Income tax credit lifts cement maker’s profit as costs spike

Income tax credit enjoyed in the 2016 reporting period has helped cement makers avert a drop in profit as rising production costs continues to undermine margins.
Lafarge Africa would have recorded a pre-tax loss of N22.81 billion to end 2016 financial year but an income tax credit of N39.71 billion turned the tide around as the company posted a net income of N16.87 billion.
The large chunk of the tax credit was due to the impact of minimum tax of N23.11 billion; also, tax exemptions from the Netherlands and effect of pioneer status also gave impetus to earnings.
Lafarge Africa made a taxable loss during the period; there was therefore no tax payable.
There was a deferred tax assets recognized by the Group (which includes the amount of income tax credit of N39 billion), since it is probable that future taxable profits will be available for offset.

Section 33 of the Companies Income Tax Act (CITA) provides that a tax payer is liable to minimum tax where it has no tax payable or where its tax payable is lower than the minimum tax computed.
Companies with investment in economically disadvantaged environment qualify for a pioneer status in form of tax holidays or capital allowance on qualifying capital expenditure.

Sources told BMI that nobody had thought the cement company would record a profit or pay dividends to shareholders. Market price went up 7 percent on the back of the announcement.

Dangote cement, the largest producer of the building material would have had after tax profit drop but thanks to an income tax credit of N5.69 billion that help jerk up net income by 2.92 percent to N186.62 billion.
While Dangote cement enjoyed a net foreign exchange gain of N41.51 billion that fillip bottom lines (profit), Lafarge Africa on the other hand has interest on borrowing of N14.19 billion, incurred as a result of the dollar denominated debt in the books of its newly acquired subsidiary, Unicem.

 

Cement manufacturers in Africa’s largest economy are struggling with rising costs as damaged pipeline by the Niger Delta militant group disrupted gas supply to factories.
Consequently these firms have resulted to the use of diesel oil, coal and LPFO, which are expensive source of energy.
The cumulative cost of sales of the two cement giant for the year ended December 2016 increased by 30.14 percent to N502.86 billion while combined cost of sales margin moved to 60.23 percent in December 2016 from 50.62 percent the previous year.
Dangote cement’s power costs as a percent of total production was 34 percent while net Earnings before interest taxation, depreciation and amortization (EBITDA margin) fell to 29.68 percent in the period under review from 42.12 percent the previous year.
Lafarge Africa’s margins were suppressed as gross margin dropped to 15.80 percent in December 2016 from 30.24 percent as at December 2015.

 

BALA AUGIE