The Country Chief Executive Officer (Nigeria), Lafarge Africa, Plc, Mr. Micheal Pucheros, spoke with Nosa Alekhuogie on his current involvement with the company and sundry issues in cement manufacturing
Tell us about yourself and background?
My name is Michel Puchercos, I am a French national and an engineer by training.
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 in Europe, Asia and Africa. 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 the 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.
What are your visions and what experience are you bringing into Lafarge Nigeria?
This balance experience is really useful in terms of strategy and operations. So performance improvement is very important for someone with a strategic vision to prepare the future and balance. The year 2016 was a very challenging year from operations stand point, gas shortage, foreign exchange issues, to name a few. These are real operational issues when you have no gas to run the plant, what do you do? These are typically short term decisions. Now if you look at it, what does it mean for Lafarge in Nigeria to face these gas shortages, how do you anticipate the future? This is where operational skills and strategic vision can help and I bring this balance being able to harness both. I bring to some extent some knowledge of Africa. I am very humble. I know that East Africa is not Nigeria, I know I have only four years of experience in East Africa so I would not say I know Africa but it helps and having seen from customers point of view, if you go to south Korea, 95 per cent of cement is sold in bulk tankers to ready mixers, this is on the extreme. On the other hand, I would say in Nigeria, 95 per cent is sold as bags, few percentage to contractors and very small quantity to ready mix. So, I have seen the extreme end and I know where we stand at, so it helps me see the way forward because I know this is the way the market will change.
I am not here to change the narrative because this is a natural transformation of the cement market all over the world.
It started with bags then retail and distribution then it moved to contractors, infrastructures, develop, then you end up in Europe, Asia or United States of America with ready mix. With this being very strong, cement is sold to ready mix then being in the ready mix business becomes a very strategic decision . I guess this is why my predecessors started developing ready mix in Nigeria to anticipate that move and be closer to customers so this commercial experience is what I bring to Nigeria.
What are your projections for Lafarge in the year 2017?
Recession is impacting the country, foreign exchange scarcity is also impacting a lot on top of the recession itself and usually when a country enters recession for sometime, the cement market would not be impacted or to some extent cement market may enjoy the recession because people would start building. If there is recession it is better, but there is a limit because recession keeps on biting then this is when the cement market keeps decreasing, suffering from recession and at the opposite when economy starts picking up then you have some lagging effect because you have projects which takes time to prepare, the financing, approvals then again you can see the consumption restarting later. So the timing of the crisis and the timing of the cement market are different.
We can say the beginning of 2016 was good but then we are suffering from the recession with the cement market declining. I don’t see the country getting out of recession (immediately) but I am happy to know how other people see things in terms of recession. If the recession does not end in 2017, I expect cement market in 2017 to be depressed and the market would grow very strongly maybe three to six months after recession ends. I do not know when recession would end so it is very difficult to tell you much about 2017,I know we are suffering now and if recession stops, the cement market should re-start very strongly because if you look at it long term, Nigeria is really a wonderful market for cement players. You have 180 million inhabitants, low consumption, you have needs for infrastructure, needs for housing, you have resources, oil, gas,also, on the agriculture side, you are powerful.
Before 1970, Nigeria was feeding the whole Africa so I am sure it would happen again. There are lots of resources and as a consequence, consumption being low today compared to other countries in terms of standards so there is no doubt that Nigeria has huge potentials in terms of cement market and using that potential might be the issue.
We are quite optimistic that all the indices will get better in 2017, and there will be overall improved performance.
In terms of expansion, what is the impact of your integration on the volume you are expected to do in Nigeria?
This integration basically is in the case of UniCem, Ashaka and WAPCO were already part of Lafarge.
Unicem was more complex in structure and engineered by 50 per cent LafargeHolcim when it is part of Lafarge Africa, WAPCO and Ashaka.
One of the benefits is speeding up exchange of best practices and bringing all elements to the highest standard in our group be it safety or production and it also helps to bring in Capex and sharing resource in terms of human resources so that all three can enjoy the best pool of talents. These are the intentions and what I see happening, Nigeria is a complex country, there are different tribes and religions and managing assets in the Yoruba region, Efik and others makes it more difficult .These has to be underground to pay attention to these local differences which are very important if you want to be successful not just coming with already well thought through ideas in the corporate level.
How have you managed competition so far?
All competitors have over capacity including ourselves because we have just inaugurated a brand new plant in Calabar. The formal inauguration has not yet taken place but from the technical standpoint, it was successful in terms of budget and delivering technical performance is over the specifications. It is a very successful investment in terms of shortages. For mid- term integration and performance, this is more important and to prepare the future in the best way possible. 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 plant which impacted our results very badly as we have explained to financial journalists in our first quarter , second quarter and third quarter results.
We changed dramatically our production scheme by introducing more flexibility by using coal and to some extent LPFO so that we have what is called fuel flexibility and even though gas supply as we know is not back to a 100 per cent since July we are able to run all our cues using diversified sources of energy. It doesn’t 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 is much more important than the cost which we produce the cement.
On the power side, you saw the investment we announced at Ashaka with the plans to produce power, we have seen our set up in the East and West in other to compensate some weaknesses the national grid has and we are better off producing our own electricity so it’s a relief .We have to be self -sufficient because the nation needs a lot of energy. The very key investment was the one at Ashaka which the kick off was last month.
Your results have been negative, how do you intend to improve on this going forward?
We suffered in 2016 from both internal and external issues. External issues, mainly the gas shortage, but also the foreign exchange situation and internally, mainly, we suffered from all sorts of industrial issues with maintenance not properly done and also like I just explained when you don’t have the fuel flexibility, you may suffer from that translating to lack of production if you don’t have enough gas which of course impacts the results. So we have been addressing these items one after the other. So, in the case of the fuel flexibility, we have increased the industrial output so that July through November, the plants can record high production volume. I believe if these problems are behind us, logistics would improve as well. Transporting cement is a challenge knowing that the road conditions are very bad and the trucks are breaking down constantly and if you want to bring in new trucks then you face the foreign exchange issue. So we worked on fuel flexibility, industrial issues, logistics, foreign exchange. If you remember, N500 million loan on UniCem and we were able to turn it into equity which does not impact profit and loss anymore. We negotiated credit lines with the group, in other to be able to pay our suppliers even though there is a local foreign exchange crunch and last but not the least, we also improved industrial fixed cost by significant reduction. So with improvement in all these fields, let’s wait to see the Q4 results which should not be too disappointing.
How do you access doing business in the Nigerian environment?
This is a very complex environment and more than complex, it is also a very promising environment. Our locations in the North, South, South east and South west. We are in a very promising region, Ashaka in the north, north east and government wants to develop the North east, we have a plant in the North east. South west, we have double capacity and ready to grab all opportunities of development. For me, we have efficient plants well located and in all these regions we have potential which of course is hidden by the 2016 recession and foreign exchange. For the time being, we are coping with this situations. Of course if it becomes national drama, we would most likely be impacted as well but we are still managing, we have improved everywhere we needed to improve and the Q4 results would show it. We are just getting ready to grab the wonderful opportunity Nigeria offered us and will offer us for sure. No doubt, infrastructure, housing, roads, there are needs everywhere.
What do you have in the offing for corporate social responsibility (CSR)?
I used to say how many businesses, industries or shops in your life have you seen being 50 years or more in the same place. Hotels, restaurants do not stay 50 years in the same place, they close, reopen or move.
The cement industry in 50 to 100 years stay in the same place as well as the plant next to it meaning that if you do not live hand in hand with communities and people around you, you will never survive. It just not possible because these neighbours would be part of your life and vice versa because we have been so close to each other for decades unlike many other businesses as they have probably moved to other cities but we are the same place and so many people in calabar. So I feel social responsibility when discussing with people, the local government, I feel accountable doesn’t mean that I am perfect so we need to improve. For me, the CSR is as important as certain skills of our engineers because we have hundreds of trucks crossing villages, children crossing the roads when the trucks are coming, potential pollution. We are offering health services in Ashaka to the communities, people queuing up in the morning waiting for health services from our clinic. So, maybe, we are number two after the local government. This goes well beyond industry, efficiency, profit. It has been part of the local life. As I told you, when I was a young, I was a civil servant so I know what helping country development entails and giving your life to the nation and this is kind of filling an edge in the cement industry especially Nigeria of course calabar and Ashaka are much more important than anywhere else because we know they are the only ones employing people miles away all around.
With issues of foreign exchange in Nigeria, what solutions are being proffered to cushion this effect?
How do you manage risks in safety? The best solution is to eliminate the risks. In this case, how do you eliminate the risk, it is by buying more naira rather than dollar. It cuts across everything. If we can buy local coal, then we buy local coal and have local talents. I’m talking from my expertise side. So I know what I’m talking about in terms of preparing the future so when there are local talents you take local talents when you have loans, you find solutions either to turn them into naira to increase equity or you find ways of reducing the risks which is removing the US dollar and putting naira suppliers, having people pay in naira, so this is our strategy.
Another way is exports, because if that is done, we would have access to US dollar and it would help us. So we are exploring all these avenues and eliminating the risks.
Ashakacem, one of your operations in being delisted from the Nigerian Stock Exchange (NSE), what is the reason for is?
There are two reasons for this. One, we have the legal reasons and if I am not mistaken, we have 25 per cent free float to be listed and Ashaka currently has 15.03 per cent which is well below the level. The NSE, a couple of times have told us from a legal point of view that we are not abiding by the rule and we have to do something. Delisting is the answer. Second reason is that we want to offer Ashaka shareholders a wider and better future. The company will not disappear but rather than being shareholders of a much smaller company with less financial capabilities, they are offered the opportunity to becoming shareholders of Lafarge Africa managing both north, south west and south east. So for me, its inviting them to a wider future much more promising and much more motivating so rather than being cornered in a small company we give them the offer of exchanging their shares for Lafarge Africa shares. It is a very attractive deal if you look at it from a financial point of view. So for them the exchange is interesting financially and the future is much more better because you sit around the table of a much wider community and you can enjoy potential of Nigeria.
So for me we are offering them, to be part of a bigger better future with more opportunities.
How much of your raw materials are sourced locally?
I can tell you lime stone is sourced here a hundred per cent and it is the number one raw material, when I said we should use local coal, this was my answer to you. Iron-ore comes locally already. Honestly, everything we can source locally, we do it. As for remains and spare-parts, sadly there is no skills in cement industry in Nigeria, so most of the spare parts come from abroad. Some talents when we need to recruit people which I don’t know if it can be equated to raw materials, but everything that needs to be sourced locally is sourced locally.
What impact is the opening of the Calabar plant expected to have on your production capacity?
The production capacity expected is 2.5 million tonnes capacity more. Honestly, knowing that today’s total market is impacted by the recession, it looks like it is not the perfect time to bring in capacity but with my experience in cement I know it is the right time to bring in capacity is recession time because then you are ready when the market picks up, but when you wait for the market to start then, you are already late because it takes three years to build up the capacity and when you are three years late, you can fulfil the customer’s needs. So I’m very happy to have this capacity available now because I know when the market starts in 2017, 2018, we are ready to supply 2.5 million tonnes more. Of course as we produce more, at the same time we buy more local materials, we have more transport and we give more work to local people and local communities.
With the number of collapsed building incidents in recent times, what is your view on this?
The issue of collapsed building comes from ready mix. It doesn’t come from cement. It is more of the contraction techniques which are not properly handled and the concrete design was not well done then we have the perfect answer to this question because we have already mixed network, skills in terms of mixed design and capability to teach. So for me, the best way to avoid collapsed building is to buy ready to mix from Lafarge Africa because you have the right mixed design for proper use, be it foundations, first floor, second floor and we are discussing with construction companies to know their real needs in other to provide the concrete which needs technical requirements including the laboratory to test the quality and we have the best lab in terms of concrete analysis to provide the right specifications for every single job.