FSDH Initial Reaction: Lafarge Africa 2Q22 results 
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August 1, 2022/FSDH Research

Key Performance Highlights:

• Lafarge Africa continued to report double-digit revenue growth in 2Q22, with the revenue jumping 30.5% YoY, but underperforming its close competitor, BUA Cement (+45.2% YoY). Lafarge Africa’s revenues grew 30.5% YoY to N96.0 billion in 2Q22 compared to N73.5 billion in 2Q21. The Cost of Sales grew in line with the revenue growth, increasing 30.3% YoY to N42.1 billion, resulting in a 30.6% YoY rise in gross profit to N53.9 billion and a marginal 6 bps YoY increase in the gross margin to 56.2% in 2Q22. The increase in the cost of sales was primarily due to higher production variable costs. Variable costs for the period increased to N27.6 billion in 2Q22 from N14.5 billion, primarily due to overall higher inflation and FX pressures.
   
• The selling and marketing expenses spurted 73.6% YoY to N22.6 billion in 2Q22. The majority of the increase came from a 72.7% YoY jump in distribution variable costs, resulting from rising inflationary pressures in the economy. Administrative expenses edged 0.3% higher to N4.9 billion. At the same time, other income for the quarter declined to N90 million in 2Q22 versus N145 million in 2Q21 due to a decrease in the government grants received, coupled with a fall in the sale of scraps. A solid top-line growth, partially offset by rising costs, resulted in a 12.8% YoY growth in operating profit to N26.5 billion in 2Q22. The company’s operating margin contracted 435 bps YoY to 27.6% in 2Q22 versus 32.0% in 2Q21.
   
• The company recorded a 28.4% YoY decrease in the finance income to N137 million in 2Q22. This decline, coupled with an absence of a gain on disposal of investment (2Q21: N827 million) and a 122.8% YoY jump in finance costs to N1.2 billion in 2Q22, resulted in a profit after tax growth of 3.5% YoY to N19.9 billion 2Q22, compared to N19.2 billion 2Q21. The finance cost rose primarily due to a foreign exchange loss of N693.8 million. The net profit margin for the quarter stood at 20.7%, a 540 bps YoY drop. Lafarge Africa’s earnings per share came in at N1.23/share in 2Q22 versus N1.19/share in 2Q21.
   
• On a sequential basis, Lafarge recorded a steady 5.9% QoQ rise in revenues to N96.0 billion in 2Q22. The steady top-line performance aided by solid cost control measures resulted in a 13.2% QoQ decline in cost of sales, resulting in a 27.9% QoQ jump in gross profit to N53.9 billion in 2Q22. A 50.6% QoQ rise in the selling and marketing expenses, coupled with an 83.4% QoQ jump in the finance costs in 1Q22, partially offset the decrease in the cost of sales. Lafarge reported a 13.1% QoQ jump in the net profit and a 131 bps QoQ expansion of the net profit margin to 20.7% in 2Q22. 

Market Reaction: The company reported results about half an hour before the close and the investor reaction to the quarterly results was lukewarm as the stock closed 6.61% down at N22.60 versus a marginal 1.04% loss for the All-Share Index (28/7). However, the stock jumped 3.54% versus a 1.42% gain for the All-Share Index (29/7).

Lafarge Africa Earnings Highlights 2Q22

Source: Company Financials, FSDH