Lafarge Cement WAPCO gets anticipated big profit leap

Lafarge Cement WAPCO Nigeria is one of the few companies that achieved outstanding leap in profit in 2013. Our forecast based on the third quarter performance had indicated that the cement manufacturers would achieve the strongest profit growth in several years in 2013. The company, which has maintained strong profit improvement for the third year running, closed last year’s operations just as anticipated.

The high growth in profit happened against a sharp revenue slowed down in the year, meaning that management worked extra time on costs. Profit margin, which has been on an improving trend since 2011, came to a distant peak at the end of 2013.

The company posted an after tax profit of N28.27 billion for the 2013 financial year, just 2.1% ahead of our full year profit forecast of N27.7 billion. This is an increase of 92.2% over the preceding year’s net profit of N14.71 billion. It is an accelerated growth from the 72.8% profit rise in the preceding year. Since the company made a strong profit recovery in 2011, its after tax profit has doubled more than twice.

Cost saving provided the strength for the company’s profit advancement in 2013, as revenue growth slowed down considerably during the year. Sales revenue amounted to about N98.80 billion at the end of the year, which is 2.4% below our full year forecast of N101.2 billion. The sales revenue figure for the year represents an improvement of 12.3% over the preceding year’s figure. This is a sharp slowdown from the outstanding growth of 40.8% in turnover in 2012.

The ability to convert revenue into profit improved significantly for Lafarge Cement WAPCO Nigeria in 2013. This is as costs grew at a considerably lower rate than revenue during the year, lifting profit margin to a new peak. Net profit margin has continued to improve from 11.1% in 2010 to 13.6% in 2011 and from 16.7% in 2012 to 28.6% in 2013. This is one of the highest profit margins in the cement manufacturing group in 2013, second only to Dangote Cement’s 52.1% and well above CCNN’s 9.0%.

The biggest cost saving for the company came from interest expenses, which dropped by 29.6% to N3.85 billion in the year. Its claim on sales revenue dropped from 6.2% in 2012 to 3.9% in 2013. The favourable behaviour of interest expenses follows a big cut down on the company’s long-term debts.  Non-current financial liabilities dropped from N53.97 billion at the beginning of the year to N13 billion at the end of the year. Current financial liabilities have however almost tripled at N13.1 billion over the same period.

A major cost saving also happened in respect of cost of sales, which grew at a lower rate of 8.4% than the 12.3% growth in turnover. Cost of goods sold therefore claimed a reduced share of sales revenue during the review period from 62.9% in 2012 to 60.7% in 2013. Conversely, gross profit margin improved from 37.1% to 39.3% during the period.

Administrative and other expenses failed to follow the moderating cost behaviour in the year and rose well ahead of sales revenue at 21% to N7.53 billion. The biggest cost increase came from other operating expenses, which surged by 417% to over N246 million. The impact of that on the bottom line was significantly tempered by an expansion of 48% in investment income to over N513 million in the year. It permitted an increase of 18% in operating profit to N31.56 billion.

Apart from the changes in the  company’s debt profile, other major developments in the balance sheet include a decline of 9.3% in inventories to N11.74 billion, a rise of 89% in trade debtors and other receivables to N3.74 billion and an expansion of 130% in cash and bank balances to N20.42 billion. Trade and other payables were virtually flat at N25.37 billion.

These changes led to a robust net cash flow position for the company in 2013. Net cash generated from operating activities grew by 48% to N36.94 billion while net cash used for investing activities dropped by the same margin to N2.65 billion during the period. Net cash utilised for financing activities was virtually flat at N22.75 billion. These developments led to a net cash increase of about N11.53 billion compared to a net decline of N2.53 billion in the preceding year.

The company earned N9.42 per share in 2013, rising from N4.90 in the preceding year. Net assets per share rose from N22.77 in 2012 to N30.97 in 2013. A cash dividend of N3.30 per share has been proposed, an increase from N1.20 per share for 2012. The company’s books are scheduled to close between 28th April and 2nd May while payment is expected to follow the company’s annual general meeting on 21st May 2014.

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