Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement H1 2024 Investor Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Temilade Aduroja. Please go ahead.

Good evening, good afternoon, everyone, and welcome to Dangote first half call. During the call today will be our GMD, Mr. Arvind Pathak and our Group CFO, Dr. Gbenga Fapohunda. There will be a question-and-answer session after the call. I will now hand over to our Group Managing Director. Thank you.

Thank you, Temilade. Good afternoon, everyone. Thank you very much for taking the time to join us today. I'm pleased to welcome you to this conference call to discuss Dangote Cements financial results, for H1 2024. Let's start with an overview of our geographical process across Africa, as shown on Page 2 of our presentation. Dangote Cement remains Africa's leading cement producer with 52 Mta capacity across 10 African countries. This improves 35.3% Mtpa in Nigeria and 16.8% Mta in Pan Africa. Our long-term vision is to achieve cement and clinker self-sufficiency across Africa. In the first half of the year, we increased production going to efficiencies across our plants and improve market activities in our home country Nigeria, as compared to the election year in 2023. We also ramped up production in Ghana, following the commissioning of our 0.45 Mtpa in Ghana [indiscernible] fund in June last year. On Page 3, we examined the macroeconomic environment in Sub-Saharan Africa, highlighting the resilience of the cement market on these challenges. According to IMF, sub-Saharan African is projected to grow at a faster pace of 3.8% in 2024, up from the growth of 3.4% in 2023. Currency devaluation remains a key factor shaping Africa's economic landscape with all currencies in our operational countries experiencing depreciation during the period. Furthermore, the recent election in Senegal in South Africa have introduced uncertainties that hinder economic activities in these regions. Despite these challenges, we maintained a positive outlook on the African cement market, recognizing resilience and considerable growth potential, fueled by youthful population -- mineral and land resources. On the same page, we highlighted the performance of our operating currencies against the dollar, on the year-on-year basis. Specifically, Nigerian naira depreciated by 65.2% against the dollar, while Zambian Kwacha lost 24.7% of its value. In response to potential FX volatility, Dangote Cement is announcing local input material sourcing and increasing the utilization of alternative fuels. Additionally, we are intensifying efforts aimed at utilizing FX exposure through stenciling of exports. Continuing to Page 4. Inflation continued in upward spiral, rising for 18 consecutive months to 34.2 percentage in June. In response to the prevailing interest environment, the Central Bank of Nigeria raised the NPR to 26.25%, marking a 750 basis point increase from 18.75% in December of 2023. This adjustment carries significant implications for borrowing costs with monetary authorities signaling further hikes in the benchmark interest risk to rain-off inflation. On Page 5, we presented highlights of our achievement in the period, both financially and operationally. On the financial side, group revenue was up 85.1% to narrow NAR 1,760.1 billion, with strong growth in revenue coming from both Nigerian and Pan Africa business. Consequently, group EBITDA closed at a double-digit growth of 50.3 percentage to NAR 666.2 billion, while PAT increased by 6.3% to NAR 189.9 billion. On the operational side, group volumes were up 3.8% to 13.9 million tonne, buoyed by a double-digit growth of 10.9% in Asia, as well as improvement in Pan Africa, up by 1.2% to 5.5 million. Exports from Nigeria saw a remarkable increase of 5.2% with a total of 14 shipments of clinker to Ghana and Cameroon. Sustainability remains a key focus with our thermal substitution rate increasing to 10.5% in H1 2024, even as we successfully commissioned alternative fuel projects across our operations. We paid NAR 502.6 billion in dividend to our shareholders following the approval of a 50% increase in dividend per share to NAR 30 [indiscernible] in May. Page 6, details our performance in this period, driven by an up-stick in economic activities, Nigerian volumes experienced a double-digit growth of 10.9%, supported by reduced construction projects and enhanced operational efficiency, amid higher-than-expected rain fall in the second quarter. Similarly, Pan Africa volumes continue to be an upward trajectory, up by 1.2% to 5.5 million tonnes, supported by strong growth from Ghana, Congo and Zambia. Collectively, group volumes were up 3.8% to 13.9 million tonnes in H1 2024 from 13.4 million tonne in H1 2023. Consequently, group revenues and EBITDA were up 85.1% and 50.3% to NAR 176.1 billion and NAR 166.2 billion, respectively. This impressive half yearly result underscore the resilience of our business in the pace of macroeconomic challenges. Page 7 shows the income statement of the group with impressive performance in both top and bottom lines. Our earnings per share was up by 8.4% at NAR 11.26. We also showed trend in dividend payment to shareholders. Over the last 14 years, Dangote Cement has made a cumulative payment of NAR 2.8 trillion in dividends. Our balance sheet on Page 8, remains resilient with a gross cash balance of NAR 590.5 billion and net asset of NAR 2,163.6 billion as at the end of June '24. Looking at Page 9, we show the analysis of cash inflows and how we prudently allocated this cash to deliver value to our stakeholders. Cash of NAR 471.8 billion was generated from the operations for H1 2024. A total of NAR 63.1 billion spent on CapEx, while NAR 502.6 billion and NAR 63.6 billion were paid as dividend in taxes, respectively. Net debt increased by NAR 394.4 billion to NAR 915.7 billion as at 30th June 2024, with a net gearing of 42%. Cash and cash equivalents closed the half yearly period at NAR 371.7 billion. Page 10, provides the deeper in-depth into our operations in Nigeria. Sales volume from Nigeria came at a double-digit growth of 10.9%. This performance was propelled by a combination of factors, including the resumption of construction projects, increased economic activities and enhancement. Consequently, Nigeria's revenue grew by 60.3%, NAR 991.4 billion, while EBITDA posted NAR 463.6 billion, up by 29.1% in the corresponding period of 2023 with a margin of 46.8%. On the same page, we showed the average dollar prices ex-factory of our cement across our operations for the first half of the year. The average cement price across the countries of operation for H1 2024 came in at $93.5 per tonne. Our Nigerian operations cement price was $78 per tonne, which is much lower than the average cement price for the period. Page 11, further highlights the performance of our Pan Africa operations, with sales volume up 1.2% to 5.5 million tonnes. The volume growth in the period was driven by improved cement demand from Congo, Ghana and Zambia, while Ethiopia contributed strongly to EBITDA. Senegal and Ethiopia operated on maximum capacity in the period, while we reached over 90% capacity maximization in Cameroon. Accordingly, Pan Africa revenues were up 139.9% to NAR 807.1 billion, while EBITDA recorded over twofold increase NAR 220.4 billion with a margin of 27.3%. We are pleased with the strong performance achieved in our Pan Africa operations. Over the next few pages, that is from Page 12 to 14, you will see the updates from our Pan Africa operations, Ghana, Zambia and Congo, all saw growth in volumes compared to H1 2023. Meanwhile, election uncertainties in Senegal and South Africa impacted sales. In Zambia and Congo, strong volume growth was supported by improved exports to neighboring countries. Moving now on to our debt and liquidity on Page 16. We showed a time line of our activities in the debt capital market. As you will see on Page 17, our capital structure remains robust. In addition to maintaining strong credit ratings from global rating agency, we have sustained a minimum [indiscernible] ratio. This has supported our liquidity profile. Now on Page 19 to 22, we highlight the group's export strategy. Dangote Cement extended exports incurred on our vision to make the region self-sufficient in cement production. This will enable sufficient effects for our operational needs and optimize Nigeria's scaled production capacity. We will focus our expansion in Western Central Africa, while optimizing our Eastern African assets. On Page 24 through 27, we highlighted our continuous effort on sustainability and governance, structured around the 7 sustainability contributors of DingoTV. Page 24 discusses the institutional pillar and source our strong governance framework with a focus on Board member diversity. We currently have a 28% female member representative on our board and 5 independent directors. On Page 26, we present our sustainability highlights in the period. I'm pleased to say we are making significant improvements on our environment pillar and are strengthening our alternative fuel initiative. We also made significant advancements in the transition from high diesel-powered trucks to CNG, in response to rising energy costs, furthermore, the arrival of 300 CNG-powered trucks would support our cost minimization initiative. On the social front, Dangote Cement paid NAR 2,343 billion on social intervention activities across the group in H1 2024, up 185% year-on-year. While we continued our various employee welfare programs to help our staff cushion the effect of high inflationary environment. On the same page, we highlighted activities around our strong corporate governance and we reviewed and implemented new government policy in line with best practices. 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 positive set of H1 2024 results, despite headwinds has once again reinforced the strength and resilience of our business. With significant investment dedicated to improving operational efficiency, I'm confident in our ability to overcome forthcoming challenges and sustained momentum in the remaining 6 months. Thank you, once again i wish you all a great day ahead.

Thank you. We can go to Q&A now.

[Operator Instructions] Temilade at this stage, we don't seem to have any questions on the telephone lines. Can I hand over for questions on the webcast?

Yes. I'll just read the questions on the webcast. The first question is from [indiscernible]. How many CNG trucks does Dangote Cement have? And what difference is their usage making in your operations? Is there a plan to phase out diesel-powered trucks? Are you not concerned of gas shortage in the country may effect CNG supply?

Thank you for a very good question. BCP has initiated the CNG power trucks way back in 2018. In those eras, we used to have a drill fired engine, that means it used to work partially in CNG and partially in AGO. And we have approximately around 1,400 trucks of that vintage. Now recently, the initiative was undertaken, is with the recent technology, we get trucks, which can work on 100% CNG and can travel long distances. So in this space, we have procuring 1,500 CNG trucks and progressively our plan is to phase out with the AG, our diesel power trucks and replace them by 100% CNG trucks. As regards to your question of gas shortage, we have done our balance of fuel requirement and our alternative fuel program, coupled with the savings in gas that we'll have, will more than compensate for the additional requirement for trucks. Hence, we don't see that as a challenge.

The next question is from Abubakar Ebrahim. What is the business energy cost for the period? And what does it's outlook look like for the rest of the year? What energy mix is the business exploring for it's operations? And what are the plans?

Okay. Thank you for that. I mean, energy is very important to the business. In terms of stability, we expect stability in energy costs and possibly reduction as we increase the usage of alternative fuel, CNG and local coal. We expect this to bring down the cost of coal or -- a cost of energy or best keep it stable. What energy mix do we use? Most of our plants can use gas, coal, AF and LPFO, which is one of our competitive advantages. We will always use this cheapest combination, currently alternative fuel and local coal, some of the cheapest and the combination we use currently.

Next question is from Elham. You mentioned that Nigerian volumes grew by 10.9%. What did the market grew by? And what are you seeing in terms of competitive dynamics in the market?

Thank you once again. We really have no mechanism in the country, wherein by monitor the whole national growth demand or de-growth. Today we are first company, as a cement company to come out with results. We have no idea of what others would have grown or de-grown. But looking at the market, what we can see is either we would have kept pace with the market or we would have exceeded the market growth.

We have a long list of questions from Adeb, Cardinal Stone Partners. I'll just break it two. And the first question is, what are the plans for lower impact liabilities or tailing tax incentives? And the second question is what is the component of the FX loss reported? And what efforts are being made to reduce it? What is the volume expectation for the end of the year? We will answer these three first.

Okay. What are the plans for looming tax liabilities or obtaining tax incentives? Currently, the cement industry is not allowed to have governance tax, tax status as we had before. Our plans to reduce our tax, includes more and more exports. So exports is tax exempt. So we intend to do more [indiscernible] strategy for that. Are there any plans for obtaining permanent status on any plant? Currently, not in Nigeria. The third question is what are the components of the FX loss reported? Basically, this FX loss reported are due to devaluation on our FX-based loans, which we use for our working capital. So money we used to buy AGO, at the time, when reporting, spare parts, impute materials like gypsum and the like. So really that's, what is driving the FX loss. Do you expect it to remain elevated or to coast around the current levels? This depends. It depends on the devaluation of the currency. If it devalues to NAR 2,000, would [ take more it ], where it doesn't devalue, to remain flat as expected. However, the more important question is what are we doing about them? We're actually trying all our best to actually pay it off and increase export, so that we can get more FX to pay down these obligations.

So there were questions around volumes, expectation for the remainder of the year. CapEx and borrowing plans.

Okay. For CapEx, we always intend to grow the business. We always intend to actually invest in the business for the future. We started [ the 6Mta ] plant at Itori, which is quite expensive. Also in Ivory Coast, we've almost completed our plant there in Ivory Coast and also, we've invested heavily in our CNG trucks. We are bringing it as the GMD said above 1,500 CNG trucks into the country. Also, we are investing heavily now, alternative fuel system, which we believe is very strategic, not just for the cost implication or cost savings, but more importantly, to reduce our carbon footprint.

I think the last part of the question is the volume expectation for the year and update on the Itori plant in Ogun State.

Normally, Q3 is supposed to be a quarter in which we get rains. For that, we have seen some respite in this quarter, at least in this month. So basically, the Q3 performance will depend upon, what will be the rains in the country. However, we expect to do better than what we have done in H1 going forward in H2.