• Dangote Cement, BUA spent N172b in six months
• Consumer, healthcare firms expand close to N300m in Q3, 2022
• Companies borrow to meet rising energy cost
• ‘Challenge will affect states’ IGRs, tax revenues, investors warn
With limited capacity to raise the prices of their products, alongside the intensive use of energy, local manufacturers have yet again raised concerns about their inability to manage energy shocks arising from high energy prices in an inflationary environment.
According to the operators, the cost of energy has significantly increased the operational expenses of quoted blue-chip companies by over 50 per cent, a situation that is currently unsettling investors and chopping off a chunk of their returns.
Indeed, grid unreliability remains a source of concern to operators who noted that alternative energy should not be the main source of energy if supply from the grid is reliable.
Stakeholders have expressed fear that the trend could shrink listed firms’ potential growth, and ultimately hamper equities investors’ dividend payments, especially with some of the firms still battling with the effect of the COVID-19 crisis.
Findings revealed that an increasing number of listed firms are reducing their operations, while others are struggling for survival as energy takes a toll on their survival.
Worried by the increasing challenges and falling performance indicators, stakeholders have appealed to the Federal Government to create alternative arrangements to give manufacturers access to affordable diesel for enhanced production.
A close look at the listed firms’ energy consumption for both 2021 and 2022 financial years showed that firms listed under the industrial goods sector have been compelled to increase their energy budget.
For instance, Dangote Cement Plc., energy consumption increased from N98.98 billion in H1 2021 to N129 billion in H1 2022, representing a growth of 31.3 per cent or 13.9 billion. From N113.9 billion in 2021, the company’s energy cost jumped to N133 billion last year.
Following the high cost of operations, the company’s Profit After Tax (PAT) declined by 10.19 per cent to N172.1 billion for the half-year 2022 as against the N191.6 billion it posted in the comparative period of 2021. It also spent N198.1 billion during the third quarter (Q3) ended September 31, 2022.
BUA Cement Plc, another company under the industrial goods subsector, spent N43.6billion on energy in H1 2022, representing an increase of 64.66 per cent over N26.446 billion reported in the corresponding period in 2021.
The total amount expended in energy consumption by Dangote Cement and BUA during the Q3, 2022 operations was N263 billion.
For the consumer goods subsector, Flourmills Plc incurred a total of N25 billion in Q3, 2022while BUA Foods also spent N8.2 billion.
Under the healthcare subsector, GlaxoSmithkline Plc., expended N100 million in energy in Q3, 2022, while another pharmaceutical firm that craved anonymity said the company’s diesel cost skyrocketed between the first half of 2021 and a half year of 2022 by about 220 per cent.
“We used to buy 33,000 litres of diesel for N7 million. Now, we pay as much as N26 million, which is a whopping 271 per cent increase. Generally, there is a high energy cost.
“Even those factories that use gas are equally experiencing cost escalation. Companies that paid an average of N300 million per month for gas now have to pay as much as N800 million. This will adversely affect operations and our ability to pay dividends to shareholders.
“Our profit has been cut down by over 50 per cent. It is not possible to pass all the cost to customers, and this makes achieving profit targets impossible,” the company said.
Cutix Nigeria Plc. spent N64 million on energy in its half year 2021 operations and N87 million in 2021. The spending outlay rose to N141 million in H1 ‘2022, showing a percentage increase of 119 per cent or N76 million.
Managing Director of the company, Ijeoma Oduonye, in a chat with The Guardian, disclosed that rising diesel cost was seriously affecting the company’s operating cost, noting that this would eventually negatively impact the firm’s profit and dividend payout.
“Constant and stable electricity will eliminate the need for diesel. The resurrection of the local refineries will also reduce dependence on imported diesel. Empowerment of green energy projects by the government is a good strategic move,” she said.
[FILES] Electricity pylons. REUTERS/Neil HallAnother manufacturing firm, Academy Press Plc.’s total funds spent on diesel between January and December 2021 stood at N54 million, while public power took N71.6million totaling N131 million.