• Thursday, March 28, 2024
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Updated: Lafarge Africa sells South African subsidiary to LafargeHolcim for $316m

Lafarge Africa proposes N1 dividend per share amid N212.9bn FY’19 revenue

Lafarge Africa plc has reached an agreement to sell the 100 percent equity interest held by the company in Lafarge South Africa Holdings (Pty) Limited (LSAH) to Caricement B.V. (“Caricement”), an indirect subsidiary of LafargeHolcim Limited for $316 million.

The sale is expected to extinguish the company’s foreign currency debt, bolster cashflow, and underpin profitability. It should also boost the company’s lagging share price, which is down 75 percent in the past year.

Lafarge Africa shares closed trading at N9.55, down 4 percent. There was no immediate impact as the news broke after the close of trading on Wednesday.

“Following the conclusion of the Proposed Sale, Lafarge Africa’s shareholder loan of $293 million as at July 31, 2019 (“Shareholder Loan”), which represents the only existing foreign currency loan in the books of the company will be completely extinguished,” Lafarge Africa said in a statement released to the Nigerian Stock Exchange (NSE).

The transaction is subject to the NSE Related Party Rules. The completion of the transaction is expected to boost Lafarge Africa’s cashflow and net income, given the reduction in debt service outflows; cut annual interest expense by N9.1 billion on account of the full repayment of the foreign currency inter-company loan; enable Lafarge Africa to reinvest in (and expand) operations in existing plants; enable the management of Lafarge Africa to devote attention to Lafarge Africa’s operations with higher profitability and prospects; strengthen Lafarge Africa’s balance sheet and position the company to improve overall profitability; and enable the re-rating of the company’s share price.

“It materially reduces the debt burden of the company because Lafarge South Africa Holdings (LSAH) has been a drag on Group’s performance,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited.

LSAH’s operations have been subject to shrinking demand in South Africa – an aggressively competitive market; between 2000 and 2007, demand was fuelled by increasing infrastructure spend which tapered off and eventually declined quite sharply.

Meanwhile, low growth indicators, growing budget deficits, declining infrastructure spend and reduced consumer discretionary income continue to constrain industry volumes and characterise the downward trend in South Africa’s building materials sector.

Lafarge Africa will present the terms of the transaction to the shareholders for consideration at the 60th Annual General Meeting of the company, as Special Business, which will be voted on by way of an ordinary resolution in accordance with the Companies and Allied Matters Act (CAMA).

Lafarge Africa’s cost control has helped the company return to profit whilst strengthening earnings before interest taxation depreciation and taxation (EBITDA), according to its first quarter (Q1) 2019 financial statement.

The cement maker posted a profit after tax of N3.14 billion in March 2019 from a loss of N2 billion it recorded in the corresponding period of 2018 despite a 2.64 percent reduction in sales.

Operating profit, otherwise known as EBITDA, increased by 34.72 percent to N8.24 billion in March 2019 from N6.25 billion the previous year.

Cost of sales reduced by 3.73 percent to N60.34 billion in the period under review as against N62.64 billion the previous year, while total operating expenses reduced by 12.88 percent to N9.80 billion in the period under review.

Cost of sales ratio fell to 76.83 percent in March 2019 as against 77.67 percent the previous year, which means the company has spent less on input cost to produce each unit of product.

Total debt in the balance of Lafarge Africa was N284.22 billion as at March 2019, which represents a 12.69 percent increase from N252.90 billion incurred in 2018, but the debt amount could shrink after the debt structuring exercise.

Debt to equity ratio (D/E) ratio fell to 126.30 percent in the period under review from 188.0 percent the previous year; this means the cement marker’s debt are 1.26 times equity in 2019 as against 1.88 times shareholders fund in 2018.

D/E ratio means the proportion of debt in the capital structure of a company. A firm finances its operations through the use of equity, which is money raised from owners, and debt, capital borrowed from either parent company or financial institution.

A very high D/E ratio could result in financial risk, which is a state where a company is unable to meet its obligation.

Michel Puchercos, Chief Executive Officer of Lafarge Africa, said that the recent Rights Issue together with the divestment of the South African Operations will deleverage the cement maker by N246 billion ,enabling it to fully repay U.S denominated Shareholder Loans and short-term naira overdraft.

“This will support Lafarge Africa’s ambition to accelerate the execution of its Strategy 2022 and to fully focus on the development of the Nigerian market,” said Puchercos.

LSAH, a member of the LafargeHolcim Group, was established in 1998 and manufactures and supplies cement, aggregates, ready-mix concrete and fly ash in South Africa. LSAH became a wholly owned subsidiary of Lafarge Africa following the Company’s acquisition of a 100 percent stake in LSAH in 2014.

The consideration that Lafarge Africa paid for the acquisition of LSAH was settled by way of cash of US$200 million and the allotment of 724,758,803 ordinary shares in Lafarge Africa; to Financiere Lafarge SAS1.

 

BALA AUGIE