Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Dangote Cement's 9-month 2024 Investor Call. [Operator Instructions]. Please note that this call is being recorded. I would now like to turn the conference over to Temi Aduroja. Please go ahead, ma'am.

Thank you. Good day, everyone. It is our pleasure to welcome you to the Dangote Cement's 9-month Investor Call. On the call today, our leader in the conversation will be our Group Managing Director, Mr. Arvind Pathak, will also be supported by the CFO, Dr. Gbenga Fapohunda. Mr. Arvind [indiscernible] the presentation, after which we'll proceed to a Q&A session. Thank you, and over to you.

Thank you, Temi. Good afternoon, everyone. Thank you very much for taking the time to join us today. I'm pleased to welcome you to [ our first ] call to discuss Dangote Cement financial results for 9-month 2024. Let's start with an overview of our geographical presence across Africa, as shown on Page 2 of our presentation. Dangote Cement remains Africa's leading cement producer with 52 Mtpa capacity across 10 African countries. This comprises of 35.3 Mtpa in Nigeria and 16.8 in Pan Africa. Our long-term vision is to achieve cement and clinker self efficiency across Africa. In the 9-month period of the year, we increased our production owing to improved efficiencies across our plant and enhanced market activities in our home country in Nigeria compared to 2023 when the combined impact of election uncertainties and currency crunch impacted sales. We also ramped up production in Ghana following the commissioning of our 0.45 Mtpa Ghana grinding plant in June last year. On Page 3, we examined the macroeconomics environment in Sub-Saharan Africa, highlighting the resilience of the cement market amidst challenges. According to the IMF, sub-Saharan Africa's economic growth is projected to remain flat at 3.6% in 2024, owing to slower growth in Nigeria. Currency devaluation remains a key factor shaping Africa's economic landscape with most of our operating currencies experiencing depreciation during the period. Furthermore, the recent elections in Senegal in South Africa as well as adverse weather conditions due to climate change have introduced uncertainties that hinder economic activities in those regions. Despite these challenges, we maintained a positive outlook on the African cement market. recognizing its resilience and considerable growth potential, fueled via youthful population and abundant untapped resources. On the same page, we highlighted the performance of our operating currencies against the dollar in which -- in the 9 months period. Specifically, the Ethiopian and Nigerian naira depreciated by 53.8% and 43.1% against the dollar. Respectively, while Ghana cedi lost 24.7% of its value. In response to potential FX relatively, Dangote Cement is enhancing local input material sourcing and increasing the utilization of alternative fuels. Additionally, we are intensifying efforts aimed at utilizing FX exposure to strengthening our exports. Continuing on Page 4, we present an analysis of key domestic macroeconomic indicators, headline being inflation accelerated by 32.7% year-on-year in September, reversing the 2 consecutive months of this inflation observed previously. In response to the prevailing inflationary environment, Central Bank of Nigeria raised the NPR to 27.25%, marking an 850 basis point increase and fifth consecutive hype in the benchmark interest rate from 18.75% in December of 2023. This adjustment carries significant implications for borrowing costs and investments even as the currency devaluation continues to impact business' operating expenses. Page 5 shows update on key fiscal and monetary regulatory announcement in the year. The IMF recently downgraded Nigeria's growth outlook to 2.9%, citing the impact of recurring floods and reduced oil production. Moving to Page 6. We presented highlights of our achievement in the period, both financially and operationally. On the financial side, group revenue was up 69.1% to NAR 2,560 billion, with strong growth in revenue coming both from Nigerian and Pan African businesses. Consequently, group EBITDA closed at a double-digit growth of 37.1% to NAR 908.7 billion. Meanwhile, PAT showed a modest increase of 0.6%, reaching NAR 279.1 billion, impacted by substantial ForEx losses due to currency devaluation. On the operational side, group volumes were up 1.9% to 20.7 million tonnes, buoyed by a robust growth of 9.5% in Nigeria. Exports from Nigeria saw a remarkable increase of 75.5% with a total of 22 shipments of clinker to Ghana and Cameroon. Sustainability remains a core priority for our business. We recently received 1,500 CNG-powered trucks to replace high-emission diesel vehicles and have commissioned 11 out of 17 alternative fuel projects across our operations. This initiative not only help reduce costs amid a high inflation environment, but also support efficient, sustainable operations aligned with out Dangote way, sustainability framework built on 7 strategic pillars. Our goal is to expand the CNG fleet to plus 3,000 trucks over the coming years. Additionally, we distributed NAR 502.6 billion in dividends to shareholders following a 50% increase in dividend per share to NAR 30 approved at our AGM in May. Page 7 details our performance in the period. Nigerian volumes experienced a strong growth of 9.5%, supported by increased promotional activities and improve route-to-market solutions. These activities boosted market presence of our products and mitigated the adverse effect of higher rainfall and flooding. Conversely, Pan Africa volumes were down marginally by 1.6% due to adverse weather conditions, particularly in Tanzania. Collectively, group volumes were up 1.9% to 20.7 million tonnes in 9 months 2024 from 20.3 million tonnes in 9 months 2023. Consequently, group revenue and EBITDA were up 69.1% and 37.1% to NAR 2,560.6 billion and NAR 908.7 billion, respectively. These impressive 9-month results underscore the resilience of our business in the face of macroeconomic challenges. Page 8 shows the income statement of the group with impressive performance in both top and bottom lines. Our earnings per share was up 2.9% and NAR 16.55. We also showed trends in cement and clinker exports from Nigeria. Over the last 5 years, exports from Nigeria has grown at a compounded annual growth of 37.7%. In the 9 months period, Nigeria exports were up [ 75.5% ] year-on-year. On the balance sheet on Page 9 remains resilient with a gross cash balance of NAR 530.3 billion and net asset of NAR 2,161.9 billion as at the end of the September 24. On the same page, we showed dividend payment history. Over the last 14 years, Dangote Cement has made a cumulative payment of NAR 2.8 trillion in dividends, reinforcing our commitment to rewarding shareholders. Looking at Page 10, We showed an analysis of cash inflows and how we prudently allocated this cash to deliver value to our shareholders -- stakeholders. Cash of NAR 532.3 billion was generated from operations for 9 months 2024. A total of NAR 175.6 billion was spent on CapEx, while NAR 502.6 billion and NAR 128.78 billion were paid as dividends in Texas, respectively. Net debt increased by NAR 529.2 billion to NAR 1,050.5 billion as at 30th September 2024, with a net gearing ratio of 48.6%, cash and cash equivalents close the half yearly period at NAR 190.3 billion. Page 11 provides deeper insights into our operations in Nigeria. Sales volume from Nigeria came in stronger at 9.5%, propelled by a combination of factors, including improved route-to-market solution in keys marketing and promotional as well as resumption of construction projects. On the same page, we showed the average dollar prices of our cement across our operation for 9 months of the year. The weighted average cement price across our countries of operation for 9 months 2024 came in at $1.78 per tonne. Our Nigerian operations cement price rose $69.9 tonne, which is much lower than the average cement price for the period. Page 12. Further highlights the performance of our Pan-African operations, with sales volume down slightly by 1.6% to 8.4 billion tonnes going to heavier-than-expected reinforced. Nevertheless, Pan-African revenues were up NAR 85.9 billion to NAR 1,093.6 billion, driven largely by improved pricing mix and translation gain. Accordingly, EBITDA rose to NAR 247.1 billion, with a margin of 22.6%. We are pleased with the strong performance achieved in our Pan-African operations. Over the next few pages, on Page 12 to 14, you will see the updates from our Pan-African operations, Ghana, Zambia and Congo, all saw growth in volumes compared to 9 months 2023. However, election uncertainties in Senegal in South Africa impacted sales. In Zambia and Congo, strong volume growth was supported by improved exports to neighboring countries. Now moving on to our debt and liquidity on Page 17. We showed a time line of our activities in debt capital market. As you will see on Page 18, our capital structure remains robust in addition to maintaining strong credit ratings from global rating agencies, we are sustained to maintain leverage ratio. This has supported our liquidity profile. On Page 19 to 22, we highlight the group's export strategy. Dangote Cement has strengthened its exports anchored on our vision to make the region self-sufficient in cement production. This has enabled sufficient effects for our operational needs and optimize Nigeria's current production capacity. We will focus our expansion in Western Central Africa, while optimizing our East African assets. On Page 28, we highlight our sustained efforts on sustainability and governance structured around the 7 sustainability pillars of the Dangote. Page 24, discusses the institutional pillar and shows our strong governance framework with a focus on Board member diversity. We present our sustainability highlight in this period on Page 26. I'm pleased to say, we are making significant improvements on our environmental pillar and are standing our alternative fuel initiatives. We also made significant advancements in the transition from high diesel-powered truck to CNG, in response to rising energy costs. On the social front, Dangote Cement spend NAR 6,767 million on social intervention activities across the group in 9 months 2024, thus up [ 39.72% ] year-on-year. While we continue our various employee welfare programs to help our staff cushion the effect of the high inflationary environment. In celebration of the year's sustainably week, we organized the charity outreach, distributing household items to the resilience of Azumi Tsuyoshi community in Cosofel-LGA. Additionally, we launched the safety work in partnership with Federal Road and Safety Corps., raising awareness among commuters about the importance of safe driving. These activities reflect our commitment to supporting and giving back to the communities where we operate. On the same page, we highlighted activities around our strong corporate governance, and we reviewed and implemented new government's policies in line with best practices. I would like to express my gratitude to everyone for joining us today. and I stand by thanks once again to our investor for their ongoing trust and support in our company. On a positive set of 9 months 2024, results despite headwinds has once again reinforce 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 3 months. Thank you once again, and I wish you all a great time ahead.

[Operator Instructions] At this stage, there seems to be no questions on the conference call. I will now hand back to Temi for questions on the webcast. Temi, are there any questions on the webcast? [Operator Instructions]

So let me read out the questions on the webcast. The first question is from Kevin from Bloomberg Intelligence. I would like to focus on the Pan-African region's performance in 3Q, which saw a significant drop in EBITDA. Could you please add some color into this?

My name is Dr. Gbenga Fapohunda. I will take the first question in terms of drop in EBITDA in Pan Africa. So Pan Africa generally did very well. However, we had an issue, which the GMD spoke about in Ethiopia, where we have significant devaluations, matching engineering levels. So in July, we had over 40% devaluation. In August, we had over 40% devaluation as well. Now the combination of that with IPA inflation. Significantly, from an accounting perspective, we needed to restate revenue on all lines as requested by IAS29. So that's significantly dropped revenue and EBITDA, that negatively affected Pan Africa. Individual countries actually worked out well.

Next question is from [indiscernible] from CardinalStone Partners. And there are a few questions, I'll try to summarize. And when do we envisage that the cost pressures will begin to abate in relation to switching to alternative fuel? And the second part of the question is, why was income tax expense low for the third quarter? CapEx plans for the next year. Any plans for new CapEx or capital expenditure? The next part of the question is, which of our costs are in debt to the PMS prices? And how do we see the PMS prices affecting our business in the near term? Expectations for volume increase in 2025 or volume for 2025. And what are the general expectations for the end of the year and coming into the next year in terms of volumes and macroeconomic challenges and performance?

What do you ask me here?

Yes, this is the first question.

So the alternative fuel is when are we going to see cost pressures reduced in relation to AF?

Thank you for the question. AF have already started seeing the erosion of some of the pressures that take place on the cost, especially on the fuel cost towards which is targeted. And as we go along well, we were all this while in the process of completing the infrastructure structure, capabilities to feed the supply chain, et cetera. Now most of these pieces are in place. And from now onwards, we see a significant improve in that further than what already we have been achieving. The second is CapEx plan for the next year. I think our budget is still under formulation, and it would be shared with our Board and post that relevant would be shared in an open platform like this. Similarly, expectations were '25. It is still a work in progress. We are in the process of formulating our budget. And maybe some numbers, we could like to give you a feel only when the exercise is completed. The expectations for Q4? Yes, we can give some expectations because already some part of Q4 is on while we are in, and we see some improvement. We see also, especially as while I speak. We see some of the flooding, some of the road congestions easing out. And post that, we are seeing some easing in logistic issues and resumption of some of the works. So it looks to be beginning, but still too early to say, but normally going by the trends. It is the Q1 and the Q4 and -- partly some part of Q2, which is a strong quarter for the cement business in Nigeria. And so we expect the similar performance for Q4. Income tax.

Okay. Income tax, CapEx.

Okay. Basically, the question is on income tax, why income tax is low for Q3. There was over a [indiscernible] in previous quarters. So if you see year-to-date, you will see year-to-date tax is at par. So we corrected the anomaly in previous in previous quarters in this quarter. So on a year-to-date basis, year-to-date September, you would see that it's at par. On top of that, some items actually reduce our tax as well versus previous period. We had increase in exports. As you know, exports sales is not subjected to tax. We had more of that. Our export volume actually increased by about 75% year-on-year. So that really helped. Also, we had significant repatriations which have tax benefits. So those are the couple of areas that are affected or they are helped us from a tax perspective. Also, the second question is the PMS price. How does it have impact on our operations? Yes, I know. We know from the perspective that we do use PMS. We use immaterial or small quantity of PMS in our business. We use more of [ AGO ] for our trucks and CNG. We will use more CNG for environmental-friendly reasons and cost reasons. So PMS has lead to impact on our cost. However, from a customer disposable income perspective, it would have some impact, but on an operational directly, no.

Next question is from Sanjay, Tribeca Investment Partners. Could you please provide an update on the state of cement pricing and currency control in Ethiopia? And we'll take another question from Moses from Mazi Asset Management. Which markets across the Pan African operations recorded organic price increases? So we can take this to -- just get us.

Okay. First, let me -- most of the countries in Pan Africa has been able to improve upon their pricing over a period of time. And some of them are too regulated by the governments. But then, yes, there is a process. There is a window by which we can reach out and sell the logic and through which we have been successful. But just to call out 2, 3 of them whom we have been able to increase the cement pricing has been Congo, Zambia and Ethiopia. So Ethiopia now in terms of dollar currency, again, the resetting of whole cycle will take place for these other 3 standouts that I can call out.

Okay. So the next question, again from Moses. The 85% revenue growth in Pan African operation is largely due to -- so what?

Okay. So basically, yes, and no. There was an impact from currency transition on the revenue for Pan Africa. But that impact benefit was largely taking out from what we explained before, which was the downside from Ethiopia from a devaluation perspective. So most of what you have is actually due to better pricing in those markets that some of the markets, the GMD spoke about in terms of Ethiopia, Congo, Zambia and the others.