Moody’s upgrades, affirms LafargeHolcim’s global synergy on Zambia’s profitability

With a positive perception of the strategic rationale behind the recent LafargeHolcim’s merger, ratings agency, Moody’s Investors Service, has affirmed the merged entity’s strong balance sheet by upgrading the erstwhile stand alone entity of Lafarge to Baa2.

According to a statement, market watchers have expressed optimism on the merger of the two building materials companies-Lafarge, the French giant and Holcim, its Swiss rival, noting that results are beginning to manifest as LafargeHolcim’s Zambian operations reported a jump in profits.

Indeed, with about €1.4bn in targeted synergies from the merger already confirmed, Lafarge Zambia Plc, a subsidiary of LafargeHolcim reported a four percent rise in profits in the first six months of 2015 to K187 million.

The firm also saw its sales turnover jump by 14 percent to K700 million over the same period, while Earnings per Share rose by 4 percent to ZMW 0.936.

“The Company is ready to leverage the benefits of belonging to such a strong Group. It is determined to keep its market leadership and continue to offer our customers the best quality products and services,” Lafarge Zambia Chief Executive Officer Emmanuel Rigaux said.

The $40 billion merger which was completed in July 2015, led to LafargeHolcim proclaiming itself “the world’s most advanced building materials company”.

“This brings the ratings in line with that of LafargeHolcim which has a stronger credit profile,” says Falk Frey Senior Vice President and lead analyst at Moody’s for Lafarge

“Moody’s generally views the strategic rationale of the merger as positive as the merged group will have an even more geographically balanced presence than former Holcim and Lafarge on a stand-alone basis. This business profile should provide a better resilience to cyclical swings in demand for cement, aggregates and ready-mix concrete in individual countries,” Frey said.

One the reasons the company would expect the world to believe this claim is its vast Research and Development capability, comprising 13 product development laboratories employing over 1,000 experts.

The global dimension of the merger has meant the new Group is benefitting from the size of its industrial network, which will facilitate optimizations.

There would also be a significant reduction in net debt of the combined company through divestitures, target for solid Investment Grade credit ratings, solid margins (c.24 percent post synergies) and an attractive dividend policy.

On a combined pro forma basis, LafargeHolcim sold 263 million tons of cement and 288 million tons of aggregates in 2014 with an installed cement production capacity of 386.6 million tons per annum.

On a pro forma basis, the group recorded net sales of CHF32.6 billion and an operating EBITDA of CHF6.7 billion for fiscal year 2014.

LafargeHolcim generates approximately 60 percent of pro forma 2014 revenues in emerging markets. The remaining 40 percent are generated in developed markets.

LafargeHolcim is a major player in the Nigerian market with significant or complete ownership of Ashaka Cement, Atlas Cement, Lafarge Ready-mix, UniCem and WAPCO.

The business continues to be known as Lafarge Africa Plc in Nigeria-Lafarge Africa Plc is a holding company of LafargeHolcim assets in Nigeria and South Africa-it’s HQ is in Lagos where it is listed on the Nigerian Stock Exchange.

“The merger would have a positive impact on the ongoing consolidation of the Nigerian operations of Lafarge,” Kayode Omosebi, a research analyst at Lagos based Investment Firm, United Capital Plc,“ he said.