FSDH Initial Reaction: Lafarge Africa FY22 results 
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March 1, 2023/FSDH Research

Key Performance Highlights:

• Lafarge Africa recorded a 27.3% YoY revenue growth in FY22, outperforming its closest competitor, Dangote Cement (+17.0% YoY). Lafarge Africa’s revenues grew 27.3% YoY to N373.2 billion in FY22, while the Cost of Sales rose 17.6% YoY to N177.0 billion, resulting in a 37.6% YoY rise in gross profit to N196.2 billion and a healthy 392 bps YoY increase in the gross margin to 52.6% in FY22. The increase in the cost of sales was primarily due to the rising variable costs (fuel & power, raw materials and consumables) which climbed 25.6% YoY to N111.2 billion in FY22 compared to N88.5 billion in FY21.
   
• The selling and marketing expenses soared 57.2% YoY to N89.6 billion in FY22. Most of the increase came from a 60.5% YoY jump in distribution variable costs to N75.9 billion, resulting from rising inflationary pressures in the economy, and a 50.9% YoY jump in distribution fixed costs to N8.7 billion in FY22. Administrative expenses grew 6.7% YoY to N22.6 billion in FY22, primarily due to nearly a 2x jump in office and general expenses to N2.3 billion. At the same time, other income for the year declined 18.9% YoY to N557 million in FY22 due to a decrease in the government grants received, coupled with lower gain on disposal of property, plant and equipment. A solid top-line growth, offset by rising costs, resulted in a 29.3% YoY rise in operating profit to N84.2 billion in FY22. However, the worsening exchange rate situation impacted the operating performance, resulting in an operating margin improvement of mere 34 bps YoY to 22.6% in FY22 versus 22.2% in FY21.
   
• The finance income decreased 11.9% YoY to N1.5 billion in FY22, while finance costs ballooned 202.9% YoY to N16.0 billion in FY22, largely due to a foreign exchange loss of N13.1 billion in FY22. This resulted in profit before tax growing by 12.0% YoY to N69.7 billion FY22. The company reported an effective income tax rate of 23.1% this year against 18.1% in FY21, resulting in tax expenses of N16.1 billion, a 34.5% YoY rise. Consequently, Lafarge Africa reported a 5.2% YoY growth in the net profit to N53.6 billion in FY22. The earnings per share came in at N3.33 in FY22 compared to N3.17 in the prior year. The Board proposed a final dividend of N2.00 per share to all shareholders registered in the company’s books at the close of business on Thursday, 6 April 2023.
   
• On a quarterly basis, Lafarge Africa recorded a 39.9% YoY revenue surge to N103.2 billion in 4Q22, leading to a 457 bps YoY growth in the gross margin to 59.4%. However, the solid operational performance was partially offset by a 65.2% jump in selling and marketing expenses to N26.9 billion and further impacted by a foreign exchange loss of N12.9 billion in 4Q22. Consequently, Lafarge reported a 17.5% YoY drop in the net profit to N8.7 billion and a 590 bps YoY contraction in the net profit margin to 8.5% in 4Q22.
   
• On 27 February 2023, Lafarge Africa announced the resignation of Mrs. Virginie Darbo as a Director of Lafarge Africa Plc, effective 24 February 2023. Mrs. Darbo was appointed to the Board on 11 December 2020 and served as a Non-Executive Director of the Company until her resignation. Moreover, the Board has approved the appointment of Ms. Sonal Shrivastava as a Non-Executive Director of the Company with effect from 25 February 2023. 

Market Reaction: The investor reaction to the solid FY22 results was buoyant as the stock closed jumped 5.28% to N27.40 versus a 0.86% rise in the All-Share Index on Tuesday (28/2).

Lafarge Africa Earnings Highlights FY22

Source: Company Financials, FSDH