Key Highlights
- Listed companies owned Alhaji Aliko Dangote spent N1.008 trillion billion on raw materials in 2022.
- Dangote Sugar Plc consumed raw materials valued at N256.33 billion during the full year 2022 as against N183.37 billion in 2021 representing a growth of 39.78%.
- Dangote Cement grew revenue to N1.62 trillion, a 16.96% growth from N1.38 trillion recorded in 2021.
Nigeria’s largest conglomerate, Dangote Group, has spent a staggering N1.008 trillion as cost of sales in 2022 across its three quoted companies on the Nigerian Exchange Limited, representing a significant increase of 26.34% from the previous year.
The information is contained in the audited full-year results of the companies tracked by Nairametrics. The companies under review and mostly owned by Africa’s richest man, Alhaji Aliko Dangote and include Dangote Cement Plc, Dangote Sugar Plc and Nascon Allied Industries Plc.
This increase in the cost of sales is attributed to inflationary pressures and the depreciation of the Naira. The amount spent also represents 48.47% of the total revenue of N2.08 trillion recorded by the firms during the period under review from N1.69 trillion in 2021 which accounted for 47.22%.
It is important to note that Dangote Group is a major player in the Nigerian economy, with more than 30,000 people in direct employment. As such, the group’s financial performance has a significant impact on various value chains linked to its operations, including suppliers, distributors, and other stakeholders.
The inflation rate driving up the cost
Nigeria has been facing galloping inflation worsening in 2022 with the inflation rate closing the year at a 15-year high of 21.34%. It is currently 22.9% as of February data.
Some of these cost pressures were due to the depreciation of the Naira while others were due to macroeconomic inflationary pressure, especially in the domestic market where average inflation heightened.
Also, the consequences of Russia’s full-scale military invasion of Ukraine are disrupting the global supply of commodities, sharply increasing food and energy prices, and threatening the recovery from the COVID-19 pandemic.
There is apprehension that the rising inflation may lead to more cost pressure on manufacturers, especially on raw materials and energy costs. For example, the amount spent on raw materials stood at N483.294 billion from N376.754 billion in 2021. This also represents 47.93% of the total cost of sales of N1.008 trillion recorded by these companies in the 2022 financial year as against the 47.2% reported in 2021.
How the conglomerate mitigates the rising cost
Following the high cost of production occasioned by rising inflation, Dangote Sugar Plc disclosed that its topline growth of 46.1% in revenue on the heels of sale growth of 10.1% at both group and company levels was supported by the increased average net selling price of 33% to N23,647.5 in 2022 from N17,781.3 same period in 2021, to offset currency adjustment and inflation pressure on the cost of production.
Ravindra Singh Singhvi, the Group Managing Director/CEO of Dangote Sugar Refinery Plc stated this at the Group’s 2022 FY audited results webcast event for investors and analysts.
Singhvi said that notable shocks in the operating environment included changes in global market dynamics fueled by the hike in international prices of raw sugar, FX unavailability, currency adjustment and a high inflation environment which caused an uptick in the cost of production.
- “Rise in cost of raw sugar due to the adverse impact of high FX rates and increase in the international price of raw sugar. Average cost per ton of raw sugar consumed grew 29% year on year (YoY). Increased energy cost on account of hike in gas prices driven by the rise in FX rates, price of gas per scm3 increased by 7% YoY. High cost of plant maintenance caused by the rise in the cost of spares on account of FX fluctuations. Gross Profit, EBITDA and Profit Before Tax (PBT) in 2022 increased above 2021 amidst various challenging factors in 2022, FX and fuel cost,” he said.
He noted that despite these uncertainties, achievement of our Sugar for Nigeria Backward Integration Project goal remains a key priority, though the company anticipate an increase in cost to completion in Naira-terms due to the continued impact of the current economic situation on business operations globally.
- “With the approval of the 2nd phase of the sugar master plan implementation, we remain confident of the huge benefits the Backward Integration Programme would deliver and the positive impacts it will have on the economy,” he said.
Dangote Cement said at the analyst conference that the slower-than-expected growth is premised on the huge supply shocks from the Russia-Ukraine crisis and accelerating inflation at a pace not seen in decades.
It noted that Group volumes were down by 5.1% to 27.8Mt adding that the lower volume was elevated by the high base of 2021 which was due to inflation and energy supply disruptions.
- “For our operations, Dangote Cement experienced a surge in prices of our inputs costs; significant foreign exchange fluctuation in our countries of operation; and a drop in gas availability in Nigeria.
- However, our countries of operation all grew in 2022, with Tanzania, Congo and Senegal growing at the highest rates. This growth supported cement demand across our operations,” the group noted.
Shareholders not impacted
In the face of rising costs due to inflationary pressures and the depreciation of the Naira, Dangote Group has managed to maintain a strong financial performance. The group declared a combined dividend of N361.6 billion in 2022, up from N285.8 billion in 2021, representing a growth of 26%. This increase in dividends is an indication of the group’s commitment to creating value for its shareholders, despite the headwinds.
However, the headwinds remain as room for price increases and cost containment appear to have narrowed. Investors, government officials, and analysts should closely monitor these trends and consider the strategies employed by the Dangote Group to mitigate rising costs. For example, Dangote Cement had to pay out all of its profits just to meet up with dividend growth.
But while it was still able to retain significant value for shareholders, it paid fewer taxes year on year largely due to rising input costs. A combined tax of N172.1 billion in 2022 against N187.1 billion in 2021, a drop of 8%. Input costs are mostly tax-allowable adjustments and may have resulted in the company paying lower taxes to the government.
The experience of the Dangote Group suggests stakeholders should continue to assess the impact of inflation on the wider Nigerian economy and take measures to address the underlying issues, including implementing policies to stabilize the Naira and curb inflationary pressures. This will ultimately support the growth of businesses like Dangote Group and their respective value chains, thereby contributing to the overall economic development of Nigeria.
See data
Nascon Allied Industries Plc – N30.45 billion
Nascon Plc reported a 76.65% in revenue to N58.78 billion from N33.28 billion in 2021. However, following high operational costs, the cost of sales rose to N34.24 billion from N21.32 billion in 2021, representing a growth of 60.61%. The cost of sales consumed about 58.25% of the total revenue.
The company spent N30.45 billion to source for raw materials during the full year ended December 32, 2022, a 69.04% growth from N21.32 billion recorded in 2021 following the rising cost of sales occasioned by inflation and the Russia-Ukraine war. Also, the cost of raw materials represents 88.93% of the total cost of sales.
Nascon closed trading on Thursday, March 23, 2023, at N12.20 per share on the Nigerian Stock Exchange (NGX). The company began the year with a share price of N11.10 and has since gained 9.91% on price valuation.
Dangote Sugar Plc – N256.33 billion
Dangote Sugar Plc’s revenue rose by 46.7% to N403.25 billion from N276.05 billion in 2021. The total cost of sales grew by 37.83% from N225.85 billion to N311.28 billion in 2022. The cost of sales gulped 77.19% of the company’s revenue.
The company consumed raw materials valued at N256.33 billion during the full year 2022 as against N183.37 billion in 2021 representing a growth of 39.78% which also represents 82.34% of the cost of sales.
Though Nigeria grew sugar cane which is a major source of raw materials for sugar production, Dangote Sugar also imports a lager quantity of its raw materials from the international market.
Dangote Sugar closed its trading day at N18.30 per share on the NGX, recording a 0.5% drop from its previous closing price of N18.40. The sugar firm began the year with a share price of N16.05 and has gained 14% on price valuation.
Dangote Cement Plc – N196.52 billion
Dangote Cement grew revenue to N1.62 trillion, a 16.96% growth from N1.38 trillion recorded in 2021. However, the cost of sales grew by 20.30% to N662.89 billion from N551.02 billion. The cost of sales represents 40% of the total revenue.
The company utilised raw materials worth N196.52 billion during the review period, a 12% growth from N175.37 billion consumed in 2021 representing 29.65% of the cost of sales.
Raw materials used in cement making include limestone, marl, calcite, shale and gypsum, among others are sourced in Nigeria and the international market.
Dangote Cement also finished the trading day at N288.00 per share on the Nigerian Stock Exchange (NGX). The cement company began the year with a share price of N261.00 and has gained 10.3% on price valuation.