Displaying items by tag: Lucky Cement

South African cement producer PPC reported this week that its annual profits rose due to ‘strong’ performance in Rwanda and Zimbabwe. Unfortunately it had no such luck in the Democratic Republic of the Congo (DRC) where its new plant near Kimpese in Kongo Central province has suffered from political instability, lower cement demand and subdued selling prices.

As the group went on to describe the local market as ‘challenging’ with production capacity above market demand. Research from the International Finance Corporation (IFC) suggests that the country will only reach a cement supply deficit by 2022. On top of this the country’s elections have been delayed from December 2017 to December 2018, creating uncertainty in the construction market and delaying infrastructure projects. Following an impairment assessment PPC took an impairment cost of US$14m on the unit. Or in other words it concluded that the value it might gain from selling its new 1.2Mt/yr plant was less than the estimated US$280m it cost to build it.

This outcome is depressing given that the plant was only commissioned during the last quarter of 2017 and the fundamental need for development in the DRC. The unit is run by local subsidiary PPC Barnet DRC, a joint venture 69% owned by PPC, 21% owned by Barnet Group, with the remaining 10% owned by the IFC. The plant was 60% debt funded by the IFC and Eastern and Southern African Trade and Development Bank. In January 2018 PPC agreed with its lenders to reschedule debts from the project until 2020. Then in April 2018 it was reported that PPC was in talks with China National Materials (Sinoma) over selling its stake in the plant. PPC chief executive officer (CEO) Johann Claassen said that the deal was dependent on the price and the on going merger between Sinoma and China National Building Material (CNBM).

With the merger between the Chinese cement giants close but yet to be confirmed, PPC remains stuck with a cement plant it’s losing money on. No doubt also the Chinese producers will aim for a bargain on the unit, especially since Sinoma built the plant. This also raises one potential method how the merged Sinoma-CNBM might expand internationally by scooping up plants it builds that have subsequently gotten into financial trouble.

All in all it’s a cautionary tale about how fast cement companies are able to expand in Sub-Saharan Africa. The demographics are enticing to investors but if the market isn’t there or if competitors get there first then building cement plants can go wrong. A 1.8Mt/yr joint-venture plant run by Lucky Cement started up in late 2016 also in the Kongo Central province. On top of this neighbouring countries have targeted DRC for exports. A local ban on imports of cement was implemented in mid-2017 and reportedly renewed in the west of the country for another six months in February 2018. However, Nigeria's Dangote Cement said in its first quarter results for 2018 that its operations in the Republic of Congo were targeting exports at the DRC. As PPC has discovered, investing in Sub-Saharan African has its risks.

Pakistan: Lucky Cement’s earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 21.6% year-on-year to US$114m in the nine month of its financial year to the end of March 2018 from US$145m in the same period in 2016. It noted that its cost of sales rose by 16.9% due to rising coal and other fuel prices. Its gross revenue rose by 7.1% to US$439m from US$410m. Cement production rose by 11.1% to 5.79Mt from 5.2Mt.

The cement producer added that it is expanding production at its Pezu plant by 2.6Mt/yr due to delays with its expansion plans elsewhere in the north of the country. Approvals from the government have been secured. The US$152m upgrade project is scheduled to be completed by the fourth quarter of 2019. It is also building a US$109m integrated cement plant at Samawah in Iraq. The joint-venture project with a local partner will have a cement production capacity of 1.2Mt/yr when operational. Commercial production is currently scheduled for end of 2019.

The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.

Pakistan: Lucky Cement has obtained restraining orders from the Peshawar High Court to prevent its Pezu plant being closed by the Excise and Taxation Department for not paying a US$135,000 property tax bill. A team from the Excise and Taxation Department attempted to close the site on 23 February 2018, according to the News International newspaper. The cement producer says that the plant continues to produce cement and despatch its products. The tax office has launched a drive to target tax defaulters in the region. It alleges that it has been chasing Lucky Cement’s tax bill for the past six years.

Pakistan: Lucky Cement’s profit after tax fell by 2% year-on-year to US$77.6m in the half year to 31 December 2017 from US$79m in the same period in 2016. The cement producer said that its cost of sales had increased by 21% due to rising coal and other fuels prices. Its sales revenue grew by 5.2% to US$297m from US$283m. Its cement production rose by 5.4% to 3.68Mt from 3.49Mt.

The company completed a new 1.25Mt/yr production line at its Karachi cement plant in December 2017. It is currently seeking government approval to build a new 2.3Mt/yr plant in Punjab Province. However due to the delay it is considering expanding its Pezu plant by 2.3Mt/yr instead. The cement producer also expanded its grinding plant in Iraq by 0.87Mt/yr to 1.74Mt/yr.

Pakistan: Lucky Cement has completed a new 1.3Mt/yr production line at its Karachi cement plant. Clinker production started on the new line on 12 December 2017. It has also implemented efficiency improvements at its Pezu plant that have increased its production capacity by 0.3Mt/yr. The cement producer now has a total cement production capacity of 9.35Mt/yr.

Pakistan: Lucky Cement’s net sales rose by 5.7% to US$434m for the financial year that ended on 30 June 2017 from US$428m in the same period in 2016. Its cement sales volumes rose by 3.1% to 7.15Mt from 6.93Mt and its profit after tax rose by 5.8% to US$130m from US$123m. No reason for the good performance was presented in its financial results statement but that it said it was confident in the domestic market due to both resident and public sector construction markets and large scale infrastructure projects driven by the China-Pakistan Ecumenic Corridor initiative.

The cement producer also provided an update on new and on-going expansion projects. Its expansion plans at the Karachi Plant to add a 1.25Mt/yr production line are expected to reach commercial operations in December 2017. It is also in the process of obtaining approvals and authorisations from the state government of Punjab to build a new 2.3Mt/yr plant.

Pakistan: Lucky Cement has appointed Muhammad Irfan Husain Chawala as its Chief Finance Officer and director of finance. He succeeds Muhammad Faisal. Previously Chawala was the company secretary of the cement producer. Faisal Mahmood will succeed him in this role.

Pakistan: Lucky Cement has inaugurated a waste heat recovery (WHR) unit in Pezu, Khyber-Pakhtunkhwa, its fifth across its operations. The unit generates 10MW from two 2400t/day cement production lines. It was installed by China’s Sinoma.

The inauguration ceremony was attended by Muhammad Ali Tabba, CEO of Lucky Cement, as well as other members of the company’s senior management. “As one of the leading cement manufacturers in Pakistan, we have the responsibility to reduce energy consumption and improve the environment. With the launch of our fifth WHR plant, we aim to do just that,” said Tabba.

Pakistan: Lucky Cement’s sales have risen by 13% year-on-year to US$514m for the six months to 31 December 2016 from US$454m in the same period in 2015. Its profit after tax rose by 14% to US$83m from US$73m. It attributed the increase in revenue on rising sales volumes and its cost of sales fell due to lower fuel costs.

Its cement sales volumes rose by 5.4% to 3.5Mt from 3.3Mt, although exports fell by 16.3% to 0.75Mt from 0.9Mt. Overall the cement producer reported that its market share in Pakistan grew slightly to 18.8% due to an increase in its share of domestic sales.

The cement producer reported that construction at its Punjab cement plant project is awaiting governmental approvals and that it is expected to start in June 2017. A waste heat recovery unit at its Pezu plant is planned to finish commissioning and start operation by the end of January 2017. A joint-venture 1.18Mt/yr plant in the Democratic Republic of the Congo started commercial operation in December 2016 and a 0.87Mt/yr cement grinding plant in Iraq is expected to come online in August 2017.