Displaying items by tag: Lafarge

Kenya: Bamburi Cement chief executive Hussein Mansi is set to leave in July 2014. Mansi is relocating to Lafarge Egypt, ending his five-and-a-half year tenure overseeing Bamburi's operations in Kenya and Uganda. In an internal memo sent to staff, Mansi said he will be replaced by Bruno Pescheux, currently the chief executive of Lafarge Cement Syria.

"After five very interesting years leading the Kenya – Uganda business I have accepted a new challenge with Lafarge in Egypt and will be doing so by the end of July 2014," said Mansi.

Mansi, aged 47, holds a post-graduate certificate of Business Administration from the University of Leicester and a bachelor's degree in civil engineering from the University of Cairo. He began his career in 1991 at Saudi Building Systems as a design engineer and later as the sales manager before joining Orascom Construction Industries as works director in charge of sales and marketing.

Mansi joined Bamburi Cement in January 2009 from Algerian Cement Company (ACC), wholly owned by Orascom, where he was the commercial director for five years until December 2008. Orascom was acquired by Lafarge in 2007 leading to Mansi's promotion to head the French multinational's business in East Africa.

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.

Egypt's cement producers have taken their fight to use coal to the opposition in recent weeks. Producers like Suez Cement and Titan have started pushing the benefits of using coal including its place as an international mainstay and highlighting the potential savings for the state.

In March 2014 the Minister of Trade and Industry Mounir Abdel Nour announced that cement companies could start using coal from September 2014. However, with pressure from environmental activists and even the Minister of Environment voicing disapproval for coal this seems to be a long way off. Fuel issues continue to bedevil Egyptian cement producers as reports emerged this week that gas supplies to 10 cement plants were cut. The plants, which represent 70% of the country's production base, have been forced to close temporarily. Egypt is one of the largest non-OPEC (Organisation of the Petroleum Exporting Countries) oil producers in Africa and the second largest dry natural gas producer on the continent.

The Egyptian government has been planning a reduction in the use of natural gas by industry. Yet the scale of the reduction has shifted. At first the Ministry of Petroleum intended to reduce supplies to cement plants by 35% in January and February 2014. Reportedly the price of cement then shot up by 30% in March 2014 to offset the rise in energy prices. Then the gas was cut completely, leading to the shutdowns.

In response Egyptian cement producers are investing in converting to using coal. This week Suez Cement announced a planned investment of US$40m to convert two of its four plants to use coal instead of natural gas subject to approval from the Ministry of Environment. Back in November 2013 Suez Cement announced similar plans to spend US$72.5m on converting its plants for coal. Similarly, Lafarge's preparations to use petcoke were also delayed by the ministry in February 2014.

Users of Egypt's gas supplies are caught between the reform of energy subsidies, a shortage in gas supplies and an increase in local demand. Industrial users like cement plants are stuck in a queue behind export markets and power plants. In addition international events such as the political instability in Ukraine might potentially rock the Egyptian gas market if Russian supplies were affected. The European markets would then start scrambling to secure their gas from other places such as Egypt.

In this situation, moving to the use of imported coal makes sense for cement producers. Yet groups like the 'Egyptians Against Coal' campaign argue that the issue is also about Egypt's sovereignty over its energy sources, not just pollution. Despite the optimism of the activists it seems unlikely that they can resist market pressures for long, especially with producers such as Suez Cement and the Arabian Cement Company announcing plans for increased alternative fuels substitution rates alongside their bigger plans for coal. Whether this is more than a sop remains to be seen.

Once dubbed 'King Coal' for its leading place in British industry before the second half of the 20th Century, coal is looking likely to take the crown as the fuel of choice in the Egyptian cement industry. How long it retains its crown though depends on the on-going competition between coal and gas use around the world.

Holcim released its first quarter results for 2014 this week and benefits of a merger seemed clear: both sales and profit were down. Net sales fell by 5.4% to Euro3.35bn and net income fell by 57.5% to Euro65.6m. However, Chief Financial Officer Thomas Aebischer was upbeat on meeting the regulatory requirements of any merger and the prospect of divestment opportunities.

This week we have a guest contributor - Andy Gboka, an analyst at Exotix LLP, a London-based broker specialised in Frontier markets – writing about the impact in Africa from the Lafarge-Holcim merger:

No change in Sub-Saharan Africa cement markets

Looking at (1) the location and size of the assets that both groups operate across the region but also (2) the expansion projects recently announced, we do not anticipate any upheaval in the competitive landscape, at least in the medium term.

Potential reshuffle of African assets

We identify Nigeria and Morocco as the main countries where the two companies are likely to reorganise their operations post-deal.

After the market excitement Lafarge / Holcim's price gains have averaged 9% since the announcement versus +8% the same day (04/04/14). We think it timely to discuss, from a competition angle, the likely impact on sector dynamics in Africa.

Starting with Sub-Saharan Africa where Lafarge and Holcim have been present for decades, the two groups have grown their output capability over time to reach a combined ~20.7Mt/yr. Holcim is a much smaller cement producer through its ~2.6Mt/yr in Ivory Coast, Guinea and Nigeria, whereas the French manufacturer is a regional leader with ~18.1Mt/yr capacity across 10 different countries. North African exposure paints a similar picture, as the Swiss company's installed capacity is ~9.6Mt/yr versus ~21.6Mt/yr for Lafarge (including their respective shareholdings in Lafarge Cement Egypt).

Although we do not believe the proposed merger will significantly alter Africa's competitive environment, business reorganisation is likely in:

(1) Nigeria. LafargeHolcim would control more than ~70% of the United Cement Company of Nigeria Ltd (UNICEM, 2.5Mt/yr in Calabar) which, in our view, is a suitable context for minorities' buyout.

(2) Morocco. More than ~50% of the industry's production capacity is controlled by the two players, a situation that may lead to asset disposals after review by the local competition commission.

Beyond the corporate implications, this announcement also puts into perspective the multiples investors are willing to pay for companies operating in Africa. Indeed, for 2014/2015 financial year the enterprise multiple (enterprise value / earnings before depreciation and amortisation) and price-to-book ratio for the main stocks listed in Nigeria and Kenya average 10.3x and 2.9x respectively, vs. 8.4x and 1.3x for LafargeHolcim (Bloomberg). While demand growth prospects in the teen digits or margins above ~25% (especially in Nigeria) would support a premium for the former names, we think the extent of that premium is questionable.

The best illustration is Dangote Cement, whose market capitalisation stands at ~US$25bn for total capacity estimated at 50 – 55Mt/yr by the 2016 financial year, relatively high when compared to the expected ~US$55bn market capitalisation for LafargeHolcim with (1) 427Mt/yr cement capacity globally and (2) ~60% of its revenue from emerging markets. This underpins our cautious stance on the sector.

Source: Andy Gboka, analyst at Exotix LLP (London-Based broker specialised in Frontier markets).

Andy Gboka will be speaking at the forthcoming Global CemTrader Conference, taking place in London on 2 -3 June 2014.

A lot has happened since the 4 April 2014 announcement that Lafarge and Holcim intend to become LafargeHolcim. There have been several related announcements from around the global cement industry this week, prompting some interesting discussion with respect to the future look of the industry.

Oyak Group, which operates a number of plants in Turkey, appears to be limbering up for LafargeHolcim-based acquisitions in the UK, the EU or Africa, with aims to become a regional player. Meanwhile, Lafarge has pulled out of talks regarding its proposed acquisition of the Cementos Portland Valderrivas (CPV) plant in Vallcarca, Spain, directly citing the merger as the reason for this. We have also seen Colombia's Cementos Argos purchase a grinding plant in French Guiana, which was jointly-owned by Lafarge and Holcim. Announced just a few days after the merger, this asset was presumably jettisoned in order to avoid future issues with local anti-monopoly authorities. Finally, ACC and Ambuja have announced that they would retain their separate identities in India after the merger.

This flurry of announcements is likely to be just the start of frenzied speculation as the competitors of Lafarge and Holcim work out what assets are most likely to be sold. So what about the multinationals, Cemex and HeidelbergCement?

Cemex certainly has cause for concern, weighed down by the debt that it took on in 2007 with the acquisition of Australia's Rinker. It is in a relatively weak position with respect to acquiring any LafargeHolcim divestments. Could it lose market share? HeidelbergCement, by contrast, has long extoled the virtues of its financial efficiency policies and its diverse and forward-looking geographical spread. It could snap up more strategic assets after the merger. While both of these multinationals will be wary of dealing with an enlarged competitor in LafargeHolcim, they have the opportunity to increase their market shares and both will move up one position in the global cement producer rankings.

It is likely to be the smaller players that have the most to gain from the shedding of LafargeHolcim's various assets, especially those that enjoy strong domestic markets and have cash at the ready. Oyak Group has already entered the ring but what if Nigeria's Dangote, Brazil's Votorantim, Colombia's Cementos Argos or Thailand's SCG go on a spending spree? Could one of these rise to become a new global cement multinational?

However, if we can expect a change anywhere it will be in Spain. Following reports in 2012 that Spanish cement production had crashed to its lowest levels since the 1960s jobs have been shed and profits have evaporated. In 2013 Holcim and Cemex agreed to combine all of their operations in Spain. Roughly, according to the Global Cement Directory 2014, cement production capacity in Spain breaks down as follows: CPV (23%), Cemex (18%), Lafarge (11%) and Holcim (10%). Letting the Cemex-Holcim deal happen, followed by the Lafarge-Holcim merger and the CPV Vallcarca purchase, would have led to a major headache for Spain's competition authorities, creating an entity with 43% production market share! Unsurprisingly the first casualty has been the CPV Vallcarca deal. Whatever happens, the next 18 months will be an interesting period for the global cement industry.

The news that Holcim and Lafarge are planning a merger should come as no great surprise to long-term observers of the industry. Such mega-mergers have been periodically mooted over the decades and have already come to pass.

Lafarge took its present form through many acquisitions, but it was the mega-merger with Blue Circle Industries that brought it to pre-eminence. That deal was hard fought, rapidly becoming a hostile takeover after the then-CEO of Blue Circle, Richard Haythornthwaite, decided that the amount that the CEO of Lafarge, Bertrand Coulomb, was offering for his company was not high enough.

A year of claims, counter-claims, offers, rebuffs and haggling ensued, leading to a higher offer that was eventually accepted by the Blue Circle board. However, as Lafarge was a Euro-denominated company and Blue Circle was resolutely British (and was thinking in UK pounds sterling) after exchange rate variations had been taken into account, Lafarge paid less after a year than it had offered in he first place. The British CEO got a big pay-off and went on to greater glory, having appeared to extract a great deal more money (in GB pounds) for his shareholders. Apparently they teach this as a case study in business schools.

Mega-mergers have also shaped other giants in the industry. For example Chichibu-Onoda and Sumitomo-Osaka came together to make Taiheiyo Cement and Ciments Français was added to Italcimenti, although in this last case they still retain their separate identities. Often the deals amount to an accretive takeover by one larger company of a smaller one, but transformative deals consisting of a 'merger' of 'equals' also happen in the cement industry, and with good reason. The merging of research efforts; the optimisation of management; the rationalisation of procurement strategies: all of these will immediately save plenty of money.

However, it's on the financial side that these larger merged companies can sometimes see the most benefit. The cost of borrowing money is inversely proportional to the size of the company (and of the sums involved); the colossal sums demanded by overpaid and greedy bankers will diminish in proportion if the sums involved are larger. So, the cost of borrowing money to be able to invest in takeovers or for capital expenditure will reduce as a proportion of overall cost.

There are other significant potential savings as well, from operational synergies, although these can be harder to quantify and - critically - harder to retain once the competition technocrats have run their slide rules over the proposed deal. They generally do not like too much of the market ending in the hands of too few players.

A good case in point is the recent mega of Tarmac and Lafarge in the UK. To allow the deal to take place the merged company was obliged to sell off one of its key assets, the Hope cement plant, which is now owned and operated by newcomer Hope Construction Materials. Even after the deal has been completed, the market regulator is considering the possibility of making the merged company sell additional facilities, something that strikes Global Cement as 'just not on.'

However, with operations in 90 countries, Lafarge and Holcim can expect to face competition scrutiny in at least 15 countries including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines. Meanwhile, in Serbia it has been reported the two companies have a combined market share of 97% across all their business lines!

Lafarge and Holcim have overlapping facilities and distribution networks in a number of countries, and any merged company will probably be required to sell some of them to its competitors. Other companies might be licking their lips at the prospect, as usual CRH is already being lined up in the Irish press, but the units will be sold at a market rate - and not a penny less. It might be that the merged company cannot control which facilities are sold, meaning that they might end up with a less than optimised system. Not so good after all.

If the deal goes through, it will create a Europe-based behemoth with a production capacity of over 200Mt, enough to retain a place on the global top 10 companies with the ever-rationalising and concatenating Chinese companies. When the news first broke we asked what might the new company called? We liked a short mash-up of the two names, like Lolcim (a humorous nod to today's 'youth-speak' perhaps) or Hafarge. However, the level of preparation backing the merger plan soon became clear from financial due-diligence right down to a new name: LafargeHolcim.

Yet for all this co-ordinated work from companies that were meant to be competitors until as recently as March 2014, we should remember what happened to the proposed BHP Billiton-Rio Tinto takeover. Valued at a high of US$170bn it shrivelled up as the global economy collapsed in 2008 amidst concerns from regulators. The idea may be out there but LafargeHolcim has a long way to go before it actually exists.

Worldwide: Lafarge and Holcim have released plans regarding who will lead their proposed merger, LafargeHolcim. The chairman of the new board will be Wolfgang Reitzle, the future chairman of Holcim. Bruno Lafont, chairman and CEO of Lafarge will become CEO of the new group and member of the board.

Thomas Aebischer, Holcim's CFO will become CFO of the new group. Jean-Jacques Gauthier, Lafarge's CFO will become chief integration officer of the new group. The Executive Committee will be formed from both Lafarge and Holcim management.

In order to ensure efficient execution of the merger, an integration committee will prepare the integration plan to be implemented straight after the closing of the transaction. Bernard Fontana, Holcim's existing CEO will remain in charge of Holcim until completion of the transaction. He will co-chair the integration committee.

The merger is expected to be completed in the first half of 2015 subject to shareholder approval and regulatory approval in the many countries that the two multinational building materials producers operate in.

Moldova: Nicolas Valdinoci has become the new director of Lafarge Moldova. He replaces Louis de Sambucy who has moved to Lafarge Algeria. Valdinoci worked for three years in Lafarge's department of strategy and in 2010 he became the financial director of the concrete and aggregates division in Lafarge Algeria. In 2012, he was appointed as deputy director of sales at Lafarge Algeria.

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.

Suez Cement and Italcementi's first waste treatment plant in Egypt was inaugurated this week. The project uses 45,000t of household waste to produce 35,000t of alternative fuel annually. Given Egypt's on-going fuel concerns the project will be watched closely.

Italcementi has much riding on the success of the project. It has five integrated cement plants in the country. As reported in early February 2014, the cement producer suffered reduced production capacity in Egypt despite 'potential' domestic demand due to limited energy availability. Cement sales volumes in Egypt for Italcementi have continually fallen since 2011, accelerating from a 5.4% year-on-year reduction in 2011 to a 17.6% year-on-year reduction in 2013. Yet, despite this, rebounding domestic demand was reported in 2012 and 2013.

It must be extremely frustrating for Italcementi. It has the production capacity, it has demand but it doesn't have the fuel to power its lines. Any additional fuel will be welcome. At a rough and conservative rate of 200kg of fuel per tonne of cement produced, Italcementi and Suez Cement's new alternative fuel stream could help to produce 175,000t of cement or about 1.5% of the cement producer's clinker production capacity of 12Mt/yr.

Lafarge, with its mega 10.6Mt/yr cement plant outside of Cairo, hadn't suffered (publicly) as much as Italcementi from fuel shortages until the publication of its financial results for 2013. Although sales had decreased year-on-year since 2009, this has been blamed on competition. Now it has been announced that cement volumes decreased by 30% in the first half of 2013 due to shortages of gas. This was mitigated through fuel substitution to a 19% drop in the third quarter and a 7% drop in the fourth quarter.

However, Lafarge's strategy for fuel security may be threatened as the Ministry of State for Environmental Affairs ordered the producer to stop preparations to build storage units for petcoke in February 2014 citing environmental and economic reasons. What happening here is unclear given that the Egyptian government has been encouraging cement producers to move away from using natural gas.

The examples above show the reactions two multinational cement producers, Italcementi and Lafarge, have made to secure their fuel supplies. The outcomes remain uncertain.

In other news, Shijiazhuang in Hebei province in China has started the demolition of 17 (!) more cement plants. This follows 18 plants that were demolished in December 2013. In total, 18.5Mt/yr of cement production capacity has been torn down.

This is more than the cement production output of most European countries or any single US state! Where was this cement going previously? What were the effects on the price of cement in China? Who is taking the loss for the destruction of this industrial production capacity? BBC News Business Editor Robert Peston has some ideas.

The 8th Global CemFuels Conference & Exhibition on alternative fuels for cement and lime takes place in Vienna, Austria on 24 - 25 February 2014