BUA Cement continues with its profit decline streak in Q1 2024

BUA Cement Plc has released its financial results for Q1 2024, marking yet another period of profit decline with a pre-tax profit down 39.97% to N21.286 billion, compared to N35.461 billion reported in Q1 2023. 

This decline follows the 44.05% year-on-year decrease in pre-tax profit in 2023, as disclosed in its audited report for the full year of 2023.  This decline comes amidst challenging economic conditions marked by high inflation, interest rates, and exchange rate fluctuations.  

Key highlights (Q1 2024 v. Q1 2023):   

  • Revenue: N161.131 billion +51.51% YoY  
  • Cost of Sales: N116.188 billion +107.56% YoY  
  • Gross Profit: N44.944 billion -10.78% YoY   
  • Selling and Distribution Expenses: N6.980 -3.91% YoY 
  • Administrative Expenses; N4.528 billion -5.05% YoY   
  • Operating Profit: N33.47 billion -12.79% YoY  
  • Net Finance Cost: N1.818 billion -31.36% YoY  
  • Foreign exchange loss: N10.055 billion +687.95% YoY  
  • Profit after tax: N17.970 billion -32.95% YoY  
  • Basic EPS: N0.53 -32.91% YoY  
  • Cash and cash equivalent: N176.204 billion -21.71%.  

A cursory review of the financial statements indicates that the decline in profitability can be attributed to a substantial increase in FX loss and cost of sales. 

  • In Q1 2024, BUA Cement reported a record FX loss of N10.055 billion. 
  • The increase in sales costs was driven mainly by the elevated costs of materials and energy. Consequently, the growth in the cost of sales outpaced the growth in revenue. 
  • Material and energy costs collectively surged by 151% to reach N104.306 billion, constituting 89.77% of the total cost of sales. 
  • This appears to have evidently affected both gross and operating profits, leading to a contraction in margins despite the decline in operating expenses. 

Declining profits and margins signal reduced earnings and imply challenges in cost control relative to revenue, potentially raising concerns about the company’s financial health, sustainability, and dividend payments, particularly if the trend persists. 

The decline in profits likely played a significant role in the 29% reduction in dividend per share for the 2023 financial year. 

Investors may perceive this as a negative signal regarding the company’s performance and outlook, which could undermine confidence and result in a downturn in the stock price.  

Since the release of its 2023 audited results on February 29th, the share price has dropped approximately 23% from its peak of N185 on February 5, 2024. 

Nevertheless, it’s reassuring to observe proactive measures taken by the cement company to mitigate operating costs. At the Sokoto plant, there’s a notable increase in the use of natural gas, offering cost savings compared to traditional heavy oil. 

Additionally, BUA is investing in compressed natural gas (CNG) powered trucks, aiming to reduce transportation expenses nationwide. Furthermore, progress is underway on a 70MW gas power plant at its Obu works. 


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