Lafarge Wapco Pays Dividends “On Tax Credits”

Shareholders of Lafarge Wapco Plc. have cause to smile as the company declared a dividend of N1.05 per share for the financial year ended December 2016.

The cement company on Wednesday released its audited results for the same period, which were relatively poor when compared to that of its biggest competitor, Dangote Cement Plc. As a reminder, Dangote Cement reported a Profit before Tax of N190.9 billion in 2016.

Lafarge on the other hand made a Loss before Tax of N22 billion. But things changes on the way to bottom line as the company’s write back of a N39.7 billion income tax credit, turned its performance into a profit of N16.8 billion.

Despite the writeback, this was a 38% decline compared to the corresponding period in 2016.

Income tax credit is subtracted from the amount of tax a company owes, rather than its income. It is indirectly a writeback, and not cash generated by the business. 

Shrewd analysts believe that it is ‘morally’ wrong  for a company to pay dividends when it post losses in a financial year. The impression that it is now paying out of profits that arose from tax credits is even  more disconcerting. 

But it probably doesn’t matter as Ernest and Young (EY), auditors to the company, signed off the results. Lafarge, after all has a retained earnings of N102. 8 billion. In terms of cash, it has a negative cash balance of N3. 7 billion but this is not a problem either. It’s a norm for Nigerian companies to pay dividend through borrowings. 

Lafarge had been previously involved in another grey transaction when it converted its dollar debt into quasi equity, whereby interest and debt repayments would be at the discretion of the borrower. Quasi equity is a form of capital that is a hybrid of a debt and equity. It’s unsecured nature makes it lookike equity in substance, while the fact that it earns interest gives it a semblance to debt. Just that interest is only paid when there is profit. The company insists that it will not dilute the shares of current shareholders. 

Lafarge shares closed yesterday at N37.80, up by 5%, but year to date (YTD) price is down by 7.69%.