Nigerian cement companies quoted on the Nigerian Exchange Limited are facing soaring input costs, which surged N1.24trn in the first half of 2024.
This represents a 108.5 per cent increment from N592.32bn spent by these cement giants in the corresponding period of 2023.
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.
Consequently, 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 information is contained in the unaudited half-year results of the companies tracked by NewsNGR.
The companies under review includes Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc.
This increase in the cost of sales is attributed to inflationary pressures and the depreciation of the Naira.
The amount spent 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.
A cursory look at the financials 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 grew revenue to N363.94bn, a 64.63 per cent growth from N221.07bn recorded in 2023. However, the cost of sales grew by 121.54 per cent to N254.66bn from N114.94bn.
The cost of sales represents 69.97 per cent of the total revenue.
Lafarge Africa Plc reported a 49.52 per cent 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 consumed about 49.95 per cent of the total revenue.
Some of the cost pressures were fuelled by the removal of fuel subsidies, exchange rate harmonization, and Naira depreciation.
Additionally, macroeconomic inflationary pressures, particularly evident in the domestic market with heightened average inflation, further contributed to the challenges.
Though the latest inflation report released by the National Bureau of Statistics (NBS) showed Nigeria’s headline inflation rate decreased to 33.40 per cent in July 2024, down from 34.19 per cent in June 2024, the country’s inflation still remains elevated.
According to the report, the headline inflation rate decreased by 0.79 percentage points in July 2024 compared to June 2024.
On a year-on-year basis, the rate was 9.32 percentage points higher than in July 2023, when it stood at 24.08 per cent.
This indicates an increase in the headline inflation rate on a year-on-year basis for July 2024 compared to the same month in the previous year.
Additionally, on a month-on-month basis, the headline inflation rate in July 2024 was 2.28 per cent, slightly lower than the 2.31 per cent recorded in June 2024.
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.
One year later, it closed the first half of the year at N1,503 per dollar, representing a 95 per cent 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, CEO of Lafarge Africa, Lolu Alade-Akinyemi, commented, “We sustained Net sales growth in Q2 2024 but saw H1 2024 PAT decline 17.3 per cent vs PY 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, in his remarks, said: “We effectively navigated macroeconomic headwinds to deliver positive results in the first half of the year.
“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.”