Nigeria: Bua Cement – Revenue Growth, Low Finance Cost, Source of Profits


With a 23% increase in revenue and a 56% decrease in finance costs, BUA Cement Plc increased its pre-tax profit by 40%, as shown in the financial statements for the period ended December 31, 2021.

Profit after tax also increased by 25% to N90.08 billion in 2021 from N72.34 billion reported in 2020, to position earnings per share (EPS) in 2021 at N2.66, i.e. a 24.5% increase over n2. .14 ​​reported in 2020.

The cement manufacturing company’s EPS growth was driven by revenue growth, stable margins amid high cost pressures and moderating financial charges.

Against a backdrop of growing earnings, BUA Cement’s Board of Directors proposed a final dividend of N2.60 for 1 ordinary share of 50 kobo each (a 25.6% increase from N2.07/ s in 2020), which implies that shareholders should enjoy a dividend yield of 3.7% based on the closing price of N70.75 (March 30).

Earnings in competition with peers

BUA Cement increased its revenue by 23% to N257.33 billion in 2021 from N209. 44 billion reported in 2020, driven by the sale of bagged cement which increased by 23% to 256.7 billion naira in 2021 from 209.01 billion naira in 2020 and the sale of bulk cement which increased appreciated by 40.5% to reach 614.8 million naira in 2021 against 437 billion naira. 71 million in 2020.

The company’s transactions in 2021 with one client – Chinedu and Sons contributed over 10% of the total cement sales revenue of N27.59 billion (2020: N60.1 billion).

BUA Cement recorded double-digit revenue growth, as did other industry players such as Dangote Cement which recorded a 38% increase in revenue to N1.38 trillion and Lafarge which increased its revenue by 27.1% to N293.09 billion in 2021. The increase in revenue is mainly due to the significant increase in the price of cement in 2021.

However, major geographic markets showed that BUA Cement outside Nigeria grew by 63.42% to N2.33 billion from N1.43 billion in 2020, while revenue in Nigeria increased by 23 % to reach 254.99 billion naira in 2021 from 20802 billion naira in 2020.

The company’s cost of sales (CoS) increased by 19.3% to N136.4 billion in 2021 from N113 billion in 2020, leading to a 27% increase in gross profit to N120.9 billion naira in 2021 compared to 95.5 billion naira in 2020.

As a result, the CoS/Revenue ratio decreased from 54.4% in 2020 to 53% in 2021, while the margin on cost of sales decreased from 48.1% in 2021 to 48.4% in 2020.

In addition to the ratio, BUA Cement’s gross margin increased from 51.6% in 2020 to 51.9% in 2021.

BUA Cement reported non-strategic revenue of N2.63 billion in 2021 compared to N375.52 million in 2020.

Miscellaneous income primarily relates to FGN promissory notes matured and liquidated during the year, the sale of scrap metal or scrap, grinding aid tanks and scrap pipe.

BUA Cement explained that it recognized modification gains of N1.4 billion (2020: nil) in respect of government grants and other long-term loans.

“The long-term loans from Fidelity Bank and Union Bank have had their interest rates reduced. Previously, the loan had an initial interest of 5% for the first 5 months and 9% for the following months. The initial interest rate of 5% was increased for a further 12 months by the Central Bank of Nigeria, and 9% thereafter.

“Both loans started in October 2020, so the initial interest rate of 5% was due to end in February 2021, however, due to the extension granted, the 5% will continue until February 2022, and the charges interest rates of 9% will now start from March 2022.”

For the year under review, BUA Cement said operating expenses (OPEX) increased by 27.3% to N19.33 billion in 2021 from N15.19 billion in 2020, in due to large increases in administrative expenses which increased by 29.1% to reach N13.32 billion in 2020. 2021 and sales and distribution expenses increased by 24% to reach N6.01 billion in 2021 , up from N4.86 billion in 2020.

With a 28% decline in finance income to 520.6 million naira in 2021 from 859.62 million naira in 2020, finance charges fell by 55.5% to 1.71 billion naira in 2021 from 3, 84 billion naira in 2020.

The substantial decline in financial costs to the marked reduction in gross debt by 26.8% to 197.05 billion naira in 2021 from 269.29 billion naira in 2020.

Overall, profit before tax (PBT) increased by 30.4% to N102.87 billion in 2021 from N78.87 billion in 2020, with the related PBT margin improving by 2. 3 basis points to 40% in 2021, compared to 37.7% in 2020.

Decline in customers and other debtors

BUA Cement reported a decline in total assets as current assets which declined by 40% to N144.2 billion in 2021 from N238.6 billion in 2021 was the main driver. The company thus reported N584.31 billion in non-current assets to N527.7 billion to plunge total assets by 5% to N728.5 billion from N766.3 billion in 2020.

While total liabilities fell by 15.4% to N330.4 billion in 2021 from N390.4 billion in 2020, BUA Cement increased total equity by 6% to N398.12 billion naira in 2021 compared to 376 billion naira in 2020.

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

The company explained that: “Outstanding bank borrowings relate to short-term import finance facilities (IFF) with several Nigerian banks with an average maturity of 12 months. They also include the portion of non-current bank borrowings repayable in the next 12 months Non- current bank borrowings are secured by the fixed and floating assets of the Company.

“They include N26 billion obtained from First Bank of Nigeria Plc for a period of 48 months from July 2020 at floating interest of 13.5% per annum. N2 billion was obtained from Union Bank of Nigeria and Fidelity Bank each for a period of 120 months from October 2020 at variable interest of 5% per annum until February 2022, then 9% thereafter.

Of debt securities issued in 2021, BUA Cement reported N113.56 billion in 2021 compared to N113.2 billion in 2020.

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

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

Upon initial recognition of the Series 1 bond, management assessed the impact of the call option on the bondholders’ contractual cash flows and determined that the call option did not affect significantly the contractual cash flows of the debt host contract, therefore the option is closely related to the host contract and is not separate from the host contract. The Series 1 bond has been classified as a debt measured at amortized cost using the effective interest rate.”

Analysts view

According to analysts at Cordros Research, “We appreciate that BUA Cement has optimized its price/volume mix to maintain stable margins despite energy cost pressures caused by local currency devaluation amid strong inflationary pressures.

“We expect private sector cement demand to moderate this year as real estate sector activity normalizes to pre-pandemic levels.

“Furthermore, we are concerned about the company’s ability to shift the burden of high energy prices onto consumers in an effort to preserve margins, given that cement producers have raised prices significantly. over the past two years.

“Nevertheless, we believe that the economies of scale associated with the new energy-efficient Kalambiana II (3MMT) line will support margins. Our estimates are being revised.”

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