N27bn Foreign Exchange Loss, Finance Expenses Limit BUA Foods’ Profit In Q1

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Foreign exchange losses of over N27 billion and finance expenses of N15 billion in the first quarter prevented BUA Foods Plc from launching an extraordinary year of profit delivery.

Sales are accelerating from the high-speed growth of the preceding year, and about one-half of the entire year’s turnover of N729 billion in 2023 was earned in the first quarter of 2024.

However, significant cost increases keep the vast gains in sales revenue from reaching the bottom line.

The company’s interim financial report for the first quarter ended March 2024 shows a much more rapid increase in costs than income, which has crashed margins, squeezing out a significantly reduced profit per naira of sales.

The food-producing company ended the first quarter with sales revenue of almost N357 billion, a significant expansion of over 147 per cent year over year. This represents an additional sales revenue inflow of roughly N213 billion within the quarter.

The strong top-line growth in the quarter smashed last year’s outstanding records, when sales grew by N311 billion or 74.4 per cent for the entire financial year.

The impressive revenue growth cuts across almost all the consumer-facing company’s product range, with the sugar business leading in both volume and growth margin. At about N198 billion, sugar sales grew by 221.4 per cent in the quarter, accounting for 55.5 per cent of group turnover.

Bakery flour sales followed, increasing 172 per cent year-on-year to N80.6 billion at the end of the first quarter.

However, production costs grew much faster than sales, at 175.5 per cent over the period to close at N241.5 billion. Therefore, they claimed as much as N154 billion of the N213 billion increase in sales.

At N115.4 billion, gross profit still more than doubled to 103.7 per cent, but the gross margin is down from 39 per cent to 32.3 per cent over the period. The decline reflects an increase in the production cost per unit of sales from less than 61 kobo to about 68 kobo during the period.

This is a reversal of the preceding year’s records when sales production cost per naira went down from 68 kobo to 64 kobo.

Other cost increases came from administrative expenses, which rose by 75.4 per cent to N4.6 billion, and selling and distribution costs, which grew by 55.6 per cent to N9.8 billion.

There was a significant inflow from other income – which multiplied more than nine times to N3.7 billion and helped to dilute the cost increases.

Operating profit, therefore, stretched out at 117.5 per cent to N104.7 billion at the end of the first quarter.

However, the increase of N56.8 billion in operating profit was largely consumed by net finance costs of N15 billion and foreign exchange losses of N27.3 billion.

Net finance costs multiplied more than seven times in the quarter, and foreign exchange losses were completely off the company’s records in the first quarter of last year.

Pre-tax profit grew by N16.4 billion, or 35.7 per cent, to close at a little over N62 billion in March 2024. After-tax profit rose by about 38 per cent to stand at N55.8 billion for BUA Foods at the end of the first quarter.

The company closed the 2023 full-year operations with a pre-tax profit flat at N108 billion, which was beefed up by an income tax credit of almost N4 billion to top up to an after-tax profit of N112 billion for the year.

The company earned N3.10 per share in the first quarter, increasing from N2.25 per share in the same quarter last year. It declared a cash dividend of N5.50 per share to shareholders for the 2023 operations.

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