Dangote Cement Plc and BUA Cement Plc spent a whopping sum of N204.925 billion in fuel and power during the half year ended June 30, 2023.
This represents an 18% increment from N173.537 billion recorded during the comparable period of 2022.
This amount spent represents 41.15% of the total cost of sales of N498.031 trillion recorded by the cement firms during the period under review.
This is on the back of a high inflationary period in 2023 which has seen the cost of goods and services rise across the country.
The information is contained in the audited half-year results of the companies tracked by Nairametrics.
Some of these cost pressures were due to the removal of fuel subsidies, harmonization of the exchange rate, and depreciation of the Naira while others were due to macro-economic inflationary pressure, especially in the domestic market where average inflation heightened.
Cement manufacturers in Nigeria mostly self-generate their power as the state power grid infrastructure does not generate enough stable power to meet their needs.
Despite nearly a decade after the privatization of the power sector, manufacturers are yet to see any appreciable improvement in electricity supply, forcing them to rely heavily on self-generation, often at a huge cost.
Yet, power constitutes the single critical infrastructure to boost the manufacturing sector and create jobs.
Rising inflation:
Nigeria’s inflation rate rose to 22.79% in June 2023, representing a 0.38% points increase from 22.41% recorded in the previous month.
This was contained in the recently released consumer price index report by the National Bureau of Statistics (NBS).
On a year-on-year basis, the Headline inflation rate was 4.19% points higher compared to the rate recorded in June 2022, which was 18.60%.
Core inflation increased to 20.27% from 20.06% in the prior month.
The increase in the core index is on the back of the federal government’s petrol subsidy removal announcement, which saw the price of petrol increase from an average of N185/ltr to N500 per litre.
On a month-on-month basis, the core Inflation rate was 1.74% in June 2023. It stood at 1.81% in May 2023, down by 0.07%.
The highest increases were recorded in prices of passenger transport by air, gas, vehicle spare parts, liquid fuel, fuels, and lubricants for personal transport equipment, medical services, passenger transport by road, etc.
There is fear that the surge may lead to more cost pressure on manufacturers, especially on gas and other raw materials. To mitigate this risk, most cement manufacturers increased prices.
Bottom line:
According to data tracked by Nairametrics, the profit after tax of these companies stood at N242.219 billion from N233.467 billion in 2022 representing a 3.75% increase.
The profits were impacted by the rise in production cost of sales which was driven mainly by an uptick in raw materials cost and cost of energy.
The rising cost of sales swallowed much of the earnings following rising inflation and high exchange rate.
The cost of sales for the firms stood at N498.031 trillion for the half year 2023 as against N419.964 billion in 2021, accounting for a growth of 41.15%.
Breakdown of the analysis
A cursory look at the financials showed that Dangote Cement consumed fuel, power valued at N157.020 billion during the half year 2023 as against N129.957 billion in 2022 representing a growth of 20.82%. Following the high cost of sales, Profit after tax grew marginally by 3.77% to N178.603 billion for the half year 2023 as against N172.104 billion in 2022. The cost of sales grew by 18.80% to N383.088 billion from N322.461 billion.
BUA Cement spent N47.905 billion on energy in HY’2023, representing an increase of 9.92% over N43.580 billion reported in 2023. Profit after tax was N63.616 billion in 2023 as against N61.363 billion in 2022, accounting for an increase of 3.67% while the cost of sales stood at N114.943 billion in the half-year of 2023 from N97.503 billion in 2022, representing a growth of 17.88%.
Companies lament higher operating costs
In its investor presentation in May 2023, BUA Cement cited disruptions in energy markets and an increase in raw materials as a major challenge.
- “Cost of sales per ton rose by 24% to N34,870/ton from N28,124/ton, as of Q1’2022. This was due to increases in raw materials costs, depreciation charges, and energy product costs. Energy cost per ton increased by 13.3% to N14,261/ton from N12,593/ton during the corresponding quarter ended Q1’2022, which resulted from a combination of energy price increases and fuel mix during the quarter.
- Selling, Distribution & Administration cost (net) per ton increased by 2.2x to N7,467/ton from N3,352/ton for the 3 months ended 2022. The drivers of the increase were distribution costs, led by increased fleet size and higher fueling prices; depreciation charges and debt issue costs,” the company said.
Dangote Cement on the other hand complained that it recorded lower volumes due to surging inflation.
According to the company’s six months of unaudited results, sales volume for pan-African operations was up 11.6% compared to 4.9Mt in H1 2022. The total pan-African volume accounts for 40.4% of Group volumes in the half year.
The Group said the pan-African operations performance was attributable to demand, particularly from Ethiopia, Senegal, Zambia, and Congo.
According to the group, the pan-African revenues grew by 81.8% to N336.4 billion. Group revenue rose by 17.7% to N950.8 billion. Recurring profit after tax was up by 37.4% to N292.2 billion while Profit after tax (PAT) rose by 3.8% to N178.6 billion.
Chief Executive Officer, of Dangote Cement, Arvind Pathak said:
- “Dangote Cement delivered positive results in the first half of the year. Our Nigeria operations achieved a 22.6% recovery in sales over the first quarter, which was impacted by the general elections and the cash crunch. However, the steep currency devaluation in mid-June slowed this volume recovery and increased the already inflated operating cost.”
