BUA Cement Plc – Q1 2021 results conference call transcript

By Published On: September 21st, 2022Categories: Corporate announcement, Transcripts

Operator
Good day ladies and gentlemen and welcome to the BUA Cement PLCs conference call to investors and analysts for the first quarter 2021 unaudited financial statements. 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 submit their questions in the textbox at the bottom of the page. Participants on the conference call, if you wish to ask a question later during the conference please press * and then 1 on your touchtone phone. If you need assistance from the operator please signal by pressing * and then 0. This event is also being recorded. I would now like to turn the conference over to the Managing Director and CEO Mr. Yusuf Binji. Please go ahead, sir.

Yusuf Binji.
Okay, good afternoon ladies and gentlemen and thank you for joining us for the first quarter 2021 conference call for investors and analysts. My name is Yusuf Binji. I’m the Managing Director CEO of BUA Cement PLC, and presenting with me on this call, Mr. Jacques Piekarski, the Chief Financial Officer, and Mr. Finn Arnoldsen, the Group COO. Now I will begin my presentation. I’m sure you have copies of the slides and we’ll go page by page. I’ll try to be as brief as I can since you must have gone through the slides previously. So if you will kindly turn with me to slide six. BUA Cement is one of Africa’s leading cement manufactures and the largest cement producer in the northwest, southeast, and south-south regions of Nigeria. BUA Cement operates from two states using three modern production lines with an annualised capacity utilisation rate above 60%.

It is noteworthy to mention that before the end of 2021 BUA Cement will become the second largest cement producer in Nigeria with the commissioning of its 3 million metric tonne per annum, production line number three in Sokoto State. At the end of the first quarter 2021 we achieved a 3.5% rise in cement dispatched to 1.4 million tonnes from 1.3 million tonnes as at the end of the first quarter of 2020, which translates to a 13.4% growth in revenue to ₦61.2 billion from ₦54 billion as at Q1 2020. BUA Cement is listed on the Nigerian Exchange Group (NGX), formerly the Nigerian Stock Exchange, and is the fourth most capitalised company with a market cap of ₦2.5 trillion as at March 2021. We are sustainability led by the United Nations Sustainable Development Goals and currently assigned investment grade rating by foremost rating agencies, Agusto & Co and GCR. Now if we go to slide seven, we showcase our journey so far culminating in the issuance of a ₦115 billion corporate bond, which is the largest bond issue in the history of Nigeria’s debt capital market.

The next slide showcases our strategic positioning across Nigeria, together with the output capacities across our plants. As you can see from that slide, we have two plants, one located in Sokoto in the northwestern part of Nigeria with a total installed capacity of 2 million metric tonnes per annum. The third line, which I mentioned earlier, will be commissioned before the end of the year will add another 3 million tonnes per annum. The second production line is located in Edo State. We have two lines with a total installed capacity of 6 million tonnes per annum. Now if you will turn with me to slide number 10. We provide you with highlights from the quarter just ended. Our sustained performance and positive outlook was underpinned by unceasing cement demand. An excellent business model ensures continued value creation and cost containment measures. EBITDA increased by 20.5% to₦29.7 billion, from ₦24.6 billion as at Q1 2020. While the EBITDA margin expanded to 48.5% from 45.6% as at Q1 2020. Similarly profit after tax rose by 13% to ₦22.4 billion with earnings per share also up by 13% to ₦0.66 from ₦0.53 for the same period last year.

We’ve continued to monitor market trends and yields as we plan a Series II Bond issue in support of our expansion programme. All in a bit to grow our market presence and create value, particularly given the unabated demand was made and is attendant impact on price. During the quarter, we identified an EPC contract to mobilise to site to commence the construction of 3.7 kilometre road to Afokpella, one of our host communities in Okpella Town Edo State. This is to aid the easy commute among the mostly agrarian community to and from their farms and equally allow for the effortless conveyance of their produce. If you recall during our last conference call I stated that the goal is to identify and get involved in impactful projects and we remain very committed to this course. Turning to slide 11, this is a highlight of our sustained performance and positive outlook. In view of this our revenue per tonne increased by 9.6% to ₦44,529 per tonne, from ₦40,625 per tonne, as at Q1’2020 due to some adjustments we made in the account structure. Similarly EBITDA increased by 20.5% to ₦29.7 billion, arising from increased business activity.

Over the next quarters we expect an increase in EBITDA resulting from the commissioning of the 3 million tonnes line 3 at Sokoto, aimed at addressing the persistent demand for cement. The EBITDA margin was up 2.9% to 48.5% from 45.6%. A combination of increased volume dispatched and a focus on costs. On slide 12 we show the evolution of EBITDA driven by revenues. EBITDA was up 20.5% to ₦29.7 billion, arising from a 13.4% growth in revenue. And despite a 6.9% increase in cost of sales to ₦32.1 billion due to energy and maintenance costs. Selling, distribution and administrative costs rose by 16.5% or ₦492.6 million due to an increase in distribution cost, which was up by 40% to ₦1.6 billion from ₦1.1 billion as of Q1 2020, All these arising from higher transportation cost and salaries. Depreciation and amortisation charges were up 10.7% to ₦4 billion from ₦3.6 billion during the corresponding period ended March 2020. The increase resulting from the expansion programme. Despite the rising inflationary environment which we operate in, prioritising our cost containment measures is very important to us.

If you observe our cost profile trends well below the reported inflation rate at the end of March 2021. Against this backdrop we recorded a 3.3% rise in cost of sales per tonne, to ₦23,324 per tonne from ₦22,577 per tonne. The increase in energy prices resulted in an 8.2% rise in energy costs per tonne, to ₦8,660 per tonne from ₦8,006 per tonne as at Q1 2020. Nevertheless, we expect the commissioning of the LNG gasification plant in Sokoto is going to result in cost competitiveness, as we substitute foreign coal with liquefied natural gas. Distributions recorded during the quarter led to a 35.3% increase in selling and distribution costs per tonne, a rise to ₦1,435 per tonne from the ₦839 per tonne as at Q1 2020.

On slide 14 we show the LNG storage and the gasification plant which will become operational later this month. I will further drive energy efficiency across our operations. Turning to slide 15, we highlight the ongoing strategic priorities which we’ve continued to make good progress on. On slide 16 we provide an update on our expansion programme. Currently the sites have been identified, approved and the contractors have mobilised to site. Besides some ancillary contracts negotiations have been carried out. We will provide frequent updates through the course of the year on developments. On this note may I kindly ask that the lines be opened so we can respond to some of the questions that you may have? I will be supported in answering your questions by Mr. Jacques Pierkarski, who is the Chief Financial Officer, and Mr. Finn Arnoldsen, the Group COO BUA Cement. Thank you gentlemen for listening.

Operator
Thank you, sir. Ladies and gentlemen on the conference call if you wish to ask a question please press * and then 1 on your touchtone phone or on the keypad on your screen. Participants on the webcast, if you wish to submit a question please do so at the bottom of the page. Our first question is from Mr. Wahab of Chapel Hill Denham. Please go ahead.

Mustapha Wahab
Hello, can you hear me clearly?

Yusuf Binji
Yes, we can hear you.

Mustapha Wahab
All right, fantastic. I would like to first congratulate you on the fantastic resourcing. And so my question really is going to be on the energy cost perspective. I see how you mentioned the BUAs making a lot of progress on the LNG storage that has been installed. So I just want to get a sense as to how much reduction we are going to be seeing from the energy cost per tonne perspective. Now I’ve seen an amazing work that you guys have done as far as keeping costs in check, but I still see that energy cost per tonne for BUA is still – way above that of your major competitors. So I just want to get a sense as to what you’re doing? I mean to at least reduce that sort of energy cost per tonne point of view. And secondly is on pricing outlook. I just want to get a sense as to how you guys have seen prices going to be shaping over the rest of 2021. I’ve seen that in Nigeria I think average price rose by roughly 9% in Q1 alone, should we be expecting something like this going forward or there’s another plan as far as management is concerned? So out I would like to get report on those two questions for now.

Yusuf Binji
Thank you very much Mr. Wahab, I must also extend my congratulations to you on the detailed analysis which was released earlier in the week on our Q1 results. Thank you for that. Regarding the LNG. We certainly do expect some reduction in the cost. The LNG is going to be used in our factory in Sokoto. Sokoto is located very away from any natural cheap source of energy as is being used by the other cement plants in Nigeria. There are no gas pipelines running up to the north. So we decided to create a virtual pipeline whereby liquefied natural gas will be dropped from Port Harcourt all the way to Sokoto and stored in cryogenic tanks for regasification and use. Definitely the cost of the gas is much, much cheaper than the cost of the LPO which we have been using for our pyrochlore test and also for powering our generators. As these prices do fluctuate quite a bit and some of them are dollar denominated, I will not be able to give you a figure. The differences have changed from the time we’ve conceptualised this project up to today, but definitely there is a saving cost.

But most importantly for us it is a more secure, reliable form of energy for our Sokoto plant which had been relying on imported LPFO and imported AGO for both power generation and for firing the kiln. This LNG is coming from Nigeria so I think we are ruling out a lot of the uncertainties associated with importation of a various a very scarce product especially during this pandemic. Yes, it’s true. Our energy cost per tonne still appears to be a bit higher than that of the competitors. I’m sure you have done your comparative analysis very well. This is mostly coming out of our factory in Sokoto and this is related to the answer I gave you for on the first part of your question. Because Sokoto, because of the distance is 1,000 kilometres away from the ports, you have to factor in this transportation cost in the hinterland. You have to factor in the fact that it is using LPFO, which is not available, which has been imported, and diesel, instead of gas which other cement plant in the south west and also our own factory in Okpella in those are using because they’re pipeline gas. Pipeline gas and coal still remain the cheapest form of energy compared to the liquid fuels. So definitely it is not unexpected. It is not due to any technical deficiency or inefficiency. It is just the energy. The cement process is highly energy intensive, as most of you are aware.

So any variation in the cost of energy will actually be reflected in the ultimate cost per tonne. But definitely we are not doing badly. It is our desire and hope to bring it further down by introduction of LNG, also moving away from using imported coal which will happen sometime before the middle of this year and will substitute that by the cheaper LNG. Yes, regarding the prices I will just say a little and I will also ask Mr. Finn if he’s with us to dip in a bit. The prices in real terms have not gone up much. We are not unaware of the hardship faced by Nigerians. And if you look at the inflation rate and the rising cost of so many inputs, especially this which we are using for transporting our cement, because we are not using any rail network, the devaluation of the naira and everything, we have decided to absorb all the extra costs on any price increase. We only did some slight adjustments to our discount structure, but the price of cement has not been increased between last year and this year. We are absorbing the extra cost and we are trying to be a bit more efficient so that we don’t pass this on to the ultimate consumers. But Mr. Finn can also say more about the trend for the future? Finn?

Finn Arnoldsen
Yeah, MD, good afternoon to everybody. Yeah, as Mr. Yusuf is saying here. I mean the inflation we are all observing. It looks like if you compare to Q1 last year is around 18% inflation. That of course all over cost side we try to be very cautious because mainly over a cost build up is also based upon local material, the raw material cost, the energy cost, everything here is more or less based on the local supply here. And we have long-term agreements here with many suppliers. So we are very much following over cost very strictly, despite that we are observing generally the inflation here. Yeah, you can say that it should be natural to try to adjust your prices when the general cost level in the country is coming up. But as the MD is communicating, we have a kind of a strategy that we now want rather to concentrate on to stay more competitive. That means we have to trim over structure very well here, optimise both on the distribution cost, which we still have some way to go in order to optimise the consolidation between over two activities. And of course also on the energy cost as the MD is saying.

So there is no really need to start to try to compensate for whatever the surroundings are telling us on the prices here. So no intention to do this, rather stay more competitive. If you look at the prices, the ex- works prices from the suppliers today comparable to West Africa, it is low. If you go to Benin, Togo, Niger you talk about something like 20% to 30% higher cost from the producers. So still Nigeria is operating on relatively low prices compared to other countries and neighbours we are having in West Africa. So I think that’s it. There’s not much to say about it. We can never predict a future, but as it looks today we will try to be more competitive on the prices, improve over margin. But we will not really take out premiums on the price as it looks today. Thank you.

Mustapha Wahab
Thank you very much for the insights.

Operator
Thank you very much. Ladies and gentlemen on the conference call again if you wish to ask a question please press * and then 1. Gentlemen, we have no questions in the queue – my apologies, we do have a question from Adedayo Ayeni of Renaissance Capital. Please go ahead

Adedayo Ayeni
All right, thank you very much for the opportunity. My first question really has to do with the demand environment. If we take the trend from last year, demand really started spiking in the third quarter. And we saw that in the final quarter we also seen that if we take the total numbers reported by yourself and by the other two competitors that you have, demands still remain strong. Now maybe my – the question really is, where is that demand coming from? You’re selling cement in the north and you’re also in the southeast. Where is the core of that demand coming from? That is the first. Secondly on government-driven projects. What is the trend that you’re seeing? Anything on infrastructure, anything on bulk cement sales for you that probably points to a maybe stronger outlook for demand in the rest of the year versus sort of this slowdown that we have seen in the last couple of months. And maybe finally on pricing. You’re adding 3 million this year. Your other competitor is adding another 6 million just a few kilometres from where you are in Opkella. Internally, what are you thinking about on pricing? Right? How are you thinking about pricing going out into the rest of the year? And I think that it’s from my side for now. Thank you very much.

CONTINUED…..

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