BUA Cement: It Doesn’t Make Sense to Have Price Nigerians Can’t Afford -MD

BUA Cement Plc has indicated it has no plan to burden its customers with additional price increments despite high production costs, driven in part by rising spending on energy components.

In its first quarter of 2023 earnings presentation, the cement company’s Managing Director and Chief Executive Officer (CEO), Yusuf Binji told investors, and analysts conference that management focus is on production costs and margin.

Binji told investors, analysts conference that the business environment during the first quarter was challenging, having met with shocks with the government currency redesign policy and its impact on sales and distribution activities.

The cement company’s managing director also noted that the elections halted some of BUA Cement’s activities and price changes in some input materials, including energy costs.

“Nevertheless, we were able to record another significantly positive performance in top line growth while maintaining our investment credit rating, following the review by DataPro”, Binji told investors/analysts conference.

According to Q1-2023 result, the cement company’s revenue per ton increased by 18.5% to N66,250/ton in the first quarter of 2023 from N55,904/ton in the comparable period in 2022.

The cement company reported a decline in profitability in the period, and its chief executive told investors that the decline was driven in part by the election and naira crisis experienced in the first quarter of the year.

“Having met with shocks from the government’s currency redesign policy and its impact on our sales and distribution activities. The elections, which halted some of our activities and price changes in some input materials, including energy costs”, Binji told analysts.

He said nevertheless, BUA Cement was able to record another significantly positive performance in top line growth while maintaining its investment credit rating, following the review by Datapro.

Speaking about the result, Binji told analysts that BUA Cement’s net revenue increased by 9.7 % to 106.4 billion naira from 97 billion naira in Q1 2022. The increase was attributed to price adjustments recorded in 2022. Then, earnings before interest tax depreciation and amortization (EBITDA) declined by 2.8% to N45 billion versus N46.3 billion in the first quarter of 2022.

The management said EBITDA slumped despite growth in net revenues, which increased by 9.7% to N106.4 billion from N97 billion. However, the revenue growth was offset by increases in raw materials and energy costs, depreciation charges, distribution costs given the increased fleet size & fueling prices, and debt issue expenses.

BUA Cement said its EBITDA margin for the year was down by 5.4 percentage points to 42.3% from 47.7% in Q1-2023 due to increased operating costs. The company saw its cost of sales increase by 14.7% or N7.2 billion to N56 billion from N48.8 billion year on year, primarily from increases in raw material costs, depreciation charges, energy costs, and repair and maintenance costs.

Its selling, distribution, and administrative costs (net) increased by N3.5 billion to N5.4 billion as a result of increased fleet size, together with higher fueling prices; depreciation charges, and debt issue expenses.

In the period, management said the cost of sales per ton rose by 24% to N34,870/ton from N28,124/ton, as of Q1’2022 due to increases in raw materials costs, depreciation charges, and energy production costs.

In addition, BUA Cement saw energy cost per ton increase by 13.3% to N14,261/ton from N12,593/ton during the corresponding quarter ended Q1’2022, which resulted from a combination of energy price increases and fuel mix during the quarter.

BUA Cement’s chief executive told analysts conference that the expansion activities announced in 2021 continue to progress as planned. Construction activities for the additional lines at Edo and Sokoto States are progressing well. The commissioning is expected in 2024, Binji said.

The company said its profit after tax and earnings per share declined by 19.1 % and 19.4 % to 26.8 billion and 79.5 % per share, respectively. “The expansion activities we announced in 2021 continue to progress as planned, and commissioning remains on course for next year.

“On sustainability, we are committed to minimizing the impact of our activities on people and the environment while positively influencing the communities through this tangible investment made”. Binji said the company’s revenue per ton was up by 18.5% to 66,000 250 naira per tonne from 55,904 naira per tonne in Q1 2022.

The company’s EBITDA declined by 2.8 % to 45 billion naira, resulting from an increase in raw materials and energy costs, depreciation charges, and distribution costs, given the increase in fleet size, foiling cost, and debt issue expenses.

BUA Cement CEO said the combined effect of these cost lines led to a contraction in EBITDA, margin to 42.3 %. EBITDA drivers and the constraints met with a net revenue increase of 9.7 % or 9.4 billion naira to 106.4 billion naira from 97 billion naira in the prior quarter.

BUA Cement CEO said, “We also continue to sustain innovation and we pay very serious attention to sustainability issues with the transitions we are doing from heavy fuel oil in Sokoto to commitment of work in both our plants in Sokoto and Obu to install, additionally, 70 megawatts each of LNG or natural gas-powered power plants”.

On possible price increases, BUA Cement CEO said what the company is particular about is its production costs and margin and how it would be able to sell to the market because it doesn’t make sense to have prices Nigerian cannot afford.

The company said it raised its cement price in January to provide coverage for production costs, saying since then its market price per bag has remained stable.  At the close of the trading session on Friday, its valuation declined to about N3.05 trillion.