Lafarge Africa Plc posted a first-quarter loss noting that price reductions, as well as a fall in demand drove the revenue decline. The company is now convinced that the threat posed by Dangote Cement is real.
Africa’s richest man Aliko Dangote goes about these days proudly telling anyone who cares to listen, how his company crashed the price of cement in every market it has entered on the continent. He says his reason for ensuring this is because cement is a commodity that affects both the rich and the poor. “Cement price is something that worries everybody; even people who are not building houses, know it affects their rent,” he said at The Guardian Man of the Year Award presentation last week. What he did not say is that it also gives his company competitive advantage over other producers of cement. Having built capacity that allows it control about 65 percent of the market, a reduction in the prices of its cement puts other producers at a disadvantage. This is largely responsible for Lafarge’s poor performance in Nigeria this past quarter, coupled with some production and logistic challenges.
A slow down in economic activities occasioned by the slump in global oil prices also affected the company. The situation did not spare Dangote Cement which said its profit for the first quarter fell 23 percent to N52.8 billion ($265 million).
Lafarge reported a loss after tax of N1.9 billion naira ($9.5 million) in the three months through March. It made a profit of N5.8 billion during the same period last year. Revenue declined 29 percent to N52.4 billion.
However, the company said it remains very positive about the future as there is still a strong demand for its products, especially in markets like South Africa where volume grew by 11 percent in the first quarter. It is in the middle of a roadshow to market a N60 billion ($302 million) bond programme aimed at restructuring its United Company of Nigeria (UNICEM) debt. Lafarge Africa acquired UNICEM last year.
But Ikpenmosa Uhumuavbi, a corporate lawyer who is Senior Counsel at Brace Law Partners, does not see a future for Lafarge in mainstream cement business in Nigeria, especially at the rate Dangote Cement is growing.
“I’m not so convinced about Lafarge’s competitive muscle given Dangote’s international approach to the cement business,” Uhumuavbi told The Nerve Africa.
“They cannot undercut Dangote through price leadership in the mainstream cement business because they lack the scale and muscle. But they can capture more market shares through add on services,” he adds.
Noting that the cement business has a massive value chain, Uhumuavbi says Lafarge may be looking to expand into other ancillary businesses around cement production.
On the day it submitted its Consolidated Financial Statements for the three months ended March 31, 2016, Lafarge’s Nigeria Stock Exchange (NSE)-listed shares fell to N70.33 per share from N74 the previous day.
With 50 million tons a year of cement capacity, LafargeHolcim (Lafarge Africa’s parent company) is the largest producer in continental Africa. Dangote Cement currently has an annual production capacity of 43.6 million tonnes. It targets output of between 74 million and 77 million tonnes by the end of 2019.