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Lafarge Africa Profit Rises Amidst Inflationary and FX Cost Pressures

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Lafarge Africa Plc nearly doubled its first quarter profit, becoming the first cement maker to reveal bumper earnings in 2022 even amid elevated inflation and foreign exchange shocks.

The leading Sub-Saharan Africa building solutions company who is a member of Holcim Limited, a world leader in building solutions, said its net income surged by 92.20 percent to N17.55 billion from N9.13 billion as at March 2021.

The profit growth is the highest in more than a decade, and good demand momentum is expected to continue in the second quarter of 2022, but the downside risk could be the pass-through impact of foreign exchange devaluation.

Analysts say the opening of the economy and relaxation of social distancing measures that underpinned construction activities and the hike in prices of products to make up for inflationary pressures/ currency volatility helped cement makers deliver robust earnings.

Lafarge Africa’s operating profit spiked by 50.40 percent to N22.11 billion in March 2022 from N14.70 billion as at March 2021.

Revenues were up 26.68 percent to N90.60 billion in the period under review from N71.47 billion the previous year as a low interest rate environment which was favorable for real estate investment added impetus to demand for building materials.

“Coming after our very strong FY 2021 results, our Q1 2022 performance confirms the continued growth trajectory of our business,” said Khaled El Dokani, CEO of Lafarge Africa.

“We are equally pleased with the progress we are making on sustainability; our use of affordable clean energy and agro-ecology footprint are in accordance with our net zero pledge journey,” said Dokani.

The cement maker has an excellent sustainable energy diversification strategy that enhances cost reduction and bolster profit margin and its investment in alternative fuel is giving it the leeway to overcome a spike in diesel price brought on by a rally in crude oil price due to the Russian-Ukraine war.

The company, for instance, is ahead of its peers with the integration of alternative fuels into its energy mix (c.18% in FY-21).

The management of Lafarge Africa is also keen on raising its Alternative Fuel (AF) usage to c.50% of its energy mix since AF is the cheapest thermal energy for kiln. Its planned Captive Power Plant (CPP) in Ashaka can deliver up to a 30% reduction in energy cost.

As a result of the successful implementation of energy policy, earnings before interest and taxation margin otherwise known as EBIT margin increased to 24.40 percent in March 2021 from 20.57 percent as at March 2021.

Gross profit margin followed the same growth trajectory as it rose to 46.54 percent in March 2022 from 43.65 percent the previous year.

Interestingly, Lafarge Africa was able to translate more Naira revenue into profit as net margin increased to 19.37 percent in the period under review from 12.78 percent the previous year.

It spent less on input cost to produce every N1 unit of product as cost of sales ratio reduced to 53.54 percent in the period under review from 56.34 percent the previous year.

It must be noted that the cement maker embarked on deleveraging of its balance sheet that has yielded fruits, a strategy that contributed to robust earnings.

For instance, interest coverage ratio improved to 32.72 in March 2022 from 6.98 as at March 2021, according to MoneyCentral calculations.

The lower the ratio, the more the company is burdened by debt expenses and the less capital it has to use in other ways. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

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