Nigeria: Improved results, Niger bridge brightens Julius Berger’s outlook

By Temitayo Lawal

Posted on Tuesday, 14 February 2023 14:17, updated on Tuesday, 21 March 2023 15:46

Nigerian construction firm Julius Berger’s latest promising results, as well as big projects like the popular Second Niger Bridge, have brightened its 2023 outlook.

Nigeria in 2016 witnessed its first recession in 25 years after the global oil prices, its economic mainstay, dipped in tandem with the country’s crude production plummet. The annual real GDP growth in Africa’s largest economy declined from 6.2% in 2014 to 2.7% and -1.5% in the following two years, respectively.

The construction sector’s contribution to the GDP, as a result, fell from 4.35% in 2015 to -5.95 in 2016, according to the nation’s statistics bureau (NBS). Combined with the disappearance of its major capital sources – government spending and foreign direct investment – and high administrative costs, Julius Berger recorded its biggest loss in years before the company started to recover. 

Civil works constitute the company’s biggest earner out of its three core segments, which also include building works and services. In its 2016 financial statements, it posted over N3.8bn (nearly $8.3m) loss after tax, a sharp decline from its over N2.4bn profit after tax a year earlier.

Julius Berger later embarked on a financial recovery journey that was cut short after Nigeria entered another recession in 2020 due to Covid-induced brakes on economic activities and a dip in global oil prices, which the country’s fiscal architecture largely depends on. According to NBS, the construction sector declined by 7.68% compared with the 1.81% growth rate it had in 2019.

Again, this was reflected in Julius Berger’s performance for the year. From 2019, its revenue declined from N266bn to N242bn; its gross profit from N60.1bn to N48.3bn; its profit before tax from N13.9bn to N3.9bn; and profit after tax from N10.3bn to N1.4bn, according to data presented in the company’s 2022 Investors Forum Presentation.

Signs of recovery came in 2021 when Julius Berger paid its highest dividend in five years at N2.50k per share, up from N0.40k in the previous year. Its recently released 2022 unaudited results also show that the company is returning to the profitability path. 

Compared to 2021’s results, the company grew its revenue by 23% to N440bn; gross profit by 3% to N68.5bn; profit before tax by 8.5% to N15.4bn; and profit after tax by 11.7% to N9.45bn, according to Nairametrics analysis. This along with Julius Berger’s string of big projects brighten its 2023 outlook.

Key bridge to the top

The Second Niger Bridge has always been a bridge of national and political importance in Nigeria for several reasons. It connects the southeastern part of Nigeria, where there are regular calls for succession, to three other regions: South West, North Central and “South-South”. It also complements the old and only bridge used for this purpose that has been built since 1965 and witnesses perennial congestion.

Stanley Anyadufu, the Director General of the Onitsha Chamber of Commerce and Industry (ONICCIMA) tells The Africa Report that the chamber had, for several years, advocated for the construction and completion of the bridge because of its many benefits to the region, especially the significant reduction in traffic congestion and the resulting ease of doing business. This should attract foreign and local investment back to the region.

The southeast is also a key manufacturing region in Nigeria. In fact, a recent report by the National Inland Waterways Authority (NIWA) revealed that 65% of imported containers are destined for the region.

“With the bridge and the reduction in traffic congestion that it will facilitate, there will be man-hour gains and faster logistics movement of inputs for manufacturing that the region is known for,” Stanley says. 

“It will also lead to improved economic outlook and prosperity for the local people in the areas – Delta and Anambra states – and economic integration for the regions that it connects.” 

Renegotiated project

Considering that this important bridge has been a political campaign matter since the 1979 elections, it was a major achievement for Julius Berger to be selected by Nigerian President Muhammadu Buhari to build it after the project was renegotiated and its funding retooled.

The company finally took over the construction of the bridge in 2015 but there was still public scepticism that it was ever going to be completed, given that it has become a key campaign subject. Although the whole project design hasn’t been completed, the actual bridge has been built and was in fact opened for vehicular movement during the Christmas and new year celebrations in December last year.

Being the construction company that eventually surmounted the daunting task, Julius Berger saw its stock go up. It is further positioned as the construction company of choice for other projects of such national significance.

“Wieser, congratulations on an excellent job done on this project by you and your workers. You have justified our investment in this project […] We shall visit you again soon when we shall escort the President, Muhammadu Buhari, to commission this significant bridge,” the Minister of Finance, Budget and National Planning, Zainab Ahmed, said to Julius Berger’s project director during her visit to the project site in April last year.

The project includes the construction of a 1.6km bridge, 10.3km highway, an Owerri interchange, and a toll station. 

Other key projects that the company is currently building include the Abuja-Kano Road which is a Dual Carriageway of 375.9km from the Federal Capital Territory Abuja through cities in Kaduna and then to Kano (part of the Lagos-Algiers Trans-African Highway); all key industrial cities in northern Nigeria; and the 38km (including 17 small and big bridges) Bodo-Bonny Road which will connect Bonny Island, part of Nigeria’s key oil and gas base, to the rest of Rivers State and Nigeria.

Diversification efforts

Nigeria is by far Julius Berger’s biggest market. Most of the operations and the projects that it builds are in Africa’s most populous nation. In 2020, the company generated N237bn in revenue from Nigeria and the remaining N5bn from its operations in Europe and Asia.

In 2017, the company ventured into the oil and gas sector by acquiring a 20% stake in Petralon Energy Limited, in a first major diversification move. 

In September last year, it also diversified into agro-processing by building and commissioning its Lagos-based cashew processing plant, Mighty Kashoo. 

The venture into agro-processing came as a surprise to many but the company leaders said it was done because it aligned “with the strategic objectives of the government to stimulate value creation in Nigeria”.

They also said the diversification drive is to broaden their portfolio and act as buffers in times of economic shocks. It is also to wean them of their over-reliance on construction, which in Nigeria is driven mainly by government spending, an unreliable capital source.

“We have now strategically diversified Julius Berger from being only an engineering construction entity into agricultural produce processing for which we all know Nigerians have a historical antecedent and understandable nostalgia. As we continue to work on our plans, you will see us transform into a conglomerate,” said the company’s chairman, Mutiu Sunmonu, at the commissioning of the cashew processing plant.

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