Displaying items by tag: Indonesia
Indonesia: Semen Indonesia has signed a sales and purchase agreement worth US$917m to buy a 80.6% share of Holcim Indonesia. The acquisition gives Semen Indonesia a production capacity of 53Mt/yr making it the largest cement producer in south-east Asia, according to the Antara news agency. Prior to the purchase it had a capacity of 38.2Mt/yr and Holcim Indonesia had a capacity of 14.8Mt/yr.
Sigit Wahono, the temporary head of the Semen Indonesia Communication Department, said that the company is planning to increase its exports from 10% of total sales at present. It exported 860,060t in 2017. To the end of October in 2018 it had exported 2.3Mt, comprising 1.25Mt of cement and 1.1Mt of semi-finished cement. Its main targets are Bangladesh and Sri Lanka, with the majority of imports coming from Indonesia but 0.7Mt coming from the group’s subsidiary in Vietnam.
LafargeHolcim sells in Indonesia
14 November 2018LafargeHolcim announced its plans to sell its business in Indonesia to Semen Indonesia this week for US$1.75bn. The deal covers four cement plants, 33 ready-mix plants and two aggregate quarries. It is part of its portfolio assessment scheme with a target to divest assets worth Euro1.7bn in 2019. At the current exchange rate, if the deal completes next year, then that’s most of the target met. Job done.
But wait just a moment. Global Cement Directory 2018 data has Holcim Indonesia’s cement production capacity listed as 11.9Mt/yr. Just taking the integrated cement plants into account and then recognising that the subsidiary has an 80.6% share in the business, puts the cost at a little under US$120/t of production capacity. The other concrete and aggregate assets can only reduce this figure as their value is taken into account. Then, don’t forget that Holcim Indonesia also operates two cement grinding plant: one at Ciwandan in Banten and a mothballed unit at Kuala Indah in North Sumatra. Nor did a cement terminal in Lampung and a cement warehouse in Palembang receive a mention. Holcim Indonesia placed its total cement production capacity at 15Mt/yr in its 2017 annual report. Take that figure into account and one gets a value of below US$100/t for the cement production capacity of Holcim Indonesia. It seems unlikely that LafargeHolcim has undervalued its assets but somebody somewhere must be taking a loss on this deal.
Earlier in the year we looked at LafargeHolcim’s options in Indonesia following speculation in the local press that it was considering selling. Our conclusion was that market overcapacity wasn’t going away anytime soon and LafargeHolcim had a publicly stated desire to sell its assets around the world to cut back its overheads towards profitability. The subsidiary made a loss in 2016 and this tripled to US$58m in 2017. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) have fallen in consecutive years since 2015. LafargeHolcim has opted for the bold option to totally leave the market of one of the world’s top ten national cement producers.
From its perspective, Semen Indonesia said that it was looking forward to taking on-board Holcim Indonesia’s co-processing technology and rolling it to its other plants. Holcim Indonesia’s alternative fuels and recycling subsidiary, Geocycle, processed 0.36Mt of waste fuels in 2017, a 23% year-on-year rise from 0.30Mt in 2016. Semen Indonesia also has plans to submit a mandatory tender offer for the remaining share of Holcim Indonesia. It expressed pride at the transaction making it the biggest cement producer in South-East Asia with a production capacity of 53Mt/yr but it didn’t say exactly where it plans to sell its products.
Graph 1: Domestic cement consumption in Indonesia, 2010 – 2017. Source: Indonesian Cement Association (ASI).
That last bit is important. Since the Holcim Indonesia assets and Semen Indonesia’s plants don’t seem to overlap too much geographically it seems likely that the competition authorities will approve the deal if they can overlook the state-owned company owning over half the country’s production capacity. Indonesian Cement Association (ASI) data put sales at 66.4Mt in 2017, giving a capacity utilisation rate of 84% using the Global Cement Directory’s national capacity of 79.3Mt/yr or 61% using the ASI’s figure of 108Mt/yr for 2017. ASI data shows that local cement consumption grew by 7.6% year-on-year in 2017 following five years of slowing growth. So far, growth for the first half of 2018 seems slower at 3.6% year-on-year to 30.1Mt. These figures may have prompted LafargeHolcim to make its final decision to exit the country suggesting that there is no end in sight to the poor market.
LafargeHolcim’s decision to leave Indonesia seems sound but the selling price seems low and it is walking away from a large market. Either the production assets are old, the market is worse than we think it is or something else is going on. That said though, LafargeHolcim has taken decisive action that should ultimately benefit its bottom line.
Indonesia: LafargeHolcim has signed an agreement with Semen Indonesia to sell its 80.6% share of Holcim Indonesia for US$1.75bn. The assets to be sold to Semen Indonesia include the entirety of LafargeHolcim’s operations in Indonesia, which consists of four cement plants, 33 ready-mix plants and two aggregate quarries. LafargeHolcim says it decided to divest Holcim Indonesia as part of the on-going portfolio review. Closing of the transaction is subject to customary regulatory approvals.
“As part of our Strategy 2022 – ‘Building for Growth’ we have committed to divestments of at least Euro1.8bn. Today’s announcement is an important milestone in reaching our target and to increase our financial strength,” said Jan Jenisch, chief executive officer (CEO) of LafargeHolcim.
Indocement operating income down so far in 2018
01 November 2018Indonesia: Indocement’s sales revenue rose by 2% year-on-year to US$713m in the first nine months of 2018 from US$696m in the same period in 2017. However, its operating income fell by nearly a third to US$35m from US$97m. The subsidiary of Germany’s HeidlebergCement reported that its cost of sales rose in the reporting period.
Anhui Conch on finance hunt for terminal in Indonesia
02 October 2018Indonesia: China’s Anhui Conch is looking for finance to support a US$105m terminal it wants to build in Palembang. Yu Jun, a project manager at the cement producer said that the project will be able to import and export 0.4Mt/yr and it will have a berth for ships of 3000DWT, according to Inside International Industrials. The company hopes to secure funding by the end of February 2019.
Scramble for LafargeHolcim’s Indonesian unit
17 August 2018Indonesia: The sale of LafargeHolcim's Indonesian unit has sparked the interest of several potential buyers in the region. Names in the ring include Japan's Taiheiyo Cement, Malaysia’s YTL Corp and Indonesia’s PT Semen Indonesia, according to Bloomberg reports that cite unnamed sources. PT Indocement Tunggal Prakarsa is also reported to be interested. Bloomberg reports that LafargeHolcim could seek as much as US$2bn for the unit, which has 15.5Mt/yr of capacity across seven plants.
First cement plant coming for Central Sulawesi
16 August 2018Indonesia: A Chinese company, in cooperation with PT Banggai Citra Lestari, has announced that it will build a cement factory in the district of Banggai, Central Sulawesi. It will be the first cement factory in the Province.
"We already carried out a survey for a location in the sub-district of Balantak and we already have the mining license," said Budi Kurniadi, CEO of PT Banggai Citra Lestari at a meeting with Central Sulawesi Governor Longki Djanggola. He was speaking alongside the project manager Wang Yong.
Kurniadi announced that his company and the unnamed Chinese partner would build a factory with a production capacity of 9.0Mt/yr of cement. Governor Longki Djanggola said he appreciated the plan and pledged to facilitate implementation of the project.
Lafarge Indonesia barge spills coal on beach in Aceh
08 August 2018Indonesia: A barge delivering coal to Lafarge Indonesia’s cement plant at Lhoknga, Aceh has spilled around 7000t coal on a beach in Northern Sumatra. The barge was delivering coal to the plant at the end of July 2018 when it ran aground, acccording to the Antara News Agency. Lawyers representing local environmental groups have demanded that the subsidiary of LafargeHolcim be legally responsible for the cleanup operation.
Cemex joins the divestment party
01 August 2018Cemex joined the divestment party this week with the news that it plans to sell up to US$2bn worth of assets by the end of 2020. Put that together with LafargeHolcim’s own divestment plan of selected assets worth up to US$2bn as part of its Strategy 2022 and there is potentially a lot of cement production infrastructure going on sale over the next few years.
Both companies say that they will start announcing the latest round of divestments in the second half of 2018. Prices vary considerably around the world - and remember this is not only cement - but at, say, US$250m per integrated plant that could amount to 16 units. That’s a big enough manufacturing base to build your very own cement production empire! So, which markets might the two companies be considering leaving?
Cemex’s weaker areas in its half-year report were its South, Central America and the Caribbean region and, to a lesser extent, its European region. The former reported falling sales, cement volumes and earnings. The latter reported falling earnings on a like-for-like basis with issues noted across cement, ready-mix concrete and aggregate business lines in the UK. Back in Central and South America, problems were noted in Colombia due to a 10% fall in cement sales in the first half. An important point to make here is that despatch figures from the National Administrative Department of Statistics (DANE) out this week suggest that Colombia’s overall cement market has picked up since April 2018 (see Graph 1), in contrast to Cemex’s experience. Panama, meanwhile, saw cement volumes wither by 22% due to the 30-day strike by construction workers. Other operations to consider for the chop might include Cemex Croatia, which the company attempted to sell to HeidelbergCement and Schwenk Zement in 2017, before the European Commission put an end to that idea.
Graph 1: Annual change of cement despatches in Columbia in 2017 and 2018. Source: DANE.
When asked directly during its second quarter results call which assets it was intending to sell, chief executive officer (CEO) Fernando Gonzalez didn’t answer on commercial grounds. What he did say though was that the company had faced ‘headwinds’ in the Philippines, Egypt and Colombia, particularly in relation to fuel prices. He also said that Cemex had finished its market analysis, that it knew exactly which assets it would like to sell already and that it was in ‘execution’ mode. In Gonzalez’s own words, “we do have a number of assets to be divested, either because they are low growth, or because they are not necessarily integrated to other business lines.”
As covered a couple of week ago, the obvious location for LafargeHolcim to exit is Indonesia. CEO Jan Jenisch continued to refuse to comment on rumours that the company was leaving the country during its second quarter results call. Yet, local production overcapacity, falling earnings and profits and an underperforming but still sparky market make it the ideal candidate. What Jenisch did reveal was that the country had ‘positive momentum.’ Perhaps more importantly he added, “We are not selling because we want to sell. We are selling for high valuations only.”
Other potential locations for LafargeHolcim to leave might include Brazil and parts of the Middle East and Africa. Brazil’s cement market recovery has been a few years coming and was delayed again by a truck drivers’ strike in May 2018. The Middle East Africa area was the worst performing region in LafargeHolcim’s mid-year results with problems noted in South Africa.
With all of this in mind we have a rough idea of what Cemex and LafargeHolcim might be considering selling. The obvious candidates for both companies seem to be solid markets that promise growth after a period of underperformance. Just like Colombia and Indonesia in fact. Looking at the track record for both of them in recent years Cemex has seemed to be more ready to sell individual plants such as the Odessa and Fairborn plants in the US to different buyers. LafargeHolcim for its part has generally gone for larger more complete sales of regional or country-based chunks of its business such as in Chile or Sri Lanka.
Finally, don’t forget that Cemex’s Fernando Gonzalez said in March 2018 that the company was considering acquisitions again after a decade of austerity. He mentioned an interest in India and in Brazil. If he meant that last one then maybe he should give LafargeHolcim’s Jan Jenisch a call.
Should LafargeHolcim sell in Indonesia?
11 July 2018Holcim Indonesia was forced to refuse to comment on rumours this week that it might be selling up. Local business press in the country was running stories that parent company LafargeHolcim was in the early stages of a possible divestment. Although the stories seemed pretty spurious, Holcim Indonesia’s share price rose on the news.
The situation is reminiscent of an anecdote attributed to the former US president Lyndon Johnson by Hunter S Thompson about making a political opponent deny a ridiculous rumour. If they don’t respond then it looks like they have something to hide and if they do engage with a denial then they look silly anyway. In Holcim Indonesia’s case, as soon as the cement producer actually refused to comment the story gained more credence.
Part of the reason why the Holcim Indonesia story has legs is because LafargeHolcim has said it plans to make divestments of Euro1.7bn in 2019. There is rampant production overcapacity in Indonesia. The territory is exactly the kind of place you might expect LafargeHolcim to consider leaving. As recently as early in 2017 Semen Indonesia, the main producer, was showing the gaping production capacity – consumption gap in its investor presentations with no catch-up until at least 2020. Romauli Panggabean, an analyst for Bank Mandiri, was even more blunt in a forecast for the Jakarta Post in mid-2016. She ran a model predicting that if production capacity doubled to 150Mt/yr by 2017 then it would take the market until 2032 to catch up with an assumed 7% construction growth rate. Panggabean’s simulation seems to massively overstate capacity growth in the country as Global Cement Directory 2018 data places integrated (clinker) plant capacity at 79.3Mt/yr. By comparison the Indonesia Cement Association (ASI) placed cement production capacity at 108Mt/yr in 2017. Both of these figures are far below 150Mt/yr.
Graph 1: Domestic and export sales in Indonesia, 2013 – 2017. Source: Indonesia Cement Association.
The graph above sets the scene for the capacity wobble worries in 2016 and 2017 as sales growth faltered. It picked up in 2017 with domestic sales rising by 7.6% year-on-year to 66.4Mt. Sales so far in 2018 support this trend, with domestic sales growing by 6.4% to 21.06Mt for January to April 2018. The other trend to note here has been the explosion in exports in recent years with a near doubling to 2.93Mt in 2017 and an accelerated continuation of this trend so far in 2018.
Holcim Indonesia operates four integrated cement plants at Narogong in West Java, Cilacap in Central Java, Tuban in East Java and Lhoknga in Aceh with a production capacity of 15Mt/yr. In addition it runs two cement grinding plants at Ciwandan in West Java and Kuala Indah in North Sumatra respectively, although this last unit is currently mothballed. It also owns cement terminals in Lampung and a new one in Palembang in Sumatra.
LafargeHolcim owns an 80% share of Holcim Indonesia, its main subsidiary in the country. In 2017 Holcim Indonesia described the local situation as one of ‘hyper competition’ due to market overcapacity. Production capacity was over 100Mt/yr but consumption was only 70Mt/yr. Its overall cement sales volumes including exports rose by 7.8% year-on-year to 11.1Mt in 2017 from 9.6Mt in 2016. But despite this its net sales fell slightly to US$953m due to falling prices as new competitors entered the market. Its earnings before interest, tax, depreciation and amortisation (EBITDA) also fell. The positioning of its production units is relevant in Indonesia given the concentration of sales in Java but the faster growth in sales rates and higher competition in other regions.
Both of the other market leaders, Semen Indonesia and Indocement, reported similar problems in 2017 but they don’t appear to be looking to make cuts. Put it all together in LafargeHolcim’s case and you have a group-level desire to sell off parts of the business, overcapacity locally with no end in sight in the short to medium term, falling earnings and profits and some hope that consumption is heading back to its normal brisk rate. All of this seems to suggest that now would be the perfect time for it to exit Indonesia if it decided to. So, if LafargeHolcim isn’t already soliciting offers then maybe it should be. The tough call would be deciding whether to leave the country altogether or to just sell a share of the business. Leaving totally would significantly reduce the group’s presence in South-East Asia and reduce its profile as a truly global player. However pride and money-making are not the same thing. In the meantime though, the only people making a fortune will be the speculators.