BusinessDay 11 Apr 2018

Wednesday 11 April 2018
COMPANIES
& MARKETS
Company news analysis and insight
BUSINESS DAY 13
FCMB Opens Flexx Hub at
LASPOTECH, Hands-over
Reconstructed School Gate
Pg. 14
Lafarge Africa’s alarming leverage
responsible for first loss in 5 years
BALA AUGIE
lion, which represents a
145.05 percent surge from
N104.70 billion it incurred
the previous year.
Lafarge Africa is making
frantic efforts toward
reducing financial leverage
as it plans to raise N131.97
billion in rights issue to
refinance debt and fund its
expansion plans.
Analysts at Cordros Capital
have reiterated their
SELL rating on the stocks
of the cement maker as they
expect investors to react to
the delayed results.
Cost of sales ratio stood
at 83.03 percent in the period
under review, the highest
in five years since Business-
Day started compiling data.
Cost of sales increased by
38.72 percent to N248.78
billion in the period under
review.
This means the company
is spending more on input
cost to produce each unit
of product.
The surge in cost of sales
or production cost was due
to a N19.20 billion impairment
of property plant and
equipment incurred in the
fourth quarter of the year
A breakdown of the PPE
shows the sum of N12.4
billion involves cost of
the evacuation road under
construction at UNICEM
and N3.3 billion cost of
ASHAKACEM kiln preheater
project, according
to notes to the financial
statement.
Because PPE is a one off
event that is not expected to
recur, Lafarge Africa could
see an improvement in cost
of sales ratio.
Gross profit margin, a
measure of efficiency, fell to
16.96 percent in December
2017 from 18.50 percent
Lafarge Africa Plc
is grappling with
spiralling cost of
production as
rising interest on
borrowing wiped out all
of earnings, leaving the
cement maker in a loss
position.
For the year ended December
2017, Lafarge Africa’s
posted a loss after
tax of N34.60 billon from
a profit position of N16.89
billion the previous year, the
worst results in five years
since BusinessDay started
compiling data.
A N43.02 billion finance
costs or interest expense in
the income statement in
the period under review
swallowed all of operating
profit of N7.88 billion,
which inevitable resulted
in the loss.
It is glaring that Lafarge
Africa is exposed to financial
risk as its debt pile
has resulted in increased
interest payment hence
suppressing bottom line
(profit). Consequently, risk
of stockholders return is
increased.
Times interest coverage
is 0.18 times operating
profit in the period under
review, which means the
cement maker’s ability to
meet interest expenses are
questionable.
The margin of safety for
times coverage ratio is 1.50
times, a figure lower than
this signals amber light.
Total debt in the balance
sheet stood at N256.54 bilas
at December 2017. A
higher ratio means a firm is
efficient.
Sales moved increased
by 36.13 percent to N299.15
billion in the period under
review to N219.74 billon as
at December 2017.
Lafarge Africa shares
have gained 2 percent, underperforming
the NSE ASI
Index.
Foreign reserve may hit $50bn by year end — CBN
The Governor of
the Central Bank
of Nigeria (CBN),
Godwin Emefiele,
on Monday expressed optimism
that the nation’s
foreign reserves would grow
to 50 billion dollars before
the end of the year.
Emefiele said this at the
25th Seminar for finance
correspondents and business
editors with the theme:
“Sustaining Economic
Growth Beyond Recession”,
in Uyo.
Emefiele, represented by
Mr Edward Adamu, Deputy
Governor, Corporate Services,
said the reserves would
continue to grow following
the recent accretion the nation
had recorded.
He said that the economic
recovery would
consolidate as the sentiments
improved in the
macro economy and supported
by proactive monetary,
trade, industrial and
fiscal policies.
The governor also said
the apex bank expected a
continued uptick in Gross
Domestic Product (GDP)
growth with a positive spillover
to improved unemployment
rate.
On the foreign exchange
market, he said the rate stability
would continue.
“As we entrench and
sustain the transparency
in the FX market, as foreign
FX reserves accretion
continues, market
confidence and improved
sentiments remain.
“We expect that the exchange
rate will not only
be stable but would begin
to appreciate against major
currencies.
“The adverse competitiveness
outcome which
such appreciation may entail
will be adequately mitigated
by proactive policies
to ensure that our balance
of payments position is not
undermined.”
According to him, there
is also need for strong policy
coordination.
“Finally, we expect a redoubling
of strong policy
coordination, collaboration
and cooperation which
flourished during the very
difficult times,” he added.
He said that the need was
greater now than ever for a
robust policy coordination
between the key aspects
of economic policymak-
ing space to sustain the
recovery.
This, he said, would include
fiscal, monetary, exchange
and trade policies,
which must be targeted at
protecting farmers to boost
agricultural outputs and
support local companies.
Emefiele said it would
also enhance manufacturing
and industrial capacities,
to diversify the economy
away from oil and fossil
fuels.