Lafarge Africa, a prominent player in Nigeria’s construction solutions sector and a member of Holcim Limited reported a decrease in its profit after tax for the first half of 2023.
Data gleaned from Lafarge’s financial results available on the Nigerian Exchange Group showed the firm’s Profit after tax decreased by 5.54 percent to N35.27 billion in the first half of 2023 from N37.4 billion recorded in the same period of last year.
This dip in profit can be attributed to an upswing in income tax. Despite this setback, the company’s revenue managed to rise by 5.90 percent to N197.68 billion during the reviewed period, compared to N186.59 billion in the same period of 2022.
This increase was fueled by higher prices of its products.
“The H1’23 results revealed a 5.9% surge in revenue, primarily bolstered by higher prices (+15.5% YoY), which overshadowed the impact of weaker volumes (-8.3% YoY). Notably, the company made substantial strides relative to the previous quarter, with volume sales rising by 15.6% QoQ, aided by the Q1’23 low base,” Cardinal Stone said in its report.
Spike in income tax
The contraction in profit after tax stems from a surge in income tax to N19.83 billion in the first half, a 109.34 percent increase from N9.47 billion recorded in the same period of the previous year.
This surge is attributed to the conclusion of the tax holiday that had been granted by the government as a pioneer incentive for the Mfamosing Line II plant.
Consequently, Lafarge’s effective tax rate rose to 36 percent in the first half of 2023, up from the 20 percent recorded during the same period in 2022.
Cardinal Stone’s report states, “The return to a higher effective tax rate due to the expiration of pioneer incentives on the Mfamosing Line II plant is expected to exert pressure on earnings in the short to medium term.”
Finance income surged by 2,210 percent
Despite challenging circumstances, Lafarge benefitted from the unification of the foreign exchange market.
The company experienced a spike of 2,210 percent surge in finance income, reaching N4.44 billion in the first half of 2023, compared to N0.191 billion recorded in the corresponding period of 2022.
This surge was evident in Lafarge’s interest in short-term fixed deposits and current accounts, which soared to N2.15 billion in the first half of 2023 from N0.145 billion in the same period of 2022.
Additionally, the company reported a foreign exchange gain of N2.24 billion in the first half of 2023, a significant shift from the N0.785 billion loss recorded during the same period in 2022.
Cardinal Stone’s report states “The company reported a notable net foreign exchange gain of N1.9 billion, against the trend of other industry players. This gain effectively masked finance costs via a material surge in finance income. Management explained that a blended exchange rate of N751.00/$ was used to recognise FX-denominated assets and liabilities before the Naira devaluation.”
Earnings Per Share Decline
Lafarge witnessed a 5.17 percent reduction in earnings per share during the first half of 2023, with figures dropping from N232 kobo to N220 kobo.
Cardinal Stone attributes this decline to the surge in income tax, noting, “Even though margins were stronger across the board, we note the worrisome 109.5% YoY surge in income tax expense as of H1’23. This increase was attributed to the reversion of a higher effective tax rate – a consequence of the expiration of pioneer incentives on the Mfamosing Line II plant.
“As a result, net income margin came under pressure, causing earnings per share (EPS) to decline by 5.2% YoY to reach N2.20 in H1’23 (compared to N2.32 in H1’22),” the Cardinal Stone report said.