Lafarge Africa – Cost Optimisation Drive Strong Bottomline Growth

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Lafarge Africa Plc reported a relatively strong Q2’20 performance. Although revenue declined by 5% year-on-year in Q2’20 to N56.85bn from N59.87bn in Q2’19, net income surged by 60% YoY from N9.54bn in Q2’19 to N15.26bn in Q2’20.

The decline in revenue was due to lower volume sold in Q2’20 as a result of the coronavirus pandemic which grounded economic activities.

Meanwhile, cost of sales declined by 14% YoY from N38.00bn in Q2’19 to N32.76bn in Q2’20. The decline in cost of sales was driven by the Company’s cost optimisation strategies. The management emphasised an overhaul and restructuring of costs were done during the period.

We also believe that the investments in fixed assets made by the Company in previous years are beginning to yield a positive result for the Company. Consequent to the 14% YoY decline in cost of sales, gross profit grew by 10% YoY from N21.87bn in Q2’19 to N24.08bn in Q2’20.

Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur

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A significant decline in operating expenses resulted in a 30% YoY increase in operating profit from N16.33bn in Q2’19 to N21.17bn in Q2’20. Specifically, operating expenses reduced by 41% YoY from N6.85bn in Q2’19 to N4.01bn in Q2’20.

The lower operating expenses incurred during the period was driven by a 46% decline in administrative expenses, particularly office and general expenses. In our view, we think that the lockdown directive and ‘work-from-home’ policy resulted in cost-saving for the Group. Also, selling and marketing expenses declined by 12% YoY.

The positive impact of the successful deleveraging efforts of the Company continued to reflect in earnings, as finance cost declined by 69% YoY from N6.21bn in Q2’19 to N1.95bn in Q2’20.

We note that finance cost also declined by 69% YoY in Q1’20. As a result of the lower finance cost incurred in Q1’20, profit before tax spiked by 78% YoY from N10.87bn in Q2’19 to N19.38bn in Q2’20. However, the bottom-line growth was moderated, due to a higher effective tax rate (21% in Q2’20 vs 12% in Q2’19). Profit after tax grew by 60% YoY from N9.54bn in Q2’19 to N15.26bn in Q2’20.

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Outlook

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We revise our earnings expectations for FY’20E, owing to the positive surprise in Q2’20. We, however, note that the higher-than-expected Q2’20 results released by the Company were majorly due to lower-than-expected operating expenses.

Based on our assessment, the significant decline in operating expenses is linked to the ‘work-from-home’ policy induced by the COVID-19 pandemic. In the short term, we expect the Company to keep incurring lower operating expenses.

However, as the economy gradually recovers, and in the mid-term, we maintain that operating expenses will be at normalised levels. Therefore, we upgrade our EPS forecast from N1.87 to N2.27, reflecting our expectation of higher profit on the back of continued cost optimisation.

In addition, we revised our cost of equity used to discount our projected free cash flows and dividend. We made the downward revision of our cost of equity estimate to reflect a lower risk-free rate from 11% in our last earnings report to 8% as of the writing of this report.

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Overall, we arrived at a fair value of N12.78. Based on our fair value estimate, the expected total return (price return and dividend yield) on the stock is 20%. Hence, we upgrade our recommendation to BUY.

Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur

WSTC Research

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Latest News

Spackman Entertainment Group’s Upcoming Musical Film THE BOX, Starring EXO’s Chanyeol, Scheduled To Be Released In The Spring Of 2021

  • Following the art film STONE SKIPPING, THE BOX is the next film production of the Company's wholly‐owned indirect subsidiary, Studio Take, founded by veteran movie producer, Mr. Song Dae‐chan
  • THE BOX will be EXO's Chanyeol's first lead acting role in a film
  • Directed by Yang Jung Woong, the Executive Producer of the 2018 PyeongChang Winter Olympics opening and closing ceremonies, THE BOX is set to be screened in Korea in the spring of 2021

SINGAPORE - Media OutReach - 3 March 2021 - Spackman Entertainment Group Limited ("Spackman Entertainment Group" or the "Company" and together with its subsidiaries, the "Group"), one of Korea's leading entertainment production groups, wishes to announce that its upcoming musical film THE BOX, produced by the Company's indirect wholly-owned subsidiary, Studio Take Co., Ltd. ("Studio Take"), is set to be released in Korea in the spring of 2021.


Following the art film STONE SKIPPING, THE BOX is the next film production of Studio Take, which was founded by veteran movie producer, Mr. Song Dae‐chan.

THE BOX is about the musical journey of an aspiring singer and a once popular producer.

Directed by Yang Jung Woong, the Executive Producer of the 2018 PyeongChang Winter Olympics opening and closing ceremonies, THE BOX stars EXO's Chanyeol who plays the aspiring singer and Jo Dal Hwan who acts as the once popular producer. This is Chanyeol's first lead role for a Korean commercial film. Jo Dal Hwan is known for his role in SECRET HEALER (2016), TRAFFICKERS (2012) and THE CON ARTISTS (2014).


About Spackman Entertainment Group Limited

Spackman Entertainment Group Limited ("SEGL" or the "Company"), and together with its subsidiaries, (the "Group"), founded in 2011 by Charles Spackman, is one of Korea's leading entertainment production groups. SEGL is primarily engaged in the independent development, production, presentation, and financing of theatrical motion pictures in Korea. According to Variety, Korea was the world's fourth largest box office market in 2019, behind only North America, China and Japan.

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The Group also invests into and produces Korean television dramas. In addition to our content business, we also own equity stakes in entertainment-related companies and film funds that can financially and strategically complement our existing core operations. SEGL is listed on the Catalist of the Singapore Exchange Securities Trading Limited under the ticker 40E.

Production Labels

SEGL's wholly-owned Zip Cinema Co., Ltd. ("Zip Cinema") is one of the most recognised film production labels in Korea and has originated and produced some of Korea's most commercially successful theatrical films, consecutively producing 10 profitable movies since 2009 representing an industry leading track record. Recent theatrical releases of Zip Cinema's motion pictures include some of Korea's highest grossing and award-winning films such as CRAZY ROMANCE (2019), DEFAULT (2018), MASTER (2016), THE PRIESTS (2015), COLD EYES (2013), and ALL ABOUT MY WIFE (2012). For more information on Zip Cinema, do visit http://zipcine.com


SEGL also owns Novus Mediacorp Co., Ltd. ("Novus Mediacorp"), an investor, presenter, and/or post-theatrical distributor for a total of 79 films (58 Korean and 21 foreign) including ROSE OF BETRAYAL, THE OUTLAWS and SECRETLY, GREATLY, which was one of the biggest box office hits of 2013 starring Kim Soo-hyun of MY LOVE FROM THE STARS, as well as FRIEND 2: THE GREAT LEGACY. In 2012, Novus Mediacorp was also the post-theatrical rights distributor of ALL ABOUT MY WIFE, a top-grossing romantic comedy produced by Zip Cinema. In 2018, THE OUTLAWS, co-presented by Novus Mediacorp broke the all-time highest Video On Demand ("VOD") sales records in Korea. For more information on Novus Mediacorp, do visit http://novusmediacorp.com.


The Company owns a 100% equity interest in Simplex Films Limited ("Simplex Films") which is an early stage film production firm. The maiden film of Simplex Films, JESTERS: THE GAME CHANGERS (2019), was released in Korea on 21 August 2019. Simplex Films has several line-up of films including A BOLT FROM THE BLUE (working title).


The Company owns a 100% equity interest in Take Pictures Pte. Ltd. ("Take Pictures") which produced STONE SKIPPING (2020) and shall release THE BOX and GUARDIAN (working title) in 2021 tentatively.


The Company owns a 100% equity interest in Greenlight Content Limited ("Greenlight Content") which is mainly involved in the business of investing into dramas and movies, as well as providing consulting services for the production of Korean content. Through the acquisition of Greenlight Content, the Group's first co-produced drama, MY SECRET TERRIUS, starring top Korean star, So Ji Sub, achieved #1 in drama viewership ratings for its time slot and recorded double digits for its highest viewership ratings. Greenlight Content was one of the main investors of MY SECRET TERRIUS.


The Company owns a 20% equity interest in The Makers Studio Co. Ltd., which plans to produce and release four upcoming films, the first of which will be THE ISLAND OF THE GHOST'S WAIL, a comedy horror film.


Our films are theatrically distributed and released in Korea and overseas markets, as well as for subsequent post-theatrical worldwide release in other forms of media, including online streaming, cable TV, broadcast TV, IPTV, video-on-demand, and home video/DVD, etc. We release all of our motion pictures into wide-theatrical exhibition initially in Korea, and then in overseas and ancillary markets.

Talent Representation

The Company holds an effective shareholding interest of 43.88% in Spackman Media Group Limited ("SMGL"). SMGL, a company incorporated in Hong Kong, together with its subsidiaries, is collectively one of the largest entertainment talent agencies in Korea in terms of the number of artists under management, including some of the top names in the Korean entertainment industry. SMGL operates its talent management business through renowned agencies such as MSteam Entertainment Co., Ltd. (Son Ye-jin, Lee Min-jung, Ko Sung-hee), UAA&CO Inc. (Song Hye-kyo, Yoo Ah-in, Park Hyung-sik), Fiftyone K Inc. (So Ji Sub, Ok Taec-yeon), SBD Entertainment Inc. (Son Suk-ku), and Kook Entertainment Co., Ltd. (Kim Sang-kyung, Kim Ji-young). Through these full-service talent agencies in Korea, SMGL represents and guides the professional careers of a leading roster of award-winning actors/actresses in the practice areas of motion pictures, television, commercial endorsements, and branded entertainment. SMGL leverages its unparalleled portfolio of artists as a platform to develop, produce, finance and own the highest quality of entertainment content projects, including theatrical motion pictures, variety shows and TV dramas. This platform also creates and derives opportunities for SMGL to make strategic investments in development stage businesses that can collaborate with SMGL artists. SMGL is an associated company of the Company.


The Company owns a 100% equity interest in Constellation Agency Pte. Ltd. ("Constellation Agency"). Constellation Agency, which owns The P Factory Co., Ltd. ("The P Factory") and Platform Media Group Co., Ltd. ("PMG"), is primarily involved in the business of overseas agency for Korean artists venturing into the overseas market. The P Factory is an innovative marketing solutions provider specializing in event and branded content production. PMG is a talent management agency which represents and manages the careers of major artists in film, television, commercial endorsements and branded entertainment.

Strategic Businesses

The Company owns a 100% equity interest in Frame Pictures Co., Ltd. ("Frame Pictures"). Frame Pictures is a leader in the movie/drama equipment leasing business in Korea. Established in 2014, Frame Pictures has worked with over 25 top directors and provided the camera and lighting equipment for some of Korea's most notable drama and movie projects including ITAEWON CLASS (2020), HOW TO BUY A FRIEND (2020), KIM JI-YOUNG, BORN 1982 (2019), FOUR MEN (2019) and ASADAL CHRONICLES (2019).

We also operate a café-lounge called Upper West, in the Gangnam district of Seoul and own a professional photography studio, noon pictures Co., Ltd.

For more details, do visit http://www.spackmanentertainmentgroup.com/

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