Lafarge-Holcim merger takes root in Nigerian Cement market
The LafargeHolcim merger has created a global building materials innovation giant that is miles ahead of competition in most of the 90 territories it operates in, including Nigeria. The merger has made the firms Nigerian operations (Lafarge Africa) a stronger player in the domestic market and provided innovative offerings for consumers LafargeHolcim Ltd has become […]
The LafargeHolcim merger has created a global building materials innovation giant that is miles ahead of competition in most of the 90 territories it operates in, including Nigeria. The merger has made the firms Nigerian operations (Lafarge Africa) a stronger player in the domestic market and provided innovative offerings for consumers
LafargeHolcim Ltd has become the world’s biggest cement company after a merger between Lafarge and Holcim. It made its debut on the Swiss and Paris stock exchanges on July 14.
The merger created a company with combined sales of $42 billion and operations in 90 countries.
The Group which has over 180 years of combined experience said it aims to usher in a new era of leading-edge technologies and innovations in the building materials industry to address the challenges of the 21st century.
The new company with a combined global capacity of 386 million tons per annum (mtpa) will have a major focus on emerging markets in Africa and Asia including Nigeria.
The firm operates in Nigeria under the brand name of Lafarge Africa, which emerged last year through the combination of Lafarge’s Nigerian and South African assets.
Lafarge Africa Plc is listed on the Nigerian Stock Exchange (NSE), rather than Johannesburg, a sign of Lafarge’s growing confidence in the strength of the Nigerian economy, which is Africa’s largest.
“The proposal to list on the NSE would have been unthinkable five years ago,” said Gregory Kronsten, Head, Macro Economics and Fixed Income Research at FBN Capital at the time of the listing.
Nigeria’s cement market has been growing at around 10 percent per annum since 2004, and an estimated 21 million tons of cement was sold in Nigeria in 2014, with about 5 percent of that or 1.1 million tons imported.
About one billion more people are expected in and around urban areas by 2020.
“We aim to capture the recovery in developed markets while ensuring long-term sustainable growth in emerging markets,” LafargeHolcim’s Chief Executive Eric Olsen said in a July conference call in Zurich, Switzerland.
LafargeHolcim through its Nigerian listed arm Lafarge Africa Plc is the leading company in building materials in Sub-Saharan Africa and has grown into a diversified building solutions group with broad product portfolio and various iconic brands.
Its presence in Nigeria has helped to shake up the entrenched market by bringing competition, best practices and more choices for consumers.
On September 12, 2014 Lafarge Africa concluded all regulatory processes for the acquisition of Lafarge S.A’s interests in Lafarge affiliate companies.
The affiliate companies and interests held by Lafarge SA and acquired by Lafarge Africa Plc are: AshakaCem Plc 58.61 percent of the equity shareholding held by Lafarge Nigeria (UK) Limited; and Atlas Cement Company Limited 100 percent of the equity shareholding, held by Lafarge Nigeria (UK) Limited;
Others are Lafarge South Africa Holdings (Pty) Limited 100 percent of the equity shareholding held by Financière Lafarge S.A. Limited; and Egyptian Cement Holding B.V., 50 percent of the equity shareholding representing an indirect holding of 35.00 percent of the equity shareholding of United Cement Company of Nigeria Limited held by Lafarge Cement International B.V.
Lafarge Africa also owns 60 percent of Lafarge Wapco, its former listed subsidiary in Nigeria and 100 percent of Lafarge Ready-mix Nigeria.
The conclusion of the transaction resulted in the creation of an enlarged entity, with a presence in Africa’s two of largest economies, installed cement capacity of circa 12 million tons per annum (mtpa), combined revenue of $1.03 billion (N205.8 billion) in 2014, aggregates capacity of more than 5 mtpa, Ready-Mix Concrete capacity of about 3.5 million cubic meter and a market leading position in Pulverized Fly Ash (“PFA”).
Lafarge Africa Plc stands to enjoy high value creation from Lafarge as the Group introduces a turning point in customer orientation, technical excellence and innovation.
Research & Development (R &D) is the cornerstone of innovation at LafargeHolcim.
In Nigeria (which has a housing deficit estimated at 16 million units) LafargeHolcim is providing innovative solutions for the supply of affordable housing and infrastructure which will play a major role in realising the country’s ambitions to become a leading emerging market economy.
The company combines best-in-class technical expertise, the latest equipment and the most noteworthy international research partners to offer an R&D capacity that is unmatched by any competition in its sector.
The goal is to develop innovative construction solutions generating value for clients and contributing to building better cities.
Lafarge has an annual R&D budget exceeding 170 million Euros, the largest building materials laboratory in the world and more than 1,300 employees in R&D and Technical programme.
Lafarge also has formal partnerships with some of the world’s best research teams and universities in Europe, and the United States and Asia (including MIT and Berkeley.
LafargeHolcim has the most innovative cement, concrete, and aggregates solutions to meet Nigerian customers’ needs.
This is re-enforced by the firm’s capacity to produce superior products in the market with the same product quality as delivered in France, Switzerland, Canada, UK and other advanced markets with strict safety and regulatory standards.
The firm also offers opportunity for Nigerian LafargeHolcim engineers and other staff to enhance skills and broaden horizons by working in factories and product development centres in Europe and America.
Lafarge Africa, Finland’s Wartsila and the World Bank’s IFC agreed in September to build a 220 MW gas-fired power plant in the country to boost electricity supplies, at a cost of $400-million.
The project would enhance 1.4 million households’ access to electricity and help mitigate energy problems of many firms in the country, according to Guillaume Roux, Lafarge Africa’s CEO.
In 2013, Lafarge Africa Plc entered into a tripartite agreement with the French Development Agency (AFD) and LAPO Microfinance Bank to finance the construction of low-cost housing tagged, ‘Ile Irorun’ for 3,500 low-income earners to the tune of N1.3 billion.
The pilot scheme targets 400 low-income earners in Shagamu and Abeokuta, Ogun state. Analysts calculate that Lafarge Africa’s investment in Nigeria and the competition it has fostered in the last 7 years has contributed to around 30% reduction in the price of cement in the country. With the global merger and the promise of increased innovation, the construction industry is on the watch out for more value creation.
Lafarge Africa, in July reported first half pre-tax profits that rose 13 percent to N29.72 billion from a year ago.
Turnover to end-June also increased to N116.7 billion from N104.15 billion last year.
The firm’s finance and investment income increased to N3.5 billion from N1.71 billion in the previous year.
In Nigeria, Lafarge Management expects stable prices and growing volumes particularly over the second half of 2015 with both South Africa and Ashaka now fully operational.
Lafarge has rewarded investors handsomely as it has risen by 144 percent in the past 5 years.
The stock was up 8.2 percent, 20.34 percent and 126.21 percent respectively in 2011, 2012, and 2013.
So far this year to July 29 the company’s stock has risen +23 percent, massively outperforming the NSE main stock benchmark which is down -11.95 percent in the same period.
Lafarge Africa is a major blue chip firm on the NSE with a market capitalisation of N450 billion, equivalent to about 4.3 percent of Nigeria’s entire equity stock market capitalisation.
The company currently trades at a price to sales ratio of 1.83 xs and P.E ratio of 11.3 xs, according to Bloomberg data.