Quarry Southern Africa November 2018 - Page 9

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