Nigeria’s Cement Industry is currently made up of Dangote Cement Plc, Lafarge Africa and basically no one else. Both companies dominate over 90% of the Cement Market in Nigeria. That can however not be said when you compare both companies directly with each other.
At the end of the Financial Year ended December 2015, Lafarge Africa reported revenues of N260.8 billion in 2014 compared to N267.23 billion in 2014. Pretax profits also dropped from N40.36 billion to N29.27 billion while profit after tax declined from N33.54 billion to N27 billion between 2014 and 2015 respectively. Earnings per share thus dropped from N7.67 to N6.29.
This is in contrast to Dangote Cement which saw their toppling revenue grow 26% to N491 billion (2014: N391.6 billion). Profit after tax also rose 14% to N181 billion compared to N159.5 billion in 2014. Earnings per share was N10.64 up 13.7% when compared to N9.36 a month earlier. Dante Cement’s profit margin is a whopping 37% compared to Lafarge’s 10%. The difference is clear between the two companies showing clearly that Lafarge needs a different strategy if it plans to increase its profitability.
So, how does the company plan to improve the current situation? They gave us an idea at its recently concluded Annual General Meeting.
Lafarge Africa strategy basically involves leveraging on the increase in its production capacity, opportunities from the expansionary government budget and large portfolio of building solutions to grow its market share and deliver better returns to shareholders. You can get highlights of their plans here if you like to listen to tough talks.
So how does this strategy compare to reality? The first quarter results released by Lafarge suggest otherwise as the company reported a 29% quarter on quarter drop in revenues to N52.4 billion compared to N74.1 billion in the first quarter of 2015. The company also reported a pre-tax loss of N1.8 billion compared to a pretax profit of N5.8 billion in the first quarter of 2015.
The company explained the reason for the revenue decline was attributed to what it called “temporary production and logistical challenges” and claimed it actually sold all that it had produced. They also blamed this in addition to a drop in price as the reason for the loss declared.
Dangote Cement also reported a 23% drop in profits to N52.7 billion but also reported a 22% rise in revenue, somewhat confirming that something doesn’t seem very right with Lafarge’s strategy. Lafarge share price is down 16% year to date and 11% in the last one month and 27% in the last one year. The market is obviously not buying their tough talk.
Lafarge has to do better than excuse “temporary production and logistical challenges” as a reason for the losses it has reported. The challenging economy makes it even harder to excuse any profitability decline due to apparent inefficiencies.
Whilst we want to see a more profitable Lafarge, it is actually more important that we have a company that can provide Dangote Cement the competition required to deliver quality and cheaper cement to consumers. Their ReadyMix product is very commendable and we acknowledge the 29% YoY growth recorded from it in its Nigerian operations last year. But to compete with Dangote and deliver improved shareholder return will require a lot more that innovation.