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

Key Performance Highlights:

• Lafarge Africa published strong numbers in 2Q23 as the revenue increased 10.3% YoY to N105.9 billion, while net profit rose marginally by 3.2% YoY to N20.5 billion. Notably, Lafarge Africa’s cost of sales grew by 16.4% YoY to N48.9 billion, resulting in a 5.5% YoY rise in gross profit to N56.9 billion. However, as the cost of sales grew more than the revenue in 2Q23, the gross margin dropped by 242 bps YoY to 53.8% in 2Q23.
   
• The selling and marketing expenses slumped 4.5% YoY to N21.6 billion in 2Q23. Most of the decrease came from a drop in distribution variable costs to N16.9 billion versus 19.7 billion in 2Q22. However, the distribution fixed costs partially offset this gain with a 1.7x rise to N2.8 billion. Administrative expenses expanded 12.5% YoY to N5.5 billion in 2Q23, primarily due to a 1.4x jump in salaries and other staff-related costs to N1.8 billion. However, other income for the quarter jumped 180.9% YoY to N252 million in 2Q23 due to a higher sale of scraps and other miscellaneous income and gain on disposal of property, plant and equipment. Consequently, the Company recorded an operating profit of N30.0 billion in 2Q23, a 13.3% YoY growth. Moreover, the operating margin expanded 76 bps YoY to 28.4% in 2Q23 versus 27.6% in 2Q22.
   
• The finance income ballooned nearly 23x YoY to N3.1 billion in 2Q23 resulting from higher interest income, while finance costs dropped to N411 million in 2Q23 (2Q22: N1.2 million). This resulted in profit before tax growing by 29.0% YoY to N32.8 billion in 2Q23. However, the Company reported an effective income tax rate of 37.5% in 2Q23 against 21.9% in 2Q22, resulting in tax expenses of N12.3 billion, a 34.5% YoY rise. Consequently, Lafarge Africa’s net profit rose marginally by 3.2% YoY to N20.5 billion in 2Q23. The earnings per share came in at N1.27 in 2Q23 compared to N1.23 in the prior year period.
   
• Sequentially, Lafarge Africa recorded a 15.3% QoQ revenue increase to N105.9 billion in 2Q23 (1Q23: N91.8 billion) and a 7.9% QoQ rise in the cost of sales, leading to a 315 bps QoQ expansion in the gross margin to 53.8%. Moreover, a 38.8% QoQ decline in finance costs to N411 million (1Q23: N672 million) supported by lower administrative expenses (-4.7% QoQ) and higher finance income (+244.9% QoQ) in 2Q23 resulted in a 37.2% QoQ jump in the net profit to N20.5 billion (1Q23: N14.9 billion) and a 310 bps QoQ expansion in the net profit margin to 19.4% in 2Q23.
   
• On June 26, 2023, Lafarge Africa announced the launch of Eco Label cement brand. Eco Label represents a broad range of green cement for high performance, sustainability and circular construction. This initiative supports Lafarge Africa’s ambition to accelerate green construction using eco-friendly products. The products that are certified to be eco-friendly have a lower 30% carbon footprint compared to the local industry standard (Global Concrete & Cement Association). Lafarge UniCem brand, which contributes about 23% of the Company’s entire volume, is now eco-friendly.
   
• On 30 June 2023, the Board of Directors of Lafarge Africa notified the Nigerian Exchange Limited and the investing public that Mr. Chinedu Richard would serve as Acting Chief Financial Officer of the Company from July 1, 2023, pending the appointment of a substantive CFO. Mr. Chinedu Richard has over twenty years of combined professional experience. He joined Lafarge Africa Plc 11 years ago and has served in different roles of increased responsibility within the Company’s Finance function. He is currently the Head of Finance Planning & Analysis for the Company, a position he has held for three and a half years. 

Market Reaction: The investor reaction to the 2Q23 results was subdued as the Lafarge Africa stock declined 1.12% to N26.60, versus a 1.10% loss for the All-Share Index (31/7).

Lafarge Africa Earnings Highlights 2Q23

Source: Company Financials, FSDH