Julius Berger Overturns Bad Season with N19bn Asset Sale at H1

Julius Berger Nigeria Plc headed off a major profit drop at the half-year with N19 billion in proceeds of an asset sale that helped to overturn the cost-income imbalance for the construction company during the period.

The inability to match the growth in cost and income has been a challenge so far this year. Cost of sales is growing well ahead of turnover at 11.6 per cent to almost N205 billion at the half year compared to a less than 7 per cent increase in sales revenue to N243.8 billion.

The company’s half-year interim financial report at the end of June 2024 shows that the cost of sales claimed an increased share of turnover at 84 per cent, which caused a drop of 12.5 per cent in gross profit to N38.8 billion.

However, two non-core revenue inflows changed the company’s fortunes from a drop in gross profit to an outstanding growth in the bottom line.

The first proceeds from the sale of PPE injected over N19 billion into the company’s revenue stream, more than six times the corresponding figure in 2023. This changed the drop in gross profit into an increase of 41.7 per cent in operating profit, amounting to N17.8 billion at the half-year.

The second is an investment income of N9.2 billion at the half-year, which extended the increase in operating profit to register a 122.7 per cent jump in pre-tax profit to over N25 billion at the end of June 2024. This is already more than the full-year pre-tax profit of N22 billion for the 2023 financial year.

A big income tax expense of N13.5 billion at the half-year left the company with a bottom line of N11.6 billion, still an outstanding growth from N6.7 billion in the same period last year.

The company experienced the greater part of the operating pressure in the second quarter with a stronger growth in costs than revenue. The outcome is a modest contribution to profit from the second quarter operations.

The second quarter accounted for 56 per cent of the cost of sales, growing well ahead of turnover at 20 per cent to N115 billion compared to an increase of 10.6 per cent to N132.9 billion. However, the second quarter accounted for a greater part of the roughly N244 billion turnovers for the half year at 54.5 per cent.

The incursion of cost of sales in the second quarter caused a 26.6 per cent drop in gross profit year-on-year to N17.9 billion. Other increases in operating costs together with the drop in gross profit further weakened operating results.

Some remedy came from the asset sale’s proceeds but operating profit for the quarter plunged from N8.3 billion to N4.5 billion over the period.

However, the change of fortune came from investment income, which multiplied close to seven times to N4.7 billion during the quarter. This was supported by a drop of 44.8 per cent in finance cost to about N802 million.

The two developments overturned the drop in operating profit to an increase of 12 per cent in pre-tax profit for the quarter to N8.4 billion.

As much as N6.8 billion of the pre-tax profit generated in the second quarter was claimed by income tax expenses, leaving an after-tax profit of less than N1.6 billion. This is a deep plunge from an after-tax profit of over N10 billion in the first quarter and an N4.5 billion figure in the same period last year.

Despite a lean second quarter, Julius Berger keeps driving strong growth in the bottom line so far this year. After-tax profit for the half year has come quite close to the full-year figure of N12.5 billion in 2023.

The company earned N7.17 per share in the half-year operations, a much improvement from N4.20 per share in the same period last year.