Lafarge Africa formerly Lafarge Wapco Plc released its 2014 9 months results reporting a whopping 40% drop in earnings per share. This result was shocking considering the growth the company has recorded over the past few years. It was even more worrisome considering that the company had just completed its much touted merger with its local and regional entities to become Lafarge Africa. The merger, an apparent response to the growing strength of Dangote Cement.
The company at the time of writing this article is yet to release an investor presentation increasing the suspense a bit more excruciating. However, from the results released we can deduce the following issues.
1. Consolidation – Lafarge finally consolidated its financials this quarter following its merger, which is why revenues this quarter (July to September) was N104billion compared to N28billion the quarter before. The company will also go on to compare this year’s nine months result to last on the same basis (consolidated).
2. Revenue Growth – Following the consolidation, the company’s revenue grew by just 3% YoY. This fails in comparison to the half year results which saw revenues grow by single digits. This also suggest the flat revenue growth may have been the result of its regional operations which are growing at a slower pace. Revenue growth is critical to the cement industry and this should get shareholders worried.
3. Thinner Margins -We also observed thinner margins this quarter compared to the previous two. In fact Lafarge had in the prior 3 quarters reported Gross profit margins of about 40% on four occasions dropping to 35% in Q2 2013. This quarter recorded a gross profit margin of 31%.
4. Massive drop in other income – This was the major reason for the drop in earnings per share. From a income of about N21.6billion from other sources in 2013, Lafarge reported an income of just N27million this year. This is an alarming drop and firmly threw the company’s profitability growth off course.
