Lafarge Africa Plc – Balance sheet restructuring pays off as earnings surge in Q1’20

Lafarge Africa Plc. (WAPCO): Basking in Restructuring Gains
CardinalStone Research
Lafarge Africa Plc (Lafarge) has reported a 28.0% YoY surge in profit from continuing operations (excluding Lafarge South Africa) to N8.1 billion in its Q1’20 unaudited results. The robust earnings growth was supported by a material decline in interest expense in the review period.

Key highlights:

  • Lafarge grew revenue by 9.8% YoY to N63.7 billion in Q1’20, largely aided by cement volume growth. However, increases in the cost of fuel & power (+52.0% YoY to N10.6 billion) and “distribution variable cost” (+22.8% YoY to N11.7 billion) cascaded into a cost of sales pressure that left gross margin 2.7ppts lower YoY at 27.7% in Q1’20
  • Operating profit rose by 2.8% YoY to N11.8 billion as moderation in selling and marketing expenses slightly offset passthrough from gross margin pressures. Thus, the operating profit margin was only 1.3ppts weaker YoY at 18.6% in the review quarter
  • Lafarge reported an over two-fold YoY increase in profit before tax to N9.4 billion in Q1’20. The leap in pre-tax earnings was largely driven by a 69.1% YoY decline in finance cost to N2.6 billion. We believe the heavy contraction in finance cost reflects significant moderation in yield environment and lower debt levels
  • Notably, the company’s balance sheet improved following the deployment of proceeds from the sale of LSAH and rights issuances for debt repayments in the last few quarters
  • Earnings growth was trimmed to 28.0% YoY (at the after-tax level) by a tax charge of N1.3 billion in Q1’20 (vs. tax credit of N1.7 billion in Q1’19)
  • Lafarge reported an 82.4% YoY plunge in operating cash flow to N4.7 billion due to significant working capital pressures in the review quarter
  • Management expects the ongoing coronavirus containment measures to adversely affect Lafarge’s Q2’20 results
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Lafarge Africa Plc - Balance sheet restructuring pays off as earnings surge in Q1'20 - Brand Spur

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