Lafarge Africa Plc has eased the operating pressure that caused a 15 percent profit drop in the first quarter but the cement-producing and marketing company still closed half-year operations with profit down at N35.5 billion.
The company’s interim financial report for the half year ended June 2023 shows much stronger earnings performance in the second quarter, which has lowered the margin of profit drop from 15 percent in the first quarter to 5 percent at the half year.
The improvement reflects a moderate improvement of 3 percent in group after-tax profit in the second quarter to N20.5 billion, much better than the N14.9 billion profit figure for the first quarter.
The easing of operating pressure in the second quarter was however largely countered by a major increase in income tax expense from N5.5 billion to over N12 billion for the quarter.
The high rise in income tax expense made a big difference between an increase of 29 percent in pre-tax profit to N32.7 in the second quarter and a marginal increase in after-tax profit for the quarter.
There is also a strong gain in sales revenue in the second quarter at an increase of more than 10 percent to almost N106 billion against the 1.3 percent improvement to N91.8 billion in the first quarter.
The gain in sales in the second quarter is supported by slowdowns in selling/distribution and administrative expenses as well as a massive increase from net finance cost of N1.1 billion in the same period last year to net finance income of N2.7 billion in the second quarter.
Enhanced earnings with a slowdown/decline in costs powered the strong growth in pre-tax profit for the second quarter but the upsurge in income tax stood in the way of the elevated performance reaching the bottom line.
The company’s half-year numbers show a turnover of N197.7 billion for the six months of trading – which is an improvement of less than 6 percent year-on-year.
Demand for cement remains constrained as the real estate industry continues to weaken – a trend that has been going on since the second half of last year.
The company’s management could not maintain the drop in cost of production recorded in the first quarter, as input costs grew well ahead of sales in the second quarter at 16.4 percent to almost N49 billion for the quarter.
Against the drop of 6.4 percent in production cost to N45 billion in the first quarter, input cost rose by 4 percent to a little over N94 billion at half year – still slightly moderated relative to sales.
The little cost saving from production costs enabled an increase of 7.6 percent in gross profit – which amounted to N103.4 billion at the end of half-year operations.
Selling and distribution costs could not be contained, which grew by 7 percent to over N40 billion at the half year and administrative expenses grew even faster at over 11 percent to N11.3 billion.
With a major improvement in other operating income from less than N200 million to N425 million, operating profit improved from flat at the end of the first quarter to an increase of 7.7 percent to over N52 billion at the half year.
A much bigger boost came from exceptional growth in finance income from less than N192 million to N4.4 billion over the review period.
Also, finance expenses dropped from N1.9 billion to N1.4 billion, which changed the company’s position from a net finance cost of N1.7 billion to a net finance income of over N3 billion.
The favourable development on finance cost and income was the key enabler for the company that powered an increase of 18 percent in pre-tax profit, amounting to N53.3 billion at the end of the half-year trading.
The decline in finance expenses is notwithstanding an increase in the company’s interest-bearing debts from N36.5 billion at the end of 2022 to N38.7 billion at the half year.
Income tax expense stood in the way of converting the increase in pre-tax profit into net profit. At N19.8 billion, tax expenses more than doubled at 109.5 percent year-on-year to consume more than all the increase in pre-tax profit.
The income tax figure is already more than the N14.7 billion income tax expense the company paid for the entire 2022 financial year.
Lafarge Africa’s earnings per share went down from N2.32 in the same period last year to N2.20 kobo at half year.
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