Global Cement Newsletter

Issue: GCW349 / 18 April 2018

Headlines


The rumours were confirmed yesterday when the UK’s Breedon Group announced its acquisition of Ireland’s Lagan Cement. The price was Euro527m, which Breedon will finance with a combination of a new loan, extended credit and an equity placing. The assets it will gain include a cement plant in Kinnegad, nine active quarries, 13 asphalt plants and nine ready-mixed concrete plants.

Breedon said that its strategy is to continue buying businesses in the heavyside construction materials market. At a stroke, once the deal completes on 20 April 2018, it becomes an international company. From the cement perspective it gains a new 0.7Mt/yr plant in central Ireland and a terminal in Belfast, UK. The UK Competition and Markets Authority (CMA) wasn’t mentioned in Breedon’s press release on the purchase but it seems unlikely that the competition body would have much to say on the transaction. Lagan Cement does hold ready-mix concrete (RMX) plants, aggregate and asphalt assets in Northern Ireland but these are far away from Breedon’s operations in mainland Britain. That said, the CMA did force Breedon to sell 14 RMX sites when it bought Hope Construction Materials in 2016. Generally speaking, Breedon’s enlargement reduces the diversity of the UK cement industry on the smaller end leaving only Quinn Cement, with operations on both sides of the border, as the country’s sole remaining single site clinker producer.

Aside from geographical expansion, becoming an international building materials company may offer Breedon Group some security from the UK’s exit from the European Union (EU) (so called Brexit). Breedon will join CRH as the only two cement producers with production facilities in both the UK and Ireland. The strategic significance of the position Breedon and CRH are in geographically may arise from whatever deal is reached between the EU and the UK and the significance of the UK’s only land border with the EU. LafargeHolcim is nearly in this club with its plants in England and Northern Ireland and plenty of the other local producers straddle the UK-EU border with terminals or production facilities elsewhere. Yet, in an uncertain Brexit negotiation, having kilns on both sides of the line might come in handy once (or if) the politicians make a decision.

Although, if Liam McCaffrey, the chief executive officer of Quinn Industrial Holding, is to be believed, then Brexit will have little impact at all other than (low) tariffs in a worst case scenario. He said to local press that although damage to the construction industry might arise in the UK from a prolonged recession, the UK’s housing shortage and reliance on imported building materials would probably see it through. That point about a possible financial downturn is important to Breedon Group, given the new debt it will be taking on to pay for acquisition. This is something that will be familiar to Breedon’s competitor Cemex. It is still paying off the debts from its acquisition of Rinker in 2007.

Breedon has decided to delay the release of its interim results from mid-July to September 2018 to allow time for the integration of Lagan into the group. Its sales and earnings may dwarf those from 2017 that it described as ‘one of the most productive years’ in its history. In the meantime congratulations are in order for Breedon Group for ensuring that the UK cement sector is never dull.


US: Dan Harrington has been appointed as the head of Cementir Holding for its North America region. He will lead Cementir's newly formed Region North America, which comprised of the North American cement production and distribution operations of Lehigh White Cement and the group's existing US concrete products company, Vianini Pipe.

Harrington was previously the president and chief executive officer of Lehigh Hanson North America and he has served as the chairman of the Portland Cement Association (PCA). He holds a science degree from Pennsylvania State University, an MBA from Fairleigh Dickinson University and an MA and PhD in executive management from Claremont Graduate University.


UAE: Ashley Bryan has been appointed as the general manager of Pioneer Cement. He will report to Joey Ghose, the chief executive officer of the parent company Raysut Cement. Bryan, aged 49 years, started working the cement industry in 1988. He has held various engineering and operational roles in the UK, Nigeria and South East Asia.


India: Burnpur Cement has appointed Pawan Pareek as its chief financial officer. Pareek holds 30 years experience in accounts, finance and commerce for the steel and cement industries.

The cement producer has also appointed Uma Agarwal as a non-executive independent director. Agarwal holds qualifications as a company secretary and has practiced company law for the last three years.


South Africa: PPC and China’s Sinoma Construction have successfully ignited the kiln at the Slurry Kiln 9 project in North West province. The new clinker production line will now undergo a three-month test period, according to the China Economic Daily newspaper. Once testing is finished, the 3300t/day line will be transferred to PPC to start commissioning.


Tunisia: Carthage Cement says that production has restarted at its Djebel Ressas plant. NLSupervision, a subsidiary of Denmark’s FLSmidth that holds a contact to operate the plant, resumed activity on 14 April 2018. Carthage Cement has also started marketing the cement locally once again. Production at the unit stopped in early April 2018 following a dispute between NLSupervision and staff. The company’s owners put the plant on sale in late 2017.


Ireland/UK: Breedon Group has acquired Lagan Group for Euro527m. The deal will be financed from a new loan, extended credit and an equity placing. The purchase will see Breedon Group enter the Irish market as it takes control Lagan’s production assets including a cement plant in Kinnegad, nine active quarries, 13 asphalt plants and nine ready-mixed concrete plants. The deal will complete on 20 April 2018.

“Lagan represents a unique opportunity to enter a growing market with immediate scale and excellent opportunities for expansion. It significantly strengthens our cement offer, adds to our mineral and downstream resources, brings us a bitumen import/export business and adds real weight to our contract surfacing operations,” said Paul Ward, Breedon’s chief executive.

Following the acquisition of Lagan, Breedon Group will operate two cement plants, around 70 quarries, 40 asphalt plants, 200 ready-mixed concrete and mortar plants, nine concrete and clay products plants, four contract surfacing businesses, six terminals and two slate production facilities. The group will also employ nearly 3000 people. It says its strategy is to continue growing organically and through the acquisition of businesses in the heavyside construction materials market.


Indonesia: Cement sales rose by 8.4% year-on-year to 16.4Mt in the first quarter of 2018 from 15.1Mt in the same period in 2017. Particular rises were noted in Central Java, Sumatra and Kalimantan, according to data from the Indonesian Cement Association. Total exports of cement and clinker rose by 79.6% to 0.70Mt from 0.39Mt.


Tajikistan: Cement production has more than doubled to 0.78Mt in the first quarter of 2018 from 0.36Mt in the same period in 2016. The rise has been attributed to new infrastructure projects, increased residential construction and higher exports, according to the Azer News newspaper. 172,000t of cement was exported to Uzbekistan, 131,000t to Afghanistan and 19,000t to Kyrgyzstan. 3.1Mt of cement was produced in the country in 2017 and over 1Mt of this was exported to the three countries led by Afghanistan.

The country has 13 cement producers with a total production capacity of over 4Mt/yr. However, the country is estimated to only need up to 3.5Mt/yr.


India: UltraTech Cement has raised its direct offer to buy Binani Cement to US$1.21bn. Previously it made a direct offer of US$1.11bn to Binani Cement in the form of a so-called ‘comfort letter’ that Binani Industries used to stop the insolvency process. UltraTech Cement made this latest offer to the resolution professional handling the insolvency process of Binani Cement, according to the Economic Times newspaper. The move follows a decision by the Supreme Court on 13 April 2018 to block UltraTech Cement’s first offer. However, the court will consider a plea by a group of operational creditors that is backing the higher offer in late-April 2018.


Kenya: East African Portland Cement (EAPC) is relying on a US$100m land sale to the government to remain solvent. The company is in discussions to sell over 14,000 acres of land to the newly established Special Economy Zones Authority funds, according to the East African newspaper. The cement producer has seen its production halted, cement stocks depleted and staff salaries delayed over the last two months. It reported a loss of US$9.58m in the second half of 2017 from a loss of US$2.45m in the same period in 2016.


Tanzania: Dangote Cement plans to start using natural gas at its Mtwara plant by the end of May 2018. The decision follows the completion of a new gas pipeline near the plant, according to the Citizen newspaper. The plant has been using temporary diesel generators. A source quoted by the newspaper said that the unit has been using 6Ml/month of diesel at a cost of about US$4.4m. In late 2016 Dangote Cement made a deal with the government to supply natural gas to its cement plant at Mtwara following a temporary shutdown at the site.


Uganda: Hima Cement’s new US$40m grinding plant at Nyakesi in Tororo District is expected to start production in early May 2018. Originally the 0.8Mt/yr plant was scheduled to open in June 2018, according to the East African Business Week newspaper. Opening early is dependent on the subsidiary of LafargeHolcim receiving a government mining licence.


Nigeria: The Methodist Church of Nigeria has called on the local government to support the reopening of the Nkalagu Cement plant. The Diocese of Onitsha wants the unit restored so it can create local jobs, according to the Vanguard newspaper. The plant was the first in Nigeria when it opened in 1954. It later closed in 2003 after it was privatised. The Ebonyi state government signed a memorandum of understanding with Ibeto Group in 2016 to revive the plant.


Lebanon: Residents in Koura district has demanded that nearby cement plants be closed and cement exports banned due to health fears. George Costantine al-Itani, the environmental committee coordinator for Kfar Hazir issues a list of demands, according to the Daily Star newspaper. The group wants local cement plants in the area to move out of residential areas, close down unauthorised quarries and replace petcoke usage with natural gas. In the longer term the group wants the government to plant trees on cement company land and decrease the cost of local cement. Local company Cimenterie Nationale and Switzerland’s LafargeHolcim operate cement plants in the region.


France: Sonia Artinian, Lafarge’s human resources director from 2013 to 2015, has been charged ‘endangering the lives of others’ during operations in Syria. However, she avoided being charged for financing a terrorist organisation instead being granted ‘assisted witness’ status, according to the Agence France Presse. LafargeHolcim is being investigated in France over claims that Lafarge Syria had paid extremist groups to keep its Jalabiya cement plant operational after the outbreak of war in Syria. Six former Lafarge executives have been charged so far with financing a terrorist organisation.


India: The Binani Operational Creditors Forum (BOCF) is seeking a forensic audit of the insolvency resolution process of Binani Cement due to an alleged lack of transparency. The forum has filed a petition in the Supreme Court, according to the Press Trust of India. Binani Cement owes about US$1.07bn to its creditors.

The Supreme Court previously blocked an out-of-court offer by UltraTech Cement for Binani Cement. A consortium led by Dalmia Bharat won an auction for Binani Cement with a bid of US$974m in early March 2018. However, UltraTech Cement then made a direct bid to Binani Cement a few weeks later. According to the BOCF, the operational creditors are expected to only receive US$23.2m from a total exposure of US$107m if the bid from Dalmia Bharat is allowed to complete.


India: The Supreme Court has blocked an out-of-court offer by UltraTech Cement for Binani Cement. Banks had offered conditional support to UltraTech’s bid, seeking indemnity from Binani Industries, the owner of Binani Cement, against any potential legal action, according to the Economic Times newspaper. A consortium led by Dalmia Bharat won an auction for Binani Cement with a bid of US$974m in early March 2018. However, UltraTech Cement then made a direct bid to Binani Cement a few weeks later.

Binani Industries had deposited US$115m with HDFC Bank to show its commitment to the deal with UltraTech, along with a bank guarantee for nearly US$1bn. However, Dalmia Bharat had sent letters to all the banks involved saying that any settlement initiated by them would be a breach of trust as they had entered into a contract with Dalmia.


Chile: Cementos Bío Bío is considering expansion plans in Argentina and Peru, according to the El Mercurio newspaper. The plans are part of its 2021 strategy. It also wants to consolidate its leadership in its local market.


Kenya: East African Portland Cement plans to build a railway terminal at Athi River near its integrated cement plant. The depot will be used to help deliver raw materials by train on the Standard Gauge Railway to the plant, according to the Business Daily newspaper. Managing director Simon Peter ole Nkeri said that his company relies ‘heavily’ on imported clinker. The cement producer is holding discussions with the government about the project.


Saudi Arabia: Cement sales fell by 11% year-on-year to 11.8Mt in the first quarter of 2018 due to a continued slowdown in the construction industry. Weak demand and high inventory levels has forced cement producers to sell their cement in other parts of the country and export to other countries, according to a report by Al Rajhi Capital. The report cited Yanbu Cement's export agreement although it said that its low production costs gives the company the advantage to export at lower prices than its competitors.

Increased competition within Saudi Arabia has led to a price war. The report marked the central region as an attractive region for northern region cement companies due to the relatively bigger market. The sales market share for northern cement companies increased in the last six months. On the other hand, central region companies' market share decreased slightly during the same period.

Yanbu Cement signed a one-year agreement to export 1Mt of clinker and 0.5Mt of cement from April 2018. It is estimated that the deal with Yanbu Cement US$26.6m in extra sales revenue in 2018. Al Rajhi Capital reckoned that the cement producer would be likely to renew the export deal in 2019 as its low margins are unlikely to aid earnings.


Poland: Cement sales rose by 7% year-on-year to around 18Mt in 2017, according to the Polish Cement Association. The country has a cement production capacity of 24Mt/yr and the capacity utilisation rate is approximately 75%. The Institute of Economic Forecasting and Analysis forecasts that sales will grow by 8% in 2018 to 17.9Mt.


Dominican Republic: Cement sales fell slightly by 1.5% year-on-year to 4.18Mt in 2017 from 4.24Mt in 2018. Adocem, the Dominican Portland Cement Producers Association, blamed the slowdown on a slowdown of the general economy. It also reported that exports grew in 2017 to 20.1% of production from 17.3% in 2016.


Ireland: Liam McCaffrey, the chief executive officer of Quinn Industrial Holdings does not expect Brexit to slow growth. He said that the most damage could arise from a prolonged recession in the UK, although he though it was unlikely, as reported bythe Irish Times newspaper. He added that the UK has a housing shortage and it relies on imports for building materials. In his estimation the worst-case scenario would be a tariffs on building materials but these, if they happened at all, are expected to be low.

The building materials producer and owner of Quinn Building Products reported that its turnover grew by 7.4% year-on-year to Euro209m in 2017. Its earnings before interest, taxation, depreciation and amortisation (EBTIDA) increased by 31% to Euro23.9m.

“Despite the significant macro-economic challenges posed by Brexit, we continue to invest, grow sales, innovate and drive margin growth. Encouragingly, volume growth trends from 2017 are continuing year to date in 2018 and, at this point, we are firmly on track to deliver our fourth successive year of strong earnings growth,” said McCaffrey.


Poland: The court of appeal has supported a decision by the Office for Competition and Consumer Protection (UOKiK) in 2009 to fine six cement producers for cartel-like behaviour. However, the total fine has been reduced by one third to Euro67m from Euro98.3m, according to the Polish News Bulletin.

Grupa Ozarow is to pay Euro22.1m, Cemex Polska Euro16.6m, Gorazdze Cement Euro12.3m, Dyckerhoff Polska Euro7.51m, Cementownia Warta Euro5.55m and Cementownia Odra Euro2.87m. Some companies had their fines reduced by the court of appeal. Dyckerhoff will pay Euro7.5m instead of Euro13m and Cemex Polska will pay Euro5.88 less than the original fine. Some of the companies involved are considering appealing to the Supreme Court.