BUA Cement reported subdued profit in 2023 amidst headwinds occasioned by monetary and fiscal policies, writes Dike Onwuamaeze
BUA Cement’s full year 2023 financial statement that was presented to analysts and investors last week by its Managing Director/Chief Executive Officer (CEO), Mr. Yusuf Haliru Binji, bore the marks of the impacts of Nigeria’s constraining operating environment.
This was also acknowledged by Binji who set the tone for the presentation by remarking that, “the operating environment in 2023 was largely challenging but still affords some joyous moments.
“As you are aware, we faced quite a few headwinds ranging from currency redesign policy to its impact on currency in circulation and also the devaluation of the Naira,” he said.
Other factors that constrained the business environment during the year under review where steep and escalating inflation pressure and closure of Nigeria’s border with Niger Republic as a result of the coup that ousted Niger’s democratically elected president by some military juntas. The border closure contributed in hindering export of Nigerian manufactured products to some West African countries by road.
The overall impact of the difficult operating environment, according to BUA Cement, was that “business performance was sustained by volume and price increase, though muted by increased operational costs, mostly due to Naira devaluation and inflation.”
However, the company’s net revenue grew during the year under review by 27.4 per cent to N460 billion from N361 billion, as at FY 2022. This was sustained wholly by price increase. Its EBITDA also increased by 9.6 per cent to N169.3 billion due to high inflationary environment from N154.5 billion as at FY 2022. But the EBITDA margin went down by 6 percentage point to 36.8 per cent from 42.8 per cent, as at FY 2022.
Profitability
Bingi said: “In view of this together with foreign exchange losses, profit after tax declined by 31.2 per cent to N69.5 billion from N101 billion in 2022.”
Similarly, the company’s earnings per share (EPS) were down by 31.2 per cent in 2023 to N2.05 from N2.98 as at FY 2022.
Yet, BUA Cement sustained its expansion plans as demonstrated with cold commission of 3mmtpa Obu line three and Sokoto line five while sustaining during the year its drive toward the environment, the safety of its staff and community.
He said: “We are committed to minimising the impact of our activities on people and the environment, engagement with stakeholders and implementing community development initiatives through tangible investments into communities.
“Furthermore, we have taken steps to align our reporting to S1 and S2 IFRS sustainability disclosure standards.”
Binji also observed that the company experienced contraction in its margin amid rising costs and controlled pass-through costs. The impact of the rising cost in the environment and BUA Cement’s response thereon enabled its revenue per ton to increase by 18.7 to N68,293/ton from N57,511/ton as at FY 2022 due to price increase.
He added: “It is important to highlight here that though we instituted an ex-factory price cut from October 1, 2023, which has a retrospective effect because we extended the gesture to customers with undelivered products as at that time.
“Following our decision to price less aggressively considering rising cost, EBITDA increased by 9.6 per cent to N169.3 billion (2022: N154.5 billion), resulting from growth in reported net revenues, which increased by 27.4 per cent to N460 billion from N361 billion, but partly offset by increases in cost of sales, along with selling and distribution expenses.
“Therefore, EBITDA margin for the reporting period contracted by 6.0 percentage point to 36.8 per cent (2022: 42.8 per cent) due to the above highlighted cost lines.
“We believe that we can leverage the increased volumes from the newly commissioned plants, drive further efficiencies across our operations and improve the contribution margin,” he explained to investors and analysts.
As expected, revenue increased by 27.4 per cent or N99 billion to N460 billion from N361 billion (2022), due to price increases and volume growth.
However, the cost of sales rose by 39.5 per cent or N78.1 billion to N276 billion from N197.9 billion (2022), primarily from increases in energy costs, repair, operations and maintenance expenses as well as staff costs and depreciation charges.
In addition, selling, distribution and administrative cost (net) was up by 72.2 per cent or N6.2 billion to N14.7 billion from N8.5 billion.
The rising costs were attributed to the following major factors. They were foreign exchange losses, distribution costs resulting from higher fueling costs and increased fleet size (trucks), depreciation of PPE etc.
“The net selling distribution and administrative expenses increased by N6.2 billion to N14.7 billion from N8.5 billion in 2022 due to forex losses, distribution costs resulting to higher running cost etc.
“Sales per ton increased by 30 per cent to N40,983 from N31,535 in 2022. Energy cost per tonne increased by 26 per cent to N18, 301 from N14,500 in response to price increase and devaluation of the Naira.
“Selling, distribution and administrative expense increased by 28 per cent to N6,141 from N4,799 in 2022 due to increase in fuel charges and cost from enlarged buses.”
Nevertheless, BUA Cement is as poised as ever to reinforcing its purpose-strategic priorities through synergy, new markets, sustaining innovation, expansion and sustainability.
As part of its strategic priorities, the cement company would drive continued revenue and cost synergies across revenue and margin lines, harmonise sales and marketing strategy across the two plants and reorganisation with the creation of the strategic supply department to purchase all critical inputs.
It also planned to increase its customer portfolio and capture new market areas, including export markets and expansion of its fleet of trucks.
To realise its expansion, the company is constructing lines 3 and 5 at Obu and Sokoto plants, respectively while deploying innovative solutions that would enhance customer experience and further drive internal efficiencies through sales automation and payment integration that have been completed as well fuel management system.
The company is also transiting from Heavy Fuel Oil (HFO) to Liquefied Natural Gas (LNG) in Sokoto, commence work on the
70MW gas power plant at Obu, which is currently at an advanced stage and commence work on the 70MW gas power plant at Sokoto.
Yet, BUA Cement is keeping tabs on its social responsibilities. “Our social impact was enhanced with the launch of 49 initiatives across local communities, focusing on education, 35 per cent; health, 33 per cent; WASH, 16 per cent; infrastructure, 12 per cent and empowerment, 4.0 per cent.
“Furthermore, we created over 58 jobs, with over 21 per cent of the jobs contracted to local contractors who provided specialised services for our projects,” it said.
Its Greenhouse Gas Emissions Energy Management was 650kg CO2/ton cement produced in 2023 against 644kg CO2/ton cement produced in 2022.
“We improved our production by 9.0 per centand deployed more onsite vehicles, which increased our fuel usage. However, we achieved reduced energy consumption by 1.0 per cent resulting in a net emission increase of 1.0 per cent.
‘We improved our water recycling by 3.0 per cent with impact reduction on freshwater aquifer by 45 per cent,” Bingi added.
The managing director used the event to clarify certain assumption entertained by the general public. One, is the clarification that no specific price was pegged for the sale of cement in the country by the government. Rather there was an understanding to keep the price within a range.
He said: “It was not that the government pegged the price of cement. I do not think that exists. The price range that was advisory between the government and the manufacturers are being met. I can confidently confirm that if you go to the markets you will find cement selling within this price range.”
He also clarified that BUA Cement “only carry out export when the Nigerian market is fully satisfied with cement. So, we only export our excess capacity.”
He added: “Price is determined by certain factors among, which include exchange rate as there are inputs that go into the cement making that are priced in dollars.
“The major source of cost in cement production is energy, which may come in the form of gas. Today, energy constitutes between 50 to 60 per cent depending on the plant.”
