Dangote Cement, Nigeria's leading firm by market capitalization, explains that one of the advantages of its Pan-African expansion is gains related to foreign exchange, particularly as the Naira declines. Guillaume Moyen is the Group Chief Financial Officer. He agreed to answer questions from the Ecofin Agency

Ecofin Agency: Dangote Cement indicates that it has distributed 1 trillion Naira in dividends to its shareholders over the past 7 years. In detail, shareholder compensation increased on average by 32% per year over the period. What explains this choice of the group, given that its turnover grew by 15% only on average over the period, and the complexity of its expansion in Africa?

Guillaume Moyen: Returning value to shareholders’ is one of Dangote Cement’s objectives. One way we do this is by paying good dividends to our shareholders. Our dividend policy has not changed. In 2019, we maintained a strong dividend of NGN16 per share. ​

We will aim to continue at returning cash to shareholders through high dividend in the future, but this will obviously be subject to our capital requirements. ​

• Total amount of cash flow from operations over 7 years – 2.1 trillion Naira
• Total amount of EBITDA over 7 years – 2.2 trillion Naira
• Total amount of capex over 7 years –1.0 trillion Naira

The breakdown above explains better our use of cash over the last 7 years.

Ecofin Agency: Regarding your consolidated sales, they reflect a robust growth at an average of 15% per year over the period reviewed. However, converted in US dollars, we note a slowdown in growth since 2018 and even a decline in 2019. What is the reason for the difference in spite of the fact that the group has conquered new markets?

Guillaume Moyen: Some of the currencies of our countries of operations have experienced erosion against USD. So despite the growth experienced over the years in these countries. From a volume standpoint, several markets have experienced a low growth environment in 2019 which didn’t allow to compensate the currency erosions phenomenon. As hedging at economic costs is relatively limited for the cross-currency risks we are exposed to, it eventually led to an erosion of the top line in 2019.

One of the main benefits of our export strategy is to reduce the FX risk on our business. We have now started exporting clinker via ships to West and Central Africa, thus gaining more FX revenue. We plan to ramp-up our exports, such that our revenue is not dependent on our local currency but hedged by a stronger currency. This will thus reduce the FX risk on our business.

Ecofin Agency: You expansion in pan-Africa is quite exceptional. Indeed, even if it declined very slightly in 2019, your turnover in the region has grown steadily over the past three years. Yet, this region is slow to be profitable. After a loss of nearly 13 billion Naira in 2017, we had a negative net result of more than 85 billion Naira in 2018 and in 2019. How do you explain this to underperformance?

Guillaume Moyen: Pan Africa is contributing positively to profit from operating activities. When you go below the operations profit line and consider the funding, the Nigeria business records income for the funding it provided to Pan Africa while Pan Africa picks finance costs for the funding it got from Nigeria - this is intergroup and will eliminate on consolidation. The Nigerian business has dollar investments in Pan-Africa. Owing to the naira devaluation in H1:2020, the Nigerian business gained more naira for its dollar investment. As such, there is an FX gain in the Nigerian business and an FX loss in the Pan-Africa business.

Our Pan-Africa operations performed well in the first half of 2020, with an increase in volumes and revenues, despite the impact of COVID-19. We have reduced our cash cost in 6 of our 9 Pan-African operations this year and recorded a record high EBITDA and EBITDA margin of ₦31.5B and 22% respectively. We had strong volume growth in 5 countries, with Ethiopia and Senegal performing particularly well.  In fact, the output at our plant in Senegal continues to exceed its rated capacity.

Agence Ecofin: During this pandemic, Senegal and Ethiopia have supported pan-african sales which in Naira terms, posted an increase of 22% during the first half of 2020. But we note that this performance comes along with a depreciation of Nigerian currency since the start of the year. What is the performance of African subsidiaries at constant exchange rates this year?

Guillaume Moyen: Conversion in Naira is on revenue and cost which somewhat balances the rate difference. The Pan Africa performance has been strong for all Pan Africa operations in terms of margin in local currency with a few exceptions due to Covid. As the restrictions in these economies are lifted, we are returning to normal. we have also had foreign exchange rate depreciation in most key Pan African operations.

Ecofin Agency: Dangote Cement is the largest private debt issuer in the Nigerian capital market today. Can we have some information about the timing of the next bond issues?

Guillaume Moyen: Dangote Cement has demonstrated its robust capital structure and diversification of its debt. Dangote Cement successfully completed the issuance of ₦100 billion Series 1 5-year bond; and successfully completed in 2020 the issuance of ₦150B Commercial Paper Notes at very competitive rates. Both transactions were oversubscribed and demonstrate our track record of accessing the local debt market. We maintain top ratings which allow to attract a large diversity of debt investors.

We are deploying a mix of short and medium-term debt, namely bonds and commercial papers, to optimize our cost of capital while managing liquidity. The Board continues to consider all financial options for the Company to create long-term value and manage liquidity requirements to support Dangote Cement’s long-term growth and value creation. We have several maturities of CPs coming in the coming 6 months and will evaluate the opportunity to leverage short and / or mid-term depending on the market environment at that time.

Interview by Idriss Linge