‘We’re strategically positioned to tap the wonderful opportunity Nigeria offers’
Since coming to Nigeria in April as Country CEO for Lafarge Africa Plc, Michel Puchercos has brought his wealth of operational, strategic and commercial experience garnered over the years to bear on the company’s operations with a view to delivering value to customers and shareholders. In this interview with CHUKS OLUIGBO, assistant editor, Puchercos shares his views on the Nigerian business environment as it affects the cement industry, the challenges of 2016, his projections for 2017, LafargeHolcim’s long-term commitment to doing business in Nigeria, and how the company is weathering the storm of economic recession using innovative solutions.
You came to Nigeria in April as Country CEO for Lafarge Africa. What’s your background and what experience are you bringing on board?
I am an engineer by training, and a graduate of Ecole Polytechnique, and the National School of Rural Engineering, Waterways & Forests, France. I have worked in South Korea, Kenya and Uganda, Tanzania, and France, and speak various languages including French, English, Korean, Spanish and Swahili. In the course of my career, I have had extensive operational and strategic experience both at junior and senior levels with small and medium organizations, cooperatives and multinational organisations. I had worked in the French Ministry of Agriculture, and later as general manager and executive vice president in the biochemistry and food industry, before joining the legacy Lafarge. I came into Lafarge as head, Strategy and Purchasing in Orsan, Lafarge Biochemistry, and in 1998 became director of Cement Strategy and Information Systems, Lafarge Gypsum. In 2003, I became director of Cement Strategy, Lafarge Group in France. I moved into cement operations in 2005 as the CEO for Lafarge operations in Kenya and Uganda while doubling as the chairman of Tanzania operations. After four years in sub-Saharan Africa, I moved to Asia as the president and CEO of Lafarge South Korea, where I remained for seven years. I came into Nigeria as Country CEO for Lafarge Africa Plc in April this year.
So, I bring to Nigeria commercial experience, operational experience, and strategic vision. This balanced experience, I think, is really useful. I also bring, to some extent, some knowledge of Africa. And I bring just my passion.
So far, what’s your assessment of the Nigerian business environment?
It’s a very complex but promising environment. The people are warm and committed. Nigerian cement market is dynamic and has great potential for continued growth, despite the current economic challenges. The huge population, low per capita consumption (about 100), low level of infrastructural development and massive desire for housing are positive indicators. Focus on infrastructure development by current government is also quite encouraging. Also by virtue of our locations – North, South-East and South-West – we are in very promising regions. The South-West and Lagos region is where the heart of Nigeria is. We have a plant in the North-East, Ashaka, and government wants to develop the North-East. In the South-West, we have doubled capacity and are ready to grab opportunities of development, and they are many. For me, we have efficient plants, well located, and in all the regions we have potential. Of course, this potential is hidden by the recession and foreign exchange crunch. For the time being we are still managing; we have improved everywhere we needed to improve and the Q4 results will show it. We are just getting ready to grab the wonderful opportunity Nigeria offered us and will offer us for sure.
2016 has been a very challenging year for businesses operating in Nigeria, with many reporting negative results. What has been the experience for Lafarge?
We suffered in 2016 from internal and external issues. Externally we suffered mainly gas shortage, increase in fuel costs, but also the foreign exchange situation, and internally we suffered from all kinds of industrial issues with maintenance not properly done, and also lack of fuel flexibility. Lack of fuel flexibility translates into lack of production if there is no supply of gas, which, of course, impacts the results. So we have been addressing these items one by one. We have improved the industrial output so that July through November the plants have reached record high production volume. We have improved logistics as well. Logistics is basic because you need to transport the cement, and it is a big challenge given that the road conditions are very bad and trucks are breaking down constantly, and if you want to bring in new trucks, you face the foreign exchange issue. So we worked on fuel flexibility, we worked on industrial issues, we worked on logistics, we worked on foreign exchange. And last but not least, we have also improved fixed cost – both industrial and administrative – by significant reduction. We have had a very positive, very promising and better cost performance improvement compared to last year. These problems are behind us. Let’s see the Q4 results; they should not be too disappointing.
One possible way of navigating the foreign exchange challenge is to source raw materials locally. How much of your raw materials currently come from Nigeria?
I can tell you limestone, 100 percent because limestone is number one raw material. It is totally local. When I said we should use local coal, this was my answer to you. Iron ore we source locally already. Honestly, everything we can source locally, we source locally – like some talents, when we need to recruit people. Sadly, most of our spare parts come from abroad.
There are also challenges with input, especially power and gas supply. What alternatives are you creating to overcome these challenges?
In terms of power and energy, we suffered in 2016 from lack of flexibility because when there was no gas, we could not run the plants – no gas, no cement. This, of course, impacted our results very badly – Q1, Q2 and Q3 results. We have changed our production scheme dramatically by introducing more flexibility in using coal, LPFO; that is what we call fuel flexibility. And even though gas supply is not back to 100 percent, since July we are able to run all our kilns using diversified sources of energy. That does not mean they are the cheapest, but we can produce, and at least the customers are not starving, and we are able to keep the relationship with them which, I think, is more important than the cost at which you can produce the cement. On the power side, we announced an investment in Ashaka with the captive power plant in order to produce power. We have similar setup in East and West, in order to compensate for some weaknesses the national grid has. And we are better off producing our own electricity; so it’s a relief as we free up electricity power so Nigerians can enjoy what the grid can provide. We have to be self-sufficient in this area because the nation needs a lot of energy. So it’s better we produce electricity by ourselves and a very key investment was the one in Ashaka which the kick-off was very recently.
What are your projections for 2017 and what do you intend to do to improve the company’s books and meet shareholders’ objectives?
Needless to say that recession is impacting the country. Foreign exchange scarcity impacts it a lot on top of the recession itself. And usually when a country enters recession, for some time cement market will not be impacted or to some extent cement market may enjoy the recession. But then, there is a limit because as recession keeps on biting, then cement market starts decreasing, suffering from the recession. Just to say that in 2016, at the beginning it was good, but then we are suffering from the recession with the cement market declining. If recession does not end in 2017, I expect cement market to be depressed, and I expect the market to grow very strongly maybe three to six months after recession ends. But I don’t know when recession will end; this is why it is very difficult for me to tell you about 2017. I know that now we are suffering, and if recession stops cement market would restart very strongly. If you look at it long term, Nigeria is really a wonderful market for cement players, with its huge population, low per capita consumption, infrastructural need, housing deficit. Nigeria has the resources. Is it oil? Of course, you know on the agricultural side, Nigeria is very powerful. Before 1970s Nigeria was feeding the whole of Africa and I’m sure it will happen again. So there’s a lot of hope that consumption will grow. Today, compared to other countries in terms of standard, there’s no doubt that Nigeria has huge potential in terms of cement market.
To the other question about how to meet shareholders’ objectives, for me it is simply by motivating the team for improved performance; by being anticipatory, and making the right investments within available budget. We also need to be mindful of our costs and avoid ‘business as usual’. Our NGN loan has been refinanced at a cheaper rate, while we are currently restructuring the USD loan. We are quite optimistic that all the indices will get better in 2017, and there will be overall improved performance.
Despite the challenges, how committed is LafargeHolcim to continue to do business in Nigeria?
It is a known fact that we have been in business in Nigeria for over five decades now. Following the backward integration policy of the government, our operations grew from 3 million tonnes in 2008 to 8.5 million tonnes in 2012, with investment of over €1 billion. Further investment of over $565 million is currently being made in the additional 2.5 million-tonnes capacity cement plant in Mfamosing, Calabar, Cross River State. The plant will be officially commissioned soon. With this, we have a combined capacity of 10.5 million metric tonnes of cement from our operations in Ashaka Cement (Gombe State), UniCem in Cross River State, WAPCO operations in Ogun State and Atlas Cement in Rivers State. We have announced plans and performed a groundbreaking ceremony for a 2.5 million-tonnes expansion in plant capacity at Ashaka. In addition, we are constructing an N11 billion captive power plant also at Ashaka, Gombe State. We are the leading ready-mix concrete producer through our Lafarge Readymix Nigeria operations in Lagos, Ewekoro, Abuja, and Port Harcourt, with plans to spread to other states of Nigeria in the near future to contribute innovative solutions to the building and construction industries. Outside the oil and gas and telecommunications industries, LafargeHolcim is the largest foreign investor in Nigeria.
You mentioned the Calabar plant which will be commissioned soon. How much economic sense does it make to bring in capacity to the market at a time of recession?
Knowing that today total market is impacted by the recession, it looks like it is not the perfect timing to bring in capacity, but with my experience in cement I know that the right time to bring in capacity is at recession time because then you’re ready for when the market picks up. When you wait for the market to restart, then you are always late because it takes three years to bring up the capacity, and then you are three years late and you can’t fulfil customers’ needs. I’m very happy to have this capacity available now because I know that when market restarts in 2017 or 2018, we’re ready to supply 2.5 million tonnes more. Of course, as we produce more, we buy more local materials, do more transport, and give more work to local people and local communities.
Ashakacem, one of your operations, is in the process of being delisted from the Nigerian Stock Exchange. Could this be as a result of the economic recession?
The delisting of AshakaCem is a transaction initiated by its Board of Directors. It is not due to the current economic recession, which we believe is a passing phase. There are two reasons. Number one is legal. Recent evolution of the shareholding of AshakaCem has meant that today, the free float (tradable shares) of the company on the NSE is below the minimum threshold permissible. Minimum free float permissible by the NSE listing rule is 20 percent, Ashaka currently has 15.03 percent. NSE told us a couple of times, ‘Look, from the legal point of view, you don’t abide by the rules’. The directors of the company decided to be proactive to launch a voluntary delisting rather than wait for a regulatory delisting.
Number two is that we want to offer Ashaka shareholders a wider and better future. First, the company will not disappear; the company remains, but rather than being shareholders of a much smaller company with less financial capabilities, Ashakacem shareholders are offered opportunity to become shareholders of Lafarge Africa managing both North, South-West and South-East. So, for me, it’s inviting them to a much wider story of a much more promising and much more motivating future. Rather than being cornered in a small company, we are telling them, ‘Give me your shares and I give you Lafarge Africa shares’, in an honestly very attractive deal if you look at it from the financial point of view. For them, the exchange is interesting financially and the future is much better because you sit around a table of a much wider community. So, this is what we are offering them: be part of a better future with more opportunities.
The media was recently awash with news of your recent SERAs Awards and the National Literacy Competition. What is the motivation behind your organization’s corporate social responsibility?
Our corporate social responsibility is neither philanthropic nor ad-hoc, but intrinsic to our business strategy with focus on the 2030 Plan, stakeholder management, community development, national CSR projects, volunteering, donations, and sponsorships. Lafarge Africa’s social investment for its host communities is needs-based, strategic, and highly sustainable. Our CSR approach recognizes the host communities as strategic partners to whom we accord mutual respect, believing that our footprints should, in its overall assessment, be a blessing to our neighbours. Lafarge Africa continually makes investments woven around health and safety, economic empowerment, education, shelter and community support as a good corporate citizen. Our track records speak volumes with several notable awards to show for them.