Lafarge Africa sustains profit drop at H1 on tax expense doubling

Lafarge Africa Plc lost profit for the second quarter (Q2) running and closed the half-year operations with after-tax profit down by 5 percent to N35.5 billion.

The cement-producing company recharged its operating performance in Q2 but the doubling of income tax expense to N19.8 billion prevented increased pre-tax profit from getting down to the bottom line.

The company’s unaudited financial report for the half-year ended June 2023, shows a much-improved Q2 operation, accounting for 53.6 percent of turnover and 57.7 percent of profit for the period.

Sales revenue accelerated from a slight improvement of 1.3 percent to N91.8 billion in the first quarter (Q1) to 10.3 percent increase to almost N106 billion in Q2.

Management added some cost savings to the revenue improvement, enabling it to stem the operating pressure that ran from top to the bottom lines in Q1.

The Q2 profit improved moderately by 3.2 percent to N20.5 billion, quite insufficient, however, to make up for a 15 percent drop to N14.9 billion in Q1.

The company is experiencing weakness in profit performance for the second year after a sharp slowdown from 65.4 percent leap in 2021 to 5 percent improvement to N53.6 billion in 2022.

Despite the improvement in revenue in Q2, cement sales are not gaining speed, as price increases against the weakening real estate industry, have slowed down demand. The demand for cement has been slowing down since the second half of last year.

The company closed half-year operations with sales revenue of N197.7 billion, which is a moderate increase of 4.3 percent year-on-year.

Production cost grew by about the same margin with sales at 4.2 percent to N94.3 billion while gross profit improved by 7.6 percent to N103.4 billion at half-year.

Selling and distribution expenses were controlled at an increase of 7 percent to N40.3 billion but the administrative cost went up by 11.2 percent to N11.2 billion.

Other income more than doubled to N425 million over the period, which helped to moderate the cost increases and permitted an increase of 7.7 percent in operating profit to N52.3 billion at the end of June.

There was a big boost from finance income, which was powered by a foreign exchange gain of N2.2 billion to produce finance income of N4.4 billion at half-year. The figure is a major swelling from less than N192 million in finance income in the same period last year.

The inflow was further extended by a drop in finance expenses from almost N1.9 billion to N1.4 billion over the review period. Net finance income of over N3 billion at half-year replaced net finance cost of N1.7 billion last year.

The favourable development enabled an increase of N8.4 billion or 18 percent in pre-tax profit to N55.3 billion at the end of half-year operations.

However, income tax expense that more than doubled from N9.5 billion to N19.8 billion over the period consumed more than all the increase in pre-tax profit, leading to the drop in after-tax profit at the end of the period.

The tax expense for the half-year is already more than the N14.7 billion income tax the company paid for the entire 2022 financial year.