Lafarge Africa Plc Q2''18 Results - Unchanged Rhetoric, As Earnings Remain Depressed


Wednesday, July 25, 2018 / 04:05 PM / CardinalStone Research

Lafarge Africa Plc (WAPCO) Q2’18 results – revenue for the quarter increased by 11.0% YoY to settle at N81.6 billion. Notwithstanding the growth recorded in top line, higher costs, emanating from direct input costs (+21.4% YoY) and finance costs (+192.4% YoY) weighed on profitability, as the group posted a loss-after-tax of N1.9 billion during the period (vs. Q2’17 after-tax earnings: N14.6 billion).

Other highlights:

•           Overall revenue grew by 11.0% YoY in Q2’18 to settle at N81.6 billion. Nigeria operations remained resilient in the period under review, as healthy cement volumes growth (+18.7% YoY), accompanied with higher cement prices, drove net sales for the segment higher (+12.4% YoY) to N59.3 billion. On the other hand, South African cement volumes contracted by 7.0% YoY, however, net sales was higher (+7.7% YoY) to print at N22.4 billion – thanks to price increases taken in Q1’18, as well as positive FX translational effect.

•           Notwithstanding the growth recorded in top line, production costs grew at a faster pace (+21.4% YoY) during the quarter, weighed by higher general production expenses. Consequently, gross margin declined by 6.4 ppts YoY to settle at 25.7%.

•           While Nigerian EBITDA improved by 7.0% YoY to N14.5 billion, overall EBITDA declined by 16.5% YoY to N15.8 billion, as the South African operations recorded a loss of N3.3 billion before interest, taxes, depreciation and amortization. The weak performance of the segment has continuously been attributed to sustained operational challenges in the Lichtenburg plant.

•           Over Q2’18, finance costs grew more than two-fold on a year-on-year basis (+192.4% YoY) and +49.5% QoQ to print at N14.2 billion. Consequently, the group recorded a loss-before-tax of N3.4 billion (vs. a profit before tax of N8.7 billion in Q2’17).

Analyst take: For us, the narrative for WAPCO remains largely unchanged. Our major concerns for the company remain i) the struggling South African operations; ii) elevated finance costs which continue to pressure bottom line, as highlighted in our note “Amidst murky waters, any respite in sight?”. The company has placed another card on the table – a proposed refinancing plan to reduce existing FCY related party loan to $293 million; and a rights issue amounting to N90.0 billion to refinance short term debt. We recall that last year, the company conducted a rights issue amounting to N131.65 billion. In our view, another round of the same exercise, barely one year down the line, signals the deep-rooted challenges the company faces in respect to finance costs. Although we see scope for continued buoyancy in the Nigerian operations, the aforementioned factors erode our optimism towards the counter.

Our target price for the counter is currently under review.

 Proshare Nigeria Pvt. Ltd.Proshare Nigeria Pvt. Ltd.

Related News

1.       Lafarge Africa Plc H1 2018 Conference Call and Earnings Presentation - The Key Takeaways

2.      Lafarge Absorbs South Africa Operations’ Loss Off N162.29bn Revenue in H1 2018, (SP:N32.50k)

3.      Lafarge Africa Plc - Still Navigating Murky Waters

4.      Lafarge Africa Q1 2018 Results -Earnings Muted By Leverage and Weakness in SA OPS

5.      Lafarge Africa Plc Reports a Pretax Loss of N2.9bn in Q1 2018 Results

6.      Lafarge Africa Plc - One-Offs Weighed On Q4 2017 Earnings

7.      Lafarge Africa Plc Proposes N1.50k Per Share Dividend

8.     Lafarge Africa Plc Announces Board Changes

9.      Lafarge Africa Plc Announces Delay in Filing FY 2017 Financial Statements Lafarge Africa Plc Announces Postponement of Board Meeting

10.  Lafarge Africa Plc Announces Consideration of Audited Financial Statements and Dividend

11.   Lafarge Africa Plc Announces Plan to Discuss Dividend Consideration

Related News