Dangote Cement Plc and BUA Cement Plc spent a whopping sum of N173.537 billion in fuel and power during the half year ended June 30, 2022, a 38.34% increment from N125.44 billion recorded during the comparable period of 2021.
This represents 41.33% of the total cost of sales of N419.965 billion recorded by the cement firms during the period under review.
This was contained in the unaudited half year results of both companies tracked by Nairametrics. Some of these cost pressures were due to the depreciation of the Naira while others were due to macro-economic inflationary pressure, especially in the domestic market where average inflation heightened.
After years of privatisation of the power sector, manufacturers are yet to see any appreciable improvement in electricity supply, forcing them to rely heavily on in-house power supply at huge cost. Yet, power constitutes the single critical infrastructure to boost the manufacturing sector and create jobs.
Inflation rate increased to 18.60% as at end of June 2022, the highest in 11 months due to increased food costs, supply chain disruptions, the depreciation of the naira, insecurity, and deteriorating infrastructure.
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With the headline inflation rate for July 2022 released yesterday by the National Bureau of Statistics (NBS) which stood at 19.64% a 2.27% points higher compared to the rate recorded in July 2021 which was (17.38 %), there is fear that the surge may lead to more cost pressure on manufacturers, especially on gas and other raw materials.
According to data tracked by Nairametrics, profit after tax of these companies stood at N233.668 billion from N235.026 billion in 2021 representing a marginal 0.7% decrease. This was due to the rising cost of sales which swallowed much of the earnings following rising inflation and high exchange rate.
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Cost of sales for the firms stood at N419.965 billion for the half year 2022 as against N342.275 billion in 2021, accounting for a growth of 22.7%.
Breakdown of the analysis
- A cursory look at the financials showed that Dangote Cement consumed fuel and power valued at N129 billion during the half year 2022 as against N98.978 billion in 2021 representing a growth of 31.3%. Following high cost of sales, Profit after tax declined by 10.19% to N172.104 billion for the half year 2022 as against N191.630 billion in 2021. Cost of sales grew by 16.78% to N322.461 billion from N276.115 billion.
- BUA Cement spent N43.580 billion on energy in H1 2022, representing an increase of 64.66 per cent over N26.446 billion reported in H1 2021. Profit after tax was N61.364 billion in 2022 as against N43.396 billion in 2021, accounting for an increase of 41.4% while cost of sales stood at N97.504 billion in half year of 2022 from N66.158 billion in 2021, representing a growth of 47.38%.
What they are saying
- Chief Executive Officer, Dangote Cement, Michel Puchercos, speaking on the result said: “Despite the elevated inflation due to a very volatile global environment, the first half of 2022 has been positive. We recorded increases in revenue and EBITDA that drove strong cash generation across the Group. We recorded revenue of N808.0 billion up 17 percent compared to last year and Group EBITDA of N373.2Billion, up 6.3 percent with an EBITDA margin of 46.2 percent.”
- Puchercos explained that significant increase in energy and AGO costs are impacting negatively on the production and supply of cement products. He added, “to drive consumer engagement and support demand ahead of the rainy season; we have commenced the 3rd season of our National Consumer Promotion – “Bag of Goodies 3”. On the operational side, we are ramping up production at our Okpella plant and are progressing well to deploy grinding plants in Ghana and Cote d’Ivoire.”
- He stated that the volatile international context is strengthening efforts to ramp up the usage of alternative fuels and execution of export-to-import strategy. The company according to him is reducing dependence on imported inputs and making the local markets self-sufficient.
- “Our continuous focus on efficiency, meeting market demand and maintaining our costs leadership drives our ability to consistently deliver superior profitability and value to all shareholders,” he added
- BUA Cement Plc has said that it is contemplating capital raising for capacity expansion of BUA Cement’s integrated cement plant in Kalambaina, Sokoto State, Nigeria which shall include increasing its capacity from 2.0 million tons per annum (MTPA) to 8.0 MTPA.
- According to a statement obtained from Nigerian Exchange Limited (NGX), the company said “In furtherance of our disclosure obligations pursuant to Chapter 17 of the Rulebook , BUA Cement Plc hereby notifies Nigerian Exchange Limited (NGX), its esteemed Shareholders and the investing public that the Company has gone into discussion with the International Finance Corporation (IFC), serving as lead arranger in conjunction with a number of other lenders in a syndication pool, to obtain a loan for the expansion of BUA Cement’s integrated cement plant in Kalambaina, Sokoto State, Nigeria”.