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Earnings Review H1: Lafarge Cementing Its No 2 Position

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Lafarge the dominant Cement Company released its 2012 Half Year results and true to its Q1 showing may have impressed yet again.

Revenue

Turnover rose 57% over the same period last year to N46b in the first half of this year. This is probably reflective of their huge expansion plans which reportedly cost N75b. Gross Profit Margin increased to 38% as cost of sales rose from N21.7b to N28.37b

Expenses

S,G&A increased by about N200m to N3.2b compared to the same period last year. Despite this increase the impact was just about 18% of Gross Profit, indicative of a highly efficient half year. This may also be a testament of their expansion programs which may not require any major addition to expenses despite adding to volumes in sales. Operating profit margin was thus 31.9% about 200% higher when compared to H1 last year.

Finance Cost

Finance Cost increased almost 4000% to N2.5b as the effect of long term loans obtained in 2010 start to materialize. The company has about N37b in debt mostly made up of loans from CBN intervention fund and another from a 3year bond issuance with coupon of under 12%. At 17.5% of Operational Profit, interest cost is manageable and sustainable. However, an increase down the line is foreseeable considering the economic situation. Same time last year it was just 1.4% before rising to 14.6% in the full year of 2011.

Profit After Tax

Profit after tax grew 175% compared to the same period last year to N8.8b. Profit as a percentage of sales was about 19% higher than the 11% obtained same period last year. Return on Equity also increased to 14.1% a level where the company should be at this time of the year.

The company has been fairly stable in terms of share price hovering at between N39 to N45 all year round. It might be pricey at N45 but at a P.E of around N10x its surely worth it.

 

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Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market.Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.

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Blurb

Dangote Sugar, sweet in more ways than one

Significant growth in gross revenue was driven largely by sale to Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited.

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Quick take: Sustained cost pressure weighs on profit, Dangote Sugar Refinery: Revenue recovers but cost pressures remain

By refining capacity, Dangote Sugar Refinery Plc (DSR Plc) is acknowledged as the largest Sugar Refinery in sub-Saharan Africa and one of the largest in the world. With up to 60 percent market share, it is also clearly, the most dominant player in the Nigerian sugar market.

DSR Plc recently released its audited Financial Statements for the year ended December 31, 2020 and overall and year-on-year group performance results were very good.

Despite the impact of the Covid-19 induced lockdown which curtailed distribution across the country and resulted in decreased revenues from income generated from freights, gross revenues increased by over 33 percent year-on-year to ₦ 214.3 billion. The significant growth in gross revenue was driven largely by a rise in revenue from the sale of its 50kg sugar, with the two main customers being the Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited who operate principally from Lagos.

READ: Dangote Sugar completes acquisition with Savannah Sugar Company Limited 

Year-on-year, gross profit increased by over 40 per cent to ₦ 53.75 billion, Profit before tax increased by almost 53 per cent to ₦ 45.62 billion, and Profit after tax increased by 33 per cent to ₦ 29.78 billion.

Notwithstanding the good result, the group operating results showed some issues and headwinds. First, during the year, DSR Plc wound up Dangote Niger Sugar Limited (one of four companies that had been set up to acquire large expanse of land and locally grow sugarcane as part of its concerted backward integration project). The winding-up was sequel to continued community dispute over land acquired in Niger State for this purpose. This winding-up event cost DSR Plc approximately ₦ 100 million.

Second, there continues to be a heavy reliance on Lagos for its gross revenues as revenues generated from Lagos State increased significantly from circa 33 per cent at the end of 2019 to over 50 per cent by the end of 2020. The share of the Lagos segment in gross revenue thus continued to grow and currently represents a significant market concentration risk for DSR Plc.

READ: Nigeria’s biggest oligopolies: Who are the real beneficiaries?

Third, provision for impairment on financial assets or in simple terms, receivables that are unlikely to be collectable, also trended upwards from ₦ 1.3 billion in 2019 to ₦ 1.45 billion by end of 2020 with net financing expenses also rising significantly from ₦ 516.2 billion in 2019 to ₦ 1.92 billion by the end of 2020. This rise in expenses was largely driven by a significant rise in exchange losses incurred in the ordinary course of business, rising from about ₦ 7 million in 2019 to over ₦ 1.57 billion at the end of 2020.

Finally, administrative expenses represented mainly by employee salaries grew year-on-year by over ₦ 1.2 billion.

With the recent reopening of land borders, we expect that revenues and margins will become squeezed as sales and production volumes become constrained by the influx of largely smuggled, lower quality, and much cheaper sugar and its substitutes. DSR Plc’s sugar refinery is also strategically located very close to the Apapa port and its logistics operations, distribution of raw materials and delivery of finished goods will continue to be impacted by the infamous Apapa Traffic Gridlock and road diversions/closures around the axis. Although the effort of Lagos state and the recent introduction of the electronic call up of truck by the NPA has eased the issue, still, it needs to be watched closely.

READ: Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50

Earnings per share at the end of 2020 was ₦ 2.45 (2019: ₦ 1.87; 2018: ₦ 1.85)

Subject to approval at its forthcoming Annual General Meeting, DSR Plc board of directors have proposed a dividend of N1.50k per ordinary share (2019: ₦ 1.10k, 2018: ₦ 1.10k).

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This performance is sweet in more ways than one.

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Blurb

CBN “Naira 4 Dollar Scheme” Explained

What the CBN’s Naira 4 Dollar scheme means for your money.

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CBN

In what appears to be an attempt to incentivize dollar remittances by all means possible, the Central Bank of Nigeria (CBN) released a circular to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTO), and the General Public, advising that remittances paid into a bank account will attract an additional credit alert for every USD$1 received!

Yes, you read that correctly. The CBN will facilitate a special additional credit alert of N5 for every USD$1 received. In other words,

  • if someone sends you $10,000, you get an additional special credit alert for N50,000.
  • If someone sends you $100,000, you get an additional special credit alert for N500,000.

Who is eligible?

To be eligible, the diaspora remittances need to be processed and received from one of the registered IMTOs and funds received into a Bank account operated by the DMBs. (So, if you are receiving funds via Crypto sorry you are not eligible).

Additionally, the circular says this “incentive runs from Monday 8th March 2021 to Saturday 8th May 2021″. So, if you have plans to receive dollars, you can plan accordingly.

The circular is not clear how exactly the commercial banks will know which account to pay the extra special credits into. Although, that may be a question diaspora funds recipients will need to ask their DMB accounts officers to clarify for them.

How will this be funded?

The circular notes that the “CBN shall through commercial banks, pay to recipients the N5 incentive for every USD$1”. In other words, it is the CBN funding the cost of this special extra credit.

  • One would argue that given the costs of alternative incentives to attract dollars such as the special OMO window for FPI, this may be a cheaper alternative for the CBN.
  • But we will need to see the volume of expected remittance to be certain of that. Nigeria attracts about $5billion per quarter in remittances and only trails oil in terms of foreign earnings.

Why this matter to Nigerians?

Following the collapse of US Dollar inflows into the country, the CBN initially tried to balance its current account deficits and avoid an official devaluation by tackling FOREX demand (Think ban of 41 items, etc).

Finally, this short-term Naira-4-Dollar scheme will not be called an official Naira Devaluation. But a question is what do we call the new short-term price of N412.50 + N5.00? Maybe we can call it Naira Modulation.

 

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