Can BUA Foods Maintain Strong Fundamentals Amid Severe Competition?



Kayode Tokede

Despite numerous challenges in the Food and Fast-moving Consumer Goods (FMCG) sector, BUA Foods Plc in its audited result and accounts for full year ended December 31, 2021 reported stronger fundamentals with the growth in profits and financial strength.

The newly listed company on the Nigerian Exchange Limited (NGX) in its audited results showed potential to deliver impressive performance and reward shareholders given its well-diversified food business operations.

In the period under review, BUA Foods announced a significant increase in revenue, among other financial parameters to deliver double-digit growth in profits.

Given this impressive performance, the board declared a final dividend of N3.50 per ordinary share of 50 Kobo each, subject to appropriate withholding tax and approval will be paid to shareholders whose names appear in the Register of Members as at the close of business on 13th July 2022.

The Group reported a 73 per cent increase in turnover to N333.27billion in 2021 from N192.86billion reported in 2020.  

The growth in turnover was driven by a significant increase recorded in BUA Sugar Refinery FZE which comprises Sugar, Flour and Pasta. The other subsidiary, LASUCO sugar Company Limited produces Rice and Edible Oils.

Take for instance, the 136 per cent increase in turnover from Sugar (Non-Fortified) to N79.16billion in 2021 from N33.52billion reported in 2020 and 91per cent turnover from Sugar (Fortified) to N129.84billion in 2021 from N67.9billion in 2020 impacted on turnover impressive growth.

The group other segments revealed that turnover from pasta that grew by 54per cent to N54.4 billion in 2021 from N35.4billion in 2020 while turnover from Bakery Flour recorded N64.19billion in 2021, an increase of 60 per cent from N40billion reported in 2020.

In addition, turnover from Wheat Bran grew by 37.56 per cent to N5.25 in the year under review from N3.8billion reported in 2020, while turnover from Molasses dropped by 97 pre cent to N439million in 2021 from N12.09billion in 2020. 

Sugar segment of BUA Foods

BUA Foods ‘s sugar division currently operates the second-largest sugar refinery in West Africa, with a total refining capacity of 1.5 million Metric Tons (MT) per annum.

The overall performance of sugar segment in 2021 grew by 84.5 per cent to N209.43billion from N113.53billion reported in audited 2020 results. Sugar segment contributed 62.8per cent of the total turnover reported in 2021 as against 58.8 per cent in 2020.

The company is a leading producer of fortified and non-fortified sugar in West Africa. It operates across the value chain of the sugar industry, including the production, processing, refining, and distribution of raw sugar and its by-products such as bagasse, molasses and mud cakes.

The division operates two ultra modern and automated sugar refineries, one in Apapa, Lagos State, and the other in Port Harcourt, Rivers State. Over the years, the Company also acquired two plantations, in Lafiagi, Kwara State, and in Bassa, Kogi State.

The sugar refineries transform raw sugar into white granulated sugar, which is utilised by manufacturers of pharmaceuticals, bakeries and confectionaries, food, beverages, and dairy products. As a response to Nigeria’s backward integration policy in the Sugar Industry, BUA Group invested in large scale estates within the country to deepen local sugar production through the acquisition of the Lafiagi Sugar Company Ltd (LASUCO) in Kwara state in 2008 and also, the establishment of the Bassa Sugar Company in Kogi State.

BUA Food Bakery Flour/Pasta segment

Turnover from   Bakery Flour/ Pasta grew by 56  per cent to N123.8billion in 2021 from N789.3billion as the business segment contributed 37.2per cent to turnover in 2021 from 41.1per cent in 2020.

BUA Foods owns a state-of-the-art flour mill equipped with high efficiency specifications for energy saving and waste reduction. This flour mill commenced production in 2019 with a capacity of 500,000 MT per annum. The plant currently has 576,000 tons of flour milling capacity.   It has seven  wheat storage silos with 32,000tons storage capacity.

The group’s flour mill currently produces 315,000 MT of flour and 105,000 MT of bran, with sales revenue split of 91.3 per cent and 8.7 per cent respectively as at 31 December 2020.

The Pasta Division is involved in the processing, manufacturing and distributing pasta. It operates from BUA Foods’ Industrial Complex, Port Harcourt, Rivers State with a capacity to produce 250,000 MT of pasta per annum. To achieve BUA Foods’ drive to expand its product portfolio and create capacity ahead of demand and increase its Pasta market share beyond the North and the South-South of Nigeria, the company has invested in the construction of a second pasta processing plant with a capacity of 250,000 MT per annum.

The Rice Division has a rice milling facility with a capacity of 200,000 MT per annum. The company expects that the rice mill will be operational in 2022 and expects it to be the biggest single-line rice mill in Nigeria.  BUA Foods  also expects that the rice mill will produce quality parboiled rice, with a very strong brand identity that will be identifiable to target customers. It will leverage the existing strong brand name and consumer loyalty with which BUA brand is already renowned.

The company currently has one rice mill and plans to expand its rice milling business to a combined capacity of one million MT per annum, by installing new rice mill facilities in Gujungu, Jigawa State and establishing a rice mill and plantation in Agaie, Niger State.

OPEX & Finance Charges

Analysis of the company’s results showed that BUA Foods recorded hike In Cost of sales, OPEX & Finance Charges. The group reported 78 per cent increase in cost of sales to N230.3billion in 2021 from N129.3billion reported in 2020, driven 92.6 per cent growth in raw materials. The group reported N211.3billion spent on raw materials in 2021 from N101.25billion reported in 2020. The growth in raw materials was a result in foreign exchange restrictions and hike in inflation rate. 

However, the Group closed 2021 audited with 62 per cent increase in gross profit to N102.96billion from N63.57billion reported in audited 2020 result and accounts.

The Group’s total operating expenses gained 72 per cent to close 2021 at N24.76billion from N14.44billion reported in 2020. 

The breakdown revealed that Administrative expenses grew by 40.34 per cent to N14.62billion in 2021 from N10.42billion in 2020 as Selling and distribution expense closed 2021 at N10.14billion, an increase of 152.4 per cent from N4.01billion in 2020 to N10.14billion in 2021.  The interplay between gross profit and OPEX dragged operating income to N79.89billion in 2021 from N51.06billion reported in 2020. From the profit & loss figures, the Group’s finance income moved from N30.99million in 2020 to N2.89billion in 2021, while finance charges grew by 40.2 per cent to N5.05billion in 2021 from N3.6billion in 2020. 

Profits emerged stronger

On the backdrop of significant growth in turnover and effective management, the Group in 2021 reported N77.5billion net profit before tax, 64per cent growth from N47.25billion reported in 2020 

As tax income dropped by 35per cent to N7.7billion in 2021 from N11.84billion in 2020, profit after tax gained 97.4 per cent to N69.8billion in 2021 from N35.41billion reported in 2020.  The growth in profit drives Earnings Per Share to N4.24 in 2021 from N1.97 recorded in 2020.

Strong balance sheet position

In the audited results, BUA Foods recorded stronger total assets as growth total equity and current total assets improved.  The group total assets gained 59 per cent to N593.5 billion in 2021 from N374billion in 2020 audited result and accounts for period ended December 31, 2020. As Total Non-Current Assets gained 44 per cent to N323.3billion in 2021 from N224.4billion in 2020, total current assets increased by 80.2 per cent to N270.2billion in 2021 from N149.9billion in 2020.

Meanwhile, total equity grew by 53.3 per cent to N200.72billion in 2021 from N130,95billion in 2020.

The group’s Total Non-Current Liabilities dropped by 0.6 per cent to N52.39billion in 2021 from N52.7billion in 2020, while total current liabilities grew by 78.53 per cent to N340.4billion in 2021 from N190.65bllion reported in 2020. 

In addition, total liabilities increased by 61.4per cent to N392.7billion in 2021 from N243.4billion reported in 2020.

Analysts View

Analysts at CSL Stockbrokers, maintained that BUA Foods has an excellent and well diversified product portfolio to compete with peer rivals in the FMCG Industry, which makes its share price attractive because of expected sales and profit growth.

“It has a 1.5million MTPA combined sugar production capacity, eight ultramodern factories for producing rice, sugar, pasta, flour and 20,000 hectares of arable land located in Lafiagi, Kwara State. The new consumer goods firm has two ultra-modern and automated sugar refineries (BUA Sugar Refinery, Lagos and Eastern Sugar Refinery, Port Harcourt) with a combined installed refining capacity of 1,500,000 metric tonnes.

“BUA is the only sugar refiner to have refining capabilities outside Lagos, Nigeria. In response to Nigeria’s backward integration policy in the Sugar Industry, BUA Group acquired the LASUCO in Kwara State in 2008 and established the Bassa Sugar Company in Kogi State,” the analysts said.

They explained that BUA Foods is poised to create a more competitive arena as it has established a state-of-the art plant in Port Harcourt, to cater to the growing needs of fast-growing young population who crave for consumption.

The food businesses that were merged into BUA Foods are: BUA Sugar Refinery Limited; BUA Rice Limited; BUA Oil Mills Limited; IRS Flour and IRS Pasta. 

According to the group, the consolidation became necessary to maintain its market leadership in the agribusiness and food processing sector as well as take advantage of the growth opportunities in the economy and the export prospect presented by the African Continental Free Trade Area (AfCFTA).