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Analysis: Is this a Lafarge rebirth?

Lafarge Africa Plc, one of the biggest building and concrete solutions companies in the world’s three biggest Achilles’ heels.

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Lafarge Africa

Lafarge Africa Plc, a unit of LafargecHolcim Group – one of the biggest building and concrete solutions companies in the world, has had a pretty long run in the construction sector. With projected growth in urbanization and inevitable population expansion, the leading producer of building materials and construction solutions has its stake in the huge Nigerian housing market. The company had served customers in Nigeria and South Africa (now discontinued) for decades, their customer base cutting across individuals requiring small building projects to major construction and infrastructure projects. All of these do well to place the company as an active participant in the economic growth of Africa.

Yet, so much has plagued the company in the past few years, curtailing its success with avoidable losses and below-par profits. While it, no doubt, has a series of challenges to worry about – like most organizations – three of its biggest Achilles’ heels had been its failing South African operations, its incessant changes in its corporate leadership, and of course, the one pandemic threatening to rip the global economy to shreds – COVID-19.

Lafarge South Africa

The company’s experience with its South African subsidiary gives credence to the phrase, “If anything is not serving you well, cut it off.” After years of dragging the African cement-maker down, the subsidiary was eventually spun off in July last year – not before it incurred a final loss of N3.2 billion in the first quarter of 2019. It was only after, when Lafarge restated its accounts by adjusting figures from the discontinued operations from its books, that the company set off on a positive growth trajectory.

Following the sale of Lafarge South Africa Holdings (LSAH) in Q3, there was a remarkable improvement in gross and operating margins, clearly showing that the sale of LSAH was valued accretive to shareholders. For one, the total debt reduced drastically. Short term loans and long term loans also had a drop of 79% and 75% respectively in comparison with the first quarter of last year. Other financial assets increased significantly from N1.7 billion in 2019 to N4.8 billion in Q1 2020. Also resulting from the sale was the increase in EPS from Q1 2019 of 0.36 to Q1 2020 of 0.93.

(READ MORE: Analysis: Total Nigeria needs a financial overhaul)

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Khaled El Dokani, CCEO of Lafarge Africa had stated, “Our turnaround and cost-reduction strategy in FY 2019 and the divestment of the South African business, have delivered strong results. The decrease in net debt has significantly strengthened our balance sheet and has placed us in a vantage position to face the future.”

Lafarge Africa, Lafarge dismisses Alleged SEC probe , Analysis: Is this a Lafarge rebirth?

Its Changing Leadership

In 2018 alone, the firm appointed four directors in the space of three months. 9 months ago, in September, former CFO of Lafarge Africa Plc., Bruno Bayet, resigned.  Just a month later, the board had announced the appointment of Lolu Alade Akinyemi as the new CFO. Next, the group CEO, Michel Puchercos, also resigned leaving Khaled Abdelaziz El Dokani in charge. Even amidst the challenges of 2020, Jean-Philippe Benard resigned from being a Non-Executive Director in January 2020 and by April, the retirement of two Non-Executive Directors was announced, as well as the appointment of three new directors. The high turnover of its leadership means one (or both) of two things. The first is the possibility that there could be more than meets the eyes within the company and the second is the truth that the newer leadership will need time to adjust to the company’s operations before the wins.

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COVID-19

Just when things started looking up, COVID-19 came with all its challenges and it didn’t help that the first carrier of the virus – an Italian man, had been visiting Lafarge Africa’s factory in Ogun State. The loss in the demand for cement with the stalled construction activities will pose an additional challenge for the organization. In the performance summary released alongside the financials, the company had noted that the pandemic “will adversely affect the company’s results in Q2, 2020.” This is also coupled with the burgeoning competitive landscape with bigger brands like BUA and Dangote owning larger market shares.

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While the company seems to be moving in the right direction, it might take a while for things to pick up. At its current price of N11.65 juxtaposed with its indicative dividend yield of 8.58%, the company could serve as an easy buy capable of yielding dividend income while investors wait patiently and hopefully for its wins to come.

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Company Results

Unilever Nigeria declares loss of N1.59 billion in 2020

Unilever declares a N1.59 billion loss in 2020, 62.3% lower than 2019 figures.

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Unilever Nigeria Plc

Unilever Nigeria Plc a leading consumer goods company in Nigeria declares in its unaudited annual financial report that it made a loss amounting to N1.59 billion in the year 2020.

This is according to the information and figures disclosed in the Company’s unaudited financial statement published by Unilever on the website of the Nigerian Stock Exchange.

The report revealed that the loss which Unilever made in 2020, was 62.3% lower than the loss it made in the preceding year 2019, as the company’s loss after tax declined from N4.22 billion in 2019 to N1.59 billion in 2020.

Key Highlights

  • Revenue increased to N61.57 billion, up by 1.34% Y-o-Y.
  • Cost of sales decreased to N47.79 billion, down by 11.63% Y-o-Y.
  • Gross profit increased to N13.78 billion, up by 106.52% Y-o-Y.
  • Selling and distribution expenses decreased to N2.82 billion, down by 10.53% Y-o-Y.
  • Marketing and administrative expenses decreased to N12.99 billion, down by 1.69% Y-o-Y.
  • Impairment loss on trade receivables increased to N1.08 billion, up by 49.73% Y-o-Y.
  • Other income increased to 66.99 million, up by 2.44% Y-o-Y.
  • Operating loss decreased to N3.05 billion, down by 70.54% Y-o-Y.
  • Finance income decreased to N1.47 billion, down by 48.39% Y-o-Y.
  • Finance costs decreased to N223.29 million, down by 72.91% Y-o-Y.
  • Loss for the period decreased to N1.59 billion, down by 62.32% Y-o-Y.

Bottom line

In line with this, the revenue of the company increased by 1.34%, as revenue from the sales of tea and savoury in the food products segment of the company increased during the period under review. While sales of skincare, oral care products, fabric care, and household cleaning products declined in 2020.

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However, it is important to note that Impairment loss on trade receivables, Selling and distribution expenses, as well as Marketing and administrative expenses incurred by Unilever, completely eroded Gross Profit of N13.78 billion to the tune of an Operating loss of N3.05 billion.

This went on to impact the profitability of the company in 2020, as Unilever reported a loss of N1.59 billion, despite doing well to keep finance costs low, and by so doing, reporting a net finance income of N1.25 billion.

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Companies

Multiverse forecasts N39.5 million profit in Q1 2021

The management of Multiverse Plc has projected a revenue of N76 million and a profit of N39.5 million in Q1 2021.

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Multiverse Mining and Exploration Plc has projected that in the first quarter of 2021, the mining and exploration company will generate N76 million in revenue, and post a profit of N39.5 million.

These projections were made by the company in a recent earnings forecast issued by the Management, and signed by the Corporate Secretaries of the company.

Key highlights of the earnings forecast for Q1 2021

  • Total revenue is projected at N76 million.
  • Turnover from agency sale is projected at N1 million.
  • Agency cost is s projected at N850 thousand.
  • Total expenses are projected at N7.8 million.
  • Operating Profit is projected at N67.3 million.
  • EBIT (Earnings Before Interest and Taxation) is projected at N67.3 million.
  • Interest Expense is projected at N27.8 million.
  • Profit after tax is projected at N39.5 million.

Key assumptions made to support the earnings forecast and projection of the company

The earnings forecast was made on the ground that there won’t be any significant change in the economic policies of the Federal Government, while the monetary policies of the CBN would not be altered significantly.

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The company also maintained that there would not be any industrial unrest that would affect its production and sales volume, while the profit of the company would not be pressured by rising costs of inputs, as prices of materials used in production shall be stable in the period under review.

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Companies

Cutix Plc forecasts N148 million profit in Q4 2021

Cutix Plc has projected that its revenue will double and profit will increase by 9% to N148 million.

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Cutix Plc, dividend

Cutix Plc has projected that in the fourth quarter of its financial year 2021, its revenue will double and profit will increase by 9% to N148 million.

These projections were made by the company in a recent earnings forecast issued by the Management, and signed by the Company’s CEO and CFO.

READ: Vitafoam shares gain 9.6%, as company reports N4.11 billion as profit in 2020

Key highlights of the earnings forecast for Q4 ended April 30, 2021

  • Revenue to increase to N1.66billion, 100% Q-o-Q.
  • Cost of Sales to increase to N1.16 billion, 70% Q-o-Q.
  • Distribution, Admin & Other expenses to increase to N232.89 million, 14%% Q-o-Q.
  • Other Income to remain unchanged at N2.50 million,
  • Finance Charges to increase slightly to N47.38 million, 3% Q-o-Q.
  • Operating income to increase to N227.83 million, 14% Q-o-Q.
  • Taxation is projected at N79.74 million.
  • While Profit attributable shareholders is projected at N148.10 million.

READ: Royal Exchange Plc forecasts N500.83 million PAT in Q1 2021

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Bottom line

The earnings forecast was made on the ground that the Nigerian economy will continue improve, as the country recovers from the impact of COVID-19. In this regard, revenue in the fourth quarter of 2021 will be slightly higher than the revenue projected in the third quarter of 2021.

READ: Okomu Oil Plc records 27.01% decline in 2020 Q3 revenues

However, the increase in the cost of sales driven by the input cost will pressure profitability to the tune of N148.10 million, which is 9% higher than the profit after tax made in the corresponding quarter of 2020.

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