Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Interim Results Presentation. [Operator Instructions] Also note, this event is being recorded. I will now hand the conference over to Temilade Aduroja. Please go ahead.

Good day, everyone. It is my pleasure to welcome you to Dangote Cement's First Half 2023 Investor Call. My name is Temi Aduroja. I head the Investor Relations for Dangote Cement. On the call today and leading this conversation is our Group Managing Director, Mr. Arvind Pathak. He will also be supported by the group CFO, Dr. Gbenga Fapohunda. Arvind will take us through the presentation. And thereafter, we will proceed to question-and-answer session. Over to you.

Thank you, Temi. Good afternoon, everyone. Thank you very much for taking 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 half of 2023. Let's begin on Page 2, which shows an overview of our achievements in the first 6 months of the year. On the financial side, group revenue was up by 17.7% to NGN 950.8 billion. And pan-Africa delivering strong results with a record EBITDA of up 195.2% at NGN 93.6 billion. While recurring PAT was up 37.4% at NGN 292.2 billion. On the operational side, our pan-African business witnessed strong growth with volumes up 11.6% to 5.4 million tonnes. We commenced operation at our 0.4 million tonnes per annum Takoradi grinding plant in Ghana which has increased Dangote Cement's total installed capacity to 52 MTPA. On sustainability, we continue to strengthen our efforts to ramp up the usage of alternative fuels. Thermal substantial rate averaged 7.9% in H1 2023 as compared to 3.3% in the same period last year. Page 3. Highlights major milestones achieved so far this year. In July, we completed tranche 1 of our second share buyback program, where we repurchased 0.71% of the issued shares. We also successfully issued Series 8 and 9 commercial papers at attractive rates. The issuance follows the upsizing of our CP program from NGN 150 billion to NGN 300 billion, which proceeds used to support working capital needs. I'm proud of the significant milestone reached in the period and look forward to further achievements in the remaining part of the year. On Page 4 and 5, we highlight the current macroeconomic environment of Sub-Saharan Africa and Nigeria in particular touching on key economic parameters. Sub-Saharan African is estimated to grow at 3.6% in 2023, slower than the growth of 3.9% in 2022. According to the IMF, SSA is still confronted with the challenges of rising commodity prices, declining government revenues and high public debt. Although a slow global growth is anticipated for the year, we see the African cement market resilient and robust, sustaining our business on a path of growth. Page 7. Details our strong performance in Q2. Pan-Africa results were impressive with Q2 volumes up 14.3%, while revenue more than doubled to NGN 210 billion and EBITDA was up 3x to NGN 62.5 billion. Nigeria also performed well with Q2 volumes up 22.6% over Q1 following the uptick in economic activities post the election and easing of cash crunch experienced in Q1. As such, Q2 Nigeria EBITDA was up 31.1% Y-o-Y. This clearly demonstrates what a strong quarter performance we had. Page 8. Details are impressive H1 2023 performance. Our pan-African business delivered notable results in the first half of the year, further consolidating group's performance. On the financial side, group revenue was up 17.7% to NGN 950.8 billion, supported by higher price realization. Group EBITDA was 18.8% to NGN 443 billion. PAT was up 3.8% at NGN 178.6 billion, despite noncash foreign exchange loss. Excluding the noncash foreign exchange loss, recurring PAT was up 37.4% at NGN 292.2 billion. On the operational side, group volumes were down 5.4% to 13.4 million tonnes. Pan-Africa volumes were up 11.6% on a strong performance from Ethiopia, Cameroon, Senegal, Zambia and Congo. In addition, we commenced clinker exports from Congo to Cameroon. Our income statement on Page 9 highlights our financial performance in more detail. I would like to draw your attention to the noncash FX losses. We recorded FX loss of NGN 113.6 billion, mainly due to the effect of our foreign currency obligations, following the devaluation of naira in June '23. Despite this, we recorded a strong EPS of naira 10.39%, up 2.9%. Looking at Page 10. Our cash from operations is growing at a strong rate. Net debt is at NGN 480.5 billion as of 30th June 2023 with a net gearing of 36.6%. Our balance sheet on Page 11 remains resilient with a cash balance of NGN 320.8 billion at the end of June '23. On Page 12, we get a clear picture of Nigeria's considerable recovery in the domestic market in Q2 following the cash crunch experienced in Q1 and successful transition of the new government. In the second quarter, we saw increased economic activities, Nigerian government floated the naira against the dollars. Post FX devaluation, foreign currency exposures impacted our operating costs. On the other hand, it positively impacted our Nigerian business with a net FX gain of NGN 462.8 billion coming from pan-African assets. Sales volume from our Nigerian operations stood at 4.5 million tonne in the second quarter of the year, 22.6% higher than the 3.6 million tonnes in quarter 1 highlighting the uptick in economic activities in the quarter. Revenue and EBITDA were up 12.3% and 31.1% Y-o-Y, respectively, showing a strong recovery in Q2. Meanwhile, H1 '23 EBITDA was up 2.8% to NGN 359.1 billion at a margin of 58%. As we focused our efforts on containing cost amid the high inflationary environment. Page 13. Further highlights the strong performance of our pan-African markets with sales volume up 11.6% to 5.4 million tonnes. The stronger volume in the period was driven by improved cement demand from Ethiopia, Senegal, Cameroon, Congo and Zambia. Consequently, pan-African revenues were up 81.8% to NGN 336.4 billion on improved sales, while EBITDA more than doubled to NGN 93.6 billion. Pan-Africa achieved a record high EBITDA margin of 28% for the first half of the year. We are very happy with the strong performance achieved in our pan-African countries. We commenced operation of our 0.4 million tonne grinding unit in Takoradi, Ghana and have reached an advanced stage in the development of grinding unit in Cote d'Ivoire. Over the next few pages, from Page 14, you will see the updates from our pan-African operations. Ethiopia, Senegal, Cameroon, Ghana, Zambia, Congo and South Africa all saw growth in volumes compared to last year. In South Africa, we are reaching great heights in alternative fuel usage with Dangote Cement, South Africa achieving an average thermal substitution rate of 61.1% in H1 2023. In Zambia, strong volume growth was supported by improved exports enabling countries. While in Congo, we commenced clinker exports to Cameroon. I'm also happy to state that we are maximizing capacity in Senegal, Ethiopia and Cameroon. Now moving to our debt and liquidity on Page 17 which show a time line of our activities in the debt capital market. I want to thank the investor community for the strong confidence in the company. Our track record of assessing the debt capital market remains strong. As you will see on Page 19, our capital structure remains robust, and we maintained strong credit ratings from global rating agencies. In July 2023, GCR affirmed DCP long-term issuer rating at AA plus with a stable outlook, while the short-term issuer rating at A1 plus was with a stable outlook. The rating reflects DCP's sustained market leadership in Nigeria, as well as our increased penetration into other African markets. On Page 20 and 25, we highlight our continued effort on sustainability and governance structured around the 7 sustainability pillars of Dangote Way. Page 23 discusses the institutional pillar that shows our strong governance framework with a focus on Board member diversity. We currently have 29% female Board member representing on our Board. I'm also happy to announce that the Board of Directors of Dangote Cement, approved the appointment of Mr. Alvaro Poncioni Mérian as Independent Non-Executive Director effective 1st August 2023. Mr. Alvaro is the Founder and Managing Director of EDNAM Capital, United Kingdom, and Founder and Executive Chairman, Munegu Partners, Hong Kong. Page 23 shows our sustainability highlights in the period. We have continued making significant improvement on our environment pillar and are strengthening our alternative fuel initiatives. Our AF thermal substitution rate increased to 7.9% in H1 2023 versus 3.3% in H1 2022. While we co-process 169,919 tonnes of biomass. On the social front, DCP spent, NGN 822 million on the social interventional activities across the group in H1 2023. We commenced various employee welfare programs to cushion the effect of high inflationary environment while we launched short-term incentive and employee recognition program. Page 26 demonstrates our financial pillar, how we are creating value for our shareholders with strong revenues and EBITDA and dividend over the decade -- last decade. 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. I'm very optimistic about the future of Dangote Cement and confident in our strategy and growth prospects. Dangote Cement continues to position itself as the leader in the cement sector in Africa. We remain focused on our commitment to sustainable growth that benefits all stakeholders and are confident that these encouraging results will continue in the year. Thank you very much.

Thank you very much. We can now open the call for question and answers.

[Operator Instructions] Our first question is from Uwadiae Osadiaye of FNBQuest.

I have 3 questions. SSA prices for pan-Africa from our estimates appear significantly higher year-on-year, it'll be matching Nigerian levels. What are your thoughts around the potential impact on African demand, if any? Second question would be around the Nigeria border closure and the impacts -- likely impacts on unit volume growth. And you also, if you don't mind, give me guidance on what this -- would I say, military intervention across the region, how it could impact on Dangote Cement's West and Central African strategy. My final question would be for the Cote d'Ivoire plant. When should we expect that to come on stream?

Okay. Thank you for your questions. Your asked us about the pan-African prices increase over the years and moving towards the direction of Nigeria. Most of the countries where we operate, practically all the countries where we operate, the prices are governed by the market supply and demand. What it reflects is that we have a good strong market in these countries and the growth in these countries are propelling if you look at the SSA report, some of the countries which are showing high potential are the ones where we are present and that is the one which is having influence on the prices. A certain amount you could attribute to the strong brand equity over the years of prices, which has led us to that. Nigeria Border at this stage, it is too premature to comment. We would like to wait and watch how the situation develops. That's all or if I left out anything?

Yes, Cote d'Ivoire plant. When can we expect that to come on stream?

Cote d'Ivoire, we are still on schedule, and we expect to complete by the end of the year.

[Operator Instructions] Temi, I'd like to hand back to you for the webcast questions since we have no questions in the queue at the moment.

So the first question is from Tinashe from Laurium. Compared to Q1, it seems the price realized per tonne in Nigeria was lower in Q2. Can you please help us understand what drove that? The second question is, can you also give us an indication of the constant currency revenue growth and EBITDA growth of the pan-African operation? Asking for hard currency U.S. performance rather than the naira due to the devaluation.

As regards to question #1, where you see price delays per tonne in Nigeria seems to be lower than Q2. That may not be true because we have not made any major changes in our prices during the quarter. However, also I'd like you to appreciate that the prices which you see is a weighted average price. Weighted average price will depend upon the region. It will depend upon the mode of collection, whether self-collection or [indiscernible] collection or we have a very strong brands in our kitty, so mix of those also govern that. So it could be purely be on account of that otherwise, our price relation during the quarter 2 was same as quarter 1. On the contrary, if at all, it could be it was higher.

And the second question, can you send us an e-mail, so we'll actually work on the calculation in terms of the EBITDA and revenue growth in USD. So the next question is from Segun Adams from Afrinvest. Congrats on your results. Could you shed some light on the volume compression in Nigeria and your strategy to turn things around? Under your selling and distribution expense, costs classified under others grew significantly to NGN 2 billion in 2Q. What is the most important item driving that line?

Okay. Thank you very much. Thank you, Segun. Volume compression, what you have observed, Q2 on the contrary compared to the previous quarter, we had gone up significantly during the quarter. Maybe you could be referring to Y-o-Y and which was primarily covered in our Q1 presentation, the reasons. So truly, this difference has primarily come from the Q1 performance that we had. Q2 was a very strong performance, and there was a pickup in the activities, except for, I think towards the end of the June, we had the festival offs and very prolonged non-activity period.

So the second part is under the selling and distribution expense. Okay. So next question is from Oladipo Oladehinde from BusinessDay. Are there plans to contain the impact of further devaluation on your books, like focusing more on sourcing inputs locally than sourced abroad.

Okay. Let me take that. Thank you for the question. Yes, we have a lot of programs to address that. We have the increased usage of CNG for trucks versus imported AGO. We have the increased usage of alternative fuel for production, which is way cheaper than other forms of energy. We also have the increased usage of local coal as well versus imported coal to be able to address all these increased cost challenges. Also on the other hand where the market allows, we would actually be positioned to take price increases where possible. .

So from [ Olamide ] as well, given the devaluation, kindly share the percentage of your OpEx by dollar denominated.

It's about 40% to 50% on average although work is ongoing to reduce this drastically.