Displaying items by tag: Europe
This week saw Lafarge and Holcim announce a list of proposed asset divestments following months of research by a Divestment Committee. The mass divestment is planned so that competition authorities around the world can approve the proposed Euro40bn merger of equals to produce LafargeHolcim. When the merger was initially proposed on 7 April 2014, Lafarge and Holcim estimated that some Euro5bn of asset disposals would be necessary and they are already well on their way.
Europe is facing the brunt of asset divestments, as this is where the companies have the largest market overlap. Holcim plans to sell all of its assets in Hungary and Serbia, while Lafarge will sell all of its assets in Germany, Romania and the UK (with one possible cement plant exception). In Austria, Lafarge has opted to divest its Mannersdorf cement plant, while in France it would sell its Reunion Island assets (excluding its shareholding in Ciments de Bourbon). Holcim plans to sell all of its assets in France except for its Altkirch cement plant and aggregates and ready-mix sites in the Alsace Region.
Elsewhere in the world, Holcim plans to sell all of its assets in Canada and Mauritius. In the Philippines the companies plan to combine the operations of Lafarge Republic Inc and Holcim Philippines Inc and to divest Lafarge's Bulacan, Norzagaray and Iligan plants. In Brazil, where Lafarge and Holcim both have a significant presence, the companies plan to announce their intentions after collaboration with CADE, the country's competition authority. There is little market overlap in most of Asia and the Middle East: Lafarge's assets in Malaysia and Syria complement Holcim's strong presence in India and Indonesia.
So far, Lafarge has consolidated its African operations by establishing Lafarge Africa and selling its assets in Ecuador. Holcim has been granted approval from the European Competition Commission to purchase Cemex West in Germany and, most recently, Lafarge has announced that it intends to buy out its joint venture partner, Anglo American, from Lafarge Tarmac in order to sell the entire business.
While the asset divestment list shows good will to global competition authorities, there remains no guarantee that Lafarge and Holcim will not need to divest even more assets. However, by nominating such a large number of divestments in the first instance, the companies have shown willing to cooperate with anti-monopoly measures, potentially easing the path of the LafargeHolcim mega-merger.
Europe: Lafarge and Holcim have set up a Divestment Committee following the announcement of the planned merger on 7 April 2014, with the aim of taking forward the divestment process. The Committee has drawn up a list of proposed asset disposals to anticipate potential competition authorities' requirements. The announcement represents a major part of the total assets that the two companies aim to divest.
The two companies are proposing the following disposals:
• Austria: Lafarge's Mannersdorf cement plant;
• France: Holcim's assets in metropolitan France, except for its Altkirch cement plant and aggregates and ready-mix sites in the Haut-Rhin market; Lafarge's assets on Reunion island; except for its shareholding in Ciments de Bourbon;
• Germany: Lafarge's assets;
• Hungary: Holcim's assets;
• Romania: Lafarge's assets;
• Serbia: Holcim's assets;
• UK: Lafarge Tarmac assets with the possible exception of one cement plant.
• Canada: Holcim's assets;
• Mauritius: Holcim's assets;
• The Philippines: the associated companies of Lafarge and Holcim (Lafarge Republic Inc and Holcim Philippines Inc) are exploring the combination of their businesses other than LRI's Bulacan, Norzagaray and Iligan plants, which are considered to be divested as part of such combination;
• Brazil: Holcim and Lafarge will file soon with the Brazilian regulator (CADE) and propose a comprehensive and high quality package of divestments.
The future LafargeHolcim group will have a significant and balanced industrial base in Europe, enabling it to take advantage of the European economic recovery. Both companies will continue to consider whether divestments would be necessary where there might be overlaps or depending on regulatory requirements.
The proposed divestments are subject to review and further discussions with the regulatory authorities. The divestment process will be carried out in the framework of the relevant social processes and ongoing dialogue with the employee representatives' bodies and will be conducted in parallel to discussions with the competition authorities and potential buyers. The divestment process will be completed subject to the closing of the merger between Holcim and Lafarge.
Find out exactly which cement plants are affected by Holcim and Lafarge's proposed asset divestments in the Global Cement Directory 2014, available here.
Taxing arguments for European cement producers
18 June 2014Industrial energy consumers in Romania have succeeded in extracting concessions from the government's green certificates scheme this week. Cement producers, including Lafarge, Holcim and local HeidelbergCement subsidiary CarpatCement Holding, will benefit now from a 10-year facility to acquire the certificates and they will be allowed to buy up to 85% fewer certificates than at present.
The Romanian government reckons the change will save industry Euro750m. It will be good news for the cement producers and aluminium producer Alro Slatina, one of the chief lobbyists for the change which paid Euro39m for the certificates in 2013, reported losses of Euro17m and threatened production closures.
The debacle strikes a chord with other government-led attempts to nudge society towards lower-carbon emitting energy sources. First a national or international scheme offers economic incentives toward some sort of carbon reduction. Then major industrial users either complain that the system 'unfairly' penalises them or they find a way to play the system. The latest example of the adjustments in Romania is an example of the former, as is the current Australian government's intention to remove its carbon tax. Multinational companies surrendering carbon offsets into the European Union's (EU) emissions trading scheme (ETS) is an example of the latter.
In defence of government-industry negotiation, the EU ETS is now in its third phase of trying to make the scheme work as the EU tries to reach its target of a 20% cut in emissions compared to 1990 levels by 2020. In late 2013 environmental group Sandbag accused the target of containing a loophole that allows for a much smaller cut in emissions due to a slack in carbon budgets, of potentially 2% of 1990 levels. However, the EU confirmed in early June 2014 that it is on track to beat its target and cut down total emissions by 24.5% by 2020.
Alongside all of this arguing, overall energy costs have steadily risen over the last decade, as have the rates of co-processing at European cement plants. As a secondary major fuels consumer, behind energy generation and transportation, the cement industry is particularly susceptible to energy prices being jolted around behind various market trends, such as increases in natural gas supply in the US market. In effect the cement industry hops between different 'next best' options, after the leading energy consumers have taken the premium fuels. The interplay between legislators and heavy industry over carbon taxes prompts the following question: what encourages cement producers more to move to reduce their carbon emissions – legislation or fuel prices?
In other news this week, the chief executive of African producer Bamburi Cement, Hussein Mansi, has announced his plans to move on to Lafarge Egypt. In his memo to staff he mentioned, '...five very interesting years leading the Kenya – Uganda business.' Telling words perhaps given the Kenyan government's attention on Bamburi Cement and the East Africa Portland Cement Company, a producer minority-owned by Lafarge. Of course Mansi may discover that 'interesting' is relative in Egypt, a country on the other side of the energy subsidy spectrum to Europe and its carbon taxes.
Cement cartels (or at least cases of cartel-like behaviour) have reared their ugly heads this week... again. In two different markets, Australia and Brazil, competition authorities are at various stages of taking major action against large proportions of their respective cement industries. In another, Europe, it is the cement producers that are taking on the authorities.
This week, the Australian Federal Court has found five producers guilty of agreeing anti-competitive contracts with regard to fly-ash supply contracts from power stations in the state of Victoria. Only Cement Australia Holdings was not accused. Penalties are to be determined at a later date – watch this space.
As drastic as the Australian situation may be, it is Brazil's anti-trust authority Cade that looks set to make the biggest 'splash' in a cement industry in 2014. On 13 March 2014 it was reported that a US$1.32bn fine, split over six cement producers, has been put on hold after the producers disputed a ruling that would see them lose an average 24% of their cement assets each. So big is this fine that it actually eclipses the US$1.1bn fine seen in India in 2012. In light of the amount of influence that they look set to lose, it now looks extremely likely that the producers will appeal. This sets the scene for indeterminably long waits for legal proceedings and more evidence to be collected. Whatever happens in Brazil, there will be major implications for its increasingly-concentrated cement market.
Elsewhere, in a strange inversion of the normal situation, in Europe it is the cement producers that are taking action. This week the European Court has rejected an appeal from eight major cement producers including Holcim, HeidelbergCement and Cemex subsidiaries with respect to the European Commission's handling of an anti-cartel investigation that began in 2008. That case saw anti-trust investigations start in 2010. Proceedings continue.
As stated previously in this column, cartel-like behaviour is not necessarily indicative of a formal cartel. There are innumerable factors that make every case different and, in each, proving actual collusion is very hard indeed. In the cement industry however, it appears that 'convictions' in cartel cases are easier to spot than in other sectors.
"The first thing for any new competition regulator is to go out and find the cement cartel. My experience of this subject is, it is always there, somewhere," wrote Richard Whish, a Professor of Law at King's College London in 2001. "The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement."
The authorities will keep looking and producers, guilty or not, will continue to wait for their call.
Europe: A European court has rejected an appeal by members of an alleged cement cartel, including Holcim Deutschland, HeidelbergCement, Schwenk Zement, Holcim, Buzzi Unicem, Italmobiliare, Portland Valderrivas and various subsidiaries of Cemex. The companies have argued that the European Commission (EC) had exceeded its powers when it opened an investigation in 2008.
The cement manufacturers brought seven appeals forward, arguing that the EC had not given a sufficient explanation for the suspected infringements before pushing them to respond to a long series of questions in too short a time limit. The judges considered that the EC had judicially provided the required 'minimum degree of clarity.'
On the other hand, the court partially agreed with Schwenk Zement. It judged that the time limit of two weeks that the companies were given to identify all of their contacts, including informal ones, was inadequate.
European cement production in 2013 – Problems head east
12 February 2014Recovery in the European cement markets arrived slowly in 2013. Balance sheets at HeidelbergCement, Cemex, Italcementi, Vicat and Buzzi Unicem appear to have stalled into something less than the recovery that everybody wants. The picture is more stable in Western Europe but declining revenues have headed east.
The European Commission's Autumn 2013 Economic Forecast has summed it up well, predicting that the European Union's (EU) gross domestic product (GDP) would remain static in 2013. On the strength of the results seen so far that feels about right. The cement industry in Europe hasn't continued to decline but the 'recovery' is slow. Yet a recovery is happening on the strength of these financial results so far. Compared to some of the sales declines seen in 2012 this is good news.
With results from the big European-based cement producers Lafarge and Holcim due later in February 2014, here is a summary of the European situation.
HeidelbergCement's revenue has remained flat in 2013 at Euro13.9bn although its cement, clinker and ground-granulated blast-furnace slag (GGBS) sales volumes have risen by 2.6% to 91.3Mt. Compare this with the 8.7% bounce in revenue from 2011 to 2012. By region, the problem areas have now shifted from losses in Western and Northern Europe to losses in Eastern Europe and Central Asia. Market pickup in the UK has driven this turnaround, despite diminished sales volumes in Germany.
Similarly, Cemex's sales have also remained flat at US$15.2bn. Both of its European areas have improved their sales, with sales losses only reported for the Northern Europe region. Again, sales in the UK drove overall business with France starting to improve too.
Italcementi had it tougher in 2013 with its sixth consecutive drop in revenue since 2008. Just like HeidelbergCement, the problem regions for Italcementi have shifted east in 2013 from Western Europe to the group's Emerging Europe, North Africa and Middle East area. However Italcementi is losing revenue in Western Europe faster than HeidelbergCement, mainly due to the poor Italian market.
Elsewhere, Vicat reported that its consolidated cement sales fell by 4% to Euro1.11bn. Sales decline lessened in France and the rest of Europe even saw sales rise by 4% to Euro427m. Buzzi Unicem saw its cement sales volumes remain static in 2013 at 27.4Mt.
Overall it may not feel great but it's better than the cement industry news for Europe we've been used to in recent years. With the European Commission Economic Forecast suggesting a 1.4% rise in GDP in 2014, the next 12 months look more promising.
Lafarge sits on carbon permits so far in 2013 due to weak prices
07 November 2013France: Lafarge has stockpiled carbon permits in the European Union for the first nine months of 2013 due to weak prices. The multinational cement producer confirmed the situation to Reuters following the release of its third quarter results on 6 November 2013.
"Given the current price for CO2 rights there is not a strong rationale for sale compared to holding them for the future," said a Lafarge spokeswoman. Lafarge made Euro56m from selling carbon permits in the first nine months of 2012. Holcim reported in its third quarter results for 2013 that its revenue from the sale of CO2 emission certificates in the first nine months of 2013 fell by 17% year-on-year to Euro8.10m from Euro9.7m.
The EU Emissions Trading Scheme (ETS) has seen the price of carbon permits fall by over 80% to Euro4/t in August 2013 from Euro30/t in 2008. The scheme has been undermined by an oversupply of permits.
Spain: The European Commission intends to assess the proposed acquisition of Holcim's cement operations in Spain by Cemex following a request by Spanish authorities. The Commission decided that the transaction threatens to affect competition within Spain and that it is the best placed authority to assess the potential cross-border effects of the transaction. It has left a similar transaction between Cemex and Holcim in the Czech Republic to local regulators to examine.
In August 2013 the Mexican cement producer Cemex and Swiss multinational cement maker Holcim announced plans to swap assets in Europe. In Spain, Holcim and Cemex want to combine all their cement, ready-mix and aggregates operations. In the Czech Republic Cemex intends to acquire all of Holcim's assets. Other transactions are also prosed between the cement producers in Germany, France and the Netherlands.
Czech-mate for Cemex?
04 September 2013Cemex's decision to head deeper into eastern Europe as part of the Cemex-Holcim asset swap announced this week suggests some nerve. Cement production levels started to fall in the region from 2012, according to Cembureau figures, with continued problems reported so far by the multinational cement producers in 2013. Cemex seems likely to lose money from the start with its new assets in the Czech Republic.
In more detail, Cemex will acquire all of Holcim's assets in the Czech Republic, which include a 1.1Mt/yr cement plant, four aggregates quarries and 17 ready-mix plants. In return Holcim will give Cemex Euro70m and Cemex will give Holcim its assets in western Germany including one cement plant and two grinding mills that encompass a total capacity of 2.5Mt/yr, one slag granulator, 22 aggregates quarries and 79 ready-mix plants.
Cemex must believe that it can wait out the recovery of the construction sector in eastern Europe or make savings from having a more easterly spread of assets. Certainly Cemex said in its press release on the asset swap that its earnings before interest, tax, depreciation and amortisation (EBITDA) would start to rise from US$20m to US$30m from 2014.
The question for the buyers at Cemex who considered this deal is whether the construction market has bottomed out in the Czech Republic yet. According to World Bank figures, following the 2008 financial crisis Czech Gross Domestic Product (GDP) fell to a low of US$197bn in 2009, rose again until 2011 but then fell to US$196bn in 2012. Currently the Czech National Bank is anticipating a further fall in growth in 2013. Meanwhile, data from a third quarter 2013 Czech construction sector analysis by CEEC Research reported that a drop of at least 4.7% was expected in 2013 with a follow-on decline of 2.7% in 2014.
Possibly one deal-maker for Cemex was the prospect of combined operations with Holcim in Spain across cement, aggregates and ready-mix. Similar to the Lafarge-Tarmac joint-venture in the UK, the move offers reduced risk in a declining western European market. How the Spanish competition authorities will respond remains to be seen. Elsewhere on the continent this week the decision by the Belgian Competition Council to fine the Belgian cement sector shows an example of behaviour the Spanish authorities will want to avoid.
Holcim and Cemex to swap assets in Europe
29 August 2013Europe: Mexican cement producer Cemex and Swiss multinational cement maker Holcim have announced that they have reached an agreement to conduct a series of transactions in Europe. The transactions will are expected to be complete in the final quarter of 2013, subject to regulatory approval.
Cemex will acquire all of Holcim's assets in the Czech Republic, which include a 1.1Mt/yr cement plant, four aggregates quarries and 17 ready-mix plants.
Cemex will sell its assets in the western part of Germany to Holcim, which include one cement plant and two grinding mills that encompass a total capacity of 2.5Mt/yr, one slag granulator, 22 aggregates quarries and 79 ready-mix plants. Cemex will retain its interests in other parts of the country.
In Spain, Cemex and Holcim will combine all their cement, ready-mix and aggregates operations. Cemex will have a 75% controlling interest over the combined operational assets and Holcim will control 25%.
As part of these transactions, Holcim will pay Cemex Euro70m in cash. Additionally, the transactions are expected to generate synergies that will result in a recurring improvement in Cemex's EBITDA (earnings before interest, tax, depreciation and amortisation) of US$20-30m, which will begin to be realised in 2014.
"When finalised, this will be an important strategic step that should allow Cemex to improve its footprint in Europe and it will consolidate our portfolio in the continent," said Lorenzo H Zambrano, Chairman and CEO of Cemex.
"This transaction will significantly strengthen our presence in Germany while at the same time giving us the necessary flexibility in Spain," said Holcim CEO Bernard Fontana. "Overall, our footprint in Europe will be considerably strengthened."