Lafarge Africa Q2 2019: Cost Improvement Fuels Upbeat Earnings

Home NewsLafarge Africa Q2 2019: Cost Improvement Fuels Upbeat Earnings

Lafarge Africa Q2 2019: Cost Improvement Fuels Upbeat Earnings

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In the second quarter of 2019, revenue from Lafarge Africa declined marginally to N81.8 billion – a 0.2% decreased from the previous year – resulting from the 2.1% drop in revenues reported from its South African business which offset the 1% increase recorded in Nigeria. Meanwhile, efficient energy mix and production optimization bolstered gross margin which was 1.9% higher YoY.

Moving down, the out-turn of cost efficiency measures undertaken by management was evidenced by the 26% shrinkage in operating cost, materializing to N13.962 billion profit from operations for the second quarter – up 38.5% from the prior year.

Following the recent balance sheet and leverage improvement focus, finance cost – which previously hobbled earnings – were lower 60.8% over the year, and 34.5% below the first quarter. Overall, the result shows an impressive performance with improved margins and profit after tax of N5.86 billion from the N1.9 billion loss reported in 2018.

As announced earlier, the company would be divesting its interest in the ailing South African business, of whose proceeds would significantly reduce the cement manufacturer’s leverage. That said, the company would focus primarily on its Nigerian business, with management guidance of new product introduction, enhanced operational efficiency and improved energy utilization with the introduction of cheaper alternative fuel sources.

As with the cement industry, we expect lower volume sales in the third quarter owing to heavy downpour, hence reduced revenue. However, we are confident in the management’s cost-efficiency measures expected to come circle full going forward, and support further margin expansion.

Upon the release of the result, renewed buying interest fueled a 10% price surge, after which there was a brief pullback to close today at N14.15. The stock is currently up 13.7% YtD.