The mechanism of focused strategy, market penetration and organic growth is one of the key drivers that catapult a company to the trajectory of growth. It also enables a firm increase its share of the market while maximizing owner’s value.
Lafarge Cement Wapco Nigeria Plc, Nigeria second cement maker, has used the combinations of these aforementioned strategies to spur growth as the company recorded a stellar performance at both the top and bottom line level despite environmental challenges.
For the first six months through June 2014, Lafarge’s revenue increased by double digits of 12 percent to N55.35 billion from N49.48 billion in the same period of the corresponding year (HY) 2013.
The growth in sales was achieved amid low demand for cement caused by the rainy season thus slowing construction activities and delay in the passage of the 2014 budget.
Cost margins were down to 57.1 percent in HY 2014 from 61.03 percent as at HY 2013 while gross margin increased to 42.33 percent in 2014 from 38.96 percent in 2013 despite high energy costs that is peculiar to Nigerian manufacturers.
Cement manufacturers have been incurring spiralling costs caused by shortage of gas supply as a lot of firms are shifting to Low Pour Fuel Oil (LPFO), a more expensive source of energy.
Profit before tax (PBT) surged by 29 percent to N17.74 billion in HY 2014 compared to N13.80 billion in the preceding year buoyed by a 21.58 percent increase in gross profit and expansion in gross margin.Lafarge is ready to meet the demand of the market as it is aggressively improving capacity utilization to boost volumes.
The management of the company disclosed that the average capacity utilisation for the plants was around 88-90 percent (up from 83 percent estimate for Q1), implying unit volumes of about 0.99 million metric tonnes (mmt) for the quarter according to FBN capital report
“Given the capacity ramp-up and strong cement demand despite the rainy season, management expects to see improvement in unit sales in H2 2014. As such, we forecast H2 2014 unit volumes of 1.92mmt, up slightly from our 1.90mmt estimate for H1 2014,” Tunde Aboidoye a research analyst with FBN capital, said.
Based on businessDay analysis, If all the key players in the cement industry conclude their short-term expansion plans, then Nigeria’s potential capacity will reach as high as 58.5 million metric tons (MTs) annually in next to no time, dwarfing South Africa’s capacity that stands at 18.3MTs and Egypt’s 48MTs.
The consolidation of the parent company Lafarge Africa and its Nigeria subsidiary Lafarge Wapco analysts say will be a threat to its peer rivals.
Consolidating the two separate operations was a strategic move as analysts said it could boost the Nigerian stock market through increased liquidity and returns on the Lafarge Africa stock and general inducement of mergers and acquisitions.
The transfer of Lafarge Group shareholdings in businesses in Nigeria and South Africa into forming Lafarge Africa has guaranteed 12 million metric tons of cement.
Return on average equity ROAE was 22.02 percent while the return on average assets ROAA stood at 17.16 percent.
The company’s share price closed at N120.21 on the floor of the Nigeria stock exchange on Friday while market capitalization was N360 billion.
“As such, we forecast H2 2014 unit volumes of 1.92mmt, up slightly from our 1.90mmt estimate for H1 2014,” said Abidoye.
“These translate to sales growth of 5 percent to N58.1bn in H2 2014 over sales of N55.4bn in H1 2014.”
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