Dangote, Lafarge, BUA Cement’s power cost gulp N598 billion in 2023 as inflation, exchange rate bites

Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc spent a whopping sum of N598.137 billion in fuel and power during the full year ended December 31, 2023. 

This represents a 42.45% increment from N419.879 billion recorded during the comparable period of 2022. 

This amount spent represents 40.39% of the total cost of sales of N1.481 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

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.   

Bottom line

According to data tracked by Nairametrics, the profit after tax of these companies stood at N576.178 billion from N536.968 billion in 2022 representing a 7.3% 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 rates. The cost of sales for the firms stood at N1.481 trillion for the year 2023 as against N1,038 trillion in 2022, accounting for a growth of 42.68%. 

Breakdown of the analysis  

  • A cursory look at the financials showed that Dangote Cement consumed fuel, and power valued at N399.205 billion during the year 2023 as against N266.486 billion in 2022 representing a growth of 49.80%. Following the high cost of sales, Profit after tax grew by 19.16% to N455.583 billion for the year 2023 as against N382.311 billion in 2022. The cost of sales grew by 51.76% to N1.006 trillion from N662.890 billion. 
  • BUA Cement spent N123.269 billion on energy in FY’2023, representing an increase of 35.19% over N91.185 billion reported in 2022. Profit after tax was N69.454 billion in 2023 as against N101.010 billion in 2022, accounting for a decrease of 31.24% while the cost of sales stood at N276.043 billion in the year 2023 from N198.379 billion in 2022, representing a growth of 39.15%. 
  • Lafarge Africa Plc incurred fuel; power valued at N75.663 billion during the year 2023 as against N62.208 billion in 2022 representing a growth of 21.5%. Profit after tax dropped by 4.67% to N51.141 billion for the year 2023 as against N53.647 billion in 2022. The cost of sales grew by 12.29% to N198.786 billion from N177.023 billion. 

Companies lament higher operating costs  

Lolu Alade-Akinyemi, CEO of Lafarge Africa, while commenting on the company’s 2023 results cited spiralling inflation and unprecedented Naira devaluation as major challenges. 

  • “The fundamentals of our business remain strong. Despite extremely challenging macroeconomic headwinds, we grew the top line by 8.6% and improved the Operating Margin from 22.6% to 25.3% in FY 2023.  
  • In the face of very material FX devaluation losses and a higher effective tax rate, Profit After Tax declined YoY by 4.7%. Our performance was largely impacted by spiralling inflation and unprecedented Naira devaluation, with the attendant pressure on energy and supply chain costs”. 

In its investor presentation in October 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 23.9% to N38,047/ton from N30,713/ton, as of 9M’2022. This was due to increases in raw materials costs, energy product costs, operations, maintenance & technical fees, repair & maintenance costs, and depreciation charges.  
  • Energy cost per ton increased by 20.2% to N16,803/ton from N13,978/ton during the corresponding period ended 9M’2022. This resulted from energy price increases and the depreciation effect of the Naira.  
  • Selling, Distribution & Administration cost (net) per ton increased by 37.5% to N6,069/ton from N4,413/ton for the nine months ended 2022. The drivers of the increase were distribution costs, led by an increase in fueling costs and a larger number of trucks, alongside repair & maintenance costs; depreciation charges; staff costs, and advertisement & promotion costs.

by Chris Ugwu

Leave a Reply

Your email address will not be published.

You may use these <abbr title="HyperText Markup Language">HTML</abbr> tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>