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Lafarge Africa: Still building losses

Lafarge Africa: Still building losses

Lafarge Africa, the building materials company, is expected to post another huge loss for 2018 after a loss of nearly N35 billion in 2017. The company has been under pressure since 2016 when increased input cost and huge finance expenses led to a pre-tax loss of N23 billion. Rising administrative expenses has added to the challenges and the key expenditure lines continued to erode margins in 2018.

The company closed the third quarter operations in September 2018 with a loss of over N10 billion. Management is likely to be reporting a bigger loss still to shareholders as the earnings reporting season draws near.

The summary of the company’s operations in 2018 is that sales revenue grew slowly and costs grew far in excess of earnings. Turnover amounted to N234.30 billion at the end of the third quarter in September, 4.7% up year-on-year.

Sales revenue is estimated at N314 billion for Lafarge Africa at full year. That will be an improvement of 5% over the preceding year’s revenue figure of N299 billion. This will be a sharp slowdown from a recovery/growth of 36% in 2017.

Cost of sales grew ahead of sales revenue at 7.5% compared to 4.7%, which caused a slight decline in gross profit. Gross profit margin remains significantly down at 24%, as input cost keeps claiming increasing share of revenue.

Selling/marketing expenses grew by close to one-half to N4.45 billion and administrative cost rose by 12% to about N33 billion. The two expense lines also claimed increased proportions of sales revenue, leading to a drop of 33% in operating profit – which amounted to N19.13 billion at the end of the third quarter.

The company’s big challenge remains finance cost, which stood at N35 billion at the end of the third quarter. This is far in excess of the operating profit figure, resulting in a pre-tax loss of N14.36 billion at the end of September 2018. A tax credit of nearly N4 billion enabled the company to lower the net loss position to N10 billion at the end of the review period.

Lafarge Africa had closed the 2017 financial year with a net loss of N34.6 billion, as finance cost was more than five times the operating profit of less than N8 billion. Finance cost is expected to grow farther in the final quarter, which could raise the company’s loss figure at full year.

The company was carrying balance sheet debts in excess of […]

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