Sale of Lafarge Africa’s SA unit may be on cards, say experts
CEMENT maker Lafarge Africa could put up its South African unit for sale this year and potentially use the proceeds to strategically shore up and stabilise its Nigerian business, experts have said, signalling potential mergers and acquisitions in the continent’s rapidly growing cement industry.
The cement industry in South Africa has increasingly become competitive while in the rest of the African market, Dangote Cement, PPC, Lafarge, Bamburi and Twiga Cement are seen consolidating their markets. Chinese investors have also been rushing to put up operations in markets such as Zimbabwe, where PPC and Lafarge already compete.
But experts at Exotix Capital say there is a “lack of sufficient visibility on the South African business” by Lafarge Africa. They add that Lafarge Africa “continues to struggle amid a tougher operating environment and internal operating challenges”.
In September last year, Lafarge Africa appointed Rossen Papazov as new country manager for South Africa, hoping that his experience “will be invaluable in guiding the company to address the challenges it faces in the highly competitive” industry.
Experts believe this has been difficult to achieve, hence sentiments that Lafarge SA will be put up for sale this year.
“Our view is that Lafarge Africa could channel proceeds from any potential sale of Lafarge South Africa Holdings towards stabilising and de-risking the Nigeria business, particularly as Lafarge South Africa faces headwinds from a weak operating environment and intensifying competitive pressures,” Exotix Capital said in a research note.
Lafarge has, however, not made an announcement about the sale of its South African unit. Other executives in the sub-Saharan Africa cement business told Business Report that they were not ruling out any mergers and acquisitions in the industry, including the top companies in Africa, although they said they were not privy to information about Lafarge Africa’s future.
In the 2017 first quarter period, Lafarge Africa said its operations in South Africa “were affected by lower volumes in the cement division”. The company was now geared to “focus on cost optimisation” in a bid to “restore” profitability.
Highly dynamic
“We do not have tangible information or moves from competitors or from the major shareholder itself about Lafarge SA being put up for sale. But this is a highly dynamic and competitive industry and anything is possible, even at the top of the market,” said one regional executive with a cement company.
Lafarge had ironically tabled an offer for PPC while Dangote Cement had also expressed a keenness to snap up PPC in 2017 although nothing materialised from the two bids. Dangote has been aggressive in its African expansion and has been building manufacturing plants across the continent, although Nigeria remains its major market.
Dangote is one of the regional cement companies being touted as a front-runner to bag Lafarge South Africa alongside others, such as Twiga and Bamburi, which are said to be more profitable and in a better financial position to turnaround fortunes at the South African cement manufacturer.
“Possible buyers could include Dangote Cement, Bamburi Cement (LafargeHolcim), and Twiga Cement (Heidelberg), as these firms are more profitable, generate stronger cash flow and are able to take on more debt to fund acquisitions,” the cement industry experts at Exotix noted.