How local input sourcing, operational efficiency drive Lafarge Africa

In spite of headwinds that have continued to blow away manufacturers’ projections in Nigeria, Lafarge Africa has remained robust owing to operational efficiency and high local input content.

“Overall, Lafarge has a strong operational performance with a favourable outlook,” a quote from analysts, who examined the firm’s Q1 2015 operational performance, says.
Apart from spikes in operations and productivity, Nigeria’s second largest cement maker is also driven by stable cement price, which has continued after December 2014 recovery, as well as energy efficiency and strong market segmentation.

Lafarge Africa is made up of Wapco Operations, the United Cement Company of Nigeria Limited (Unicem), AshakaCem plc (Ashaka), Atlas Cement Company Limited (Atlas) and South Africa Operations.

Specifically, Wapco has gained from stable market price, a strong operating performance and continued productivity improvement. Wapco also uses a lot of gas, which is a cheaper form of energy. Lower power costs have already been achieved in Wapco’s plant in Sagamu, as it has a dedicated gas supplier.

Moreover, capacity utilisation in Wapco has exceeded 90 percent, while significant savings have been made on raw materials and quarry operations, as inputs remain locally sourced.
The firm has also sustained business partnership with stakeholders by organising partners’ awards to appreciate key stakeholders, while also training over 125 block makers and precast manufacturers.

In spite of insurgency threats on Ashaka facilities in 2014, operations have stabilised and commercial activities in the region are picking up post-election. Ashaka also has high coal substitution levels of over 80 percent.

But sales volume was 35 percent less in the first quarter of 2015 (QI 2015) than it was in Q1 2014, owing to these challenges. Volumes were equally affected as the second cement mill was down until mid-February this year, say analysts.

Unicem has continued to be driven by a strong market in the South-East. But its strong operational performance was offset by N8 billion unrealised foreign exchange revaluation booking  and N1.9 billion finance expenses in its financials in the first quarter of 2015.

Its earnings before interest, taxes, depreciation and amortisation (EBITDA) are four times higher than 2014 levels. The firm has also invested heavily on its second production line in Calabar, expected to begin operations by the third or last quarter of 2015.

According to analysts, Unicem’s cement sales volumes grew by 40 percent over Q1 2014 levels due to strong and improved pricing and stable plant operations.

More so, capacity utilisation in the firm has exceeded 90 percent, while gas usage is approaching WAPCO levels.

The result of these was that revenue grew 60 percent over Q1 2014, to about half of WAPCO levels, while cost per ton was about one quarter lower than Q1 2014 levels.

Also, South Africa Operations is projected to improve, with the third Kiln overhaul completed. For South Africa Operations, sales grew 7 percent over the Q1 2014 level. A favourable exchange translation impact of N1.6 billion on top line was realised.

“The aggregate business continued to gain momentum with strong volume and top-line growth. Also, the Ready-Mix business had a good quarter with 14 percent volume growth in a competitive market, supported by the Lafarge solution advantage,” say the analysts.

All these dynamics impacted Lafarge Africa’s margins in Q1 2015 as it grew revenue by 15 percent, from N49.4 billion to N57 billion. Profit after tax, however, fell to N8.6 billion, from N10.9 billion reported at the corresponding period of 2014.

One key element to this decline in profit after tax was panic associated with Nigeria’s general elections, which affected sales and volumes, says Ike Ibeabuchi, managing director, Services Limited, a consulting and services firm.

There was equally a surge in costs.

Analysts further foresee a pick up on construction activities in second half of the year, meaning that better second, third and last quarter performances of Lafarge Africa are possible.

“Peaceful elections have strengthened investor confidence and exchange rate volatility is expected to improve, but there could be short term swings,” they say.

They went further to state that key challenges of the first quarter have been resolved, with positive outlook, as  industrial challenges in Ashaka and South Africa have been resolved.

They say business expansion plans of Lafarge Africa are on track.

 

ODINAKA ANUDU

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