…As inflation, Naira depreciation worsen
- Input costs gulp 52% of N2.4trn total revenue
- How companies navigated macroeconomic headwinds to deliver positive results
The weakening of the naira as well as huge inflationary pressure has led to higher costs for imported materials, a development that has increased the input cost of many cement manufacturing companies in Nigeria, investigations have revealed.
Nigerian cement companies quoted on the Nigerian Exchange Limited are facing soaring input costs, which surged to N1.24trn in the first half of 2024.
The N1.24trn represents a 108.5 per cent increment from the N592.32bn spent by these cement companies in the corresponding period of 2023.
The figures were obtained from the unaudited half-year 2024 results of the companies tracked by THE POINT.
The companies under review include Dangote Cement Plc, BUA Cement Plc and Lafarge Africa Plc.
This increase is primarily driven by inflationary pressures and the depreciation of the naira.
The weakening of the naira has led to higher costs for imported materials, as many of these inputs are priced in foreign currencies.
Findings by THE POINT revealed that the rising costs of raw materials and energy, such as fuel and electricity, have significantly impacted production expenses for cement manufacturers.
This trend reflects the broader challenges faced by businesses in Nigeria as they navigate a volatile economic environment marked by currency fluctuations and inflation.
The increase in the cost of sales is attributed to inflationary pressures and the depreciation of the Naira.
“Findings by THE POINT revealed that the rising costs of raw materials and energy, such as fuel and electricity, have significantly impacted production expenses for cement manufacturers.”
The input cost also represents 51.24 per cent of the total revenue of N2.42trn recorded by the firms during the period under review, from N1.37trn in 2023.
Further analysis of the financial reports showed that Dangote Cement’s revenue rose by 85 per cent to N1.76trn from N950.83bn in 2023.
The total cost of sales grew by 117.51 per cent, from N383.08bn to N833.27bn in H1 2024. The cost of sales gulped 47 per cent of the company’s revenue.
BUA Cement Plc saw a sharp decline in profitability in the first half of 2024.
The cement company grew profit by 64.6 per cent, year on year, to N363.94 billion in H1 2024, from N221.07 billion in the comparable period of 2023.
The cement company’s adjusted cost of sales increased by 131.8 per cent, year on year, reaching N244.20 billion, up from N105.36 billion in H1 2023, CSL Stockbrokers Limited said in a review note.
Analysts said the surge was primarily driven by significant growth in operation and maintenance service charges, energy costs, and materials.
Its figures showed that maintenance services charge grew by 278.44 per cent, year on year; energy costs rose by 171.68 per cent, while material costs spiked by 140.75 per cent amid hot inflation in the country.
“We attribute these cost increases to elevated inflationary pressures and a sharp devaluation of the currency, both of which have substantially raised the company’s expenses,” CSL Stockbrokers said.
Analysts explained that despite the significant rise in cost of sales, BUA Cement gross profit saw a slight increase of 3.5 per cent to N119.74 billion in H1 2024.
However, the gross margin contracted markedly by 1,944 basis points, year on year, falling to 32.9 per cent in H1 2024, from 52.3 per cent in the comparable period of 2023.
The company’s depreciation adjusted operation expenses was noted to increase significantly by 44.74 per cent to N24.41 billion in H1 2024, from N16.86 billion 12 months earlier.
Analysts noted that the surge in operating expenses was driven by increases in both administrative expenses adjusted for depreciation and selling and distribution expenses in the period.
The cement company’s other income item, which includes insurance claims, government grants, and sundry income, declined by 86.1 per cent to N137 million in H1 2024 from N983 million.
Earnings before interest tax and depreciation decreased by 4.4 per cent, down to N95.47 billion in H1 2024, from N99.83 billion in H1 2023, analysts said in the review note. EBITDA margin also contracted significantly, decreasing by 1,893 basis points to 26.2 per cent in H1 2024, from 45.2 per cent in H1 2023.
“Despite the challenges of elevated inflation, high borrowing costs, and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience.”
BUA Cement operating profit declined by 5.7 per cent, year on year, to N81.96 billion in H1 2024, down from N86.94 billion in the comparable period of 2023.
Analysis of the figures showed that net finance cost for BUA Cement decreased by 87.1 per cent to N1.08 billion in H1 2024, from N8.38 billion in H1 2023. The decline was attributed to a significant year on year rise in finance income to N9.80 billion in H1 2024 from N2.22 billion recorded in H1 2023.
Its finance costs climbed to N10.88 billion from the N10.59 billion recorded in H1 2023. The company’s FX losses increased significantly to N39.98 billion in H1 2024 compared with N2.14 billion recorded in H1 2023 due to devaluation of the Naira.
As a result of macroeconomic driven pressures, BUA’s profit before tax slumped by 47.5 per cent, year on year, to N40.13 billion in H1 2024, from N76.43 billion in H1 2023.
At the end of the first half, its net income declined by 46.2 per cent to N34.25 billion from N63.62 billion in H1 2023. Earnings per share declined by 46.3 per cent to N1.01/s from N1.88/s in H1 2023.
Lafarge Africa Plc reported a 49.52 per cent increase in revenue to N295.58bn from N197.68bn in 2023.
However, following high operational costs, the cost of sales rose to N147.64bn from N94.29bn in 2023, representing a growth of 56.58 per cent.
The cost of sales gulped about 49.95 per cent of the total revenue.
Some of the cost pressures were fueled by the removal of fuel subsidies, exchange rate harmonisation, and Naira depreciation.
Additionally, macroeconomic inflationary pressures, particularly evident in the domestic market with heightened average inflation, further contributed to the challenges.
The country’s inflation rate, as reported by the National Bureau of Statistics, rose to 32.70 per cent in September 2024, up from 32.15 per cent in August 2024.
This 0.55 per cent month-on-month increase was primarily driven by higher transportation costs and rising food prices, following the hike in petrol prices by the Nigerian National Petroleum Corporation Limited in early September.
On a year-on-year basis, the inflation rate for September 2024 was 5.98 percentage points higher than the 26.72 per cent recorded in September 2023. Additionally, the headline inflation rate on a month-to-month basis in September 2024 was 2.52 per cent, a slight increase from 2.22 per cent in August 2024, reflecting a faster rise in the average price level.
Core inflation, which excludes volatile agricultural products and energy prices, stood at 27.43 per cent, year-on-year, in September 2024, compared to 21.84 per cent in September 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 the food and energy sectors.
Since the end of the first half of 2023, the naira has experienced a substantial depreciation against the dollar. On June 30, 2023, the naira traded at N769.25 per dollar.
As of Friday, October 26, it closed at N1, 670 per dollar, representing a huge level of depreciation.
The weakening of the naira has led to increased costs for manufacturers, particularly in sectors reliant on imported inputs.
Since diesel is imported using U.S. dollars and gas is priced in dollars, the cost of these products has risen significantly, contributing to the overall spike in input costs for manufacturers.
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.
Following the high cost of production occasioned by rising inflation and naira devaluation, the Chief Executive Officer of Lafarge Africa, Lolu Alade-Akinyemi, said, “We sustained net sales growth in Q2 2024 but saw half year 2024 Profit After Tax decline 17.3 per cent due to foreign exchange losses resulting from Naira devaluation in H1 2024.
“Our strategic and cost management initiatives have contributed to improved results despite severe macroeconomic challenges.
“We remain steadfast in our resolve to drive innovation and accelerate green growth in line with our sustainability ambitions while also delivering value to our stakeholders.”
Also, Chief Executive Officer of Dangote Cement, Arvind Pathak, had said the company effectively navigated macroeconomic headwinds to deliver positive results in the first half of the year.
He said, “Group volumes were up 3.8 per cent, with our Nigeria operations achieving double-digit volume growth of 10.9 per cent.
“This growth was driven by improved efficiency across our operations and supported by increased market activity levels compared to the election year and cash crunch in 2023.
“Despite the challenges of elevated inflation, high borrowing costs, and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience.
“This was due to our rigorous focus on cost minimisation and our diversified business model.”
Currently, the price of cement hovers around N9, 000 and N15, 000 per bag in some major cities in the country.
