The weak demand for cement products combined with high operating expenses and increased income tax have dampened the performance of Lafarge Africa plc, Nigeria’s second largest manufacturer of the product.
The audited financial statement of the cement maker showed profit after tax fell by 43 percent to N34.66 billion from N60.95 billion in the same period of the corresponding year (FY) 2013, while sales dropped slightly by 2 percent to N205.84 billion.
Lafarge’s net margin, a measure of profitability and efficiency, fell to 16.80 percent compared with 29.57 percent the preceding year.
Analysts attribute the slow growth in sales to slowdown in work and decline in cement demand on the back of heavy rain fall in the third and last quarter of last year.
They also added that the delay in passage of the 2014 fiscal budget also affected growth of Lafarge as Nigeria cement industry is exposed to government expenditure pattern.
The demand in the industry is often impacted by government policies regarding expansion or capital expenditure. Furthermore, the slumping oil price has battered government spending on capital projects, dealing a further blow on cement makers’ sales.
“Pending comments from management, we believe that the weak set of results were largely due to slowing demand for cement in Nigeria during the fourth quarter,” said Tunde Abidoye, equity research analyst with FBN Capital Limited in a March 13 note.
“The visible slowdown in the macro-economic environment following the sharp fall in oil prices by around 36 percent (between Q3 and Q4 2014) led to a reduction in revenues to the Federal Government and state governments and by extension a slowdown in capital expenditure,” said Abidoye.
Also contributing to the sluggish growth at the bottomline of Lafarge was a 44 percent decline in operating income to N44.17 billion as against N67.07 billion last year.
Lafarge’s bottomline was pressured by a 107 percent rise in other operating expense to N1.54 billion from gains of N21.46 billion the preceding year.
A 98 percent increase in income tax expense also contributed to the dip in profit. The increased tax means the company may have stopped enjoying tax relief on some of its qualifying capital expenditure.
Cost of sales reduced by 1 percent to N137.36 billion in 2014, as against N138.75 billion in 2013, as the use of gas and local coal of fossil, which is less expensive than diesel or LPFO, helped reduce costs.
Cost of sales ratio reduced to 66.73 percent in 2014 from 67.73 percent in 2013, while operating expenses margin remained flattish at 11 percent.
Lafarge has a return on average equity (ROaE) of 19.70 percent, while current ratio, a measure of liquidity and efficiency, dropped to 0.95 xs as against 1.05 xs last year; this figure is lower than the 2.1x industry average.
BALA AUGIE
