Lafarge profit surges to 11-year high amid operational headwinds

Lafarge has announced its highest nine-month profit in eleven years despite a decrease in the firm’s volume of production.

Data obtained from Lafarge’s financial results available on the Nigerian Exchange Group showed the firm’s profit jumped by 11.17 percent to N44.9 billion in the nine-month period that ended September 2022, the highest reported in eleven (11) years.

The 11.17 percent revenue growth was despite the cost pressures faced by the companies. BusinessDay understands that said cost pressures were due to the depreciation of the naira and macroeconomic inflationary pressures, especially in the domestic market where the average inflation rose between January and September to 20.77 percent.

Driven mainly by price increases, the firm’s revenue increased by 23.11 percent to N269.85 billion in September 2022 from N219.19 billion in September 2021, the highest reported in eleven (11) years driven mainly by price increases during the period.

The average price per tonne rose by 27.25 percent year on year (y/y) to N66,303 per tonne in 9M’2022 from N52,004 per tonne in 9M’2021, offsetting a volume decline of 3.4 percent.

Volume declined to 4.07 million tonnes (Mt) in September 2022 from 4.22 million tonnes in September 2021. On a quarterly basis, volumes also declined by 12.3 percent to 1.35Mt in the third quarter (Q3) of 2022 from 1.43Mt in the second quarter of 2022.

Like its peers, analysts have attributed the volume decline 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, ” analysts at Coronation Research said.

The firm’s profit margin shrunk by 179 basis points to 16.64 percent in 9M’2022 from 18.43 percent in 9M’2021 on elevated input costs.

Its cost of sales which claimed 50 percent of its total revenue reported during the period, increased by 15.36 percent in September 2022 to N135.08 billion from N117.09 billion in September 2021.

The growth in the cost of sales can be attributed to the 33.27 percent boost in production variable costs to N87.92 billion in September 2022 from N65.97 billion in September 2021.

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The surge in production variable costs was driven by the worsening FX situation as it relates to key imported supplies and sustained hikes in energy costs during the period.

Selling and distribution costs grew by 54.01 percent to N62.65 billion in the nine-month period that ended September 2022 from N40.68 billion in the corresponding period of 2021.

The distribution cost component (accounting for 94 percent of total selling & distribution costs) surged by 54.48 percent as the sustained high price of diesel in Nigeria remained a major headwind.

Administrative expenses also grew by 11.27 percent to N15.89 billion in September 2022 from N14.28 billion in September 2021.

Consequently, as earnings before interest, tax, depreciation, and amortisation (EBITDA) grew marginally by 6.8 percent to N75.51 billion in 9M’2022 from N70.71 billion in 9M’2021, the EBITDA margin declined by 428 basis points to 28 percent in 9M’2022 from 32.2 percent in 9M’2021.

Lafarge Africa, despite operations in a high-interest rate environment, reported a 46 percent decline in finance costs to N3.04 billion in 9M’2022 from N5.63 billion in 9M’2021, just as the company efficiently managed its FX exposure, with foreign exchange losses declining by 20.95 percent to N967 million in 9M’2022.

Total borrowings (short-term and long-term) reported by the cement manufacturer rose by 44.81 percent in 9M’2022 to N32.51 billion from N22.45 billion in 9M’2021, with bank loans accounting for 89 percent of the total borrowings obtained in the period.

Total assets surged by 10.39 percent to N565.6 billion in the nine-month period that ended September 2022 from N512.37 billion in the corresponding period of 2021.

Total shareholder’s equity rose by 6.11 percent to N407.35 billion in 9M’2022 from N383.9 billion in 9M’2021.

The cement maker’s cash and cash equivalents in the nine-month period that ended September 2022 grew by 52.45 percent to N80.69 billion from N52.93 billion in the same period last year.

Further analysis on the movement in cash and cash equivalents during the period showed that the firm’s cash flow from operations was positive, amounting to N49.59 billion in 9M’2022, therefore suggesting that the firm is generating enough cash from its operations to cover its short-term obligations.

Cash from operations, however, declined during the year by 25.70 percent in 9M’2022 from N66.74 billion in 9M’2021.

Cash from investing activities was negative amounting to N11.2 billion in September 2022, largely driven by the acquisition of property, plants, and equipment during the period which amounted to N11.59 billion during the period.

Cash flow from financing activities was also negative, totaling N6.37 billion in 9M’2022, due to N13.56 billion dividend paid to equity holders of the company and N11.93 billion loans and borrowings repaid during the period.

As part of financing activities, the cement manufacturer received N22.57 billion from loans and borrowings it obtained during the period.

Earnings per share reported by Lafarge Africa amounted to N279 per share in the nine-month period that ended September 2022.

Lafarge Africa Plc is a member of the Holcim Group – the global leader in innovative and sustainable building solutions. Lafarge serves Nigeria with a wide range of building and construction solutions designed to meet housing and construction needs from small projects like individual home buildings to major construction and infrastructure projects.

With plants in Ewekoro and Sagamu in the South-West, Mfamosing in the South and Ashaka in the North-East of Nigeria, Lafarge Africa Plc currently has an installed cement production capacity of 10.5MTPA and has plans to grow in the near term.