FSDH Initial Reaction: Lafarge Africa 3Q23 results 
Kindly click here to download the report.

November 2, 2023/FSDH Research

Key Performance Highlights:

• Lafarge Africa published strong operating performance in 3Q23 as the revenue increased 9.8% YoY to N91.4 billion, while operating profit jumped 113.1% YoY to N17.1 billion. Lafarge Africa’s cost of sales grew by 4.9% YoY to N46.7 billion, resulting in a 15.4% YoY rise in gross profit to N44.7 billion. Consequently, the gross margin expanded 239 bps YoY to 48.9% in 3Q23.
   
• The selling and marketing expenses slumped 17.8% YoY to N20.6 billion in 3Q23. Most of the decrease came from a drop in distribution variable costs to N14.9 billion from N19.8 billion in 3Q22. However, the distribution fixed costs partially offset this gain with a 12.1% YoY rise to N4.0 billion and a 31.1% YoY increase in marketing staff salaries to N954 million in 3Q23. Administrative expenses continued to rise with a 24.0% YoY increase this quarter to N7.2 billion, primarily due to a 57.0%  YoY jump in office and general expenses to N3.3 billion in 3Q23. However, other income for the quarter jumped 41.9% YoY to N116 million in 3Q23 due to gain on disposal of property, plant and equipment. Consequently, the Company recorded an operating profit of N17.0 billion in 3Q23, a 113.1% YoY growth. Moreover, the operating margin expanded 905 bps YoY to 18.7% in 3Q23 versus 9.6% in 3Q22.
   
• The finance income ballooned 4.8x YoY to N1.2 billion in 3Q23 resulting from higher interest income, while finance costs skyrocketed to N12.4 billion in 3Q23 (3Q22: N1.2 billion). The increase in finance cost was primarily driven by a 64.0x YoY spurt in the net Foreign exchange loss to N11.7 billion in 3Q23. This resulted in profit before tax slumping by 17.4% YoY to N5.8 billion in 3Q23. Furthermore, the Company reported an income tax expense of N2.0 billion 3Q23 against an income tax credit of N420 million in the prior year quarter. It is worth noting that in the prioy year quarter, the Group benefited from a tax relief arising from the pioneer tax relief granted on one of the Company’s production lines in the Mfamosing Plant. The Company was granted pioneer tax status for additional two years with an effective production date from January 1 2021. The pioneer tax relief ended on December 31, 2022. Consequently, Lafarge Africa’s net profit fell 48.9% YoY to N3.8 billion in 3Q23. The earnings per share came in at N0.24 in 3Q23 compared to N0.46 in the prior year period.
   
• Sequentially, Lafarge Africa recorded a 13.7% QoQ revenue decline to N91.4 billion in 3Q23 (2Q23: N105.9 billion) and a 4.5% QoQ fall in the cost of sales, leading to a 490 bps QoQ contraction in the gross margin to 48.9% in 3Q23. Moreover, a 30.1x QoQ spurt in finance costs to N12.4 billion (2Q23: N411 million) along with the increased administrative expenses (+30.4% QoQ) and higher finance cost (+30.1x QoQ) in 3Q23 resulted in a 81.3% QoQ drop in the net profit to N3.8 billion (2Q23: N20.5 billion) and a 1518 bps QoQ net profit margin erosion to 4.2% in 3Q23. 

Market Reaction: The investor reaction to the 3Q23 results was subdued as the Lafarge Africa stock declined 6.21% to N27.20, versus a 1.65% gain for the All-Share Index (31/10).

Lafarge Africa Earnings Highlights 3Q23

Source: Company Financials, FSDH