Fakoyejo OlalekanNigerian Cement companies, Dangote, BUA and Lafarge Cement are losing their earnings to the rising cost of sales, Prime Business Africa analysis showed.
In the first half (H1) of 2023, the cement industry saw the cost of sales rise by 16.03 per cent, surpassing revenue, which grew by 15.75 per cent.
Join our WhatsApp ChannelThe industry’s inability to keep costs at bay has weighed heavily on profit after tax, which rose merely by 2.52 per cent during the review period.
According to analysis, in H1 2022, the cost of sales gulped 43.14 per cent of revenue, PBA learnt, but in the same period this year, the industry lost 43.24 per cent of its turnover to production expenses.
Cost of sales are directly attributable costs such as the costs of materials, direct labour and energy costs, as well as production overheads, amongst others.
Between January to June 2023, the three companies spent N592.31 billion on materials, labour, energy and others, up from the N510.48 billion expended in the same period last year.
This is almost half of the industry’s revenue during the periods in review, as the three companies generated a combined turnover of N1.36 trillion in H1 2023, in contrast to the N1.18 trillion revenue reported in H1 2022.
In the review period, the inflation rate in Nigeria has soared from 21.82 per cent in January to 22.79 per cent, according to data released by the National Bureau of Statistics (NBS).
Energy has been a major determinant pushing inflation upward. The ripple effect spreads to the cost of materials and labour, as the cost of living rises.
With the cost hanging on the industry’s earnings, over N277.69 billion profit after tax was recorded in the first six months of this year, against the N270.87 billion posted in the corresponding period the year before.
How the cement companies performed
Dangote Cement
Dangote Cement saw its revenue grow by 17.67 per cent year-on-year, after generating N950.83 billion in the first half of 2023, surpassing the N808.03 billion turnover posted in the same period last year.
- The company’s cost of sales overshoots the turnover, as the former rose by 18.80 per cent to close this year’s H1 with N383.08 billion, compared to the 322,46 billion spent on raw materials, others in the first six months in 2022.
- At the end of the period in review, Dangote Cement recorded a 3.78 per cent increase in profit after tax, as net profit grew from N172.10 billion in H1 2022 to N178.60 billion this year.
BUA Cement
BUA Cement also reported growth in its revenue, which was put at N221.06 billion for the period between January to June 2023, rising 17.24 per cent year-on-year when compared to the previous year’s N188.56 billion turnover.
- Similarly, BUA Cement couldn’t curb its cost of sales, which grew by 17.89 per cent, considering the company spent N114.94 billion on materials, labour, energy and others this year, in contrast to the N97.50 billion expended on production the year before.
- Although, despite the increase in its expenses, BUA Cement managed to raise net profit to N63.61 billion in 2023, which is 3.67 per cent above the N61.36 billion posted in 2022.
Lafarge Cement
Compared to its industry rivals, Lafarge Cement underperformed, with its revenue inching higher by 5.95 per cent to N197.68 billion, slightly above the N186.58 billion reported in the corresponding period last year.
- However, unlike Dangote and BUA, the company was able to keep the rise in the cost of sales below the growth recorded in turnover, as production cost went up by 4.17 per cent, having spent N94.28 billion in H1 2023, against the N90.51 billion recorded in the same period in 2022.
- Although, growing revenue above costs wasn’t enough to save the bottom line of Lafarge Cement, as the manufacturer’s profit after tax depreciated by –5.16 per cent to N35.47 billion in H1 this year, from N37.41 billion reported in H1 last year.
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