‘Our investment in alternative fuel to improve production cost, aid outlook’
BRUNO BAYET is the Chief Financial Officer, Lafarge Africa. Last month, the building materials and solutions firm kicked off the process to raise N90 billion via a Rights Issue in a bid to restructure outstanding short term shareholder loans and strengthen the company in Nigeria. In this interview with FEMI ADEKOYA, he provides insight on the sector and the company’s plans.
What is your outlook for the construction sector in the year 2019?
In year to Q3 2018, overall domestic demand for cement was approximate up by more than 10% on same period for 2017, albeit, coming from a low base. Industry expectation is that 2019 will see a continuation of growth in demand assuming stability of oil price and oil production as well as quite transition during the political elections.
What is Lafarge Africa’s cement demand growth expectation for 2019?
The National Bureau of Statistics (NBS) has just released Nigeria’s Real Gross Domestic product (GDP) figures for Q3’18. Gross Domestic Product (GDP) grew by 1.81% year-on-year in real terms in Q3 of 2018. This is positive for our market.
Our outlook for the cement market in Nigeria remains favourable. In South Africa, we expect the execution of our turnaround plan will continue to yield positive results. All our product lines, including new product lines, are also expected to contribute to our improved performance in 2019.
LafargeHolcim’s new Strategy 2022 – Building for Growth – aims to drive profitable growth and simplify the business to deliver resilient returns and attractive value to stakeholders. In full view of the trends in our industry and marketplace, we have developed a strategy that plays to our unique strengths as a company and will shift gears towards growth of the top and bottom line over the next five years.
Your Rights Issue is priced at N12 per share. At this price, is it really beneficial for shareholders to take up the rights?
The Rights Issue is designed to help us lessen debt burden and position the Company for future development. Lafarge stock is currently at a 52-week low in line with the bearish trend at the NSE. Before now the stock had reached a 52-week high of N47. Many investment analysts agree that Lafarge’s shares hold upside potential which means it is very beneficial for investors to take up our shares.
Our Investment in energy efficiency, our new route to market strategy and enhanced logistics system; all part of our turnaround plan are bearing results and will position Lafarge for strong growth in the years to come.
While the N90bn Rights Issue is necessary to lessen your debt burden, how will you deal with the remaining debt in future?
We are committed to addressing any impediment to our earnings with positive impact on our ability to service all of our debts. The proceeds from the N90bn Rights Issue will help reduce financial expenses as we will pay off high-interest local currency debt.
Operational challenges in South Africa are being addressed already with the turnaround plan that has been set in motion. We have begun to see the benefits of the execution of the turnaround plan as the trend of operational loss was reversed in Q3 2018 and this trend is expected to continue provided there are no reversal to the recent exit of the economy from recession as it grew by 2,2% in Q3 2018. Our plants in South Africa will benefit from this return to growth.
While your ongoing restructuring/turnaround activities across the group appear to be yielding results, the associated costs remain elevated, with continued negative pass-through to margins and profitability. How will this be addressed?
We expect finance charges to be lower after the Rights Issue. The impact of the Rights Issue will be positive on both our earnings and the balance sheet. Furthermore, the terms of the shareholder loan are favourable to Lafarge Africa with attractive interest rate and a 2-year moratorium on the interest payments.
Do you foresee any risks to your finances relating to movement in oil prices and Foreign exchange as well as power supply?
No, we are hedged against currency risk. We are also successfully investing in alternative fuel which has become a major contributor to improvements in cost of production.