Displaying items by tag: Holcim Indonesia

Indonesia: Semen Indonesia has reported revenues of US$2.00bn in the nine months to 30 September 2019, up by 31% from US$1.53bn in the corresponding period of 2018. The Group’s acquisition of Holcim Indonesia in February 2019 expanded its domestic cement production capacity to 39.4Mt/yr, which it says has bolstered its competetiveness against importers in a crowded domestic market.

The company recorded US$91.7m in profit over the period, down by 38% year-on-year from US$148m as its foreign sections failed to grow.

Indonesia: Semen Indonesia’s revenue grew by 23% year-on-year to US$1.17bn in the first half of 2019 from US$0.95bn in the same period in 2018. Its net profit halved to US$34.3m from US468.8m. Its domestic sales volumes of cement fell by 7.17% to 7.78Mt in the first five months of 2019 from 10.54Mt in the same period in 2018. Exports rose by 7.42% to 1.38Mt from 1.28Mt. Both local sales and exports fell at its Thang Long Cement subsidiary in Vietnam. However, its acquisition of Holcim Philippines in February 2019 has boosted its overall sales by 17% to 15.2Mt.

Indonesia: Exports drove Semen Indonesia’s cement sales volume growth in 2018. Its local sales volumes of cement grew by 1.2% year-on-year in 2018 to 27.4Mt from 27.1Mt in 2017 but exports increased by 68% to 3.16Mt from 1.87Mt. Sales volumes at its Thanh Long Cement subsidiary in Vietnam grew by 7.9% to 2.57Mt from 2.39Mt due to a sharp increase in exports. The group’s revenue rose by 10% to US$2.17bn from US$1.96bn. Its net profit nearly doubled to US$218m from US$117m.

Semen Indonesia completed its acquisition of Holcim Indonesia for US$1.75bn in February 2019. Prior to the purchase it had a cement production capacity of 38.2Mt/yr and Holcim Indonesia had a capacity of 14.8Mt/yr.

Indonesia: Semen Indonesia has renamed Holcim Indonesia as Solusi Bangun following its takeover. Semen Indonesia’s corporate secretary Agung Wiharto said that the acquisition was aimed at increasing the country's cement plant network and strengthening its supply chain, according to the Jakarta Post newspaper. He added that the purchase would also benefit the company’s ready-mix concrete business. Lowered distribution and raw material costs are also anticipated.

Indonesia: LafargeHolcim has closed the divestment of its Holcim Indonesia. It has sold its 80.6% share of the subsidiary to Semen Indonesia for US$1.75bn. The deal was first announced in November 2018. The company said that the proceeds from the sale would ‘significantly’ improve its net debt to recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) ratio by 0.2 with the target of two times or less to be achieved by the end of 2019. LafargeHolcim has been targeting divestments as part of its Strategy 2022 initiative.

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 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.

Holcim 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.

Indonesia: Holcim Indonesia has refused to comment on local media stories that its parent company, LafargeHolcim, is planning to sell it. Both Kontan and CNBC Indonesia have reported that LafargeHolcim is looking for buyers for its subsidiary as part of its global divestment scheme. LafargeHolcim owns an 80% share in Holcim Indonesia.

Holcim Indonesia inaugurated a new cement terminal in Lampung last week. Unfortunately, the spectre of industry overcapacity haunts the country at present and the subsidiary of LafargeHolcim may be late to the party. The Indonesian Cement Association (ASI) has been publicly warning the government of overcapacity since the end of the summer. Its first line of action has been to lobby for restrictions on producer permits to slow the growth of new plants.

ASI figures show that cement sales in September 2016 fell by 3.3% to 5.64Mt compared to August 2016 due to lower residential sector demand. Domestic cement sales rose by 2.95% year-on-year to 44.7Mt in the first nine months of 2016 and the ASI expects sales growth of 3 – 4% for 2016 overall. Yet, the risk of overcapacity is stark. Cement production capacity has nearly doubled from 59.3Mt/yr in 2012 to 92.7Mt/yr in 2016 but demand is projected to only reach 65Mt in 2016, leaving a production oversupply of 27.7Mt. Regional consumption has fallen in Jakarta, Banten and West Java, particularly in the first two. Elsewhere, it has grown, particularly in Central Java, as well as Yogyakarta and East Java to a lesser extent.

Initial Global Cement Directory 2017 research places active production capacity at 66.3Mt/yr suggesting that the ASI may be exaggerating the risk of overcapacity. The additional c30Mt/yr capacity arises from plants that have been proposed, that are actually under construction or that have been mothballed. However, the ASI data should be more accurate as it represents the local producers. Either way, capacity is growing faster than consumption as can be seen in graph 1.

Graph 1: Cement consumption and production capacity in Indonesia, 2012 – 2016. Source: Indonesian Cement Association, Global Cement Directory 2012 – 2017.

Semen Indonesia, the country’s largest producer, reported that its revenue fell very slightly to US$1.4bn in the first nine months of 2016 and its net profit fell by 8.4% to US$215m. It blamed this on a fall in sales volumes and prices due to rising competition. The other large producers have said similar in the past. Indocement, the country’s second largest producer after Semen Indonesia, saw its revenue fall by 11.9% to US$837m in the first nine months of 2016 and its profit fell by 2.2% to US$231m. LafargeHolcim described the market as affected by overcapacity and ‘a difficult competitive environment.’

Back in May 2016 a feature on the predicament facing the Indonesian cement industry in the Jakarta Post suggested that producers were building new capacity despite the risks of overcapacity to win market share. Cement producers are about to find out whether this will work or not. Meanwhile it seems unlikely that the measures the ASI is suggesting will do much to alleviate the looming crisis. Still, on the positive side, it’s looking like a good time to buy cement as a consumer.

For more information about the cement industry in Indonesia view the first part of the Association of South East Asian Nations (ASEAN) feature in the October 2016 issue of Global Cement Magazine