing that cannot be disputed is that  the rising finance costs from its massive debts is impugning its efficiency and profitability . Finance costs increased by 42% between the period under review to N48.69b  from N34.30b b  while finance income cascaded by 27% to N13.44b from N18.33b     

Another sore point in Dancem financial health is its negative working capital . The limestone crusher’s working capital continued in its negative trend, reflecting that the company’s current liabilities have steadily been higher than its current ratio. The negative capital continues to grow even though growth in current assets outpaced growth in current liabilities in 9months 2021 

A healthy business will have ample capacity to pay off its current liabilities with current assets. A ratio of above 1 means a company’s assets can be converted into cash at a faster rate. The higher the ratio, the more likely a company can honor its short-term liabilities and debt commitments. 

A higher ratio also means the company can easily fund its day-to-day operations. The more working capital a company has, the less it’s likely to have to take on debt to fund the growth of its business. 

  Liquidity -Tight and unmanageable

 No doubt , the liquidity position of Dancem is tight and may have difficulty in settling its current bills or debts . Although the group’s acid-test ratio (or quick ratio) rose to  marginally 0.56 in 9months 2021 from 0.50 in 9months 2020, the quick ratio has not been stable over time and very much a manageable average .. A quick ratio of 1 would be preferred for a manufacturing company, which indicates that the company has ready assets to cover current liabilities after taking out inventories. It has been like this in the last few years .The group had the highest quick ratio of 0.61 in 9months 2018 while 9months 2019 records the lowest quick ratio of the company in recent times  Like wise ,its current ratio as at 9moth 2021 is 0.73 .This is less than 1 too ‘

    However , there is consolation for the above threat . DANGCEM has always had a high-interest coverage ratio, indicating that despite its high debt profile, its earnings cover its finance cost significantly. An interest coverage ratio of 3 would indicate that the company could meet its debt obligations and still have some liquidity left.  For Dangote Cement, in 9months 2021, the interest coverage ratio rose from 10.35 to 10.57, indicating that the company’s earnings can pay interest on its debt over 10 times   But this  could also mean that the company did not use its debt properly or it decided to invest in new products and technology 

 Its dropping finance income and high rising finance costs are basically its fortune eaters. Without those two potential spoilers , Dancem profit outlook would have been better .This is manifested in its impressive  Earnings Before Interest  ,Tax ,Depreciation and Amortization .EBITDA  , a rawer, clearer indication of your earnings. , that edged up exponentially by +45% to N514.79bn from N355.02bn in 9months 2020 .Its EBITDA margin, a measure of a company’s operating profit as a percentage of its revenue, followed the same impressive trend  as it  increased to 50.40% from 46.60% .

 The positive transmission of the above could be  sustained  in its  Profit before tax (PBT) increased Y-o-Y by +49.10% to N405.49bn from N271.96bn in 9months 2020 .

 Though  , after  all deductions including paying a tax man  its  profit grew by 33% to N278bn from N209 Billion ;its nine-month performance however  shows a negligible  0.9% increase to N278 billion from N276 billion  

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