By Emeka Anaeto, Economy Editor

CEMENT, a major commodity in the construction in industry, must have suffered a huge drop in market patronage following the massive headwinds in Nigerian economy since second quarter of last year. Obviously, operators in that line of business took the hit.

Lafarge Africa, a blue chip in the Nigerian Stock Exchange and a major brand in the Nigerian cement market,  recently released its full-year 2015 financial scorecard, which showed a 2.5 per cent year-on-year (y-o-y) growth in revenue and a 20 per cent decline in profit after tax, PAT, over the same period in 2014.

The company managed to grow its top-line amid the challenging market and economic headwinds it faced during the year, largely driven by the growth in its Readymix sales and its Nigerian South-West operations.

The 20 per cent decline in bottom-line resulted from one-off costs undertaken during the year for restructuring the company.

Company’s resilience

In its full year 2015 financial result, Lafarge’s revenue growth to ¦ 267.2 billion from ¦ 260.8 billion attests to the company’s resilience despite the headwinds and the competitiveness in the market.

Its Readymix operations in Nigeria continued to show great strength with a 29 per cent increase in sales from the previous year which help bolster the top-line growth.

In the same vein, Lafarge South-West operations in Nigeria also grew by 6.0 per cent driven by reduced production costs and improving operational efficiency, while South-East operations had the highest Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margin at 35 per cent as against  26 per cent in the preceeding year  in the group, driven by efficiencies in its gas usage and kiln utilization.

However, activities in Ashaka Cement, a subsidiary of Lafarge Africa, were not as positive as the company’s operations were disrupted by the insurgency in the North part of the country where the subsidiary is domiciled, during the first quarter of 2015. Hence, EBITDA reduced to ¦ 4 billion on the back of a 20 per cent drop in volume.

In the fourth of 2015 Lafarge had to respond to the action of its major competitor, Dangote Cement, by cutting the prices of its cement products. Dangote Cement has the larger portion of the market.

But Larfarge was effective in keeping direct costs stable as cost-to-sales ratio inched up by a modest 1.0 per cent amidst soaring inflationary pressure, albeit, cost of sales increased by 4.0 per cent y-o-y to  N 184.7 billionn from the previous year’s N177.8 billion.

Production fixed cost

The increase in cost is largely due to a hike in production fixed cost, which increased by 65.8 per cent to N 8.2 billion as maintenance fixed costs and other fixed costs increased by 19 per cent and 73 per cent respectively.

PAT for the full year 2015 fell by 20 per cent to N 27 billion from N 33.5 billion recorded in the prior year. The decline in PAT can be attributed to one-off restructuring/ redundancy costs and the unrealized exchange impact of the foreign currency borrowing to fund its Mfamosing operations. Excluding these costs, profits improved by 6.0 per cent compared to the previous year.

Lafarge Africa’s management has been unified after the group increased its shareholding in Ashaka Cement Plc from 58.6 per cent to 82.5 per cent during the year. Shareholding in Mfamosing operations was also increased from 35 per cent to 50 per cent with full management control and consolidation.

Dividend Payout and valuation

With a net profit of N 26.9 billion, earnings per share (EPS) dropped 18 per cent from N 7.7 in the previous year to N 6.3.

Lafarge declared a dividend of N 3.00 per share, which is 16.7 per cent lower than the N 3.6 per share declared in the previous year. The company also declared a bonus issue of 1 for 10. The dividend declared indicates a 48 per cent dividend payout ratio.

According to equity analysts at Greenwich Trust, a Lagos based investment house, “valuation remains positive for Lafarge. Lafarge Africa shares are trading on a 2016 forward P/E multiple of 10.30x and a P/BV of 3.21x.

“At the current price of  N 82.6, adopting a blend of absolute and relative valuations tools, we reviewed our 12 months target for the year 2016 to N 104.1, indicating a potential upside of 28.2 per cent from its share price as at March 23, 2016”.



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