Lafarge Shareholders Approve N140bn Rights Issue, Unicem Merger

By Nse Anthony-Uko

ABUJA, (Sundiata Finance) – Shareholders of Lafarge Africa have approved the company’s planned N140 billion rights issue, as well as proposal for merger of Unicem’s operations into its own. Unicem is already a 100 percent subsidiary of Lafarge Africa.

The company says the proposed rights issue and merger will strengthen the capital structure of the company by reducing its foreign currency exposure and optimising Lafarge Africa’s organisation. It also notes the company’s expansion in Nigeria.

The rights issue will take place at the beginning of third-quarter (Q3) and is expected to be finalised by October at the latest.

Unicem has a US$600 million in foreign currency loan which was used for the expansion of its operations. LafargeHolcim will subscribe to its rights by converting its portion of Lafarge Africa’s foreign currency  loans into equity, which will halve the FX exposure of Lafarge Africa Plc, improving the company’s balance sheet and freeing cash for operations.

At the company’s annual general meeting on Wednesday where the decisions were reached, the shareholders of Lafarge Africa Plc received and adopted the company’s audited financial statements for the year ended December 31, 2016, the report of the directors, external auditors, and audit committee thereon. They also re-elected five directors.

Despite the economic challenges faced in 2016, the board of Lafarge Africa Plc paid its shareholders a dividend of N1.05 gross per share, following their approval at the 58th annual general meeting (AGM) held Wednesday in Lagos. The dividend amounts to N5.8billion, which represents 34.7percent of net income after taxation.

Demand for cement which had grown steadily for the past five years up till 2015 flattened in 2016 when oil prices dropped remarkably, consequently leading to the devaluation of the naira and limiting government expenditure, a critical driver of activity in the construction sector.

Growth was also subdued in South Africa during the same period, as the economy slowed down and imported cement flooded the market.

Mobolaji Balogun, Chairman of Lafarge in Nigeria, commended the Board and the Management of Lafarge Africa Plc for taking measures to reduce the effect of the devalued Naira, successful commissioning of the new line in Mfamosing and for the transformation of the company.

Benefits of the turn-around plan launched in the third quarter of 2016 were already counting in Q4 2016.

Balogun said, “We have increased local sourcing of critical materials to lower foreign exchange component of our operational costs. Finally, we are working on a new route to market initiative and improvements in logistics with increased vehicle turn-around and size of fleet of third party providers.”

Michel Puchercos, the country CEO of Lafarge Africa remarked that “the plan is to increase the use of alternative fuel (biomass) and locally mined coal to lessen production disruptions due to gas supply shortages.

Looking forward, the company sees opportunities for the domestic consumption of cement with growth in the second part of the year supported by initiatives through infrastructure and private initiatives.

Speaking about the Rights Issue, the first since 2005, Balogun noted that the decision of LafargeHolcim, its largest shareholder, to convert existing loans into equity “demonstrates the Group’s continued belief in the Nigeria story.” He further added that this “is the largest Rights Issue and the largest investment in a listed company by an investor.”

The company is embarking on a Rights Issue to reduce its exposure to adverse foreign currency translation losses as experienced in 2016 following a 40 percent depreciation of the Naira against the US Dollar. While listing the benefits of recapitalisation, the chairman said, “It reduces our foreign currency exposure by 50 per cent. The remaining portion of the debt, with the support from LafargeHolcim, has been refinanced and hedged for 12 months.

Puchercos also stated that the acquisition of Unicem in 2016 was in line with the Company’s capacity expansion plans. He noted that doubling of the production capacity of the Mfamosing plant in Calabar to 5 million metric tons per annum has “contributed significantly to Lafarge Africa’s capacity and footprint in Nigeria; provides an opportunity to increase our share of the cement market in the South East and South regions, and has begun to impact positively on the financial results of the Company.”

The share price of Lafarge Africa Plc closed at N52.64 on Thursday.

The Nigerian Stock Exchange All Share Index (ASI) and the Market Capitalisation increased by 0.77 per cent, while the Year-to-Date return stood at 22.56 per cent. The All Share Index closed at 32,937.98 against the previous close of 32,686.72 while Market Capitalization closed at N11.387 trillion against previous close of N11.300 trillion. Investors gained N87bn.

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