Dangote Cement Plc and BUA Cement Plc spent a whopping N238.437 billion on fuel and power during the first quarter (Q1) ended March 31, 2024.
This represents a 199.64% increment from N79.574 billion spent by these two cement giants in the corresponding period of 2023.
This amount spent represents 46.36% of the total cost of sales of N514.349 trillion recorded by the cement firms during the period under review.
This is on the back of a high inflationary period in 2024 which has seen the cost of goods and services rise across the country.
The information is contained in the unaudited Q1 results of the companies tracked by Nairametrics. Some of the cost pressures were fueled by the removal of fuel subsidies, exchange rate harmonization, and Naira depreciation.
Additionally, macroeconomic inflationary pressures, particularly evident in the domestic market with heightened average inflation, further contributed to the challenges.
In Nigeria, cement manufacturers predominantly resort to self-generated power due to inadequacies in the state power grid infrastructure.
Despite nearly a decade passing since the privatization of the power sector, there has been little to no tangible improvement in electricity supply for manufacturers.
Consequently, they heavily rely on self-generation, incurring substantial costs. Yet, reliable power infrastructure remains the cornerstone for bolstering the manufacturing sector and fostering job creation.
Recommended reading: Dangote, BUA and Lafarge Africa gain N7.921 trillion in market value in Q1’2024
Escalating inflation
Nairametrics reported that Nigeria’s inflation rate increased to 33.2% in the month of March 2024, according to the latest data from the National Bureau of Statistics (NBS).
This represents 1.5%-point increase from the 31.7% recorded in February 2024. The increase in the inflation rate in March was slower compared to the 1.80% rise recorded in February 2024.
Inflation in March was driven by an increase in food and beverages, coupled with energy and housing costs.
On a year-on-year basis, the headline inflation rate increased by 11.16% from 22.04% in March 2023. Additionally, the headline inflation rate for March 2024 was 3.02%, a decrease of 0.10% from February 2024, when it was 3.12%.
In March 2024, food inflation rate reached 40.01% year-on-year, marking an increase of 15.56 percentage points from 24.45% in March 2023.
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 food and energy sectors.
There are fears 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 have increased the prices of their goods.
Bottom line: According to data tracked by Nairametrics, the profit after tax of these companies stood at N130.643 billion from N136.301 billion in 2023, representing a 4.15% decrease. 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 rates. The cost of sales for the firms stood at N514.349 billion for the year 2024 as against N219.648 billion in 2023, accounting for a growth of 134.17%.
Breakdown of the analysis
- A cursory look at the financials showed that Dangote Cement consumed fuel, and power valued at N181.866 billion during the Q1 of 2024 as against N56.681 billion in 2023, representing a growth of 220.86%.
- Following the high cost of sales, profit after tax grew marginally by 2.9% to N112.674 billion for the Q1 2024 as against N109.501 billion in the same period of 2023. The cost of sales grew by 143.27% to N398.162 billion from N163.671 billion.
- Dangote Cement closed trading day (Tuesday, May 7, 2024) at N656.70 per share on the NGX
- The company began the year with a share price of N319.90 and has since gained 105% on the price valuation
- BUA Cement spent N56.571 billion on energy in Q1’2024, representing an increase of 147.11% over N22.893 billion reported in 2023. Profit after tax was N17.969 billion in 2024 as against N26.800 billion in 2023, accounting for a decrease of 32.95%, while the cost of sales stood at N116.187 billion in the Q1 2024 from N55.977 billion in 2023, representing a growth of 107.56%.
- BUA Cement closed trading on Tuesday, May 7, 2024 at N143.20 per share on the NGX. BUA Cement began the year with a share price of N97.00 and has since gained 47.6% on the price valuation.
Recommended reading: FG summons Dangote, BUA, Lafarge, others over rising cement prices
Companies decry high operating costs
In the investor presentation of its full year 2023 financials on March 2024, BUA Cement cited disruptions in energy markets and an increase in raw materials as a major challenge.
- “Cost of Sales per ton rose by 30% to N40,983/ton from N31,535/ton, as at 2022. This was largely due to increases in energy costs, mostly denominated in USD; operations & maintenance service charge; other repair & maintenance expenses; staff cost and depreciation of PPE.
- Energy cost per ton increased by 26% to N18,301/ton from N14,527/ton during the corresponding period ended 2022. This resulted from energy price increases and the depreciation of the Naira.
- Selling, distribution & administration cost per ton increased by 28% to N6,141/ton from N4,799/ton in 2022. The drivers of the increase were: distribution costs, led by an increase in fuel prices and costs from an enlarged fleet size; depreciation of PPE etc.”
Also, in the investor presentation of its full year 2023, Dangote Cement said the its volume declined due to a mix of factors, such as election uncertainties, currency crunch, and the significant devaluation of the Naira.
“Currencies across our operations depreciated in 2023; Nigeria was hard-hit as the Naira lost over 50% of value.
Revenues for the Nigeria operations rose 7.7% to N1,297.6B on price increase to match accelerating inflationary environment.”
