Top listed Nigerian companies incur N207bn energy costs in H1
The top listed firms by market capitalisation across industries on the Nigerian Exchange Limited saw their energy costs rise by 33.16 percent in the first half (H1) of 2022 to N207.54 billion from N155.86 billion in the same period last year.
The firms are Dangote Sugar Refinery, BUA Foods, Nascon Allied Industries, Fidson Healthcare Plc, GlaxoSmithKline Consumer Nigeria Plc, Dangote Cement, Lafarge Cement, BUA Cement, Guaranty Trust Holding Company (GTCO), and Zenith Bank.
Leading the pack with the highest energy costs reported in the first half of 2022 are the cement makers, with Dangote Cement reporting a 31.32 percent increase to N129.97 billion from N98.97 billion in H1 2021.
Dangote Cement’s energy cost made up 40.31 percent of its total production cost of sales in the first half of 2022.
Fuel prices have soared since Russia invaded Ukraine in February, raising costs for firms in Nigeria, where businesses rely on diesel-fired generators for power amid unstable grid electricity.
Analysts at Coronation Research, while commenting on Dangote Cement’s second quarter (Q2) financial result, said: “Rising energy costs pressure the EBITDA margin. Cost of sales was pressured mainly by the surge in fuel and power consumed (+27.8 percent y/y) expenses, which reflects the rise in energy costs, especially diesel and coal.”
However, to mitigate the impact of rising energy costs, management said the company was strengthening its efforts to ramp up the usage of alternative fuels, which aims to leverage waste management solutions, reduce CO2 emissions, and source material locally.
Following closely is BUA Cement, which reported a 64.70 percent spike in energy costs in H1 2022 to N43.58 billion from N26.46 billion in the same period last year, accounting for 44.7 percent of its total cost of sales during the period.
“We observed that most of the cost increases came from energy cost (+64.7 percent y/y to N43.6 billion), and materials (+48.2 percent y/y to N28.0 billion). We note that apart from the y/y increase in volume produced that may have necessitated cost increment, the company is also facing inflationary pressures and the impact of FX depreciation on energy prices,” analysts at CSL Stockbrokers Limited said in a July note.
Lafarge Africa, however, reported a decline in energy costs by 19.5 percent to N11.34 billion in H1 2022 from N14.09 billion in the corresponding period of 2021.
In the fast-moving consumer goods space, BUA Foods led a steep increase in energy costs to N5.21 billion in H1 2022 from N5.19 billion in the same period last year.
The food company also reported a 163.6 percent increase in diesel and fuel costs, which amounted to N122 million in H1 2022 from N46 million in the corresponding period of last year.
Dangote Sugar Refinery’s petrol and oil costs rose to N29 million in H1 2022 from N25 million in H1 2021, while Nascon Allied Industries’ petrol and oil costs grew by 7.5 percent to N12.14 million from N11.29 million.
Ayodeji Ajilore, an investment research analyst with ARM Securities, said: “Rising energy costs for consumer goods firms as observed have an impact on the cost of input, and selling and distribution expenses.
“To manage the after-effect on margin, different price adjustments have become the order of the day, a development which has begun to slow output in the segment as evidenced by the second quarter of 2022 GDP figures.”
“Although essential food manufacturers might have the needed legroom to implement incessant upward price reviews, discretionary goods manufacturers are already taking a hit as hinted above,” he added.
Ajilore said overall, rising energy costs would continue to deprive firms in the sector of the much-needed margins or to further steer the inflationary direction upward.
“While the former would mean shrinking profitability for firms, the latter is bound to further erode consumers’ purchasing power – a double whammy, to say the least,” he added.
In the banking space, two banks among the tier one banks that have released their half-year financial statements were examined, and Zenith Bank led with a 55.27 percent growth in fuel and maintenance costs to N13.12 billion in H1 2022 from N8.45 billion in the same period last year.
GTCO followed with a 58.65 percent increase in occupancy costs, which according to the company, relates to diesel, fuel, and electricity costs as well as ground rates and water costs.
Its total occupancy cost in the period increased to N3.76 billion from N2.37 billion in H1 2021.
The healthcare sector was not left behind, as Fidson Healthcare Plc led the pack with a 78.88 percent spike in energy costs to N449 million in H1 2022 from N251 million in the same period last year.
GlaxoSmithKline Consumer Nigeria Plc reported a 50.84 percent increase in its electricity, fuel, and utility costs to N71.47 million from N47.38 million.