Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Plc 9 Months 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.

Thank you, and good morning and good afternoon. It is my distinguished pleasure to welcome you to Dangote Cement's 9-month 2022 Investor Conference Call. My name is Temi Aduroja, Head of Investor Relations at Dangote Cement. On the call, we have our management team, who will provide more clarity on our results. Chairing this call is our Group Managing Director, Michel Puchercos, who will be supported by our Group CFO, Gbenga Fapohunda. Michel will take us through the presentation, and then after we will proceed to a question-and-answer session. Please welcome our CEO, Michel Puchercos.

Thank you, Temi, and 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 9 months of 2022. Let us begin on Page 2, which shows an overview of our achievements in the 9 month of the year. On the financial side, group revenue was up 15.2% to NGN 1,177 million, whilst EBITDA was up 0.2% to NGN 516 million compared to the same period last year. In terms of volumes, group volumes were down by 6.2% at 20.8 million tonne, elevated by the high base of 9 million -- 9 months 2021 due to inflation and energy supply disruption. However, owing to our national consumer promotions, Bag of Goodies, which started in July, we have seen improvement in our market share in the quarter. If you turn to Page 3, you can see we have achieved a lot so far this year. In an effort to support demand ahead of the rainy season, we launched the third season of the national consumer promotion, Bag of Goodies 3; and in August, we commissioned our power plant at Okpella. On Page 4 and 5, we highlighted the current macroeconomic environment of Sub-Saharan Africa and Nigeria, in particular, touching on key economic indices impacting the economy. According to the International Monetary Fund, IMF, the Russia-Ukraine crisis and inflation contribute to a significant slowdown in global growth in 2022. Inflation has soared to multi-decade highs, prompting rapid monetary policy tightening. Sub-Saharan Africa is estimated to grow at 3.6% in 2022, lower than the 4.7% rebound in 2021. This growth supported by elevated commodity prices and the relaxation of the Shenzhen pandemic measures should drive cement demand across our markets. Dangote Cement's country of operations are all expected to grow in 2022 with Republic of Congo and Senegal expected to grow at the highest rates. In Nigeria, headline inflation reached 20.7% at the end of September, and the CBN hiked monetary policy rate 3 consecutive times this year to 15.5%. On Page 7, we recorded increases in revenue and EBITDA that drove strong cash generation across the group. However, elevated inflation and the rapidly increasing prices of AGO resulted in a 54.2% increase in our selling and distribution costs, which impacted bottom line. To mitigate the impact of significant increase in energy and AGO costs, we are strengthening our efforts to ramp up the use of alternative fuels. So far this year, we co-processed 100,000 tonnes of waste, representing a 77% increase over 9-month 2021. We are on track to commission our alternative fuel feed system at Obajana Lines 1 and 5 and Ibese Line 2 in November. In addition, we are ramping up our investment in compressed natural gas, CNG, to reduce AGO usage in our trucks. We recorded profit after tax of NGN 213.1 billion, down 23.4% compared to last year mainly due to NGN 74 billion in unrealized foreign exchange losses from the depreciation in some Pan-Africa countries. However, group EBITDA of NGN 516 billion, up 0.2%, was supported by robust cost-control measures, mitigating inflationary pressure. We recorded earnings per share of NGN 12.41. On the operational side, group volumes were down 6.2%. The lower volume was elevated by the high base of 9-month 2021. Our operations relying on cement and clinker imports, namely Ghana, Sierra Leone, Cameroon, were impacted by the global supply chain challenges. Our income statement on Page 8 highlights our financial performance in more detail. Looking at Page 9, 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. Net debt is at NGN 467 billion as at September 30, 2022, with net gearing of 55.7%. Our balance sheet on Page 10 remains resilient with a cash balance of NGN 217 billion as at the end of 9-month 2022. On Page 11, I will go over our performance in Nigeria in detail. Our Nigerian operations sold 13.4 million tonne of cement during the period, down by 4.1%. The slightly lower volume was due to energy supply disruptions, which impacted production. The energy disruptions were due to low gas availability in Nigeria. This negatively impacted our ability to maximize production during the period. Although we experienced heavy rains in the third quarter, the successful innovative national consumer promotion, Bag of Goodies Season 3, improved our market share in the quarter. We have seen strong improvement in demand from September as we approach the dry season, and we expect this trend to continue into the last quarter. The national consumer promotion has made 190 millionaires and multimillionaires across all states in Nigeria. During the period, we exported 581,000 tonne of cement, up 10% compared to same period last year. We recorded an EBITDA of NGN 480 billion, up 4.5% despite significant distribution cost. We were impacted by the significant rise in AGO due to our national coverage, which results in longer distance to customers. On Page 12, sales volume in Pan-Africa were 7.4 million tonnes in 9-month 2022, down 9.7% due to the global supply chain disruption and increasing cement and clinker price volatility. Extended maintenance and repairs in Congo and Senegal led to the reduction in volumes compared to the 9 months of 2021. Over the next few pages from Page 13, 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 maintenance and repairs. Regional sanctions in Mali also impacted our exports. However, Ethiopia sales were up at 1.7 million tonne in 9 months 2022 with an increased market share to 41.7%. Tanzania also showed strong improvement with sales volume up 11.7%, supported by the growing cement demand and the continuous improvement of our plant operations. Now moving on to our debt and liquidity from Page 17. We show a time line of our activities in the debt capital market from our maiden bond insurance in 2020 to the historic NGN 116 billion bond issued in April this year. I want to thank the investing community for the strong confidence in the company. Our track record of accessing the debt capital market remained strong. Page 18 provides a summary of our Tranche II share buyback program. In January this year, DCP bought back 0.74% of its issued and fully paid ordinary share. The overall outcome of the exercise was successful. Following the completion of Tranche I and II, DCP had bought back a total of 0.98% of its shares outstanding. I am pleased to announce that the Board has approved a new share buyback program. This buyback program is subject to the relevant regulatory approvals and shareholder approval at an AGM. As you will see on Page 19 and 20, our capital structure remains robust and we are solidifying our strong balance sheet with available liquidity. This liquidity, including strong cash flow generations of NGN 500 billion in last 9 months 2022, and undrawn short and long-term financing lines and vehicles allow us to cover short-term obligations. On Page 22-26, we highlight our continued efforts on sustainability and governance structured around the 7 sustainability pillars of The Dangote Way. Page 23 discusses the institutional pillar and shows our strong governance framework with a focus on Board member diversity. We currently have a 27% female Board member representative on our Board. On Page 24 and 25, we showed 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. We have implemented a robust cost-reduction strategy, which includes increased use of alternative fuel to improve our energy mix and the use of compressed natural gas, CNG, for our trucks in the rising AGO cost environment. Our AF thermal substitution rate was estimated at 3.8% over the last 9 month of 2022 versus 2.3% in same period 2021. In addition, we recorded a reduction in CO2 emission and water consumption per tonne in comparisons to 2021. The social pillar on Page 28 demonstrates our social investments in the last month of 2022. To promote diversity and inclusion, we launched Dangote Cement Crash to support women with child care. Moving on to the incident that happened at Obajana plant in Cog State. On Wednesday, October 5, 2022, local vigilantes invaded and sealed the Obajana cement plant over a dispute between Dangote Industry Limited and Cog State government. This development led to several of our staff being harmed by these local vigilantes. The welfare of our staff remains our key focus as we continue to work hard to minimize any impact on our people and operations. The Obajana cement plant was shut for 1 day and reopened on Friday, 7 October 2022 with suboptimal operations. It became fully operational from Friday, October 14 after the federal government ordered the full reopening of the plant. We extend our appreciation to all our shareholders and stakeholders who have remained patient with us throughout this incident. We remain committed to promoting inclusive economic growth while supporting the development of communities in which we operate. 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. We are progressing well in the deployment of grinding plants in Ghana and Cote d'Ivoire and commissioning our AFE, the systems, in Obajana and Ibese in November. We remain resolute in transforming Africa while creating sustainable value for our people, communities, investors and customers. Thank you very much.

Thank you, Michel. We'll now open the call to -- for questions and answers.

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

My first question is around volume. Can you provide some guidance on volumes outlook for the next 12 months given the pressures from the supply side as well as the demand side? My second question will be on gas supply. In Q3, as the percentage of gas requirement that were met on the supply end. And finally, on Page 12 of the presentation, there is a point on cost pressure. So I'd like to clarify, what is meant by overall scarcity? [indiscernible] scarcity in Pan Africa?

Yes. Thank you for your questions. So guidance for Q4, the trend so far is minus 4%. As you can see, all across Nigeria and Pan-Africa, the -- we believe that now we're entering the dry season in Nigeria, and the demand is peaking very strongly, which again gives maybe a better guidance. And I would say that we could -- same trend or slightly improved. Very, very difficult to say now. But again, not worse than the 9 first months and most likely much better. In terms of gas supply, you know we have 4 plants: Obajana, Ibese, Gboko, Okpella. Gboko and Okpella, there is no gas. So they did not suffer from any shortage because they are not supplied by gas. To make it simple, Ibese did not suffer much. It impacted mainly Obajana. Roughly, number in mind can be half of the supply. But thankfully, Obajana can be supplied by coal, alternative fuel and gas, and we have been able to compensate the drop in gas by other energy sources. In terms of cost pressure, when you look at the 9 month, it comes mainly from energy, coal and AGO, our 2 main sources. On coal, I'm sure you have access to all the information and imported coal or worldwide market, and you can see the increase. At the same time, AGO, I'm sure you're almost filling up tanks or going to the fuel station. You can see the increase in AGO, which are the 2 main sources of cost increase in 2023 compared to 2022 as far as our own costs are concerned. Some others like bank, gypsum are secondary. The main ones are really coal and AGO.

The next question comes from Mustapha Wahab from CHD. We will move on to the next question. The next question comes from [indiscernible] from CardinalStone.

So I have a few questions actually. Should I say all of them or I should ask them one by one?

Please say all of them.

Okay. So the first one, like I have about 7 questions is, when do you think the issue with the Cog State government will likely be resolved? Also, could you provide like some clarity as to whether the proposed share buyback would occur before the release of the full year results? And would a decision to -- the decision to embark on the share buyback have any impact on the proposed dividend? Another question is, what do you think would be the impact of increased electionarian activities on cement demand for 2023 next year? And also given the consistent energy pressure, are you likely to increase prices next year? And also, do you have an outlook for your CapEx next year? And last question, do you have like any forward guidance for cement production for Nigeria and like the rest of Africa operations for next year? And if possible, kindly share.

I will answer some of the questions. I may ask CFO to give more details on the share buyback. On the Cog State, there are 2 dimension: the operational one and the shareholder one. As far the operational one is concerned, everything has been resolved. Federal government instructed the operations to be seamless, and they are. So from my standpoint, it has been totally resolved. Now there are other issues pending for arbitration. And for this one, I don't have any agenda. So you have raised many question related to next year. Of course, this one is related to budget and to be presented to the Board. Our Board is in December, and honestly, I cannot share any information before then. You would understand that we should inform the Board and get their approval before any sharing of such measures. In terms of share buyback, maybe Gbenga, you want to answer and give the overall agenda.

Okay. Thank you, everyone. Two sides to it. I'll take 2 questions together. The first one is what are we expecting the share buyback. So the share program expired at the end of January 2022, and the Board has approved another program. We are currently seeking shareholder approval as well for this. The new program will start in January 2023. We've gotten Board approval. However, we expect it to actually finalize around January, February next year, which will be almost about the same time our final numbers will come out. Okay. The second question is the impact or the effect of the share buyback on proposed dividend. As of today, we don't expect any impact of the share buyback on proposed dividend. We'll keep to our dividend policy, and that should take care of that.

Does that answer all of your questions?

Yes, we've answered the questions. Can we go to the next question?

Okay. At this time, we have no further questions in the queue. [Operator Instructions] At this time, Temilade, if I can hand over to you for questions from the webcast.