Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Plc Q1 2022 Results Conference Call. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Temilade Aduroja. Please go ahead, ma'am.

Good afternoon, and good morning. And welcome to Dangote Cement's Q1 2020 Results -- 2022 Results Conference Call. My name is Temi Aduroja. On the call today, we have our CEO, Michel Puchercos; and our Group CFO, Guillaume Moyen. Michel will take us through the presentation, and there will be a Q&A session right after. So 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 quarter in 2022. Let us begin on Page 2, which shows a solid start to the year. On the financial side, group EBITDA was up 18.6% to NGN 211 billion from Q1 2021 with profit after tax was up 18% to NGN 105.9 billion. At the end of January, we successfully completed Tranche II of the share buyback program. So far, we have repurchased 0.98% of Dangote Cement's shares outstanding. This share buyback program reflects the company's commitment in finding opportunities beyond dividend to return cash to shareholders. In terms of volumes, group volumes were slightly down by 3.6% at 7.2 million tonnes, owing notably to gas supply limitations in Nigeria, which I will discuss further later on. Furthermore, our grinding plant in Ghana and Cote d'Ivoire are progressing as planned and will be completed in the coming months. I'm also pleased to announce that Dangote Cement has successfully completed the issuance of another landmark bond. This new NGN 116 billion Series 2 bond is the largest corporate bond issuance in history of the Nigerian capital market. We are very happy with this outcome, which strengthened our financing at competitive rates. On Page 3, we discuss the current macroeconomic environment. According to the IMF, the global security challenges will contribute to a significant slowdown in global growth in 2022. Sub-Saharan Africa is estimated to grow by 3.8% in 2022. This growth is lower than 2021 but largely results from a sharp improvement in global trade and commodity prices. Dangote Cement's country of operation are all expected to grow in 2022 with Tanzania, Ghana and Senegal expected to grow at the highest rates. On Page 5, you can see that the first quarter of 2022 has started positively despite the new uncertainties brought by a very volatile global environment. We recorded increases in revenue and profitability that drove strong cash generation across the group. We recorded profit after tax of NGN 105.9 billion, up 18% compared to last year and group EBITDA of NGN 211 billion, up 18.6% supported by robust cost control measures mitigating inflationary pressure. We achieved robust earnings with earnings per share up 16.8% to NGN 6.18. On the operational side, our group volumes were down 3.6% mainly due to energy supply challenges in Nigeria, maintenance and supply chain constraints in Pan-Africa. Our operations, relying on cement and clinker imports, namely Ghana, Sierra Leone and Cameroon were impacted by the global supply chain challenges. However, demand remains strong across all markets, and we remain confident that Dangote Cement is well positioned to continue meeting customers' demand. Our income statement on Page 6 highlights our financial performance in more detail. Profit after tax was up 18% at NGN 105.9 billion. Looking at Page 7, you can see that our cash flow operation is growing at a strong rate. Investments continue to prepare the group to capture market growth across territories. Net debt is at NGN 309.7 billion as at March 31, 2022, with a net gearing of 29.4%. Our balance sheet on Page 8 remains resilient with a cash balance of NGN 218.3 billion as at the end of Q1 2022. On Page 9, I will go over our performance in Nigeria in more detail. Our Nigerian operations sold 4.8 million tonnes of cement during the period, down by 1.5%. The slightly lower volume elevated by the high base of Q1 2021 was due to energy supply disruptions, which impacted production. The energy disruptions were due to low gas availability in Nigeria impacting various sectors of the economy. This negatively impacted our ability to maximize production during the period. However, demand remains very strong, and the Nigerian market consumed everything produced in the quarter. During the period, we exported 213 kilotonnes of cement, up 55% compared to same period last year. Lastly, the production from our 3 million tonnes Okpella plant in Edo state is ramping up steadily. On Page 10, sales volume in Pan-Africa were 2.4 million tonnes in Q1 2022, down 7.6% due to the global supply chain disruption and increasing segment and clinker price volatility. Extended maintenance and repairs in Congo and Senegal reduced output compared to 2021 Q1. In addition, currency volatility against U.S. dollar during Q1 2022 generated negative impact across various levels of the Pan-African income statement when compared to Q1 2021 performance. Over the next few pages, from Page 11, you will see the updates from our Pan-African operations. Ghana, Cameroon and Sierra Leone saw a drop in volumes compared to last year owing to volatility in freight cost and overall global supply chain challenges. In Senegal, our production was constrained by extending the maintenance and repairs. However, Ethiopia sales were up 9% at 0.58 million tonnes in Q1 2022 with an increased market share to 40%. Tanzania also showed a strong improvement with sales volume up 77%, supported by the growing cement demand and the continuous improvement of our plant operations. Now moving on to our debt and liquidity from Page 15. We show a timeline of our activities in the debt capital markets from our maiden bond insurance in 2020 to another landmark bond issuance, where we have now raised NGN 116 billion, the largest operated bond issuance in history of the Nigerian capital markets. This landmark transaction would fund our expansion projects and further support the implementation of our export strategy. I want to thank the investor community for your strong confidence in the company and for participating in yet another bond issuance with the Dangote Cement. Our track record of accessing the debt capital market remains strong. Page 16 provides a summary of our recently concluded Tranche II share buyback program. DCP bought back 0.74% of its issued and truly paid ordinary shares. The overall outcome of the exercise was successful. Following the completion of Tranche I and II, DCP has bought back 0.98% of its shares outstanding. As you will see on Page 17 and 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 212.7 billion in Q1 2022, up 25.6% and undrawn short- and long-term financing lines and vehicles allow us to cover short-term obligations. On Pages 21-26, we highlight our continued efforts on sustainability and governance structured around the 7 sustainability pillars of the Dangote Way. Page 21 discusses the institutional pillar and shows our strong governance framework with a focus on Board member diversity. Mrs. Halima Aliko-Dangote joined our Board as a Non-Executive Director with effect from February 26, 2022. We now have a 27% female Board member representative on our Board. 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. We are increasing waste management solutions in our countries of operations and are focused on leveraging the circular economy business model. The volatile international context is strengthening our efforts to ramp up usage of alternative fuels and execution of our export/import strategy. Reducing our dependence on imported inputs and making our markets self-sufficient has never been more relevant from a regional perspective. Our alternative fuel thermal substitution rate was estimated at 3% for Q1 2022 versus 1.6% in Q1 2021. Page 23 shows the different types of waste we use across our countries of operation. On Page 24, Dangote Cement has for the third time submitted to the Carbon Disclosure Project and this time achieved a rating upgrade from B- -- to B- from C, showing that DCP is taking coordinated action on climate issues. Page 25 demonstrates our financial pillar and how we are creating value for our shareholders with strong revenues and EBITDA and dividends. The social pillar on Page 27 demonstrates our social investments in Q1 2022. I would like to thank everyone 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 tonnes of new capacity in Nigeria. Looking ahead, we are now focused on the less capital-intensive expansion cycle and are progressing well in the deployment of running plants in Ghana and Cote d'Ivoire. We are confident that these encouraging results will continue in the year. Thank you very much.

Thank you, Michel. We'll now open the call to Q&A.

[Operator Instructions] The first question comes from Uwa Osadiaye from FBNQuest Bank.

My first question is around Pan-African operations. So besides freight costs which I get, what are Dangote Cement's organic exposures to the global supply chain disruptions? Also, Senegal, the key plants within that segment. Just trying to confirm if the power plant is back online. And finally, my last question will be around gas disruptions in Nigeria. Are there any possibilities of operationally hedging future incidents that will happen in Q1?

Thank you very much for your questions. So besides the freight cost, we saw also the increase in the value of the goods themselves. Is it coal? Is it clinker for Cameroon? Is it cement to Sierra Leone and Ghana? But also other effects like explosives to Nigeria, for example, knowing that Russia and Ukraine are the largest producers of explosives in the world and some other countries for explosive, but not only for explosive started banning exports of some commodities to keep them for themselves or fearing that themselves could be impacted by shortage of coal coming from Russia, for example, and then fearing a decrease of their production in their own country then reducing the output and as a consequence in anticipation of an output, which could be reduced banning export. So it's a long chain impacting different type of products. So this is a more detailed explanation about the global supply chain challenges. Power plant in Senegal, yes, fully up and running. And gas in Nigeria, it's really a supply issue and maybe a combination of maintenance or different technical issues from all the suppliers leading for unusual, very, very long period of low pressure. And I don't think the suggestions you're referring to could have helped us mitigating this effect.

Thank you.

The next question comes from Ayodeji Dawodu from Standard Bank.

Congrats on the results. I have 3 questions. First one on Nigeria. How do you see the pricing environment shaping out this year? There's been rumors of a competitor potentially reducing its own ex factory prices. I just wanted to get your take on where you see, I guess, sector prices and retail prices shaping out for the rest of the year. Again, on Nigeria, just to understand the energy mix where it could potentially go going forward. I wanted to understand, I mean, what's the minimum contribution of gas you need in the energy mix for the [indiscernible] to operate optimally? And my last question is on the Pan-African business. Do you have a percentage of the total capacity in Pan-Africa that's dependent on imported clinker? And just by how much did the imported clinker prices increase in the first quarter? That will be all.

Thank you for your questions. So pricing environment in Nigeria, so we increased prices by end of 2021. This was passed on to end consumer. And we can see that this -- the price level at end -- I mean, end user did not change till now. So for me, stable price environment at end consumer level since our price increase end of 2021. In terms of gas energy mix in Nigeria, the answer is exceedingly technical. And I will simplify it by telling you that we can mitigate by producing more local coal or by buying more local coal. Nigeria produces coal. We can also, if need be, import some coal to compensate. And last but not least, we can develop alternative fuel policy to replace either gas or coal. So this is the way we are doing it. By the way, gas supply did stabilize recently. The -- in terms of clinker import, it's only Cameroon, and this represents less than 3% of total business in -- of DCP. So almost, let's say, insignificant.

Thank you.

The next question comes from [ Farooq Sadik ] from [ Meristem Securities ].

Can you hear me?

Yes.

Okay. Congratulation on results. So my question is about the Pan-African operation. I got what you said on the impact of the uncertainty around the global supply chain. My question is, what are your expectations for sales volume going forward to the end of the year? Do we expect it to improve in the coming quarters? Or do we expect this trend to continue?

So we -- as we said during the presentation, markets are growing. All our markets are growing. We had some technical issues like Senegal, but you could see Zambia -- sorry, Tanzania, Ethiopia, strong growth. So we have demonstrated that we can grow in markets where -- when there is no technical issues. And overall, all our markets are growing in Pan-Africa.

Thank you.

At this time, we do not have any further questions on the telephone lines. [Operator Instructions] At this time, it seems like there are no further questions. Temilade, can I perhaps hand over to you to see if you have any remarks?

So I'll just hand over to our CEO, Michel, to just give us closing remarks on the results today.

So first of all, I would like to thank you for those congratulating the team for good results in Q1. I'm very confident that these current results will continue in the year despite these global supply chain challenges and difficult environment, which, of course, like everyone, is very difficult to foresee. As I said, very confident that these encouraging results will continue in the year. Thank you very much.

Thank you very much. If you did not get to ask a question, you can always e-mail the questions to Investor Relations, [email protected]. Thank you very much, and have a good day.

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