BUA Foods Plc wended its way through rising costs led by foreign exchange losses and finance expenses to build an after-tax profit of N131 billion at the half year, maintaining the track of high-profit delivery for the current year and beating the 2023 full-year profit record in six months.
The food-producing company incurred further foreign exchange losses of N27.4 billion in the second quarter, adding up to N54.7 billion at half year against zero record in the same period last year.
Finance expenses also topped up to N19.6 billion at the half year but a windfall from finance income helped to soften the impact.
Pressure from costs also mounted from production cost, which claimed a good part of the sustaining impressive growth in sales.
BUA Food’s interim financial report for the half year ended June 2024 shows that the imbalance in cost and income seen in the first quarter continued in the second quarter albeit with some improvement over the previous quarter.
Costs continued to grow well ahead of earnings, and this has continued to weaken the ability to convert revenue into profit.
The good news for the consumer-facing company is that sales keep speeding up for the second year, more than doubling at 109.5 per cent year-on-year to N672.4 billion at the half year and nearing the full year’s turnover of N729 billion in 2023.
Quarterly sales revenue went down from N357 billion in the first quarter to N315.5 billion in the second but the second quarter delivered a bigger profit of N75 billion than the first quarter record of N55.8 billion.
Three main developments in the second quarter on cost and income enabled the company to moderate cost increases and improve profit margin from the first quarter.
The first is a windfall from finance income of over N9 billion, which covered finance cost of N4.4 billion and left net finance income of N4.7 billion in the coffers. This is a positive shift from a net finance cost of over N4 billion in the same quarter last year.
The second is a big gain in other income – which multiplied more than 17 times year-on-year to N8.6 billion at the end of the quarter.
The third element of the margin-enhancing tripod of the company in the second quarter is a major cut in tax expenses from over N7 billion to N1.7 billion over the period.
The favourable developments helped the company to tide over the swelling foreign exchange losses in the quarter and the rapidly growing cost of production.
The developments underline a gain in net profit margin from 15.6 per cent in the first quarter to 23.8 per cent in the second quarter though it is a drop from 31 per cent in the same quarter in 2023.
The half-year position of the food-producing company is a dilution of an improved second-quarter earnings performance with a constrained first-quarter reading.
The company’s top line of N672.4 billion at half year is a year-on-year increase of 109.5 per cent, a slowdown from over 147 per cent growth in the first quarter. This still represents an additional sales revenue inflow of N350.5 billion for the six months of operations.
The company’s sales revenue basket is dominated by sugar and bakery flour, which account for 42.4 per cent and 33.7 per cent of turnover respectively.
The challenge is that production costs keep growing well ahead of sales at 141.3 per cent year-on-year to about N454 billion at half year. Input cost claimed as much as N266 billion of the N350.5 billion increase in sales during the review period.
Gross profit slowed down at an increase of 64.5 per cent to N218.4 billion from the first quarter rise of 103.7 per cent and the gross margin is down as well on year-on-year reading from 41.4 per cent to 32.5 per cent.
It is a sustaining decline in gross margin for the company, reflecting an increase in the production cost per unit of sales from less than 58.6 kobo to about 67.5 kobo during the review period.
Other cost increases came from administrative expenses that more than doubled at 101 per cent to N10 billion and selling and distribution costs that grew by 42.9 per cent to N18.4 billion.
With the major inflow from other income in the second quarter, the income line exceeded N12 billion at the half year and helped to dilute the cost increases. Operating profit strengthened by 74.6 per cent to over N202 billion at the end of the half-year operations.
The big gain in finance income realised in the second quarter – amounting to over N9 billion at the half year, enabled the company to tone down more than three times, the jump in finance cost that stood at N19.6 billion at the end of June.
Net finance cost then grew by 65 per cent to N10.4 billion over the review period, a major slowdown from the first quarter record when net finance cost multiplied more than seven times.
Net foreign exchange losses of N54.7 billion limited the increase in pre-tax profit to 25.4 per cent to N137 billion at the half year.
However, a drop of 55.8 per cent in income tax to N6.2 billion strengthened after-tax profit to an increase of 37.5 per cent to close at roughly N131 billion for BUA Foods at half year.
The company has therefore beaten the 2023 full-year after-tax profit of N112 billion at half-year.
BUA Foods earned N7.27 per share at half year, up from N5.29 per share in the same period last year.
Micheal has over 5 years experience in digital journalism. He’s a New Media Expert with an interest in Human Development and Global Politics.
