Displaying items by tag: Dangote Cement

UK: Nine cement and concrete companies have launched the Global Cement & Concrete Association (GCCA), a new association that intends to develop the sector’s role in sustainable construction. The association also wants to build innovation throughout the construction value chain, in collaboration with both industry associations and architects and engineers.

The GCCA will be led by international cement companies and headquartered in London, complementing and supporting the work done by existing associations at national and regional level. Membership of the GCCA is available for cement manufacturers from all over the world that share the organisation’s values, and partnerships will be developed with organisations that share its vision. GCCA’s founding members are Cemex, CNBM, CRH, Dangote, Eurocement, HeidelbergCement, LafargeHolcim, Taiheiyo and Votorantim. They represent 1046Mt of cement production capacity, according to the Global Cement Top 100 Report.

Nepal: The Department of Mines and Geology has technically disqualified Nigeria’s Dangote Cement from applying for three limestone mine licences in an open bidding process. The Investment Board Nepal (IBN) had approved the investment in 2013 before passing the application to the mining department, according to the Republica newspaper. Department deputy director general Ram Prasad Ghimire claimed that Dangote's proposals lacked essential documents on the required skilled manpower and it was not considered qualified for the next financial proposal.

Dangote Cement had applied for three mines: two in Dhading and one in Palpa. However, China’s Huaxin and United Cements recently won two limestone mining licences. Previously, Dangote Cement purchased a limestone mine in Makawanpur that was later found to be a substandard. The Nigerian company has also faced opposition from local producers who have described the country as being self-sufficient in cement.

The third quarter financial results for HeidelbergCement are out today. They aren’t perfect but the company is hanging in there following its acquisition of Italcementi in late 2016. As one would expect both cement sales volumes and sales revenue are up on a double-digit basis. After all, HeidelbergCement has absorbed a major competitor, including assets, staff, cement plants and all. Its volumes and revenue have improved, more importantly though, on a like-for-like basis, even if it is modest. With the US and Europe driving sales the cement producer has time to make its promised synergies following the Italian acquisition and hopefully wait out recovery in places like Indonesia and Egypt.

Graph 1: Cement sales volumes for selected multinational cement producers during the first nine months of 2017. Source: Company financial reports.

That growth on a like-for-like basis is crucial compared to HeidelbergCement’s big rival, the world’s biggest cement producer, LafargeHolcim. As Graph 1 shows sales volumes data for the major multinational cement producers shows quite a varied picture. LafargeHolcim’s sales volumes have fallen by 12% year-on-year to 156Mt but the company has also been reducing its production capacity. Despite this, a rough calculation of its production utilisation rate suggests that it is selling less cement proportionally, although the company’s like-for-like figures disagree, positing a rise of 1.8%. Cemex’s sales volumes declined slightly to 51.3Mt. The larger regional companies show interesting trends. UltraTech Cement has managed to increase its sales volumes by 5% to 40.4Mt overcoming a poor third quarter in 2016. What to watch here will be whether this will be enough to overcome the effects of demonetisation that rocked India’s economy in late 2016.

Graph 2: Sales revenue for selected multinational cement producers during the first nine months of 2017. Source: Company financial reports.

The stronger regional positions of those last two companies really hits home when sales revenue is examined. As can be seen in Graph 2 both UltraTech Cement and Dangote Cement are growing their sales revenue, the latter despite dropping sales volumes. UltraTech Cement is suffering from falling profits due to rising fuel costs and it may yet suffer from ‘corporate indigestion’ as it digests its acquisition of 21.2Mt/yr cement production capacity from Jaiprakash Associates that took place in June 2017. Dangote Cement seems to have increased its earnings and profits despite problems at home in Nigeria by improving its fuel mix. Yet, flirtations with South Africa’s PPC aside, its expansion plans remain in a holding position. Dangote Cement presents another fascinating situation. Its overall sales volumes have fallen but this reflects a failing market at home in Nigeria and doesn’t show the company’s booming sales in the rest of Sub-Saharan Africa.

Results from CRH and the Brazilian companies Votorantim and InterCement will further flesh out the situation when they are released. Yet, the difference between worldwide producers and regional producers seems to be clear. The likes of LafargeHolcim and Cemex with a global presence are generally battling stagnation in the cement markets overall with a couple of key markets holding them back. Meanwhile, larger regional producers in the right locations are growing. However, the absence of the Brazilian producers is critical here as their experience of the floundering market in Brazil is very different to that of, say, UltraTech Cement’s in India. Looking ahead, the next quarter will be particularly interesting to see how demonetisation skewed UltraTech Cement’s performance, to start to see the first results from HeidelbergCement a year after its purchase of Italcementi and how well LafargeHolcim’s new chief is doing.

Nigeria: Onne Van der Weijde, the chief executive officer (CEO) of Dangote Cement, has decided to step down. He will leave the post at the end of 2017 to return to his home country of the Netherlands. He has served three years in the role. Following the departure he will be appointed as a non-executive director with effect from 1 January 2018.

Until a successor is appointed, JO Makoju, Honorary Adviser to the chairman and former managing director of Lafarge WAPCO will be the acting managing director and CEO of Dangote Cement.

Nigeria: Brian Egan has been appointed as an executive director to the board of Dangote Cement. Currently the company’s Chief Financial Officer, he has worked for the cement producer since 2014. Previous to this he worked as the executive director and chief financial officer of Petropavlovsk and of Aricom. He has also held senior finance positions at Gloria Jeans Corporation, Georgia – Pacific Ireland and Coca-Cola HBC-Russia. He trained with KPMG and is a member of the Institute of Chartered Accountants in Ireland.

Cement sales volumes are down at the larger multinational cement producers so far in 2017. As the first half-year results emerge, a picture seems to be appearing of sluggish growth at best for the major internationals. Reduced working days and poor weather have been blamed for the underwhelming performance.

Graph 1: Cement sales volumes for selected multinational cement producers during the first half of 2017. Source: Company financial reports.

True, LafargeHolcim’s sales rose by 0.4% year-on-year on a like-for-like basis, probably due to the assets the group has been sloughing off since the merger, but this is hardly the dynamic growth shareholders may have hoped for. Meanwhile, HeidelbergCement, following its acquisition of Italcementi in late 2016, has only been able to increase its cement and clinker sales by 1% for the first half of 2017 once consolidation effects were excluded. Here the problem appears to be reduced sales in both the US and Indonesia at the same time. This then leaves Cemex with a 2% drop in sales volumes to 33.9Mt with a big drop in the US despite a promising construction market otherwise. It blamed the decline on a high comparison base in 2016 and the weather.

The larger regional players examined here appear to have fared better. Both UltraTech Cement in India and Dangote in sub-Saharan Africa reported flat or falling sales volumes. However, delve a little deeper and there’s more going on. UltraTech didn’t offer any reason for the decline although it was likely focused on its acquisition of assets from Jaiprakash Associates and the knock-on from the demonetisation process last year. That purchase increased its cement production capacity by nearly 40% to 91.4Mt/yr from 66.3Mt/yr and it seems keen, to investors at least, that it will be able to rocket up the capacity utilisation rate at the new plants.

Dangote meanwhile has taken a blow from the poor economic situation in Nigeria, where it still produces most of its cement. Here, sales fell by 21.8% to 6.86Mt from 8.77Mt, causing its overall sales to fall by 11.3% to 11.5Mt. Almost incredibly though, as Graph 2 shows, Dangote upped its sales revenue by a whopping 41.2% to US$1.13bn off the back of improved efficiencies and a much better fuel mix in Nigeria. The turnaround is impressive considering the pressure the company faced in 2016. Today’s news that the firm has sold a 2.3% stake to foreign investors adds to the impression of a company on the move.

Graph 2: Sales revenue for selected multinational cement producers during the first half of 2017. Source: Company financial reports.

Looking at overall sales revenue shows a happier picture for most of the producers detailed here, with the exception of HeidelbergCement. Although Graph 2 shows declines for LafargeHolcim and Cemex on a like-for-like basis, at least growth is occurring. HeidelbergCement though has reported static revenue on an adjusted basis for the period. This suggests that the producer has hit problems just as it is starting to integrate the Italcementi assets into its portfolio. In theory the geographic spread of its new production units should shield it from lowered growth elsewhere but if this doesn’t happen it may be in for a rougher ride than LafargeHolcim following its merger.

In summary, being a large-scale multinational cement producer doesn’t quite seem to be offering the balanced growth one might expect so far in 2017. Cement sales volumes are slipping and revenue is also down on a direct comparison basis. It’s barely a case for comparison but smaller regionally based producers like UltraTech Cement and Dangote, in the right locations, seem to be capitalising on their positions. We’ll see how the big Brazilian producers Votorantim and InterCement, Buzzi Unicem and CRH fit this trend when they release their financial results over the next few weeks.

Today HeidelbergCement publishes its financial results for the first quarter of 2017, giving us an idea of how the year is shaping out for the major cement producers outside of China. Looking at graphs 1 and 2 below of cement production volumes and sales revenue gives the initial impression of a reversal of fortunes for the two leading multinational companies. LafargeHolcim’s production and sales are declining as HeidelbergCement races to catch up, boosted by its acquisition of Italcementi in 2016.

This interpretation would be misleading, however, given that LafargeHolcim has been steadily whittling down its assets to become more profitable and because HeidelbergCement has just taken on a raft of production units. The real figures to look at might be the like-for-like changes with adjustments made for currency, consolidation effects and suchlike. Under these conditions each of the three leading cement producers, with the addition of Cemex, have reported stagnant cement sales in the period. Yet the surprise comes from an analogous look at sales. LafargeHocim and Cemex both reported sales revenue increases of 5 – 6% on a like-for-like basis, whilst HeidelbergCement reported no change. This is further backed up by operating earnings before interest, taxation, depreciation and amortisation (EBITDA) figures that rose significantly on a like-for-like basis for LafargeHolcim at 8.8%, more modestly at 2% for Cemex but fell by 3% for HeidelbergCement.

Graph 1: Cement sales volumes at selected multinational producers in Q1 2016 and Q1 2017. Sources: company reports.

Graph 2: Sales revenue at selected multinational producers in Q1 2016 and Q1 2017. Sources: company reports.

The tragedy of the picture above appears to be that Eric Olsen, the chief executive officer of LafargeHolcim, has started to turn the company around following the merger between Lafarge and Holcim in 2015, just as he is leaving the company. This week Olsen denied that his departure was related to the Syria scandal but that it was related to ‘tensions’ at the group. The lesson that HeidlebergCement can take from this is that enlarging a building materials company in a supressed global market requires decisive action to maintain profitability. Certainly, if it doesn’t go HeidelbergCement’s way in future months and years then the stability of its management and major shareholders may become apparent. Although it doesn’t mention internal matters, HeidelbergCement does flag up higher geopolitical and macroeconomic risks in its outlook for 2017 as well as a ‘shift of political measures towards protectionism.’ That last one is potentially bad news for a multinational cement producer looking to move excess clinker around as it downsizes towards profitability.

Of the rest of the producers included in the graphs above Dangote Cement is worth some attention. The production and sales figures show a company evolving from a national player into an international one. Challenged by economic problems and a market contraction at home in Nigeria the company is exploding internationally in sub-Saharan Africa. Roughly, it sold a third of its cement outside of Nigeria in the period but only made a quarter of its revenue outside of its home turf. This has interesting implications for the international future of the company. However, it will be a big moment for the firm once it finally builds a plant in Nepal outside of Africa.

Italy’s Buzzi Unicem and the Brazilian operators Votorantim and InterCement are due to release their first quarter results in the coming weeks which will flesh out the international picture. Already there are lots of fascinating regional trends emerging that require discussion, such as the Philippines that we looked at last week and a ‘back to business’ feeling in China. Next week in the run up the IEEE/PCA Cement Industry Technical Conference in Calgary, Canada we’ll look at the US.

This week the US Portland Cement Association (PCA) revised down its forecast for the rise in cement consumption in 2016 to 2.7% from 4%. It also lowered its prediction for 2017, blaming political uncertainty around the presidential election, inflation and slower construction activity. Global Cement Magazine editorial director Robert McCaffrey pointed out on LinkedIn that he was surprised by the revision down in 2017 given the rhetoric by president-elect Donald Trump to invest in large infrastructure projects.

Clearly the PCA is playing it cautious as a politically unknown entity, Trump, slides from campaign trail promises to executive power delivery. Backing them up are the latest figures from the United States Geological Survey (USGS) that show that both cement production and shipments fell slightly in the third quarter of 2016. In the quarter before the election in November 2016 the cement market slowed down. The hard bit is working out why. As we pointed out in a review of the US cement industry in the May 2016 issue of Global Cement Magazine the PCA had previously downgraded its forecast in 2016 due to economic uncertainty despite strong fundamentals for the construction industry. Then, as now, the great hope for the US cement industry was infrastructure spending down the pipeline, at that time the Fixing America’s Surface Transportation Act. At this point it doesn’t seem to have had much of an effect.

Industrial and economic forecasters aren’t the only ones who have a hard time of it in 2016. Political pollsters have also been caught out. Surprises came from the UK’s decision to leave the European Union and the election of Trump. Neither result was widely expected in the media. As explained above, should Trump make good on his building plans then if any cement company based its plans on a forecast dependent on a Hilary Clinton win then it may have lost money.

The power of forecasts has even greater potential effects in developing markets where the corresponding financial risks and rewards are higher. After all, why would any cement company invest tens of millions of US dollars for a cement grinding plant or hundreds of millions for an integrated plant unless there was some whiff of a return on investment?

This then leads to the problems Dangote has reportedly been having with its plant in Tanzania. Amidst a flurry of local media speculation in late November 2016 about why its Mtwara plant had a temporary production shutdown, Dangote’s country chief clarified that it was due to technical problems. It then emerged this week that Dangote’s owner Aliko Dangote met with President John Magufuli to agree a gas supply agreement to the plant. The point here being that even if the market conditions and demographics seems conducive to profit, as is the case in Tanzania, if the local government changes any incentives agreed at the planning stage then everything can change. At this point forecasts based on data become moot.

There’s a great quote from the US pollster Nate Silver that goes, “The key to making a good forecast is not in limiting yourself to quantitative information.” In terms of election campaigns run at a time of upheaval that might mean listening to people more than looking at polling data. In terms of a cement company operating in Africa that might mean fostering links with the local government to ensure no sudden policy changes catch you off-guard. And in the US that might just mean cement company analysts have to follow Donald Trump’s Twitter account.

Tensions have boiled over regarding imports of cement to Kenya in recent weeks as different importers have received opprobrium in the local press. Last week Dangote Cement was attacked for importing cheap cement into the country from Ethiopia, allegedly off the back of a cheap electricity deal. This week, Chinese imports have been in the firing line, following data reportedly seen by the Business Daily newspaper that showed that the value of Chinese cement imports rose tenfold year-on-year in the first half of 2016.

At the heart of these rows lies a strong demand for cement: Kenya had a cement production utilisation rate of 90% in 2015 according to Kenya National Bureau of Statistics (KNBS) data. It produced 6.35Mt in that year and used 5.71Mt for consumption and stocks. Its utilisation rate has been rising steadily since 2012. It was 93% for the first six months of 2016.

Unfortunately for the local producers this kind of demand attracts competition from within and without. Nigeria’s Dangote Cement is planning to build a 3Mt/yr plant at Kitui and Cemtech Kenya, a subsidiary of India’s Sanghi Group, is planning to build a 1.2Mt/yr plant at Pakot.

Local producer ARM Cement reported both falling turnover and a loss for the first half of 2016. It blamed this on increased competition in Tanzania. However, in 2015 it increased its turnover in Kenya by importing clinker over the border from its new Tanga plant in Tanzania. It also noted a ‘competitive landscape’ in Kenya and lamented the effects of currency devaluation on its financies as a whole. East African Portland Cement had a tougher time of it for its half-year that ended on 31 December 2015, issuing a profit warning of a loss and expected reduced profits despite a rise of 12% in sales revenue. By contrast, Bamburi Cement, LafargeHolcim’s subsidiary, reported both increases in revenue and operating profit in 2015. Although it too noted problems with interest rates and currency depreciation in the country during this period.

The focus on Chinese imports follows Chinese contractors winning some of the biggest infrastructure projects in the country. The China Rail & Bridge Corporation (CRBC), for example, is building a railway between Mombasa and Nairobi. The Business Daily newspaper has found data showing that Chinese cement imports worth US$19.8m to Kenya in the first half of 2016 compared to US$1.99m in the same period of 2015. The background to this is that China has more than doubled the value of all of its imports to Kenya since 2011 according to the KNBS. Total import volumes of clinker from all foreign countries increased by 51% in 2015 from 1.31Mt in 2014, the largest increase in at least five years.

If local cement producers are being locked out of supplying these kind of deals no wonder they are getting angry. However, another angle on what’s happening here might be that local producers who are suffering from increased competition, falling prices and a precarious national financial situation are lashing out at the easiest target. The local press doesn’t appear to have criticised ARM Cement for moving its Tanzanian clinker north of the border for example. Likewise, a Bamburi Cement spokesperson previously said that the producer had supplied 300,000t of cement to the rail project since September 2014, earning it nearly US$10m. Kenya needs cement as it builds its infrastructure. Fortunes will be made and tempers will be lost as it does so.

South Africa: Modilati Gustav Mahlare is to retire from Sephaku Holdings at its annual general meeting (AGM) to be held in September 2016. Mahlare has served on the company’s board as chairman of the audit and risk committee for three consecutive terms. He is not eligible for re-election. MJ Janse van Rensburg has been recommended to replace Mahlare. Her appointment will be subject to shareholder approval at the AGM.

Janse van Rensburg has served as the Chief Financial Officer and, later, Chief Executive Officer at the Trans Caledon Tunnel Authority between 1994 and 2008. Prior to this she worked as a non-executive director for the Bond Exchange of South Africa, the Airports Company of South Africa, the Johannesburg Water Department and Denel, during which time she also fulfilled the role of a member or chairman of the respective audit committees. She is currently a non-executive director of the Development Bank of South Africa and a non-executive member of the Credit Committee overseeing Africa and India at First National Bank.

Sephaku Holdings holds a 36% stake in Sephaku Cement. The remainder is held by Nigeria’s Dangote Cement.