Operating Expenses Push Lafarge Africa Into N10.37bn Q3 Loss

If there was ever a doubt as to whether cement making giant- Lafarge Africa Plc really needed the N90bn fresh capital approved last month by shareholders at an extra-ordinary general meeting, such must have been cleared, going by the unaudited financials submitted by the directors for the nine-month ended September 30, 2018.
The rights issue, coming after an earlier one to raise N132bn last December, according to Mobolaji Balogun, the company’s chairman, “will further help to deleverage the company’s balance sheet and provide head room for the expansion of our business.”
According to the nine-month financials, from N1.9bn in its half-year ended June 30, Lafarge Africa posted a N10.373bn loss, representing a 1,2015.98% decline from the N937.91m reported in the corresponding period of 2017.
Revenue from sales for the period limped 4.75% up to N234.4bn, compared to N223.668bn in the prior nine-month; cost of sales was also kept within reasonable limited, rising by just 7.51% from N165.757bn to N178.205bn. Cost of sales continued to be impacted significantly by the variable cost of N112.71bn, up from N96.391bn. This, according to the explanatory notes, includes distribution cost of N41.715bn, which rose from N41.715bn; gas, N19.139bn from N16.995bn; cost of power dropped marginally from N15.241bn to N14.461bn; while raw materials and consumables recorded the most significant increase from N22.438bn to N36.865bn.
Production costs for the period (comprising personnel expenses, by-products, inventory write-offs and electrical energy expenses, dropped from N24.139bn to N17.373bn; among others.
Selling and distribution expenses however climbed 49.3% from N2.983bn in 2017 to N4.454bn, bloated by “other selling and marketing expenses at N3.655bn, up from N2.48bn; advertising expenses rose to N602.4m from N287.038m; while campaign and innovation expenses dropped from N216.111m to N197.289m.
Administrative expenses stood at N32.626bn, 11.86% higher than the N29.166bn of prior third quarter, with administrative expenses proper rising to N23.965bn from N21.938bn; followed by the technical service agreement fee of N7.089bn, a marginal rise from N7.089bn. Other income suffered a 95.63% deep from N2.93bn to just N128.02m, arising from the fact that such line items as the gain on disposal of property, plant and equipment, which fetched N2.416bn in 2017, was non-existent in the period under review. Also, it only earned N97.994m from scrapped and other miscellaneous items, compared to N430.128m in prior Q3. There was also a N28.021m write back of impairment of trade receivables, which did not occur in 2017.
Other operating profit also fell to N19.131bn, about 33.29% down from N28.677bn.
The situation could not be significantly changed by the 55.81% rise in finance income from N928.43m to N1.446bn; as finance cost grew much more significantly to N34.928%, compared to N28.512bn, representing a 22.5% rise. Finance cost was principally impacted by the N23.502bn interest paid on the group’s total borrowings of N254.523bn (a drop from N256.546bn in December 2017), up from N15.239bn.
A breakdown of the loans and borrowings showed that the group took N13.088bn from power fund, up from N7.698bn in December; N62.288bn from bond, rising from N59.842bn in December; while the largest portion yet is the N139.512bn owed as related party loan, a drop from N144.391bn in December. There is also the N303.892m to Lafarge Gypsum S.A Pty Limited, as against N338.421m in December.
Loss before tax therefore stood at N14.36bn, 1,413.21% up from the N1.093% profit; while income tax credit N3.987bn, up from N155.654m in 2017, thereby reducing the loss to N10.373bn, translating to Earnings Per Share of N120, from a profit of N937.91m, or N0.10 per share.