Displaying items by tag: PPC
The creation of Lafarge Africa, the clearance of the Cemex West acquisition by Holcim in Germany and the sale of Lafarge's assets in Ecuador all hint at the scale of business that LafargeHolcim will command when it comes into existence. Despite the media saturation of coverage on the merger the implications in developing markets are still worthwhile exploring, especially in Latin American and Africa.
In sub-Saharan Africa, Lafarge is merging its cement companies in Nigeria and South Africa to create Lafarge Africa. Analysts Exotix have described the move as, 'the birth of a leading player on a continental scale'. Indeed, if Lafarge wanted to grow Lafarge Africa to encompass its many other African cement producing subsidiaries it could hold at least 17 integrated cement plants (including plants in north Africa) with a cement production capacity of at least 40Mt/yr in 10 countries and infrastructure in others. That puts it head-to-head with Dangote's plans to meet 40Mt/yr by the end of 2014 through its many expansion projects. Following these two market leaders would come South African-based cement producer PPC with its expansion plans around the continent.
Meanwhile across the Atlantic in Latin America the Lafarge-Holcim merger threatens Cemex. Unlike in Africa where Lafarge has a ubiquitous but disparate presence, Lafarge and Holcim's cement assets are more evenly scattered around the Caribbean, Central and South America. In terms of cement production capacity Cemex and Lafarge-Holcim will both have around 30Mt/yr, with Cemex just in front. The next biggest cement producers in Latin America will be Votorantim (present mainly in Brazil) with just over 20Mt/yr and Cementos Argos (Columbia) with about the same. This includes some new acquisitions in the United States for the growing Columbian producer. In Ecuador Lafarge and Holcim held over 50% of the market share, hence the sale by Lafarge of its assets to Union Andina de Cementos for US$553m.
Depending on how well the merger integrates the two companies, corals the various subsidiaries and implements strategic thinking the merger could just create business as usual with little disruption to the existing order. Yet in both continents the merger has the opportunity to shake up and reinvigorate the cement markets as existing players suddenly discover serious new competition and react accordingly.
Africa has a population of 1.1bn and it had a Gross Domestic Product (GDP) of US$2320/capita in 2013. South America had a population of 359m in 2010 and a GDP of US$8929/capita. This compares to US$27,250/capita in Europe and US$54,152/capita in the US. The economic development potential for each continent is humongous. Post-merger, LafargeHolcim will be first or second in line for some of this potential in Latin America and Africa.
Zimbabwe: PPC Zimbabwe reports that its domestic sales for the first five months of 2014 have fallen by 5% compared to the same period in 2013. Managing director Njombo Lekula blamed the drop on a decrease in housing projects.
"For the past few years there has been significant growth in housing, which boosted cement demand, however, the current economic situation is beginning to have an impact on home building activities," said Lekula in comments reported by The Herald.
PPC Zimbabwe now intends to sell its excess production in neighbouring countries. However, Lekula pointed out that Mozambique has a 'very competitive' market due to imports from the Far East via the port of Beira. In addition the cost of logistics to reach this market is an issue for the cement producer. PPC Zimbabwe are also considering targeting Zambia but logistics and the fluctuating price of the Kwacha have posed challenges.
PPC Zimbabwe intends to start building a US$200m cement plant in the north-east of Zimbabwe in 2014. The company has also started constructing clinker grinding plants near Harare and Tete, Mozambique. Currently, PPC Zimbabwe has a cement production capacity of 0.76Mt/yr. The new projects are expected to increase capacity to 1.2Mt/yr.
Rwanda: South Africa's PPC has said that it will begin the commissioning of its 0.60Mt/yr cement plant in Rwanda by the end of 2014, while construction of new plants in the Democratic Republic of Congo (DCCR), Zimbabwe and Ethiopia continues.
South Africa: PPC has announced that when the next round of PPC salary adjustments takes effect in October 2014, company CEO Ketso Gordhan would earn only 40 times more than his lowest-paid worker.
When Gordhan took over as CEO in January 2013 he was earning 120 times more than his lowest-paid worker. However, the company's drive to reduce the earnings differential had reduced this to a multiple of 48. This followed Gordhan's US$96,370 pay cut in October 2013, while the remuneration of his top 60 managers was frozen so that the wages of the cement maker's 1200 lowest-paid workers could be raised.
Gordhan said that he would not take a pay increase in October 2014 and PPC's other executives would be awarded increases of about 4.5 - 5%, less than the usual 6.5%. This would allow the minimum total pay package at PPC to be hiked to nearly US$1060. According to Gordhan, the 40-times multiple was seen by many as 'a justifiable spread.'
The company's new black economic empowerment (BEE) deal, which gives employees 12% share ownership in the company, could generate as much as US$193m for PPC's employees over five years if share price targets of US$5.78/share are reached.
The company's new BEE deal is a restructure of its 2008 deal, which was designed around broad-based trusts but was complicated and costly. The new BEE deal involves the issue of ordinary shares to the PPC Phakamani Trust and the issue of a new class of perpetual preference shares, to be used to raise capital to fund the unwinding.
South Africa: PPC has announced that in the first-half of its 2014 financial year, which ended in March 2014, its profit grew by 52% as the company consolidated its foreign units and increased its exports to counteract declining domestic sales.
Net income for the six months grew to US$47.2m from US$31.1m for the same period in 2013. Operating earnings before a number of one-time items rose by 3% to US$84.6m, while sales grew by 9% to US$398m.
Cement sales in South Africa were negatively impacted by a platinum mining strike and heavy rains during the period. Sales volumes in the north west of the country, where many of the platinum mines are located, fell by 25% in the first six months of PPC's reporting period and are not expected to recover in the near future.
"Improvements in export sales and the consolidation of sales from our Rwanda operation and newly-acquired Safika Cement business were partly offset by declining sales volumes in South Africa and Botswana," said chief executive Ketso Gordhan. PPC said that it remains optimistic that cement sales volumes will improve.
To combat a slow domestic market, PPC is expanding across Africa, including in countries such as the Democratic Republic of Congo (DCR), Zimbabwe, Algeria and Mozambique, to boost foreign sales to 40% by 2017.
PPC said that Zimbabwe's economic slowdown had caused 'in-country liquidity constraints,' resulting in a fall in cement demand. Despite the slowdown, analysts have said that the country's infrastructural deficit presents immense opportunities for cement makers. PPC is investing US$12.4m to expand its cement plant in the country and plans to construct a 0.70Mt/yr cement plant under its subsidiary, PPC Zimbabwe. PPC also plans to retire two 'less-efficient' mills at its Bulawayo plant. "The new mill in Harare gives a competitive advantage and a phased capital expenditure approach reduces risk," said Gordhan.
Gordhan said that PPC plans to construct a US$200m clinker plant on the border with Mozambique and a cement plant in Tete, Mozambique.
In the Democratic Republic of Congo (DRC), PPC is investing US$280m to build a 1Mt/yr cement plant in the west of the country. The plant is currently under construction. PPC will assume 69% ownership of the plant, while the Barnet Group will own 21% and the International Finance Corporation will own 10%.
Hodna Cement Company, in which PPC has a 49% interest, plans to construct a 2Mt/yr cement plant near Sétif, Algeria to be constructed by China's Sinoma. "We are optimistic that we will be on site by the end of 2014," Gordhan said. Algerian cement demand is estimated at 22Mt/yr.
South Africa: PPC's new black economic empowerment (BEE) deal has shifted the beneficiary base from broad-based trusts to the company's employees themselves, using the 'proximity principle.' The new transaction will increase the company's staff ownership to 12%.
This follows a move in 2013 to close the income inequality gap through an executive pay freeze that bumped up the salaries of lower-paid workers. CEO Ketso Gordhan said that the company has spent time on the ground with its employees, who have shown an appreciation for being listened to. Whether PPC will follow this up with further executive pay cuts and freezes remains to be seen, though Gordhan has said that the company intends to reduce the wage differential further.
Algeria has been steadily building up cement industry interest over the past few months. In late 2013 Lafarge opened its fourth world research laboratory in Algiers. Then this week South African producer PPC confirmed its intention to enter the local market with a new plant and German construction firm ThyssenKrupp announced an order to build a cement plant for Groupe Industriel des Ciments d'Algérie.
According to United States Geological Survey (USGS) data, Algeria saw its cement production more than double from 9Mt/yr in 2002 to 20Mt/yr in 2011. At present Global Cement Directory 2014 figures places the country's cement production capacity from 21Mt/yr with 30Mt/yr a reasonable estimate for 2017. Throw in similarly rising gross domestic product per capita, US$7500 in 2013, with infrastructure investments of US$286bn planned and Algeria appears to be a promising investment for the cement market.
Lafarge, which holds minority stakes in two cement plants in the country, reported that market demand was high in 2012. Its cement sales rose by 9% year-on-year in 2013. The other major foreign player, ASEC Cement, reported in its 2012 financial report that Algeria consumed 21Mt of cement in 2012 but that it had to import 3Mt that year. ASEC was planning to build a 3.16Mt/yr plant at Djelfa to plug that market gap. Yet news reports in early 2013 reveal that the project was paused due to financial issues at ASEC with the suggestion of a possible downgrade to a 1.5Mt/yr production capacity instead.
The decision by PPC to build in Algeria is the first big project by one of Africa's international sub-Saharan cement producers north of the Sahara. It steps away from PPC's expansion strategy so far of building projects out from South Africa. Hodna in Algeria is a long way from Johannesburg! It will also cause tension between PPC and whoever is supplying imported cement to Algeria, most likely indebted southern European producers. Both PPC and its Nigerian competitor Dangote are used to fighting foreign imports to their core markets. Data from the Algerian customs office show that the value of cement imports to Algeria in 2013 rose by 26% year-on-year to US$395m. That's a market worth fighting for.
Algeria: PPC announced its advanced plans for entry into the Algerian cement market on 24 February 2014, through a partnership with Algerian private investors that would see it own a 49% stake in the Hodna Cement Company.
The transaction will be funded on a project finance basis, with 80% debt funding from local banks, according to PPC. The stake, which was bought for an undisclosed amount, will see PPC assume management control of Hodna, allowing for the consolidation of the financial results of the project into the PPC group accounts.
According to PPC, Hodna will construct a 2Mt/yr cement plant for US$350m in the Hodna area, which is roughly 300km east of Algiers. PPC is already building cement plants in Ethiopia, Rwanda and the Democratic Republic of the Congo.
"This project sees us entering yet another African country and gives us confidence that by 2017, 40% of PPC revenues will be earned outside of South Africa," said CEO Ketso Gordhan.
"The Algerian cement market is very attractive, as consumption exceeds local production by approximately 3Mt/yr. Moreover, the Algerian government has committed itself to large-scale capital spending programmes, including the US$6bn New City Hassi Messaoud project, which will see the rollout of thousands of housing units," he said, adding that this would "certainly boost the demand of cement in this country."
The company said that once the feasibility study has been concluded, construction of the plant will take up to 30 months, with commissioning anticipated by the fourth quarter of 2016. As with its other expansion projects, PPC said it would engage China's Sinoma International Engineering as the contractor to supply and build the plant, supported by India's Holtec Consulting.
"With a population of close to 40 million people, of which 74% live in urban areas, combined with a relatively high GDP/capita of US$5582, Algeria still requires the construction of 225,000 housing units per year to meet demand. The national housing shortage in Algeria is estimated at 1.2m units," stated PPC.
Algeria: South African cement firm PPC has announced that it will buy a stake in an Algerian cement company as part of its drive to boost sales outside its home market.
PPC said that it will buy a 49% stake in Hodna Cement, which plans to construct a US$350m plant in the country. PPC did not disclose how much the deal will cost, but said that it will be funded on a project finance basis, with 80% of the debt to be sourced from local Algerian banks.
"This project sees us entering yet another African country and gives us confidence that by 2017, 40% of PPC revenues will be earned outside of South Africa," said PPC CEO, Ketso Gordhan. PPC is also constructing cement plants in Ethiopia, Rwanda and the Democratic Republic of Congo.
Both Dangote Cement and PPC have reminded the world about their development plans for sub-Saharan Africa. In the wake of PPC's yearly results on 19 November 2013 came a spotlight on the South Africa-based cement producer's international ambitions. Not to be outdone, Nigeria's Dangote Cement then put out a press release detailing all of its big development projects.
Dangote and PPC are set to go into direct competition when the Dangote subsidiary, Sephakhu Cement, opens its 3Mt/yr integrated cement plant at Aganang, North West province in early 2014. It will be the first time the Nigerian cement giant will be producing cement in the same country as its competitor in sub-Saharan Africa, PPC. The encounter will set the tone for the producers' next clash when they both open cement plants in Ethiopia in 2015.
Both the African cement producers are targeting a swathe of south to east sub-Saharan Africa from South African to Ethiopia. PPC, based in South Africa, has a presence in neighbouring Botswana, Zimbabwe and Mozambique. It has bought stakes in cement producers in Rwanda, Ethiopia and the Democratic Republic of the Congo and has new cement plants on the way in Ethiopia, Rwanda, Zimbabwe and the Democratic Republic of the Congo. In contrast to PPC's more 'organic' growth strategy from an established base, Dangote, with its existing presence in west Africa is about to enter this region. It has new projects planned in Kenya, Tanzania and Zambia, as well as in Ethiopia and South Africa.
To compare the financing behind each company's expansion, Dangote reported that it had committed US$884m for acquisitions in 2012. PPC intends to spend US$276m on capital expenditure in its 2014 financial year. If these figures from financial reports are correct, Dangote is spending three times as much as PPC on expansion. Dangote may have more money for expansion but PPC has long-standing presences in the region or has recently acquired them.
Dangote reported an 18% rise year-on-year in turnover to US$1.8bn in 2012. The same year its sales volumes increased to 10.4Mt from 8.66Mt in 2012. The company's installed cement production capacity was reported as 19.25Mt from three plants in Nigeria. In comparison, PPC reported a 13% rise in revenue to US$820m for its financial year to the end of September 2013. No exact cement productions figures were released but PPC said that cement sales increased by 7% in the period.
How Dangote and PPC spar in South Africa remains to be seen but one area where they may agree will be on imports. In its final results for 2013, PPC again highlighted the continuing threat of imports from Pakistan, mainly via Durban. Imports comprised 7.6% of national demand as of June 2013. In Nigeria in 2012 Dangote led successfully a campaign to cut foreign imports. Irrespective of increasing demand for cement, adding Dangote to the anti-cement import lobby in South Africa might well make space for a new producer.