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Cost control and tax write backs spurt Lafarge’s 4Q13 after tax profits by 92%

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Background

Lafarge WAPCO Cement Plc (WAPCO) is a 60 percent-held subsidiary of Lafarge SA, located in Ogun state, in the South-western region bordering Lagos.

WAPCO is the second-largest cement manufacturer in the country, with a c. 15 percent share of total industry production capacity.

The business became a part of the Lafarge Group following the acquisition of the Blue Circle Group by Lafarge in 2001.

Today, Lafarge holds a leadership position in the Nigerian cement industry, with investment in companies that had a total production capacity of 8.5 million tons per annum.

The Group currently offers three brands of cement to its customers: Elephant Cement (its flagship brand), Elephant SupaSet (which caters to the block-making and construction industry) and Lafarge PowerMax (a premium brand suitable for large civil engineering projects).

Lafarge Wapco’s shareholder funds stood at N92.97 billion at the end of December 2013.

Financial Performance for December 31 2013

Lafarge Wapco audited financial statement for the year ended December 2013 showed gross revenue grew by 12 percent to N98.8 billion from N87.96 billion recorded in the corresponding period of 2012.

Gross profits were up 18.89 percent year on year (y/y) to N38.83 billion in FY13 from N32.66 billion as at FY12 hence gross margin climbed to 39.30 percent in 12M13 compared to 37.13 percent in 12M12.

The above performance was achieved because the company had input costs reduced as cost of sales margin in the review period declined to 60.70 from 62.87 percent in 4Q13.

Net profit margin (NPM), which is a measure of efficiency and profitability increased to 31.90 percent 2013FY as against 30.3 percent as at 2013FY.

The increase in margins can be attributed to improved energy efficiency as a result of the full commissioning of the power plants that were completed towards the end of 2011.

Profit before tax (PBT) soared by 30 percent y/y to N27.71 billion in the twelve months period through December 2013 (FY13) compared to N21.61billion as at FY12.

There was a drastic reduction in Income tax by 108 percent y/y in 4Q13 from N5.46 billion recorded in the corresponding period 4Q12.

The reduction in income tax have help surge profit after tax (PAT) by 92 percent y/y to N28.26 billion in 12M13 compared to N14.71 billion in 12M12.

Administrative and other expenses in the period under review increased by 21 percent  y/y to N7.51 billion from N6.22 billion in 4Q12, while operating expenses ratio climbed to 7.60 in FY13 percent as against 7.0 as at FY13.

Earnings per share EPS soared by 92 percent to 942 percent from 490 percent in 4Q13.

The Return on Average Equity (ROE) which measures how well the company has managed the resources of owners climbed to 30 percent in FY13 from 21 percent as at FY’12.

Return on Average Assets (ROA) followed similar growth pattern as it increased to 17.56 2013FY percent compared to 9.6 percent as at 2012FY.

Debtors of Lafarge are paying promptly as it recorded a shorter collection period of 13 days which explains its strong profitability and liquidity position.

Sales turn for the year ended December 2013 moved to 1.06 xs from 0.57 xs for the same period in the prior year.

Share performance and Outlook

The share price of Lafarge has increased by 86.92 percent in the past year to close at N109.10-March 20 2013- on the floor of the Nigeria Stock Exchange.

Earnings per share have been forecasted at N8.74/NGN10.12 for financial year 14/15, representing a three- year CAGR of 27 percent in EPS.

The company had a market capitalization of N327.47 billion on the same day.

It also has a price to book ratio (PBR) of 4.8 xs and a price to sales (PBS) ratio of 3.31 xs.

Current P/E ratio and estimated current P/E ratio were 44.58x and 11.52x respectively.

Following its 2011 expansion, WAPCO secured its position as the second-largest cement manufacturer in the country, by both production and sales, and is now repositioning itself to become a national player.

Its plants are located in an area with convenient access to the biggest state economies in the South-west region and also have unique rail access to the northern regions, giving it access to markets previously only reachable by road.

BALA AUGIE