October 31, 2023/Cordros Report
Lafarge Africa Plc (LAFARGE) published its Q3-23 unaudited financials yesterday (30 October). The result showed that Q3-23 standalone EPS settled lower at NGN0.24/share (-48.9% y/y), moderating 9M-23 EPS to NGN2.44/share (-12.6% y/y). The decline in earnings was driven by higher net finance costs (+918.1% y/y) reflective of the substantial foreign exchange loss of NGN11.66 billion.
Revenue grew slowly by 9.8% y/y in Q3-23 (9M-23: +7.1% y/y), underpinned by cement (+9.3% y/y; 96.1% share of revenue) and aggregate and concrete (+17.9% y/y) sales. We believe the moderate growth in cement sales was as a result of slow demand in the period due to the heavy rainfall amid the impact of the price per tonne increases implemented in the first half of the year (+14.4% y/y). Subsequently, revenue declined by 13.7% on a quarter-on-quarter basis.
Gross margin increased by 270bps y/y to 56.1% in Q3-23 (9M-23: +170bps to 58.1%) as revenue growth (+9.8% y/y) outpaced the cost of sales ex-depreciation (+3.3% y/y). We attribute the muted COGS growth to management’s commitment to increasing the efficiency of production plants and tailwinds from the turnaround and cost reduction strategy, including enhanced thermal substitution rate and adoption of more affordable and cleaner energy.
Accordingly, EBITDA (+930bps y/y) and EBIT (910bps y/y) margins improved to 26.1% and 18.7%, respectively, further buoyed by the 9.8% y/y moderation in OPEX ex-depreciation.
Nonetheless, earnings came under pressure as net finance costs (+918.1% y/y) increased markedly, chiefly from the substantial net foreign exchange loss balance (NGN11.66 billion | Q3-22: 182.13 million) recorded in the quarter. We note that the huge FX loss outstripped the 384.3% y/y increase in finance income and 26.3% y/y decline in interest expense.
Consequently, Q3-23 standalone PBT printed lower by 15.4% y/y to NGN5.84 billion, while PAT declined further by 41.0% y/y, following a tax expense of NGN2.02 billion in Q3-23.
Comment: The local currency devaluation negatively impacted LAFARGE’s earnings in the review period amid the slow revenue growth due to the heavy rainfall in Q3-23. Nonetheless, we expect sustained margin expansion and improved earnings in Q4-23 given our positive outlook on sale volumes following an expected rebound from private and public sector demand amid LAFARGE’s cost reduction strategy. Our estimates are under review.
