Compared to Q1-17 however, revenue and PBT were down 9.6% and
7.7% respectively, while net profit, helped by a N6.2 billion deferred tax
credit, grew by 182.3%. The revenue of N73.5 billion was in line with consensus
while the net profit of N14.6 billion almost doubled consensus’ N7.7 billion.
The y/y revenue growth was expected, as relatively higher
Nigerian and South African cement prices continue to compensate for softer
demand. But given the stability of prices (especially in Nigeria) since the
increases implemented thus far this year, including in April, we link the q/q
revenue contraction to lower sales volume.
We note that in addition to the impact of rising prices on
demand, the long, heavy rainy season in Nigeria between April and June may have
contributed to lower cement consumption.
On segment basis, cement revenue declined by 16% q/q while
aggregate/concrete and other revenues grew by 19% and 29% q/q respectively.
Noteworthy from the second quarter result is the strong
rebound in gross margin to 32%, from 25.7% in Q1-17 and 14.9% in Q1-16.
While noting possibly transmission from (1) additional
increase in cement price and (2) underlying exchange rate-related cost savings,
we would seek management guidance on this line, given that similar growth in
Q4-16 was subsequently attributed (by the management of LAFARGE) to higher by
one-offs relating to accounting treatment of some costs and gas contracts.
Meanwhile, we suspect from the significant increase in
variable cost (84% q/q), notwithstanding lower sales volume, that LAFARGE is still
faced with production cost challenges (we understand the company’s South West
operation had issues with energy).
On the negative , operating expenses increased by 77.3% y/y
and 22.4% q/q, driven by admin expenses which increased by 21% y/y (42% q/q),
in continuation from the 53% y/y increase recorded in Q1.
Also on the negative, net finance charge increased 200.6%
y/y, driven by declines in interest income on short term fixed deposits and
loan receivable, but principally, by the increase in interest expenses on
borrowings (+42.7% q/q and +77.3% y/y).
Total borrowings at the end of the period was N244.7 billion,
from N127.6 billion at the end of 2016FY and N142.1 billion in Q1-17.
LAFARGE is in the process of raising N140 billion via Rights
Issue, the proceeds of which would be utilized for the repayment of shareholder
loans worth USD581 million at the end of 2016FY.
As
stated earlier, LAFARGE’s recognition of a deferred tax credit of N6.2 billion
was a major boost to net profit. Recall that the company recognized sizeable
tax credits in the third and final quarters of 2016.
Overall,
over H1, LAFARGE has reported net profit of N19.7 billion, well-ahead of
consensus’ N12.9 billion. We look for positive reaction to the latest result on
expected upward revision to forecasts. Our estimates are under review.
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