Belgium: Taner Aykac has been appointed the managing director of Compagnie des Ciments Belges (CCB). The board of directors has also appointed Eddy Fostier as general manager of the company.

Aykac, a Belgian national aged 53 years, holds a Bachelor of Science in Engineering and a MBA. He started his career in the agrochemical sector for Pioneer Overseas Corporation/DuPont in 1988 and subsequently worked for chemical and pharmaceutical multinationals such as Ciba-Geigy, Novartis and Zeneca, where he held various senior roles until 2000 before working for Syngenta Group. In 2011, Aykac was appointed CEO of Cimentas, a Cementir Group subsidiary in the Turkish cement and ready-mixed concrete business, contributing to the reorganisation of the company. He worked in Turkey until the end of 2015.

Brazil: Camargo Corrêa has named Heinz-Peter Elstrodt as its chairman replacing Vitor Hallack. The decision to hire Elstrodt is part of the conglomerate’s intention to direct the company towards asset portfolio management away from the construction industry, according to the Valor Econômico newspaper. Previously, German national Elstrodt has spent 32 years at the consultancy McKinsey, where he reached the role of Latin America president. The changes in management follow the resignation of Hallack in August 2016 and governance problems following links to the Petrobras corruption scandal.

South Africa: PPC has appointed Peter Nelson as its permanent board chairman following his interim tenure in the role following the retirement of Bheki Sibiya. The appointment took affect from 24 October 2016. Other recent appointments include the proposal to elect Nicky Goldin as the third member of the audit committee following the retirement of Bridgette Modise and the appointment of Timothy Leaf-Wright as chairman of the risk and compliance committee with immediate effect

Nelson was appointed to the board as an independent non-executive director on 25 January 2015. His experience covers manufacturing, mining, telecommunications, healthcare, leisure, property, packaging and the motor industry in listed and private entities in South Africa, the UK, Zimbabwe and Nigeria. He has served as chief financial officer on several boards including Telkom, Netcare, Mondi and he was the financial director of PPC from 2000 to 2003.

Goldin was appointed to the board as an independent non-executive director in January 2015 and currently serves on the Remuneration and
Investment sub-committees of the board. She holds a B.Com (Hons) from the University of the Witwatersrand and obtained an MBA from the University of Illinois. She has held senior positions at Deloitte Consulting, BHP Billiton, Anglo American, Standard Bank and ANZ Bank (Australia).

Leaf-Wright is a chartered secretary and was appointed to the board as an independent non-executive director in January 2015. He currently serves as a member of the risk and compliance, social, ethics and transformation and investment committees. His career with Nampak Limited spanned 41 years prior to early retirement in 2014. During the last 11 years, he was seconded to Mozambique, Nigeria and Angola to spearhead negotiations and subsequently construction and managing of both brown and greenfield plants in those countries.

One fascinating statistic stands out in a study on how the Islamic State of Iraq and Syria (ISIS) pays its bills: cement represented 4% of its revenue in 2015 or around US$100m. The Centre for the Analysis of Terrorism (CAT) came up with this figure as part of its analysis on how the group finances itself. Its data was based on available information such as local sources, internal ISIS documents and reports from governments and institutions.

What’s more, the previous year in 2014, CAT estimated that ISIS brought in US$300m from cement sales. The difference in revenue between 2015 and 2014 came about from the group losing control of territory. In late 2014 it controlled four cement plants: the Lafarge Al-Jalabiya plant in Ayn al-Arabin, the Al-Raqqah Guris Cement plant and Fallujah, Kubaisa and Al-Qa’im plants in Iraq. Altogether it had a cement production capacity of 7.5Mt/yr, a higher capacity than 62% of the cement producing nations that are recognised formally by the United Nations. Briefly it had production parity with countries like Angola, Uzbekistan and Kuwait.

However the loss of the Al-Jalabiya and Kubaisa plants has stifled this revenue stream. At its peak ISIS couldn’t have been selling cement for more than something like US$40/t (capacity / revenue) if the plants were operating at full capacity. Yet it’s much more likely that the plants were chronically under-utilised and prices significantly higher in the heat, dust and confusion of a militant group attempting to form a state in a warzone.

Global Cement Weekly has covered previously the furore that erupted when French media accused Lafarge of cutting deals with ISIS to keep its Jalabiya cement plant during the early stages of the Syrian Civil War. At the time of the revelations in June 2016 LafargeHolcim said that its first priority was the safety and security of its employees at the plant before it eventually closed it, although it did not deny accusations directly.

Since then the plant’s former security manager Jacob Waerness has popped up in an interview with Bloomberg in connection with a book he wrote about the affair. According to Waerness, Lafarge stayed in the country for too long before the plant was finally seized by ISIS in September 2014.

The problem for Lafarge, as other multinational companies left the warzone, was that the US$680m plant had only been operational since late 2010 before hostilities broke out in 2011. Essentially, it tried to wait out the conflict and then got left behind. Pertinent to the start of this column, Waerness says that as the more extreme groups took control of the surrounding area he was offered and declined a meeting with the IS finance chief in Raqqa in the summer of 2013. However else one might describe IS, it was and clearly is well aware of the revenue to be gained from functioning cement plants.

LafargeHolcim has since started an internal review into the reported allegations under the auspices of its Finance & Audit Committee. In September 2016 the Iranian-backed Fars News Agency was reporting that US special forces were using the Jalabiya plant as a base. If and when peace comes to the region it will be intriguing to find out what condition the plant is in. Until then, LafargeHolcim will have to wait and take the loss on its investment.

Italy: HeidelbergCement, the sole shareholder of Italcementi, has appointed a new board of directors its subsidiary at a shareholder meeting on 19 October 2016. The new members are Luca Sabelli as chairman, Dominik von Achten as executive vice president, Lorenz Näger as executive vice president and Roberto Callieri as chief executive officer.

On 12 October 2016, HeidelbergCement purchased the remaining Italcementi shares that had not been tendered in the mandatory tender offer. From this date HeidelbergCement became the sole shareholder of Italcementi and owns 100% of the share capital. Italcementi shares were delisted from the Italian Stock Exchange on the same day.

As mentioned last week, there were a number of big news stories, one of which was the planned merger between RHI and Magnesita. On 10 October 2016 both companies announced that they were combing to form a ‘leading’ refractory company with complementary assets and a completion date penned in for 2017. As Informed’s Mike O’Driscoll presents a good overview of the two companies and the general implications of the merger we will focus on the cement industry aspects of the merger here. It is worth noting here that the new company will be established in the Netherlands but its shares will be listed in London. O’Driscoll reckons that had the UK voted to stay in the European Union the new company would have been based in London.

Comparing like-with-like for RHI and Magnesita is difficult because Magnesita doesn’t publish figures on its refractory sales to the cement industry. However, RHI produced 443,000t of refractory materials in 2015 for its Industrial Division, including the cement and lime industries, and Magnesita produced 151,000t for its Industrial Division at the same time. As can be seen in Graph 1 RHI produces nearly three times as much refractory as Magnesita in this area. Sales volumes for RHI have fallen over the last five years and Magnesita’s sales hit a high in 2013. Total revenue for RHI, across all business lines, was US$1.95bn or about double that of Magnesita.

Graph 1: Refractory sales volumes to industrial divisions for RHI and Magnesita, 2011 – 2016. Sources: RHI and Magnesita financial reports. Note: Figures for Magnesita are calculated from percentages.

RHI reported that 12.6% of its revenue in 2015 came from the cement and lime industries. It pointed out that this sector of its business benefited from the growing construction industry in North America. Elsewhere, it had a tough time in most of its territories, with the exception of Indonesia where its revenue grew due to a major contract won in the lime segment. Over the last five years RHI’s revenue from its cement and lime customers dipped to a low in 2013 before recovering year-on-year since then.

However, the situation has deteriorated during the first half of 2016 with revenues from the cement and lime industries falling by 13% year-on-year. China was blamed as the biggest single factor, with business down by roughly a quarter as a result of the downturn in the construction industry, falling property prices and lower investment activities. One interesting point that RHI made at this time was that, “the globally weak economic situation and regional excess capacities are causing a decrease in repair volume.” Another was the importance the refractory producer placed on Africa and on Nigeria and Algeria in particular. This seems to belie the petrodollar woes Nigeria has experienced recently and the scaling back by Dangote Cement of its international expansion plans.

Magnesita reported that sales volumes for its industrial segments sector, including cement, dropped by 11.7% year-on-year to 133,000t in 2016. It blamed the shortfall on the declining cement industry in Brazil with problems in Venezuela also contributing. In contrast to RHI though it reported growing sales in the Middle East and Africa, notably in Saudi Arabia and Egypt. Sales revenue actually rose by 10.2% to US$145m due to favourable exchange rates on sales outside of Brazil.

In the first half of 2016 the negative trend in Brazil continued for Magnesita with sales volumes falling by 22% in its so-called ‘established’ markets. This was compensated for by Bolivia, Mexico, Argentina and the Middle East, Africa and the Commonwealth of Independent States territories. Sales volumes for its industrial segments sector rose slightly by 1.1% to 75,200t in the first half of 2016. Again, sales revenue grew on the back of exchange rates.

As with mergers between large producers in the cement industry, if global growth is stagnating, then mergers offer an alternative way for refractory companies to compensate. However, LafargeHolcim’s promise of savings and synergies has withered to periodic news bulletins of what assets the group is planning to sell next. One question to pose is whether the merger of RHI and Magnesita will herald a similar drip-drip of assets disposals in coming years or whether it will usher in a new era for the refractory industry. A large part of this will depend on the health of the steel industry, as well as minority markets such as cement.

Germany: The Supervisory Board of KHD Humboldt Wedag International has appointed Gerold Keune as chief executive officer. He replaces Johan Cnossen who resigned with immediate effect for personal reasons in March 2016.

US: Chairman and CEO Doug Oberhelman will retire from Caterpillar on 31 March 2017. The company’s board of directors has elected Jim Umpleby, currently a Caterpillar Group President with responsibility for Energy & Transportation, to succeed Oberhelman as CEO.

Umpleby, a 35-year veteran of the company, will join the Caterpillar Board of Directors and become CEO effective 1 January 2017. He joined Solar Turbines in San Diego, California in 1980. Solar, a wholly owned subsidiary of Caterpillar, is a manufacturer of industrial gas turbine systems. Early in his career, he held numerous positions of increasing responsibility in engineering, manufacturing, sales, marketing and customer services. Umpleby lived in Asia from 1984 to 1990 with assignments in Singapore and Kuala Lumpur, Malaysia. The Caterpillar Board of Directors elected Umpleby a Caterpillar Vice President and President of Solar Turbines in 2010. He was named Group President and a member of Caterpillar’s Executive Office, effective from January 2013.

The European Commission’s decision to investigate Duna-Dráva Cement’s (DDC) purchase of Cemex Croatia sticks out in a busy news week. There have been a few noteworthy news stories this week from the Indonesian government making preparations to fight overcapacity, LafargeHolcim retreating from Chile, Cemex restructuring its management in Colombia after investigations into a land deal and the announcement of merger plans between two of the larger refractory manufacturers. Yet the commission’s probe is a response to what may be in effect a ‘land grab’ by DDC. How on earth did HeidelbergCement and Schwenk, the joint-owners of DDC, think they were going to pass this one past the relevant competition bodies?!

As the commissions describes it, the “proposed transaction would combine Cemex Croatia, the largest producer in the area, and DDC, the largest importer.” So far, so bad. Then add the observation that Cemex Croatia and LafargeHolcim control all the cement terminals in ports along the Croatian coast. Cemex has three cement plants in the south of the country with no nearby competition. Giving the owners of DDC those assets ties up the market southern Croatia nicely. Understandably, the European Commission has concerns.

Croatia has five cement plants. LafargeHolcim runs a 0.45Mt/yr plant at Koromačno and Nasicecement run a 0.6Mt/yr plant at Nasice. Cemex’s three plants are all in the south near Split within about 10km of each other. When Global Cement visited in late 2014 Cemex Croatia told us that the plants were so close together that the company considered them as one plant. The sites also share one quarry for their raw materials. Only one of three plants, Sv Juraj the largest, has a bagging unit and Sv 10 Kolovoz was mothballed due to poor market demand. Together the plants have a cement production capacity of 1.92Mt/yr. This gives Cemex 65% of the market by production capacity.

Describing the three plants as one certainly makes sense for a company that might have been considering selling them. However, it is a fair comment given the close proximity of the plants to each other and the joint-capacity below that of some of the larger single site multi-kiln plants around the world. In this sense, the real questions for the European Commission will be how much of a dent to competition will it make to hand over the area’s main importer to the area’s main producer?

Graph 1: Cement consumption in Croatia, 2011 - 2015 (Mt). Source: Croatian Bureau of Statistics.

Looking at the national cement market since 2011 in Graph 1 using data from the Croatian Bureau of Statistics, sales volumes fell to a low in 2013 and have picked up since then, although not to the same levels. Prior to this cement sales halved from 2008 to 2013. Under these kinds of conditions Nexe Grupa, the owner of Nasicecement, filed with pre-bankruptcy settlements in 2013. HeidelbergCement expressed interest in the cement assets around this time, although nothing eventually happened. Imports of cement grew by 11% year-on-year to 312,000t in 2015 from 280,000t in 2014. This compares to a 1% increase to 2.36Mt in domestic cement sales in 2015.

As the commission suggests, combining the region’s biggest producer and its biggest importer seems like a recipe for reduced competition and inflated prices. This could be mitigated, in theory, if DDC decided to flood the region with imports from HeidelbergCement’s new assets from Italcementi once it completes its purchase of that company. Although a dominant player in a region undercutting its own prices seems far fetched. Theoreticals aside, it seems very unlikely that the European Commission will let the purchase go ahead without taking some sort of action.

Jamaica: Chris Dehring has resigned as chairman of Caribbean Cement with immediate effect. He was appointed chairman of Caribbean Cement in October 2014, months after joining the board of its parent company, Trinidad Cement, according to the Jamaica Observer. He has left the cement producer to commit to his next business venture in broadcasting. Previously, Dehring founded the Dehring, Bunting and Golding investment bank, and served as managing director of the 2007 ICC Cricket World Cup, chief marketing executive of the West Indies Cricket Board, manager at Citibank NA and chairman of LIME Caribbean/Cable & Wireless.