Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Half Year 2022 Results. [Operator Instructions] Please also note that this call is being recorded. I would now like to turn the conference over to Temilade Aduroja, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining Dangote Cement First Half 2020 (sic) [ 2022 ] Results Call. My name is Temilade Aduroja. On the call today, we have our CEO, Michel Puchercos. We also have the acting Group CFO, Gbenga Fapohunda. Michel will take us through a brief presentation of what we've done in the first half of the year. And then after that, we'll have a Q&A session. 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 financial results for the first half of 2022. Let us begin on Page 2, which shows our achievements in the first half of the year. On the financial side, group revenue was up 17% to NGN 808 million, whilst EBITDA was up 6.3% to NGN 373.2 billion, compared to the same period last year. At the end of January, we successfully completed the Tranche II of the share buyback program. So far, we have repurchased 0.98% of Dangote Cement shares outstanding. This share buyback reflects the company commitment in finding opportunities beyond dividend to return cash to shareholders. In terms of volumes, group volumes were down by 7% at 14.2 million tonne, elevated by the high base of H 2021 due to inflation and energy supply disruptions. Furthermore, our grinding plants in Ghana and Cote d'Ivoire are progressing as planned and will be completed in the coming months. If you turn to Page 3, you can see we have achieved a lot so far this year. In February, Mrs. Halima Aliko-Dangote join our Board as a Non-Executive Director. We now have a 27% female Board member representative on our Board. In an effort to support demand ahead of the rainy season, in July, we launched the third season of the National Consumer Promotion Bag of Goodies 3, which has been received very well. On Page 4, 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 slower than 2021, but largely result from a sharp improvement in global trade and commodity prices. Dangote Cement's countries of operations are all expected to grow in 2022, with Tanzania, Ghana and Senegal expected to grow at the highest rate. On Page 6, you can see that the first half of 2022 has started positively despite the new uncertainties brought by a very volatile global environment. We recorded increases in revenue and EBITDA that drove strong cash generation across the group. However, elevated inflation and... [Technical Difficulty]

Ladies and gentlemen, please remain online. We seem to be having difficulties with Mr. Puchercos' connection. Please stay on the line. We will be rejoining him shortly. Ladies and gentlemen, we've been rejoined by Mr. Puchercos. Sir, if you could start again on Page 6.

Apologies for the disruption. On Page 6, you can see that the first half of 2022 have started positively despite the new uncertainties brought by a very volatile global environment. We recorded increases in revenue and EBITDA that drove strong cash generation across the group. However, elevated inflation and rapidly increasing prices of AGO resulted in a 54.5% increase in our selling and distribution costs, which impacted bottom line. We are strengthening our efforts to ramp up the usage of alternative fuels. Alternative fuel project aims to leverage waste management solutions, reduce CO2 emissions and source material locally. We recorded profit after-tax of NGN 172.1 billion, down 10% compared to last year, mainly due to NGN 40 billion in unrealized foreign exchange losses from the depreciation in some Pan-Africa countries. However, group EBITDA of NGN 373 billion, up 6.3%, supported by our robust cost control measures, mitigating inflationary pressure. We recorded earnings per share of NGN 10.10. On the operational side, group volumes were down 7%. The slightly lower volume was elevated by the high base of H1 2021. Our generations relying on cement and clinker imports, namely Ghana, Sierra Leone and Cameroon, were impacted by the global supply chain challenges. Our income statement on Page 7 highlights our financial performance in more detail. Looking at Page 8, you can see that our cash flow operations is growing at a strong rate. Investments continue to prepare the group to capture market growth across territories. Net debt is at NGN 423 billion as of end of June 2022 with a net gearing of 54%. Our balance sheet on Page 9 remains resilient with a cash balance of NGN 194 billion at the end of H1 2022. On Page 10, I will go over our performance in Nigeria in more detail. Our Nigerian operations sold 9.3 million tonne of cement during the period, down by 5%. The slightly lower volume was due to energy supply disruptions, which impacted transaction. 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. During the period, we exported 414,000 tonne of cement, up 21%, compared to the same period last year, and we recorded an EBITDA of NGN 349 billion, up 12%, despite significant distribution costs. We were impacted by the significant rise in AGO due to our national coverage, which results in longer distance to customers. Lastly, the production of a 3 million tonne Okpella plant in Edo State is ramping up steadily. On Page 11. Sales volumes in Pan-Africa were 4.9 million tonne in H1 2022, down 11%, due to the global supply chain disruption and increasing cement and clinker price volatility. Extended maintenance and repairs in Congo and Senegal reduced output compared to H1 2021. On the next few pages, from Page 12, you will see the updates from Pan-African operations. Ghana, Cameroon and Sierra Leone saw a drop in volumes compared to last year, owing to volatility in freight costs and overall global supply chain challenges. In Senegal, our production was constrained by extended maintenance and repairs. Regional sanctions in Mali also impacted our exports from Senegal. However, Ethiopia sales were up at 1.1 million tonne in H1 2022, with an increased market share to 41%. Tanzania also showed strong improvement, with the sales up 19%, supported by the growing cement demand and the continuous improvement of our plant operation. Now moving on to our debt and liquidity from Page 16. We show a time line of our activities in the debt capital market. From our maiden bond issuance in 2020 to another landmark bond issuance where we have now raised NGN 116 billion. I want to thank the investor community for your strong confidence in the company and for participating in yet another bond issuance with Dangote Cement. Our track record of accessing the debt capital market remains strong. On Page 17, it provides a summary of our recently concluded Tranche II share buyback program. DCP bought back 0.74% of its issued and fully paid up ordinary share. The overall outcome of the exercise was successful. Following the completion of Tranche I and II, DCP has bought back a total of 0.98% of its shares outstanding. You will see on Page 18 and 19, capital structure remains robust, and we are solidifying our strong balance sheet with available liquidity. This liquidity, including strong cash flow generation of NGN 317 billion in H1 2022, up 6.7%, and undrawn short- and long-term financing lines and vehicles allow us to cover short-term obligations. On Page 21, 26, we highlight our continued efforts on sustainability and governance structured around the 7 sustainability pillars of The Dangote Way. Page 22 discusses the institutional pillar and shows a strong governance framework with a focus on Board diversity. We have now have a 27% female Board member representative on our Board. On Page 23 and 24, we show how we have continued making significant improvement on our environmental pillars and our strengthening alternative fuel initiatives. We are increasing waste management solutions in our countries of operations and are focused on leveraging the secular economy business model. The volatile and international context is strengthening our efforts to ramp up usage of alternative fuels and execution of our export-to-import strategy, reducing our dependence on importing inputs and making our market self-sufficient has never ever been more relevant from a regional perspective. Our AF thermal substitution rate was estimated at 3.3% for H1 2022 versus 2% in H1 2021. Page 24 shows the different types of waste we use across our countries of operation. On Page 25, Dangote Cement for the first time submitted to the Carbon Disclosure Project, CDP, and this time achieved a rating upgrade to B1 -- B- 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. Page 27 and Page 28 demonstrate our social investment in H1 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. Dangote Cement continues to position itself as a leader in the cement sector in Africa, and we are progressing well in the deployment of grinding plants in Ghana and Cote d'Ivoire. We remain focused on our commitment to sustainable growth that benefits all stakeholders and our [indiscernible] that these encouraging results will continue [indiscernible] the year. Thank you very much.

[Operator Instructions] Temilade, we have no questions on the conference call at the moment. Do you have any questions from the webcast?

Okay. Thank you for that. We'll just read out a few questions on the webcast. The first question is, was the lower sales in volume due to lower production or lower demand? And the second question will be on financing costs. What was the reason for financing costs doubling in the first half of 2021?

I will answer the first question, and I will ask Gbenga to answer the one about our financing costs. So the lowest sales in terms -- is mainly due to softening of the demand in Q2 2022. We saw all of our Nigeria cement in stocks -- trucks getting sold to customers at a slower pace. We saw margin at retailer level going down and... [Technical Difficulty]

Ladies and gentlemen, our apologies, Mr. Puchercos' line has disconnected again. Temilade, I don't know, Gbenga, if you can answer the question in the meantime.

Yes. Gbenga will go ahead and answer the second question. So the second question was on finance costs and an increase over the period.

Okay. Good afternoon, everyone. The increase in finance cost was caused by 2 reasons: one, is the foreign exchange loss arising from the devaluation from our market in Pan-Africa. An example is cedi devalued from 6 cedis to 8 cedis to a cities to $1. That's one. The second aspect of it is the increase in interest cost as a result of additional loans taken in Nigeria. An example is the NGN 116 billion loan taken in Nigeria.

Thank you. So let me just go on to the next question on the webcast. When are the Ghana and Cote d'Ivoire grinding plant is expected to come online? Hello, Chris. Can I go ahead?

Yes, you can. Sorry, Mr. Puchercos has rejoined us, but I'm thinking might have some bandwidth issues.

Can you hear me? Can you hear me?

Temi, one moment. Can you go ahead with the other questions? I will get Mr. Puchercos back on line.

Okay. Thank you. We'll just go with the first question. When are the -- the question online is, when are the plants in Ghana and Cote d'Ivoire grinders expected to come online? The next question online is what next is the project pipeline? Well, the third question is demand outlook in Nigeria and price outlook in Africa. So in terms of Ghana and Cote d'Ivoire, as we said in the presentation, those 2 plants are grinding plants and will be online in the coming months. They are on track to be completed towards the end of the year or next year. In terms of project pipeline, there are no other projects for now apart from the Ghana and Cote d'Ivoire grinding plants, which we already stated in the presentation. The next question is on demand outlook in Nigeria.

Temi?

Yes.

Sorry for the network. Sorry. Two -- I would like just to add 2 things. Number one, very important to say that GDP forecasts for all other countries, all over Africa, the GDP forecasts have been revised by expert downwards since last December. And every new forecast is lower. And we all know the overall worldwide economical and political issues generating this downward trend, which is also impacting inflation on the same way. Inflation forecast going up and up from one forecast to the other. And I'm sure all people connected to the call can check. This has an impact on the overall demand. So explaining why we can -- we see the softening market. In terms of Ghana and Cote d'Ivoire, as you said, already by 2022 or early 2023 for the latest, and no other projects I'm going for the time being.

Thank you, Michel. I think the additional question will be just plans on recovering volumes in Nigeria and Pan-Africa for the second half of the year. What are the plans?