Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement 9 months results for 2021. [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 welcome to Dangote Cement's 9 months 2021 Results Conference Call. My name is Temilade Aduroja, I'm Head of Investor Relations at Dangote Cement. On the call today, we have our CEO, Michel Puchercos, who will take us through the presentation and will be available for Q&A. We also have our group CFO, Guillaume Moyen, who will be available for Q&A as well. 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 9 months of 2021. Let us begin on Page 2, where you can see that we have had a solid first 9 months of the year, with significant increases in volume and profitability. On the financial side, our revenues were up 34.2% with group EBITDA was up 45% to NGN 514.8 billion from 9 months of 2020. Profit after tax was up 33.3%. In terms of volumes, group volumes were up 15.4% at 22.2 million tonnes. In Nigeria, sales momentum remained strong with volumes up 18.7%, despite heavy rains and extended plant maintenance in the third quarter. Our 3 million-tonne plant in Okpella is on track to ramp up production before the end of the year. We continue our efforts on the sustainability side and attained a 2.3% alternative fuel thermal substitution rate for 9 months 2021. Dangote Cement for the third time submitted to the carbon disclosure project and in 2021, became CDP supporter. If you turn to Page 3, you can see we have achieved a lot so far this year. In March, we were accorded the 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 and sustainability report, and completing the successful bond issuance. 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 Nigeria-listed company to report its financial results in XBRL format using IFRS taxonomy and commission our second gasified power plant in Tanzania. In August, we established a new NGN 150 billion commercial paper program to be used for working capital and general corporate purposes. In September, we had a successful sustainable week in building a sustainable future: The Dangote Way. We believe that building a sustainable future is a collective responsibility, and it was fantastic to see such a great team effort across all our countries of operations. On Page 4, we discussed the current macroeconomic environment of 2021. According to IMF, Sub-Saharan Africa GDP is ready to grow by 3.7% in 2021, owing to an improvement in global trade and commodity prices. On Page 6, you can see how our business remained strong during the first 9 months of the year, both on the financial and the operational side. I am pleased to report that on the financial side, EBITDA and profit after tax have exceeded 2020 full year results. Group EBITDA of NGN 514.8 billion was up 45% year-on-year thanks to increased volumes and strong cost control measures. Group revenue was up 34.2%, supported by strong volumes. We achieved robust earnings with earnings per share up 32.5% to NGN 16.2. On the operational side, we recorded strong volume growth in both Nigeria and Africa. Group volumes were up 15.4% to 22.2 million tonnes, owing to strong demand across all our operations. Nigeria volumes were up 18.7% despite heavy rains and extended plant maintenance. Our income statement on Page 7 highlights our financial performance in more detail. Our profit after tax was up 33.3% at NGN 278.3 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 352.3 billion as at the end of September. Our balance sheet on Page 9 remains resilient, with a cash balance of NGN 179.1 billion as at 9 months in 2021 and a net gearing of 38.9%. On Page 10, I will go over our performance in Nigeria in more detail. Total sales volume reached 14.1 million tonnes, up 18.7% as robust demand for housing, infrastructure and commercial construction in the domestic market continued. We also delivered a record high 9-month EBITDA of NGN 459.2 billion, up 45.3%, supported by lower discounts and the ramp-up of our modern and efficient 3 million-tonne Line 5 at Obajana. Our revenue over 9 months 2021 and EBITDA have surpassed full year 2020 despite heavy rains in the third quarter and extended scheduled maintenance, which slightly impacted production in the quarter. Our 3 million tonne Okpella plant is on track to be commissioned before the end of the year. On Page 11, you can see our Pan-African operations have continued to perform very well. Volumes were up 9.4% to 8.2 million tonnes, with particularly strong performance in Senegal, Ethiopia and Zambia. Revenues were up 28.1% to NGN 297.9 billion, supported by higher realized prices and volume growth. We achieved strong EBITDA of NGN 66.9 billion, up 28.6% and EBITDA margin of 22.5%. Countries importing clinker, such as Cameroon and [ ooze ] cement, such as Ghana and Sierra Leone, are challenged by freight prices, which have increased substantially with material price volatility. Over the next few pages, from Page 12, you will see the updates from our Pan-African operations. Cameroon remained relatively flat owing to the volatility in the lending cost of clinker that I just mentioned, but we maintained good market share of 33%. Our Congo plant continues to improve its performance and regional market access. Sales were up 33% compared to 9 months 2020. In Ethiopia, volumes were up 4%, owing to improved plant performance. We estimate the market share to have been 32%. On Page 13, in Ghana, we had an 8% increase in sales compared to last year. In Sierra Leone, volumes were up 7%. We are still operating at full capacity in Senegal. On Page 14, we are pleased to report that sales in South Africa increased by 6% year-on-year. Our performance in Tanzania has improved with the use of the new power plant. Volumes in Tanzania were up 51%. In Zambia, we increased the sales in 9 months 2021 by 2%. The main driver for the volume increase was cement sales to the neighboring countries. Now moving on to our debt and liquidity from Page 16. Our track record of accessing the debt capital market remains strong. In May this year, Dangote Cement successfully raised Series 1 Tranche A, B and C, 3-year, 5-years and 7-years unsecured fixed rate bonds under a fresh NGN 300 billion multi-instrument debt issuance program. In August, we successfully established a new NGN 150 billion commercial paper program. As you will see on Page 17, our capital structure remains robust, and we are solidifying our strong balance sheet with available liquidity. This liquidity, including strong cash flow generation of NGN 512.9 billion, up 43.9% and short- and long-term financing lines and values, allow us to cover short-term obligations. On Page 18, our track record of accessing the local debt market has been recognized, and we were accorded a long-term issuer rating of AAA by GCR in March. This is the highest issuer rating accorded by GCR. On Page 20-25, we highlight our continued efforts on sustainability and governance structured around the 7 sustainability pillars of The Dangote Way. On Page 20, you will see that we released our 2020 combined annual report and sustainability report in which we have presented environmental, social and governance data as the global reporting initiative, referential and external assurance by Deloitte. Page 21 discusses the institutional pillar and shows our strong governance framework, with a focus on Board members' diversity. On Page 22 and 23, we show how we have continued making significant improvement on our environmental pillar and are strengthening our alternative fuel initiatives. Increasing waste management solutions in our countries of operations, focuses on leveraging the circular economic business model, optimizing cost and sustainably reducing exposure of our cash cost base to foreign currency fluctuations. So far this year, Dangote Cement plants are currently procuring and installing alternative fuel equipment that can process diverse types of waste. During the 9 months of 2021, our alternative fuel thermal substitution rate is 2.3%. We have also seen a decline in our energy consumption per tonne and water consumption per tonne during the 9 months -- first 9 months of 2021. Page 23 shows the different types of waste we use across our countries of operations. On Page 24, Dangote Cement, as for the third time, submitted to the carbon disclosure project and secured a C rating. Dangote Cement became a CDP supporter in 2021. Page 25 and 26 demonstrate our financial pillar and how we are creating value for our shareholders with strong revenues and EBITDA and dividends. Looking at Page 26. In June, we became the first Nigerian-listed company to report its financial results using XBRL format with the IFRS taxonomy. We believe that adopting XBRL reporting will strongly benefit Dangote Cement's existing and potential investors. The social pillar, on Page 27, demonstrates our social investment and -- in 9 months 2021. We have spent NGN 2.4 billion on CSR in 9 months 2021. This page also shows that we have achieved in our recently completed sustainability week. I would like to thank everyone very much for joining us today, and thank you again to our investors for your continued trust and support in our business. You can see from a strong set of results that 2021 is going very well overall. We are confident that the encouraging results will continue for the rest of the year. Thank you very much.

Thank you. And we will now open the call for question and answers.

[Operator Instructions] Our first question is from Oluwaseun Sangosanya of Stanbic IBTC.

Congratulations on your results. Please I would just like to ask some questions. I think my first question will be around the Pan-African businesses. The Pan-African business showed that there was a profit in this quarter, and also the profitability has been improving over time. So I'd just like to ask all the businesses in the Pan-African, are then now profitable? Just to confirm that. And if they are not, which of the businesses or which of the countries are lagging behind in terms of profitability? Also to add to that is -- with any price increases are on the Pan-African businesses because they, like you said, the revenue per tonne increased also for -- between last period and this period. I think that will be my question for now.

Thank you very much for your question. I will hand over to Guillaume.

Good afternoon. Thank you for your question, and welcome, all, to the call. So from a general activity standpoint across our Pan-African operations for the past, I would say, 12 months, all our operations are now operating at EBITDA-positive level. However, we mentioned during Q2 results, and this is still valid at the moment, we are facing specific challenges in countries importing, I would say, intermediary products or final products as cement and clinker. So we are talking specifically about Ghana, Sierra Leone for cement and Cameroon for clinker, considering the tension across the globe in terms of shipping and the scarcity of product availability, we are facing some maybe additional tension on the cost side. From a price standpoint, all territories have been following, in general, the overall trend of compensating the cost increase. So you would see some better realization from a revenue standpoint in parallel or above the trend of the costs. I hope this is covering the question you are raising.

Our next question is from Oluwaseun Arambada of Meristem Securities.

[indiscernible]

I would now hand over to Temilade to read the webcast questions.

Okay. So the first question in the webcast is your profit growth rate in the third quarter seems the least since last year. What accounted for that? That's the first one. Maybe we'll just take in batches. Any internal view on the banning of imported cement for use in government projects in South Africa? What does it mean for using government projects in South Africa? What is an update on the share buyback? When can we expect you to come to the market? So we take those 3 share buybacks South African government, imported cement and Q3 profitability.

The profit in South Africa. Okay. Guillaume?

Yes. So on the profit growth trend, one thing we also indicated during the Q2 results presentation is the profile of the 2021 versus 2020 year is normalizing. What I mean by that is when we compare our performance in Q2, we had a slump of the results in 2020, which was related to COVID measures. So now we have a sort of effect of the catch-up of Q3 of 2020, which is normalizing the performance overall. So what you can see is that in Q3, when we compare the performance, we are still growing strongly compared to last year in terms of economic performance. However, it's obviously less significant than what you would have seen at the beginning of this year. The other element, which is important to factor in this component, and maybe this is related to the comment of Pan-African performance. We also know that there is sort of normalization overall across the continent of the growth rates. So you can also see that the rebounds that have been benefiting the end of last year and the beginning of this year are also eventually slowing down a bit. So this is where we are lending for the first 9 months. But overall, we are still delivering significantly above last year. So we see that with a very positive eye. And in general, even if the question is not formulated like that, we see this trend continuing strong demand across all markets, across the territories of operations in which we are operating. Now for the buyback question, as we have done in the past, we are looking at 2 main indicators. Obviously, the expiration of the program, which is beginning of next year, but also the liquidity and market conditions overall. So what we have seen is that the market has been relatively supportive in terms of value in general for the company. So definitely Q4 will be for us the moment of looking at the right timing to come to market. And if the buyback execution in which size and extent will be adequate in these conditions. As far as South Africa is concerned, in the beginning of 2021, we have not seen much of these government projects to which the -- we will benefit from the measures recently decided by the government, but we take it as a very positive opportunity for end of 2021 and 2022 to increase our sales in this segment as soon as government releases more projects.

Thank you, Michel. So there's a question here. The global cement and concrete industry announced a road map to achieve net-zero CO2 emission by 2050, which includes a milestone commitment to cut CO2 emission. I assume Dangote Cement is part of this agreement. If so, how exactly are you planning to achieve this? What is the likely cost and strategy implication?

We are a founder of the [ Accra ]. So definitely, we will follow this recommendation and get ready for it. The main pillars will be, #1, of course, usage of alternative fuels. And second will be also operational performance by reducing energy consumption. And which is being studied in detail kilns by kilns over all the kilns in Dangote Cement in Pan-African and Nigeria. We're yet to make the full consolidation of investment and the reduction in CO2 and the quantification of all these effects is going on and is presented to the Board regularly.

Okay. So we can go on to the questions on the call now.

Thank you. We have a question from Oluwaseun Arambada of Meristem Securities.

Can you hear me?

Yes, please go ahead.

Yes, yes.

So my question, I just wanted to get a sense of how we can think of capacity production -- now speaking to capacity utilization. The sense I get, and even from your competitors, is that domestic production is limiting domestic demand. And from the presentation today, how the Okpella plant is coming on board is going to increase sales volume. And that just gives me a sense of probably a press for capacity. We're looking at industry capacity utilization, just about say 50%, thereabout your capacity utilization at about 50%. Now I struggle to reconcile how we don't have sufficient capacity to meet domestic demand. So I would appreciate if you could shed more light on it.

Thank you for your question. Honestly, speaking as far as the competition is concerned, I would hardly be able to speak on their behalf and explain capacity and the capacity utilization. As far as we are concerned, we will increase capacity by bringing full usage of Obajana Line 5 by installing more power, which will help us having more grinding capacity, which was on bottleneck and Okpella will come on stream. And these 2 kilns, in addition to the 11 kilns running, will definitely increased capacity -- production capacity and help us delivering demand as expected by our customers.

Our next question is from Ayodeji Dawodu of Standard Bank Group.

Congrats on the results again. I just wanted to just find out, I didn't see any mention in the presentation. Were there any exports -- clinker exports from Nigeria to your West African subsidiaries? That's my first question. Second question is really on the demand side and, I guess, competition going towards the end of the year and towards 2022. I mean how are you seeing demand? And how do you expect competition to shape out given that you're bringing on new capacity? And we also have new capacity coming on from some of your peers. I mean as far as I understand, 2021 was pretty much Dangote's year in terms of volumes and capturing market share. Do you expect that to also be the case in 2022 as well?

Thank you for your 2 questions. Yes, we did export clinker from Nigeria to specifically Cameroon in 2021, and we definitely intend to keep the pace. Soon another vessel will be exported and the same every month of '20-'21 year to go and also, of course, 2022. You may not see it as in the consolidated figures, but definitely, Nigeria is exporting clinker to Cameroon. As far as demand and competition and what can happen in the future, I strongly believe that one of the key driver in cement is the lowest delivered cost and Dangote putting capacity in Okpella and Obajana will definitely strengthen Dangote as far as the lowest delivered cost is concerned in Nigeria. So I really -- I believe that what you saw in 2021 will keep on happening in 2022.

Our next question is from Mustapha Wahab of Chapel Hill Denham.

So Michel, I think one of the key things that jumped to my face from your presentation was the fact that how you explained the slight weakness that we saw in Q3 to the high bid from last year, obviously, because of the fact that a lot of customers were dealing in a lot of cash up volume demand last year. I was just wondering if that like [ lateness ] that we saw in Q3 is going to continue? And how should we view volume growth going forward? And beyond that, secondly is that I was wondering how long are we going to see this massive wave of price increases I've been seeing at least in the last few quarters, what's the end to these high prices as far as cement is concerned?

Thank you. In respect of Q3, the CFO explained that last year was a very exceptional year. And you can split truly, truly 2020 in 2 half, H1 and H2. H1 to make it simple before COVID with, I would say, usual demand and definitely H2 2020, the demand became very, very, very strong. And the growth is still sustained. This made 2020 a very unique year during which Q3 became one of the highest quarter of the year. I'm sure you know very well seasonality in Nigeria. And usually, Q3 is the lowest quarter in the year. Naturally speaking, if I can say so, without -- I would not call it a weakness, I would just call it seasonality variation. And this is what you see in 2021. Of course, when you compare 2020 and 2021, you have to be careful because H1 2020, as was explained by the CFO, H1 2020 was kind of normal. H2 2021 was very high. of course, and same for 2021. So when you compare H1 2021 to H1 2020, you have a massive gap, and the gap is, of course, lower when you compare H2 2021 and H2 2020. This is not the sign of the weakness, but just the fact that the growth happened all of a sudden in Q3 last year. Then if you look at Q3 2021, compared to the other quarters and compared to the previous years, I would not call it a weakness. In addition, I'm sure you have seen rains in 2021, especially in September, very, very strong. And so the maintenance we had explaining these differences, which for me belong to the normal seasonality of Nigeria. As far as the prices are concerned, the -- I'm sure you know very well the worldwide situation on freight, on coal, on other raw material, gypsum, raw material to produce bags and all these products have been heavily impacted by all these movements, we have seen post COVID, and we need to take them into account in our pricing policy.

And we have one last question on the web before we close the call. What is your current assessment of public sector demand in Nigeria? Has there been a notable improvement since the last conference call? And the second question is what is your experience in getting dollars for your needs? Do you source FX from the parallel market?

The public sector is usually close to, I would say, 10%. The way to measure it is through bulk sales. We believe that public demand is usually large contractors, not using bags but more bulk. So rightly, wrongly, we tend to compare bulk sales with a public investment and no significant change yet. It was very low. So we can see now back to normal, but I will not call it exceptional. That's what we can say for the public demand. U.S. dollar, I may ask the help of the CFO to answer you.

Thank you, Michel. So from a USD standpoint, obviously, we only use compliant regulatory channels to source our dollars before import or settlement of dues. And when it comes to the activity of Dangote Cement, as you know, we are exporting cement and clinker, which is helping us managing our requirements in terms of ForEx. So far, we have been benefiting from both channels, will it be our export proceeds or the local sourcing through the regulatory windows, and this has been working as well as it can in the current context forming with the cement supporting the activities and the sourcing of our raw material and spare parts. Thank you.

And thank you very much. I'll just hand over to Michel to close the call.

Thank you for listening to this presentation. And again, I just want to -- thank you, everyone, very much for joining us today. As you can see, quarter after quarter, we present a very strong set of results. 2021 is going very well. We believe that Q4 is on the same trend and getting ready for -- thanks to new capacity for even stronger 2022, based on strong pricing policy and strong cost control, managing the growth. Thank you very much.

Thank you.

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