Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement H1 2021 Results. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Temilade Aduroja. Please go ahead.

Good afternoon, and good morning, and welcome to Dangote Cement's Half Year 2021 Results Conference Call. My name is Temilade Aduroja, Head of Investor Relations at Dangote Cement. On the call today, we have our CEO, Michel Puchercos; our Group CFO, Guillaume Moyen. Michel will take us through the presentation, discussing our financial and nonfinancial performance for the first half of the year, and there will be a Q&A session right after. Over to you, Michel.

Thank you, Temi. Good afternoon, everyone. Thank you very much for taking the time to join us today. It is my pleasure to welcome you all to this conference call to discuss Dangote Cement's financial results for the first half of 2021. Let's begin on Page 2 where you can see that we had a solid first half of the year with substantial increases in volume and profitability. On the financial side, our revenues were up 44.8% on to NGN 690.5 billion, with group EBITDA was up 61% to NGN 351.1 billion compared to the same period last year. Profit after tax was up 51.9% to NGN 191.6 billion. In terms of volumes, group volumes were up 26.1% at 15.3 million tonnes. In Nigeria, sales momentum remained strong with volumes up 33.2%. We are benefiting from the 3 million tonne line, per annum at Obajana, and have recommenced clinker export from Nigeria in the second quarter. We continue our efforts on sustainability, focusing on a greenhouse gas angle, movements are being deployed and we are paying a modest 2% alternative fuel thermal substitution rate for H1 2021. If you turn to Page 3, you can see we have achieved a lot so far this year. In March, we were accorded a long-term issuer rating of AAA by GCR. This is the highest issuer rating accorded by GCR. So we are very pleased with this outcome. We had a busy month in May, when we released our 2020 combined Annual Results and Sustainability Report, completed the successful bond issuance and recommenced clinker shipments from Nigeria. June was also an eventful month in which our share buyback program renewal was approved by the Securities and Exchange Commission. We became the first Nigerian listed company to report its financial results in XBRL format, using IFRS taxonomy and we commissioned our second gas fired power plant in Tanzania. On Page 4, we 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 declined in 2020. According to IMF, SSA GDP is estimated to grow by 3.4% in 2021, following its contraction of 1.9% in 2020. We have already been witnessing the growth across all our countries of operation in the first half of this year. On Page 6, we can see how our businesses remain robust during the first half of the year, both on financial and the operational side. On the financial side, group revenued was up 44.8%, supported by strong volume and lower discounts/rebates. Group EBITDA was up 61% than the cost control measures, efficient initiatives and better fixed cost absorption on the back of higher production volumes. We achieved a strong earnings with EPS up 50.5% to NGN 11.21. This strong intrinsic performance is magnified by the lower Q2 2020 results due to the effect of COVID-19. The dividend of NGN 16 per share was paid in May 2021, leading to a cash payment to our shareholders of NGN 272 billion. While having advanced dividend payment by 1 month compared to the previous years, Dangote has returned over NGN 1.23 trillion to shareholders over the past 10 years. To enable the company to return cash to shareholders on a more regular basis and following the strong support of investors community, the buyback program initiated in 2020 has been renewed for 1 year. On the operational side, we recorded double-digit volume growth in both Nigeria and Pan-Africa. The strong growth trend, which started in H2 2021, following the initial impact of COVID-19 has continued into 2021. Group volumes were up 26.1% to 15.3 million tonnes, following the strong demand across all our operations. Nigeria volumes were up 33.2%, supported by an increase in housing infrastructure and commercial construction. We also recommenced exports from both Nigerian terminals, in Apapa and Onne after closing export to [indiscernible]. Our income statement on Page 7 highlights our financial performance in more detail. Our profit after tax was up 51.9% at NGN 191.6 billion. Looking at Page 8, 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 400.9 billion as of June 30, 2021, with net gearing of 49.8%. Our balance sheet on Page 9 remains resilient with a current balance of NGN 151.7 billion as of H1 2021. On Page 10, I will go over our performance in Nigeria in detail. Total sales revenue reached 9.9 million tonnes a record high first half and up 33.2% as robust demand for housing infrastructure and commercial construction in the domestic market continued. We also recorded a record high EBITDA of NGN 311.2 billion, up 60.1%, supported by lower discounts and the ramp-up of our more than -- and efficient 3 million tonne line 5 at Obajana. Our pragmatic content model also supported a reduction in sales, distribution and administrative costs. To ensure we met the strong demand in Nigeria, we took the strategic decision to pause clinker export a few months. We recommenced exports in the second quarter with the 2 clinker shipments 57,000 tonnes in total from our own Onne terminal and one from Apapa. I am pleased to report that our 3 million tonne Okpella plant is on track to be commissioned in the first quarter. On Page 11, you can see that our Pan-African operations have continuing to perform very well. Volumes were up 15.5% to 5.5 million tonne with particularly strong performance in Senegal, Ethiopia and Cameroon. Revenues were up 36.9%, NGN 198.5 billion, supported by higher realized prices and volume growth across all our operations. We achieved a strong EBITDA of NGN 47.2 billion, up 49.8% and EBITDA margin of 23.8%. Congo's volume growth was 70%, with Tanzania was 50%. Over the next pages, on Page 12, you will see the updates from our Pan-African operation. Cameroon and Congo grew by 5% and 70%, respectively. We maintained good market share of 36% and 50%, respectively. Our Congo plant continues to improve its performance and rejuvenate market access. In Ethiopia, volumes were up 1.3% compared to last year, owing to improved plant performance. We estimate the market share to have been 30%. On Page 13, in Ghana, we had a 44.4% increase in sales compared to last year. In Sierra Leone, volumes were up 46.4%. Sales in Senegal was slightly down 3.2% compared to H1 2020, while plant capacity is still fully used. On Page 14. We are happy to report that sales in South Africa increased by 22% year-on-year. Our performance in Tanzania improved with the use of the new power plant. Volumes in Tanzania were at 50%. In Zambia, we increased sales in H1 2021 by 11%. Now moving on to our debt and liquidity from Page 16. Our track record of accessing the debt capital market remains strong. If you recall, in April 2020, Dangote Cement issued NGN 100 billion, 5-year fixed rate bond, which was the largest corporate bond issuance in history of the Nigerian debt capital market [ time ], and which is the only covering bond AAA rating in Nigeria by GCR. In May this year, DCP successfully raised NGN 50 billion Series 1 bond with 3 tranches of 3 years, 5 years and 7 years under a [ fresh ] of NGN 300 billion multi-instrument debt issuance program. As of H1 2020, we repaid all our outstanding commercial papers. As you will see on Page 17, our capital structure remains robust, and we are enjoying a strong balance sheet with available liquidity. On Page 18, a track record of accessing the local debt market has been recognized, and we are pleased to report that we were accorded a long-term issuer rating of AAA by GCR in March. This is the highest issuer rating accorded by GCR. On Pages 20, 25, we highlight our continued efforts on sustainability and governance, structured around the 7 sustainability pillars of 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. On Page 20, you will see that we released our 2020 combined Annual Report and Sustainability Report, in which we have presented ESG data as per GRI referential and external assurance by Deloitte. Page 21, discusses the institutional pillar and our strong developments framework. On Page 22, we have made significant improvements on our environmental pillar and are strengthening our alternative fuel initiatives. The focus is circular economy business model, optimizing cost and sustainably reducing exposure of our cash flow base to foreign currency fluctuations. So far this year, DCP's plants are currently producing and installing alternative fuel equivalent that can process diverse types of waste. So far in H1 2021, our AF thermal substitution rate is 2%. Thanks to various programs deployed across all territories and operations, we have also registered a decline in our energy consumption per tonne -- annual per consumption per tonne in H1 2021 compared to same period last year. The social pillar on Page 23 demonstrate our social investment in H1. We have spent NGN 2.2 billion on CSR in H1 2021. On Page 24 and 25, our financial pillar demonstrates how we are creating value for our shareholders with strong revenues and EBITDA and dividends. I would like to thank everyone very much for joining us today, and thank you again to our investors for their continued trust and support in our business. You can see from our strong set of results that 2021 is going very well, and we are confident that the encouraging momentum will continue for the rest of the year. Thank you very much.

Thank you, Michel. We will now open the call for questions and answers, please.

[Operator Instructions] Our first question from the conference call is from Yassine Touahri of On Field Investment Research.

So a couple of questions. First, we've seen a sequential decline in margin in the second quarter versus the first quarter in both Nigeria. I can imagine it's partly due to exports, but also in Pan-Africa. Is it only related to exports? Or do you see any impact of higher energy costs? And my second question would be about the energy cost. It looks like there was a double-digit increase in power and fuel cost [ pattern ] of cement in the first half of 2021. Do you expect the energy inflation to be more pronounced in the second part of the year? And do you expect to offset that by your price increase? Really, I'm trying to understand the sequential decrease in margin in Q2 and the energy cost inflation [indiscernible] in the first part of 2021 and what you expect for the first half -- to second half of 2021.

Thank you for your question. Yes, you rightly saw some inflationary pressure on our cost driven by, my understanding mainly the freight cost increase, which are very visible very low all over the world and vessels moving from USD 10,000 per day to USD 40,000 per day, which, of course, translates into capital cost, FOB, Nigeria, or any other country in the world like Cameroon, Sierra Leone, Ghana, Senegal, importing coal or importing clinker or importing cement. In case of Nigeria, it impacts, mainly coal, but we have also other inputs coming by vessel, like gypsum and all these translating into this margin change from H1 to -- with Q2 to Q1. Overall, as you can see, H1 is very, very strong. So it has been able to mitigate this effect. On the energy side. I've not seen yet a drop in the freight cost increase. And I believe the pressure on imported coal will remain in H2 2021 because of the -- the freight costs mainly...

What is your hedging policy in terms of coal?

Okay, it's quite opportunistic. We -- there's no -- not that much long-term hedging for the time being. So we are -- very opportunistic position for the time being.

Could we see some further sequential margin pressure -- sequential pressure on margin in the second part of the year? Or do you think the in business [indiscernible].

I'm confident, as you say, it's a factor impacting all players against the -- we had opportunity to develop further local sources of energy, for example, Nigerian coal. I believe the pressure on freight maybe ease, at this level it really impact the volumes and the demand. So maybe some stability to expect. But again, just to develop all other ways, especially local ones.

Our next question is from Khalil Woli of CardinalStone Research.

So firstly, we've noticed some price increases at the start of the year. Do you see still scope for further price adjustment, in the second half? And I also want to ask about, where does the management see its strongest market in Nigeria, or part country. It was just the high demand and what [ percent of sales ] is going to be attributed to private consumption? And also, had heard management announced that, there will be a second tranche for the buy back is there a timeline to commence or conduct the share buyback? And just generally, the company's outlook on cement demand particularly in the domestic market? Just before I go to my last question is about the energy mix -- how the energy mix. How has the energy mix then evolved, particularly since from year 2020 to [ each one ]? And I noticed that you mentioned something about alternative [indiscernible] in the results statements, how do we expect this new initiative to change [ clients ] and achieve annual cost, going forward.