Nigeria’s largest conglomerate, Dangote Group, has spent a staggering N1.398 trillion as cost of sales in 2023 across its three quoted companies on the Nigerian Exchange Limited, representing a significant increase of 27.09% 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 this includes 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 51.21% of the total revenue of N2.730 trillion recorded by the firms during the period under review from N2.080 trillion in 2022.
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.
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The inflation rate driving up the cost
The latest inflation report released by the National Bureau of Statistics (NBS) showed Nigeria’s inflation rate for January 2024 surged to 29.90%, marking a significant increase from the 28.92% recorded in the preceding month.
The data reveals a notable uptick in the headline inflation rate for January 2024 by 0.98% points when juxtaposed with December 2023’s figures.
Delving into a year-on-year comparison, the inflation rate for January 2023 stood at 21.82%, showcasing a considerable leap of 8.08% points by January 2024, underscoring an escalated headline inflation rate over the same period in the preceding year.
Moreover, a closer examination on a month-on-month basis illustrates that the headline inflation rate for January 2024 ascended to 2.64%, outpacing the 2.29% observed in December 2023 by 0.35% points.
The inflationary pressures within the core category were most pronounced in the costs associated with passenger transport by road, medical services, actual and imputed rentals for housing, pharmaceutical products, accommodation services, and passenger transport by air, among others.
These areas witnessed the highest price increases, reflecting the broad-based nature of inflationary pressures beyond the food and energy sectors.
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.
Breakdown of the performances
- A cursory look at the financials showed that Dangote Cement’s revenue rose by 36.64% to N2.208 trillion from N1.618 trillion in 2022. The total cost of sales grew by 51.76% from N662.890 billion to N1.006 trillion in 2023. The cost of sales gulped 45.56% of the company’s revenue.
- The company consumed raw materials valued at N278.825 billion during the full year 2023 as against N196.517 billion in 2022 representing a growth of 41.88% which also represents 27.72% of the cost of sales.
- Dangote Sugar grew revenue to N441.452 billion, a 9.47% growth from N403.245 billion recorded in 2022. However, the cost of sales grew by 11.93% to N355.149 billion from N403.245 billion. The cost of sales represents 80.45% of the total revenue.
- The company utilised raw materials worth N296.027 billion during the review period, a 15.49% growth from N256.326 billion consumed in 2022 representing 83.35% 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 larger quantity of its raw materials from the international market.
- Nascon Plc reported a 37.49% in revenue to N80.828 billion from N58.786 billion in 2022. However, following high operational costs, the cost of sales rose to N36.509 billion from N34.243 billion in 2022, representing a growth of 6.62%. The cost of sales consumed about 45.17% of the total revenue.
- The company spent N31.371 billion to source for raw materials during the full year ended December 31, 2023, a 3.02% growth from N30.452 billion recorded in 2022. Also, the cost of raw materials represents 85.93% of the total cost of sales.
There is apprehension that the rising inflation may lead to more cost pressure on manufacturers, especially on raw materials costs. For example, the amount spent on raw materials stood at N606.224 billion from N483.294 billion in 2022, accounting for 25.44%. This also represents 43.36% of the total cost of sales of N1.398 trillion recorded by these companies in the 2023 financial year.
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Companies bemoan increased operational expenses
Following the high cost of production occasioned by rising inflation, Ravindra Singhvi, Chief Executive Officer of Dangote Sugar Refinery Plc, said that Dangote Sugar achieved commendable results despite difficult operating conditions characterised by rising inflation, currency devaluation, and strained consumer incomes.
Singhvi noted that PAT came in at (N73.8 billion), owing to a non-cash foreign exchange loss of N172.2 billion. Excluding the non-cash foreign exchange loss, recurring PAT was up 73.8%, at N98.4 billion.
- “The outlook remains challenging as we navigate through the scarcity of foreign exchange and escalating costs of raw materials. Our focus is to enhance the effectiveness of our supply chain management processes, leading to cost reduction and improved overall efficiency.
- Longer-term, the backward integration project, which aims to produce 1.5MT of refined sugar annually from locally produced sugarcane, is expected to alleviate some pressure on costs and our demand for foreign currency.
- Our commitment remains steadfast, ensuring the delivery of high-quality products to our valued customers as we continue to work towards fulfilling Nigeria’s Sugar Master Plan, positioning Nigeria as a self-reliant player in the global sugar industry
- “Looking ahead, our dedication to seize opportunities for sustainable growth remains unwavering, notwithstanding the challenges presented by the macroeconomic environment,” he said.
In its investor presentation for nine months ended September 2023, Dangote Cement cited a slowdown in operation with the group volumes down by 2.4% to 20.3Mt, owing to election uncertainty, cash unavailability, and FX devaluation impacting Nigeria volumes.
The group however stated that 9M revenues for the Nigeria operations rose 4.8% to N933.1 billion on price increase to match the accelerating inflationary environment.
Arvind Pathak, Chief Executive Officer, Dangote Cement Plc commenting on the 2023 full-year audited report said that despite the challenging macroeconomic conditions, 2023 was yet another testament to the effectiveness of our diversification strategy.
- “Our diverse operations acted as a cushion, providing resilience to country-specific risks. Pan-African volumes were up 12.7% and now account for 41.2% of Group volume.
- Consequently, pan-African revenue increased by a record 123.2% to N925.9 billion, while EBITDA surged by over fourfold to N263.7 billion.
- In response to the heightened inflationary environment, we implemented innovative business strategies that helped to drive up revenues, contain costs, and protect margins.
- These initiatives included fuel mix optimisation, propelling the use of alternative fuels to replace more expensive fossil fuels. We also began the phased transition from diesel power trucks to full Compressed Natural Gas (CNG) trucks,” he said.
