BUA Cement Plc (BUACEMENT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to BAU Cement presentation to analysts and investors for the full year 2024. [Operator Instructions] Please note that this event is recorded. I'd now like to hand the conference over to the Managing Director and Chief Executive Officer, Mr. Yusuf Binji. Please go ahead, sir.

Good day, everyone, and thank you for joining us on this call. Today, I will be presenting with Mr. Chikezie Ajaero, the Chief Financial Officer that was appointed following the departure of Jacques Piekarski. Chikezie has been with BUA Group and BUA Cement for the past 20 years, and he has held various roles within the finance department until his appointment as the CFO/ED Finance in August last year. My name is Yusuf Binji. Full 2024 was a very significant year for us as we've commissioned the 2 new lines at Obu at Sokoto, along with 2 new 70 megawatt power plants. As such, our current installed capacity rose to 17 million metric tons per annum in 2024. In addition, we conducted the groundbreaking ceremony for a greenfield 3 million metric tons per annum cement plant at Ososo in Edo State. This will be a state-of-the-art facility running on very economical fuel mix. Upon completion, it will increase our installed capacity to 20 million metric tons per annum by the end of 2026. You already know who we are. BUA Cement is the largest producer of cement in the Northwest, South-South and the South-Eastern parts of Nigeria. We operate 6 modern lines that are operational across 2 states, in Sokoto India Northwest and in Edo State in the South. We have been highly rated by the credit rating agencies. We have an AA rating from DataPro and an A+ from Agusto & Co. As at the end of December, we have a market capitalization of NGN 3.1 trillion, making us among the top 10 highly capitalized companies in Nigeria. Now I will talk about our performance in 2004. In terms of the economy and its impact on the business, the continued depreciation of the naira caused continued challenges for us, impacting our operating and financing costs as the naira went from NGN 907 to a dollar in January 2024 to NGN 1,535 to the dollar as of December. Now if you will turn with me to Slide 10, which has been shared before the start of this program, you will see our performance highlights, which we titled: Recovery Amid Volatile Currency Environment. Against this background, net revenue increased by 90.5%. And to NGN 876.5 billion from NGN 460 billion recorded in the prior year. Equally, EBITDA increased by 43.8% to NGN 268.6 billion from NGN 186.8 billion in 2023. Even though EBITDA margin dropped by 10 percentage points to 30.6% from 40.6% in 2023. However, the profit after tax increased by 6.4% to NGN 73.9 billion from NGN 69.5 billion recorded in 2023, while earnings per share went up by 6.3% to NGN 2.18 from NGN 2.05 in 2023. Now if you will turn with me to Slide 11. You will see that our revenue per ton increased by 56.8% to NGN 107,092 from NGN 68,293 in 2023. The EBITDA increased by 43.8%, like I mentioned earlier, following the increase in top line revenue, even though this was offset by a rising operating costs that was driven by the depreciation of the naira. Consequently, our EBITDA margin dropped to 30.6% from 40.6% in the preceding year. Turning to Slide 12. We highlight the evolution of EBITDA in 2024. Our net revenue increased by NGN 416.5 billion year-on-year, while cost of sales increased by NGN 300.2 billion. The major drivers for the increase in cost of sales include the increase in operational activities, operations and maintenance charges, energy costs, staff costs and depreciation charges. In addition, selling, distribution and admin costs increased by NGN 34.5 billion due to the increase in fleet size, fueling cost donations, et cetera. In 2024, we added 515 trucks to our existing fleet. Now when we turn to Slide 13. We showed the impact of ForEx volatility on our operations. The cost of sales pattern increased to NGN 70,405 from NGN 40,983 in 2023 due to factors already earlier highlighted in the previous slide. The energy cost per ton increased to NGN 34,515 from NGN 18,301 in 2023, following a price review, depreciation of the naira and the increase in operational activities. Selling, distribution and administrative costs per ton increased to NGN 7,932 to (sic) [ from ] NGN 6,141 in 2023 due to an increase in distribution costs resulting from an increase in our fleet size, fueling cost, depreciation charges, staff cost, security expenses, et cetera. On Slide 15, you are going to see a highlight of our priorities for the current year 2025. Our focus this year is to stabilize our new lines, deepen our footprint in new and existing markets, and most importantly, drive significant cost reductions in our cost profile. We have started implementing measures to deal with these costs, and you will see the positive outcomes from this year. If you will turn with me to Slide 17, we showcased our environmental and social scorecard. We achieved a 24% increase in production, yet maintaining a low net emission impact of 2.9% and energy consumption of 4.8%. Although through resource efficiency, water recycling improved by 5%, while also attaining a 66% reduction of freshwater amplifiers. On sustainable development, we remain committed to minimizing the impact of our activities on the environment and continue to engage with all stakeholders, implementing community development initiatives through tangible investments such as providing university scholarships, improving the water supply and health care facilities, and facilitating skills acquisition to youth. We are implementing our environmental and social action plan according to International Finance Corporation World Bank performance standards to ensure efficient management of environmental and social risks, labor and working conditions, resource efficiency and pollution prevention, community health and safety, land acquisition and involuntary resettlement as well as biodiversity conservation and sustainable management of living natural resources. Ladies and gentlemen, thank you for your patience. At this stage, I would request for the lines to be open so we can address some of your questions. Thank you.

[Operator Instructions] Our first question comes from the telephone lines from Joshua Chinga of EDC Securities Limited in Nigeria.

Congratulations to your wonderful performance. I see the one comment I would like to -- I noticed that the external markets in terms of the export market, you intend to export to your external markets. I would like to know which markets are you targeting? Which markets are you looking at expanding to? And what impact would that have on your financials? Can you give a little guidance around that?

Okay. Thank you very much. Our market expansion is primarily internally. We want to cover all nooks and corners of Nigeria. That is our priority. And if we have any surplus, then we will export. The traditional export route for us is from our Sokoto plant into the Nigeria Republic and Burkina Faso. But we are also not unaware of the political turmoil and the change of government and the question or decisions whether those countries are going to be part of a course or not. So I believe, at the moment, that is a bit of a hindrance, even though we are still doing some very limited export, less than 1% of our production into Nigeria Republic.

At this stage, we have no further questions on the telephone lines. I will now hand over for written questions submitted via the webcast.

Okay. Good afternoon, everyone. My first question is from [ Amirat Adamo ] from ARM. Question reads, what is your current capacity utilization? And by how much do you plan to expand it in the future? Second -- follow-up question is, did production volumes increase? And what were the key drivers of your revenue growth? Third question, why did cement exports decline in 2024 full year compared to 2023 full year? Fourth question, how do you plan to manage operating expenses? And finally, what strategies do you have in place to manage your FX exposure moving forward?

Okay. A lot of questions. I will attempt to answer the first three and then I will call in my CFO to answer the last two. The capacity utilization, if you look at it, it was a little below 60%. But mind you, we started 2 new production lines. At the beginning of 2024, our installed capacity was 11 million tons per annum. Then, by the end of the year, it moved to 17 million tons per annum because we commissioned 2 new lines with a total combined capacity of 6 million tons. So it may not be exactly correct when we try to translate our actual production as the function of our installed capacity. I think 2025 will give a much better idea of where we are operating. Now the increases that we have seen, when you look at the key drivers, you can see pricing also has a big effect as well as volume increase, and that resulted in the significant increase in our turnover, which almost sort of doubled in 2024 compared to 2023. We commissioned 2 new lines and the impact was there and also better capacity utilization. And don't forget also, I believe, in 2024, the overall national demand for cement went up by about 14% compared to 2023. So all this accounted for the increases that you have seen. Yes, it's true that our exports went down for reasons that I mentioned earlier. We had the closure of the border after the change of government in Nigeria Republic, and that is still also impacting our ability to export cement to the 2 neighboring West African countries. And you are also not unaware of the decision of those countries to sort of distance themselves from the economic community of West African states. So like I said earlier, the export is still accounting for less than 1% of our total production. Mr. Chikezie, if I would ask, you also give an insight on the operational cost management and also how we are managing our ForEx.

Thank you, MD, and thank you, [ Amirat ], for the question on how we are managing our operating expenses. If you have looked at our financials, we see where our cost is heavy is mostly on energy and O&M. So presently, we are already diversifying our energy mix to ensure that we use more of energy that is less volatile to fluctuation in foreign exchange. Then we are currently equally renegotiating the contract that we have on O&M, operation and maintenance of our plants to ensure that we have more of local contents than foreign. So with these 2 measures, we are quite sure of driving our cost down significantly. Then, on the ForEx exposure. Equally, if you have taken note of the movement in our financial that was uploaded last week that's reported to the public, you'll see there have been a significant drop on our exposure on import finance facilities. So our targets from that is to minimize our exposure that we have on foreign-denominated facilities that we have before non-locally. Then on the IFC loan, which you equally are aware now we have and the volume of the IFC loan is $300 million, which is quite substantial. So on our own part, we are trying to manage by hedging on the cash flow, the cash flow requirement on interest repayments. So once we are doing the accrual of interest, we will make sure that we provide the cash flow that will be required for the payment of the interest to match the same rates that we used in accruing so that on payments, there won't be any need to book additional gain or loss on ForEx. Equally, on the fair value, based on the volume of the loan, the fair value valuation knowing that the loan based on the tenure is a very long-term loan. So it's absolutely difficult when it was not hedged at initial recognition to hedge for the fair value. So on that part, for the fact that the lines that we are financed from the loan currently in production. So it's expected that the increased dispatch and profits now will gain from the lines that is already running. It'll give us enough margin on profit that will help us insulate any shock that might come from fluctuation in exchange rates. So these 2 key items by trying to as much as possible match our cash flow interest payments with the rates that we used in accruing for those interest and making sure that this grow margin to a sizable portion so that we'll not have any costs to have a lower profit at the end of the day from fluctuation in exchange rates.

Thank you, sir. Our next question is from Abeeblahi, Rufai, CardinalStone Partners. His question reads: Good afternoon, Abeeblahi from CardinalStone Partners. A couple of questions. What is your outlook for volumes in 2025? Two, what is the CapEx guidance for the year? Should we expect a continuation of the significant capital expenditure witnessed in 2024? Also, are there any plans to raise capital either through debt or equity to fund CapEx or other expansion initiatives? Three, the financials indicate a nearly sixfold increase in trade payables. What caused a significant spike? Is this a one-off event? And what is your guidance on the expected average payable days? Four, in 2024, there was a notable increase in principal repayment on borrowings with relatively low additional drawdowns. Would you say this is a strategy to reduce debt exposure? What are your borrowing plans for 2025 in terms of new drawdowns and repayments? Five, a couple of questions on FX. What is your outlook on FX losses in 2025? In addition, financial statements show a foreign exchange gain of NGN 98 billion, what is the driver?

Thank you very much, Mr. Rafai. We will try to answer your questions together with my Finance Director. But let me just correct your last question. I think there was no ForEx gain in 2024. It was a ForEx loss of about NGN 93.9 billion. Regarding our volume outlook for 2025, it all depends on the cement demand in Nigeria, but certainly, I think it's going to be about 11 to 12 million tons per annum. We do not have much huge CapEx that will come up in 2025. As you know, we have completed 2 of our lines and all expenditure related to this are expensed. And we have one ongoing project, but I think the payments are not so significant during 2025. We are building a new greenfield plant in Ososo in Edo State. But this is the plan that was moved from another place and I think substantial payments have already been made. We do not have any plan to raise capital during this year because I believe there wouldn't be a need to go to the capital market, so to say. As you are aware, we have a facility from the IFC, AFC, AfDB and DEG of $500 million, of which we have drawn down about $300 billion. The balance of the second tranche of $200 million will be drawn down whenever we are able to meet the milestones and the conditions for the drawdown. I will allow Mr. Chikezie to talk on the increase in borrowings and the ForEx losses also been expected in 2025. I hope there won't be any. Chikezie?

That's the hope if I have the crystal ball to predict where the ForEx will end this year. That means I will be a Superman. So it's full of uncertainty that nobody can easily say that is how. Based on government assurance that they are looking at budget figures, we are optimistic that if government keeps to the end of their own [ budget ] that the ForEx will be more stable in 2025 compared with the volatility that we had in 2024. Then going on the gain, yes, we have some gain. But at the end, it was a net foreign exchange loss. If you remember or you recall, now we had a $300 million loan from IFC, of which the cash was not fully committed as of 2024. So we had some cash we have fixed in the bank, which we eventually used for the projects. So for cash, it will attract exchange gain, while liability will attract exchange loss. So if you now look at the magnitude of the cash compared to the exposure to the loan, you see that the exposure is higher than the cash that is available. So the gain is actually coming from the cash that have not been spent from the loan that we have from our lenders. Then, you asked about the spike on trade payables. Majorly, the spike is a reflection of the devaluation of currency. We still have some foreign creditors that we are valued at the current rates or the closure rate of NGN 1,540 compared to maybe a lower rate as at the time the liabilities were booked. Then, we commissioned 2 new lines in 2024. And part of the agreement that we have with the EPC contractor is that a percentage about -- a certain percentage of the contracts will be payable 12 months after commissioning of the plants. And based on accounting, you are capitalizing. You have to accrue for all anticipated expenditure and all commitments that are known. So for accruing for the retention that will be payable in the next 12 months after the commission is what actually gave rise to the increase that we had in trade and other payables. Then, you equally mentioned our loan came down. Yes. As part of the strategy that I mentioned before that we have is to pay down on all our foreign denominated liabilities, especially import finance facility. So that plan started in 2024, of which we are able to achieve a significant reduction. Then, our bond, Series 1 bond, that we have, NGN 115 billion bond. The repayment of the principal kicked in, in June 2024. So we have already done 2 repayments, June 2024 and December 2024. Those repayments and the reduction in our import finance facilities are what's accounted for the drop that we had on our exposure to foreign -- to loan. I hope this explanation is enough for the questions that you have asked.

Thank you, sir. Our next question is from [indiscernible] Afrinvest. He says, congratulations on your strong performance in 2024. Could you provide insights into your actual volumes for 2025 and your outlook for this year? Additionally, the Pioneer status adjustment had a significant impact on the bottom line. Could you offer guidance on expectations moving forward? Do you expect net margin to remain pressured in 2025? Lastly, I would appreciate any comments on the substantial drawdown in the cash reserve in 2024. I think that's already been answered.

Let me answer the first question regarding our volume in 2024, even though he mentioned 2025. I think in 2024, we actually dispatched 8,138,800 tons of cement compared to 6,712,210 tons of cement in 2023. So I think that is the most significant information. Mr. Chikezie, can you help us out on this net margin that he's talking about in 2025 and the drawdown? I think you have already answered that in the previous question.

Yes. On the tax, we still have Pioneer status on 2 of our lines, the Line 5 and Line 3, and is to run for 3 years commencing in May 2024. If you are looking at the tax -- income tax and deferred tax, you will see that the bulk of the tax is on deferred tax, while the actual income tax is less than -- from the exposure of about NGN 25 billion. The actual income tax payable is about NGN 2.3 billion compared to NGN 45.7 billion that was provided. So we still continue to maintain a low-income tax payments based on the Pioneer that we are enjoying. Then, it's equally expected that the deferred tax will not be as high as what we had in 2024. If you check that, it was a prior year adjustment where the tax computation of 2023 audited accounts was actually adjusted into 2024 by the consolidation of our capital allowances of both plants, which helped us to reduce our income tax payable for 2023. So that adjustment is now reflected in 2024 is what actually accounted for the magnitude of the tax income and deferred tax liability that you saw in our audited account for 2024. I don't know if there is any aspect of the question that we missed out.

No, I think everything was answered. Everything has been answered. The next question is from [indiscernible] of Meristem Securities. The question reads, does BUA Cement have any plans to reduce fleet cost by switching to alternative energy sources?

Yes, Mr. [indiscernible], certainly, we have plans to switch over to cheaper source of energy as long as they are available and readily affordable everywhere within Nigeria. Right now, our fleet of vehicles are using diesel, which you know is a deregulated product and the price even though has sort of moderated sometime last year, beginning of the year, we were having prices up to NGN 1,700, NGN 1,800 a liter. But I think that has stabilized to around NGN 1,100, NGN 1,150 to a liter. But, certainly, if there are other cheaper sources of energy like CNG and LNG and as long as they are available everywhere in Nigeria, definitely, we are going to do some conversion of our fleet to ensure that we also benefit from this cost reduction.

Thank you, sir. I have a similar question from [indiscernible] from Stanbic IBTC Pension Managers. The question reads, please, what are the alternative sources of energy the company is looking to curtail the energy cost?

Well, for us, as a cement plant, like we have mentioned so many times, we have designed our process in such a way that we are able to use solid, liquid or fuel energy sources. That means whenever we have availability of these energy sources at a cheaper price, we can easily switch over. So for example, I can tell you, while in one of our plants, we are using LNG to power the generators; in the other plant, we are using natural gas from the pipeline from the NNPC. And also in some of our furnaces, we are using coal and a combination of coal and LNG. In some, we are using natural gas 100%. So it all depends on the pricing. But our process is very flexible and it can be able to accommodate any type of energy source as long as it is economically viable. So these are things that we do on a day-to-day basis by comparing the cost of energy and then switching over our highly flexible system to be able to run on such cheaper energy sources. So you will continue to see a mixture of a combination of various energy types.

Thank you, sir. I have a last question from Moses Njuguna, Mazi Asset Management. What's your industry demand outlook for 2025? What are the drivers?

I think we have answered this question before regarding 2025.

Thank you so much, sir. Irene, I have no -- Juliet, sorry, I have no questions -- Judith, sorry, I have no questions on the webcast. Thank you.

At this stage, we have no further questions on the telephone lines. And this brings us to the end of the question-and-answer session. I will now hand back for closing remarks.

Thank you very much, ladies and gentlemen, for sharing a greater part of your day with us. We look forward to hosting you in the near future when we produce our subsequent results. Thank you, and have a nice day.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.