|
Getting your Trinity Audio player ready...
|
Lafarge Africa Plc is grappling with spiralling cost of production as rising interest on borrowing wiped out all of earnings, leaving the cement maker in a loss position.
For the year ended December 2017, Lafarge Africa’s posted a loss after tax of N34.60 billon from a profit position of N16.89 billion the previous year, the worst results in five years since BusinessDay started compiling data.
A N43.02 billion finance costs or interest expense in the income statement in the period under review swallowed all of operating profit of N7.88 billion, which inevitable resulted in the loss.
It is glaring that Lafarge Africa is exposed to financial risk as its debt pile has resulted in increased interest payment hence suppressing bottom line (profit). Consequently, risk of stockholders return is increased.
Times interest coverage is 0.18 times operating profit in the period under review, which means the cement maker’s ability to meet interest expenses are questionable.
The margin of safety for times coverage ratio is 1.50 times, a figure lower than this signals amber light.
Total debt in the balance sheet stood at N256.54 billion, which represents a 145.05 percent surge from N104.70 billion it incurred the previous year.
Lafarge Africa is making frantic efforts toward reducing financial leverage as it plans to raise N131.97 billion in rights issue to refinance debt and fund its expansion plans.
Analysts at Cordros Capital have reiterated their SELL rating on the stocks of the cement maker as they expect investors to react to the delayed results.
Cost of sales ratio stood at 83.03 percent in the period under review, the highest in five years since BusinessDay started compiling data.Cost of sales increased by 38.72 percent to N248.78 billion in the period under review.
This means the company is spending more on input cost to produce each unit of product.
The surge in cost of sales or production cost was due to a N19.20 billion impairment of property plant and equipment incurred in the fourth quarter of the year
A breakdown of the PPE shows the sum of N12.4 billion involves cost of the evacuation road under construction at UNICEM and N3.3 billion cost of ASHAKACEM kiln preheater project, according to notes to the financial statement.
Because PPE is a one off event that is not expected to recur, Lafarge Africa could see an improvement in cost of sales ratio.
Gross profit margin, a measure of efficiency, fell to 16.96 percent in December 2017 from 18.50 percent as at December 2017. A higher ratio means a firm is efficient.
Sales moved increased by 36.13 percent to N299.15 billion in the period under review to N219.74 billon as at December 2017.
Lafarge Africa shares have gained 2 percent, underperforming the NSE ASI Index.
BALA AUGIE
