The operational costs of the three major cement companies in the country shot up to N1.65 trillion in 2023, an additional N50 billion to the N1.15 trillion they expended to keep their plants running in 2022.
The surging costs of doing business by the cement firms and others in Nigeria underlined the country’s biting inflation, the deterioration of the Naira, the Nigerian currency, and the failure of the ease of doing business campaign of both the Ministry of Industry, Trade and Investment, and the presidency.
In total, the trio of BUA Cement Plc, Dangote Cement Plc, and Lafarge Africa Plc spent N5.2 trillion on operational costs comprising the cost of production and administrative expenses in five years between 2019 and 2023.
The manufacturing sector has been at the receiving end of the deteriorating Nigerian economy which has pushed up costs amid declining purchasing power.
Only last week, the Manufacturers Association of Nigeria (MAN) bemoaned the closure of 767 firms and also expressed concerns about the distressed state of another set of 335 firms in 2023 alone. The sector currently grapples with multidimensional challenges that have impacted its capacity utilization which has now dropped to 56 per cent, as the interest rate is currently above 30 per cent, scarcity of foreign exchange to import raw materials and production machine inventory of unsold finished products has increased to N350 billion. These forced the sector’s real growth to drop to 2.4 per cent.
Increasing operational costs have been at the heart of the rising price of cement which revved up abysmally in February, forcing the stoppage of several construction works.
Currently, the price of cement hovers around N9,000.
Nigeria’s Inflation which climbed to 28.92 per cent in 2023, influenced by security challenges in food-producing states, and dwindling foreign exchange, among others, are the factors.
Between 2019 and 2023, Nigeria’s inflation moved from 11.37 per cent in January 2019 to 28.92 per cent in December 2023, while the Naira in the foreign exchange market closed in 2023 at N899.393. In 2019, the Naira was N306.45 against the dollar at the official market.
Findings by InsideBusinessNG show that the trio’s cost of doing business was N712.3 billion in 2019, and it increased to N762.6 billion in 2020. It shot up to N936.75 billion in 2021 and closed at N1.15 trillion in 2022.
The cost of production and administrative expenses by the three reached an all-time high of N1.65 trillion in 2023, higher than N1.60 trillion, the total budget of the six states in North-East Nigeria.
States in the North East region are Adamawa, Bauchi, Borno, Gombe, Taraba and Yobe. Their total budget for the current year is N1.60 trillion.
For the five years also, computation by InsideBusinessNG shows the three companies posted N2.23 trillion profit, dwarfed by the N5.2 trillion operational cost recorded.
Of the three, Dangote Cement recorded N1.68 trillion or 70.72 per cent of the total profit.
Manufacturing companies in Nigeria are faced with power shortages, weak local raw materials, insecurity and a poor state of infrastructure.
BUA Cement
BUA Cement, the country’s second-largest cement company, declared a sum of N874.8 billion cost of production and administrative expenses in five years.
The company’s highest cost of production and administration reached the highest peak in the 2023 financial year at N288.34 billion, caused by surging inflation, among other factors.
In 2022, it declared N208.87 billion cost of production and administration expenses which rose from N149.72 billion in 2021 and N124.29 billion cost of production and administration reported in 2020. However, in 2019, the company expended N103.59 billion in operational costs.
BUA Cement is the largest producer of cement in the North-West, South-South and South-East regions of the country with a combined installed capacity of 11 mmtpa and plans to increase its existing capacity to 17 mmtpa through the commissioning of 2 new lines. BUA Cement operates strategically from Okpella in Edo State and Kalambaina, Sokoto State.
In its latest financial statement, the company declared that the devaluation of the Naira in June 2023 and its continued depreciation, as well as the growing inflation with the increasing price pressures impacted production costs, forcing a hike of 39.5 per cent over the 2022 figure of N197.9 billion to N276 billion by December 2023.
“In addition, a net foreign exchange loss of N70 billion (2022: N5.5 billion) was recorded; with N52.5 billion attributed to finance costs, associated with the construction of the additional 3mmtpa lines at Obu and Sokoto (incl. other ancillary activities) and the sum of N17.5 billion attributed to foreign trade payables.
This crashed its net profit to N69.5 billion in 2023,” the company said in a statement.
Despite challenges, BUA Cement’s total profit between 2021 and 2022 stood at N332.89 billion.
BUA Managing Director, Yusuf Binji lamented the 2023 business environment stating, “Clearly, the operating environment in 2023 was challenging, given the different headwinds confronted at the start of the year and especially with the devaluation of the Naira”.
A saving grace for BUA in the year was the maiden edition of its Scratch and Win promo., among other initiatives, which increased its share of the market and resulted in a 27.4 per cent rise in revenues to N460 billion from N361 billion in the prior year.
Another thing that the cement firm could point to was the cold commissioning of the new 3mmtpa lines at the Sokoto and Obu Plants, the activation of a new 70MW gas power plant in Sokoto and the ongoing construction of the 70MW gas power plant at Obu which is expected to be activated in the first quarter of 2024. Also the delivery of over 500 trucks to support its distribution activities and deepened our market presence.
These were at a huge cost to the cement firm.
Dangote Cement
Dangote Cement, the leading cement maker with a production capacity of 51.6mt per year across ten African countries, spent N3.42 trillion in operational costs in five years although it remains one of the most profitable listed companies on the NGX.
The breakdown of expenses shows that Dangote Cement spent N1.13 trillion in 2023, from N742.77 billion in 2022. It spent N615.4 billion and N498.31 billion in 2021 and 2020, respectively. In 2019, it spent N434.1 billion on its operations.
Dangote Cement however posted N1.48 trillion profit between 2019 and 2023, garnering more market share across the continent with pan-African volumes going up by 12.7 per cent to 11.3Mt.
Group Managing Director, Dangote Cement, Arvind Pathak speaking on the results said the achievement owes to a combination of the strength in the diversity of its operations across Africa and its sustained drive to contain cost amidst an accelerating inflationary environment. The Group achieved double-digit growth in revenue at N2,208.1 billion, while Group EBITDA reached a record high, increasing 25.1 per cent to N886.0 billion.
The company was able to respond to the heightened inflationary environment, owing to its business strategies which Pathak said, helped to drive up revenues, contain costs, and protect margins. These initiatives included fuel mix optimisation, propelling the use of alternative fuels to replace more expensive fossil fuels. “We also began the phased transition from diesel power trucks to full Compressed Natural Gas (CNG) trucks”, another initiative, according to Pathak to contain the rising operational cost.
Dangote Cement is Sub-Saharan Africa’s leading cement company, with a production capacity of 51.6mt per year across ten countries.
Lafarge Africa
Lafarge Africa is the third-largest cement manufacturing company in Nigeria. The company in the period under review declared an accumulated N912.24 billion cost of production and administrative expenses.
Lafarge Africa in 2023 declared N226.35 billion cost of sales and administrative expenses, from N199.6 billion reported in 2022. In 2021, the company announced N171.66 billion cost of sales and administrative expenses and declared N140.02 billion and N174.61 billion cost of sales and administrative expenses in 2020 and 2019, respectively.
The cement maker posted a total of N186.63 billion profit between 2023 and 2019.
Lafarge Africa in 2023 reported N51.14 billion profit from N53.65 billion in 2022. Between 2021 and 2020, the company announced N51 billion and N30.84 billion profit, respectively.
CEO of Lafarge Africa, Lolu Alade-Akinyemi in a statement said, “The fundamentals of our business remain strong. Despite extremely challenging macroeconomic headwinds, we grew the top line by 8.6 per cent and improved the Operating Margin from 22.6 per cent to 25.3 per cent in 2023. In the face of very material FX devaluation losses and a higher effective tax rate, Profit After Tax declined YoY by 4.7 per cent.
“Our performance was largely impacted by spiralling inflation and unprecedented Naira devaluation, with the attendant pressure on energy and supply chain costs”, stated the CEO who promised that despite these challenges, the company would continue to deliver sustainable value to all stakeholders in the coming years.
Lafarge Africa, a leading Sub-Saharan Africa building solutions company is a member of Holcim Limited, and a world leader in building solutions is listed on the Nigerian Exchange Group.
The cement firm has the widest footprint in Nigeria with operations in the South West (Ewekoro and Sagamu in Ogun State), North East (Ashaka, in Gombe State), South East (Mfamosing, Cross Rivers State) with Ready-Mix operations in Lagos, Abuja and Port Harcourt. Lafarge Africa has a current installed cement production capacity of 10.5Mtpa.
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