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Lafarge Wapco's third quarter profit advance helped by tax saving

By The Citizen


Lafarge WAPCO failed to grow sales revenue reasonably in the third quarter but a big tax saving led other cost savings to lift the company's profit during the period. With the cost reductions, the cement manufacturer is headed for a strong growth in profit for the third year running.

The company is the fastest growing by profit from the building materials group in the current year. Its profit has been on strong recovery and growth since 2011 after a two-year fall from the 2008 peak. A new profit peak was attained last year with a leap of about 73% in after tax profit. The strongest profit growth in many years looks quite promising for Lafarge WAPCO in 2013.

The company grew after tax profit by 89% to N20.46 billion in the third quarter, which is a slight slow down from the profit figure of N14.58 billion posted in the second quarter. This is already more than 39% above the full year N14.71 billion net profit figure the company recorded in the 2012 full year.

Major cost savings in key expenditure lines of the company provided the spur for the profit growth during the period. The highest strength came from a tax saving that enabled the company to save about N6.76 billion. The company's tax liability fell from N5.52 billion in the corresponding quarter last year to N206 million at the end of the third quarter. Consequently, while pre-tax profit grew by 26%, after tax profit rose by 89%.

Based on the third quarter growth rate, the company is expected to post a net profit of N27.7 billion at the end of the year. This will be a rise of 88.3% over the after tax profit figure in 2012. It will be a stronger profit growth than the company has achieved in many years. The company's profit has grown equally rapidly over the past two years at 74.4% in 2011 and about 73% in 2012.

The company generated sales revenue of N74.28 billion in the third quarter, which is a moderate increase of 6% over the corresponding figure last year. It is maintaining the second quarter growth rate when it recorded a turnover of N49.48 billion. Based on the growth rate at the end of the third quarter, sales revenue is projected at N101.2 billion for Lafarge WAPCO at full year. This will be an increase of 15.1% over the turnover figure of N87.96 billion reported at the end of 2012, a likely slow down from the 40.7% growth in the preceding year.

Lafarge WAPCO looks very much like the growth locomotive of the building materials group in the current year. Dangote Cement is expected to grow profit at lower rate of about 40% and CCNN by about 36%. Ashakacem may report a drop in profit at current growth rate.

Generally, the building materials sector seems to have a good foundation for earnings growth this year. The operators here are benefitting from the sustaining high growth in the real estate and construction industries. The leading companies here achieved accelerated growth in sales revenue last year and are likely to repeat the performance in the current year. Profit growth is also likely to step up with growing sales revenue and some gains in profit margin.

Lafarge WAPCO is leading the group in terms of improvement in profit margin. At the end of the third quarter, net profit margin advanced from 15.5% in the corresponding quarter last year to 27.5%. It is a major improvement from the 16.7% the company recorded at the end of 2012. It is however a decline from 29.5% recorded in the second quarter. Dangote Cement leads the sector on profit margin at 54% at the end of the third quarter. Ashakacem and CCNN closed their third quarter operations with net profit margins of 9.0% and 9.1% respectively.

Lafarge WAPCO's strong gain in profit margin follows major cost reductions accomplished in the third quarter. Interest expenses dropped by 38% to N2.45 billion during the period and cost of sales was flat at N45.09 billion against the 6.0% growth in sales. The company therefore improved gross profit margin from 35.5% in 2012 to 39.3% in 2013.

The company's ability to cut interest charges sharply during the review period follows its move to cut interest bearing liabilities. Its current financial liabilities have dropped by 68% from the end of last year to N1.41 billion at the end of the third quarter. Also long-term financial liabilities have declined by 19% to N30.33 billion over the same period.

Other major changes in the company's balance sheet during the review period include a decline of 8.0% in inventories, a rise of 67% in trade and other receivables and a moderate decline in trade and other payables. These developments did not permit a reasonable growth in net cash flow from operating activities. Major cut downs on investing and financing activities however led to a strong improvement in the overall net cash flow position during the period.

The company earned N6.82 per share at the end of the third quarter, which is a leap of 89% from the N3.61 per share recorded in the corresponding period last year. Based on the projected after tax profit for the year, the company is expected to earn N9.23 per share at the end of 2013. It had earned N4.90 per share in 2012.

Lafarge WAPCO paid a dividend of 75 kobo per share from the 2012 operations, which amounts to a dividend pay-out of 15.3%, one of the lowest pay-outs among listed companies. Should the company stick to its low dividend pay-out for the current year, a minimum dividend of about N1.40 per share may be expected from Lafarge WAPCO at the end of 2013. The company's dividend pay-out has been consistently low over the years. At the close of business last Friday, the company's shares traded at 82.6% above the January opening price.