BUA Cement Plc recovered from a profit drop in the second quarter and pushed profit a clear 48 per cent up quarter-on-quarter in the third quarter ended September 2020. That has raised hopes for a profit rebound for the company at the full year from a profit decline in 2019.
The cement producing company realised an after-tax profit of N18.7 billion from third quarter operations. The accelerated growth pushed up the closing profit figure to over N53 billion for the nine months of trading. It raised profit growth from 13.7 per cent at half-year to 24 per cent year-on-year at the end of the third quarter.
The performance is consistent with our expectation at the end of half-year operations that “there is no significant change in the company’s earnings outlook for the full year, which indicates a comparatively low impact of the Covid-19-induced economic lockdown. The lost momentum in the second quarter is expected to be regained in the second half of the financial year. Overall, growths in sales revenue and profit are expected to remain good for the company to full year”.
Management has addressed the main challenges that caused the profit drop in the second quarter. The first is sales revenue, which picked up from a marginal increase of 1.2 per cent in the second quarter to a leap of almost 40 per cent quarter-on-quarter in the third quarter.
Also, rising tax expenses that posed a big hurdle to the company in the second quarter, changed direction from an 88 per cent surge in the second quarter to a drop of 17 per cent in the third. The company also retained the operating advantage of declining net finance expenses during the third quarter.
While input cost grew ahead of sales revenue in the third quarter, there was a slowdown from the second quarter position. This improved gross profit by 33 per cent quarter-on-quarter in the third quarter against a drop of 6 percent in the second quarter.
The upbeat in the third quarter improved the company’s year-on-year performance at the end of September 2020. This reflects a strong growth in sales revenue with a gain in profit margin, leading to the strongest profit improvement across the quarters.
BUA Cement closed the third quarter operations with sales revenue of over N156.6 billion, which is a year-on-year growth of 21 percent. This is a strong acceleration from less than 13 percent growth in sales at half year. The company has maintained rapidly growing sales revenue over the preceding five years.
Input cost remains a challenge, which continued growing ahead of turnover. At N84.8 billion, input cost grew by 28 percent compared to the 21 percent increase in sales revenue. It claimed an increased share of revenue at 54 percent against 51 percent in the same period in 2019. Energy cost accounts for 41 percent of the spending.
Gross profit stretched out from 5.5 percent increase at half year to 13.6 percent at the end of the third quarter to close at N71.7 billion. The company maintained a slower growth margin in gross profit than sales revenue due to rapidly growing cost of sales.
A significant development in the third quarter is a slowdown in administrative expenses from growing ahead of sales revenue to increase at a slower rate. It grew by 15 percent to N7 billion at the end of September 2020.
Selling and distribution expenses also moderated at an increase of 16 percent to N9.7 billion at the end of the period. The cost-saving from these two expense lines provided the room for the company to improve profit margin at the end of the third quarter.
Further gains came from an increase of 17 per cent in other income to N6 billion while an impairment write back of N1.2 billion at the end of half-year was maintained at the end of the third quarter.
The result of operating activities for the company at the end of September is an operating profit of over N62 billion – a year-on-year increase of 15.7 percent compared to 7 percent at the end of June.
Net finance cost maintained a declining trend with a year-on-year drop of 23 percent to under N3 billion at the end of September. The company’s balance sheet borrowings expanded in the third quarter from N26 billion at half year to N33.6 billion at the end of the third quarter.
BUA Cement closed the third quarter trading with an after-tax profit of N53.6 billion – a year-on-year growth of 24 per cent. This is a strong acceleration from the increase of 13.7 percent increase at the end of June. Profit margin remains good at 34.2 percent at the end of the third quarter, slightly up from 33.4 percent at half-year.
The company earned N1.58 per share at the end of September 2020, improving from N1.28 per share in the same period in 2019. It closed the 2019 operations with earnings per share of N1.79 and gave out N1.75 per share in cash dividend.
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