Five things to note about Lafarge’s 2022 financial performance

In the third quarter of 2022 (Q3), price growth offset the volume slump to drive Lafarge’s revenue to the highest in six (6) years.

The price per tonne was up 21.5 percent to N66,163 per tonne in the third quarter of 2022 from N54,828 per tonne in the corresponding quarter of 2021, while volumes dipped by 7.6 percent year on year to 1.25 million tonnes (Mt) during the period from 1.35Mt in the third quarter of 2021.

Consequently, revenue grew by 12.25 percent to N83.27 billion in the third quarter of 2022 from N74.18 billion in the third quarter of 2021.

Coronation Research stated in a report that “like its peers, the volume decline can be attributed to the torrential rainfall and the flooding that characterised most of the quarter. In addition, high inflation continued to tighten customers’ 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.”

Below are five (5) things to note about the third-quarter financial results;

Profit slows for the first time in 4 years

Year on year, profit after tax deductions reported by Lafarge Africa declined by 37.95 percent in the third quarter of 2022 to N7.49 billion from N12.07 billion in the third quarter of 2021.

The decline reported by the firm was on the back of a decline in other income, and impairment reversal of receivables. Other income was down by 59.7 percent to N81 million in Q3’2022 from N202 million in Q3’2021.

Profit and EBITDA margin declined in Q3

On account of rising input costs, Lafarge’s profit margin declined by 728 basis points in the third quarter of 2022 to 8.99 percent from 16.27 percent in the third quarter of 2021.

The 7 percent increase in Production variable costs was driven by the worsening FX situation as it relates to key imported supplies and sustained hike in energy costs. These were offset by a 28 percent slump in production fixed costs.

Earnings before interests, tax, depreciation and amortization reported by DangCem were down by 21.18 percent to N13.98 billion in Q3’2022 from N17.76 billion in Q3’2021.

Earnings were pressured by surging selling and distribution costs despite lowered foreign exchange losses and income tax relief from pioneer status.

Consequently, the EBITDA margin declined by 714 basis points to 16.79 percent in Q3’2022 from 23.94 percent in Q3’2021.

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Finance costs declined despite the high-interest rate environment

Lafarge Africa has been trying to deleverage its balance sheet for a while and this is evident in its finance costs. Despite the central bank increasing interest rates by a total of 500 basis points during the year, the cement maker managed to report a 60.27 percent decline in finance costs to N1.18 billion in the third quarter of 2022 from N2.97 billion in the same period of 2021.

This was on the back of the company’s efficient management of its FX exposure, with foreign exchange losses declining by 92.3 percent y/y to N182 million in the third quarter of 2022 from N2.37 billion in the third quarter of 2021.

In addition, given its low Capex spending policy, the company saw borrowing costs fall by 74.2 percent to N98 million in the third quarter of 2022 from N31 million in the third quarter of 2021.

Earnings per share declined on profit dip

Earnings per share (EPS), a profitability indicator of how much money a company makes for each share of its stock dipped by 39 percent in the third quarter of 2022 to N46 per share from N75 per share in the third quarter of 2021.

The increased cost of doing business

Operating expenses reported by Lafarge Africa lept by 54.75 percent to N30.8 billion in the third quarter of 2022 from N19.89 billion in the third quarter of 2021.

The culprit across the industry at large was the cost of Selling and Distribution, up 69.1 percent y/y to N25 billion in the third quarter of 2022 from N14.79 billion in the corresponding quarter of 2021.

The distribution cost component (accounting for 89 percent of total selling & distribution costs) surged by 65.7 percent as the sustained high price of diesel in Nigeria remained a major headwind. In addition, advertising expenses, up 180.1 percent, contributed to overall EBITDA erosion.

“While the company remains committed to its sustainability ambitions by utilizing affordable clean energy in its operations and optimizing its green logistics strategy (recall that the company recently acquired 50 Compressed Natural Gas-powered trucks), it would seem there are sustained disruptions in its gas supply. This has forced the company to be more reliant on diesel for distribution than it earlier planned.

“Nevertheless, in the short term, while these costs are likely to persist for a while, its energy bill is expected to be lower in contrast with its peers,” according to Coronation Research.