How Lafarge Africa Doubled, Lost Profit In 2020

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How Lafarge Africa Doubled, Lost Profit in 2020 -

Lafarge Africa Plc doubled profit from continuing operations to almost N31 billion in 2020, yet it was a deep plunge from the post discontinued operations’ profit mark of N115 billion in 2019.

Profit from discontinued operations had contributed close to N100 billion of the profit figure in the preceding financial year. It was completely absent in the 2020 financial year.

According to InsideBusiness, the cement producing company experienced a lean final quarter that contributed less than N3 billion to the closing profit figure for the year. This sustained the company’s slowdown in operating momentum all through the second half. The second half accounted for N7.6 billion or less than 25 per cent of the profit for the year.

The stronger performance of the company in the first half reflects a reduction in input cost. The cost-saving was lost in the second half when the cost of sales grew strongly to claim much of the increase in sales revenue.

 

The same applies to administrative expenses, which changed direction from a sharp drop in the first half to an increase in the second half. Generally, major cost savings that lifted profit margin in the first half thinned down in the second half of the financial year.

The net profit margin, therefore, declined from 19.4 per cent at the end of half-year operations to 13.4 per cent for Lafarge Africa at full year. While sales revenue growth gained momentum in the second half, the ability to convert the earnings into profit weakened during the period.

The company’s audited financial report for the 2020 operations shows that sales revenue accelerated from 2.2 per cent at half-year to 8 per cent at the full year to stand at N230.6 billion. That was insufficient to regain all the sales revenue the company lost in 2019.

Group turnover had dropped by 31 per cent to N213 billion in 2019. The closing turnover figure for 2020 remains well below the peak earnings of over N308 billion posted in 2018.

There was a slowdown in cost of sales in the final quarter, leading to an increase of 4 percent to N163 billion at full year against a 10 percent increase at the end of the third quarter. The moderated input cost stretched out gross profit from 11 percent increase at the end of the third quarter to 20 percent –amounting to over N67 billion at the end of the year.

Selling and marketing expenses maintained a declining course through the year, gaining momentum on the downside from 10 percent drop at half year to 12 percent at the end of the third quarter and further to 17 percent at a full year to close at N4.2 billion.

Administrative expenses stepped back from a 5.5 percent growth at the end of the third quarter to a 4 percent increase at the full year to close at over N18 billion for the year. Other income presents a weak front in the year with a drop of 58.5 per cent to N976 million.

A major compensating development on the side of cost is a drop of 95 per cent in other operating expenses to N41 billion in the year. That plus a sustained reversal of net impairment write back on trade and receivables helped to build operating profit. At N45.7 billion, operating profit grew by 31 per cent at the end of the 2020 financial year.

A big cost saving also came from finance expenses, which dropped by 52 per cent at the end of the year to N9.7 billion. The drop-enabled management to lift pre-tax profit a clear 116 per cent to over N37 billion at the end of the 2020 operations.

The rapid drop in finance expenses reflects a big slashing of long-term borrowings from over N52 billion in the preceding financial year to N5 billion at the end of 2020.  However short-term borrowings multiplied four times to N44.5 billion over the period. Overall, the company reduced its balance sheet debts by 22.6 per cent to Less than N50 billion.

A major increase in income tax expense from N1.7 billion to N6 billion over the review period tempered the growth in after-tax profit from continuing operations. The company closed the full year operations with an after-tax profit from continuing operations of N30.8 billion, which is an increase of 99 percent from the closing figure of N15.5 billion in 2019.

The strong growth was obscured by the huge profit from discontinued operations in the prior financial year, which overturned the bottom line into a drop of 73 percent from the closing after-tax profit of N115 billion in 2019.

Earnings per share amounted to N1.91 at the end of the 2020 operations, dropping from N7.15 per share in 2019. The company has announced a cash dividend of N1 per share for the 2020 operations.

 

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