FSDH Initial Reaction: Lafarge Africa 1Q23 results 
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May 2, 2023/FSDH

Key Performance Highlights:

• Lafarge Africa published a mixed set of numbers for 1Q23 as the revenue increased 1.3% YoY to N91.8 billion, while net profit declined 14.9% YoY to N14.9 billion. Notably, Lafarge Africa’s cost of sales fell 6.4% YoY to N45.3 billion, resulting in a 10.2% YoY rise in gross profit to N46.5 billion and a healthy 407 bps YoY increase in the gross margin to 50.6% in 1Q23. The decrease in the cost of sales was primarily due to the lower variable costs (fuel & power, raw materials and consumables). However, the company noted that the economic impact of the general elections and the cash shortage in circulation following the currency redesign policy constrained its financial performance in 1Q23. Moreover, the company maintained a positive outlook, with market recovery expected for the rest of the year.
   
• The selling and marketing expenses vaulted 24.3% YoY to N18.7 billion in 1Q23. Most of the increase came from a 31.7% YoY rise in distribution variable costs to N16.6 billion due to the rising inflationary pressures in the economy. Administrative expenses expanded 10.1% YoY to N5.8 billion in 1Q23, primarily due to nearly a 2.1x jump in office and general expenses to N1.7 billion. However, other income for the quarter increased 4.6% YoY to N173 million in 1Q23 due to a higher sale of scraps and other miscellaneous income. Consequently, the company recorded an operating profit of N22.2 billion in 1Q23, a marginal 0.6% YoY growth, compared to an operating profit of N22.1 billion in 1Q22. Moreover, the operating margin witnessed a minor contraction of 19 bps YoY to 24.2% in 1Q23 versus 24.4% in 1Q22.
   
• The finance income ballooned nearly 35x YoY to N914 million in 1Q23 resulting from higher interest income, while finance costs mostly remained unchanged at N672 million 1Q23 (1Q22: N676 million). This resulted in profit before tax growing by 4.7% YoY to N22.5 billion 1Q23. However, the company reported an effective income tax rate of 33.6% in 1Q23 against 18.2% in 1Q22 due to the Pioneer Status Incentive (PSI) expiry, resulting in tax expenses of N7.5 billion, a 34.5% YoY rise. Consequently, Lafarge Africa’s net profit fell 14.9% YoY to N14.9 billion in 1Q23. The earnings per share came in at N0.93 in 1Q23 compared to N1.09 in the prior period.
   
• Sequentially, Lafarge Africa recorded an 11.2% QoQ revenue decline to N91.8 billion in 1Q23 (4Q22: N103.4 billion) and an 8.0% QoQ rise in the cost of sales, leading to an 879 bps QoQ contraction in the gross margin to 50.6%. However, a 94.8% QoQ decline in finance costs to N672 million (4Q22: N12.9 billion) supported by lower selling and marketing expenses (-30.7% QoQ) and administrative expenses (-13.9% QoQ) in 1Q23 resulted in a 70.7% QoQ jump in the net profit to N14.9 billion (4Q22: N8.7 billion) and a 780 bps QoQ expansion in the net profit margin to 16.3% in 1Q23.
   
• On 28 April 2023, Lafarge Africa announced the resignation of Mr. Grant Earnshaw as a Director of Lafarge Africa Plc, effective 6 April 2023. He was appointed to the Board on 7 April 2018 and served as a Non-Executive Director of the Company until his resignation. Moreover, the Board has approved the appointment of Mr. Rajesh Surana as a Non-Executive Director of the Company with effect from 27 April 2023. 

Market Reaction: The investor reaction to the mixed 1Q23 results was subdued as the stock closed 1.66% lower to N23.70 versus a 0.20% fall in the All-Share Index on Tuesday (2/5).

Lafarge Africa Earnings Highlights 1Q23

Source: Company Financials, FSDH