Lafarge Africa

BY OKEY ONYEWEAKU

Despite fears that the Nigerian economy may hit the rocks sooner or later given the double-edged challenges of Coronavirus and the crashing price of crude plaguing the world now, Lafarge Africa Plc has recorded an impressive rebound from a loss position.

Emerging details show that Lafarge Africa posted a profit before minimum tax of N17.2 billion in 2019, compared to a loss before minimum tax of -N1.5 billion in 2018.

Its profit from continuing operation closed at N15.5 billion in 2019 as against a loss of N8.1 billion during the comparable period in 2018.

It was however not an all-favourable result as despite this showing, the operating Profit for 2019, however, declined to N34.9billion in 2019 from N38.5 billion in 2018.

At the close of the business year 2019, Lafarge’s revenue also declined by 1.8 per cent to N213billion from N217 billion it recorded in 2018.

The cost of sales also increased by 4.6 per cent to N157 billion as against the N150.7 billion reported in the corresponding period of 2018.

Also, Lafarge Africa Group’s audited financial results showed its selling and marketing cost increased by 31.5 per cent to N5 billion during the period under review compared to N3.8 billion as of 2018.

On the plus side also, administrative expenses reduced significantly 29.3 per cent to N17.6billion in the year 2019, from N24.9 billion during the comparable period last year.

“Our turnaround and cost-reduction strategy in FY 2019 and the divestment of the South African business, have delivered strong results. The decrease in net debt has significantly strengthened our balance sheet and has placed us in a vantage position to face the future.” Said a quite relieved Khaled El Dokani, Country Chief Executive Officer of Lafarge, on the report.

Whereas the company is a member of the LafargeHolcim Group – the biggest building and concrete solutions company in the world, the cement industry is dominated in Africa by Dangote and BUA which has just done some acquisitions and listed its shares.

Lafarge Africa’s performance had from the first quarter of 2019 been strong and impressive. For instance, the company grew its profit before tax in the first quarter by 104.2 per cent to N122.8million from a huge loss of N2.95 billion in 2018. Profit after tax also rose by 257 per cent to N3.15billion, while Net Asset also jumped 67.3 per cent to N225.04billion from N134.54billion. However, Revenue declined by -2.6% to N78.51bln from N80.64bln in Q1 2018.

The company also displayed vigour in the second quarter as Profit Before Tax spiked by 246.1% to N9.27bln from N6.35bln loss recorded in the previous year.

Its Profit After Tax also grew by 330.9% to N9.01bln as Net assets grew by 69.3% to N227.78ln from N134.54bln as at 3oth June 2018.

Quarter three for Lafarge Africa was not different from others as its Profit before Tax also increased by 240.2% to N20.14bn from N(14.36bn) in Q3 2018

While Profit after Tax increased by 298.3% to N20.57bn from N(10.37bn) in Q3 2018,

Total Equity increased by 160.1% to N349.88bn from N134.54bn in Q3 2018. But analysts noted that its revenues dropped in the three quarters.

Market observers noted that though this year’s revenues was the least the company has recorded in the last five years even as 2019 when it posted a profit before tax of N17.892billion has been the best year for the cement manufacturing company.

The company had plunged into the red in 2016, posting a huge loss of (N22.8billion). The losses increased to (N34.032billion) in 2017 and the losses dropped to a loss of (N19.508billion) in 2018 before returning to profit this year.

While it is paying a dividend of N1.00 to its shareholders, earnings per share stood at 96 kobo in 2019. Its earnings per share had stood at 574 kobo in 2015, 315 kobo in 2016, it was negative at (637) kobo in 2017, it became positive again in 2018 at 93 kobo.

The company’s borrowings had been very high at 144billion in 2018 and dropped to N45.8billion in 2019. The company in a statement made available to the Nigerian Stock Exchange on April 6, 2019, revealed that its net debt reduced by -87.2 per cent from N288.9billion to N37.1billion.

Industry observers appear impressed by the performance of Lafarge which has been in the red zone in the last three years. They believe the rebounding is good for the company’s future.

According to the Managing Director of High Cap Securities Limited, Mr David Adonri, Lafarge appears to have surprised shareholders, having emerged from a loss position in the previous year to become a strong profit-making firm that is paying a dividend of N1.00 per share.

The company’s dividend payment is not only impressive but also surprising. With the profit it achieved, the prospect for the future is bright.

Also, a Lagos based shareholder activist, Mr Boniface Okezie who own shares in Lafarge Africa believes that a combination of the successful rights issue it did earlier and the spinning of its South African subsidiary which has been a drag on the company helped it to return to profitability.

Okezie who informed that the company had reduced its debt substantially was regaining its bearing, adding that the company must, however, take even more far-reaching measures to remain competitive and regain its market share.

Unfortunately, the company is competing against two giant Cement firms with better financial muscles in the African region.

Looking critically at the Cement market in Nigeria, it is an attractive sector given that the country is still a developing nation with very poor infrastructure. This presupposes that the market for the producer’s cement will continue to increase for the small number of large players. Research shows that Dangote Cement accounts for 60%, Lafarge 30%, others account for 10%. But this will change with the acquisitions of BUA which has just listed on the exchange.

While Lafarge Africa has articulated plans to expand its market share in Cement production in Nigeria, Dangote Cement has also structured its plans to continue to dominate the industry. With the bearish trend in the equities market which has declined by over 14 per cent year to date, Lafarge stock price dropped a notch from N13.80 on January 2, 2020, to N12.00 per share on April 16, 2020.

Market analysts have attributed the weak performance of manufacturing companies to the prevalent macroeconomic challenges in Nigeria. While some of them fingered lack of economic direction of the President Buhari administration as one of the strong reasons, others have hinged it on tight regulation of both the fiscal and monetary authorities. Yet a third group has sadly pointed at the shrinking revenues of the nation, caused by the volatility in crude price, lack of productivity and increased funding for security, in addition to low disposable income in the hands of consumers. These, market observers believe have also been responsible for the near weak performance of other sectors of the economy. The Nigerian economic growth stood sadly at 2.55 per cent at the end of 2019.

These have dealt a heavy blow on business operations as many firms seem to be struggling to survive.

Lafarge is a publicly quoted company on the Nigerian Stock Exchange (NSE) and serves Nigeria and South Africa with a wide range of building and construction solutions designed to meet housing and construction needs from small projects like individual home buildings to major construction and infrastructure projects.

Lafarge and Holcim. Lafarge Holcim, the majority shareholder is the world leader in building materials industry with a local presence in 90 Countries, over 100,000 employees and 374,000 million metric tons of installed capacity worldwide.

Looking ahead

Given that the firm’s net debt reduced from N288.9bn to N37.1bn (-87.2% vs LY) further to the divestment from South Africa and successful rights issue in 2019, Lafarge must continue to put the lid on its exposures going forward.

It may indeed be in line with this, that Khaled El Dokani, CEO of Lafarge Africa had stated: “Our turnaround and cost-reduction strategy in FY 2019 and the divestment of the South African business, have delivered strong results. The decrease in net debt has significantly strengthened our balance sheet and has placed us in a vantage position to face the future.” But even more, would need to be done.

This is more so as the Coronavirus (COVID-19) pandemic in which the company was reportedly linked with the index case, now impacts Nigeria more than ever before.

Instructively, Lafarge Africa has since that incident, taken even more robust and necessary measures to protect the health of its employees, customers, suppliers and other stakeholders.

The final word would be given to Lafarge:

‘The construction sector and construction sites are generally more resilient than other sectors and Lafarge Africa has a strengthened balance sheet and is well equipped to weather the storm. However, we are closely monitoring the evolving situation and the impact of the COVID-19 pandemic on the Nigerian market. The Nigerian cement industry growth momentum is expected to slow down in FY 2020 compared to 2019 on the back of the COVID-19 pandemic and the challenging global macro-economic environment.

We have launched an action plan “HEALTH, COST & CASH” and will continue to focus on the implementation of our cost optimisation initiatives during this period to minimise the impact on the business,” a company source outlined.

BH wishes them every success.