As a responsible corporate citizen, we are committed to walking the talk on sustainability
Lolu Alade- Akinyemi is Chief Financial Officer of Lafarge Africa Plc., in this interview with Ademola Asunloye, of BusinessDay Conferences and Events, he affirms that the consistent success of Lafarge is solely dependent on the relentless efforts and commitment of its high performing team. He also shares insight on the growth opportunities in Nigeria’s cement industry. Excerpts:
Last year, Lafarge announced that it will invest 7.3 million Swiss francs to modernize its production facilities. We would like to know, how is the upgrade going?
We successfully commissioned the ESP bag filter upgrade project in June 2021. We embarked on this project in Q4, 2020, with the primary objective of significantly reducing dust and carbon emission in our South West operations. We had to shut down one of our plants for 8 months, underscoring our commitment to sustainability and our resolve to build a world that is greener, smarter and that works for all. ESG is not just a cliche for us. As responsible corporate citizens, we are committed to walking the talk on sustainability.
Lafarge recently redeemed its N33.6 billion bond in June. This significantly frees up your balance sheet. And against the backdrop of improved performance, what is on the investment and expansion horizon for the company?
We paid off the Series 2 of the bond programme in June 2021. Further deleveraging our balance sheet whilst significantly reducing our finance costs, improving shareholders’ earning per share and providing the headroom for future capacity expansion.
We see significant growth opportunities in Nigeria. Just looking at the relatively low cement consumption per head in Nigeria compared to other countries in Africa gives an overview of how big these opportunities are. In addition, the infrastructure and housing gap and the possibilities of alternative use of cement within the construction industry give us room for significant expansion. Our immediate priority is to debottleneck and unlock our existing capacity and play an integral part in the economic development of Nigeria.
Despite the pandemic, Lafarge was able to deliver a very strong result for 2020 (30.8% up from 2019), what do you identify as the key drivers of this performance and how can it be sustained for the benefit of shareholders who are getting a final dividend of 100k per share?
We delivered a solid result last year. The cement market was strong and resilient despite the economic challenges caused by the pandemic. Nonetheless, the real estate industry continues to offer attractive investment returns compared to some other sectors in the economy.
We are proud of the performance of our team. We were able to proactively capture and realise market growth opportunities by leveraging on our strong brand, our upgraded distribution network and well-advanced digital footprint. This competitive advantage enabled us to offer value-added products and services to our customers and consumers.
Despite the challenges with FX volatility and inflationary pressure, the impact on our margins was partly mitigated by the rollout of our health cost and cash initiatives which looked at opportunities for cost optimization, industrial excellence, fuel efficiency, more effective management of strict working capital and free cash flow. We also challenged all discretionary and non-discretionary expenses.
FX fluctuations and the recent devaluation of the Naira has had a very negative impact on the financials of many Nigerian manufacturers that source their equipment or raw materials from abroad, what strategies are being employed by Lafarge to cope with this?
The FX volatility challenge impacted virtually all manufacturing companies in Nigeria – in terms of both Naira / Dollar pricing and Dollar supply in the market. This had a significant impact on our cost baseline and the lead time of our CAPEX projects. Most of our cost lines are either indexed to dollars or sourced in dollars; gas, raw materials like gypsum, trucks for distribution, spares and equipment for our plants just to name a few.
Whilst we forge ahead with exploring other cost savings opportunities to minimize the impact of FX fluctuation, we will continue to work with the CBN through our banks to ensure we remain resilient and future-fit. It is very important for us that we consistently honour payment commitments to our foreign suppliers. In the medium to long term, our strategy is to reduce our FX dependency through backward integration and local sourcing initiatives.
Going back to 2020, the year where many of us were forced to work from home, how have you adapted your business processes to nowadays?
Our health cost and cash initiative were not just only focused on financial performance, per se, it was also focused on the well-being of our employees and stakeholders. In line with the Holcim group directive, we established the business resilience task force that coordinated the development, implementation and the day to day oversight of the COVID protocol for all employees and stakeholders.
We are very proud of our teams for their dedication and commitment during this challenging period where many employees had to work from home. Our productivity level was stabilized even at the peak of the pandemic due to the dedication of our people and their capacity to adapt to evolving challenges in our operating environment.