BUA Cement Plc is busy taking pole position in the Nigerian cement industry. The company is the product of a recent merger which boosted the market capitalization of the Nigerian Stock Exchange by N1.3 trillion, making it the most capitalized company after MTN Nigeria and DANGOTE Cement.
The cement giant saw revenue improve by 25% Y-o-Y in Q1 2020 compared to the amount earned in 2019. Revenue in the cement industry is generally so reliant on capital expenditure and economic infrastructural developments. This encapsulates the resilience shown by BUA Cement in Q2 when it managed to record a 1% growth from N46.7 billion in Q2 2019 to N47.2 billion in Q2 2020. Note that construction activities slowed in Q2 2020 due to the COVID-19 lockdown.
Nigeria’s economy advanced only 1.87% year-on-year (Y-o-Y) in the first quarter (Q1) of 2020 compared to a 2.55% growth in the previous period, against the backdrop of restricted international trade, COVID-19, and a fall in oil prices. The economic adverse effects of these are crystal-clear, having spiralled across sectors of the economy.
Narrowing and streamlining the analysis of BUA Cement’s performance strictly to the first two quarters of 2020 highlights the financial impacts and brings to shore the regressions it has experienced.
- Revenue plunged by 12.2% from N53.9Billion Q1 to N47.3Billion Q2
- Gross profit downed by 9% from N24.5Billion to N22.3Billion
- Admin expenses had a 2% increase from N2.43Billion to N2.48Billion, further plummeting operating profit.
- 6% and 24.7% reduction in PBT and PAT were noted in Q2, from N20Billion and N19.8Billion in Q1 to N18.9Billion and N14.9Billion in Q2 respectively.
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The management of BUA Cement expects the bottom line to improve subsequently and is poised to expand the plants’ capacities. The company owns the Obu and Edo Cement Company Limited situated in the southern part of Nigeria. The plant has an installed capacity of 3.4 million metric tonnes (MT). Also, about a month ago, the chairman of BUA Group, Alhaji Abdul Samad Rabiu disclosed during a courtesy visit to the Adamawa State governor Ahmadu Umaru Fintiri, that there are plans to establish a 3 million MT cement plant and a 50 megawatts power plant in Guyuk and Lamurde local governments of the state.
In terms of regular business activities, BUA Cement Plc has doubled the cash generated from operations, markedly improving its net cash flow position. N64 billion was generated in 2020 half-year compared to N28.7 billion generated at the end of 2019. Investments also showed signs of improvement, as BUA Cement spent N42.7 billion in the purchase of property plants and equipment (PPE), a remarkably high number when we observe that only N22.8 billion was expended in the full financial year of 2019. The increased expenditure on PPE worsens the possibility of positive net cash flow but nevertheless, could posit confidence to investors and perhaps attract more funding. It paints BUA Plc as ‘forward-thinking’ and ‘bullish’.
BUA did not do so well as regards its liabilities. The statement of financial position showcased a sporadic jump from N434Million in Q1 to over N19Billion in Q2. This is attributable to obligations due to related parties. BUA must ensure it covers for and eliminates this item from its books in subsequent quarters to dispel negative investor concerns.
Debt to asset for BUA Plc rests at 5% with total liabilities standing at N120 billion and total asset at N519 billion. The import of this is that presently the company may possess more than enough assets to effectively cater for all its interest-bearing liabilities. BUA Plc is seemingly low-geared, and this directly sponsors the school of thought that room exists to take on more debts for capital expenditure (CAPEX).
The low yield environment in the Nigerian debt market emphasizes this point further. Now companies are being able to raise the lower cost of debt capital as compared to preceding years where interest rates were relatively higher due to high rates of government securities.