BUA Cement: Revenue Growth, Low Finance Cost Drives Profit

Kayode Tokede 

With a 23 per cent increase in revenue and 56 per cent drop in finance cost, BUA Cement Plc grew its profit before tax by 40 per cent as reported in the financial statement for the period ended December 31, 2021.

Profit after tax also grew by 25 per cent increase in profit to N90.08 billion in 2021 from N72.34 billion reported in 2020, to positioned Earnings Per Share (EPS) in 2021 N2.66, an increase of 24.5 per cent from N2.14 reported in 2020. 

The cement manufacturing company growth in EPS was due to the revenue growth, stable margins in the face of elevated cost pressures and moderation in finance cost. 

Amid growth in profit, the board of BUA Cement has proposed a final dividend of N2.60 dividend per 1 ordinary share of 50 kobo each (an increase of 25.6per cent above N2.07/s in 2020), implying that shareholders are to enjoy a dividend yield of 3.7per cent based on the closing price of N70.75 (March 30).

Revenue competing with peers

BUA Cement grew revenue by 23 per cent to N257.33billion in 2021 from N209. 44billion reported in 2020, driven by sale of bagged cement that rose by 23per cent to N256.7 billion in 2021 from N209.01billion in 2020 and sale of bulk cement that appreciated by 40.5per cent to N614.8million billion in 2021 from N437.71million in 2020.  

The company’s transactions in 2021 with one customer – Chinedu and Sons contributed more than 10per cent of the total revenue from the sale of cement N27.59 billion (2020: N60.1 billion). 

BUA Cement reported double-digit revenue growth, in match with the other industry players such as Dangote Cement that recorded 38 per cent increase in revenue to N1.38 trillion and Lafarge that grew revenue by 27.1 per cent to N293.09 billion in 2021.  The increase in revenue was majorly driven by significant increase in price of cement in 2021.

However, primary geographical markets showed that BUA Cement’s outside Nigeria grew by 63.42 per cent to N2.33billion from N1.43billion in 2020, while revenue in Nigeria grew by 23 per cent to N254.99billion in 2021 from N20802 billion in 2020. 

The company’s Cost of Sales (CoS) grew by 19.3 per cent to N136.4billion in 2021 from N113billion in 2020 to drive 27 per cent increase in gross profit to N120.9billion in 2021 from N95.5billion in 2020. 

Consequently, the proportion of CoS/Revenue dropped to 53 per cent in 2021 from 54.4 per cent in 2020, while cost of sales margin dropped from 48.1 per cent in 2021 from 48.4 per cent in 2020.

In addition to ratio, BUA Cement gross margin rose to 51.9 per cent in 2021 from 51.6 per cent in 2020. 

BUA Cement reported N2.63billion non-core business income in 2021 from N375.52million in 2020. 

Sundry income relates majorly to FGN promissory notes that matured and were liquidated during the year, the sale of iron or metal scraps, grinding aid tanks and scrapped pipes.

BUA Cement explained that  it recognised modification gains in the sum of N1.4 billion (2020: Nil) with respect to government grant and other long term loans. 

“The Fidelity bank and Union bank long term loans had their interest rates reduced. Previously, the loan had an initial interest of 5% for the first 5 months and nine per cent for the subsequent months. The five per cent initial interest rate was increased for a further 12 months by the Central Bank of Nigeria, and nine per cent subsequently.

“Both loans commenced in October 2020, hence the initial five per cent interest rate was meant to end in February 2021, however, due to the extention granted, the five per cent will continue until February 2022, and the nine per cent interest charge will now commence from March 2022.”

For the year under review, BUA cement reported Operating Expenses (OPEX) grew by 27.3 per cent to N19.33billion in 2021 from N15.19billion in 2020, due to sharp increases in admin expenses that grew by 29.1 per cent to N13.32billion in 2021  and selling and distribution expenses rose by 24 per cent to N6.01 billion in 2021 from N4.86billion in 2020. 

With 28 per cent decline in finance income to N520.6million in 2021 from N859.62million in 2020, finance expenses dropped by 55.5 per cent to N1.71billion in 2021 from N3.84billion in 2020. 

The substantial decline in finance cost to the marked reduction in gross debt by 26.8 per cent to N197.05 billion in 2021 from N269.29 billion in 2020.

Overall, Profit before Tax (PBT) grew by 30.4per cent to N102.87 billion in 2021 from N78.87billion in 2020, with related PBT margin improving by 2.3 basis points to 40 per cent in 2021 from 37.7 per cent in 2020. 

Drop in trade & other receivable

BUA Cement reported decline in total assets, as current assets that was down by 40 per cent to N144.2billion in 2021 from N238.6billion in 2021 was the major factor. The company, thus reported N584.31 billion in non-current assets to N527.7billion to plunge total assets by five per cent to N728.5 billion from N766.3 billion in 2020. 

As total liabilities dropped by 15.4 per cent to N330.4billion in 2021 from N390.4billioni in 2020, BUA Cement grew total equity by six per cent to N398.12billion in 2021 from N376billion in 2020. 

Meanwhile, the company’s borrowing dropped from N156.1billion in 2020 to N83.5billion in 2021.

The company explained that: “Current bank borrowings relate to short term Import Finance Facilities (IFF) from several Nigerian banks with average maturity of 12 months. They also include the portion of non-current bank borrowings repayable within the next 12 months. Non-current bank borrowings are secured by fixed and floating assets of the Company. 

“They include N26 billion obtained from First Bank of Nigeria Plc for a period of 48 months with effect from July 2020 at a floating interest of 13.5per cent per annum. N2billion was obtained from Union Bank of Nigeria and Fidelity Bank each for a period of 120 months with effect from October 2020 at a floating interest of five per cent per annum till February 2022 and then nine per cent afterwards.”

On debt security issued in 2021, BUA Cement reported N113.56billion in 2021 from N113.2billion in 2020. 

It added that: “The Company issued a local bond of N115 billion on 30 December 2020 with a coupon rate of 7.5% payable semi-annually (Series 1 of N200 billion bond issuance programme). The bond has a tenor of 7 years and is due on 30 December, 2027. There is a moratorium of 3 years on the principal repayment of the bond, whilst interest is payable on a semi-annual basis at their respective interest rates.

BUA Cement Plc will have the right to exercise a call option to effect early redemption of the bonds, either in part or in whole, as from the expiration of 48 months from the issue date, in accordance with the provisions of the Series 1 Trust Deed.

On initial recognition of the Series 1 bond, management assessed the impact of the call option on the contractual cash flows to the bondholders and determined that the call option does not materially affect the contratual cashflows of the debt host contract, hence the option is closely related to the host contract and is not bifurcated from the host contract. The Series1 bond has been classified as a debt measured at amortised cost using effective interest rate.”

Analysts View

According to analysts at Cordros research: “We like that BUA Cement optimised its price/volume mix to keep margins stable despite energy cost pressures caused by the local currency devaluation amidst high inflationary pressures. 

“We expect private sector demand for cement to moderate this year as activities in the real estate sector normalise to pre-pandemic levels. 

“In addition, we are concerned about the ability of the company to transfer the burden of elevated energy prices to consumers in a bid to preserve margins, given that cement producers have raised prices significantly over the past two years. 

“Nevertheless, we believe economies of scale associated with the new and energy-efficient Kalambiana line II (3MMT) will provide some support for margins. Our estimates are under review.”

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