AFRICAN NEWS
Nigerian financial analysts
Cordros Securities concluded
in a September report that the
merger of some of Lafarge’s
sub-Saharan African businesses
had reduced earnings at
Lafarge Africa.
The report explicitly points
out that the consolidation
of some of Lafarge’s various
companies have failed in
the wake of the formation of
LafargeHolcim.
Cordros Securities’ criticism
is that Nigeria’s Lafarge
WAPCO performed better in
2013 alone before it became
part of Lafarge Africa, with
better standalone earnings
before interest, taxation,
depreciation and amortisation
(Ebitda). Lafarge Africa
was formed in 2014, a year
before the LafargeHolcim
merger was completed,
through the consolidation of
Lafarge South Africa, United
Cement Company of Nigeria,
Ashakacem and Atlas Cement
into Lafarge WAPCO. Since
the formation of Lafarge
Africa, Cordros maintains that
its earnings per share have
consistently fallen, its share
price has dropped, its debt has
risen, its margin decreased and
its sales volumes of cement
have also eroded.
Cordros’ report mainly
focuses on the Nigerian parts
of Lafarge Africa’s business,
given its interest in that
market and the fact that about
three-quarters of the company
is based in the country. It
blames the current situation
on growing operating costs
since the merger, skyrocketing
financing costs for debts and
efficiency issues. In Nigeria,
Lafarge Africa has had to cope
with disruptions to gas supplies.
Nigeria’s Dangote Cement
had similar problems
domestically in 2017 with
falling cement sales volumes
in a market reeling from
an economic recession but
Cordros reckoned that Dangote
is picking up market share
www.quarryonline.co.za
in the southwest due to an
‘aggressive retail penetration’
strategy. Finally, Lafarge
Africa faced a USD9-million
impairment in 2017 due to its
abandoned pre-heater upgrade
project at AshakaCem. The
project has been suspended
since 2009 due to security
concerns in the North-East
region. The plant faced an
attack by the Boko Haram
militant group in 2014 and the
group has subsequently been
reluctant to invest further in
the site.
Cordros’ report attributes
part of the blame to a Nigerian
cement market which is
performing slower than it has
previously. The local market has
become a battleground between
the established players of
Dangote Cement, BUA Group
and Lafarge Africa. Regarding
South Africa, the report points
to old and inefficient hardware,
labour disputes, low prices
due to weak demand, high
competition and a negative
product mix.
Lafarge Africa itself presents
a more mixed picture, with
market growth picking up
in Nigeria following end of
the recession but continued
market problems in South
Africa. Overall, its reported
sales grew by 4.8% to
USD448-million in the first
half of 2018 but its Ebitda fell
by 25% to USD76.4-million.
Overall cement sales volumes
were reported as up by 5.4%
to 2.6Mt in the first half but
volumes were still falling in
South Africa in the second
quarter.
Part of the backdrop to all of
this is the intention of Lafarge
Africa to cut its debt. In May
2018 its chairman Mobolaji
Balogun says that the company
wanted to cut its debt by
2020 before resuming with its
expansion programme. Part
of this process will include a
new rights issue later in 2018
to allow shareholders to buy
stock at a discount.
Lafarge Africa – was it worth it?
Twin recessions in Nigeria and South Africa did no favours for the
Lafarge merger.
It no doubt made sense to
merge the Lafarge subsidiaries
in the two largest economies
in sub-Saharan Africa. Two
recessions in Nigeria and
South Africa respectively, old
equipment, debt and serious
competition from locally
owned producers have piled
on the pressure instead. From
a stockholder perspective,
Cordros is not impressed by
the performance of Lafarge
Africa.
QUARRY SA | NOVEMBER/DECEMBER 2018_9