Lafarge Africa Pre-tax and After-Tax Margins Contract by Over 200bps in Q3 2015


Friday, October 23, 2015 03:51PM / InvestmentOne Research
Q3 2015 result highlights 

  •   Sales declined by -13.9% q/q; -6.9% y/y
  •   Pre-tax and after-tax margins contracted by over -2000bps q/q
  •   PBT and PAT declined by over 81% q/q; 67%  y/y each
  •   Consensus estimates may be revised downwards

Lafarge Africa released its Q3 2015 results on the NSE today. The company reported sales of N59.75bn in the quarter, a -6.9% decline compared to 3Q14. Similarly, we saw a drop of over 65% in both pre-tax and after-tax profits y/y.

We attribute the decline in earnings to cost pressures in SA as well as challenges in operational efficiency (Opex/sales increased by over 500bps).

On a sequential basis, the company’s P&L showed similar pressure on both top and bottom-line. Revenue declined by 13.9% q/q, while gross profit margin of 28% was 863bps lower than the previous quarter.

A 369bps spike in opex/sales as well as an over 300% decline in other income (which previously supported bottom-line), combined to offset milder finance costs (down by -26%) and a lower tax rate (down by -27bps).

As such, PBT and PAT margins contracted by c.2000bps each to 35% and 30% respectively. On the back of contracting margins, both PAT and PBT shrunk by c.-81% q/q.

The company also gave some colour to its 9M 2015 performance. According to management, the modest 5% y/y rise in revenue was the combined result of improvements in its Ready to mix and Wapco businesses (recorded 31% and 11% growth respectively), and a decline in Ashakacem’s performance (impacted by the unrest at start of the year). 

Also, net income which declined by 6% was on account of an estimated N2.5bn loss due to insurgent activity in the Ashaka catchment area.

Overall, the result was reflective of challenges with efficiency across its different operations,

Despite the company’s weak Q3 performance, we remain positive on its medium to long term outlook and believe Lafarge continues to offer value (Lafarge Africa’s product leadership status as positive for Nigeria’s long-term market development and sustainable earnings growth). 

Also, we see the recently completed acquisition of United Cement Company of Nigeria as a positive for the company given Unicem’s track record of delivering on earnings growth as well as its plans to increase capacity from 2.5mntpa to 5.0mntpa by FY2016. A key risk to Unicem’s contribution however is its high exposure to USD dominated debt (c. $784m).

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