Lafarge Africa released its 2014 FY results showing Earnings Per Share dropped 45% t0 N7.4. The company also reported a comprehensive loss of N123billion which they passed through their reserves. The results sent their share price down losing 5% at close of trading on Friday. This is despite a dividend proposed of N3.6.
But are things really that bad for Lafarge? A critical look at the results suggest that is not the case and here is why.
One-off Income in 2013
Lafarge reported a profit after tax of N34.6billion which was 43% lower than the N60.9billon it reported in the corresponding period in 2013. The reason for this is basically a N21.4billion other income they reported in 2013. This amount we believe was a disposal gain attributable to the Pan African Cement sale by Lafarge South Africa in 2013. That deal alone fetched the group N19.4billion in other revenue. WAPCO also added another N4.1billion gain in 2013 all of which gave 2013 result a great boost for the Group.
2014 wasn’t great but wasn’t bad either
Coming into 2014 with that sort of baseline meant 2014 result will have a tough task matching the prior year’s result. As such if we discount that one-off income of about N22billion and other one of charges in 2014 Profit after tax would have been relatively flat year on year. Lafarge Africa in their analyst presentation also claimed volumes were up 5% in Nigeria. They also revealed Naira devaluation in Q4 2014 had “limited business impact” as 80-90% of their cost base is Naira denominated.
The company also looks set to rely again on Lafarge Africa to drive profitability this year. 2014 saw Wapco contribute about 70% in the Group’s EBITDA and 50% in Revenue. Lafarge South Africa on the other hand reported a drop in margin and 21% drop in Cement volumes.
The new Lafarge Africa entity perhaps still has embedded peculiar risk associated with such a huge merger. Last week the company revealed their erudite chairman Chief Olusegun Ogunleye had resigned and replaced by Mr Mobalaji Balogun as Chairman of Lafarge Africa effective May 23, 2015 and also appointed 4 new directors. We believe the synergies and efficiencies anticipated from the merger will materialize. The Cement market though competitive, is consolidating into two major players with Dangote Cement perhaps their only significant competitor.
Disclosure: The author of this article as at the day it was published in Nairametrics has no interest in Lafarge Africa, is not a representative of Lafarge Africa and does not own shares in Lafarge Africa.