Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Q1 2024 Investor Call. [Operator Instructions]. Please note that this call is being recorded. I would now like to hand the conference over to Temilade Aduroja. Please go ahead.

Good day, everyone. It is my pleasure to welcome you to the Dangote Cement Plc Q1 2024 Investor Call. On the call today, leading the conversation will be our Group Managing Director, Mr. Arvind Pathak. He will also be supported by Dr. Gbenga Fapohunda, who is our Group CFO. Mr. Pathak will guide us through the presentation, after which we'll proceed to Q&A. Over to you, Mr. Pathak.

Thank you, Temi. Good afternoon, everyone. Thank you very much for taking the time to join us today. I'm also pleased to welcome you to this conference call to discuss Dangote Cement's financial results for quarter 1 2024. Let's start with an overview of our geographical presence across Africa. As shown on Page 2 of our presentation, Dangote Cement is Africa's leading cement producer is 52 million tonnes per annum capacity across 10 African countries. This includes 35.3 million tonnes per annum in Nigeria and 16.8 million tonnes per annum in Africa. Our long-term present is to achieve cement and clinker self-sufficiency across Africa. During the quarter, we increased production following the commissioning of our 0.45 grinding unit in June last year, which has got progressively stabilized. Furthermore, for the commissioning of Khalil Woli blending plant are in the final stages, anticipated to commence operation later this year. These strategic investments, along with forthcoming initiatives will significantly bolster our total capacity and tap into the vast opportunities across Africa. On Page 3, we examined the macroeconomic environment in Sub-Saharan Africa, highlighting the resilience of the cement market amidst challenges. According to IMF, sub-Sahara Africa is projected to grow at a faster pace of 3.8% in 2024, up from the growth of 3.4% in 2023. However, amidst this projected growth, significant challenges such as escalating inflation, currency devaluation, fiscal imbalances, and mounting public debt presents substantial risk to the growth trajectory. Currency revalue remains in fact, shaping Aprica's economic landscape with all currencies in our operational countries, except the Jambi and Kacha and serology, experiencing depreciation during the quarter. Furthermore, the recent elections in Senegal in March, along with upcoming elections in South Africa have introduced uncertainties that hinder economic activities in those regions. Despite these challenges, we maintain a positive outlook on the African even market, recognizing its resilience and considerable growth potential, fueled by a youthful population and abundant untapped resources. Additionally, the government's intensify effort to bridge the infrastructure gap through the construction of roads, business, and power facilities are expected to bolster cement demand further. On the same page, we highlighted the performance of our operating currencies against the dollar, specifically the Nigeria and Mara depreciated by 28.4 percentage against the dollar, while the Ghana Cedi lost 9% of Isol. In response to potential FX volatility, Dangote Cement enhancing local input material sourcing and increasing the utilization of alternative fuels. Additionally, efforts to utilize FX exposure involved increasing FX earnings to export and reducing reliance on foreign exchange. Continuing to Page 4, we highlighted the various macroeconomic indicators in our home market. The IMF forecasts bullish economic growth for Nigeria to 3.3% in 2024, faster than the growth of 2.7% in 2023. Meanwhile, inflation continued an upward strength, rising for 15 consecutive months at 33.2% in March. In response to the prevailing inflation environment, the Central Bank of Nigeria raised the NPR to 24.75%, marking a 600 basis point increase from 18.75%. This adjustment carries significant implications for borrowing costs. On Page 5, we presented a highlight of our achievements in the quarter, both financially and operationally. On the financial side, group revenue was up 101% to naira 817.4 billion with strong growth in revenue coming from both Nigerian and Pan-African businesses. Consequently, group EBITDA closed at a double-digit growth of 66.6% to naira 309.5 billion, while PAT increased by 2.9% to naira 112.7 billion. On the operational side, we recorded double-digit growth of 12.3% in group volumes to 7 million tonnes. This robust growth in the quarter was supported by a strong rebound in Nigerian volumes and an improvement in [indiscernible]. Exports from Nigeria saw a remarkable increase of 87.2% with a total of 7 successful shipments of liquor to Ghana and Cameroon. Sustainability remains a key focus with our thermal subscription rate increasing to 10.7% in quarter 1, 2024, and the commissioning of 10 alternative fuel projects across our operations. We published our combined annual and sustainability report for 2023. In adherence to regulatory requirements, this report has been distributed to all our shareholders ahead of our AGM in May. Page 6, outperformance in the period, driven by economic activities, Nigerian volume experienced a robust growth of 26.1%, supported by resumed construction projects and enhanced operational efficiency. Similarly, Pan-African volumes continued on an upward trajectory, up by 33.1% to 2.7 million tonnes, buoyed by robust growth from Ghana and Zambia. Collectively, group volumes were up 12.3% to 7 million tonnes in quarter 1 2024 from 6.3 million tonnes in quarter 1 2023. Consequently, group revenue and EBITDA were up 101% to 66% to 817.4 billion and naira 309.5 billion, respectively. These impressive first-quarter results demonstrate that we have kicked off the year on a positive trajectory, showcasing the strength of our business fundamentals in the face of macroeconomic challenges. Page 7 shows the economic income statement of the group with impressive performance in both the top and bottom line. Our earnings per share was up 3.7% at Nava. Our balance sheet on Page 8 remains resilient with a gross cash balance of naira 625.2 billion, and net asset of naira 2,261.5 billion as at the end of March 2024. Page 9 provides the deeper insight into our operations in Nigeria. Sales volume from Nigeria came in at a strong double-digit growth of 26.1%. This remarkable performance was proven by a combination of factors, including resumption of construction projects, increased economic activities and enhancement in operational efficiency. Consequently, Nigeria's revenue grew up by 61.6% to naira 452.9 billion, while EBITDA closed at JPY 224 billion, up by 41.8 million in the corresponding period of 2023 with a margin of 49.7%. Again, our commitment to making Africa a self-sufficient market in cement and clinker production was reinforced in this period, owing to the increased clinker export from Nigeria up 87.2% from quarter 1 2023. Page 10 further highlights the performance of our Pan African operation, with sales volume up 3.1% to 2.7 million tonnes. The stronger volume in the period was driven by improved seal demand from Congo, Ghana, and Zambia while Ethiopia contributed strongly to EBITDA. Senegal and Juba operated a maximum capacity in the period, while we reached over 90% capacity utilization in Ghana. Accordingly, Pan African revenues were up 21.6% to NAR 381.3 billion, while EBITDA recorded a threefold increase to $99.9 billion, with a margin of 26.2%. We are very pleased with the strong performance achieved in our Pan-African operations. Over the next few pages, from Pages 11 to 13, you will see the updates from our Pan-African operations. Ethiopia, Ghana, Zambia, and Congo all saw growth in volumes compared to quarter 1, 2023. Meanwhile, uncertainties from the buildup up to the election in Senegal and South Africa impacted sales. In Zambia and Congo, strong volume growth was supported by improved exports to neighboring countries. On Page 14 through 18, we highlight our continued efforts on sustainability and governance structured around the 7 sustainability pillars of the DingoTV. Page 15 discusses the institutional pillar and shows our strong governance framework with a focus on board member diversity. We currently have 27% PVL members represented on our board and 5 independent directors. On Page 17, we present our highlights for the quarter. I'm pleased to say that we are making significant improvements in our environmental pillar and are standing our alternative fuel initiative. We also made significant advances in the transition from high diesel-powered trucks to CNG in response to rising energy costs. On the social front, [indiscernible] Spain Mara 956 million on social interventional activities across the group in quarter 1, 2024, while we continued our various ample welfare programs to help our staff cushion the effect of the high increase environment. On the CF phase, we highlighted activities around our strong corporate governance, and we reviewed and implemented new governance policies in line with best practices. I would also like to announce that our Deputy Managing Director of Dangote Cement, Mr. Philip Matthews will be retiring from the Board effective April 30, 2024. The Board expresses his gratitude to Mr. Philip Matthews for his significant contribution and enhancement to the company's operations, and we extend our best wishes to him in his future endeavors. With that, I would like to express my gratitude to everyone for joining us today, and I extend my thanks once again to our investors for their ongoing trust and support in our company. Our journey into the year has begun on a positive trajectory, as highlighted by exceptional performance in the first quarter. With significant investment dedicated to improving operational efficiency, I'm confident in our ability to overcome forthcoming challenges and sustain momentum in the remaining 9 months. Thank you once again. I wish you all a great day ahead.

[Operator Instructions]. At this moment, there are no questions on the conference call. And I would like to hand over to Temi for any questions from the webcast.

The first question is what is the dividend policy for 2024?

Our general dividend policy is to return money to shareholders between 80% and 120% of total profit. The Board has actually proposed a dividend of about $0.10 per share, last year.

The next question is from James Latisse from Chapel Hill Denham. With the Dangote refinery on Board, can we expect any benefit to energy cost refinery has flash prices 3x? Will this impact energy costs in any way?

Yes, clearly, like any other company in Nigeria was our cost of cost generally go down. We expect a positive impact in the business. And the cement business is highly power intensive. So we expect some benefits in the business.

There's no other question on the webcast for now.

[Operator Instructions] It seems we have no further questions on the conference call.

I would just say closing remarks from Arvind.

Okay. Thank you.

There's one more question from FBNQuest. Please, what measure has been put in place to reduce energy costs?

I think I somehow made it a very brief remark in my presentation. As we all know, our biggest element of the cost is in the energy. And besides trying to -- we try to attack from both sides, one is we try to see how we can reduce our actual requirement of energy. And these while also we try to reduce our cost of energy that is per unit. In both these things, continuously, we take exercises, we modernize, we keep on replacement. We are in constant touch with OEMs, and we seem to be upgrading our equipment, whereby our specific power consumptions, selfie consumptions are optimized to the lowest possible and may be benchmarked with the industry. On the power cost-related issues, we always try to see a balance that we have between the various types of fuel, whether it's gas, whether it is imported coal, local coal, alternative fuel. Our greater samples today is on alternative fuel, which besides being very sustainable is also a very important cost reduction exercise that is a group we have undertaken.

There's another question from Tim Stamos from Africa Lines Fund. How are your sales trends in other markets around Africa, Tanzania, for example? And the second question from Frank KPMG. Could you please quantify the cost savings you expect from the transition from diesel to CNG for your talk?

Okay. Let me take a first over Pan Africa. Pan Africa, most of the countries, we are the market leaders in almost practically all the countries. And we are able to sell in some of the countries, as I said, we are almost near to 100% in which we like to call out countries like Senegal, Ethiopia, Cameroon, et cetera. Now with specific questions to Tanzania. In Tanzania as well, we are the market leader, and we enjoy the highest market share in the market. And this has been there for quite some time after we progressively stabilized our plan. But currently, in the last quarter, the absolute volumes have not been very good since we have maintained the market share, it implies that the overall market has shrunk. This is primarily because of unprecedented still rains and the infrastructure not being able to withstand the floodings and the cutout of the rains and some power fires. All these put together, the volumes are in the stress in quarter 1. For going onwards from me onwards, we see some recovery in the volume.

The transition of diesel to CNG cost savings.

Normally, we hesitate to give any specific number in the call. However, if you have any specific queries, please forward to us on me, and we'll positively revert back to you.

The next question is from Brian Mugabe. Change Global Investments. We did see some margin compression in Nigeria. Do you anticipate increasing prices further this year? And to what extent do you think volume growth can be maintained?

In both these areas, we would not price, as I have said maybe in the earlier calls also, price cannot be a factor as a stand-alone parameter, which a company further matter any commodity business takes on its own. Prices are governed by purely by the supply and demand of the competition scenario in the country. Obviously, every country will try to maximize it and seize that we maximize our sales by having enhanced sales revenue. Having said that, margins are not only governed by through sales. There's also a lot of work, which can be done on the cost side. And in which related question when I answered, progressively, we are continuously working on seeing that we reduce our energy cost, we include power and fuel. And I also said in my presentation, we are trying to explore the various avenues in which our dollar-related costs are minimized and whereby we mitigate against the risk of fluctuating foreign currency.

The next question is from [indiscernible] from Corus Capital. Please, on the foreign currency translation reserve is the amount recorded in equity already realized or still unrealized? Can it be eroded later on or the figure will always be there?

Okay. It's not a realized and it would not be realized very soon. It's actually directly linked to the devaluation of the naira. So if the naira appreciates, that number would move. But from what we see, we don't expect it to be a role or to be taken out completely.

Next question from Idaka from ARM. What is the company's commitment to ESG? And what strategy have you put in place to improve that? The ESG commitment, I'll just answer that briefly. I know we've mentioned about AF strategy, our alternative fuel strategy, and we have a target to reach about 25% in 2025. Our rate of return has increased to about 10%. Last year, we used about 4% of alternative fuel. Now we've increased to 10%, and we continue to increase that in all our BUs. So far, we've commissioned 10 projects across the group, and we plan to commission the remaining 7 before the end of the year. I think the CNG truck as well, the CNG gas that we're using for our crops versus diesel is another strategy that we put in place. And over the last few years, you've seen that this has started bringing positive impact on our earnings. And the last question is from James Adisa, any guidance on effective tax rate? In Q1 '24, the effective tax rate was around 32%. What do we expect the trend throughout the year?

Okay. Thank you for that. We expect the trend to be somewhere around 31%, 32%, bearing in mind that one of our plants were out of Paresh Slide 5 in Obajana. It's out of relets effective 31 December 2023. So we expect to keep about around 21% on average.

Okay. Thank you. There are no more questions on the webcast. I'll just hand over to the GMD to just give closing remarks.

Good afternoon, everybody. Once again, I am here. And on the whole, I would summarize this quarter has been very satisfying. Especially if we look into the backdrop of the various challenges which we faced by the industry and related to macroeconomic conditions, our team is perpetually working to see what headwinds we face and how do we overcome that. And in the light of that, we expect and some of the investment in the real infrastructure project is still to commence. And that gives us a real of hope we would be able to continue this trajectory of growth that we have seen in the quarter 1. Having said that, there was a slight dip that we saw in the month of April, but I'm sure it's just a transition. And over the period of time, we are able to sustain what we achieved in quarter 1. So thank you once again, all of you for your time and for trying to participate in this meeting. Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.