Displaying items by tag: Spain

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.

Cemex's decision to head deeper into eastern Europe as part of the Cemex-Holcim asset swap announced this week suggests some nerve. Cement production levels started to fall in the region from 2012, according to Cembureau figures, with continued problems reported so far by the multinational cement producers in 2013. Cemex seems likely to lose money from the start with its new assets in the Czech Republic.

In more detail, Cemex will acquire all of Holcim's assets in the Czech Republic, which include a 1.1Mt/yr cement plant, four aggregates quarries and 17 ready-mix plants. In return Holcim will give Cemex Euro70m and Cemex will give Holcim its assets in western Germany including one cement plant and two grinding mills that encompass a total capacity of 2.5Mt/yr, one slag granulator, 22 aggregates quarries and 79 ready-mix plants.

Cemex must believe that it can wait out the recovery of the construction sector in eastern Europe or make savings from having a more easterly spread of assets. Certainly Cemex said in its press release on the asset swap that its earnings before interest, tax, depreciation and amortisation (EBITDA) would start to rise from US$20m to US$30m from 2014.

The question for the buyers at Cemex who considered this deal is whether the construction market has bottomed out in the Czech Republic yet. According to World Bank figures, following the 2008 financial crisis Czech Gross Domestic Product (GDP) fell to a low of US$197bn in 2009, rose again until 2011 but then fell to US$196bn in 2012. Currently the Czech National Bank is anticipating a further fall in growth in 2013. Meanwhile, data from a third quarter 2013 Czech construction sector analysis by CEEC Research reported that a drop of at least 4.7% was expected in 2013 with a follow-on decline of 2.7% in 2014.

Possibly one deal-maker for Cemex was the prospect of combined operations with Holcim in Spain across cement, aggregates and ready-mix. Similar to the Lafarge-Tarmac joint-venture in the UK, the move offers reduced risk in a declining western European market. How the Spanish competition authorities will respond remains to be seen. Elsewhere on the continent this week the decision by the Belgian Competition Council to fine the Belgian cement sector shows an example of behaviour the Spanish authorities will want to avoid.

Spain: Spanish association of cement producers Oficemen has appointed Isidoro Miranda as its new chairman. Miranda, the managing director of Lafarge Cementos, will replace the former chairman of Cementos Portland Valderrivas and current CEO of builder FCC, Juan Bejar. Oficemen also named Jaime Ruiz de Haro, Jose Maria Aracama, Feliciano Gonzalez and Jorge Wagner as vice presidents.

Spain: The board of directors at Spanish construction group FCC will propose in the following days the appointment of Juan Bejar CEO to replace Baldomero Falcones who occupied the position for five years, according to Spanish business newspaper Expansion.

At present Bejar is a chairman at FCC's subsidiary Cementos Portland Valderrivas and Globalvia, in which FCC is a partner of Bankia. He was also a chairman at Citigroup Infrastructure Management and CEO at Ferrovial Infraestructuras and Cintra.

The new CEO will take his position in a moment when FCC is focused on a restructuring process, aimed at meeting the fall of the traditional business, the difficulties of the cement subsidiary and Austrian unit Alpine as well as the need to repay Euro1.6bn debt.

The results are in from the European cement majors and the news from the Mediterranean producers is grim. A common phrase found in most of these financial reports was the 'challenging economic environment' in western Europe. Here's what this means.

In Spain, Cemex saw its net sales in its Mediterranean region (consisting mainly of Spain) slump by 17% to Euro1.10bn. Cementos Portland Valderrivas (CPV) posted a loss of Euro83m for the first nine months of 2012, almost 10 times the loss for the same period in 2011. In July 2012 the Spanish cement association Oficement noted that demand had fallen by 60% year-on-year.

In Italy, Italcementi reported a 92% crash in net profit, to Euro17.1m, for the first nine months of 2012, and a drop in revenue of 4%, to Euro3.39bn, for the first nine months of 2012. Buzzi Unicem reported a 21% decline in sales volumes of cement and clinker, and a drop in sales of 15% to Euro430m. Vicat reported that Italian sales across all its business lines were down by 9% for the year.

By contrast, beleaguered Greek producer Titan has finally started to show a (slight) increase in its revenue. It has been able to report a second consecutive quarter where turnover has risen year-on-year. Although Titan's net profit for the same period still plummeted by 96% to Euro2m.

Elsewhere progress of a kind is being made despite the ongoing European slump, mainly due to profitable assets held outside of western Europe.

Lafarge reported that its overall sales were up by 4% to Euro4.39bn in 2012 so far. Yet its income has fallen by 44% to Euro332m and its profits are suffering from its restructuring programme. In western Europe Lafarge noted that cement volumes were down by 11% to 12.5Mt so far in 2012 and that sales were down by 9% to Euro2.43bn.

Holcim reported a 5% increase in overall net sales and a 7% increase in operating profits to Euro1.57bn. In western Europe Holcim's sales volumes were down by 4.6% (like-for-like) to 20.1Mt and sales were down by 6% to Euro3.68bn.

HeidelbergCement reported a 2.5% increase in overall sales but pre-tax profits have fallen by 5% to Euro601m. HeidelbergCement's revenue from its cement business in western and northern Europe was down by 5% to Euro1.3bn. Buzzi Unicem reported overall flat sales at Euro2.15bn but net profit rose by 50% to Euro85m. Despite this Buzzi Unicem reported a drop of 8.5% in Germany.

Vicat reported little change in sales at Euro1.73bn for the year so far. Vicat's financial reporting made it hard to tell how much was lost in Europe but French cement sales were noted as being down by 12%. Cemex's sales volumes were down by 13% in northern Europe, with net sales down by 15% to Euro3.09bn. Italcementi's cement sales volumes in central and western Europe fell by 16.8% to 12.2Mt.

Of the major producers only Lafarge failed to state the obvious in its outlook about western Europe: that sales will continue to decline in 2012 and 2013. If Titan has set the bar for how much more pain the other European producers have yet to face then conditions are likely to get worse. Get ready for even more 'challenges' in 2013.

The news this week that GSO Capital Partners has patched together a group of investors to recapitalise Giant Cement and its owner Cementos Portland Valderrivas (CPV) has been a long time coming.

Giant may be based in the US but CPV is Spanish. Here cement production fell by 28% year-on-year for the first half of 2012. For its 2012 forecast Oficemen, the country's domestic producers association, forecast in July that consumption will fall by 25% compared to 2011, to 15Mt/yr, representing a drop of 73% from a high of 56Mt/yr in 2007. Potentially the Spanish cement industry could regress to a per capita consumption of only 325kg/capita, figures not seen in the country for nearly 50 years! It has already hit a 48-year low.

In other words it is the perfect time for cash-rich foreign firms to pick up a bargain. Yet the question that should be asked, especially by anybody else thinking of investing in highly indebted European cement assets, is how do investors expect to make any return?

Simply waiting for the market to improve is one strategy for those who can afford it. According to the Global Cement Directory 2012, Spain has 38 cement plants with a capacity of 48Mt/yr. Of this the big players – Cemex, Holcim, Lafarge and CPV – comprise 28Mt/yr. Even if the smaller producers stopped producing cement overnight the big producers would still have the capacity to produce twice as much cement as is currently required.

However, the focus on the CPV subsidiary Giant Cement is telling. The owner of CPV, Fomento de Construcciones y Contratas SA (FCC), was originally reported as trying to sell Giant by March 2012. With the US market starting to pick up, Giant would make an attractive acquisition. FCC's last attempt to sell Giant was, however, delayed by CPV's debt.

With a Giant sale delivering some return to the GSO Capital Partners investors, followed up by further on-going debt repayment from CPV, the only loser would be the future development of the Spanish cement industry outside of that done by the multinationals. Heavily indebted European cement producers with profitable overseas assets must be looking very attractive indeed to international investment firms. The bargain hunt has begun.

Spain: The Spanish cement producer Cementos Portland Valderrivas has announced that it will appoint Juan Bejar Ochoa as its executive chairman. Bejar will replace Dieter Kiefer, who will leave the company after four years at the helm. Juan Bejar joined the company recently in January 2012.

The changes in Cementos Portland's top management come at a tough moment for the firm given the slump in cement sales on the domestic market, as well as the problems at its production sites in Tunisia.

The Spanish cement producer Cementos Portland Valderrivas has approved the nominations of Juan Bejar and Jose Manuel Burgos as board members. Bejar currently occupies the post of executive chairman at domestic motorway operator Globalvia and Burgos is a vice-chairman at the real estate firm GMP. They will replace Rafael Martinez-Ynzenga Canovas del Castillo and Feliciano Fuster.