Lafarge Africa Plc : Still in a loss position   


19 October 2018 : Yesterday, Lafarge Africa Plc (Lafarge) released its Q3 2018 result, reporting a loss after tax of N6.5 billion albeit, lower than N18.8 billion in 9M 17. Cumulative for the nine-month period, the company reported a loss after tax of N10.4 billion (vs. 9M 17 PAT of N937.9 million). Broadly, the reported loss in the period was due to sizeable finance expense of N10.8 billion (-34.8% YoY) which offset gross margin expansion of 423bps YoY to 23.8% and a 34bps moderation in operating expense to sales.


Over the third quarter, the group’s sales increased by 4.6% YoY to N72.0 billion, supported by the Nigeria division with revenue printing at N49 billion (+10% YoY). Revenue growth in Nigeria was driven by volume (+17.4% YoY), offsetting a 5.6% decline in cement prices. Elsewhere in South Africa, revenue declined 5% to N23.3 billion, due to lower volumes as prices were higher by 15% YoY. Overall, by products, the group’s revenue was supported by a 6.7% YoY increase in cement sales to N56.3 billion which offset the decline in aggregates (-2% to 14.3 billion) and Ad mixtures (- 4.4% to N1.4 billion).


Elsewhere, input cost pressure moderated over Q3 18 with cost to sales at 76.2% (Q3 17: 80.4%). The moderation in input costs stemmed from lower fixed costs (-40.8% YoY to N5.1 billion), maintenance (-38.3% YoY to N3.4 billion) and general expenses (- 54% to N3.9 billion) which combined offset a 40.4% YoY increase in variable cost to N36 billion. The increase in variable cost was the result of higher energy cost (+13.9% YoY to N10.8 billion) and raw materials (+97.1% YoY to N12.4 billion). As a result, gross profit expanded by 27.3% YoY to N17.1 billion with related margin printing at 23.8% (+423bps).


Still benefitting from improved efficiency and cost management, particularly from its South Africa operation, operating expense to sales moderated 30bps YoY to 19.9% which combined with higher gross profit translated to an operating profit of N2.8 billion (operating loss of N462 million in Q3 17).

However, operating profit gains were eroded by finance expenses, with the net finance cost printing at N10.8 billion although, lower than N16.7 billion in Q3 17. The improvement in net finance cost stemmed from a 73% decline in FX losses to N2.5 billion in the review period. Consequently, the company reported a loss before tax of N8.0 billion. Further down, the company reported a deferred tax credit of N1.5 billion borne from temporary tax differences which reduced the loss to N6.5 billion.


WAPCO trades at an EV/EBITDA of 7.4x compared to Bloomberg Middle and East Africa Peers at 12.9x. Analyst's last communicated FVE of N29.96 translates to a BUY rating on the stock.


Reporting for EasyKobo on Friday ,19 October 2018 in Lagos, Nigeria


Source: Olamide Adeboboye and Oluwasegun Akinwale from ARM Securities Limited


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