Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement audited results for the year ended December 31, 2021. [Operator Instructions] Please also note that the event is being recorded. I would now like to turn the conference over to the Head of Investor Relations, Temilade Aduroja. Please go ahead.

Thank you. Good afternoon, and welcome to Dangote Cement Full Year 2021 Results Conference Call. My name is Temilade Aduroja, Head of Investor Relations at Dangote Cement. On the call today, have our CEO, Michel Puchercos; and our Group CFO, Guillaume Moyen. Michel will start by taking us through the presentation, and there will be a Q&A session right after. You can find the presentation on our website 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's my pleasure to welcome you all to this conference call to discuss Dangote Cement's financial results for the full year 2021. Let us begin on Page 2, where you can see that we had another record year with double-digit growth across board. On the financial side, group EBITDA was up 43.2% to NGN 64.6 billion from full year 2020 with profit after tax was up 32% to NGN 364.4 million, and I am pleased to announce that the directors recommended a higher dividend of NGN 20 for the year 2021. In terms of volumes, group volumes were up 13.8% at 29.3 million ton, in Nigeria, sales momentum remained strong with volumes up 16.8%. Additionally, the ramp-up of a 3 million ton plant, Okpella, is on track. We continue our efforts on the sustainability side and attain a 2.6 alternative fuel thermal substitution rate for full year 2021 versus 1.7 in 2020. DCP for the third time, submitted to the CDP and in 2021 became a CDP supporter. If you turn to Page 3, you can see that we have achieved in the year -- what we have achieved in the year. In March, we were recorded 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. With the busy month in May, clearly illustrate the progress made by Dangote Cement regarding our commitment to transparency and mitigating our CO2 footprint. On Page 4, we discuss the current macroeconomic environment of 2021. According to the IMF, Sub-Saharan Africa GDP grew by 4% in 2021, owing to an improvement in global trade and commodity prices. All our countries of operation are estimated to grow in 2022 with Sierra Leone, Ghana and Senegal expected to grow at the highest rate. On Page 6, you can see how our business remains strong in the year 2021, both on the financial and the operational side. Group EBITDA of NGN 684.6 billion was up 43.2% year-on-year, thanks to increased volume and strong cost control measures. Group revenue was up 33.8% at NGN 1,283.6 billion. We achieved the robust earnings with EPS up 31.6% to NGN 21.24. On the operational side, we recorded strong volume growth in both Nigeria and Pan-Africa. Group volumes were up 13.8% to 29.3 million tons owing to strong demand across all our operations. Nigeria volumes were up 16.8% despite heavy rains and extended plant maintenance. Pan-Africa volumes up 8.7% despite volatility in the landing cost of cement and clinker. Our income statement on Page 7 highlights our financial performance in more detail. Our profit after tax was up 32% at NGN 364.4 million. 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 225.1 billion, as at December 31, 2021. Our balance sheet on Page 9 remains resilient with a cash balance of NGN 339.8 billion as at full year 2021 and the net gearing of 57%. On Page 10, I will go over our performance in Nigeria in more detail. Total sales volume reached 18.6 million tons as robust demand for housing infrastructure and commercial construction in the domestic market continued. Strong demand was also supported by improved route to market channels and additional trucks to enhance our distribution network. We delivered a record high full year EBITDA of NGN 610 billion, up 4.8%, supported by the ramp-up of our modern and efficient 3 million ton Line 5 at Obajana. In May, we recommenced clinker exports from both our Onne and Apapa terminals. We achieved 7 clinker shipments with a total volume of 197 kiloton in 2021. In the year, we exported 706 kilotons cement by road to Togo and Niger up over 3x 2020 road exports. Lastly, the production of our 3 million ton of Okpella plant in Edo State is ramping up. On Page 11, you can see that our Pan-African operations have continued to perform very well. Volumes were up 8.7% to 10.9 million tons with particularly strong performance in Senegal, Ethiopia and Zambia. We saw strong performance improvement in Tanzania following the commissioning of the power plant. Revenues were up 24.7% to NGN 397 billion, supported by higher realized prices and volume growth. We achieved a strong EBITDA of NGN 88.8 billion, up 23% and EBITDA margin of 22.4%. Countries importing clinker, such as Cameroon and those importing cement such as Ghana and Sierra Leone were challenged by freight prices, which have increased substantially with matter of price volatility. Over the next few pages, from Page 12, you will see the updates from our Pan-African operations. Our Congo plant continues to improve its performance and the general market access. Sales were up 25% compared to full year 2020. In Ethiopia, volumes are up 11%, owing to improved plant performance. Despite the security challenges, our operations continues to perform strongly. We estimate the market share to have been 34%. Cameroon was up 3% despite global rise in freight costs and overall global supply chain challenges. We maintained good market share of 34%. However, on Page 13, in Ghana and Sierra Leone, we had a 16% and 9% decrease respectively, in sales compared to last year, owing to this same global supply chain challenge. We are still operating at full capacity in Senegal. On Page 14, sales at DCP South Africa remained relatively flat year-on-year. Our performance in Tanzania has improved with the use of the new power plant. Volumes in Tanzania were up 56%. In Zambia, sales were down 5% compared to full year 2020 due to the country macroeconomic environment. Now moving to -- moving on to our debt and liquidity from Page 16. In May 2021, DCP successfully raised series 1, Tranche A, B and C, 3 years, 5 years and 7-year unsecured fixed rate bonds under a fresh NGN 300 billion multi insurance -- debt issuance program. In August, we successfully established a new NGN 150 billion commercial paper program and have so far drawn down NGN 41 billion in short-term paper. We are pleased to announce that Dangote Cement's NGN 100 billion maiden senior unsecured bond has been selected as the winner of 2021 bonds, loans & Sukuk Africa awards for Local Currency Corporate Bond Deal of the Year. Our track record of accessing the debt capital markets remained strong. Page 17 provides a summary of our recently concluded Tranche II share buyback program. DCP bought back 0.74% of its issued and fully paid ordinary share. The overall outcome of the exercise was successful with DCP achieving a record share price of NGN 284.9 per share. Following the completion of Tranche I and II, DCP has brought back 0.98% of its shares outstanding. As you will see on Page 18, 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 682.9 million, up 41.2% and undrawn short- and long-term financing lines and vehicles allow us to cover short-term obligations. On Page 19, 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 recorded by GCR. Similarly, in December, Moody's affirmed (P)B2 local rating -- (P)B2 local currency rating and Aa3.ng national scale rating to the NGN 300 billion domestic medium-term program issued by DCP. On Page 21, 26, we highlight our continued efforts on sustainability and governance structured around the 7 sustained pillars of The Dangote Way. On Page 21, 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 per the global reporting initiative, referential and external assurance by Deloitte. Page 22 discusses the institutional pillar and shows our strong governance framework with a focus on board member diversity. We are pleased to announce the appointment of 2 new board members Mr. Philip Mathew, the Deputy Group Managing Director, with effect from September 15, 2021, and Mrs. Halima Aliko Dangote, as a Non-Executive Director with effect from February 26, 2022. On Page 23 and 24, we show how we have continued making the significant improvement on our environmental pillar and are strengthening our alternative fuel initiatives, increasing waste management solutions in our countries of operation focuses on leveraging the circular economy business model; optimizing cost and certainly reducing exposure of our cash cost based to foreign currency fluctuations. In 2021, Dangote Cement plants were focused on procuring and then selling alternative fuel equipment that can process diverse types of waste. Our AF thermal substitution rate was estimated at 2.6% for full year 2021 versus 1.7% in full year 2020. DCP co-processed 89,000 tons of waste in 2021, an increase of 60% over 2020. Page 24 shows the different types of waste we use across our countries of operation. On Page 25, as stated earlier, Dangote Cement has for the third time submitted to the Carbon Disclosure Project, and this time, achieved a rating of grade to B- minus from C, showing that DCP is taking coordinated action on climate issues. Page 26 demonstrates our financial pillar and how we are creating value for our shareholders with strong revenues and EBITDA and dividends. Looking at Page 27. 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 28 demonstrates our social investments in full year 2021. We have spent NGN 3 billion on CSR in full year 2021. This page also describes that we 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. Over the last 2 years, we have finalized the deployment of 6 million tons new capacity in Nigeria. Looking ahead, we are now focused on the less capital-intensive expansion cycle, which includes building plants across rest in Central Africa to leverage and strengthen Dangote Cement's regional integration. You can see from our strong results -- and you can see from a strong set of results that 2021 was a successful year across the group. We are confident that the encouraging results will continue in the year 2022. Thank you very much.

Thank you very much, Michel. We can now open the call for Q&A.

[Operator Instructions] Our first question is from Ayodeji Dawodu of Standard Bank Group.

Congrats on the strong performance. Just 3 questions for me, if you don't mind. My first one is on demand and how you're seeing demand shaping in 2022, given the strong performance of the last 2, 3 years. And do you see the current pricing environment, particularly on the retail side as being sustainable, given the amount of supply that can be coming onstream over the next -- well, that's recently come on stream. My second question is on your expansion plans in Western Central Africa. Could you give us a brief update on the plans going forward? And lastly, on the alternative fuel strategy can we get some guidance in terms of what fuels we'll be looking at, particularly in Nigeria? How they will be sourced and maybe your medium-term targets in terms of how much of your energy mix you expect to be targeted that?

Okay. So the demand of 2022. The demand, especially in Nigeria, I didn't understand your question because the demand has been very, very strong. However, if you look at it over last 10, 20 years, the recent years just look like nearly like catching up a kind of 9% average growth. So of course, I don't expect this very strong double digit to last years over years. But 1 more year, 2 more years, if you look at it from statistical standpoint and over a longer period, just bring Nigeria back to the 9% average growth, which is not unsustainable for a country like Nigeria. In the other countries, I don't think there's makes much to worry about the growth and can be sustained a couple of years more based on usual economical indicators of the countries. Price-wise, the retail is always very volatile and keen to take opportunity of high demand and adapt very quickly upwards and downwards. So this is just how the retail is. The expansion plans, nothing different from what we said in the past. We are considering increasing capacity in countries across the duration. We are considering the surrounding countries in -- especially in West Africa, the same list of names we mentioned in the past. And we presented to the Board last week, priorities among this investment, and so there will be selling more in before full validation. Some are going on like in Ghana, for example, or in Ivory Coast, you know them very well. A strategy in Nigeria, the biomass is, of course, is one, including tires, tires shredding more than full tires. And all kinds of also -- is biomass, but also would be in the way, we are investing for a significant step change in subscription rate by year-end. And in between, we are mapping all sources to adapt the logistics and the connection to the size of the sources and the calorie value of these sources as well. So this is work ongoing.

The next question is from Oluwaseun Arambada of Meristem Securities.

Okay. So I just want to understand really around your capacity utilization. I understand that there's a lot of demand, especially in Nigeria. I think there is room for volume growth as well. But I'm also thinking -- I know that capacity is just 60%. So I'm trying to rationalize the capacity expansion. We've been seeing across -- even in the industry at large. So is there an effective capacity that we should be working with? Because I mean go by the capacity that is presented. It tells me that we are not operating at full capacity. So is that an effective cost that we should be working with?

It's a very technical question, if you want to answer -- to enter the details. Clinker capacity, the grinding capacity, the bagging capacity, the dispatch capacity. So -- and you may have bottlenecks at a different level. But if you look at it from, okay, larger perspective, we are adding capacity with Okpella. We have restarted Gboko, as you know, end of 2020. But even though it looks like 15, 18 months behind, there still also improvement debottlenecking. We can bring to Gboko and there's also further capacity there. More generally, when you are a leader in cement, it's good to have overcapacity immediately available to capture any opportunity and also to tell the customers that they don't need to worry, cement will be supplied to them at any point of time. So even intentionally building overcapacity is good. So of course, when you start building intentionally overcapacity, the question of effective rate is it's a bit more complex to understand. With the growth we see, even with the 9% growth which is lower than the growth we have seen over 2020, 2021 and recently as well, we definitely needed to bring capacity or debottleneck our existing plants, especially in Nigeria.

Temi, we have no further questions on the conference call at the moment. Would you like to address those that came through on the webcast.

The first question on the webcast is from Ayobami from Renaissance Capital. Great results and well done on the successful completion of the share buyback. Should investors be expecting continuation of the share buyback program?

Guillaume, can I hand over to you to answer this question, please? .

Sure. Thank you, Michel. Definitely, the past 2 years have been demonstrating that there is an appetite for our shareholder base to benefit from the buyback program. So there is a good chance that we will restart the process for registration of a new program over the coming months, that requires a lot of, I would say, steps with the regulatory authorities and our own shareholders. So the process will certainly kick start when we reach the AGM time.

Okay. So the next 2 questions I'll take together. Please can management provide more color to the finance cost in its Pan-African business? And how we continue to deliver improved EBITDA margin in Pan-Africa? The second question is for management to provide guidance on Dangote's dividend policy.

Guillaume, I can give you the second one, where I prepare answer for the first one.

Okay. My line was breaking a bit. Temi, can you repeat the question?

Okay. Let me just go over again. I would like management to provide more color to the finance cost in its Pan-African business given that it continues to deliver improved EBITDA margin, but drive into loss territory. The second question is to provide guidance on dividend policy.

Okay. So if I talk about the dividend policy, we have one policy which has been set by the Dangote Cement Board, which is to distribute at least 80% of the net profit after tax on a yearly basis, but this is a floor, this is not a ceiling. So in terms of guidance, you can see that this year, we are increasing our dividend to NGN 20 per share, which is a significant increase overall. So the future will depend obviously on the results we are driving, but there is definitely a strong appetite to return cash to the shareholder in the form of dividends, especially in the context of relatively, let's say, low capital-intensive type of CapEx program for the future years. For the finance cost for the Pan-African units, I would say there are maybe 2 ways to look at it. As you mentioned in the question, there is an increase in the EBITDA performance for continuous improvement in that segment, that maybe Michel will comment upon later on. For the financing of these units, there are 2 aspects which are, maybe, let's say, structuring the way we are reading our performance from a bottom line standpoint, is the fact that we have financed our operations through intercompany loans. So Nigeria has been the main vehicle for financing the expansion across the continent. And that allows us to eventually have more flexibility in terms of ramp-up and repatriation of funds. Now from a P&L standpoint locally, this would put some maybe higher level of pressure in the way the financing structure as we have mainly loan and limited equity at the moment. So in terms of contribution, you will see at least for now, heavy cost of interest in the local P&L, but which is related to the, I would say, the loans that the shareholder has been making. So it's mainly an intercompany and internal type of cost. So nothing which is really heavy from an execution standpoint. And when we look at the, I would say, more on the side of what happens when our units are becoming more mature. What we have done so far is to refinance partially or fully the intercompany loans with local loans in local currencies. So this is mitigating the foreign exchange impact, which can be positive or negative depending on the evolution of the local currency. So when we move out of the project phase and ramp-up phase, we normalize the profile of the balance sheet locally by sourcing the financing in local currency with local banks most of the time. That's it for me.

So I'll just go through 2 more questions here. I would love to know the status of the alternative fuel initiative, to what extent are the alternatives expected to replace current gas option. The second question from Gbolahan, Cordros Securities. What is the current share of gas in your energy mix? Has there been considerable improvement in public sector demand for cement in Nigeria. And the last question as well, I would love to know what the export volumes for clinker were in Q4?

Alternative fuel initiative, very simple answer. Every single kiln in Dangote Cement from East Ethiopia to West Senegal and all countries in between, every single kiln has a specific alternative fuel plan with a substitution rate from 20% to 40%, and we are rolling out the investment plan with a full effect starting H2 2022. And it varies according to the country, to the system, fueling system, to the local fuel available and so on and so forth -- waste available and so on and so forth. In terms of share of gas. So share of gas is -- I guess the question is essentially for Nigeria. It varies and why do I say so? Because we maybe you're aware of a dramatic drop of gas availability in Nigeria in December, January, February, which disrupted totally a balanced policy. Although you can see on the numbers that we have been able to produce significantly as you know, the gas is not the cheapest one, but on the opposite is also paid in naira, which is make it easier to finance because naira the money used by our customers. And we are developing strongly alternative fuel and coal to compensate any gas fluctuation. On the specific question of export Q4 clinker. So we almost stopped exporting clinker in Q4 2021, facing a very, very strong demand in Nigeria. And even though we -- it creates issues on how to supply subsidiary, we thought it was make better sense to sort out these issues, while giving the clinker to Nigeria, where the demand is very strong and kind of national feeling of duty to supply Nigeria first.

Okay. Thank you. We don't seem to have any more. Okay, we have one more question. And this is the last question on the call. What is your CapEx for 2022 and which projects, I think Michel has mentioned the projects. But I don't know, Guillaume, if you want to add any other thing on that?

Yes. I guess the way we have been sharing guidance on the CapEx is not on a year-by-year basis, but more on a multiyear view. So if we look at maybe 3 to 5 years program that we have at the moment, we anticipate that we will be in the range of $500 million capital deployment across different countries of operation. And the way you can look at it from a cycle standpoint is, as we said, we are going to be on the lighter hand side of the CapEx deployment with grinding capacities. And the speed of execution is varying that much depending on the country and the context in which we operate. So obviously, the past 2 years have been quite difficult in terms of importing and executing projects in many countries due to the limitations in moving goods and specialists and people to execute these projects. So the speed and, let's say, capacity to execute will depend on the context in which we will operate in the coming years.

Thank you, Guillaume.

Okay. Thank you very much. These are the questions for today. I'll just hand over to Michel to close the call.

Thank you all. As you can see, 2021 was another record year after 2020, and all hands on deck to make another very successful year 2022, fully benefiting over our last investment in all countries, starting by Nigeria and full ramp up of -- ramp up we started in 2021. We are playing our role as a leader in all dimensions, and we'll keep on doing it in 2022, having especially in mind duties in terms of sustainability and ESG. That will be our key focus as well. Thank you for your attendance.

Thank you very much, sir. Ladies and gentlemen, that then concludes this event, and you may now disconnect.