Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement 9 Months 2023 Investor Conference Call. And there will be an opportunity to ask questions later during the pool. [Operator Instructions] Note that this event is been 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 the Dangote Cement 9 Months 2023 Investor Conference Call. My name is Temi Aduroja, Head of Investor Relations at Dangote Cement. On the call today and leading the conversation is our Group Managing Director, Arvind Pathak. He will be supported by the group CFO, Gbenga Fapohunda. Arvind will take us through the presentation. And thereafter, we will proceed to question and answers. Over to you, Mr. Pathak.

Thank you, Temi. 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 9 months ended September '23. Let's begin on Page 2, which shows our geographical spread across the African continent. In the period, we completed our 0.45 MTPA Ghana grinding plant, which takes our total installed capacity to 52 MTPA. This includes 35.3 MTPA in Nigeria and 16.8 MTPA in Pan-Africa. We are also in the final stages of the completion of our 1.5 MTA grinding unit in Cote d’'Ivoire. This would further increase our total capacity even as we continue to explore emerging opportunities in the region, guided by our long-term vision of making African continent self-sufficient in cement production. On Page 4, we highlight the current macroeconomic environment in Sub-Saharan Africa and Nigeria, in particular, touching on key economic parameters, including interest rate and inflation. According to the IMF, SSA is estimated to grow at 3.3% in 2023, slower than the growth rate of 4% in 2022. The IMF noted that SSA is still confronted with the challenges of rising commodity prices and high public debt. Although a slow global growth is anticipated for the year, we see Africa cement market as resilient, sustaining our business on a path of growth. The prospect of improved cement demand are further supported by the region's rising population growth and an increased drive to close the huge infrastructure gap. On Page 5, we highlight our achievements in the 9 months of the year. On the financial side, group revenue was up 28.7% to NGN 1,514.6 billion, with strong growth in revenue coming from both Nigeria and Pan-African business. Consequently, group EBITDA closed at a double-digit growth of 28.5% to NGN 662.8 billion, while PAT was up 30.2% to NGN 277.5 billion. On the operational side, our Pan-African business witnessed healthy growth with volumes up 15.2% to 8.5 million tonnes. On sustainability, thermal subscription rate averaged 9.8% in 9 months of 2023, as compared to 3.8% in the same period last year, supported by our drive to reduce carbon emissions. Page 6 details our performance in the 9-month period. Group volumes were down slightly by 2.4% to 20.3 million tonnes, owing to election uncertainty, cash unavailability and the sharp currency devaluation that impacted our Nigerian sales. Notwithstanding, EBITDA was up 5.9% as we took coordinated steps to contain costs. We maintained the strength in the diversity of our operations. Our Pan-Africa business continues to gain momentum with volumes up 15.2%, supported by healthy volumes growth from Senegal, Congo and Zambia. Consequently, we recorded a 103.9% increase in Pan-Africa revenues to NGN 588.2 billion, while EBITDA more than tripled at NGN 170 billion at a margin of 28.9%. We are happy with the contributions coming from our Pan-African business, and we would carry on maximizing the potential of the region to further consolidate on group performance. Page 7 shows the income statement of the group with impressive performance in both top and bottom line. I would like to draw your attention to the noncash FX loss of NGN 99 billion, mainly due to the impact of our foreign currency obligations following the devaluation of naira in June '23. Conversely, gains on monetary assets of NGN 13.3 billion was recorded during the period due to the recognition of Ethiopia as a hyper inflationary economy. Our earnings per share, EPS, was up by 29.6% at NGN 16.08. Looking at Page 8, our cash from operations grew at a very strong rate. Net debt decreased by NGN 84.8 billion to NGN 507.7 billion as at September 30, 2023, with a net gearing of 37.2%. Our balance sheet on Page 9 remains resilient with a cash balance of NGN 385.3 billion at the end of September 2023. On Page 10, we get a clear picture of our Nigeria operations. The Nigerian government at the end of the second quarter [ rooted ] the naira, and market forces determine the valuation of the local currency. This [indiscernible] on operating costs by further pushing up commodity prices, thereby affecting the retail end of the market. The work development, along with the heavy rainfall in the third quarter and the election uncertainty at the beginning of the year, all resulted in lower Nigerian [indiscernible]. Similarly, cement and clinker exports from Nigeria stood at 497 Kt, down slightly due to halted exports to Nigeria. Nevertheless, 9 months EBITDA was also up by 5.9% to NGN 508.1 billion, supported by effective cost management. Page 11 further highlights the strong performance of our Pan-African operation with Sales volume of 2.2 to 8.5 million tonnes. The stronger volume in the period was driven by the improved cement demand from Senegal, Congo and Zambia, while Ethiopia contributed strongly to EBITDA, supported by a reduction in cash costs. Senegal and Ethiopia operated at maximum capacity in the period, while we reached over 90% capacity maximization in Cameroon. Accordingly, Pan-African revenues were up 103.9% to NGN 588.2 billion, while EBITDA more than tripled to NGN 170 billion. Pan-Africa achieved a record high EBITDA margin of 28.9% for the 9 months of the year. We are very pleased with the strong performance achieved in our Pan-African operations. In addition to this solid performance in Pan-Africa, we are making great progress in our expansion plans in the region. We commissioned operation at 0.45 million tonne per annum grinding plant at Takoradi, Ghana, and have leased them advanced stage in the development of grinding in Cote d’'Ivoire. Over the next few pages from Page 12, you will see the updates on the Pan-African operations: Ethiopia, Senegal, Cameroon, Ghana, Zambia, Congo, Tanzania, South Africa, also growth in volumes compared to last year. In South Africa, we have reached great heights in alternative fuel usage with Dangote Cement South Africa achieving an average thermal subsidiary rate of 55.6% in 9 months of 2023. In Zambia and Congo, strong volume growth was supported by improved exports to neighboring countries. Lastly, Ethiopia and Senegal are operating at full capacity and contributing strongly to Pan-Africa EBITDA. Now moving on to our debt and equity on Page 15. We show a timeline of our activities in the debt capital market. I would like to thank the investing community for the strong presence in the company. Our track record of assessing the debt capital market remains strong. On Page 17, we highlighted the success recorded in the Tranche 1 of our second share buyback where we repurchased 0.71% of the issued sales. The share repurchase program reflects our commitment to finding opportunities beyond dividend to return cash to the shareholders. As you will see on Page 18, our capital structure remains robust and we maintained strong credit ratings for global rating agencies. On Page 19 to 22, we highlight the group's export strategy. Dangote Cement has strengthened in exports, anchored on our vision to make region self-sufficient in cement production. This will enable sufficient FX for our operational needs and optimize Nigeria's current production capacity. We continue to focus our expansion in West and Central Africa, while optimizing our Eastern African assets. In West Africa, we currently export clinker from Nigeria, while export terminals to Cameroon and Ghana, while we export cement to Nigeria and Togo. Senegal exports cement to Mali. While in Congo, we export clinker and cement to Cameroon, Central African Republic and Democratic Republic of Congo. On Page 21 shows our export in East Africa, where we export cement and clinker from Zambia and Tanzania. On Page 24 and 25, we highlight our continued effort on sustainability and governance, structured around the 7 sustainability pillars of The Dangote Way. Page 25 discusses the institutional pillar and shows our governance framework with a focus on Board by diversities. We currently have a 27% female representative on the Board and 5 independent directors. I'm also happy to say that the Board of Directors of Dangote Cement approved the appointment of Mr. Alvaro Poncioni Merian as Independent Executive Director effective August 1, 2023. Mr. Alvaro Poncioni Merian is the Founder and Managing Director, Managing Partner of EDNAM Capital U.K. He sits on the Finance and Investment Committee and the Sustainability and Technical Committee. Page 21 shows our sustainability highlights in the period. We are making significant improvement on our environmental pillar and are strengthening our alternative fuel initiative. Our alternative fuel thermal substitution rate has increased to 9.8% in 9 months of 2023 versus 3.8% in 9 months of 2022. While we co-processed almost approximately 293,369 tonnes of biomass. On social front, Dangote Cement spent NGN 1,361 million on social intervention activities across the group in 9 months of 2023. We commenced various employee wellness program to cushion the effect of the high inflationary environment, while we continued our short-term incentive and employ recognition to them. On the same page, we highlighted activities around our strong corporate governance. We reviewed and implemented new governance policies in line with best practices. 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 a leader in the cement sector in Africa. We remain focused on our commitment to sustainably grow that benefits all stakeholders and are confident that we will finish the year strong. Thank you very much.