The sharp rise in costs has deflated the low-cost appeal of BUA Cement, plunging its profit in 2023 to a four-year low at N69.5 billion.
The audited financial report of the cement-producing company for the full year ended December 2023 shows that profit capacity was deflated by a slowdown in sales revenue and an upshot in costs.
At roughly N460 billion, sales revenue grew by 27.4 per cent or N99 billion – decelerating from an increase of over 40 per cent in the preceding financial year. However, the cost of production rose well ahead of sales at 40 per cent to N276 billion at the end of the year, consuming about N78 billion of the N99 billion increase in sales revenue.
The cost-income imbalance means that input cost claimed an increased share of the naira of sales in the year at 60 kobo compared to 55 kobo in the preceding year. The result is a reduced gross profit margin from 45 per cent to 40 per cent in the year, which lowered the increase of gross profit to 13 per cent – less than one-half of the 27.4 per cent rise in sales.
Another high rising operating cost uncovered by sales is selling and distribution expenses which rose by 47.7 per cent to N29 billion during the year.
The two major cost increases against the slowdown in sales revenue claimed most of the increase in turnover and left no room for the company to absorb a foreign exchange loss of almost N70 billion in the year without hitting the bottom line.
Foreign exchange losses had multiplied close to 13 times for the company from N5.5 billion in 2022.
Consequently, operating profit fell by 42.4 per cent to N74.7 billion at the end of the 2023 financial year compared to an increase of 24.5 per cent in 2022.
Finance income turned out to be a source of strength in earnings in the year with an inflow of close to N13 billion – a windfall compared to finance income of less than N2 billion in 2022.
There was equally an upsurge in finance expenses – which grew by 89 per cent to almost N20 billion but net finance expenses went down from N8.6 billion to N7 billion at the end of the year.
The company’s interest-bearing debts expanded from a little over N125 billion at the end of the preceding financial year to over N418 billion at the end of 2023.
Pre-tax profit dropped by 44 per cent to N67 billion in the full year while after-tax profit went down by a reduced margin of 31 per cent to N69.5 billion over the same period. This is the lowest profit figure for the company in four years.
The slower decline in after-tax profit is a reflection of a tax credit of over N2 billion in the year against an income tax expense of N19 billion in 2022.
While the corporate financial managers appear to have done a good job in balancing income and cost of capital to the reduction of net finance cost, the sales strategists may need a different approach in 2024.
BUA Cement earned N2.05 per share in 2023, down from N2.98 per share in 2022. It has announced a cash dividend of N2 per share for the 2023 operations.
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