Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement Plc Q1 2025 Investor Call. [Operator Instructions] Please note that this event is being recorded. I'd now like to hand the conference over to Temilade Aduroja. Please go ahead, ma'am.

Thank you, and good afternoon, good morning, everyone, on the call, and welcome to the Dangote Quarter 1 2025 Conference Call. Today, we have the GMD here, Mr. Arvind Pathak and the Group CFO; Dr. Gbenga Fapohunda, who will also be available for Q&A. Mr. Pathak will take us through the presentation, and I'd like to hand over to him. Thank 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 this conference call to discuss Dangote Cement's financial results for the first quarter of 2025. To begin with, I would like to highlight the strength of our geographical presence across Africa, which you can see in more detail on Page 2 of our presentation. Dangote Cement continues to reinforce its leadership as Africa's foremost cement producer with an impressive capacity of 52 Mtpa spread across 10 countries. This includes 35.3 Mta in Nigeria and 16.8 Mta across other key African markets. We are making significant progress on our expansion strategy. One of the key developments in the upcoming commissioning is the upcoming commissioning of our 3 Mta grinding unit in Cote d'Ivoire later this year. Furthermore, our 6 Mta integrated Itori plant, designed to support our export ambitions, is progressing as planned. These investments will not only enhance our operational capacity, but also allow us to capture the high growth potential of the African cement market. On Page 3, we examine the macroeconomic environment in Sub-Saharan Africa, highlighting the resilience of the cement market amidst challenges. The International Monetary Fund, IMF, projects Sub-Saharan Africa's GDP growth to reach 4.2% in 2025, an increase from an estimated 3.8% in 2024. This growth is driven by strong commodity exports, rising infrastructure investments and a gradual decline in inflation in certain economies. However, there remain ongoing risks such as currency volatility and concerns surrounding sovereign debt. It is worth noting that in contrast to last year, the currencies of 2 of the region's largest economies, Nigeria and South Africa have strengthened in 2025. This has eased some of the pressure from the foreign currency obligations. However, the post-election period in countries like Senegal and South Africa, coupled with growing trade wars have created some uncertainty, slowing economic activity in select markets. On Page 4, we provide an analysis of key domestic macroeconomic indicators, focusing on the pressures stemming from inflation and elevated borrowing costs. IMF has revised Nigeria's 2025 growth forecast downwards to 3% from an earlier projection of 3.2%. This adjustment reflects concerns over the impact of declining global oil prices. Headline inflation accelerated to 24.3% in March 2025, marking its first increase in 3 months since rebasing exercise. On a more positive note, the naira, which has been one of the most devalued currencies in the region, has shown some improvement, [indiscernible] from NGN 1,549 per dollar at the end of 2024 to NGN 1,497.5 per dollar by February 2025 before settling at NGN 1,541.67 in March. This recovery is largely attributed to a surge in foreign exchange inflows driven by various fiscal and monetary policy reforms. On Page 5, we provide an overview of our financial and operational performance for the first quarter of the year. From a financial perspective, group revenue increased by 21.7% to NGN 994.7 billion, particularly in Nigeria, where revenue saw a growth of 53.7%. Our profitability also saw improvement. Group EBITDA surged by 49.2%, reaching NGN 461.6 billion, while the EBITDA margin strengthened to 46.4%. The strong performance was primarily supported by effective cost management strategies, particularly in Nigeria, where EBITDA margins improved from 49.7% to 56.7%. As a result, we achieved an impressive year-on-year growth in profit after tax to NGN 209.2 billion. On the operational front, group volumes for quarter 2025 -- quarter 1 2025 declined by 6.7% to 6.6 million tonnes, primarily due to softer demand and impact of heightened inflationary rate in key markets. Despite these challenges, we made significant strides in enhancing our export capabilities. Notably, export volumes grew by 21.2% with 8 clinker shipments to Ghana and Cameroon during the quarter. This progress underscores our commitment to expanding our Pan-African trade footprint and positioning Dangote Cement as a leading regional player. We also made meaningful advancement in our sustainability effort during the quarter. We increased the use of alternative fuels, expanded our waste heat recovery infrastructure and took steps towards achieving our medium-term decarbonization goal. A notable milestone was acquisition of 1,500 CNG trucks to accelerate the transition to cleaner energy. Additionally, we installed an alternative fuel feed system across our plants, which will further boost our alternative fuel usage and optimize our energy mix. As a result, our thermal substitution rate improved from (sic) [ improved to ] 9.8%, up from 8.3% in quarter 1 2024. This progress in our sustainability agenda has been recognized as evidenced by Dangote Cement's recent upgrade to a B grade rating by CDP in the water and climate categories. This marks an improvement step forward in our commitment to environmental stewardship and sustainable growth. Page 6 and 7 provides a detailed overview of our performance during the period. The group's income statement reflects strong performance across both top and bottom lines. Our earnings per share increased by 84%, reaching NGN 12.29. We also highlight the trends in cement and clinker exports from Nigeria. Over the past 5 years, exports have grown at a compounded quarterly rate of 23.6%. In the first quarter of 2025, exports from our Nigerian operations rose by 21.2% to 320 Kt. Page 8 showcases our robust balance sheet. As of March 31, our gross cash balance stood at NGN 417.7 billion, while our net assets closed at NGN 2,379.8 billion. Additionally, the page highlights our dividend payment history. Over the last 14 years, Dangote Cement has distributed a cumulative NGN 2.8 trillion in dividends, underscoring our commitment to consistent rewarding our shareholders. On Page 9, we present an analysis of our cash inflows and how we strategically allocated resource to create value for all shareholders. For Q1 2025, we generated a net cash flow of NGN 321.3 billion from operations. We allocated NGN 37.5 billion towards capital expenditure CapEx. Additionally, we made significant progress in reducing our net debt, which decreased by NGN 215.8 billion from financial year 2024, bringing our total net debt to NGN 1,846.2 billion as of March 31, 2025. Page 10 provides a detailed overview of our operations in Nigeria. Sales volume in Nigeria declined by 4.3%, primarily due to slowdown in real estate and private construction project during the period. Despite this, revenue in Nigeria rose by 53.7%, reaching NGN 696.0 billion. EBITDA for Nigeria grew to close at NGN 394.8 billion with margin strengthening to 56.7%. This was supported by our cost reduction initiatives. Page 11 provides further insight into the performance of our Pan-African operations. Sales volumes declined by 10% to 2.4 million tonnes, primarily due to weaker demand in key markets, notably Senegal and South Africa, which were impacted by postelection uncertainties as well as liquidity challenges in Ethiopia. As a result of this volume decline, revenues dropped to NGN 322.7 billion and EBITDA decreased reaching NGN 76.5 billion. Looking ahead from Page 12 to 14, you will find updates on our Pan-African operations. Notably, Tanzania and Cameroon both experienced volume growth, while other markets saw softer demand. On Page 16, we provide an overview of our debt and liquidity position, including a time line of our key activities in debt markets, particularly highlighting our bond and commercial paper instruments. At the end of April, we repaid our maiden 5-year NGN 100 billion bond, which was issued in 2020. On Page 18 to 22, we reinforce our steadfast commitment to sustainability and governance guided by the 7 pillars of The Dangote Way. A key highlight is the introduction of our Dangote Cement decarbonization road map, where we set an ambitious goal to reduce Scope 1 and Scope 2 CO2 emissions. We are also particularly proud of our acquisition of 1,500 CNG trucks. This initiative not only underscores our undergoing efforts to manage cost in the face of rising inflation, but also marks a significant step in reducing our carbon footprint by transitioning... [Technical Difficulty]

Ladies and gentlemen, please remain on line. The main speaker will be rejoining us shortly. Thank you. The main speaker has rejoined. You may proceed. Thank you.

Thank you. On the social front, Dangote Cement invested NGN 1.1 billion in social intervention activities during Q1 2025, marking a 12.7% increase compared to the previous year. These initiatives reflect our ongoing commitment to the communities where we operate, particularly in supporting our employees amidst inflationary measures. On this page, we also underscore our unwavering commitment to strong corporate governance. We have taken important steps by reviewing and adopting new governance policies, ensuring they align with global best practices and further reinforce the strength of our corporate structure. I would like to take a moment to sincerely thank each of you for being here today. A heartfelt appreciation goes to our investors. Your continued trust and support in Dangote Cement fuels our drive for excellence. While the first quarter of 2025 presented its share of challenges, our solid performance... [Technical Difficulty]

Apologies, ladies and gentlemen. We seem to be having technical issues from the main venue. I ask that you please remain on line and the main speaker will be rejoining us shortly. Thank you. We have been rejoined by the speaker. Please go ahead sir.

Thank you once again for the continued support. I wish you all a successful and inspiring day ahead. Thank you.

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

[Operator Instructions] At this stage, we have no questions from the telephone lines. I will now hand over for questions from the webcast.

Thank you. And we have some questions on the webcast. I'll take the first one from Nandi, a private investor. Nandi is asking about the share buyback program of the company. What's the update on that? The second question from Nandi is what is management's approach in reducing the very high finance costs?

Okay. Thank you for that question. Okay. I'll take the second part of the question first. I will take a step back to talk about the cost of -- the high finance cost. Two main factors drove it, high interest rates driven by increased NPR numbers. So we saw interest rates increase from 20% levels or less than 20% level to over 30% in terms of bank interest rates. So that drove it up. And also, we saw devaluation effect where the FX-based loans actually increased in terms of naira amount. So a dollar loan I took 2, 3 years ago at NGN 400. I have to pay back that in dollar at NGN 1,500. So those are the 2 key drivers. But back to your question, the main thing is what are we doing? The GMD spoke about it during his speech. There's an aggressive paydown on both naira and U.S. dollar loans, and you see that reflected in the numbers, and we intend to do that ongoing so that we can actually reduce a lot of the finance debt so that we can have our finance interest cost lower. The other part of it is the share buyback program. The share buyback program has been very successful for us. We still have it running. We still keep it in view, right? However, we're watching the market. And at the appropriate time, we will probably try to intervene and use it.

Okay. The next question. The next question is from [indiscernible]. He has a couple of questions. So I'll just quickly run through it. The first question is, given the volume decline reported in Q1, particularly across Pan-African operations, are there any specific strategies being implemented to ensure full year volumes remain on track? Please, could you give us an update on the status of the proposed Mugher cement plant? What is the strategic outlook once it becomes operational? Also, is the Itori plant still on course to commence operation in 2026? CapEx spend in Q1 appears minimal. Is there any indicative broader trend for the year? What is the expectations for full year CapEx? Fourth, what is the specific impact of exchange rate translation between the difference recorded on PPE? Margins improved in Q1 2025. To what extent can that be attributable to cost optimization initiatives? Some investors expect the level of margin resilience to be sustained through the year. Should investors expect the margins to be sustained through the year?

Okay. Good afternoon once again. Regarding question number one, I think it's obvious when we have some challenges on the volume especially across Pan-African, the management team will obviously have a mitigation or a recovery plan. And we wish to inform that almost all the countries where we had a slight setback in Q1 in volume, they were categorized into 2 parts. For example, something which happened in -- or 3 parts, I would say. One is it happens due to the macroeconomic conditions. For example, in Ethiopia and Senegal, the government spending has almost stopped and the lending from the banks, even from the private construction is very throttled. So there's a little what the industry can do. So what we have focused there is the focus on the export from these countries. And we have already commenced our export to the neighboring countries. The second part is when you have a competition and if there's something -- so obviously, as I've said in the earlier con calls, price is governed by supply/demand. And we are, with our cost structure, well equipped to face the competition in some of the places where the new entrant has come. One example is Cameroon. We have a new competitor, but still we are able to hold our volumes in the market share. The third category would be something like seasonal, something what we faced in South Africa. There were heavy rains, especially in the segment in which we operate. There is hardly anything that we can do. But what we always do as a part of mitigation is to utilize that period and to undertake the maintenance and the repair so that you can go full throttle when the situation improves. On the Mugher plant, yes, the progress is going satisfactorily. We have already appointed the engineering consultant. [ Early ] work has been done and basic design is ready. We are at the commercial negotiation stage. And we feel that since it is a brownfield, we should be able to stick to the time line communicated. As far as the Itori plant is concerned, the progress is satisfactory, and we still feel that by the end of 2026, it should be operational. CapEx spending look -- see, CapEx spending in any project is like a S curve. Both at the beginning of the CapEx and towards the end of the CapEx, the outflows are very minimal. So today, if you look at Ivory Coast, this is the back end of the completion. So most of the expenditures have been done. It is just the final fine-tuning. And for the Itori project, it's just a civil work. So that's why you feel it is minimal, but our CapEx plan remains intact. As regards the margin, primarily, it has come from our cost reduction. Maybe I would not like to spell out the specific thing, but I can tell you that our focus areas are always on fuel and power and logistics. And each of the 3, we have not won for multiple levers that we have pressed, and you see the outcome of that. And until very something severe happens like devaluation or other things, which is beyond the management control, we feel that somewhere around this level, the margins can be maintained. I think this relates to the next question also where Arvind, please repeat the details of the cost containment strategy and how margin achieved this strategy going forward. What is your margin expectation when this strategy run at the full throttle? I think I answered this. Some of the things like, for example, CNG, we have been talking about. When you convert from AGO to CNG, besides being helping in our decarbonization, it also helps us reduce the cost. So that brings down our logistic cost very significantly. We have been working for the last so many years on AF and other measures. Primarily, our 3 focus areas, as I said earlier, is fuel cost, power cost and logistics. And to reduce our fixed cost, we are going in a big way into our exports. So these are strategies and some of these strategies are now maturing, and we expect to improve going forward, contribution from these strategies.

The next question is from [indiscernible] from African Lion Fund. What is driving the strong volume growth in Tanzania? And is this sustainable for the rest of 2025? And -- okay...

Okay. So Tanzania has been having a decent growth in a country. And unfortunately, for us, as I was always mentioning, this is one plant wherein we had not exploited the full potential. And fortunately, the pieces of the various operational, sales, marketing, logistics have fallen in place now, and we are in a much better shape. And that's why you see this volume growth in Tanzania. And we feel that we should be able to continue this growth, except for the seasonal. For example, right now, there are heavy rains there. And because of the heavy rains, I know from the direction, where we are in the direction in which we move to [ Dar es Salaam ], there are about 5 bridges which are affected by the rains. So barring for the seasonal things, I'm sure we should be able to sustain it over the rest of the year.

Thank you. We have a question from [indiscernible] from Stanbic IBTC Pension. The first question is, in the last investor call, the sourcing of coal locally was mentioned to drive cost. Has this taken effect? Question two, how does management plan to hedge for the currency devaluation, especially in Tanzania, Ghana and Zambia? Question three, can we have more insights to the completed alternative fuel projects? What are the specific sources? And then question four, when does management plan to purchase the additional 1,500 CNG trucks to make that 3,000?

Yes. The coal -- see, not only for coal, I think if you -- some of us who have been participating in the investor call, we have been trying to substitute most of the imports into our operations by the local producers. And coal is just one of them. Yes, you are right. We have successfully implemented wherever it was possible, for example, in Nigeria, in Ethiopia, and that has contributed in a big way in our cost reduction. Devaluation, again, what we have tried to do is, as I said, which is linked to our export strategy. Our strategy is to try to see the gap between our dollar generation and the dollar requirement is minimized. And for some of the countries, our objective is to make them generate surplus dollars, whereby insulating ourselves from the devaluation of the currency. Alternative fuel, practically everywhere we have completed our projects, except for Tanzania, which we expect to be done in this quarter. And what we keep on doing is we keep on upgrading them because especially in the case of biomass, when you start with, it is easily accessible, as the competition increases, the opportunity is reduced. So we have to upgrade those systems to be able to use the other types of alternative material. So it would be an ongoing investment in that. For make the CNG trucks to 3,000, I think we had already ordered out. And by the end of the year, we should be able to touch 3,000 as earlier communicated.

Okay. The next question is from [indiscernible] CardinalStone Partners. Question is miscellaneous income, particularly electricity sales declined significantly. Could you clarify the drivers of the decline and whether it is expected to persist as miscellaneous income? Second is, can you provide insight to the decline in gain on the monetary position reported in Q1 2025 from hyperinflationary economies? What factors influenced this reduction? And the last from [indiscernible] is the average revenue per tonne rose significantly in Q1.

Okay. Let me take the first and the last and maybe Dr. Gbenga will help me out with the monetary position. Okay. Now coming to the first one, yes, our -- we only do electricity sale in one country that is Zambia. Power plant always -- especially the coal-fired power plant, they have some scheduled maintenance. And when we undertake the maintenance, obviously, we'll not have surplus power to be able to sell to the grid. And it is from there, you see a reduction that we have already done the shutdown. It has already come back to operations. So we should be able to see a restoration back. Price for one -- as I said, the price is also a compound of many things. It's also our discount structure. It is also a function of where do we sell. So in this quarter or from the last year, we have started an initiative wherein we said sales where it makes a value. And thereby, we have been able to contain many of the costs which are associated, discount structure, the logistic cost to transport. And cumulative of all that is what you see in the price. And we expect that this price, which is there currently should be stable during the year 2025. Mr. Gbenga? Would you like to answer on that monetary...

Okay. Thank you. I would take the question on hyperinflation. So basically, hyperinflation has actually been driven by -- I mean, the monetary gain is actually being driven by hyperinflation in certain countries, Ethiopia, Sierra Leone, Ghana. Just to take a step back, this monetary gain or loss is actually being driven by factors like inflation, interest rates and other economic parameters. So we are seeing these factors reducing gradually. That's why we are seeing these numbers reducing over time. If these factors increase in these countries, we would see this group up in future, basically. And also on the miscellaneous income, we expect it to be back to 2024 levels over time. Just to take a step back in terms of other income, what is really, really driving other income is what the GMD spoke about, which is largely our export drive. So there's this government incentive called Export Expansion Grants, which they give to exporters of cement. And this incentive is what is being recognized as part of the income. And as GMD said, part of our strategy is to grow exports significantly, which would help with our FX income as well and [indiscernible].

Another question from [ Johnson. ] What are the strategic initiatives the companies plan to undertake for the next financial years and mentioned about an increase in dividends?

Yes. Let me take on this. We have still got unfinished agenda of completing whatever the initiatives that we have taken. One is that going in a big way into exports, reducing cost aggressively. Some of these things are very long term. And for our size of the operations, it requires continued implementation across the various operations. And we feel that in this year, we would be completing that. We have also initiated some new initiatives in this year and also made some long-term plan for improvement of the performance of DCP, which at this stage, it will be inappropriate on my part to share it. At the appropriate time, we'll put it on the table.

Thank you. And another question from Samuel, Cordros Securities. Nigeria's volumes dropped in Q1 2025 attributed to slowdown in real estate. Can you provide insight in the discrepancy and the volume outlook for Nigeria in 2025? The next question is, with significant price increase in Q1, if macro conditions remain stable, should we expect to hold prices for 2025?

Okay. Let me start with the first one. We have to keep in mind that we are the only producer in this country, which is present along the pan-Nigeria. And this quarter had also a period wherein we had a fasting month and also followed by the long streak of holidays. So the competitor to whom or peer you're referring to practically has no existence in the areas wherein it gets influenced by the fasting month, et cetera. So obviously, they were predominantly in the market, which was insulated from these parameters. And as I said, there is a strategy on our part to be able to sell where there is a value. And we have re-casted our selling strategy in which we have also tried to see what [ each ] sales brings us extra contribution. And it's a combination of that, which you see that we might have lost some small volume. But as you rightly asked the next one, real prices have been better than the peers.

Thank you. Next question from Moses, Mazi Asset Management. With the liquidity constraints and macro headwinds in Ethiopia, has this hampered or pulled back the intended investments in the country?

Okay. Thank you for that. Basically, I'm not aware of any liquidity constraints in Ethiopia. But basically, just to give some context, last year, Ethiopia actually paid millions of dollars as dividend to shareholders, including the Nigerian parent company. And in terms of expansion and investments, we recently announced, the Chairman of the company actually announced that we are going to expand our presence. We're going to expand our capacity in Ethiopia, which is still the plan. Thank you.

Thank you. And Moses again from Mazi Asset Management. Is the public demand in Nigeria improving? What is the private versus public demand split in Nigeria? How do we expect that...

It is -- see, Nigeria is a big economy. It's got a big land mass. It's got a relatively decent population out of all the African countries. So if you look at the international benchmark, there's a lot of catching up to be done in the Nigeria. So we see a growth both in terms of public spending as well as private spending. There could be seasonal variations quarter-to-quarter. There may be some macroeconomic conditions, some external factors. But overall, if you look at on a CAGR basis, there would be a healthy increase in increase in both private and public. Relatively, if you ask us, as far as we are concerned, we have seen a relatively higher growth in the public-related sales as compared to private related sales. But public related still continues to be a very small portion of the total sales.

Thank you. Those are the questions we have on the webcast.

With no further questions from the telephone lines, this brings us to the end of the question-and-answer session. I will now hand back for closing remarks.

I'm handing back to the GMD, Mr. Pathak for closing remarks.

Well thank you once again. There was some very interesting question-and-answer session we had. And thank you for your support. And I'm sure we will see a similar or better results going forward. Thank you.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.