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Lafarge WAPCO shareholders reap dividend of loan refinancing

May, 31 2012

(Nigeria)  --  The board of Lafarge WAPCO Cement, last week, restated commitment to its investor-centric nature, providing opportunities for shareholders to ask questions and get answers, not just at the yearly ritual of a general meeting in Lagos, but an earlier forum where the very senior officials of the group ensured everyone present was carried along.

The company’s chairman, Chief Olusegun Osunkeye, for example, explained at the AGM that the dividend, which rose from 25 kobo in 2010 to 75 kobo, could even have been more, but for the ongoing repayment of principal and interest on the loans obtained to undertake the “Lakatabu” capacity expansion project.

This means, he told the shareholders, “that in order to conserve cash for loan repayments we need to exercise restraint in the level of increase on dividend pay-out”.

Realising the burden that interest payment could become, Osunkeye said the company started a refinancing initiative last year, to limit its impact on the loans obtained for the project. This started with accessing “the Central Bank of Nigeria (CBN) Power and Aviation Intervention Fund (PAIF) to refinance the portion of the variable loans spent to construct the 90 Mega Watts power plant.

“The CBN through the Bank of Industry (BoI) approved and disbursed the sum of N12.46 billion as loan to (Lafarge WAPCO) under the PAIF. The tenor of the loan is 10 years, and at a fixed interest rate of 7 per cent per annum.

“Secondly, (there was the issuance of valued at N11.88 billion) three-year fixed rate corporate bond at 11. 5 per cent per annum in October 2011 utilized to further refinance part of the expensive existing variable interest loan,” he added.

Continuing, Osunkeye said both facilities, helped the refinancing initiatives, achieving “a more balanced loan portfolio with significant potential for the interest cost reduction”.

Also speaking on the initiative that would ensure the loans are repaid within record time, thereby ensuring Lafarge WAPCO is able to pay competitive dividend very soon, Fred Amobi, its Finance Director, assured that things are already looking up for the company judging by its impressive first quarter score-card recently released to the Nigerian Stock Exchange (NSE). This, he believes, is the foundation of capacity expansion and internal efficiency decisions by the group.

Addressing journalists, on the sidelines of an investor’s forum held a fortnight ago in Lagos, Amobi stressed: “If we did not take the decision to refinance the huge bank loans, we would have been paying to the banks the money we are making. We are even working further to reduce interest cost. This is an exciting year for us (at Lafarge WAPCO).”

On how this would affect shareholders, Amobi assured that “going forward, we cannot go below the 75 kobo paid this year. It (dividend payout) is going to be progressive,” he stressed.

Earlier in his keynote address at the 2012 shareholders’ forum, Lafarge’s Country chief executive (covering Nigeria and Benin Republic), Jean-Christophe Barbant, applauded the Federal Government’s backward integration policy, that is now poised to make Nigeria self dependent in cement soon.

The policy, he said, has come with different initiatives, following which Lafarge is “poised to leverage on these opportunities by looking into many exciting and future projects (including new possible capacities in cement).”

The start-up 2.5 million metric tons per annum Ewekoro 11 Plant codenamed “Lakatabu,” produced its first bag of cement on September 16, 2011, bringing the company’s total capacity to 4.5 million, he explained further, was the fruit of the initiative. This, he said, has now resulted in “attendant benefits to the group’s business, while helping the country’s self-sufficiency stature in cement.”

Whereas the operating environment has been tough, he said the group creatively managed the challenges through rigorous focus on cost reduction, and the use of its own 90 mega watt power generation plant in Ewekoro, in addition to exploring cheaper energy options like gas, coal and non-fossil fuels, and the development of less energy intensive recipes for cement production.

“The benefit of these cost reductions is that we have been able to increase our margins without increasing our sales price, therefore keeping to our commitment of making oru cement affordable to our customers,” he said.

Also speaking, Joseph Hudson, managing director, Lafarge WAPCO restated the company’s determination to ensure viability and long-term sustainability of the business, in addition to significant improvements in financial results.

Continuing, Hudson told shareholders that Lafarge WAPCO’s plan for the future “involves focusing and consolidating on key areas of health and safety, customer orientation and innovation.”

The company, he added, is also keen on initiatives that would help maintain profitability, expressing confidence that the management and staff will continue to take pragmatic steps that will steer it in the direction of value generation to all stakeholders.

Hudson further assured that the company would continue selling products that can be trusted, while contributing to the growth and development of the nation.

 

Facts in numbers

According to the audited result deliberated upon at the AGM, turnover in 2011, grew by N18.661 billion or 42.56 per cent from N43.841 billion to N62.502 billion, while cost of sales stood at N42.898 billion, in addition to distribution and administrative expenses of N7.956 billion, compared with previous year’s N5.071 billion. Profit before tax at N10.219 billion, rose by N1.755 billion or 20.73 per cent, just as net profit stood at N8.509 billion, an improvement of N3.628 billion over preceding year’s N4.881 billion. Of this amount, the directors distributed N2.25 billion as dividend.

The company explained that turnover rose on the back of the “approximately 37 per cent increase in the volume of cement dispatched for the year, compared with 1.6 million metric tonnes recorded in 2010”.

Osunkeye said based on estimates from industry experts, Nigeria has an estimated deficit of 16 million housing units, and that should the Federal and State Governments, as well as the private sector make significant efforts to bridge half of the estimated deficit, there would be a significant rise in cement consumption based on this premise.

The chairman told the gathering: “Nigeria’s road network also present a significant opportunity for the cement sector. According to available estimates only approximately 30 per cent of the existing road network is paved in comparison to approximately 63 per cent average for emerging countries.

“The completion of the Lakatabu capacity expansion project therefore favourably positions the company to benefit from these potentials,” he stressed.

Also speaking at the AGM, Hudson assured shareholders of increased performance in the coming years, saying the company would ensure that its dividend policy is sustained. A further assurance that the 2011 performance is sustainable, he noted, is the 2012 first quarter outing with turnover rising to N22.6 billion, an increase of 59. 28 per cent from previous first quarter’s N14.198 billion, due to the new capacity. PBT grew even faster, rising N5.965 billion from N2.09 billion, an increase of about 185.41 per cent, while net profit also improved by a significant 151.14 per cent from N1.621 billion in the corresponding period of 2011 to N4.071 billion.

Reacting to the result, analysts at FBN Capital noted in a report to clients: “We suspect that the company has stepped up its sales efforts, branching out from its core market in the south-west region to other parts of the country including the north, Niger-Delta and south-east.

“Pending confirmation from management, we believe that the margin expansion of 1,160bps y/y, beyond operating leverage reasons, also benefited from reduction in energy costs arising from the company’s new 90MW power plant and a higher utilisation of cheaper gas fuel relative to low-pour-fuel-oil in the company’s energy mix.

Meanwhile, reacting to presentations at the AGM, National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, commended the board and management for the Lakatabu project that is a guaranty for far juicier returns on investments for the future.

“We are very happy with the progress being made in the company. The board and management are   responsive to the advice given to them and this has helped. We believe that future will be very rosy,” Nwosu said.

By Kingsley Ighomwenghian
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