N22bn FX loss cuts Lafarge Africa’s profit by two-thirds in Q1

The net foreign exchange (FX) losses of N21.8 billion consumed much of Lafarge Africa’s operating profit in the first quarter (Q1) and left the bottom line down by close to two-thirds at N5.2 billion.

The FX loss for the quarter is already in excess of the full-year figure of N21 billion the company sustained in 2023. It is a deep plunge from net FX gains of N324 million the company recorded in the same quarter last year.

The interim financial report of the cement-producing company for Q1 ended March 2024, shows that the FX loss is the critical downside force in operations, leading the way for a profit drop for the second year.

The drop in profit is against an upturn in sales that raises hopes for achieving the strongest growth in turnover in recent years this financial year.

Cement sales appear to be recovering, as consumers slowly adjust to price increases that have been slowing down demand for the product since the second half of 2022.

Sales revenue broke free from a limited increase of 8.6 percent to N405.5 billion at the end of 2023 to a 50 percent leap to close at N137.8 billion for Q1.

However, production costs equally broke free from 12.2 percent increase at the end of 2023 to a jump of 59 percent to over N72 billion in Q1.

An increase in production cost per unit of sales lowered gross margin and gross profit grew by 41.2 percent to N65.6 billion at the end of Q1.

Selling and distribution expenses also grew rapidly at 46 percent during the first quarter to N27.3 billion and so did administrative costs that went up by 43.8 percent to N8.3 billion.

Operating profit rose by 36 percent to close at N30.2 billion at the end of March, an accelerating growth from 21 percent increase recorded at the end of the 2023 financial year.

There was a boost from finance income, which grew by 70.5 percent to N1.6 billion at the end of the first quarter.

The big challenge in the quarter came from finance cost — which was driven by the FX losses to multiply more than 34 times to close in excess of N23 billion over the review period.

The net finance expenses consumed much of the operating profit, resulting in a drop in pre-tax profit from N22.5 billion in the same period last year to N8.7 billion in Q1.

After-tax profit similarly fell from N14.9 billion to N5.2 billion over the same period.

Lafarge Africa is experiencing a much more rapid drop in profit than posted last year when its profit went down from a peak of N55 billion in 2022 to N48 billion in 2023.