The board has proposed a final dividend of N1.75 per share, which translates to a yield of 5.6% on yesterday’s closing price (N31.20 per share), and a payout ratio of 97.8%.
Energy Cost Remains a Major Headwind: The Group’s gross margin was weaker relative to the prior year as input costs rose by 57.6% y/y, well ahead of revenue growth, to set the stage for a 340bps deceleration in gross margin. This came amid the reported 37.5% y/y expansion in gross profit. We highlight a sharper growth in energy cost per tonne (+14.7% y/y) as the key driver. We are aware that BUA Cement had to grapple with a significant energy cost pressure for much of 2019. In fact, management acknowledged, during one of their engagement meeting last year, that its short-term strategy was to (1) reduce the proportion of expensive imported coal to 30%, (2) as with Ashaka, operate own coal mines, and (3) transport the coal using company-owned transportation, as against the third party arrangement currently utilised
Speaking on the result, Managing Director of BUA Cement, Yusuf Binji said, ” Through the adoption of a focused and disciplined approach, we continue to record strong revenue growth, even as we derive revenue and cost synergies from the merger across: pricing, scale and operational efficiencies; all supported by a sustainable business model and a value-oriented strategy, which have translated to growing market acceptance and is reflective in our margins. This is Despite the complexities and uncertainty that trailed the economic environment in 2019. We delivered on important strategic priorities, such as: the commissioning of our 3mmtpa Line-2 at our Obu Plant in March, 2019; the merger completion between CCNN Plc and Obu Cement Company Limited and commenced the listing process of BUA Cement Plc, the resultant entity of the merger on the floor of the Nigeria Stock Exchange (NSE), with the eventual delisting of CCNN Plc.
Going forward, our focus is to further harness the full benefits of the merger while making further in-roads to “new markets” both locally and outside Nigeria. We understand that the local and indeed the global economy would experience more uncertainties, yet we expect continued strong showing across the business, spurred-on by continued recovery across the global economy”.
In his comments Acting CFO, Chike Ajaero said, “In 2019 we reported a decline in Profit after Tax (PAT) from N64.07 billion in 2018 to N60.61 billion which was due to income tax credit of N26.76 billion in 2018 from reversal of previous tax provision made on Obu Line 1 and deferred tax credit on securing approval for tax exemptions under pioneer status incentive in 2019. Net deferred tax charge of N5.15 billion was provided for in the current year and actual tax payable of N475.29 million. Obu Line-1 and Kalambaina Line -2 are both on pioneer status approved in February 2020 for 2-years (extension) and 3-years respectively. The computation of Earnings per Share (EPS) for 2018 has been re-stated, to reflect a business combination under common control, as at January 2018”.
It should be noted that BUA Cement Plc is Nigeria’s second largest cement producer and the largest producer in its North-West, South-South and South-East regions; with a combined installed capacity of 8 mmtpa and with plans underway to increase existing capacity to 11 mmtpa, through the commissioning of a new 3 mmtpa plant by the first half of 2021 in Sokoto State, Nigeria. BUA Cement operates strategically from Okpella, Edo State and Kalambaina, Sokoto State and is committed to quality – a differentiating attribute, driven by its people, innovation and technology; and positioned to solving Nigeria and Africa’s challenges while driving economic growth and development.
Experts said BUA Cement’s result is impressive in our view, with capacity utilization rate already at 56%, portending that the Nigerian cement market is big enough to accommodate three. Nonetheless, we believe 2020 will be the first true test for the company, given the challenging public and private cement demand outlook, mostly occasioned by COVID-19, it was added.