Lafarge published 2021FY audited financials yesterday. The report showed that 2021FY PAT grew by 65.4% y/y to NGN51.00 billion while EPS settled at NGN3.17/share (+65.4% y/y). The company’s earnings performance was bolstered by the combined impact of topline growth, higher margins and moderation in finance cost. The company has proposed a final dividend of NGN1.00/s (same as in 2020FY), implying a dividend yield of 7.3% based on the closing price of NGN26.00 (March 1 2022). We note that Q4-21 numbers are not directly comparable with Q4-20 due to the reclassification of certain distribution costs on its products from cost of sales to selling and marketing expenses.
Revenue grew by 27.1% y/y in 2021FY, on the back of improvements in cement sales (+26.1% y/y; 97.3% share of revenue) and aggregate and concrete sales (+61.5% y/y; 2.6% share of revenue). Though management is yet to provide details on the driver of the cement sales growth, we believe the double-digit growth was supported by strong demand from the private sector, underpinned by the recovery in activities in the real estate sector (2021FY growth of 2.3% vs contraction of 9.2% in 2020FY). As observed with the industry leader (DANGCEM), we believe LAFARGE’s revenue also received a boost from the substantial increase in price per tonne of cement (+18.1% y/y) as of 9M-21.
Gross margin declined marginally by 15bps to 58.9% in 2021FY, due to the slightly higher increase in the cost of sales ex-depreciation (+27.6% y/y) compared to revenue (+27.1% y/y). The rise in the cost of sales was driven mainly by the variable cost (+45.5% y/y) and maintenance cost (+72.5% y/y) components – we believe the increase in these cost lines was due to the pass-through impact of the local currency’s devaluation on energy cost, essential materials such as gypsum, and spare parts associated with maintaining plants.
Despite the increase in the cost of sales, EBITDA rose (+29.6% y/y) on the back of favourable price/volume mix and gains from its operational efficiencies evidenced by the moderation in OPEX/sales ratio (25.8% in 2021FY vs 26.8% in 2020FY). Sequentially, EBITDA margin strengthened to 33.4% in 2021FY (2020FY:32.7%).
Earnings were also lifted by the moderation in finance cost (-45.7% y/y in 2021FY), reflecting gains from the reduction in gross debt (-53.2% y/y to NGN23.28 billion in 2021FY vs NGN49.73 billion in 2020FY). Meanwhile, the growth in finance income (+48.0% y/y) was supported by FX gains of NGN1.18 billion, which was absent in 2020FY.
PBT grew by 65.7% y/y to NGN62.25 billion in 2021FY. Following the increase in tax expense (NGN11.25 billion in 2021FY vs NGN6.73 billion in 2020FY), PAT grew by 65.4% y/y to NGN51.00 billion.
Observers say like that the company sustained profitability for the third consecutive year after recording pre-tax losses in the 2016-2018 financial years. The post-tax profit of NGN51.00 billion is also the highest since 2014 (NGN33.82 billion), suggesting the divestment from its loss-making South African subsidiary in 2019 and the execution of its debt restructuring programme have continued to yield positive results.
Looking ahead, analysts are concerned about the sustainability of the current pricing environment, given that cement producers have raised prices significantly over the past two years. We believe guidance on Lafarge’s borrowing plans given the very low leverage (debt/equity of 0.06x as of 2021FY) will be at the front burner of discussion at the conference call (date yet to be announced). Our estimates are under review.
