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LAFARGE AFRICA PLC Q1'23 Earnings release - Higher tax expenses pressure bottom line

Lafarge Africa PLC recently released its Q1’23 results, reporting a 15% y/y decline in PAT, majorly driven by higher tax expenses. Lafarge recorded flattish revenue growth of 1% y/y (₦91.8 billion) during the Q1’23 period, attributable to the nationwide cash shortage and slowdown in capital projects due to the election of a new administration.

On the other hand, cost of sales declined by 6% y/y to ₦45.3 billion, amid the continuous cost pressures fueled by the rising inflation and FX liquidity issues. This contraction aligns with management’s aim to optimize costs through the adoption of a more efficient energy mix. Consequently, gross profit improved 10% y/y to ₦46.4 billion, with gross profit margin increasing by 4ppts to 51%.  Operating expenses surged 21% higher y/y to ₦24.4 billion, with most pressure exerted by the selling and distribution expenses (+24% y/y to ₦18.6 billion). As such, EBIT margin remained flat at 24%, while EBIT inched up slightly by 1% to ₦22.2 billion.

Cost optimization strategies to further quell cost pressures Although the rising levels of rainfall may dampen cement demand in the Q2 period, we expect a rebound in volumes following the calmed political climate and the easing of the cash crunch. Additionally, we expect management to sustain its cost reduction strategies, through the optimization of its energy mix and the use of cheaper Compressed Natural Gas for its distribution.