Lafarge Africa grows revenue by 23.1%, amid challenges in industries
By Philemon Adedeji
The Cement manufacturing company, Lafarge Africa Plc have delivered impressive performance in its unaudited financial results for the period ended September 30th, 2022.
The group reported a strong fundamental growth in its major parameters such as, Revenue, Profit Before Tax (PBT), Profit After Tax (PAT), Assets and others despite challenges in the industries.
From the analysis of the results, it shows that over a period, the group revenue delivered an increase of 23.1 per cent to N269.9 billion in nine months of 2022 from N219.2 billion in nine months of 2021, over improved sales of cement.
When analyzed, the achieved revenue is slightly above our FY 22 forecasts (+1.6 per cent variance) owing to higher-than-expected price growth. The quarter saw price increases (the average price per tonne rose by 21.5 per cent y/y) which offset a decline in volumes (-7.6 per cent y/y to 1.25Mt).
The company reported N261.4 billion in revenue from sales of Cement in nine months of 2022, representing an increase of 22.43 per cent from N213.56 billion reported in nine months of 2021.
The breakdown of the revenue shows that, the revenue generated from aggregates and concrete stood at N8.0 billion from N5.48 billion in nine months of 2021, while revenue from ‘Other products’ closed the period under review at N384.1million from N157.67 million.
Lafarge Africa’s revenue performance in 9M 22 was above our expectations (+9.8 per cent variance) when analyzed. While its achieved volume output was below our FY 2022 forecast by 10.7 per cent when analyzed, given its focus on capacity utilisation, we note that the company, like its peers, was able to take advantage of elevated prices.
Unlike its peers, we are impressed with its strategy in managing production and operating costs as well as managing its foreign exchange exposure. In the short-run, given industry-wide disruption in gas supply, we expect the company to continue to rely partly on diesel for distribution activities but we do not expect significant pressure on its bottom line in the long term, following investments in Compressed Natural Gas (CNG)-powered trucks. In addition, following the nigh expiration of its pioneer status, we expect its effective tax rate to increase.
Overall, we maintain our BUY recommendation on the stock. On our estimates, the stock is trading on 2022F P/E and EV/EBITDA multiples of 5.2x and 2.4x, discounts to emerging market peer multiples of 15.7x and 8.6x respectively.
Lafarge Africa Plc on the Nigerian Exchange Limited (NGX) in its nine months ended September 30, 2022 unaudited results announced 11.2 per cent increase in net income to N44.9 billion from N40.39 billion reported in nine months of 2021, while the group Profit Before Tax increased by 22.9 per cent to N53.947 billion in nine months of 2022 from N43.901 billion reported in nine months of 2021.
The group gross profit gained a decent 32 per cent to N134.8 billion in third quarter (Q3) of 2022 from N102.1 billion in the third quarter (Q3) of 2021.
Like its peers, the volume decline can be attributed to the torrential rainfall and the flooding that characterized the most of the quarter. In addition, high inflation continued to tighten customer wallets. Given the company’s strategy to focus on driving capacity utilisation via debottlenecking exercises in its Ashaka and Ewekoro plants rather than investing in additional capacity, we expect the firm to ramp up its output towards the end of the year as building projects are rounded off, barring any significant climate-related challenges.
Earnings per share reported by Larfage Africa amounted to N279 per share in nine months period that ended September 2022 from N251 per share recorded in the corresponding period, selling & distribution costs weigh on EBITDA margin.
Administrative expenses surge by 11.3 per cent to N15.889 billion in nine months of 2022 from N14.277 million in the preceding period.
Its cost of sales which claimed 60 per cent of its total revenue reported during the period increased further by 15.4 per cent in nine months of 2022 to N135.08 billion from N117.09 billion in September 2021.
The growth in cost of sales can be attributed to 33.27 per cent increase production variable costs to N87.92 billion in September 2022 from N65.97 billion in September 2021.
The company’s Gross margin expanded by 653 basis points to 46.5 per cent in Q3 22 as Cost of sales was flat (+0.03 per cent y/y). The surge in Production variable costs (+7.0 per cent y/y) was driven by the worsening FX situation as it relates to key imported supplies and and sustained hike in energy costs. These were offset by a slump in Production Fixed costs (-28.0 per cent y/y). As a result, Gross Profits were up 30.6 year-on-year.
The group total borrowing (short term and long term) reported by the manufacturer grew significantly by 44.8 per cent in nine months of 2022 to N32.51 billion from N22.45 billion in nine months of 2021 with bank loans accounting for 89 per cent of the total borrowing obtained in the period.
The Vice Chairman of Highcap Securities Limited, David Andori said, “Performance by Lafarge is impressive. If this is replicated in Q4 2022, investors should expect good dividend payout.”
STRONG BALANCE SHEET POSITION
In the unaudited results, Lafarge Africa Plc recorded strong total assets as as growth in total equity and current total assets increased.
The group total assets deployed for the period gained a 7 per cent increase to N565.6 billion in nine months of 2022 from N526.8 billion in FY 2021 unaudited results and account for the period ended September 30th, 2022.
As total current assets gained a 16.9 per cent to N159.7 billion in nine months of 2022 from N136.6 billion in the corresponding period, While total non-current assets gained 4 per cent to N405.9 billion in nine months of 2022 from N390.3 billion in FY 2021.
The total liabilities deployed in nine months of 2022 stood at N158.3 billion from N148.3 billion in the preceding year, reflecting an increase of 6.7 per cent, As total current liabilities gained a 9 per to N142.4 billion in Q3 2022 from N131.053 billion achieved in FY 2021, but total non-current liabilities declined by 8 per cent to N15.842 billion in nine months of 2022 from N17.224 billion in corresponding period.
In addition, the group shareholders equity well structure stood at N407.382 billion in nine months of 2022 from N378.560 billion in FY 2022, representing a growth of 8 per cent.
PROFITABILITY RATIOS
The group profit margin depreciated to 19.9 per cent in nine months of 2022 from 20 per cent in nine months of 2021, this simply means for every N100 earned by the group in the course of the year, N19.90 can be translated to profit a bit lower than N20.00 achieved in the preceding year
Return on assets increased by 9.5 per cent in nine months of 2022 from 8.3 per cent in nine months of 2021, while return on equity increase by 11 per cent in nine months of 2022 from 10.6 per cent in nine months of 2021.
Lafarge Africa Plc is a cement manufacturing company in Nigeria offering high quality concrete and aggregates for the home building and construction sectors. The company is one of the oldest cement manufacturing companies in Nigeria and is a member of the LafargeHolcim Group, the largest building and concrete solutions company in the world. It also diversified interests in manufacturing paint, repairing electric motors, transport services and Kraft bag production.
Lafarge Africa Plc has plants in Ewekoro and Sagamu in the South West district; Mfamosing in the South-South district; and Ashaka in the North East district of Nigeria.
The company has installed cement production capacity of 10.5MTPA and has plans to increase its production capacity. Its product range includes cement, aggregates, ready-mix concrete and pulverized fly ash. Cement solutions are marketed under the brand names Elephant, Ashaka, Supaset, PowerMax and Unicem. The company’s head office is in Lagos, Nigeria.
The CEO of Lafarge Africa, Khaled El Dokani in a statement said ,“In Q3 2022, our Net Sales improved by 12.2per cent over Q3 2021. The worsening exchange rate situation impacted our Cost of Sales, specifically key supplies indexed to the U.S dollar. This constrained our recurring EBIT growth.
“As a result, Q3 EBIT was 19.3 per cent lower than last year. Without the FX impact, our Q3 EBIT improved by 8per cent vs last year.
“Our nine months of 2022 results underscore the Company’s resilience, with 23.1per cent growth in Net Sales, 17.5 per cent growth in EBIT and 11.2per cent growth in Net Income. We remain committed to our sustainability ambitions by utilizing affordable clean energy in our operations and optimizing our green logistics strategy; among other initiatives that are in alignment with our net zero pledge journey.”
According to Dokani “stable demand is expected in Q4 2022 and we will continue to maximize volume opportunities across our markets and actively manage our costs through our efficiency initiatives.”
