Displaying items by tag: Atlas Cement

Nigerian financial analysts Cordros Securities concluded this week that the merger of some of Lafarge’s Sub-Saharan African businesses had reduced earnings at Lafarge Africa. The report is interesting because it explicitly points out a situation where 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 a higher standalone earnings before interest, taxation, depreciation and amortisation (EBITDA) margin. Lafarge Africa 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 margins have decreased and its sales volumes of cement have also withered.

Cordros 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 in the South West due to an ‘aggressive retail penetration’ strategy. Finally, Lafarge Africa faced a US$9m 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 seemed reluctant to invest further in the site subsequently.

Cordros’ final word on the matter is that with the Nigerian cement market 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. What little the report does have on South Africa covers problems with 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 US$448m in the first half of 2018 but its EBITDA fell by 25% to US$76.4m. 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 said that the company wanted to cut its debts by 2020 before continuing 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.

It must have made sense, on paper at least, to merge the Lafarge subsidiaries in the two largest economies in Sub-Saharan Africa. Once the merger had settled in, with synergies generating extra revenue, the group could have considered adding extra territories such as Kenya. However, it’s not turned out like that. 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. The wider question is: what else did Lafarge and Holcim get wrong when they joined to form LafargeHolcim?

Nigeria: Financial analysts Cordros Securities have blamed falling earnings at Lafarge Africa on the merger of its Nigerian businesses with Lafarge South Africa. In a research report the analysts found that the merger increased operating costs and reduced shareholder value, according to the Vanguard newspaper. Lafarge WAPCO’s earnings per share, earnings before interest, taxation, depreciation and amortisation (EBITDA) and profit before tax have all fallen since 2013. It also found that operating costs had increased ‘significantly’ following the merger, debt had risen and that earnings had also been hit by efficiency issues.

Lafarge announced plants to merge its businesses in Nigeria and South Africa in 2014. The move saw the consolidation of Lafarge South Africa, United Cement Company of Nigeria, Ashakacem and Atlas Cement to Lafarge WAPCO. It was subsequently renamed Lafarge Africa.

Nigeria: The shareholders of Lafarge Africa have approved the merger with United Cement Company of Nigeria (Unicem) and Atlas Cement. Lafarge Africa chairman Bolaji Balogun said that the merger would streamline its operations and reduce its costs, according to the Nigerian Guardian newspaper. Lafarge Africa is the sole shareholder of Unicem and Atlas Cement.

Unicem operates the 5Mt/yr Mfamsoing cement plant at Calabar in Cross River State. Atlas Cement runs a 0.5Mt/yr terminal in Rivers State at the Federal Ocean Terminal in Onne. It originally supplied Ordinary Portland Cement but is now changing its market to the oil and gas sector.

Nigeria/South Africa: French cement maker Lafarge intends to combine its businesses in Nigeria and South Africa. The new company Lafarge Africa, which will be 73% owned by Lafarge Group, will remain listed on the Nigerian Stock Exchange. The new company will have a cement production capacity of about 12Mt/yr in South Africa and Nigeria as well as operations in aggregates, ready-mix and fly ash. The new company will be worth more than US$3bn.

"I am proud to be part of the creation of this leading African building materials platform. It will provide access to growth in two of the largest economies on the continent. It will mean that our shareholders are invested in a larger and more geographically diverse business and it will contribute significantly to the economic growth of both our nations, " said Chairman of Lafarge WAPCO, Chief Olusegun Osunkeye.

Under the proposed terms, Lafarge Group will transfer its direct and indirect shareholdings in Lafarge South Africa Holdings (Pty) Limited (100% - representing 72.4% of underlying companies in South Africa), United Cement Company of Nigeria Limited (35%), Ashakacem plc (58.61%) and Atlas Cement Company Limited (100%) to Lafarge WAPCO. The transaction is subject to Lafarge WAPCO shareholder approvals and obtaining required regulatory and other customary authorisations. The group anticipates completion during the second half of 2014.