October 17, 2018/Cordros Update
LAFARGE just published September 2018 results, with a loss of NGN6.47 billion in Q3-18 and NGN10.37 billion loss in nine months.
The loss in Q3-18 is not unexpected – the group has consistently reported loss after tax in Jul-Sep period since 2016 – as we had guided in our recently published earnings insight (published October 09, 2018), and noteworthy is that it is some way lower than the NGN18.79 billion loss reported in Q3-17.
We like that revenue grew by 4.6% y/y and that the gross margin of c.24% achieved during the period is higher than the 19.6% of Q3-17, and marginally lower (unlike the wide Q3 vs. Q2 variance recorded in recent past years) than the 25.7% achieved in Q2-18.
Although opex in Q3 is typically higher compared to Q1 and Q2, the amount reported in the review period is above expectation (+3.7% y/y and +31% q/q) – at record-high of NGN14.4 billion. Similarly, finance charges increased by 66% y/y. We had mentioned in our update on the group published September 13, 2018 that these two line items will be largely responsible for the loss we expect LAFARGE to report in 2018E.
The fourth quarter is typically strong for Nigerian cement companies, both from revenue and margin perspectives. Hence, in the absence of major negative surprises (e.g. the type of one-off impairments recognized in Q4-17), we expect LAFARGE will report its first quarterly profit this year in Q4-18, bringing loss after tax for the full year to around the NGN3.9 billion we had earlier estimated.
We do not expect major negative reaction to LAFARGE’s stock today, as we believe the result is in line, and has been largely priced-in – stock price has lost 9% since we updated on the group in mid-September.
Income Statement (N’bn)
30-Sep-18
30-Sep-17
y/y
Q3-18
y/y
q/q
Q3-17
Revenue
234.30
223.67
4.8%
72.01
4.6%
-11.8%
68.83
Cost of sales
-178.21
-165.76
7.5%
-54.88
-0.9%
-9.6%
-55.37
Gross profit
56.09
57.91
-3.1%
17.13
27.3%
-18.3%
13.46
Opex
-37.08
-32.15
15.3%
-14.36
3.7%
31.0%
-13.84
Other operating (exp)/income
0.12
2.92
-95.9%
0.02
-78.8%
-9.33
EBIT
19.13
28.68
-33.3%
2.80
-72.3%
-9.72
Finance/Investment income
1.45
0.93
55.8%
0.41
-43.0%
-0.60
Finance charges
-34.93
-28.51
22.5%
-11.21
66.2%
-21.1%
-6.75
Share of net loss from associates
-0.01
0.00
-0.01
0.00
Profit before minimum tax
-14.36
1.09
-8.02
-53.0%
135.8%
-17.07
Profit after minimum tax
-14.36
1.09
-8.02
-53.0%
135.8%
-17.07
Tax (expense)/credit
3.99
-0.16
1.54
3.0%
-1.73
Profit after tax
-10.37
0.94
