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BUA Cement battles with rising costs in Q1

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BUA Cement Plc suffered a drop of 19 percent in after tax profit to N26.8 billion in the first quarter, a worse performance than a sharp slowdown in the preceding financial year.

The cement producing company had lost profit growth momentum in 2022 as profit decelerated from 26 percent advance in the prior year to 12 percent to close the year at N101 billion.

The company’s interim financial report for the first quarter ended March 2023 shows that rising costs are the speed breakers – consuming increasing proportions of revenue and squeezing margins.

The pressure has been on since last year when sales revenue grew more than three times ahead of profit at over 40 percent compared to 12 percent.

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The cost-income imbalance has intensified in the current financial year, as sales revenue slowed down and costs grew in the first quarter. That has shrunk profit margin from 34 percent in the same period last year to 25 percent at the end of the first quarter.

All-round cost increases happened in the first quarter, which is worsened by weakening growth in sales. At N106.4 billion, sales revenue grew by 9.7 percent year-on-year at the end of the first quarter, down from a top record growth of 58.5 percent in sales in the same quarter last year.

A major drop of 75.2 percent in other income to N46 million during the period added to the company’s operating constraints on the side of earnings.

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Production cost grew ahead of sales at 14.7 percent year-on-year to close at roughly N56 billion at the end of March 2023. That claimed a good part of the increase of N9.4 billion in sales revenue and weakened the improvement in gross profit to 4.5 percent to N50.4 billion at the end of the quarter.

Selling and distribution cost experienced a high jump of 124 percent year-on-year to stand at N7.3 billion at the end of the first quarter. The expense line had grown by 130 percent at the end of last year.

Administrative expenses extended the pressure with an increase of 72.9 percent to about N4.8 billion. The figure sped up from 55 percent growth the company recorded in the 2022 full year.

The two cost increases consumed more than all the increase in gross profit, resulting in a drop of 9.4 percent in operating profit to N38.4 billion at the end of the review period.

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The biggest cost increase came from net finance expenses that multiplied more than 87 times to N2.6 billion in the first quarter. Net finance cost equally led cost increases last year – jumping eight times to N8.6 billion at the end of the year.

BUA Cement carries interest bearing debts in the region of N221 billion, which is a reduction from N239.4 billion at the end of last year. This is in addition to lease liabilities of N88.3 billion, which has expanded from N55.8 billion at the close of the 2022 operations.

The company ended the first quarter operations with a pre-tax profit of N35.5 billion – which is a drop from N42 billion in the same quarter last year.

The closing after tax profit of N26.8 billion for the quarter is also a drop from over N33 billion during the same period in the preceding financial year.

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BUA Cement needs to push sales strong enough to absorb rising costs that are likely to persist if the company is to head off profit drop in the coming quarters. The ability to stretch out sales revenue growth will be the critical development to watch on the company at half year.

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