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Why BUA Cement’s merger of subsidiaries is a masterstroke

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BUA Cement Plc is reaping the benefits of merging two of its subsidiaries into a solid entity as full year earnings surged, even as the lockdown imposed by government to curb Cov-19 has disrupted construction activities.

Despite the complexities and uncertainty that trailed the economic environment in 2019, the company’s pretax profit increased by 69.19 percent to N66.23 billion in December 2019 from N39.16 billion the previous year.

Revenue followed the same growth trajectory as it was up 47.47 percent to N175.51 billion as at March 2020.

The company’s leverage ratio, which measures the level of debt incurred by a business against its assets, stood at 5.71 percent as at December 20219.

Earnings before interest and taxation (EBIT) spiked by 66.67 percent to N71.42 billion as at December 2019. What this means is that the company is efficient.

“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,” said Yusuf Binji, Managing Director of BUA Cement.

Binji said the company’s focus is to further harness the full benefits of the merger while making further in-roads to “new markets” both locally and outside Nigeria.

Last year, BUA Group consolidated or merged two of its subsidiaries: Cement Company of Northern Nigeria (CCNN) with two million metric tons of output and Obu Cement’s six million metric tons, to form the third largest cement manufacturer in the country.

The company has proposed a final dividend of N1.75 per share or N59.25 billion, that translates to a divided yield of 5.40 percent.

Nigeria’s construction industry has suffered its biggest drop since the recession of 2016 after building sites closed and the supply of workers, materials and safety equipment was heavily disrupted by the coronavirus pandemic.

The Federal Government has reduced the amount budgeted for capital expenditure in the 2020 budget by 20 percent due to weak earnings as crude oil price has dipped at the international market.

In 2016 when the economy went into a recession, the construction sector declined by 5.9 percent compared to the growth of 4.4 percent recorded in 2015.

Subdued activities in the construction industry had a spillover effect on the cement sector, where growth slowed drastically from 22.1 percent in 2015 to a negative growth of 5.4 percent in 2016.

“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,” said Binji.

As a result of a tepid economy, companies are cutting capital expenditure and slashing dividend so as to conserve cash flow required to undertake projects.

Lafarge Africa, the second largest producer of the building material said that it will freeze capital expenditure, as major infrastructure projects have been put on hold.

 

Capital expenditure in the first three months of the year stood at N2.9 billion, down from N6.9 billion naira in the same period last year.

Julius Berger Construction Plc, the largest listed construction company by market capitalization, said it would cut its dividend to N2 from N2.75 earlier declared.

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