Julius Berger Nigeria Plc, a major construction company in Nigeria, in its recently released nine-month (9M’2022) financial statement for the period that ended September 2022, reported its highest revenue and profit in ten (10) years despite Nigeria’s macroeconomic challenges.
The firm’s revenue surged by 22.02 percent to N309.8 billion in 9M’2022 from N253.9 billion in 9M’2021, with contracts from government civil work accounting for 55.8 percent of the total.
The construction company generated N250.43 billion from government contracts and N59.35 billion from private contracts during the period under review.
Furthermore, Julius Berger added to its income stream with revenue generated from interest income amounting to N1.01 billion in the nine-month period ended September 2022, a 180.56 percent boost compared to N360.41 million reported in the same period of 2021.
With proceeds from the disposal of property, plant, and equipment amounting to N499.8 million and net foreign exchange gain amounting to N4.89 billion, other gains and losses totaled N5.39 billion in 9M’2022, a 204.52 percent increase from N1.77 billion reported in 9M’2021.
Consequently, profit grew by 17.37 percent to N6.96 billion in the nine-month period that ended September 2022 from N5.93 billion in the corresponding period of 2021.
Julius Berger reported earnings per share of N1.34 per share for the nine-month period of 2022.
Rising input costs
Nigeria’s inflation rate, 21.09 percent as of October 2022 has consistently been on the rise since the year started, impacting the cost of raw materials for companies. Julius Berger was not excluded as the cost of sales claimed 83.82 percent of the firm’s total revenue in the nine-month period that ended September 2022.
Its cost of sales grew by 22.53 percent to N259.67 billion in the nine-month period that ended September 2022 from N211.93 percent in the same period last year.
Consequently, the profit margin declined marginally by 9 basis points to 2.25 percent in 9M’2022 from 2.34 percent in 9M’2021.
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Operating expenses (OPEX) for the company also grew by 21.52 percent in the nine-month period of 2022 to N34.73 billion from N28.58 billion in the corresponding period of 2021, as the cost of doing business in Nigeria becomes more expensive.
The growth in administrative expenses was the major culprit, as it grew by 21.99 percent in the nine-month period of 2022 to N34.63 billion from N28.39 billion in the nine-month period of 2021.
Marketing expenses, on the other hand, were down by 51.7 percent to N89.76 million in 9M’2022 from N28.39 million in 9M’2021.
High-interest rate environment
In a bid to slow down inflation, the central bank of Nigeria on severally occasions increased the interest rate. The interest rate was first raised by 150bps to 13 percent in May, then to 14 percent in July, 15.5 percent in September, and most recently, 16.5 percent in November.
Typically, when the interest rate goes up, the cost of borrowing becomes more expensive, however, in Julius Berger’s case, finance costs are seen declining during the period.
The finance cost reported by Julius Berger declined by 21.12 percent in the nine-month period of 2022 to N2.39 billion from N3.03 billion in the nine-month period of 2021. The decline was on the back of a decline in interest on loans and bank overdrafts during the period.
On account of the naira depreciation seen across quarters, Julius Berger reported a foreign exchange acquisition loss of N4.63 billion in the nine-month period of 2022.
Cash position
Cash and cash equivalents for the construction company were negative amounting to N-3.37 billion in the nine-month period of 2022, up from N-38.08 billion in the nine-month period of 2021, indicating that the company lacks adequate liquidity to meet its short-term obligations.
This came as a result of cash from operations being negative, amounting to N-19.60 billion in 9M’2022, indicating that the construction company is not generating enough cash from its operations to meet its short-term obligations.
Net cash flow from investing activities was also negative, amounting to N-16.69 billion in the nine-month period of 2022, largely due to the N18.31 billion spent in the purchase of property, plant, and equipment during the period. The construction company, as part of its investing activities, generated N1.01 billion from the interest it received, and N615 million from the proceeds it got from the disposal of its property, plant, and equipment during the period.
Net cash flow from financing activities amounted to N-8.90 billion in the nine-month period of 2022, due to the repayment of term loans (N1.17 billion), payment of lease liabilities (N1.08 billion), interest paid (N2.65 billion), and dividends paid (N4 billion) during the period.
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