Good day ladies and gentlemen and welcome to the BUA Cement half year 2021 results conference. All participants are currently in listen-only mode and there will be an opportunity to ask questions later during the conference. Participants on the webcast may publish their questions in the text box at the bottom of the page. If you need assistance on the conference call, please speak to an operator by pressing * and then 1. Please note that this event is being recorded. I would now like to turn the conference over to the Managing Director and CEO, Mr Yusuf Binji. Please go ahead sir.
Thank you for joining us on this conference call, as we present to you key insights and drivers of our half year financial performance, coupled with activities undertaken and achievements during the period. Presenting with me on this call are Mr Jacques Piekarski, the Chief Financial Officer, and Mr Finn Arnoldsen, the Group Chief Operating Officer. If you would kindly turn with me to slide six, for participants joining us for the first time, BUA Cement is the largest cement manufacturer across the north-west, south-south and south-east regions of Nigeria and is set to become the second largest cement manufacturer in Nigeria this year with the commissioning of our 3 million ton per annum line 3 at Sokoto by the end of the year.
We recorded ₦124.3 billion in revenues, which was up 22.7% from the corresponding period in 2020. Our credit ratings remain at investment grade with Agusto & Co upgrading us from A to A+ citing the company’s strong sustainable cash flow which is upheld by favourable terms of trade with customers, improved leverage metrics and working capital adequacy. These are bolstered by a good funding mix and a stable and experienced management team. Turning to slide seven, we provide our journey map which showcases the journey so far and the milestones attained since our incorporation. On slide eight we highlight our strategic positioning across Nigeria with our operations at Edo and Sokoto states.
Turning to slide ten, it is our first half of the 2021 highlights. Despite the degree of economic uncertainty, our sustained performance and positive outlook was underpinned by unceasing cement demand and supported by our excellent business model. In view of this, EBITDA increased by 23.6% to ₦58.4 billion from ₦47.3 billion as at H1 2020 with EBITDA margin also increasing to 47% from 46.7% during the first half of last year. Similarly, profit after tax rose by 24.6% to ₦43.3 billion from ₦34.8 billion as at the end of the first half of 2020. Earnings per share were up 24.3% to 128 kobo from 103 kobo during the corresponding period last year.
We continue to make good progress on our expansion strategy with the ongoing construction in Edo and Sokoto states. Just as we remain committed to ensuring our activities have minimal impact on the environment and maximum influence across individuals, communities and the economy. I will share some of our activities embarked upon in the course of this presentation.
If you will please turn with me to slide 11, we showcase our sustained performance with revenue per ton recording a 10.6% rise to ₦45,479 from ₦41,120 last year resulting from lifting bonus adjustments. EBITDA rose by 23.6% to ₦58.4 billion from ₦47.3 billion driven by top line growth and continued cost containment measures, which was reflected in the recorded decline in our operating measure which recorded a reduction to 59.4%. Notwithstanding the high inflationary environment we were able to sustain EBITDA margin at 47%.
Turning to slide 12, we showcase the drivers of EBITDA. During the review period revenue increased by 22.7% or ₦23 billion, a combination of increased sales volume and bonus discount adjustments. Cost of sales rose by 19.1% or ₦10.6 billion to ₦66.2 billion from ₦55.5 billion as at the end of the first half of last year, led by higher input costs together with increased sales volumes. Hence, distribution and administration costs net increased by 24.3% or ₦1.48 billion to ₦7.6 billion, attributable to increases in wages and salaries, construction costs for the 3.7km road in Edo State, which is a CSR initiative, the upgrading of our IT infrastructure in both plant, the bond listing fees and the provision of medicine to some primary healthcare centres.
Despite the inflationary environment, cost containment remains a focal point for us. If you turn to slide 13, we highlight some of our achievements in this regard. Cost of sales per ton rose by 7.3% to ₦24,210 per ton from ₦22,553 per ton, driven by higher input costs due to the devaluation of the Naira. Energy cost per ton decreased by 1.4% to ₦9,104 per ton from ₦9,234 per ton, the result of higher volumes. Along the same lines, selling, distribution and administrative cost per ton increased by 12% to ₦2,780 per ton from ₦2,482 per ton owing to increases earlier highlighted.
On slide 14 we showcase the progress so far on our strategic intents that we articulated at the beginning of the year. We have commenced the usage of LNG in some of our operations at Sokoto and we have also introduced the rebranded Sokoto Cement packaging bags into the market. In doing so we are further strengthening our product offering by combining the strength of the BUA name with the enduring Sokoto brand. We now look forward to the commissioning of the 3 million tonnes per annum line 3 plant in Sokoto before the end of this year.
Slide 15 showcases our scorecard from our environmental footprint together with our continued prioritisation of the environment. Activities embarked upon during the period include the provision of solar powered potable water to communities at Okpekpe and Ibie, both in Edo State, a donation of medicine to seven primary healthcare centres in Sokoto we commenced the rehabilitation of the Okpekpe road, and continued the award of scholarships to students both in Sokoto and Edo States. For us these activities reinforce our approach, values and keenness to sustainability as we remain operationally conscious, socially engaged and economically involved. I will now kindly request for the phone lines to be opened so that we can take some of your questions. Thank you very much for listening.
Thank you very much, sir. Ladies and gentlemen on the conference call, if you wish to ask a question, please press * then 1 on your touchtone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. Participants on the webcast may post their questions at the bottom of the page in the text box provided. Ladies and gentlemen on the conference call, again if you could please press * then 1 again just to make sure that you are in the queue. Thank you. The first question is from Ayodeji Dawodu of Standard Bank Group. Please go ahead.
Good afternoon everyone, and thanks for the call, and congrats on the half year performance. I have three questions really. First of all just to get your views on outlook for the second half of the year particularly on demand and ex-factory prices. My second question is on the LNG project. Has that kicked off, and was that responsible for the moderation we saw in energy cost? And my third question. Is there are particular reason for the delays in the commissioning of line 3? We were expecting this in the first half of the year where it appears to now be in the second half of the year. That will be all from me. Thank you.
Thank you very much, Mr Ayodeji. I will speak briefly on the last two and then I will also ask Mr Finn Arnoldsen to assist me on the question on outlook and demand and prices for the second half of the year. Let me start with your last question, the delay in commissioning of line 3. Initially when we mentioned Q1 2021, that was before the onset of the pandemic. And this came with a lot of setbacks. We couldn’t get in a lot of the power and equipment, and at some point even the work had to be scaled down. But we were very resilient and we quickly came back on stream. As I’m talking to you now the construction job is more than 90% completed and we are set to commission by the end of this year. The delays affected also the construction of our power plants, but that is also back on track. We expect to start the commissioning of the 50 MW power plant in October, and definitely once the power is there we will start the commissioning of the cement plant. But it didn’t slip by that much considering the circumstances.
We have commenced the use of LNG. Now, if you may recall, the LNG liquefied natural gas that we plan to use as a strategic option is going to be in two phases. The first phase involves using this LNG to replace some portion of the coal. So this is going to help with our carbon footprint and also reduce the dependency on that portion of coal we are importing, and therefore saving the country a lot of forex. The second portion intends the use of LNG to power our generating units that supply us with electricity. Presently we have a 48 MW power plant that is running entirely on liquid fuel, either the local fuel oil called black oil, or the diesel oil.
Now, we are building another 50 MW power plant that I said we would start commissioning in October. And this is entirely going to use LNG. So the use of LNG has started successfully in our plant in Sokoto on 10th June 2021. We have replaced a significant portion of the coal in our kiln. The kiln is where you actually produce clinker which is the major intermediate product for making of cement. This has been very successful. We have achieved our intents 100% from that aspect. We have built storage facilities for storing energy in Sokoto.
We have tested the logistics all the way from Port Harcourt to Sokoto. And now for the last six weeks the logistics has been hitch-free without any major issue. Our storage tanks in Sokoto which are meant to give us a proper stock of LNG are all filled up. We are expanding on those. And I’m even happy to tell you that as early as next week we will start using the LNG on some generators that we rented from a rental company, pending the completion of our own power plant which will use LNG 100%. We will start commissioning it in October. So it has been a very successful exercise and we are very happy and excited about it.
Regarding the outlook on cement during the second half of the year, I will just mention briefly that demand has been very strong during the first half of the year. I believe all the manufacturers struggled to be able to meet the demand. I believe the consumption or demand during the first half to the year would have been much more than what it was had the companies been able to produce more cement. That has continued in July. But I will allow Mr Finn Arnoldsen to really talk about the demand and where the prices are going for the remaining part of the year. Finn, over to you
Thank you so much, MD. Good afternoon ladies and gentlemen. Just some few additional comments to what we expect to happen over the next two quarters of the year. As the MD is saying, we had a very strong first half year. Surprisingly this very strong demand continued also into the rainy season. As you all know, the rainy season starts around May and continues up till something like August or September. But the demand just continued, and quite big challenges from all the producers because it’s pretty challenging to cope with all the supply across the country when the rainy season has started. So what we have seen for the first two quarters or for the first half year is around 20% increase in the sales compared to the same period last year. If you look at Nigeria totally we are between 15 million to 16 million tonnes for the first two quarters, including a couple of months with rainy season.
So for us our assessment is for the forecast for Q2 and Q3, which traditionally is stronger than the Q2, we expect this trend to continue and that all the players will really have a big challenge to cope with the demand. So we will not be surprised if we see something around 30 million to 32 million tonnes total consumption during the year. And if you remember what happened last year, for the whole year it was around 26 million. Strong growth last year and a very strong growth this year. There are a lot of questions. How is this happening when we see the challenges in the economy with the depreciation of the currency, forex difficult and so on? But again it is more or less the same answer.
Cement and building activity is clearly pretty dominant because a lot of retailers and a lot of project construction companies are really having a boost because of the difficulty to transfer the foreign currency out of the country towards other projects. And you can also see that this depreciation of the currency is also playing a role in the financial markets here. So people are using if they have surplus to invest into assets and cement-related assets. So this is the main reason for this driver. We have seen lately that the demand is coming slightly down compared to a couple of months ago. So we can see a little bit downward trend in the retail prices, but not significant as we should expect.
So just to summarise for the volumes, we expect a strong Q2 and a very strong Q3. Q3 is normally the absolute best months in terms of cement demand. On the prices, as you are aware of there was a recent increase by the players on the prices in order to compensate for the cost increase and also in terms of the depreciation of the currency. But as we see it now we would not be surprised if we will see a dramatic increase in the prices for the next two quarters. Of course we can never be sure. A lot of the assumption could change. But as it looks now we hope also for the benefit of the customers that we don’t need really to address the prices much more.
We are roughly on the same EBITDA margin as we had for last year, so we are balancing prices actually with the traditional results we’ve also presented for 2020. But it is a very unpredictable society these days, so it’s hard to tell. So I think this just gives a brief update on how we see it. But basically strong demand, no expected price increase as it looks today. So I think this is from my side. Thank you.
Thank you very much. Just to follow up, would you say that the drivers of demand are still the same and it has really been the private sector and residential housing demand that has been pushing consumption?
Thank you so much for that question. That is interesting. Yes, as we had mentioned earlier, traditionally Nigeria has been a relatively high ratio of public projects. But we have seen in the last couple of years that the tendency towards the private consumer market has really been driven up. And that continues. As we have seen across the country there is a lot of construction going on with roads and dams and so on, but still the main driver actually is from the retailer. So as we can see the balance between public construction and private construction is moving towards more and more private. You know agriculture situation in the country is going pretty positive. That means it is getting more access into several areas of the country, so we can penetrate more new regions. That is also part of the explanation. We can see more consumption coming up in traditionally pretty weak areas. And this is due to improvement of infrastructure mainly driven by small operators. Thank you.
Thank you very much. Then the next question is from Khalil Woli of CardinalStone Research. Please go ahead.
Okay. Thank you very much for the call. I just wanted to clarify what you said on the LNG projects. Is it meant to replace coal as a source of energy for the kilns?
Thank you very much, Mr Khalil. It is meant to replace a portion of the coal for the kiln. Traditionally we have been using coal from two sources. One is the local coal and second is the imported coal. So we have replaced the imported portion of the coal with LNG for so many reasons. So we are now using a combination of LNG and local coal for firing our kiln in Sokoto.
Thank you. Then the next question is from Mustapha Wahab of Chapel Hill Denham. Please go ahead.
Thank you very much. I just want to follow up on that energy cost issue. At some point I thought BUA was building a coal mine at least to mine coal domestically. I’m wondering what level you guys are seeing on that project and any updates.
Mr Wahab, we are not building a coal mine. We have not stated we are building a coal mine and nowhere has it appeared in our records that we have said we are building a coal mine. We don’t intend to go into coal mining.
Download the Full Transcript