Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Dangote Cement Plc's First Quarter of 2023 Investor Call. [Operator Instructions] Please note that this event is being recorded. I'd now like to hand the conference over to Temilade Aduroja, Head of Investor Relations.

Good day, everyone. It is my pleasure to welcome you to Dangote Cement's Q1 2023 Investor Call. My name is Temilade Aduroja, Head of Investor Relations at Dangote Cement. On the call today, I'm leading this conversation is our Group Managing Director, Mr. Arvind Pathak, he will be supported by the acting Group CFO, Dr. Gbenga Fapohunda. Arvind will take us through the presentation. And thereafter, we will proceed to question-and-answer session. So over to you now, Mr. Pathak.

Thank you, Temilade. 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 first quarter 2023. Let's begin on Page 2, which shows an overview of our achievements in the first 3 months of the year. On the financial side, group profit after tax was up 3.4% in NGN 109.5 billion, while EPS was up 4.2% at NGN 6.44. Pan-Africa delivered strong results with record EBITDA up 71% at NGN 31.2 billion. On the operational side, our Pan-African business, business strong recovery with volumes up 8.9%. I'm also pleased to mention that we are on track to commission our grinding plant in Ghana in the second quarter of 2023. On sustainability, we continue to strengthen our efforts to ramp up the usage of alternative fuels. Thermal substitution rate averaged at 8.7% in Q1 2023 as compared to 2.9% in the same period last year. Our alternative fuel projects aims to leverage best management solution, new CO2 emissions while sourcing material locally. If you turn to Page 3, you can see what we have achieved so far this year. In March, we received the regulatory approval for our second buyback program. We also issued NGN 138.2 billion in commercial paper for working capital purposes. In April, we held our Annual General Meeting and released our 2022 annual and sustainability report. On Page 4 and 5, we highlight the current macroeconomic environment of Sub-Saharan Africa and Nigeria in particular, touching on the economic parameters. Sub-Saharan Africa, properly known as SSA, is estimated to grow at 3.6% in 2023, slower than the growth of 3.9% in '22. According to the IMF, SSA is still consulted with challenges of rising commodity prices, declining government revenues and higher public debt. That was worsened by the pandemic and supply chain disruption from Russian-Ukraine crisis. Although slow growth is anticipated for the year, we have implemented a robust cost-reduction strategy and performance improvement plan across our locations, which would copper strong demand and sustain the business on a path of growth. I'm pleased to note that Ethiopia, Senegal, Tanzania and Zambia, where we have operations are among the fastest-growing African countries in 2023. On Page 7, you can see that we finished the first 3 months of 2023 strong, thanks to our African strategy, which yielded better. Especially, group revenues and EBITDA were down 1.6% and 12%, respectively. The decline was as a result of the slowdown in the sales from our Nigerian operation caused by the quick currency shortage and the economic uncertainties due to the general elections. In contrast, Pan-African revenues came in stronger, up 38.5% to NGN 126.4 billion in quarter 1 2023 with the record EBITDA up 71% to NGN 31.2 billion. Pan-African EBITDA margin was up by 470 basis points to 24.7 percentage. Stronger growth from our Pan-African market versus the sale of the Nigerian operations due to elections translated into growth in profit after tax by 3.4% to NGN 109.5 billion and an EPS of NGN 6.44, up by 4.2%. On the Operational side, our group volumes were down 13.5% to 6.3 million tonnes on the back of the decline in the sales in the Nigerian operations due to challenges mentioned above. Meanwhile, Pan-African volumes were up 8.5%, supported by improved performance from Cameroon, Senegal, Zambia and Congo. Our income statement on Page 8 highlights our financial performance in more detail, showing a reduction in financial cost to NGN 32.5 billion. The reduction in financing cost was result of a 46.3% drop in our foreign exchange losses due to improvement in the [ CSR ]. Looking at Page 9, you can see that our cash from operations is growing at a strong rate. Investments continued to prepare the group to capture market growth across territories. Net debt at NGN 394.1 billion as of 31st March 2023 with a net gearing of 33.4%. Our balance sheet on Page 10 remains visible with a cash balance of NGN 255.2 billion as at the end of March 2023. On Page 11, I'll go over our performance in the Nigeria in more details. Uncertainty and sentiments around the Nigerian elections stalled economic activities with many private and public projects on hold until the outcome of elections. In addition, the cash crunch impacted construction workers' daily wages and retailers' ability to pay for cement in cash. Collectively, these negatively impacted volume of sales and limited our ability to maximize production during this year. Revenue for the Nigerian operations declined by 12.9% to NGN 280.3 billion due to the uncertainties during the period. The increased prices of AGO resulted in a 7.9% year-on-year increase in selling and distribution costs. Accordingly, EBITDA of our Nigerian operations was down 19.3% to NGN 158.6 billion at a margin of 56.6%. Noteworthy is the improvement in energy supply in Nigeria compared to last year. Looking ahead, we see great opportunities in the Nigerian market, particularly with the success of the concluded elections. With this end, we are tendering our local production capacity efforts with the announcement of the construction of an additional 6 million [indiscernible] cement plant in Itori. Once completed, our local capacity in Nigeria will increase to 41.25 million tonnes per annum. Page 12 further highlights the strong performance of our Pan-African market with sales volume up 8.9% to 2.6 million tonnes. The stronger volume in this period was driven by improved steel demand from Senegal, Cameroon, Congo and Zambia. Consequently, Pan-African revenues were up 38.5% to NGN 126.4 billion and improved sales, while EBITDA posted a record double-digit growth of 71% to NGN 31.2 with a margin of 24.7%. Over the next 2 pages, from Page 13, you will see the updates from our Pan-African operations, Senegal, Cameroon, Ghana, Zambia, Congo and South Africa, also growth in volumes compared to last year. Happy to inform that there was also an improvement in energy supply at Pan-Africa due to reduction in prices of our energy costs. Now moving on to our debt and liquidity on Page 17. We show a time line of our activities in the debt capital market from our NGN 300 billion bonds in 2022 to our short-term NGN 150 billion commercial paper project, established in 2021. In the first quarter of the year, issued NGN 138.2 billion Series 4. 5, 6 and 7 Commercial Paper at an attractive way, which persists on the insurance used to stand in for working capital. I want to thank the investor community for their strong confidence in the company. Our track record of accessing the debt capital market remains strong. On Page 20 and 25, we highlight our continued efforts on Sustainability and Governance structured around the 7 facility periods of the Dangote Cement. Page 23 discusses the Institutional Pillar and showed our strength governance to grow with a focus on Board member diversity. We currently have a 27% female Board member representatives on our goal. On Page 24 and 25, we show how we have continued making significant improvements on our Environmental Pillar and are strengthening our alternative fuel initiatives. We are increasing this management solutions in our country and operations, and are focused on delivering the circular economy business model. The volatile international context is pending and efforts to ramp up the usage of alternative fuels and execution of our export new port strategy. Our AF Thermal Substitution Rate increased to 8.7% in Q1 2023 versus [ 26% ] in Q1 2022, while we co-processed 67,006 tonnes of biomass. Dangote Cement, South Africa, altered the fuel usage increase with an average thermal substitution rate of 72.9% in Q1 2023. The Social Pillar on Page 24 demonstrates our social activities in quarter 2023. We saw a year-on-year growth of 50% to NGN 468 million, while Page 25 demonstrates our financial peer and how we are creating revenue for our shareholders. I would like to thank everyone for joining us today, and thank you again to our investors for their 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 are confident that these interim results will continue in the year. Thank you very much.

Thank you. Operator, we will now open the call to question and answers, please.

[Operator Instructions] The first question comes from Kayode Eseyin of CardinalStone Partners Limited.

Just confirm you can hear me.

Yes, we can.

Okay. Yes. So going up on the results. As you said, we saw a strong [indiscernible] Pan-African as well. I recall last call, I mentioned that the continuous raising of prices has the potential to affect demand, especially when you consider that competitors like [indiscernible] aggressive FIGO strategy. For contract, their price, and prices remain way lower than what it is currently -- what you are currently offering. So my question is that it's now that the Q1 just -- is looking like continues to grow volume significantly. Do you believe the continuity in sale continues and pricing strategy? Are you concerned about the competitor? [indiscernible] and the strategy? And then also, as regards to volumes, you mentioned cash long-term affecting volumes in Q1, cash flow slowdown in economic activity due to the electioneering activity. So my question on that is, since that is now out of the way, are you optimistic on Q2, Q3 volumes? Or are there any other significant or specific steps you are taking just to implement -- just to curb this end volume decline we are seeing? So just a few more questions. The third one would be what your African price is? Are you looking to continue to raise prices? Or are you considering with respect to competitors? And then also your tax -- your effective tax rate seem to be lower in the quarter. Can you give color on that? I think lastly, the share buyback -- a question on share buyback. I think you can also [indiscernible]. I think that's all for now.

Yes. Thank you. I am Arvind Pathak. I will take a few questions to begin with. We do not to talk to our competitors because we formulate our policies in the interest of the organization that has been good achievement. Since you have raised the topic, let me just try to clarify some difference. Difference is that we are a pan major in a multilocational company. These are risks of the names that you referred in your question. And hence, the impact of any adversities and impact of any favorable situation would be different from a company which is localized in a few selected markets. So what do you see in this quarter? You see a very significant jump in our volumes in Pan-Africa. It may not be relatively to that extent in Nigeria. That's because of our wider presence. Now pricing strategy, we have our own pricing strategy. And we don't do newer creations to what is there. We'll do what we see -- we assess the situation. And some of those things like pricing, we normally would not like to be discussing where there is a strategic move for an organization. So I request you to bear with us. What do we see the impact of the cash funds? Yes, there were easing out of that. And the evidence of there was there in the month of March itself, where we saw some improvement in the volumes. And if some of these macroeconomics and conditions that you see as we said in our opening remarks, we expect it to continue to perform well going forward. I trust that it answered all your questions. Now related to test, I'll ask my -- Dr. Gbenga, our CFO.

Okay. Good afternoon, everyone. Thank you for the question on the effective tax rate. This has mainly been driven by increased tax benefits from our entity with Pioneer Tax benefit such as Line 5 [indiscernible] following the ramp-up in volume production vessels last year. So we have this Pioneer entities that we've increased production versus last year [indiscernible] fully last year towards the end of the previous year, we had Line 5 come up, and we've been able to optimize them. So the tax benefits, I believe, is very, very good for us. And this is similar to the effective tax rate, we closed with as well at the end of the year. Concerning the share buyback, a final decision has not been made on the timing, but we are at the final stage of consuming that and considering that having made. Would announce the public immediately we get the sign of go ahead internally. Thank you.

The next question comes from [indiscernible].

Can you hear me?

Yes, we can hear you.

So I was not -- it was like turning the call to last investor call service. We asked something about a gain on monetary assets. I saw that line in Q1 2023. I also like have a better understanding about the analysis to the other things to be in the next business like how about the gain in the next earnings results. And apart from that, I also want to understand that what are the current company is making cosigning the situation in which they remove on subsidy on flow. Like what do you think -- like how it doesn't really upset the patients of the business also in the situation that is being removed. And I also want to have for a breakdown of volume and price. I won't say about us to build on volume and price. And I also want -- finally, I also want to understand the value of our operations in Cote d’Ivoire and Ghana like when are we going to see more improvement? Like what are the next steps and concerning that as cases? And I also want to know, because in your recent releases, you said something about a plant operation of the -- plants in Itori to understand what is going on consigning that? So these are my questions.

Sorry, we didn't get the last question. Plant operation where? Can you repeat the last question?

Itori, the plant operation in Itori. Also understand like as on operation started and so what are the things concerning like just starting of patient revenues?

Okay. Thank you.

Can you to start on the monetary assets?

Okay. Thank you, everyone. Thanks for the question. I will attend to the question on gain on monetary assets. This is due to high inflation accounting in Ethiopia. The IES as the accounting regulators are mandates in accounting treatment, if cumulative inflation is above 100% over the last consecutive 3 years. In the case of Ethiopia, we've experienced that. And all the major audits are declared as a hyperinflation environment. So it's the treatment of accounting that actually were an stacked. Are we going to have another situation like that in years of coming? It depends on whether the last 3 years cumulative inflation adds up to 100%. As at the end of the quarter, we will see an hyperinflation environment, and that's what warranted the application of the standard to that. Thank you.

Okay. Let me take on the balance. As regards the subsidy of the fuel, we wish to play bad that we do not enjoy fuel. Hence, we are unaffected by any such rumors that are likely or may or may not take place going forward. As regards to operation at Ghana or maybe the plant is in the commission, and we are expecting that by the end of this month, we should be producing and selling fuel from this unit. And the Cote d’Ivoire, as informed earlier, we should be operational by [ 2/4 ] of this year. And with regards to Itori is a continuous endeavor, as I said in my openings remark, to be the leadership position. And we assess the macroeconomic factors of the various trade, where the likely the growth would be. And just keeping ahead of the growth curve. So in line with the long-term strategy of the Nigerian market requirements that we have taken these steps. I trust we have answered all your questions.

[Operator Instructions] The next question comes from Abdul-Rauf of WSTC Financial Services.

My -- I have a question concerning your volume performance in the Nigerian market. Okay. So as a follow-up to the question that was asked about that particular topic, I got the response that because of banks and why they reach the impact of certain operational events may not affect everyone, fortunately. But from what I estimated, volume declined by as much as 25%. And in my view, I think 25% is rather too steep. If the -- if one of the major drivers to that decline is cash crunch, then the -- that makes something not clear to me because now understanding is that Dangote Cement is more of a B2B business. And I stand to be corrected, I wouldn't -- I don't think that the impact of the crunch would be that significant for a B2B business because across both from other industries that maybe for myself that I have seen, trying to analyze the cash crunch to your performance, I mean the -- I feel that the impact on Dangote was really, really steep. So if you could just help me to further think a clear picture on the amount of significance or where the link is between the naira crunch and volume sales for the business. I just want to get that. It's not really, really connecting in my view. So the second question is I just want to ask you how the macroeconomic dynamics in Ghana and how it's affecting the demand in that market. I just want to get a sense of that.

Okay. Let me take on this question. We should clarify certain thing that Dangote Cement position, basically, we are relatively to all our competitors in Nigeria. It is more customer-centric, that is what we called as individual house builders rather than the institutional customers, which are basically of the big companies who carry out the various infrastructure. Since our main market share is in the individual homebuilder, our operations are basically can in turn their B2C. And we are not seeing the entire volume because of loss because of cash crunch. We set down the various parameters. For this, one of them was cash crunch. And there was some apprehensions, election, election holidays, which were different in the different parts of the country. And since we are present across the nation, we could have a cumulatively greater impact compared to somebody with reasonable days. So since we are B2C, cash crunch would obviously be trying to affect the last person who buys the back of the cement. And similarly, if you are seeing the similar effects should take place because of other conditions, which could be specific, localized to certain states and certain segments. And if they happen to be, our stronghold will be get impacted higher than the others. Ghana, I think we are doing relatively well. We have been sort of waiting for our grinding unit to get commissioned. And for whatever response we are getting and whatever indication we are having from the market, receptibility of our brand uses it is well accepted than what you see in brand. And this grinding unit, whatever its capacity is, you see more difficulty in going forward and realizing the full potential. Thank you very much.