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Understanding Lafarge’s H1 2018 Results

Stock & Analyst Updates	4705 VIEWS
Stock & Analyst Updates
4705 VIEWS

Thursday, July 26, 2018 / 11:55 AM / Proshare Research

Lafarge Africa Plc recently published its Q2 2018 and Half year 2018 results on the floor of the Nigerian Stock Exchange with growth recorded in the Nigerian operations in Q2 reflecting a resilient player in the cement market/sector, while its South African operations continued to show lacklustre performance as the industrial challenges at the Lichtenburg plant in Q2 undermined the H1 performance of the company.

The company’s CFO, Bruno Bayet, made it known during its Investors Conference Call and Earning Presentation that the volume of cement sold in Nigeria grew by 19% while the volumes sold in South Africa dropped by -7%.

The company recorded net sales of N162.29bn in H1 2018 as against N154.84bn in H1 2017. The Nigerian operations accounted for about 72% of the net sales with N116.93bn generated while South Africa accounted for the remaining 28%, generating N45.36bn net sales.

Lafarge’s overall EBITDA was seriously affected by its South Africa operations with N-7.43bn recorded. This impacted the N35.13bn EBITDA achieved in Nigeria as it drew back the group EBITDA in H1 2018 to N27.70bn. The group’s profitability was also affected as the N-7.96bn loss recorded in H1 2018 in South Africa impacted the profit position. Though the Nigerian Operation recorded a profit of N4.06bn, this was not enough to salvage the group to profitability.

Thus, operational activities at South Africa continues to be a drawback for the Lafarge group as shown in the table below:

		H1 2018	H1 2017	Variation
Net Sales	Group	162,292	154,840	4.81%
	Nigeria	116,926	111,420	4.94%
	South Africa	45,366	43,420	4.48%

EBITDA	Group	27,701	37,058	-25.25%
	Nigeria	35,129	36,153	-2.83%
	South Africa	-7,428	905	-920.77%

PBT	Group	-6,346	18,160	-134.94%
	Nigeria	5,106	19,880	-74.32%
	South Africa	-11,452	-1,719	-566.20%

PAT	Group	-3,902	19,732	-119.77%
	Nigeria	4,062	20,627	-80.31%
	South Africa	-7,964	-895	-789.83%

Source: Lafarge IR Presentation, Proshare Research

Debt Refinancing Plan

The net financial debt of Lafarge Africa Plc was put at N256bn, as confirmed by the CFO during the Analyst presentation, the Board of Directors of Lafarge Africa has also approved a refinancing plan of this existing debt.

We expect that the steps on refinancing will help prepare the company for future development in Nigeria, thus improving the Company’s leverage as well as strengthening its profitability; though the refinancing scheme is expected to go through both corporate and regulatory approvals.

The proposed refinancing plan includes the following:

1. A reduction of existing shareholders dollar denominated loan to $293 million; and
2. New right issue of N90bn to refinance short term Naira denominated borrowings and working capital, following a recently concluded right issue of N131.65 billion in 2017.

Any Prospects?

The company foresees a stable pricing environment in Nigeria which is expected to impact its performance positively. Also, its new-route-to-market initiatives will be delivered in H2 2018 while it will continue to focus on cash cost reduction to drive operational performance in H2.

For South Africa, its management will focus on executing the turnaround plan which its implementation started in Q1. Actions around efficiency & cost management are also on track and will contribute to significant savings in production costs across all the segments in H2 2018.