• Friday, July 19, 2024
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BUA Cement’s profit wilts on high operating expense, finance costs

Bua Cement’s profit wilts on High OPEX, finance costs

Driven by the elevated pricing environment and improved volumes, BUA Cement’s profit and revenue hit a five-year record high despite elevated production and operating costs and its weighty finance expenses.

According to findings by BusinessDay, the firm’s revenue grew by 40.28 percent to N360.99 billion in 2022 from N257.33 billion in 2022 due to strong industry-wide growth in price per tonne and recovery in sales volume growth, according to analysts.

BUA Cement said “revenue per ton increased by 21.2 percent to N57,511/ton from N47,448/ton, as of 2021. This was due to pricing activities during the year.”

Data obtained from the Nigerian Exchange Group (NGX) reveals that the firm’s export sales grew by 87.73 percent to N4.38 billion in 2022 from N2.33 billion in 2021, while revenue from local sales grew by 39.85 percent to N356.61 billion in 2022 from N254.99 billion in 2021.

The cost of sales which claimed 54.83 percent of its total revenue, was up 45.13 percent to N197.94 billion in 2022 from N136.39 billion in 2021 on the back of a 78 percent increase in energy consumption during the period which reflects the sustained hike in prices of alternative energy sources.

The cost of sales per ton rose by 25.4 percent to N31,535/ton from N25,149/ton, as of 2021. This was due to increases in energy product costs, operations & maintenance service charges, depreciation charges, and raw materials costs.

Energy cost per ton increased by 36.6 percent to N14,527/ton from N9,441/ton during the corresponding period ended 2021, which resulted from a combination of adverse movement in the exchange rate, change in market prices, and increased operational activity.

In addition, quarry fees and royalties (up 103.87 percent), water supply (up 582 percent), and other production expenses (up 96.5 percent) contributed to the elevated cost of sales recorded.

Earnings before interests, tax, depreciation, and amortisation (EBITDA) grew by 29 percent to N154.5 billion in 2022 from N119.6 billion in 2021 despite an 87 percent jump in operating expenses.

BUA Cement

“The increase in EBITDA is resulting from higher reported net revenues, but partly offset by an increase in energy products costs, operation, and maintenance service charges, distribution costs arising from increased fleet size and fuel costs, foreign exchange losses, depreciation charges, etc,” according to BUA Cement.

Operating expenses (OPEX) grew to N36.11 billion in 2022 from N19.35 billion in 2021 with selling and distribution being the primary culprit of the growth.

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Selling and distribution expenses spiked by 129.67 percent to N18.81 billion in 2022 from N8.19 billion in 2021 driven by a 217 percent increase in distribution costs as the sustained high cost of Automotive Gas Oil (AGO or diesel) in Nigeria remained a major headwind.

In addition, administrative expenses were up 55.02 percent to N17.30 billion in 2022 from N11.16 billion in 2021, on the back of a 269 percent increase in energy consumption and a 1,723 percent increase in foreign exchange losses due to naira devaluation, thereby adding to the overall OPEX surge.

Coronation Research said in a note to BusinessDay “The company, like the rest of the industry, intensifies efforts to lower its energy bill by consuming locally-sourced liquefied natural gas (LNG) to diversify its energy mix and reduce its reliance on imported coal, low pour fuel oil (LPFO) and AGO.”

“However, sustained disruptions in LNG supply continue to militate against this objective. This has forced the company to remain reliant on diesel and imported coal for production and distribution,” Coronation Research added.

As a result, the EBITDA margin dipped by 370 basis points to 42.8 percent in 2022 from 46.5 percent in 2021, due to a faster rise in costs.

Riding on the high-interest rate environment, BUA Cement’s finance income spiked by 212.9 percent to N1.94 billion in 2022 from N620 million in 2021, while finance costs surged by 516.96 percent to N10.55 billion in 2022 from N1.71 billion in 2021.

“This is consistent with its policy to unwind earlier capitalisation of bonds and loan interests on its Sokoto line 4 plant and other qualifying assets,” according to Coronation Research.

A breakdown of its finance costs reveals that the cement maker reported interest expense on debt securities amounting to N9.01 billion during the period.

Thus, profit after tax deductions grew by 12.13 percent to N101.01 billion in 2022 from N90.08 billion in 2021, bringing profit margin to 27.98 percent in 2022, a 703 percent decline from 35.01 percent in 2021.

Total assets grew by 19.97 percent to N874.01 billion in 2022 from N728.51 billion in 2021, while total shareholders’ equity increased by 3.26 percent to N411.11 billion in 2022 from N398.12 billion in 2021.

Cash and cash equivalents declined by 22.92 percent to N48.05 billion in 2022 from N62.34 billion in 2021, while the movement of its cash and cash equivalents shows that N149.57 billion was generated from its operations.

However, its ability to increase cash generated from operations declined by 23.94 percent during the period from N198.96 billion in 2021.

Net cash flow from investing activities for the period was negative amounting to N102.28 billion due to the purchase of property, plant, and equipment which totaled N102.28 billion.

Net cash flow from financing activities for the period was also negative totaling N61.63 billion due to principal repayment of borrowings, interest repayment of borrowings, interest repayment of debt securities, and dividends paid to equity holders.

BUA Cement reported earnings per share of N2.98 per share in 2022 from N2.66 per share in 2021 and declared a final dividend of N2.80 per ordinary share of 50 kobo each.