For Lafarge Africa Plc, the current financial year is one of relative leanness that follows the big windfall of last year. Though the cement producing company improved profit from continuing operations at the end of the third quarter, the windfall from discontinued operations last year is keeping the gains subdued.
The windfall of over N106 billion in the third quarter of last year built an after-tax profit of N120 billion at the end of September 2019. The profit figure fell to N28 billion this year despite the strong growth of 37 per cent in profit from continuing operations at the end of September 2020.
The development in the third quarter turned the table for Lafarge Africa from the 159 per cent advance in the bottom line at half year to 76 per cent profit fall at the end of the third quarter. In addition to the effect of the last year’s windfall, the company also lost operating momentum in the third quarter.
Its operating strength in the second quarter was lost in the third. A 5 per cent drop in sales had produced a 160 per cent rise in profit quarter-on-quarter in the second quarter. In the third quarter, sales came alive with a 31 per cent growth quarter-on-quarter but this produced less than 3 per cent increase in profit from continuing operations to N4.8 billion. This is the lowest quarterly profit for the company so far this year.
The profit for the quarter measures less than a third of the over N15 billion after-tax profit the company posted for the second quarter trading. That had lifted its first-quarter closing profit of N8 billion to over N23 billion for the half-year ended June 2020.
The main strength for the profit boost in the second quarter was a 14 per cent cut down in input cost. That strength was lost in the third quarter when the cost of sales surged upward by 38 per cent, claiming virtually all the increase in sales revenue.
A further strain came from administrative expenses, which changed direction from a 46 per cent drop in the second quarter to a 31.5 per cent rise in the third quarter. Also, finance expenses lost its high-speed drop of 69 per cent in the second quarter to 4 per cent in the third.
Huge cost savings that lifted profit margin in the second quarter dried up in the third. Net profit margin fell from 26.8 per cent in the second quarter to 8.2 per cent in the third. The lean third-quarter performance has jerked down the company’s year-on-year position from the impressive half-year records.
The company’s year-on-year reading shows that sales revenue accelerated from 2.2 per cent at half-year to over 10 per cent to almost N180 billion at the end of the third quarter. There was almost a matching increase of roughly 10 per cent in input cost to N124 billion while gross profit rose by 11 per cent to N56 billion.
Selling and marketing expenses maintained a declining course that began in the first quarter, increasing the pace of the drop further from 10 per cent at half-year to 12 per cent at the end of the third quarter to close at N2.8 billion. Administrative expenses, however, changed direction suddenly from a 31 per cent drop at half year to 5.5 per cent increase year-on-year at the end of the third quarter.
Some other favourable developments moderated the rising administrative cost. These are an improvement in other income and impairment write back on trade and receivables.
The outcome is an upturn of about 16 per cent in operating profit at N41 billion at the end of September 2020. This is an upturn from last year’s position when operating profit dropped by 9 per cent.
A big cost saving continued to come from finance expenses, which dropped by about 55 per cent year-on-year to N7.5 billion at the end of the third quarter. The drop-enabled management to lift pre-tax profit a clear 70 per cent to over N34 billion at the end of September. However, a shift from a tax credit of 434 million to a tax expense of over N6 billion over the review period lowered the growth in after-tax profit.
The rapid drop in finance expenses is the reward of the extensive deleveraging of the company’s balance sheet, which has resulted in the lowest debt figure in many years. Management slashed interest-bearing debts by 76 per cent to N64 billion in 2019 – which is further down to N53 billion at the end of the third quarter.
The company closed the third quarter operations with an after-tax profit from continuing operations of N28 billion, which is an increase of 37 per cent year-on-year. The strong growth was however obscured by the huge profit from discontinuing operations last year, which overturned the bottom line into a drop of 76.5 per cent at the end of the third quarter.
Earnings per share amounted to N1.75 at the end of the third quarter operations, dropping from N7.46 per share in the same period in 2019. Last year ended with earnings per share of N7.15 and shareholders received N1 per share in cash dividend.
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