Lafarge Africa: Profit drops on loss of other income

The consolidated operations of Lafarge Africa Plc for the 2014 full year show a flat growth in sales revenue and a drop in profit. The company, which has just concluded the consolidation process in the acquisition of majority shares in Ashakacem, closed last year’s operations with a marginal decline in sales revenue and a 43% drop in net profit. The company’s management succeeded in keeping operating expenses under check but a swing from other operating income in the prior year to other operating expenses broke the company’s profit capacity in the year.

Guillaume Roux, the company’s group managing director/CEO, is optimistic about the business in the post consolidated operations, promising to continue to build value for shareholders. Before the consolidation, Lafarge Cement WAPCO had maintained rapid growth in both revenue and profit for the preceding three years running. The company multiplied profits more than five and half times in four years to 2013 and went quite close to doubling profit in that year.

The ability to improve the earnings performance seen in 2014 operations will be the key development to watch out for on Lafarge Africa in the current year. Sales revenue slipped to N205.84 billion for Lafarge Africa in 2014 in refection of a generally tight business environment. The company reported a net profit of N34.38 billion at the end of the financial year, which is a drop of 43% from the preceding year’s figure of N60.34 billion.

The drop in profit is due mainly to a change from other operating income of about N21.47 billion in 2013 to other operating cost of over N1.54 billion in 2014. In 2013, other operating income accounted for close to one-third of operating income.

The company’s bottom line was also affected by its share of losses from associated companies to the tune of N2.44 billion, which was completely missing in the preceding year. Effective cost control helped the company to moderate the impact of the two developments on the income statement. The generally favourable cost behaviour was led by interest expenses, which dropped by 22.5% to N3.59 billion against a 63.1% rise in interest income to N3.05 billion.

The drop in interest expenses follows a reduction in the company’s borrowings during the year. Short-term financial liabilities dropped by 70.7% to N5.02 billion while long-term borrowings also dropped by 19.6% to N9.63 billion during the year.

Net profit margin dropped from 29.3% in the preceding financial year to 16.7% at the end of 2014. The company earned N7.38 per share in 2014, down from N13.48 in 2013. The drop in earnings per share is partly due to an increase in outstanding shares to 4,404 million at the end of the year.

Other major developments in the balance sheet during the year include a drop of 58.6% in cash and bank balances to N14.03 billion, a rise of 36.1% in trade and other receivables to N17.46 billion and an increase of 13.6% in trade and other payables to N51.30 billion.

The company faced some cash flow difficulties during the year following increased cash requirement for investing activities in the face of inability to improve cash generation from operating activities. Despite some 50% cut down in cash utilisation for financing activities, the year ended with a net cash deficit of N19.71billion.

The company has proposed a cash dividend of N3.80 per share for its 2014 operations. The register of shareholders is scheduled to close between 27th April and 1st May, 2015 while payment date is yet to be announced.