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Lafarge Africa’s Profit Margins Improve on Recovery in Demand, Reduced Debt

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A strong recovery of demand in the third quarter and “significant reduction” in debt has spurred Lafarge Africa Plc to growth despite the impact of the coronavirus pandemic and currency devaluation.

The continent’s second largest producer of the building material saw sales increase by 10.30 percent to N179.87 billion as at September 2020 from N163.05 billion the previous year.

Earnings Before Interest and Tax (EBIT) was up 15.70 percent to N41.11 billion as at September 2020, which means the cement maker has generated more cash from its operations to cover operating and interest expenses.

“Our robust results for the first 9 months reflect the strong recovery of the demand in Q3 and the successful implementation of our “HEALTH, COST & CASH” initiatives,” said Khaled El Dokani, CEO of Lafarge Africa Plc.

The Lagos listed unit of Switzerland based Lafarge Holcim Ltd had restructured its balance sheet by embarking on rights issues while it sold its South African units to help reduce debt burden, and these strategies have paid up as there has been improvement in leverage ratio.

Leverage ratio, which measures the level of debt incurred by a business against its asset, fell to 14.96 percent in the period under review from 18.60 percent the previous year.

Total debt reduced by 16.75 percent to N53.33 billion as at September 2020, while finance cost dipped by 54.50 percent to N7.54 billion in the period under review from N16.57 billion the previous year.

A reduction in interest expense and strong sales growth led to a 37.10 percent increase in net income to N28.19 billion as at September 2020.

An improvement in profit margins underscores management’s cost reduction and efficiency strategy even amid a tough and unpredictable macroeconomic environment.

Gross profit margin increased to 31.20 percent in September 2020 from 30.80 percent the previous year. EBIT margin moved to 22.85 percent in the period under review from 21.86 percent the previous year.

Lafarge Africa has a current installed cement production capacity of 10.5Mtpa.

Free cash flow surged by 94.50 percent to N50.59 billion, which means the cement maker has the financial strength to fund its future expansion plans, pay dividend, and settle its obligations.

Dokani expects market demand to remain strong in the fourth quarter of the year, but raised concerns about Naira devaluation and inflationary pressures.

“The implementation of our “HEALTH, COST & CASH”initiatives would continue to deliver improvement in our performance. We will maintain a healthy balance sheet,” said Dokani.

The Naira weakened from the N306.0/$ to N361.0/$ earlier this year as the central bank government sought to protect the external reserve from the shock caused by the coronavirus pandemic.

Analysts say the cement industry is on the path of growth that will be fueled by a huge deficit in the infrastructure space across Africa and the country’s low consumption per capita which stands at 150kg as compared to global average of 561 kg.

“Looking ahead, we are optimistic about Nigeria’s cement industry in H2-2020E as we believe that the Economic Sustainability Plan (ESP), if implemented within the time frame stipulated, could raise some hope for the cement industry,” said analysts at United Capital Research.

“This as the FG have committed to renewing commitment towards the construction and maintenance of federal highways, roads, bridges, and road interventions within federal tertiary institutions across the country,” said the analysts.

Lafarge Africa shares are listed on the Nigerian Stock Exchange (NSE) and are up 33 percent in the past year.

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