Lafarge Africa Plc FY2020 Results: Bottom-line Rises as Pandemic Gets Plastered


Tuesday  March 30, 2021 / 7:05 PM / by Adaeze Nwachukwu Proshare Research/Header Image Credit: Lafarge Africa


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Lafarge Africa's FY2020 result showed resilience despite COVID-19-induced business headwinds. The rise in top line revenue in 2020 was on the back of a fall in operating expenses. However, the cement maker's working capital and other operational ratios remained mildly grim. However on a sunnier note, a reduction in the  company's debt size improved the group's statement of financial position in 2020.


Key Takeaways

  • Revenue rose by +8.25% year-on-year (Y-o-Y) from N212.99bn in 2019 to N230.57bn in 2020.
  • Profit before tax grew significantly by +109.99% Y-o-Y from N17.89bn in 2019 to N37.57bn in 2020
  • Gross profit up Y-o-Y by +20.17%, from N55.95bn in 2019 to N67.24bn in 2020.
  • Cost of sales increased marginally by +4.0% from N157.05bn in 2019 to N163.33bn in 2020
  • Finance income dipped significantly in 2020 by -62.77%, from N3.16bn in 2019 to N1.18bn in 2020
  • Finance cost down Y-o-Y by -51.87% in 2020, from N20.18bn in 2019 to N9.71bn.
  • Selling and distribution expenses dipped by -17.16% Y-o-Y from N5.09bn in 2019 to N4.22bn in 2020.
  • Earnings per share up significantly by +98.96% Y-o-Y from 96kobo in 2019 to 191kobo in 2020
  • Total debt declined by -22.52% in 2020 from N64.19bn in 2019 to N49.73bn.
  • Total assets grew marginally Y-o-Y by +2.02% from N497.15bn in 2019 to N507.21bn in 2020.
  • Total equity up marginally by +4.27% from N344.91bn in 2019 to N359.64bn in 2020.


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Share Price and Traded Volume- The Search for a Bull

The bullish share price of the cement maker in 2020 suggested growing investor confidence. Lafarge Africa's price closed 2020 on an upward surge of +52.54% by year end but remained lower than the +90.81% rise of the NSE Industry index. The share price dipped to a five-year low at N8.95 in March 2020 which marked the peak of the COVID-19 pandemic. With the gradual reopening of the economy, analysts see a rebound in the company's shares. The bull run has continued into 2021, as of 26th March 2021, the group's share price has risen by +2.14%.


However, the volume of shares traded in Q1 2021 tells a different story from price movement trends. The company's traded share volume slid by -33.24%, with February 2020 posting the lowest traded volume for the year while May saw the largest traded volume. Year-to-date (YTD) the volume of shares slipped further by -90.21% as of 26th March 2021 with January posting a notable spike.


Chart 1: Lafarge Africa's Share Price and Volume of Shares Traded

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Source: Lafarge Africa Financial Statement, Proshare Research


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Profitability- A Turnaround Prayed and Worked for

The FY2020 result of Lafarge Africa represented a rise in sales value, the company's revenue grew by +8.25% Y-o-Y from N212.99bn in 2019 to N230.57bn in 2020. The modest revenue growth was attributed to a +9.14% rise in revenue from cement sales and N102.28bn in the sale of admixtures and other products (mainly mortar) which was not recorded in 2019. Revenue from the sale of aggregates and concrete declined by -25.47% Y-o-Y.


The group saw its highest percentage rise in revenue of +36.16% in 2017 while it recorded its largest percentage revenue decline of -27.19% in the immediate following year 2018.


Growth in Naira terms was reversed in US dollars, the group's revenue responded to the impact of the devaluation of the Naira. In US dollar terms, revenue declined Y-o-Y by -12.79% from US$ 693.92m in 2019 to US$605.18m in 2020. The CBN's official rate (I&E FX window) at the different periods was used for the translation (see chart 2).


Chart 2: Lafarge Africa's Revenue 2016 - 2020 (N'bn)

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Source: Lafarge Africa Financial Statement, Proshare Research


Profit before tax (PBT) for the cement manufacturer grew by +109.99% in 2020, from N17.89bn in 2019 to N37.57bn in 2020. This was achieved despite a -62.77% decline in finance income although finance cost declined Y-o-Y by -51.87%. The growth in PBT was supported by a decline in operating expenses.


Other operating expenses declined by -94.63% in 2020. Selling and marketing expenses slumped by -17.16% while the cost of sales rose by just +4.00%.  Gross profit in 2020 rose by +20.17%.


The FY2020 result of the manufacturer saw its highest percentage growth in PBT in the last half decade compared to results for 2019 which posted the highest percentage decline in PBT by -1285.10% change.


In US dollar terms, PBT also climbed noticeably, however, this was lower than the growth recorded in the reporting currency, the Naira. Analysts note that the company's PBT rose by +69.18% Y-o-Y from US$58.29m in 2019 to US$98.61m in 2020 (see chart 3).



Chart 3: Lafarge Africa's Profit Before Tax 2016 - 2020 (N'bn)

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Source: Lafarge Africa Financial Statement, Proshare Research


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Liquidity Ratio-Putting Cash in the Till

The FY2020 result saw Lafarge Africa recoring its highest liquidity ratio in the last five years. The liquidity ratio rose from 5.45% in 2019 to 10.51% in 2020. This was on the back of a +96.74% rise in cash and cash equivalents item on the balance sheet against a marginal growth of +2.02% in total assets (see chart 4).


Chart 4: Lafarge Africa's Liquidity Ratio 2016 - 2020

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Source: Lafarge Africa Financial Statement, Proshare Research


Current Ratio and Working Capital

The current ratio of the cement producer dipped marginally from 0.89 in 2019 to 0.81 in 2020. For the past five years, the group has not recorded an ideal current ratio of 2, this indicates liquidity squeeze and challenges in meeting short-term obligations.


The spike in the current ratio in 2019 was attributed to a -60.30% fall in current liability as against a -19.62% slide in current assets (see chart 5).


The working capital for the group has been serially negative over the last five years which strengthens the notion of a liquidity challenge faced by Lafarge. Working capital worsened in 2020, from a negative position of -N9.37bn in 2019 to -N24.48bn in 2020.


Chart 5: Lafarge Africa's Current Ratio 2016 - 2020

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Source: Lafarge Africa Financial Statement, Proshare Research


Acid-Test Ratio

The group's acid-test ratio (or quick ratio) improved marginally from 0.50 in 2019 to 0.59 in 2020 which was the group's highest recent quick ratio. Although a quick ratio of 1.5 would be preferred indicating the company could meet its short-term obligation excluding its inventories sustainably the 0.59 figure suggests that the firms management is heading in the right direction but has a lot of heavy lifting still to do. Lafarge Africa's 2020 result saw a marginal decline of -4.28% in inventories (see chart 6).


Chart 6: Lafarge Africa's Acid-Test Ratio 2016 - 2020

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Source: Lafarge Africa Financial Statement, Proshare Research


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Debt-to-Equity Ratio

Both the 2019 and 2020 audited results of the group saw a fall in the debt stock of the company. This pushed down its leverage ratio (debt-to-equity ratio) thereby creating creater balance in its financial position.

The debt-to-equity ratio dropped from 18.61% in 2019 to 13.83% in 2020 which was also the lowest leverage ratio recorded by the company in the last five years.


The total debt size of the group declined Y-o-Y by -22.52% from N64.19bn in 2019 to N49.73bn in 2020. Although short-term loans and borrowings grew significantly by +287.09%, however, long-term borrowings dipped notably by -90.24% in 2020.


There was a slight rise in total equity, the company's equity grew Y-o-Y by +4.27%, from N344.91bn in 2019 to N359.64bn in 2020.


In US dollar terms, total equity dipped Y-o-Y by -16.00% from US$1.12bn in 2019 to US$943.93m in 2020 (see chart 7).


Chart 7: Lafarge Africa's Debt-to-Equity Ratio 2016 - 2020

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Source: Lafarge Africa Financial Statement, Proshare Research



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The Oligopoly Matrix-When Rivals Battle

'oligopoly' is an ugly word that means a few sellers of a good or service but it closely describes the nature of Nigeria's cement business with three major suppliers; Dangote Cement, Lafarge Africa Cement and BUA Cement, with BUA Cement taking off market share from its leading rivals in the last two years. Lafarge has been the principal competitor in BUA's crosshairs with Dangote Cement not too far behind. However, Lafarge Africa's 2020 result shows a major push back and battle to reclaim lost grounds as it benefits from the sale of its loss -leading South African operations and improved operational health.


Partners in Competition-The Sustained Growth Outlook

Dangote Cement Plc remains the sectors godzilla and industry pacesetter with a market share of about 60.6% and local production of 29.25mmtpa recorded a +9.44% increase in its sustainable growth rate (SGR) which was supported by a +37.47% increase in total debt which propelled the group's leverage upward in 2020. Its profit margin in 2020 was 36.10%, which was slightly below that of BUA Cement Plc, which was supported by a +49.04% increase in PBT.


The notable rise in the SGR of Lafarge Africa in 2020 was achieved with the group's PBT rising above +100% in 2020. The leverage ratio of 13.83% was the lowest amongst industry competitors and the lowest for Lafarge Africa in the last  five years. The total debt of the group seemed to have gone on a downward spiral since 2017 especially with respect to its long-dated loans and borrowings.


Bua Cement Plc the third largers player in the cement business and one of the most capitalized companies listed on the Nigerian Stock Exchange (NSE), saw a modest sustainable growth rate between 2019 and 2020. However, the company was the most leveraged of the three cement rivals. Its debt-to-equity ratio at 59.19% in 2020 was largely attributed to the over +900% rise in the total debt of the company. Nevertheless, the company's profit margin at 37.75% was higher than that of its compeititors in 2020. The notable profit margin size gave rise to a +19.37% increase in the group's profit before tax for the year (see table 1 below).


Table 1: Deconstructing Rivalry

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The cement market may grow steadily over 2021 as increased outlay on public projects and expansion of private housing schemes and road infrastructure developments could lead to a wave of rising demand for cement, more so that the federal government has seen reason to use concrete technology for mission critical roads across the country as exemplified by Lagos state's Apapa to Ojota road rehabilitation project supported by Dangote Cement and  Flour Mills Nigeria Plc.


With global economies waking up from COVID-19-induced slumber and companies scaling up production, the cement business still has large headroom for growth in 2021 and perhaps beyond.


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