The 55th annual general meeting of Lafarge Cement Wapco Nigeria Plc was both historic and transformational. In this situational report, Capital Market Editor, Taofik Salako reports that besides the large turnout and conduct of the meeting, including the use and supervision of an electronic voting system, the epochal decision by Lafarge Group, the majority shareholder, not to vote on the special resolutions containing significant related party-interest matters might herald new corporate governance standards for the Nigerian capital market.
On Wednesday July 09 2014, Lafarge Cement Wapco Nigeria (Lafarge Wapco) Plc held its 55th annual general meeting at the City Hall, Lagos. The choice of venue was instructive. With more than a thousand shareholders, the imposing structure and large hall of the City Hall was reminiscent of the impressive profile of Lafarge Wapco; Nigeria’s oldest and most diversified cement company. Lafarge Wapco’s cement had helped in building the City Hall. The meeting was special, with its combination of ordinary and special businesses. The ordinary course of the meeting included presentation of the audited report and accounts for the year ended 31 December 2013, declaration of a dividend, election and re-election of directors, authorization of the directors to fix the remuneration of the auditors and election of audit committee members.
But 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 was expected to be turning point- the last to be held as Lafarge Wapco. Accordingly everyone was interested in the decision-making. With 11 resolutions of the special business, Lafarge Wapco sought to consolidate its impressive corporate and brand heritage into a new era of Pan-African presence. The kernel of the special business was the proposal by Lafarge to consolidate its cement businesses in Nigeria and combine these 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. Under the transaction, Lafarge Group will transfer its direct and indirect shareholdings in Lafarge South Africa Holding Limited of 72.4 per cent 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 capitalization of over $3 billion (about N468 billion), making it the 6th 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 Chief Olusegun Osunkeye-led board of directors could have joined 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 decided to list out each resolution separately for shareholders to decide. This was to be the first of a number of higher standards and decisions to show transparency and equity around this important decision.
Thus, 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 N100 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 N2.287 billion to N5 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 tenth resolution was on the change of Lafarge Wapco’s name to Lafarge Africa Plc, while the eleventh resolution rounded off by empowering directors to take necessary actions to effect earlier resolutions.
With the national anthem sang, the chairman opened the meeting and the notice of the meeting was read. The chairman laid the annual report and accounts to the meeting and the circulated chairman’s statement – included in the annual report – was noted as read by shareholders as well as the auditors and audit committee’s reports. Then the meeting moved to shareholders’ comments, questions and observations; the ordinary business of the meeting went on smoothly as expected. Lafarge Wapco had delivered exceptional performance – net earnings grew by 92 per cent in 2013, prompting the board of directors to recommend a 175 per cent increase in the dividend per share to N3.30 for the 2013 business year as against N1.20 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 per cent to N98.8 billion as against N87.9 billion in 2012. Lafarge Wapco’s new ready-mix concrete business contributed N1.6 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 N11.5 billion. With the company being in a more cash positive position, it was able to reduce its debt by 42 per cent, 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 N5.5 billion to N3.8 billion and its debt position in 2013 closed at N21.5 billion comprising a fixed rate corporate bond and a power intervention fund loan. The debt-to-equity ratio halved to 23 per cent in 2013 as against 55 per cent 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 per cent to N28.2 billion in 2013 as against N14.7 billion recorded in 2012. Profit before tax grew by 30 per cent from N21.3 billion to N27.7 billion. Consequently, basic earnings per share grew from N4.90 to N9.42; an increase of 92 per cent.
One after the other, shareholders spoke extensively and glowingly on the performance of the company. Chief Olusegun Osunkeye, unarguably one of Nigeria’s iconic boardroom leaders, was in his best element and gave several shareholders the long latitude to make their comments until the meeting started with a chorus of ‘progress’, ‘progress’; indicating shareholders were satisfied and ready to vote on the resolutions. At a point, Chief Olusegun Osunkeye had to request the management staff of the company to stand up and rightly take the credit – a loud applause, for the positive comments from shareholders.
Chief Sola Abodunrin, chairman, Ibadan Zone Shareholders Association (IBZA), noted the historic performance of Lafarge Wapco and commended the impressive year-on-year growth. Sir Sunny Nwosu, National Coordinator, Independent Shareholders Association of Nigeria (ISAN), also lauded the performance of the company assuring that shareholders would continue to support the management. In his remarks, Chief Timothy Adesiyan, president, Nigeria Shareholders Solidarity Association (NSSA), expressed satisfaction with the performance and the increase in dividend. Bishop Goodluck Akporie of Onitsha Zone Shareholders Association pointed out that Lafarge Wapco has continued to demonstrate that it values its shareholders. Shareholders’ activist, Mr Nonah Awoh, spiced the meeting with his usual scrutiny and the contextual reference to Germany’s 7-1 world cup mauling of Brazil. Nearly all shareholders agreed that the fundamental performance of the Company was satisfactory.
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 and KPMG on their independent valuation, fairness 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 amortization (EBITDA), earnings before interest and tax (EBIT) and price to earnings and capacity multiples; and comparable transactions method among other quantitative decisions and assumptions.
Then came the voting for the 11 resolutions under the special business. Osunkeye announced that Stanbic Nominees Nigeria Limited, which has 11.29 per cent equity stake in its name, had requested for voting by polling rather than by show of hands and popular acclamation. The registrar to the company, City Securities (Registrars) Limited, had prepared for all options having provided the shareholders with electronic voting devices, which were registered alongside the shareholders as they arrived for the meeting. Osunkeye requested Akintola Williams Deloitte to scrutinize the polling. Then came the announcement that Lafarge, the parent company which holds 60 per cent majority equity stake, had decided to abstain from voting on the 11 special resolutions, the first-ever decision by a majority shareholder. That left the fate of Lafarge Africa and the consolidation, which Lafarge also strongly believes in, solely in the hands of minority shareholders. Most observers and market analysts saw the decision by Lafarge as a new chapter in best practices and corporate governance as well as a mark of confidence that the transaction was fair and acceptable to any discerning investor on its own terms. In the end, all the resolutions relating to the consolidation were passed by a significant majority of the eligible shareholders with approvals ranging between 78 per cent and 98 per cent.
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 Nigeria capital market aspires. Nigerian capital market regulators-Securities and Exchange Commission (SEC) and 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. Checks with both SEC and NSE indicated that Lafarge voluntarily opted to abstain from voting and allow minority shareholders to vote on the resolutions. While the consensus appears that the Nigerian market is not ripe for such rules excluding major investors, who take the largest risks, from voting on crucial issues, market analysts have hailed Lafarge’s decision as a model example of voluntary compliance and submission to highest ideals. Managing Director, Chapel Hill Denham, Mr. Bolaji Balogun noted that while the decision by Lafarge should not be used to institute such compulsory exclusion of major shareholders from voting on major issues as this could be counter-productive to efforts to win companies to list on the NSE as well as entrepreneurial development, the decision by Lafarge is commendable.
Besides, that minority shareholders were the ones that passed the Lafarge Africa transaction speaks volume of the widespread support and acceptability of the consolidation and its terms of exchange. Incorporated in Nigeria in 1959 and listed on the NSE in 1979, Lafarge WAPCO has one of the largest and most enlightened shareholder bases. One of the highest-priced and most capitalised companies on the NSE, Lafarge Wapco’s shares are among the most widely traded. Latest shareholding analysis showed that sundry Nigerian shareholders hold the second largest equity stake in the Company at 23.67 per cent. Odu’a Investment Company Limited, the investment company of the South-West states, holds 5.04 per cent while Stanbic Nominees Nigeria holds 11.29 per cent, totaling 40 per cent.
Most shareholders in Lafarge Wapco are retail investors, which further underscore the importance of their votes in favour of the consolidation. Retail investors have no institutional benefits other than their dividends and capital gains, which can only come from continued growth and price appreciation. Thus, they tend to be nervous with disruptive changes to the normal course. They are, however, receptive to changes with promises of better returns. According to the shareholders’ analysis, more than 30 per cent of the over 60,000 shareholders of Lafarge Wapco hold between one and 500 shares while some 55 per cent hold between 501 and 5,000 shares. Unlike major shareholders, directors, staff, related parties and advisers, the only swing for the multitude of minority shareholders is the fairness and reasonableness of the deal, and that’s what swayed the votes for Lafarge Africa. As it completes the regulatory processes, Lafarge Africa is taking off with widespread shareholders’ supports and the honour of higher corporate governance standards.
