Julius Berger makes profit despite tough construction environment

Julius Berger Nigeria plc, a construction giant, has made a profit for the full-year 2014 period despite rainy seasons that slow construction activities and fall in oil price that crimped government expenditure on capital projects.

For the year ended December 2014, Julius Berger’s profit before tax reduced by 19.05 percent to N13.13 billion from N16.22 billion as of December 2013. Sales reduced by 7.49 percent to N196.80 billion.

The sluggish growth sales of the company is attributable to slow construction work in the first and quarter caused by the rainy seasons and delay in the passage of the 2014 budget that affected government expenditure on capital expenditure.

“Government spending on infrastructure was relatively slow in the first quarter of the year, due to the late passage of the budget,” said Abiola Rasaq of the research and strategy unit, Associated Discount House Limited.

This, he said, had modest impact on cement demand attributable to public sector concrete-related projects.

Construction firms in Africa’s largest economy face a tough 2015 as the fall in oil price which resulted in government cutting down on capital expenditure could further crimp Julius Berger’s profit.

The oil price reduced by 50 percent to sell at $50.49 barrel, a phenomenon that affected government revenue as capital expenditure in the 2015 budget fell by 43.4 percent to N634 billion from N1.12 trillion as of 2014 fiscal year.

Central Bank of Nigeria devalued the naira in November to N199 per dollar after scrapping its bi-weekly forex auction in order to control inflation and protect the external reserve.

Further analysis of the financial statement of the construction giant showed the revenues from civil and building works dipped by 7.43 percent and 14.33 percent, respectively, while services plummeted by 40.71 percent.

Further shrinking pretax profit is a 55.06 percent rise in finance costs to N4.59 percent compared with N2.96 billion in 2013. This exposes the company to currency risk as the devaluation of the naira may spiral the dollar denominated debt in its capital structure.

Total borrowings increased by 49.33 percent to N38.38 billion in 2014 from 25.70 billion in 2013.

Total assets jumped by 12.69 percent to N256.04 billion in the review period as against N227.20 billion in 2013.

Julius Berger is cost efficient as it was able to reduce cost of sales by 9.19 percent, while cost of sales ratio reduced to 74.53 percent in 2014, as against 75.74 percent in 2013. Operating expenses remained flattish at N33 billion.

However, the direct costs attributable project reduced by 2.31 percent to N50.50 billion in 2014 from N51.60 billion the same period of the corresponding year 2013.

Profit after tax (PAT) increased by 4.84 percent to N8.23 billion in 2014 compared with N7.85 billion last year, thanks to a 41.50 percent reduction in income tax expense.

Earnings per share reduced by 8.77 percent to 613k in 2014 from 672k as of December 2014.

The directors have recommended a dividend of N2.70k per 50k which represents a sum of N3.56 billion, representing a payout of 43.35 percent and a dividend yield of 6.45 percent.

Julius Berger’s share price closed at N41.81 on the floor of the exchange while market capitalisation was N55.18 billion.