Nigeria: Analysts Blame Lafarge Africa's Dwindling Financial Fortune On Merger

17 September 2018

The persistent decline in earnings of Lafarge Africa Plc has been blamed on combination of the company's business with that of South Africa in 2014 to create an enlarged group.

Lafarge Group had in 2014 announced the combination of its businesses in Nigeria and South Africa to create a leading Sub-Saharan Africa building materials platform, which resulted in formation of LafargeHolcem a year after.

Following the successful merger between the two global cement giants, LafargeHolcim became the majority shareholder in Lafarge.

However, analysts at Cordros Securities Limited, a Lagos based investment house, said that looking back, Lafarge WAPCO was better alone, arguing that the business combination did not only result in increasing operating cost, but dilution of shareholders' value.

They noted that earning per share has also been on consistent decline, falling from N9.04per share reported by WAPCO in the year ended December 31, 2013 to negative N6.04 as at the end of 2017, eroded by high restructuring and financing costs.

"The 2013 proforma financials show that WAPCO's standalone EBITDA margin of 37 percent was a lot bigger than the combined entity's 27 percent EBITDA margin. And more instructively, WAPCO's PBT margin was 28 percent in 2013 while Ashaka Cement's and UniCem's were 13 percent and five percent respectively.

"Operating costs have increased significantly following the merger and acquisition at a four-year Compound Annual Growth Rate, CAGR of 20 percent faster than revenue CAGR of 10 percent. From N21.5 billion in 2013, the total debt reported by Lafarge increased to N287.6 billion in 2017, with finance costs increasing accordingly. Besides, earnings have also been beset of efficiency issues in recent years, and revenues have not been supportive," the analysts said.

"The experience has been worse for shareholders when viewed with respect to share price performance. We estimate that the Merger and Acquisition, M&A resulted in the dilution of the share of minority shareholders' stake in the old WAPCO to 22 percent currently (our estimate), from 40 percent pre-merger level," they added.

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