For Lafarge Africa Plc, the second largest producer of Cement in Nigeria, it is increasingly getting difficult to remain competitive in Nigeria’s cement industry. The company is now finding it hard to recover the cost of producing its most important product, Cement.
Add this to the intense competition from rival, Dangote Cement Plc, and you know life couldn’t be any harder for its Management. Lafarge now spends about N85 in cost of sale for every N100 in revenue. It was N64 for every N100 as at June 2015.
Things weren’t always this bad. Its Cost of sales of N92 billion was interestingly 6 percent lower in June 2016 compared to the same period in 2015, saving the company about N6 billion. Revenue if anything was to blame for low gross margins.
Lafarge Africa’s sales was down by 29.44 percent to N107.14 billion in the period under review which in absolute terms is a whopping N48 billion dip in revenue. That was more than enough to throw the company into a loss of about N30 billion for the period. A number of factors are to blame for the revenue dip.
- The 18 percent price cut announced by Dangote Cement in September 2015 may have significantly cannibalized Lafarge sales thus reducing market share.
- We also believe the shortage of gas supply at the factory may have also impacted on margins.
- The delay in the passage of the passage of the 2016 budget, which may have spurred demand for building materials, may have also contributed to the dip in revenue.
- More than N200 billion have been earmarked for road construction, compared with 18 billion last year. This money is still on paper and is yet to find its way to the bank account of Lafarge.
- Whilst revenue dip was also a major issue, what threw the company into an incredible N30 billion loss was also an exchange rate loss of N28 billion.
Nigerian companies are under a lot of financial strain and this is beginning to show in their financials. Lafarge operates in a sector that relies a lot on economic growth to thrive. The outlook for the company is gloomy.