Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Q1 2021 Results Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Temilade Aduroja.

Good afternoon, and good morning. Welcome to Dangote Cement's Q1 2021 Results Call. My name is Temi Aduroja, Head of Investor Relations for Dangote Cement. On the call today, we have our CEO, Mr. Michel Puchercos; and our group CFO, Mr. Guillaume Moyen, they will both be available for Q&A session after the presentation. Over to you, Michel.

Thank you, Temi. Good afternoon, everybody. Thank you very much for taking the time to join us today. It's my pleasure to welcome you all to this conference call to discuss Dangote Cement's financial results for the first quarter of 2021. Let us begin on Page 2 where you can see that the year has started positively with substantial increases in volume and profitability. On the financial side, our revenues were up 33.5% to NGN 332.7 billion, group's EBITDA was up 55.8% to NGN 178 billion. In terms of volumes, group volumes were up 18.7% at 7.5 million tonnes, and the Nigeria sales momentum remained strong, with volumes up 22.2%. On the sustainability side, we spent about NGN 350 million on social investment in Q1 2021, with a focus on education and health. We were also according to the long-term issuer rating of AAA by GCR in March. This is the highest issuer rating recorded by GCR, so we are very pleased with this outcome. If you turn to Page 3, to discuss the current macroeconomic environment of 2021. Sub-Saharan Africa is experiencing recovery on the back of the COVID-19 pandemic and the commodity market decline in 2020. According to the IMF, Sub-Saharan Africa GDP is expected to grow by 3.4% in 2021, following its contraction of 1.9% in 2020. We welcome the growth across all our countries of operation. In addition, Dangote Cement embracing a strong dynamic driven by the Africa Continental Free Trade area, which commenced in January to support our export strategy. We are well positioned to leverage this regional free trade agreement to accelerate our export to import strategy. On Page 5, you can see how our business remain robust during the quarter, both on the financial and the operational side. On the financial side, group revenue was up 33.5%, supported by strong volumes and lower rebates. Group EBITDA was up 55.8%, thanks to cost control measures, efficiency initiatives and better fixed cost absorption on the back of a higher production volumes. Nigeria EBITDA was up 52.7%, notably supported by the ramp-up of a new and efficient Obajana Line 5. Pan-Africa's EBITDA was up 61.9%, and reached a record high EBITDA margin of 25.5%. We achieved strong earnings with EPS up 46.9% at NGN 5.29. On the operational side, we recorded double-digit volume growth in both Nigeria and Pan-Africa. Group volumes were up 18.7% to 7.5 million tonnes, owing to strong demand across all our operations. Nigeria volumes were up 22.2%, supported by the strong demand experienced since Q3 and Q4 2020. Our income statement on Page 6 highlight our financial performance in more detail. Our profit after tax was up 48.1% at NGN 89.7 billion. Looking at Page 7. You can see that our cash from operations is growing at a strong rate. Investments continue to prepare the group to capture market growth across territories, and net debt is just NGN 257.9 million as at March 31, 2021. Our balance sheet on Page 8 remains resilient with a cash balance of NGN 147.9 million as of Q1 2021. On Page 9, I would like to draw your attention to our performance in Nigeria. Total sales volume in Nigeria reached 4.9 million tonnes, up 22.2%, thanks to robust demand for housing infrastructure and commercial contraction in the domestic market. We also recorded a strong EBITDA of NGN 157.9 billion, up 52.7%, supported by lower discounts and ramp-up 3 million tonnes Line 5 at Obajana. Our pragmatic cost control measures also supported a reduction in sales distribution and administrative costs. To ensure we meet this rapid demand in Nigeria, we took the strategic decision to support clinker exports. Report in the second quarter, as we continue to do all we can to increase output in our existing and new plants to meet the robust demand. On Page 10, you can see that our Pan-African operations have reached a new highs. Volumes were up 12.8% to 2.6 million tonnes. This demonstrates that the recovery of the cement market, which we experienced in the second half of the year 2020 has continued into 2021. Revenues were up 33.1% to NGN 93 billion, supported by higher realized prices and volume growth. We achieved a strong EBITDA of NGN 23.7 billion, up 61.9% and a record high EBITDA margin of 25.5%. Senegal, Cameroon, Ehtiopia, Zambia and Tanzania performed particularly strongly. The commissioning of our power plant in 2020 is enhancing our performance in Tanzania. Over the next few pages, from Page 11, you will see the updates from our Pan-African operations. We observed volume growth in 8 of our 9 Pan-Africa operations. Cameroon and Congo grew by 16% and 67% , respectively, and we maintain very strong market share. Our Congo plant continues to improve its performance and regional access. In Ethiopia, down 4% compared to last year, mainly due to scheduled maintenance operation. On Page 12, in Senegal and Sierra Leone, volumes were up 6% and 39% as well. Senegal cement market remained strong in Q1 2021. In Ghana, we had an 18% increase in sales compared to last year, triggered by an increase in allocation to the building sector. On Page 13, we are pleased to report that sales in South Africa increased by just over 6% year-on-year. Our performance in Tanzania has improved with the use of a new power plant. Volumes in Tanzania were up 29%. In Zambia, we increased the sales in Q1 2021 by 47%. Besides Zambia market challenges, the main driver for the volume increase was cement sales to the neighboring country. Now moving on to our debt and liquidity from Page 15. Our track record from accessing the debt capital market remains strong. Dangote Cement is in the progress of raising series one, tranche A, B and C, 3-year, 5-year and 7-year fixed rate bonds under its NGN 300 billion debt issuance program. If you recall, in April 2020, Dangote Cement issued a NGN 100 billion, a 5-year fixed rate bond, which was the largest corporate bond issuance in the history of the Nigerian debt capital market at the time, and which is the only corporate bond at AAA rating in Nigeria by GCR. In addition, BCP has also issued an aggregate NGN 450 billion in Commercial Papers since 2018. As you will see on Page 16, our capital structure remains robust, and we are enjoying a strong balance sheet and liquidity. This liquidity, including strong cash flow generation of NGN 186.1 billion up 47.7%, allow us to cover short-term obligations. On Page 17, our track record of accessing the local debt market has been recognized and we are pleased to report that we were according to long-term issue rating of AAA by GCR in March. This is the highest issuer rating recorded by GCR. On Page 19 to 23, we highlight our continued efforts from sustainability and governance, structured around the 7 sustainability pillars of a The Dangote Way. We strongly believe that sustainable value creation for all our stakeholders will be based on our ability to fully embed The Dangote Way into every aspect of our operation and culture. From Pages 22 -- 20 to 23, you will see highlights of the sustainability side of the business. Page 20 discusses the institutional pillar and a strong governance framework. On Page 21, we have made significant improvement on our environmental pillar and are strengthening our alternative fuel initiative, which focuses on leveraging the shape of our economic business model, optimizing exposure of our cash cost based to foreign currency fluctuations. The Social Pillar on Page 22 demonstrates our social investments in Q1. On Page 23, our financial period demonstrates how we are creating value for our shareholders with a strong revenues and EBITDA and dividends. Thank you very much for joining us today, everybody, and thank you again to our investors for their continued trust and support in our business. You can see from a strong set of results, that 2021 is off to a good start. We look forward to an exciting year ahead. Thank you very much.

Thank you, Michel. The call is now open for question and answers.

[Operator Instructions] The first question comes from Yassine Touahri from On Field Investment Research.

So 2 -- 3 questions for me. First, is the margin of 66% experience in Nigeria in the first quarter sustainable for the rest of the year? Or could we see some dilution in the future because of your export strategy, higher energy costs or more competition? So that will be my first question. Second question, which is a bit similar. Is the 25.5% EBITDA margin experienced in the Rest of Africa, sustainable for the rest of the year? And then my last question is about exports and flows. So what we've seen is that the SOB clinker prices in the Mediterranean and Basin and also the freight rates have increased quite substantially since last year. And the question is that, is it an opportunity, as it means you can push prices in the West African countries that are relying on imports? Or is it a challenge as it has been higher import costs? Could you hear my questions? Hello?

[Technical Difficulty] Temi, please go ahead.

Okay. Michel was just about to answer the first question. So over to you, Michel.

Can you hear me? So I will answer you. For the margin, again, nothing exceptional in Q1. Nothing that you should remove from the operational performance to assess a different level of margin Q2 and beyond. Of course, we -- and when we published very good results in 2020, same question was raised, can you sustain this level? And we have demonstrated in Q1 that we have been able to go beyond. We all know that trees don't grow up to the sky. And maybe there's a need somewhere. Where is it exactly? I can't tell, but the time being, we're improving and the more growth, the more we can contain a fixed cost, and you can see the impact on the margin. On Pan-Africa, it has been growing constantly quarter after quarter for the last 4 , 6 quarters. And I believe there is room for improvement. In terms of opportunity and price impact, yes, you have pressure on some countries importing, is it a clinker or cement or coal. But at the same time, on the other countries where there's no imports, I mean, the threats import could represent, can also be turned into an opportunity to increase local prices without suffering from the threat is it on clinker, cement or coal. For the time being, we can see that in the results, we have managed this threats. And this is also why we restarted in Q2 our exports in order to maintain these very good margin level. I don't know, Guil, if you want to add anything to this question?

As you mentioned -- thank you, Michel. As you mentioned, I would say from the export angle for us, we see new opportunities increasing by the day once the competition is becoming more expensive. So we see that as a great opportunity to strengthen our deployment of resources across West African and Central African countries, which are in a position to import our clinker, and eventually, our cement.

The next question comes from Janet Ogunkoya from Tellimer. Janet if your phone is muted, please unmute your phone, so that we can hear you and you may pose your question. Unfortunately, we cannot hear anything from Janet line. Let me just see. The next question comes from Mustafa Wahab.

So my question really is on volumes, especially in Nigeria.

Unfortunately, we've lost Mustafa's line. His line has disconnected. Temi, can I hand back to you for questions from the webcast, while we wait for more questions on the audio line?

So first question on the webcast is, is there an update on the renewal of the share buyback program? And what is the latest update on the listing in London?

Okay. On the share buyback, we have -- we started the process internally and are going to meet our shareholders during the coming AGM in May 26 to continue this protocol. It was successfully implemented last year. And the Board has requested that we go again to the same routes to maintain its opportunity to return cash to the shareholders. Hopefully, in 2021, the conditions are aligning. And if the authorities are giving us the license to execute this program. In terms of -- on the leasing, we still have the same pragmatic approach, which is looking at the way the cement industry is valued across the globe. We see some improvement there. So obviously, the attention is strong from our end. The markets are also showing still a lot of positive directions in terms of valuation in general. And the appetite of investors remains strong for energy market and front tier markets. So we definitely actively look at the process itself. Nevertheless, we have not re-engaged actively with banks or advisers on this question at the moment.

Can we continue to questions on the call before we move back to webcast?

The next question comes from Oluwaseun Sangosanya from Stanbic.

My question is actually for the Pan-African. So we noticed that the loss from Pan-African is actually reducing. We would like to know which of the subsidiaries are still loss-making? And when are they going to -- do you have an idea of when they will be a profit-making subsidiary?

So there is a portion in our P&L, which is eventually important factor when we look at the consolidated financial figures is that we have some financial impacts, which are related to the existing of that intracompany loans, which are eventually showing some reduction on the profit between our company results and the consolidating results at certain levels on the P&L. So this is a mechanical impact, but it doesn't indicate that our EBITDA are loss-making per se. This is the first comment. The second comment is that we communicate the performance of the bond to we can use. One is Nigeria, the rest is Pan-Africa. What we can confirm is that all our units have been delivering positive EBITDA contribution across in Q1 2021. This is a continuation of the increased profitability that we have seen across all of our territories of operations in 2020, specifically during the second half of the year.

The next question comes from Merchant Bank.

Around in Nigeria cement demand. Given that was quite strong in Q1. I'm wondering how this impact is going on clinker exports through the year? And also, I'd like to know what management thinking on prices. We saw some gains in prices in Q1, I'm wondering, if we should expect some of the to be or ?

So cement demand in Nigeria and clinker export strategy. The cement demand was very strong, same like a Q3, Q4 last year and looks like the same environment need to saving conclusion. And we -- in April and May, we are on the very strong trend as well. So we -- we are very positive for the coming months. In terms of our clinker exports, we want to leverage our terminals and also this export import strategy. At the same time, we are going to do some debottlenecking, is Obajana, is it , starting of plants. As a consequence, having more volume available, we believe we can, at the same time, develop a clinker export strategy and supply the strong demand in Nigeria.

Temi, Can I hand back to you for questions from the webcast?

So we just have a few questions on the webcast. The first question is an update on the CapEx pipeline in Nigeria and on the other plants, Ndeuye, [indiscernible], Ghana? Another question is, has the momentum seen in the first quarter continued thus far into the second quarter? I think we have answered that. Another question as well. The last question is and what is the outlook on sales and volumes going into the rest of 2021? And the last question on this patch is the halt of clinker exports via the Seaport is understandable, but can we expect this to continue for the rest of the year? The clinker exports via the sea. It's -- the halt is understandable. Do we expect this to continue for the rest of the year?

So CapEx pipeline, yes, the projects, you know well, are progressing. So nothing to mention at this stage. We are reviewing them regularly, and the list is the one you mentioned. In terms of export by sea. So we adjusted it in my presentation. So yes, it was holding recently, and we are going to restart in Q2 with aiming at, mainly supplying Cameroon on .

Okay. Another question is the 6 million tonnes plant in still expected to come on board in 2021? And when should we expect the plant commissioning?

The answer is yes, we expect , and we expect commissioning by, let's say, end of H1 and middle of Q3.

Okay. Next question here is, can you give us an update on dividend policy for 2021, given all this cash, do we expect the same dividend and price for 2021? And where is the volume coming from in Nigeria? Is it mostly private or public segment that is impacting the strong growth in Nigeria? And that's the final question for the webcast.

So Guillaume, the CFO answer you in terms of dividend.

Thank you, Michel. So for the dividend policy, the Board was rational decision to payment distributing over 80% of the net profits on a yearly basis. So while we cannot specify any number at this point of time, directionally, longer the profits are remaining in the same level of performance. We can expect a similar distribution in the future or higher if we deliver higher profits.

In terms of volumes in Nigeria. For time being, the private market is very, very strong. And the large construction companies are not driving the -- I mean, a part of the strong demand that's not driving it in the sense of justifying majority of the volumes, it's really the household and the small construction companies, masons, home builders driving this very, very strong demand continuously.

Yes. And I think the last question is, have you gained market share in Nigeria in Q1 2021?

So when you referred to announce done by other competition. And when you add all the numbers, yes, we can say that we have increased the market share in Nigeria in Q1 2021 based on the numbers we have seen here and there.

Those are all the questions on the webcast.

We have no further questions on the audio line. Can I hand back to you for closing comments.

Thank you for joining this call. We are very happy to close a very strong Q1 after a very strong year 2020. It shows the quality of the strategy. And it shows that the implementation is in line with the strategy. For Q2 and the quarters to come, very similar focus: number one, supply the market demand with efficient plants; number two, safety and health, will remain, of course, our goal in Q2, Q3, or whichever quarter to come, obviously, together with a strong cost control; and last but not least, everything related to environment and sustainability is it alternative fuel relationship with our community, we remain very, very important in order to deliver similar results even better in the months to come. Thank you for your confidence.

Thank you very much, Claudia. You may close the call.

Thank you very much. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.