The Czech Republic is a landlocked Central European nation bordered by Germany, Austria, Slovakia and Poland. The country encompasses 78,866km2 of land and had an estimated population of 10.5 million in 2015. With its advanced economy and high standard of living, the Czech Republic has a healthy but slow-growing construction sector. To coincide with the 10th Global CemFuels Conference and Exhibition taking place in Prague, Czech Republic in February 2016, Global Cement Magazine has compiled a report on the country’s cement industry, including the latest developments and trends.
Economy
The Czech Republic’s economy was badly hit during the financial crisis of 2008. After an initially-rapid recovery, the country returned to recession in 2012 - 2013. In 2014, however, the economy returned to growth (Figure 2). The Czech Republic’s GDP grew by 2% year-on-year to US$205bn (official exchange rate) in 2014, while GDP/capita grew to US$30,000 from US$29,500 in 2013.1 Inflation fell to 0.4% in 2014 from 1.4% in 2013. Long-term economic challenges highlighted by the CIA World Factbook include the rapidly-aging population, funding an unsustainable pension and health care system and diversifying away from manufacturing towards a more high-tech, services-based, knowledge economy.
The country’s 5.53 million-strong labour force works in the service sector (60%), industry (37.4%) and in agriculture (2.6%). Unemployment is reasonably low at 7.7%. Industrial production grew by 4.5% in 2014. The Czech Republic is a net exporter; in 2014, exports rose to US$111bn from US$102bn in 2013, while imports rose to US$102bn from US$95.9bn in 2013. Exports and imports were primarily machinery and transport equipment, raw materials, fuels and assorted chemicals.
Cement industry
The Czech Republic is home to four cement companies, all of which are multinational producers. The four companies operate five integrated cement plants with 5Mt/yr of cement production capacity, as well as one standalone grinding plant (Figure 3).
The minerals industry in the Czech Republic has shrunk in recent years as resources have been depleted and the country faced an economic slow-down.2 Employment in the mining and quarrying sectors fell from 46,500 in 2011 to 43,000 in 2012. The industry contributed around Euro1.83bn or 1.04% to GDP in 2012, down from Euro2.38bn or 1.21% in 2011. The Czech Republic is home to a large number of registered reserved limestone deposits (Figure 4), in addition to a number of depleted deposits.
According to the Czech Republic’s Cement Manufacturers Association, the country produced 2.79Mt of cement and 2.09Mt of clinker in the first nine months of 2015, year-on-year increases of 6.22% and 3.01% respectively. During the nine months, domestic clinker sales rose to 12,715t from 0t in the same period of 2014 and domestic cement sales grew by 11.4% to 2.42Mt. Cement exports plunged by 99.9% to 87t and imports grew by 94.4% to 20,052t. Clinker exports fell by 11.3% to 402,134t and imports grew by 31.1% to 98,427t.
In the entirety of 2014, cement production grew by 9.3% year-on-year to 3.51Mt, exports rose by 0.8% to 602,000t and imports fell by 17.9% to 455,000t (Figure 5). Domestic cement consumption grew by 6.2% to 3.36Mt and per capita cement consumption rose by 6.3% to 320kg.
European Commission investigation
In August 2015 the European Commission (EC) closed an antitrust investigation that was originally opened in December 2010 against a number of cement companies, including Cemex, Holcim and HeidelbergCement.
The companies were suspected by the EC of colluding with rivals to fix prices in the Czech Republic, Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the UK. The EC said that there had been indications that suggested possible import/export restrictions, market sharing, price coordination and information exchanges in the markets for cement, ready-mix concrete, clinker, aggregates, blast-furnace slag, granulated blast-furnace slag, ground granulated blast-furnace slag and fly ash. Inspections were carried out in November 2008 and September 2009 at the premises of cement companies in Germany, France, the UK, Belgium, the Netherlands, Italy, Luxembourg and Spain.
The EC concluded in August 2015 that the evidence obtained ‘was not sufficiently conclusive to confirm these initial concerns,’ adding that, ‘the commission will continue to monitor closely developments in the European cement markets.’
Českomoravský Cement (HeidelbergCement)
Českomoravský Cement, part of Germany’s HeidelbergCement, is the largest cement company in the Czech Republic. It has two integrated cement plants in Mokrá and Radotín, which have 1.9Mt/yr of combined cement production capacity. Českomoravský Cement also operates a cement packing and shipping terminal in Králův Dvůr. It was formerly the Königshofer slag cement, Portland cement and lime plant. In 2003, cement production ceased and it has acted as a terminal ever since.
Českomoravský Cement was created in 1998 from the merger of Bohemia Cement and Cement and Lime. Today, Českomoravský Cement produces a variety of bagged and bulk Ordinary Portland Cements (OPC) and slag cement. It also imports CEM I 52.5R white cement for sale in the Czech
Republic.
Českomoravský Cement’s profit rose by 25% year-on-year to Euro27.2m in 2014, while its revenue grew by Euro3.69m to Euro102m. The positive results were attributed to the revival of the construction sector and favourable weather conditions. “The value of public contracts increased by 6.7% in 2014, so we can view 2015 with slight optimism,” said Českomoravský Cement’s Board Chairman, Jan Hrozek, at the time. The company supplied most of its products for the modernisation of the D1 motorway in 2014. Its other projects included repairs of concrete surfaces at the Vaclav Havel Airport Prague.
In the first nine months of 2015, HeidelbergCement reported that construction activity in the Czech Republic was boosted by the continued economic recovery, which resulted in an increase in cement sales. In its Eastern Europe-Central Asia operations, which includes the Czech Republic, its cement and clinker sales fell by 4.2% to 12.7Mt.
Lafarge Cement (67.98% LafargeHolcim)
Lafarge Cement, in which LafargeHolcim has a 67.98% stake, operates one integrated cement plant in Čížkovice with 1.1Mt/yr of cement production capacity (Figure 6).
The Čížkovice plant was first constructed in 1898, although it has since seen many upgrades. In 1992, Lafarge bought a 12.5% share of the plant, which has expanded to reach 67.98% today. The plant has an alternative fuels substitution rate of 90%. Lafarge produces a variety of OPC and slag cements in the country.
A reviving building material market raised Lafarge’s sales in the Czech Republic by 5% year-on-year to US$35.2m in 2014, according to company spokesperson Milena Hucanova. Profits from operations soared by 53% to US$6.55m. Hucanova attributed the growth to rising sales, an extraordinary revenue from the sale of carbon credits and operating savings. About 40% of the company’s output was exported in 2014. Its investments in the Czech Republic in 2015 were estimated at US$1.09m.
Cement Hranice (Buzzi Unicem)
Cement Hranice has one integrated cement plant in Hranice with 1.1Mt/yr of production capacity (Figure 7). The plant started wet-process cement production in 1954 and in 1991 it switched to the dry process. In 1997, Germany’s Dyckerhoff bought a majority share of Cement Hranice and in 2004, Buzzi Unicem acquired a controlling share of Dyckerhoff. Today, Cement Hranice produces bulk and bagged cements, dry mortars, adhesives and binders.
In 1987 - 1992 the plant underwent a Euro5.55m upgrade project that saw the installation of equipment to reduce dust, NOx and SO2 emissions, as well as the deployment of three-stage clinker firing with a pre-calciner. Cement Hranice uses alternative fuels to conserve natural non-renewable resources and to contribute to the ecological disposal of various wastes that would otherwise end up in landfills. To conserve the cement plant surroundings, thousands of trees have been planted and a system of water reservoirs has been installed. The plant purifies rainwater to supply 83% of its water requirements.
Buzzi Unicem reported that in the first nine months of 2015, the growth of the Czech Republic’s construction sector was satisfactory and that the company increased its capacity utilisation rate year-on-year. It said that, globally, its cement sales grew by 1.3% year-on-year to 19.2Mt, thanks in part to growth in the Czech Republic. However, it added that cement prices there fell slightly. In the country, Buzzi Unicem’s net sales grew by 0.8% to Euro101m and its EBITDA rose by 28.3% to Euro24.7m in the first nine months of 2015. In addition, the company reported 12.7% lower fuels costs and 6.1% lower electricity costs.
Cemex Cement
Cemex Cement has one integrated cement plant with 0.9Mt/yr of cement production capacity in Prachovice, making it the second-largest cement company in the Czech Republic. It also operates a grinding plant in Edě, Dětmarovice. The company entered the Czech Republic in 2005 with the acquisition of the UK’s RMC Group, including its Czech subsidiaries. Today it has 934 employees in the country and won the ‘Best Employers Czech Republic, 2014’ award. It produces a range of OPC, slag and limestone cement products.
In the first nine months of 2015, Cemex’s global net sales fell by 7% year-on-year to Euro9.81bn (or grew by 6% on a like-for-like basis), its operating earnings before interest, taxes, depreciation and amortisation (EBITDA) fell by 1% to Euro1.81bn (or grew by 11% on a like-for-like basis) and its total cement sales grew by 1% to 49.6Mt. In Northern Europe, including the Czech Republic, its net sales fell by 22% to Euro2.12bn (or grew by 3% on a like-for-like basis), its operating EBITDA fell by 3% to Euro232m (or grew by 14% on a like-for-like basis) and its domestic cement sales volumes fell by 1%, although prices in local currency terms grew by 2%.
Cemex’s global net sales grew by 3% year-on-year to Euro14.4bn in 2014. Its operating EBITDA grew by 4% to Euro2.51bn and its net loss narrowed to Euro464m from Euro771m in 2013. Although it didn’t provide a breakdown of its results by region or country, Cemex’s 2014 annual report said that, “The Czech Republic is a market with a strong economy and solid prospects and we expect the acquisition of assets will considerably reinforce our position in the country and in Central Europe.” Cemex also said that it would sell up to Euro1.37bn of assets in 2015-2016, although it did not specify in which regions.
Cemex-Holcim deal
In August 2013, Cemex and Holcim reached a deal to conduct a series of transactions in Europe:
- Cemex would acquire all of Holcim’s assets in the Czech Republic; the 0.9Mt/yr cement plant in Prachovice, four quarries and 17 ready-mix plants;
- Cemex would sell its assets in west Germany to Holcim, but retain its other German interests;
- Cemex and Holcim would combine all of their cement, ready-mix and aggregates operations in Spain. Cemex would have a 75% interest in the combined assets and Holcim would control 25%.
- Holcim would pay Cemex Euro70m in cash.
The transactions were expected to generate synergies that would result in a Euro18.3 - 27.4m recurring improvement in Cemex’s EBITDA.
“This will be an important strategic step that should allow Cemex to improve its footprint in Europe. It will consolidate our portfolio on the continent,” said Lorenzo H Zambrano, then-Chairman and CEO of Cemex (Zambrano passed away in May 2014). “This transaction will significantly strengthen our presence in Germany while at the same time giving us the necessary flexibility in Spain,” said Holcim’s CEO Bernard Fontana. “Overall, our footprint in Europe will be considerably strengthened.”
In March 2014 the Office for Protection of Competition (UOHS) of the Czech Republic approved the deal. In November 2014 Cemex signed binding agreements with Holcim regarding the transactions, with some changes made to the Spanish operations. Under the new terms, in Spain Cemex would acquire only Holcim’s 0.85Mt/yr capacity Gador cement plant and its 0.9Mt/yr capacity Yeles grinding plant, leaving Holcim’s other operations untouched. Additionally, the previously-announced payment of Euro70m to Cemex was changed to a Euro45m payment to Holcim. The transactions were completed on 5 January 2015 and on 1 March 2015, Holcim (Cesko) changed its name to Cemex Cement.
A series of management changes at Cemex was prompted by the transactions in March 2015. Hermann Dietrich was appointed as Cemex’s Vice President for Strategic Planning in the Czech Republic and Slovakia. Henning Weber became the Vice President for Operation and Technology at the
Cement Division, Mariusz Kostowski was named as the Trade and Logistics Director of the Cement Division and Justus Geiseler was appointed as the BSO Director. Lubos Merunka and Hana Fidrova, who were named as the Head of the Stone Aggregate division and the Company Lawyer respectively, both came to Cemex from Holcim after the deal. Cemex’s General Director in the Czech Republic and Slovakia, Peter Dajko, said that the company was not planning any additional personnel changes in the foreseeable future.
In July 2015, Cemex announced that its acquisition of Holcim in the Czech Republic was expected to save it Euro7.38m. Cemex plans to invest Euro3.69m into the integration of management systems. One of the largest investments currently planned is the modernisation of the Prachovice cement plant.
Cemex’s European asset divestments
In August 2015 Cemex signed an agreement for the sale of its operations in significant parts of Europe, including in Austria, Hungary, Croatia, Bosnia and Herzegovina, Montenegro and Serbia. This renders Cemex’s operations in the Czech Republic a major proportion of its European assets.
Its assets in Croatia, Bosnia and Herzegovina, Montenegro and Serbia will be sold to Duna-Dráva Cement (HeidelbergCement) for Euro231m. The assets include three cement plants (which sold approximately 1.66Mt of cement in 2014), two aggregate quarries and seven ready-mix plants. Cemex’s operations in Croatia, Bosnia and Herzegovina, Montenegro and Serbia had net sales of Euro124m in 2014.
Cemex’s assets in Austria and Hungary will be sold to Rohrdorfer Group for Euro160m. The Austrian operations consist of 24 aggregate quarries and 34 ready-mix plants and had net sales of Euro217m in 2014. The Hungarian operations being divested consist of five aggregate quarries and 34 ready-mix plants and had net sales of Euro42.2m in 2014.
The proceeds will mainly be used for debt reduction. The closing of the transactions is subject to the satisfaction of standard conditions, including authorisation by regulators. Cemex initially expected to finalise the transactions in the fourth quarter of 2015, but it has now been delayed until early in 2016.
Outlook
According to the International Monetary Fund’s (IMF) October 2015 outlook, the Czech Republic’s GDP was expected to grow by 3.9% in 2015 and by 2.6% in 2016.3 Construction output was expected to rise by 2.5% year-on-year in 2015, by 3.3% in 2016 and by 7.67% in 2020.4 Growth in the sector will likely remain modest for the foreseeable future as public sector projects continue to be slow and private developers lack the confidence for significant investment projects.5 This is expected to result in continued slow growth in domestic cement consumption, much the same as was reported by the Czech Republic’s cement producers in 2014 and 2015.
References
1. https://www.cia.gov/library/publications/the-world-factbook/geos/ez.html
2. http://minerals.usgs.gov/minerals/pubs/country/2012/myb3-2012-ez.pdf
3. https://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf
4. https://buildingradar.com/construction-blog/european-construction-market-forecast/
5. http://europaproperty.com/news/2014/04/czech-construction-sector-to-grow-6-percent-in-2015-1657