Lafarge Africa Q1 2021 Result: Rising Profits Hit Tight Working Capital

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Monday, May 17, 2021 / 3:30 PM / by Adaeze Nwachukwu, Proshare Research/Header Image Credit: Lafarge Africa Plc



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Economic activities in the first quarter of the year usually tend to be slow, however, this does not seem to be the case in Q1 2021 for Lafarge Africa Plc. The cement maker's Q1 2021 result showed a sizable rise in earnings and a marginal improvement in the group balance sheet. However, working capital (a measure of liquidity) stalled in the first quarter when compared to the contemporary period of 2020.

 

Key Takeaways

  • Revenue rose year-on-year by +12.21% from N63.69bn in Q1 2020 to N71.47bn in Q1 2021.
  • Profit before tax grew by +36.12% Y-o-Y from N9.38bn in Q1 2020 to N12.77bn in Q1 2021.
  • Gross profit up by +8.32% Y-o-Y, from N17.63bn in Q1 2020 to N19.09bn in Q1 2021.
  • Cost of sales increased by +13.69% from N46.07bn in Q1 2020 to N52.38bn in Q1 2021
  • EBIT rose by +24.19% Y-o-Y to N14.70bn in Q1 2021
  • EBITDA Margin increased from 19% in Q1 2020 to 21% in Q1 2021.
  • Finance income grew in Q1 2021 by +49.69%, from N114.71m in Q1 2020 to N171.70m.
  • Finance cost fell by -18.20% Y-o-Y in Q1 2021, from N2.57bn in Q1 2020 to N2.10bn.
  • Selling and marketing expenses dipped marginally by -10.58% Y-o-Y from N838.39m in Q1 2020 to N749.68m in Q1 2021.
  • Earnings per share up by +14.0% Y-o-Y from 50kobo in Q1 2020 to 57kobo in Q1 2021.
  • Total debt fell by -9.46% to N54.38bn in Q1 2021.
  • Total assets grew by +8.31% Y-o-Y from N491.81bn in Q1 2020 to N532.69bn in Q1 2020.

 


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Movement in Share Price-Of Bearish Flags

The year-to-date (YTD) share price performance of Lafarge Africa has been very choppy, with the highest levels recorded in February 2021 while prices are at the lowest in May.  The volatility in the share price of the concrete mixer is largely due to investor sentiment towards the stock, also disclosures from the Company and developments in the cement industry can influence share price movement.

 

For YTD performance, the share of Lafarge Africa fell slightly by -2.14% as of 10th May 2021 (see chart 1 below).

 

Chart 1: Lafarge Africa's YTD Share Price Movement as of 10th May 2021

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Source: NGX, Proshare Markets


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Profitability-Up with the Topline

The Q1 2021 result of the cement manufacturer revealed that revenue rose Y-o-Y by +12.21% from N63.69bn in Q1 2020 to N71.47bn in Q1 2021. A breakdown of the revenue for the period shows growth in all revenue lines of the group. Revenue from the sale of cement rose Y-o-Y by +12.30% to N69.92bn while revenue from the sale of aggregate and concrete rose by +7.93% to N1.55bn.

 

The growth in revenue in Naira terms was reversed in US dollar terms, revenue fell marginally by -3.81% from US$195.01m in Q1 2020 to US$187.59m in Q1 2021. This was attributed to the devaluation of the domestic currency during the period. The I & E FX window rate was used in conversion to US dollar terms (see chart 2 below).

 

 

Chart 2: Lafarge Africa's Revenue Q1 2017 – Q1 2021 (N'bn)

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Source: Lafarge Africa's Financial Statement, Proshare Research

 

Profit before tax (PBT) was up by +36.12% to N12.77bn in Q1 2021 from N9.38bn in Q1 2020. This was on the back of a +49.69% increase in finance income and -18.20% decline in finance cost.

 

Gross profit also rose Y-o-Y by +8.32% to N19.09bn despite a +13.69% rise in the cost of sales.

 

In US dollar terms PBT had a lower percentage growth. PBT grew Y-o-Y by +16.70% from US$28.72m in Q1 2020 to US$33.52m in Q1 2021 (see chart 3 below).

 

Chart 3: Lafarge Africa's Profit Before Tax Q1 2017 – Q1 2021 (N'bn)

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Source: Lafarge Africa's Financial Statement, Proshare Research

 

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The Operational Towline


Current Ratio

The group's current ratio was 0.92 in Q1 2021, remained flat when compared to Q1 2020, which is also the highest recorded by the group between Q1 2017 to Q1 2021.

 

 Current assets grew Y-o-Y by +88.79% to N133.97bn while current liabilities grew by +87.73% to N145.31bn in Q1 2021.

 

Working capital worsened in Q1 2021 when compared to Q1 2020 figures. It declined by -76.04% to a deficit of N11.34bn (see chart 4 below).

 

Chart 4: Lafarge Africa's Current Ratio Q1 2017 – Q1 2021

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Source: Lafarge Africa's Financial Statement, Proshare Research

 

Quick Ratio

The quick ratio (acid test ratio) also improved in Q1 2021, from 0.46 in Q1 2020 to 0.70 which was supported by a higher percentage increase in current assets over current liabilities. Q1 2020 records the highest quick ratio during the period under review (see chart 5 below).

 

 

Chart 5: Lafarge Africa's Quick Ratio Q1 2017 – Q1 2021

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Source: Lafarge Africa's Financial Statement, Proshare Research

 

Liquidity Ratio

Lafarge Africa's liquidity ratio rose significantly in Q1 2021, from 4.25% in Q1 2020 to 14.42% in Q1 2021. This was supported majorly by a +267.61% rise in cash and cash equivalents, to N76.79bn from N20.89bn in Q1 2020.

 

There was a marginal uptick in total assets, it rose by +8.31% Y-o-Y from N491.81bn in Q1 2020 to N532.69bn in Q1 2021 (see chart 6 below).

 

Chart 6: Lafarge Africa's Liquidity Ratio Q1 2017 – Q1 2021

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Source: Lafarge Africa's Financial Statement, Proshare Research

 

Leverage Ratio

The leverage ratio of the Cement manufacturer improved in Q1 2021, from 17.02% in Q1 2020 to 14.75% in Q1 2021. The improvement in leverage ratio was supported by a -9.46% decline in total borrowings of the group to N54.38bn in Q1 2021 while total equity rose slightly by +4.47% in Q1 2021 to N368.77bn.

 

The fall in borrowing was supported by a -91.88% remarkable decline in long-term borrowing, while short-term borrowing grew significantly by +293.20% Y-o-Y (see chart 7 below).

 

Chart 7: Lafarge Africa's Leverage Ratio Q1 2017 – Q1 2021

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Source: Lafarge Africa's Financial Statement, Proshare Research



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Industry Analysis

According to the FY2020 result of the major players in the Nigerian cement industry, Lafarge Africa is the second market leader by revenue trailing the market leader Dangote cement by some margin.

 

In revenue terms, Lafarge Africa contributes a little above 15% of the total industry revenue, with BUA coming in next contributing 14.2% while Dangote lapped its two closest rivals with a market share of 70.15% of total industry revenue.

 

Notably, for PBT, total assets and total equity Lafarge Africa cement came in after both Dangote and BUA except in revenue size where BUA had a one-up on its closest competitor, BUA.

 

Lafarge Africa had the lowest leverage ratio amongst the major players with a debt size of 6.59% of the estimated total borrowing in the industry. Dangote was responsible for over 60% of the industry's total borrowing which explains its high leverage ratio and BUA cement's rising debt which accounted for 29.36% of the total borrowing in the industry in 2020 (see table 1 below). 



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Outlook- Cranking the Profit Machine

The outlook for the construction industry is mildly optimistic but shows the potential for a few roads bumps ahead as cement prices skyrocket. The rise in cement price may slow down construction sector activities and result in a winding down of new construction works as developers begin to reassess the potential investment returns on highly-priced structures like homes, roads, and public buildings. The federal government last week mentioned that a sore point in its programme to build affordable mass houses in different parts of the country has been the escalating cost of cement. Nevertheless, the government alluded to a possible arrangement with Dangote Cement to supply cement at a price below the recent retail market price of between N4,200 and N4,300 in major city centres like Lagos and Abuja.

 

With rising prices, the cement makers appear to be able to pull up their profit margins and gross revenues but this may not be sustainable as falling quantity demanded may trip up the price rise and create a slow down in the sector.

 

Clinker power may soon get a spanner thrown into its crankshaft as consumer demand takes a tumble between Q3 and Q4 2021. The industry has taken a jump in Q1 snd Q2 2021, but landing badly may not be off the books as consumers squirm painfully under a tough market price regime in 2021.

 


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