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Dangote Cement, MTN, Others Incur N2.25trn Operational Costs amid Soaring Inflation, FX Shortage

todayAugust 17, 2022

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Kayode Tokede

On the back of rising inflation rate and shortage of foreign exchange (FX) in Nigeria, Dangote Cement Plc, MTN Nigeria Plc and 12 other companies incurred a whopping sum of N2.25 trillion as operational costs in half year (H1) ended June 30, 2022, representing an increase of 27.3 per cent from N1.77 trillion reported in half year of 2021.

Inflation rate in Nigeria hit 18.6 per cent as at H1 2022 from 15.6 per cent the National Bureau of Statistics (NBS) reported in January.

The Bureau on Monday reported further hike in inflation rate to 19.64 per cent, highest in over 17-year.

Also, the Naira at the Central Bank of Nigeria (CBN) official rate depreciated to N414.72 against the Dollar as of June 30, 2022 from N413.17 against the dollar reported January 4, 2022.

Latest results released by companies listed on the Nigerian Exchange Limited (NGX) reveal that rising cost of goods and services is eating into profit at levels not seen since 2017.

A cursory review of some of the H1 2022 results published by some of Nigeria’s largest companies reveals higher input and operational cost on a year-on-year basis.

Despite hike in cost of sales and operating expenses (OPEX), most of these companies recorded contraction performance across construction, manufacturing, petroleum marketing and Fast-Moving Consumer Goods (FCMGs).

These companies spent heavily on power, and raw materials in H1 2022 as cost of energy surged significantly across most countries in the world. Notably, cost of diesel sold as high as N850 per litre in some areas of the country, while some firms had to cut down on working hours in order to manage costs.

For instance, Dangote Cement reported N169.4 billion OPEX in H1 2022, representing an increase of 43 per cent from N118.28 billion in H1 2021, while its Cost of sales hits N322.46 billion in H1 2022 from N276.12 billion reported in H1 2021.

Dangote Cement in H1 2022 reported N129.96 billion on fuel & power consumed as against N98.98billion in H1 2021, while cost of material consumed rose by

The increase in OPEX and cost of sales impacted on the cement manufacturing company’s profit before tax that dropped by 5.8 per cent to N264.89 billion in H1 2022 from N281.25 billion in H1 2021.

The Chief Executive Officer, Dangote Cement, Michel Puchercos, in a statement said,  “Despite the elevated inflation due to a very volatile global environment, the first half of 2022 has been positive.

Puchercos explained further that significant increase in energy and Automotive Gas Oil (AGO) costs are impacting negatively on production and supply of cement products.

MTN Nigeria, one of Nigeria’s largest and most profitable listed company, saw its cost of sales up by 22.9 per cent to N162.78 billion in H1 2022 from N132.5 billion in H1 2021, while OPEX increase from N241.55 billion in the H1 2021 compared to N277.99 billion reported in H1 2022.

According to MTN Nigeria, “OPEX increased by 15.1per cent due to the effects of Naira depreciation and higher dollar Consumer Price Index (CPI) on lease rental costs, the acceleration in our site rollout and rising energy costs. The escalation of diesel prices in Nigeria contributed to the 12.2per cent increase in direct network operating costs with a 0.3pp EBITDA margin impact.”

In the same vein, Nigeria Breweries, the country’s largest brewer also recorded a significant spike in cost of sales and operating expenses during the year.

As Cost of sales in the H1 2022 rose to N155.35 billion compared to N131.34 billion in H1 2021, OPEX rose by 44.8 per cent to N84.9 billion in H1 2022 from N58.6 billion in H1 2021.

In addition, Nestle Nigeria reported N34.02 billion OPEX in H1 2022, representing an increase of 13 per cent from N30.1 billion in H1 2021, while Cost of sales rose significantly by 35 per cent to N142.25 billion in H1 2022 from N105.01 billion in H1 2021.

According to analysts at the Economist Intelligence, prices of global commodities, including energy, are rising rapidly and fuelling runaway inflation and instability in much of Africa including its most populous nation, Nigeria.

They added that the cost of living crisis is being exacerbated by the Russia-Ukraine conflict which have resulted in sanctions, airspace bans and security aggravating pandemic-related supply-chain difficulties.

Besides inflationary pressure, the marginal increase in Naira against Dollar exchange rate in the official market also resulted in the hike in general prices of goods and services in the first three months under review.

Commenting, the CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.

He highlighted that implications of high inflation rate include escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization, high food prices which impacts adversely on citizens welfare and aggravates poverty.

He further stated that Weak purchasing power, which poses significant risk to business sustainability and price volatility, which undermines investors’ confidence are major implications of high inflation pressure.

He explained that the major drivers of inflation and cost in the economy include exchange rate depreciation, which has a significant impact on headline inflation, “especially the core sub index and liquidity challenges in the foreign exchange market impacting adversely on manufacturing output.”

To tame the current inflationary pressure, he urged government to reform the foreign exchange market to stabilize the exchange rate and reduce volatility and address foreign exchange liquidity issues through appropriate policy measures.

On his part, analyst at PAC Holdings, Mr. Wole Adeyeye said that the operational cost of most companies increased significantly in H1 2022, driven mainly by higher input costs.

According to him: “The upsurge was witnessed in inputs sourced locally (especially raw materials & consumables, fuel and power consumed, distribution expenses, among others). In addition, most listed companies complained about the depreciation of Naira as it raised cost of imported raw materials during the period.”

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