Dangote Cement Plc (DANGCEM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Dangote Cement H1 2025 Investor Conference Call. [Operator Instructions ] Please note that this event is being recorded. I will now hand the conference over to Temilade Aduroja. Please go ahead, ma'am.

Thank you. Good afternoon, and good morning to everyone on the call. My name is Temi Aduroja, Head of Investor Relations. Today, we'll have a presentation, will be led by the Group Managing Director of Dangote Cement, Mr. Arvind Pathak. The Group CFO, Dr. Gbenga Fapohunda, is also on the call to receive any questions. So thank you very much for joining right now. I'll be handing over to Mr. Pathak. Thank you, sir.

Good afternoon, everyone. Thank you very much for taking time to join us today. I'm pleased to welcome you all to this conference call to discuss Dangote Cement's financial results for the first half of 2025. I would like to begin by sharing a significant development in our company's journey. Recently, our President, Alhaji Aliko Dangote, whose visionary leadership and business acumen transformed Dangote Group from a modest trading enterprise into a manufacturing powerhouse in the form of Dangote Cement. With a footprint across Africa and beyond, has stepped down from the Board as Director and Chairman. Under his guidance, Dangote Cement Plc has achieved remarkable milestones, becoming the most capitalized company in Nigeria with the market capitalization exceeding NGN 8 trillion and emerging as the largest private sector employer in the country, among many other achievements. His legacy remains deeply embedded in the values, culture and strategic vision of the organization, and we are profoundly grateful for his years of visionary leadership. In line with this transition, the Board has appointed Mr. Emmanuel Ikazoboh as the new Chairman. His appointment as an Independent Director reflects our commitment to strong corporate governance and global best practice. With his wealth of experience in corporate leadership and governance, we are confident that Dangote Cement will continue to set new standards, reach new heights and embark on an exciting pace of growth. The first half 2025 has been both remarkable and strategic for Dangote Cement. We delivered strong outcomes across both financial and nonfinancial metrics, demonstrated the strength of our integrated business model and resilience of our teams and success of our long-term strategy. I will in turn discuss our operational progress, financial achievements and key strategic initiatives that are positioning Dangote Cement for long-term and sustainable value creation. One, significant reduction in logistic cost through CNG adoption. As a part of our commitment to operational efficiency and sustainability, we have now deployed over 3,000 CNG trucks. This marks a pivotal move as these trucks are delivering fuel cost savings compared to diesel AGO. Our ambition is clear. By 2027, our entire logistic fleet in Nigeria will be fully powered by CNG. This transition not only enhances cost efficiency, but also contributes significantly to our carbon reduction agenda. Furthermore, we are replicating this model in some of our Pan-African subsidiaries, including Tanzania. Environment benefits of our CNG initiative are tangible and will increasingly own monetizable assets in the year to come. Two, fuel cost optimization through substitution with lower cost alternatives. Alongside logistics, we are also working to reduce fuel cost at our production plants. One key step has been switching to cheaper, locally sourced fuel instead of more expensive fuels like diesel and LPFO. This change is already delivering significant savings across the group. We are also making strong progress in using alternative fuels. So far, we have installed over 15 alternative fuel systems at our plant. South Africa is leading with a 40% substitution rate and countries like Senegal are very close behind. These efforts not only lower our cost, but also strengthen our position as a sustainability leader in Africa. Three, foreign exchange utilization strategy. Another remarkable turnaround we have achieved is in the area of FX exposure. Historically, we faced shortfall of approximately USD 20 million in our operational FX funding. I'm pleased to report that we have flipped this into a surplus of over 200,000 with expectations of further growth. This improvement stems from deliberate strategy, including over 68% increase in export sales between H1 2001 and H1 2025, coupled with a consistent drive to substitute costly FX inputs with local alternatives. This model is now being successfully replicated in most of our businesses outside Nigeria. Fourth, export strategy and regional advantage. Speaking of exports, our strategy has been equally impactful. Export volumes have grown by over 68.2% in the past 5 years. translating to a 13.9% compound annual growth in H1 2025. We now operate 2 dedicated port terminals for our export import activities. In 2024 alone, we exported over 30 shipments of clinker from Nigeria, a significant leap from 10 shipments just 3 years prior. This growth in cross-border trade is enhancing our FX generation and diversifying our revenue streams. In the first half of 2025, exports from our Nigerian operations rose by 18.2% to 671.1 Kt. Five, lowest cost producer position. Another major pillar of our competitive strength is our position as the lowest cost cement producer in Nigeria. This has been achieved through sustained investment in multi-feed fuel systems, which allow our plants to switch seamlessly between different energy sources based on cost efficiency and availability. By taking control of every stage of our value chain from sourcing raw material in our quarries to producing and distributing through our network, we have reduced our reliance on third parties, stabilized input cost and ensured consistent product quality. The strategic choice has not only shielded us from market volatility, but also enabled us to deliver more value to our customers while maintaining stronger margins. Six, our geographical diversification advantage, which insulates our group from localized market shocks and provides a stable platform for sustainable volume, EBITDA and profit growth. Dangote Cement continues to solidify its position as Africa's leading cement producer, boasting an impressive production capacity of 52 million tonnes per annum across 10 countries, comprising 30.53 million tonnes in Nigeria and 16.8 million tonnes across the key African markets. We are making significant progress on our expansion strategy. One of the key developments in the upcoming -- will be the upcoming commissioning of our 3 Mta grinding unit in Cote d'Ivoire in quarter 3 of this year. Furthermore, our 6 Mta integration plant, Itori plant designed to support our export ambitions is progressing as planned. These initiatives will not only enhance our operational capacity, but also allow us to capture the high growth potential of the African cement market. Seven, strong investor returns and financial growth. We remain fully committed to delivering strong and consistent returns to our shareholders. During 2022 and 2023, dividends grew by 50%, and our share buyback program has been successfully completed. Over the long term, dividends have grown at a 14-year CAGR of 19.5%. Similar group revenue grew by 121.3% between 2022 and 2024. EBITDA increased by 95.1%, while profit after tax rose by 31.6% in the same period. Our net cash flow from operations has also improved by 111.7% even as volume growth is tracking at a 14-year CAGR of 10%. These metrics reflect the strength and resilience of our business model. For H1 2025, group revenue increased by 17.7% to NGN 2,071.6 billion, particularly in Nigeria, where revenue saw a growth of 45.5%. Our profitability also saw improvement. Group EBITDA surged by 41.8%, reaching NGN 944.9 billion, while EBITDA margin strengthened to 45.6%. This strong performance primarily supported by effective cost management strategy, particularly in Nigeria, where EBITDA margins improved from 46.8% to 58.6%. Consequently, profit after tax delivered an impressive year-on-year growth of 174.1%, reaching NGN 520.5 billion, surpassing our earlier total profit for the year 2024 in just 6 months. Sustainability and ESG commitments. Sustainability remains a cornerstone of our corporate strategy. Our CDP rating has recently upgraded from C to B, a testament of the progress we are making. Our group-wide alternative fuel substitution now stands at 10% with standout performance in South Africa, 14% [indiscernible] 38%. In terms of social investment, we have spent NGN 13.2 billion on CSR activities 2024 and over NGN 16 billion already in the first half of 2025. We believe that our long-term success is directly tied to the prosperity of the communities we operate in. Effective 25th July, besides Alhaji Aliko Dangote, GCON, Professor Dorothy U. Ufot, SAN will also retire from the Board. In line with this transition, the Board appointed Mr. Emmanuel Ikazoboh as the new Chairman and Mrs. Mariya Dangote as a Director. We are confident that this leadership team will drive sustained growth and unlock new opportunities as we continue to expand our footprint across the continent. At this moment, I would like to sincerely thank each of you for joining us today. A heartfelt appreciation goes to our investors who contributed to continued trust and support in Dangote Cement fuels our drive for excellence. Our solid performance in the first half of 2025 is a powerful testament to the resilience, adaptability and enduring strength of our business. With strategic investments focused on boosting operational efficiency, I'm confident that we are well positioned to meet the demands of the future and sustain our momentum throughout the year. Thank you once again for your continued support. I wish you all a successful and inspiring day ahead.

We'll now open the call for questions and answers. [Operator Instructions] We have a question from the telephone lines from Gideon Oshadumi of Chapel Hill Denham.

Please, could you quantify the percentage of your alternative flow to your total source of energy? And please, can you provide insights into your new investment in Ethiopia? Has the project started? And when should we expect the projects to complete? And thirdly, what are your plans to restore volumes in your Pan-African region?

Okay. [indiscernible] thing I dwelled about it. Depending upon the sustainability efforts and economics and the logistics, we have a different strategy for different countries. Overall, as a group, it could be around 10% to 12%. We have hit the number. Some of them are grinding units, some of them are bagging units, wherein the AF use is not at all there. But wherever we feel it makes a very strong case for both singles, we have done well. For example, I named only two. One is South Africa, Senegal, I think very closely following the footstep is Zambia. There also, we are as close to around 30%, 32%. And we will see rapidly increasing everywhere. So this is our percentage on here. Ethiopia, yes, the project is on. We are at the engineering phase. We have identified the locations, a new location for a grinding unit. Our expected OEM or the supplier for the plant is already working on the engineering and the final commercial would be finalized shortly. We have still not fixed up a firm date when the project will be operational. Now as far as the volume is concerned, one of the strategies that we have adopted is the value sales, okay? Yes, volume is key important. But I think our main objective would be to come to a place wherein we have a high profitability and we bring the returns for our shareholders. So we believe in value sales. So we don't -- because we believe in value sales, we don't believe in getting into a rat race of price reductions, et cetera. So some of the places, you may see some reduction during the half yearly, but that is somewhat temporary. For example, just to give you an example of Ethiopia, there was a new entrant, and there are some economic conditions in the country and there's some IF-related policies, which has restricted the money supply in the market. So we did see a drop in the end of quarter 1, beginning of quarter 2. But as we speak today, we have been able to get back our volume. So similarly, see recovery in most of the places. So that's the advantage we have in DCP since we have assets in the various countries, taking account cyclical nature of the market, in some parts of the year, it will be -- Nigeria would be a star performer [indiscernible] In some part of [indiscernible] being a star performer and supporting the Nigeria. There's not a question of worry, and we are -- we would be chasing the value sales, not the quantum alone.

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

The first question is from [indiscernible] Thank you for the presentation of the report. If you could you please use figures, what is the expected impact of the key initiatives once completed?

Okay. Good afternoon. See, some of these initiatives, they are not onetime initiatives. I hope you understand. And also, they are not initiatives which affect the one bucket of the operations of a cement plant. Just to give you an example, I mentioned about CNG. When we went to CNG, it's not only just for the cost reduction, we also saw a significant impact in sustainability. Similarly, when we went into export, the impact of the export will be multifaced. For example, it improves your capacity utilization because your fixed cost gets divided over a larger volume. So it's a cost reduction. It brings you the dollars to the country. It also brings in some sort of responsibility when you are in an export-oriented unit. You have an international market rather than in a captive market. You have to streamline your logistics, port operations. It brings in a lot of enhancement in the management team capability. So it runs across the various things. And if you have been with us for a long time, then you would know that we always keep on reinventing ourselves. So I don't have a fixed number if this thing will happen. Something else we will pick it up. But then you should be going by the numbers that you have seen over a period of time.

Next question from Vincent. We see that sales volumes dropped across different markets. What are your strategic initiatives to reclaim your market share and grow sales across then African markets?

May not be entirely correct. It could be generalization from a few places. Yes, you could say the other way that we have been more or less flat. This point is well taken, again, for the reasons I explained to you. But there are countries where we have significantly improved our market share. For example, Ghana, for example, Congo. There are many such places that I can cite wherein we have significantly improved our market share. Here market share, our strategy always would be to maintain, retain or slightly improve. But as I said, we are not chasing that number over our value of the sales and thereby the profitability of the organization.

Next question is from [indiscernible] CardinalStone. There are a couple of questions here, so I'll try and read through them. What is the expectation of average revenue per tonne at the end of 2025? Can you tell us about your borrowing plans for the year?

Okay. The point number one, I'll answer and maybe then I'll give it to GCFO to reply some of them. Average revenue per tonne, I think this we have discussed at least in our DCP call in the past. The price is dependent of market supply and demand. So for us to precisely forecast revenue per tonne at the end of 2025, I think it could be something like looking into a crystal ball. So what we expect is how do we maximize that given the circumstances. I would hesitate from giving to you any number for the revenue per tonne. Next one..

I'll just take the next few questions for the CFO to answer. Can you tell us about your borrowing plans for the year? Considering your improved earnings this year, what are the dividend expectations? Should shareholders expect a larger payout? Can you tell us about the Pan-African operations and any recent struggles that you may be having especially with volumes for this period? What's the update on Itori plant and the plant in Ethiopia? And the last question is regarding the Afreximbank loan. What is the outsourced to DIL and has it been fully paid off in Q2?

Okay. Thank you. My name is Gbenga Fapohunda. In terms of the borrowing plans for the year, the plan is to continue to pay down our debts, which has started aggressively. However, from a modeling perspective, we could actually continue with what we have as of now. But strategic plan is to continue to pay down our debts. On the improved earnings and dividend question, for now, we intend to pay nothing less than what we paid last year in terms of dividend per share. We paid it this year, but it's for full year 2024. The next question is on Pan-Africa. Which country we struggled and [indiscernible] the next few quarters blah, blah, blah. For Pan-Africa, some countries have faced some challenges such as excessive rent constraints, government suspension of projects, new entrants. However, we developed our own strategic growth road map, which we have used to address these issues, and we are seeing significant progress on this front. The next one is the Nigerian operations saw a rebound in volume. Do we expect this to continue for the coming quarters? The answer is yes. We did about a couple of percentage above last year. We expect this to continue into the next quarters. The next question is what is the update on the Itori plant and the Ethiopian plant? The [indiscernible] has spoken about it. The Ethiopian plant, this is at early stage. We're currently at the engineering stage. The commercials have been discussed. We are going ahead with it. For the Itori plant, basically, we intend to commission it around 2027, and it's ongoing. It is on cost as planned. On the Afreximbank loan, as promised and discussed, this has been paid off. It was paid off early this year. So it is no longer on our books. I mean early this month, sorry.

Thank you very much. Next question from Cavan Osborne from Old Mutual. In terms of Pan-Africa, what margin is satisfactory to management?

Let me take this question. I think we need to clarify unlike Nigeria, Pan-Africa is not one market and consists of various markets. And what makes a difference in relevant to your question is that each of the operations that we have can be classified in a mixture of assets basis. Some are integrated unit, some are grinding unit and some are bagging unit. So wherein we have an integrated unit, our endeavor is to get 30% plus EBITDA. And where we have a grinding unit, we consider an EBITDA of 10% to 15% as healthy. And for a bagging unit can be anything around 5% or so.

Next question is from Abiodun from Stanbic IBTC Pension. Is the additional 1,600 CNG trucks separate from the already 3,000 trucks? And the second question is, I think we've answered this a few times. What was the major cost for volume decline in Q2 in Nigeria? And what's the guidance for the rest of the year?

So yes, 3,000, we said we are plus 3,000. We had introduced earlier 1,500 trucks. Now we have added another 1,600. So that takes precisely to 3,100. And this is in line with our road map for becoming AGO-free logistic by 2027. I think volume, we have explained. Next one.

Next question is from Brian from [indiscernible] Investors. Is the group looking into any further investments into South Africa? Considering the hosting of the Cricket World Cup in Zimbabwe, South Africa and Nibia, is there any consideration of any partnership in that region?

This is something with a very strategic question, and it would be very difficult for me to answer that because as a group, we always keep on looking at all opportunities. So as and when something happens, we'll surely share with our investors and the stock exchange.

Next question from Ilham from M&G Investments. Can you speak on the market and competitive dynamics in Nigeria? What is the key driver for the volume pressure?

Nigeria has seen, I wouldn't say as challenging as some of the other Pan-African countries, but has been seeing a slightly [indiscernible], I would say, [indiscernible] in the sense, has not grown from where we were last year. And so that has been one of the reasons why and as a market leader and a volume leader, we had a responsibility towards not getting into a rat race. And that is one of the reasons why you find all these observations.

Thank you. Next question is from Adedayo. How does the company intend to finance the $400 million investment in Ethiopia?

Okay. Thank you for that question. The company intends to fund it through debt and equity, and it will be funded locally. That's the first part of the answer. Second part, which has to do with volume. What is happening in Ethiopia, we're still maxed out in terms of volume and capacity. So for us, we are maxed out and we intend to expand. Expansion is going to be by way of equity and debt funded locally in Ethiopia.

Thank you. Next question from [indiscernible] Old Mutual Investment Group. Can you describe the impact of this new CNG trucks on the overall cost of goods sold? What percentage of costs come from the transportation cost? And how much are the CNG trucks expected to change or reduce that cost?

Okay. Instead of giving you an answer, before that let me explain you what is my difficulties giving you a very particular answer. One is that when we look into our logistics, we still have a mixture of AGO and CNG truck progressively is moving into the direction of CNG. We also have many of our trucks which are run by our customers, which is quite a healthy number. So what numbers you see would be a hybrid of all this. And if I tell you some numbers may not collaborate with that. And the second part is when you have a CNG truck or an AGO truck, the cost comes from various elements. of which, yes, fuel is the biggest element, whether the driver cost, the maintenance cost, the tire cost, the various tax related, et cetera, still remains the same. Having said that, it will be better to look at what would be the saving in the fuel alone out of the CNG truck, which I could say could be around somewhere around 60% saving you could have on the fuel of the truck cost.

Thank you. There are no other questions on the webcast.

Thank you. At this point, we have no questions from the telephone lines either. Can I hand back for closing remarks?

Yes. Thank you. We'll just hand over to the Group Managing Director to give closing remarks and outlook for the remainder of the year. Thank you.

Thank you very much. We look very positively towards the next H2 of the year. Q4 traditionally is always very good. And though rains come in, in Q3, but so far, it has got very limited impact. So we should be seeing comparable or better numbers going into H2, more so it should be on the favorable side. I think that's all I would like to share with you at this juncture. And thank you once again for having been with us. Thank you for all the questions and the insight that you showed your interest in the business.

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