Dangote Group’s profit squeezed by rising cost of sales, up 27.09% in 2023

Joy Agwunobi

Nigerian conglomerate Dangote Group recently reported that its cost of sales increased by 27.09 per cent to N1.398 trillion in 2023,partly attributed to the impact of inflation on raw material prices and operating costs.

The increase in cost of sales was reported in three of the group’s listed subsidiaries on the Nigerian Exchange: Dangote Cement Plc, Dangote Sugar Plc, and Nascon Allied Industries Plc. These companies represent some of the group’s core businesses, and the increase in cost of sales is indicative of the wider economic challenges facing the group. 

As reported in the companies’ full-year results, the increase in the cost of sales was largely due to inflationary pressures and the depreciation of the naira. As a result, the cost of sales represented 51.21% of the total revenue of N2.730 trillion recorded by the three firms in 2023. This was a significant increase from the 42.55% of total revenue spent on cost of sales in 2022.

Dangote Cement’s revenue increased significantly from N1.618 trillion in 2022 to N2.208 trillion in 2023, a growth of 36.64%. However, the increase in cost of sales was even more pronounced, rising by 51.76% from N662.890 billion to N1.006 trillion over the same period.

The company’s cost of raw materials was a significant contributor to the total cost of sales, accounting for 45.56% of the total. The raw material costs increased by 41.88 per cent from N196.517 billion in 2022 to N278.825 billion in 2023, highlighting the sharp rise in input costs

The growth in revenue and cost of sales at Dangote Sugar was relatively modest, with revenue rising by 9.47% from N403.245 billion in 2022 to N441.452 billion in 2023. Cost of sales grew at a slightly higher rate of 11.93% from N403.245 billion to N355.149 billion. The cost of sales as a percentage of revenue, 80.45%, was significantly higher than the historical average for the company, which is closer to 70%. 

For Dangote Sugar, the raw materials cost was the single largest component of its cost of sales, worth N296.027 billion, representing a 15.49% increase from the N256.326 billion in 2022,making up 83.35% of the total.

Despite Nascon Plc’s healthy revenue growth, the increase in cost of sales meant that the company’s profitability was negatively impacted. Cost of sales as a percentage of total revenue increased from 41.30 per cent in 2022 to 45.17 per cent in 2023.  The company spent N31.371 billion to source for raw materials during the full year ended December 31, 2023, a 3.02 per cent growth from N30.452 billion recorded in 2022. Also, the cost of raw materials represented 85.93 per cent of the total cost of sales. 

In his remarks, Ravindra Singhvi,  the CEO of Dangote Sugar Refinery Plc,highlighted the challenging operating conditions the company faced during the year. These included high inflation, currency devaluation, and declining consumer purchasing power. However, he also noted that the company was able to achieve commendable results, despite these challenges. 

Singhvi attributed the decrease in profit after tax (PAT) to a non-cash foreign exchange loss of N172.2 billion. He noted that, without this loss, recurring PAT was up 73.8 per cent, at N98.4 billion. The non-cash foreign exchange loss resulted from the depreciation of the naira relative to the US dollar. In addition, the company experienced other non-recurring expenses during the period, such as restructuring costs and one-off tax payments. 

The Dangote Sugar CEO stated that the outlook was challenging due to the scarcity of foreign exchange and increasing costs of raw materials adding that  the company was working to improve the effectiveness of its supply chain management processes in order to reduce costs and increase efficiency.

“In the longer term, our backward integration project will help to alleviate some of the pressure on costs and foreign currency demand,” Singhvi added. 

Commenting on the company’s 2023 full-year results, Arvind Pathak, the CEO of Dangote Cement Plc, noted that despite the challenging macroeconomic conditions, the year was a testament to the effectiveness of the company’s diversification strategy. He noted that the company’s diverse operations helped to mitigate country-specific risks and provided resilience, with pan-African volumes up 12.7 per cent and accounting for 41.2 per cent of the group’s total volume.

Pathak stated that the company’s strong performance in Africa was due to its innovative strategies and ability to control costs in a high inflation environment. The company’s pan-African operations were particularly successful, with revenues increasing by 123.2 per cent to N925.9 billion. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) also surged by more than four times to N263.7 billion. 

Pathak further emphasised on the initiatives that  helped the company navigate the difficult economic conditions. He noted that one of the company’s key initiatives was fuel mix optimisation, which involved using alternative fuels to replace more expensive fossil fuels. In addition, the company began a phased transition from diesel-powered trucks to full Compressed Natural Gas (CNG) trucks. These measures helped to improve the company’s cost efficiency, while also reducing its environmental impact.