Lagos-based building materials solution provider, Lafarge Africa Plc, picked up the pieces of a horrid year in 2017, to improve operating efficiency in 2018 as margin accelerated to its highest level in three years.
Operating margin, the ratio of operating profit to revenue, which shows the percentage of profit a company retains after deducting production cost, increased to 8 percent in 2018, an uptick from 2 percent in 2017 and loss margin of 10 percent in 2016.
Lafarge Africa, which is controlled by Switzerland-based LafargeHolcim, grew revenue to N308.4 billion in full year 2018, 3.1 percent more than N299.2 billion posted in the previous year. The company recorded uptick in proceeds from cement, recording decline in receipts from aggregate & concrete and adxmiture from South African operations.
The cement maker’s finance income surged some 21 percent to N1.7 billion spurred by massive increase on interest on loan receivable. Finance cost also increased 6.9 percent to 46 billion in 2018, making net finance cost up 7.3 percent to N44.2 billion in 2018.
The company’s share of loss from joint ventures accounted for using equity method which slowed to N65.1 million from N140 million in 2017, along with zero-payment of minimum tax and tax credit worth 10.7 billion, helped cut Lafarge’s net losses significantly by 75 percent to N8.8 billion.
Redemption of 3-year N26.4bn bond
Meanwhile, the company redeemed its 3-year N26.4 billion series I bond (due June 15 2019) at 14.25 percent coupon, from its internally generated cash flows in a bid to deleverage its balance sheet.
The other 5-year N33.6billion series II bond at fixed coupon of 14.75 percent will mature in the next two years, June 2021.
Q1 2019 scorecard
Despite revenue dipped slightly 2.6 percent in the first quarter of 2019, Lafarge closed the quarter in green territory with net income of N3.1 billion compared to N2.2 billion losses recorded in the previous comparable quarter.
The cement maker’s operating profit grew substantially by 35 percent from N6.2 billion in the first quarter of 2018 to N8.4 billion in the next twelve months, elevating operating margin to 10.9 percent from 7.7 percent a year prior.
Lafarge’s Chief Executive, Michel Pucheros attributed the improved earning scorecard for first quarter to the execution of the company’s strategy 2022 tagged ‘Building for Growth’
“Our strategy 2022 in Nigeria is delivering the expected results with strong increase in operating EBITDA and profit” said Pucheros, optimistic the trend will sustained be year-long.
Divestment from South Africa
The company’s helmsman disclosed management’s plans divest South Africa with to Caricement B.V, an affiliate of Switzerland-based Lafarge Holcim.
The divestment deal was signed on May 31, 2018 for a cash consideration of N114 billion ($317mn), while closure of proposed sale is expected in the third quarter of the year subjected to shareholders’ and regulatory approval.
A release filed with the domestic bourse revealed that the company said it will use the proceeds to settle shareholder loan of $293 million, due at July 31 2019, along with related interest expenses, to strengthen its financial position and protect cash flows.
The Right Issues together with the divestment of South African operations will deleverage Lafarge Africa by N246 billion, enabling it to pay dollar-denominated shareholder loan and short-term naira overdraft, according to the company’s chief executive.
Lafarge Africa has two more debt obligations to settle before the closure of proposed sale on divestment deal: 2nd Tranche of corporate bond worth N33.8 billion due June 2021, and CBN Power Intervention Fund worth N19.9 billion.
Market performance
Shares of the cement maker declined 4 percent to N9.55 after the close of business on Wednesday, down some 23 percent year-long, underperforming the NSE industrial index and the broad market that shed 16 percent and 5 percent since the start of the year.
About Lafarge
The company formerly known as Lafarge Cement Wapco Plc, kicked off operations in Nigeria 59 years-back, and is in the business of manufacturing and distribution of cement and other related products such as Concrete, Aggregate and Fly-Ash.
Israel Odubola
