FSDH Initial Reaction: Lafarge Africa 3Q22 results 
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November 1, 2022/FSDH Research

Key Performance Highlights:

• Lafarge Africa continued to report double-digit revenue growth in 3Q22, with the revenue jumping 12.2% YoY, but underperforming its close competitor, BUA Cement (+18.2% YoY). Lafarge Africa’s revenues grew 12.2% YoY to N83.3 billion in 3Q22 compared to N74.2 billion in 3Q21. The Cost of Sales was marginally lower YoY, resulting in a 30.8% YoY rise in gross profit to N38.7 billion and a massive 659 bps YoY increase in the gross margin to 46.5% in 3Q22. The marginal decrease in the cost of sales was achieved as the company managed to control production fixed costs (personnel expenses, by-products costs, and electrical energy expenses) that declined 28.0% YoY to N4.9 billion and lower depreciation (down 20.2% YoY to N5.7 billion) during the quarter.
   
• The selling and marketing expenses spurted 69.1% YoY to N25.0 billion in 3Q22. The majority of the increase came from a 62.3% YoY jump in distribution variable costs to N19.8 billion, resulting from rising inflationary pressures in the economy, and a 138.2% YoY pop in Distribution fixed costs to N3.6 billion in 3Q22. Administrative expenses grew 13.1% YoY to N5.8 billion in 3Q22, primarily on the back of a 2.4x jump in Office and general expenses to N2.0 billion in 3Q22. At the same time, other income for the quarter declined to N82 million in 3Q22 versus N202 million in 3Q21 due to a decrease in the government grants received, coupled with a fall in the sale of scraps. A solid top-line growth, offset by rising costs, resulted in a 19.3% YoY drop in operating profit to N8.0 billion in 3Q22. However, the operating performance was impacted primarily by the worsening exchange rate situation as key supplies are indexed to the U.S dollar. Without the FX impact, the company’s 3Q22 operating profit improved by 8% vs last year. The company’s operating margin contracted 375 bps YoY to 9.6% in 3Q22 versus 13.4% in 3Q21.
   
• The company recorded a 17.6% YoY increase in the finance income to N242 million in 3Q22. This increase, coupled with a 60.2% YoY drop in finance costs to N1.2 billion in 3Q22, resulting in a profit before tax growth declining a mere 1.2% YoY to N7.0 billion in 3Q22, compared to N7.2 billion 3Q21. The finance cost declined, on the back of the significant drop in a foreign exchange loss to N182 million in 3Q22 from N2.4 billion in the prior year period. However, the company recorded an Income tax credit of only N420 million in 3Q22, versus N4.9 billion in 3Q21. The net profit margin for the quarter stood at 9.0%, a 728 bps YoY drop. Lafarge Africa’s earnings per share came in at N0.46/share in 3Q22 versus N0.75/share in 3Q21.
   
• On a sequential basis, Lafarge recorded a 13.2% QoQ fall in revenues to N83.3 billion in 3Q22. The shaky top-line performance coupled with a 6.0% increase in the cost of sales, resulted in a 28.2% QoQ drop in gross profit to N38.8 billion in 3Q22. A 10.5% QoQ rise in the selling and marketing expenses, coupled with an 18.4% QoQ jump in the administrative expenses in 3Q22, resulted in a 69.8% fall in operating profit to N8.0 billion in 3Q22. Lafarge reported a 72.2% QoQ slump in the net profit and an 1169 bps QoQ contraction of the net profit margin to 9.0% in 3Q22.

Market Reaction: The investor reaction to the quarterly results was muted as the stock closed flat at N22.25 versus a 0.17% fall in the All-Share Index on Monday (31/10).

Lafarge Africa Earnings Highlights 3Q22

Source: Company Financials, FSDH