Nigeria’s cement giants consider alternative energy as power & fuel cost gulp N350 billion in 2022.
By Naomisophyblog
Three of the largest cement firms quoted on the floor of the Nigerian Exchange spent a whopping sum of N349.91 billion in fuel and power during the full year that ended December 31, 2022.
This represents a 25.83% increment from N278.077 billion recorded during the comparable period of 2021. This amount spent represents 33.71% of the total cost of sales of N1.038 trillion recorded by the cement firms during the period under review.
The companies are Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc.
The information is contained in the audited full-year results of the companies tracked by Nairametrics. Some of these cost pressures were due to the depreciation of the Naira while others were due to macroeconomic inflationary pressure, especially in the domestic market where average inflation heightened.
Cement manufacturers in Nigeria mostly self-generate their own 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.
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Rising inflation: The annual inflation rate in Nigeria accelerated to 21.82% in January 2023, the highest since September 2005, from 21.34% in the prior month, against market expectations of a further slowdown to 21.3%. Soaring food prices and a weaker naira currency were the main drivers.
Prices of food, which is the most relevant in the CPI basket, recorded an upturn to 24.32% in January from 23.75% in the prior month.
The annual core inflation rate, which excludes farm produce, accelerated for the tenth straight month to a 16-year high of 19.2% in January, up from 18.5% in the prior month. On a monthly basis, consumer prices surged by 1.87%, the most in almost 16 years, after a 1.71% increase in the previous month.
More specifically power, electricity, gas, and fuel inflation rose by 17.9% year on year driven by higher diesel and gas prices as well as upward adjustments in electricity tariffs. , power, electricity, gas, and fuel inflation rose by 17.9% year on year driven by higher diesel and gas prices and
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.
Impact on financials
According to data tracked by Nairametrics, the profit after tax of these companies stood at N536.968 billion from N505.521 billion in 2021 representing a 6.22% 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 N1.038 trillion for the full year 2022 as against N837.91 billion in 2021, accounting for a growth of 33.71%.
Breakdown of the analysis
A cursory look at the financials showed that Dangote Cement consumed fuel, and power valued at N196.51 billion during the full year 2022 as against N175.38 billion in 2021 representing a growth of 12.06%.
Following the high cost of sales, Profit after tax grew marginally by 4.9% to N382.31 billion for the year ended 2022 as against N364.44 billion in 2021.
The cost of sales grew by 20.3% to N662.89 billion from N551.02 billion.
BUA Cement spent N91.185 billion on energy in FY’2022, representing an increase of 78.08% over the N51.20billion reported in 2021. Profit after tax was N101.01 billion in 2022 as against N90.08 billion in 2021, accounting for an increase of 12.13% while the cost of sales stood at N197.94 billion in the full year of 2022 from N136.39 billion in 2021, representing a growth of 45.40%.
Lafarge Africa utilized power worth N62.21 billion during the review period, a 20.77% growth from N51.51 billion consumed in 2021. Profit after tax grew by 5.18% to N53.65 billion for the year ended 2022 as against N51 billion in 2021. The cost of sales grew by 17.62% to N177.02 billion from N150.51 billion.
Companies lament higher energy prices
In its investor presentation in November,BUA Cement cited disruptions in energy markets as a major challenge. It attributed higher operating costs to increase distribution costs, led by increases in volume and AGO price.
“The operating environment during the third quarter of the year has been largely less supportive, characterized by continued disruption across energy markets, with its impact on pricing; longer and heavy rainfall, resulting in severe flooding, bad roads, and high inflation to mention a few.”
It also made reference to the price hike of its core products to address rising energy costs.
“Net revenue increased by 40.5% or ₦75.7 billion to ₦262.6 billion given the combination of increased price and volume activities. Cost of sales rose by 43.3% or ₦43.2 billion to ₦142.8 billion primarily driven by energy and raw material costs Net selling, distribution and administrative cost was up by ₦5 billion to ₦4.8 billion. This was attributed to increase distribution costs, led by increases in volume and AGO prices, CSR activities, other administrative costs, and depreciation charges.”
In terms of energy costs, we recorded a 36.6% increase to ₦13,978 per ton from ₦10,230 per ton for the same period last year, resulting from market pricing of the energy sources, together with devaluation of the Naira.
Dangote Cement on the other hand complained that it recorded lower volumes due to surging inflation and energy disruptions.
“Group volumes down 5.1% to 27.8Mt. The lower volume, elevated by the high base of 2021, was due to inflation and energy supply disruptions”
To address rising energy cost, the company said it plans to rely more on green energy by recycling some of its waste and using them to power its plants.
“We have increased corporate focus and strategy by committing to the use of alternative fuel sources in our energy mix. We are exploring fully the feasibility of increasing the use of alternative energy in our cement production, through the co-processing of wastes such as agro wastes, waste lubricants, tyre derived fuels, sawdust, and packaging materials Benefits”
