Lafarge Nigeria Plc: Standing its ground despite heated competition
By Folakemi Emem-Akpan
Introduction
Lafarge Nigeria Plc was able to step up the level of its income generation in 2023. It also was able to improve its profit position for the 2023 financial year. Such growth had a positive effect on its profitability ratios, as the latter generally improved over the prior year’s results.
Also, Lafarge’s results were quite good when compared with the industry averages for the year.
Growth indices
For its 2023 financial year, the company recorded an 8.7 percent growth rate in its turnover, increasing to N405.5 billion and up from N373.2 billion in the preceding year. It is worthy of note that this 8.7 percent increase in the company’s ability to expand income was lower than the 27.3 percent growth rate achieved in the erstwhile year.
Pre-tax profit growth rate followed a slightly different pattern, growing to N80.7 billion, 15.6 percent more than a profit of N69.8 billion in the erstwhile year. This 15.6 percent growth rate was better than the 12.2 percent growth rate recorded in the preceding year. While after tax profit was a little lower in the 2023 financial year than that of 2022, the company chose to dedicate the same level of its distributable profit dividend as it had done in the prior two years.
Also, Lafarge had more assets and more equity to work with in the year under review. Total assets grew by 13.4 percent to N681 billion, while equity grew at a slower rate (4.6 percent) to N435.1 billion. While these growth rates were good in and of themselves, they were slower when compared with the preceding year’s growth rates.
Profitability ratios
Profitability for the 2023 financial year was better for Lafarge, as most parameters showed a progression over the preceding year’s. First to achieve an improvement was the profit margin of the company, increasing to 19.9 percent in 2023 from 18.7 percent in 2022. What this means is that for every N100 earned by the company in the course of the year, N19.90 of it translated to profit. This is as compared to an already high profit of N18.70 for the year preceding 2023.
It is quite possible that the reason for the company’s better profit margin for the year under review is its operating margin (which measures what proportion of turnover a company spends on operations and which must be kept as low as possible without compromising standards). Such operating margin improved by decreasing to 26.0 percent from 30.0 percent during the course of the year.
Also to record a growth (albeit slight) was return on assets (ROA), improving to 11.8 percent in 2023 from 11.6 percent in 2022. Analysis shows that every N100 worth of assets contributed N11.60 to pre tax profit.
One of the profitability ratios that recorded a slowing down was the return on equity (ROE). ROE slowed down to 11.7 percent, lower than 12.9 percent in the prior year.
Staff matters
The company did not do badly as regards staff matters. Pre-tax profit per employee stood at N55.01 million on the average. Not only is this as compared to and better than the N51.9 million employees contributed on the average to the company’s pre-tax profit in 2022, it was also much higher than N37.7 million in 2021.
Meanwhile, average staff cost dipped to N19.63 million from N26.14 million within the course of 12 months. This means that there was a N6.51 million decline to what an employee earned (on the average) between 2023 and 2022.
Perhaps because it decreased its staff costs, Lafarge succeeded in deflating such staff costs as a proportion of income earned. Staff costs as a portion of turnover decreased and thereby improved to 7.1 percent in 2023 from 9.4 percent in 2022.
Other ratios
At 1.1 times, Lafarge’s current ratio was on par with the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the company had N1.10 in short-term assets, and was completely able to meet short term debts from short term assets.
Having a debt-to-equity ratio of 0.6 shows that the company is using 60 kobo of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the company is using N1.60 of Lafarge capital for every N1.00 of equity capital, higher than the N1.40 it did in 2022.
Lafarge Vs BUA Cement: Evenly matched
Lafarge and BUA Cement are both well known names in the cement industry. In terms of size, BUA Cement is the slightly bigger of the two. However, these two companies are evenly matched in terms of their profitability ratios.
Turnover growth rate
Lafarge had a turnover growth rate of 8.7 percent in 2023. BUA Cement also recorded a higher level of turnover, with such turnover growing by a much higher 27.5 percent. BUA Cement is thus the winner in this respect.
Pre-tax profit growth rate
For the year, Lafarge had a better result in terms of pre-tax profit growth rate. Its pre tax profit grew by 15.6 percent. On the other hand, BUA Cement recorded a decline rather than a growth. This made Lafarge the winner in this aspect.
Profit margin
When it comes to profit margin, Lafarge was the winner. Its profit margin stood at 19.9 percent, higher than and better than BUA Cement’s 14.6 percent profit margin result.
Returns on equity
BUA Cement was the clear winner when it comes to return on equity. Its return on equity was 18.0 percent, meaning that every N100 worth of equity contributed N18.00 to the after-tax profit. This was much higher than Lafarge’s N11.70 contribution.
Return on assets
Contrary to ROE, Lafarge was the winner when it comes to return on assets (ROA).
Lafarge had an ROA of 11.8 percent, higher and better than BUA Cement’s 5.4 percent.
Conclusion
In the above analysis, the profitability ratios of Lafarge for the 2023 financial year were compared with its ratios for the 2022 year. Under this comparison, Lafarge did well. Also, a second comparison is done against a competitor. Under this comparison, Lafarge also did well as it stood its own against BUA Cement, one of its competitors.
