Cement: Dangote dominance squeezes competitors, Lafarge re-strategizes

By OKEY ONYEWEAKU

Surviving as a business entity in Nigeria requires more than just having  vision, doggedness and creativity. But any company that pursues only these attributes may really not achieve its target objectives. Experts are unequivocal that surviving the harsh business environment demands a bit of hustling. Hustling, analysts say in the real sense of it, must however, be applied in Nigeria to be able to sustain a business.

Hustling as defined by Merriam Webster’s Collegiate Dictionary, tenth Edition as, ‘to sell or promote energetically and aggressively.’

Not even Lafarge Nigeria which grew its operating profit by 35 per cent from N6.256billion in the first quarter 2018 to N8.425billion in the corresponding period of 2019 is insulated from the general operational challenges. While net income rose to N3.145billion in 2019 from the -N2,002 billion negative, net sales declined 2.6 per cent from N80.643 billion in 2018 to N78.512billion in 2019.

The company has therefore barely survived the year 2018, having closed the business year with the negative of N19.508billion. Its profit after tax was a loss of –N8.801billion while revenue inched up by 3.09 per cent from N299.1billion in 2017 to N308.4billion in 2019.

Shareholders were taken aback at the continued weak performance of the company since 2016. Industry analysts believe that the coming on-stream of Dangote Cement Plc  was the beginning of the sad story of the hitherto iconic Lafarge WAPCO brand which had over the years dominated the manufacturing of cement in Nigeria and Africa.

Dangote Cement, an indigenous cement manufacturing firm had muscled into the cement market without much fanfare in 1981 as a subsidiary of Dangote Industries.  It changed its name from Obajana Cement Plc to Dangote Cement Plc.

Dangote Cement Plc, Africa’s largest cement producer, which sells 23.54 metric tons of cement across Africa posted N390.33billion in profit after tax and paid dividends of N16.00 per cent share at the end of 2018. Dangote Cement, one of the largest companies on the Nigerian bourse by market capitalization accounts for 65 per cent share of the cement market in Nigeria.

The implication of the market share of Dangote Cement is that Lafarge, Bua, Ibeto Cement among other cement manufacturing companies are competing for 35 per cent share of the cement market.

A critical appraisal of the company’s performance reveals that Lafarge group plunged into the red in 2016 when it posted a huge loss of N22.2billion from a profit before minimum tax of N29.286billion in 2015. The company plunged deeper into the red region, recording a huge loss of N34.032billion in 2017.

However, the loss declined to N19.508billion in 2018. But there appears to be some positive outlook as the company grew its operating profit by 35 per cent.

The company did not pay dividends in 2018 after paying dividends consecutively for four times in the last five years. It paid 360 kobo dividend in 2014, 300 kobo in 2015, 105 kobo in 2016, 105 kobo in 2017 and nothing in 2018.

The company has also been borrowing hugely in the last five years for its operations. It borrowed N116billion in 2014, N136 billion in 2015, N68billion in 2016, N68billion in 2017 and N172billion in 2018. Similarly, its net asset has declined from N176 billion in 2014 to N134billion in 2018. David Adonri of HighCap Securities however says that the recent capital raising might drag the company out of its drawback zone.

‘’Lafarge used to be one of the iconic stocks in the market before the establishment of Dangote Cement. After the coming of Dangote Cement, Lafarge started lagging. But there is improvement in the quarterly results as the huge losses are declining. The company was not making profit and was unable to compete with Dangote’’, said Adonri who added that its stock is becoming attractive again given its new strategies.

Adopting a fighting position, the company has laid out very strategic plans to turn around its fortunes. First it claims to have reduced its net debt. It also said it has successfully raised N88.4billion from over- subscribed right issues.

Just recently, its South African operations signed on May 31, 2019 for a cash consideration of N114.1 billion.

Michel Puchercos, CEO of Lafarge Africa had in a recent release said, “Our Strategy 2022 “Building for Growth‟ in Nigeria is delivering the expected results with a strong increase in operating EBITDA and profit. Our momentum is very positive and is expected to be sustained in 2019.”

“South Africa continued the turnaround plan with significant improvement in Q1 2019 compared to the prior year.” “Our strategic decision to divest South Africa with a sale to another affiliate of the LafargeHolcim Group, will strengthen our balance sheet.”

“The Rights Issue together with the divestment of our South African Operations will deleverage Lafarge Africa by c.N246bn, enabling it to fully repay its USD Shareholder Loan and short-term naira overdraft.” “This will support Lafarge Africa’s ambition to accelerate the execution of its Strategy 2022 and to fully focus on the development of the Nigerian market.”

According to information released by Lafarge, on May 31st, Lafarge Africa had signed an agreement with Caricement B.V. an affiliate of the LafargeHolcim Group, for the divestment of its entire 100 percent shareholding in Lafarge South Africa Holdings (Pty) Ltd for a consideration of US$317m.

The company plans to deploy the proceeds of the Proposed Sale (US$317m) to pay off Lafarge Africa’s shareholder loan of US$293 million as at July 31, 2019, and related interest due.

‘’The improvement in cash-flow and net income, resulting from the reduction in debt service outflows, will enable Lafarge Africa to consider additional investments in cement production capacity and to improve its market share in Nigeria’’,

This is in addition to enhancing profitability through positive cash flow generation, eliminating fully all foreign currency denominated debt, cutting annual interest expense by N9.9 billion and strengthening Lafarge Africa’s Balance Sheet.

One of its shareholders, Mr. Boniface Okezie expressed optimism that the company was refocusing, given its new plans. He explained that shareholders are not expecting dividends now until about a year’s time.

‘’ Lafarge Africa continues to execute Strategy 2022 – “Building for Growth” at full speed in Q1 with strong progress made in all four drivers of the strategy, delivering results as planned. Growth – Switching gears to growth is the most fundamental principle of Strategy 2022. Nigeria is strongly contributing to this growth and acceleration of our improvement is expected in 2019 with new products, increased capacity, and our new Route-to-Market strategy. Simplification & Performance – Visible progress was made towards ensuring best-in-class performance by improving and unifying our business processes and logistics across the country,’’ Its management said.

How easy the company’s far reaching plans can succeed in lifting its fortunes in a weak and mono-product economy is yet to be seen.