Barely two weeks ago, Lafarge Cement WAPCO Nigeria (Lafarge WAPCO) plc held its 55th annual general meeting where landmark resolutions where taken to place the company on a higher radar.
With over a thousand shareholders in attendance at the imposing structure and large hall of the City Hall Lagos better explains the impressive profile of Lafarge WAPCO.
The meeting was special, with its combination of ordinary and special businesses as it threw weight behind achieving Lafarge Africa deal and steps to making its stocks available at the stock market.
The ordinary course of the meeting included presentation of the audited report and accounts for the year ended December 31, 2013, declaration of a dividend, election and re-election of directors, authorisation of the directors to fix the remuneration of the auditors and election of audit committee members.
The unusual turnout at the meeting, including the presence of retail and institutional shareholders, was more about the special business than the ordinary business of the meeting.
The meeting, no doubt was expected to be turning point and the last to be held as Lafarge WAPCO plc.
One after the other, shareholders spoke extensively on the performance of the company, driven by its chairman, Olusegun Osunkeye who is unarguably one of Nigeria’s iconic boardroom gurus.
Sola Abodunrin, chairman, Ibadan zone Shareholders Association (IBZA), noted the historic performance of Lafarge WAPCO and commended the impressive year-on-year growth.
Sunny Nwosu, national coordinator, Independent Shareholders Association of Nigeria (ISAN), lauded the performance of the company and assured that shareholders would continue to support the management.
Timothy Adesiyan, president, Nigeria Shareholders Solidarity Association (NSSA), expressed satisfaction with the company’s performance and the increase in dividend. Goodluck Akporie of Onitsha zone Shareholders Association pointed out that Lafarge WAPCO has continued to demonstrate that it values its shareholders.
Nonah Awoh, a shareholder activist, further enlivened the meeting with his usual scrutiny.
Boniface Okezie, president, Progressive Shareholders Association of Nigeria (PSAN), also commended the board and management of the company “for a job well done.”
Interesting at the meeting was that nearly all shareholders agreed that the fundamental performance of the company was satisfactory.
Accordingly, everyone was interested in the decision-making. With 11 resolutions of the special business, Lafarge WAPCO plc sought to consolidate its impressive corporate and brand heritage into a new era of pan-African presence. The special business was the proposal by Lafarge to consolidate its cement businesses in Nigeria and combine them with South African operations to create a leading sub-Saharan building materials giant to be known as Lafarge Africa plc (Lafarge Africa). The consolidation would be done by transferring Lafarge’s assets in South Africa and Nigeria to Lafarge WAPCO plc.
Under the transaction, Lafarge Group will transfer its direct and indirect shareholdings in Lafarge South Africa Holding Limited of 72.4 percent and its equity stakes in three other cement companies in Nigeria – United Cement Company of Nigeria Limited (35%), Ashaka Cement plc, (58.61%) and Atlas Cement Company Limited (100%) to Lafarge Wapco for a cash consideration of $200 million and the issuance of some 1.4 billion Lafarge Africa shares to the Lafarge Group.
Lafarge Africa, which would retain Lafarge WAPCO’s subsisting listing on the Nigerian Stock Exchange (NSE), is estimated to have an initial market capitalisation of over $3 billion (about ₦468bn), making it the sixth largest company on the NSE by market capitalisation.
Contrary to known antics of majority shareholders to seek to influence such historic decisions, Lafarge demonstrated uncommon restrain and commitment to ensure minority shareholders decide the necessity, shape and course of the consolidation.
While the Osunkeye-led board of directors could have lumped the special business into a single, loosely worded resolution to give the majority shareholder (Lafarge), the opportunity to play around their whims on the consolidation, the company listed out each resolution separately for shareholders to decide on.
Many analysts believe this showed transparency and equity around the important decision.
The first four resolutions related to the acquisition of the shares of the different entities and the shares and payments made in exchange. Resolution five sought approval for a new capital issue of ₦100 billion, while resolution six dealt with listing of additional shares on the NSE. The seventh resolution was on the increase in authorised share capital of the company from ₦2.287 billion to ₦5 billion, and the reflection of this new capital in the Memorandum of Association.
Resolution eight sought to increase the number of directors from 13 to 17 in order to reflect the enlarged nature of the business. Resolution nine was to include a provision that requires special resolution for set amounts of capital for capital expenditure, loans and guarantees. The 10th resolution was on the change of Lafarge WAPCO’s name to Lafarge Africa plc, while the 11th resolution rounded off by empowering directors to take necessary actions to effect earlier resolutions.
Lafarge WAPCO had delivered exceptional performance – net earnings grew by 92 percent in 2013, prompting the board of directors to recommend and receive shareholders approval for a 175 percent increase in the dividend per share to ₦3.30 for the 2013 financial year, as against ₦1.20 paid for the previous year. This underlined continuous growth for investors who had received dividend per share of 75 kobo for the 2011 business year.
Turnover increased by 12 percent to ₦98.8 billion as against ₦87.9 billion in 2012. Lafarge WAPCO’s new ready-mix concrete business contributed ₦1.6 billion to the total turnover. The company not only focused on increasing its turnover but has ensured that its operational costs were curtailed without compromising on service to its customers. The strong operational performance and efficient working capital management resulted in an increase in cash holdings of ₦11.5 billion. With the company being in a more cash positive position, it was able to reduce its debt by 42 percent, paying off its variable rate medium term syndicated naira and foreign currency loans ahead of tenor. Accordingly, the company witnessed a significant reduction in interest expenses from ₦5.5 billion to ₦3.8 billion and its debt position in 2013 closed at ₦21.5 billion, comprising a fixed rate corporate bond and a power intervention fund loan. The debt-to-equity ratio halved to 23 per ent in 2013, as against 55 percent in 2012.
The audited report and accounts of Lafarge WAPCO for the year ended December 31, 2013, showed that profit after tax grew by 92 percent to ₦28.2 billion in 2013, as against ₦14.7 billion recorded in 2012. Profit before tax grew by 30 percent from ₦21.3 billion to ₦27.7 billion. Consequently, basic earnings per share grew from ₦4.90 to ₦9.42, an increase of 92 percent.
Since the report containing the special business was laid together with the ordinary business, shareholders also took advantage of the opportunity to comment and seek clarifications on the emergent Lafarge Africa. All shareholders agreed that the consolidation was a strategic positioning that would deliver better value going forward. They tended to agree with Standard Chartered on its independent valuation and other salient issues in the consolidation.
In its independent assessment of the fairness and reasonableness of the valuations used in the share exchange ratios and considerations, KPMG, an independent professional firm, considered the valuation used in determining the share exchange ratio to be “fair and reasonable.”
Putting its opinion in perspective, KPMG explained that “fair market value and fair value referred to the highest price available in an open and unrestricted market, between informed, prudent parties acting at arm’s length and under no compulsion to act, expressed in terms of money or money’s worth”, as determined in the Lafarge WAPCO’s transaction.
Fairness, KPMG noted, is primarily based on quantitative issues while reasonableness is based on qualitative issues. In arriving at its decision, KPMG, which has acted for Nigeria’s Securities and Exchange Commission (SEC) in many landmark inquiries, stated that it conducted wide-ranging analyses and used several valuation methodologies including discounted free cash flow method, market-based methods based on earnings before interest, tax, depreciation and amortisation (EBITDA), earnings before interest and tax (EBIT) and price to earnings and capacity multiples, and comparable transactions method, among other quantitative decisions and assumptions.
At the end, all the resolutions relating to the consolidation were passed by a significant majority of the eligible shareholders with approvals ranging between 78 percent and 98 percent.
Beyond the Lafarge WAPCO meeting and Lafarge Africa transaction, the decision to allow minority shareholders to determine the necessity or otherwise of such a significant transaction by Lafarge opened the chapter into a higher level of corporate governance, which the Nigerian capital market aspires. Nigerian capital market regulators – Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) are considering a new rule that will bar major shareholders, directors and their related persons and institutions from voting at specially convened meetings for significant related party interest transactions that require the approval of shareholders.
The new draft rules, which have generated heated debate, exclude all related and interested parties, entities, associates and proxies from exercising their voting rights, even where they hold fully-paid shares. The new draft rules, if finally approved, will represent a major paradigm shift from the current practice where such excluded persons and entities are allowed to exercise their voting rights and runs contrary to the general principle of one share or unit, one vote. The draft rules are yet to be approved and not yet in operation.
Iheanyi Nwachukwu
