Displaying items by tag: CRH

HeidelbergCement’s acquisition of Italcementi really sticks out in a comparison of the major multinational cement producers in 2017. Both its sales revenue and cement sales volumes jumped up by more than 10% year-on-year from 2016 to 2017. It still puts HeidelbergCement behind LafargeHolcim and CRH in revenue terms but the gap is shortening. Although, as we reported at the time of its preliminary results in late February 2018, on a like-for-like basis its sales and volumes only rose by 2.1% and 1.1% respectively.

Graph 1: Sales revenue from multinational cement producers in 2016 and 2017 (Euro billions). Source: Company financial reports.

The European markets may be back on their feet but serious growth came from mergers and acquisitions. Along the same lines, India’s UltraTech Cement is set to reap the reward of its US$2.5bn acquisition of six integrated cement plants and five grinding plants from Jaiprakash Associates in mid-2017. Although as can be seen in graphs 1 and 2 it had been doing fairly well even before this.

Graph 2: Cement sales volumes from multinational cement producers in 2016 and 2017 (Mt). Source: Company financial reports.

We’ve included Ireland’s CRH this year to present the scale of the company. When it says that it is the world’s biggest building materials company, it means it! CRH doesn’t publish its cement sales volumes, which makes it hard to compare it to other cement producers. In part this may be due to the company’s regional-focused structure and its approach to the construction industry. In Global Cement Magazine’s Top 100 Report 2017 – 2018 feature, CRH was placed as the seventh largest cement producer by installed capacity with 50.5Mt/yr. The major story with CRH in recent years has been its steady stream of acquisitions, notably Ash Grove Cement in the US in 2017.

LafargeHolcim may remain the biggest cement producer in the world outside of China but it made an income loss of Euro1.46bn in 2017. At face value its cement sales volumes fell by 10.2% to 210Mt in 2017 from 233Mt in 2016 but this was mainly due to divestments in China, Vietnam and Chile. On a like-for-for-like basis its volumes rose by 3.3%. To this kind of mood music the emphasis on the release of its 2017 results this week was the announcement of a five-year plan to refocus the company. However, reports of overcapacity in Algeria that also emerged this week suggest the group may have its work cut out.

Cemex described 2017 as a ‘challenging year’ as its operating earnings fell due to a lower contribution from the US and South America despite growth in Mexico and Europe. Hurricanes in Florida had a negative impact in the US and the Colombian market suffered from falling production in 2017. UltraTech Cement uses a different financial year to the other companies detailed here, which makes comparisons a little harder. However, its profit after tax fell in the third quarter that ended on 31 December 2017 due to rising costs of petcoke and coal. Undeterred though, its expansion drive continues this week with its continued efforts to try and win the bid for Binani Cement. Vicat, meanwhile, reported falling earnings in part due to the poor market in Egypt. Yet overall its sales and volumes rose in 2017 aided by recovery in France. Finally, Buzzi Unicem rode out the Italian market with its acquisition of Zillo Group delivering a rise in sales and cement volumes.

Wider trends are hard to call given the differing geographical spreads of these cement producers. Europe has been recovering from a decade of stagnation and Asian markets are no longer reliable. South America is mixed with places like Brazil, and now Colombia, underperforming. Yet Argentina is proving one of the fastest growing construction markets at the moment with local plants unable to meet demand. Africa remains profitable and promising as ever but divided between the north and the Sub-Saharan region.

Once the effects from mergers and acquisition activity by the larger cement producers start to fade then the actual situation may become clearer. In the meantime, the effects of the recent cold snap in Europe on the first quarter results for 2018 could be pretty varied. The Financial Times newspaper, for example, quoted one pundit from the Construction Products Association who estimated the industry lost 1% of its annual output to the bad weather in the UK. This may not be great news for any company relying on the European market.

Ireland: CRH has appointed Richard Boucher as a non-executive director.

Boucher, aged 59 years and an Irish citizen, has experience in all aspects of financial services and was the chief executive of Bank of Ireland Group between February 2009 and October 2017. He also held a number of senior management roles within Bank of Ireland, Royal Bank of Scotland and Ulster Bank. He is a past President of the Institute of Banking in Ireland and of the Irish Banking Federation.

He is a consultant for Fairfax Financial Group and acts as its nominee on the Board of Atlas Mara, a company with investments in banks in Africa. He is also a non-executive Director of Eurobank Ergasias, a bank based in Athens, Greece that has operations in Greece and several other European countries. He holds a Bachelor of Arts (Economics) from Trinity College, Dublin and is a Fellow of the Institute of Banking in Ireland.

Ireland: Poor sales in the UK and Switzerland have reduced the sales of CRH’s Europe Heavyside division, which includes its European cement operations. The division’s sales revenue fell slightly to Euro6.90bn in 2017 from Euro6.95bn in 2016. Despite this the division reported market recovery in Ireland, France, Poland and Finland. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 7% year-on-year to Euro839m from Euro781m.

Overall, the group’s sales for its continuing operations rose by 1.7% to Euro25.2bn from Euro24.8bn. Its EBITDA rose by 5.6% to Euro3.15bn from Euro2.98bn.

“2017 was a year of continued profit growth for CRH. We benefited from increases in underlying demand in the Americas and positive momentum in Europe, and with focus on performance improvement and operational delivery, margins and returns were ahead of last year in our American and European Divisions,” said chief executive officer (CEO) Albert Manifold.

The group’s Americas Materials division’s sales rose by 5% to Euro7.97bn from Euro7.60bn and earnings rose similarly. The division said that its cement business in North America saw total volumes rise by 3% ahead with ‘marginal’ price increases, supported by stronger demand in the US. It added that the division has continued to optimise its terminal network and market penetration by repositioning more volumes to the US from Canada, where competitive market conditions remain, especially in Quebec.

France: Fives FCB has been awarded an engineering, equipment supply and supervision of works contract for the replacement of a kiln at the Lumbres cement plant. The work covers replacing the downstream shell of the 42.2m kiln, including the tyre. The project is part of the cement producer’s plan to adapt Kiln 5 at the site for the installation of a new clinker cooler.

UK: Nine cement and concrete companies have launched the Global Cement & Concrete Association (GCCA), a new association that intends to develop the sector’s role in sustainable construction. The association also wants to build innovation throughout the construction value chain, in collaboration with both industry associations and architects and engineers.

The GCCA will be led by international cement companies and headquartered in London, complementing and supporting the work done by existing associations at national and regional level. Membership of the GCCA is available for cement manufacturers from all over the world that share the organisation’s values, and partnerships will be developed with organisations that share its vision. GCCA’s founding members are Cemex, CNBM, CRH, Dangote, Eurocement, HeidelbergCement, LafargeHolcim, Taiheiyo and Votorantim. They represent 1046Mt of cement production capacity, according to the Global Cement Top 100 Report.

Recent data from Cemsuisse, the Swiss Cement Industry Association, shows that cement shipments fell by 2.8% year-on-year to 4.3Mt in 2017. The local industry has fluctuated from a high of just below 4.7Mt in 2011 with various peaks and troughs since then as can be seen in Graph 1. The current drop has been blamed on a poor start and end to 2017 despite some rallying activity in the third quarter.

Graph 1: Cement deliveries in Switzerland, 2010 – 2017. Source: Cemsuisse.

The local industry tends to get overlooked somewhat due to its modest size, its geographically landlocked position and its exclusion from the European Union (EU) despite being surrounded by member states. This is a mistake though because the territory offers lessons on how a developed cement industry can function and co-exist with a large neighbour. In Switzerland’s case it has access to the EU market through a series of bilateral agreements that provide parity with EU legislation. After a potential crisis over immigration following a local referendum in 2014, Switzerland and the EU came to an agreement in 2016 that softened the labour rules for foreigners. Pertinent to the cement industry, the EU and Switzerland signed a deal to link emissions trading systems in 2017. It is currently anticipated to come into force in 2019. Trading in the EU may come at the price of free movement of labour but emissions trading parity will also help to protect Switzerland’s cement plants.

The country has a cement production capacity of 4.3Mt/yr according to Global Cement Directory 2017 data. This divides into three plants operated by LafargeHolcim, two by Ireland’s CRH’s local subsidiary Jura Cement and one by Vigier Cement, a subsidiary of France’s Vicat. Most of these plants are around the 0.8Mt/yr mark, with the exception of Jura’s smaller Cornaux plant.

After a strong performance in 2016 with growing cement sales volumes, LafargeHolcim started 2017 with continued positive cement sales but this failed to compensate for low aggregate sales and falling ready-mix (RMX) concrete sales. CRH reported a similar experience that it blamed on poor weather at the start of the year and a competitive environment. This then led to an 8% fall in cement sales in the first nine months of 2017 with RMX sales and operating profit down too. Vicat’s experience in the country followed that of its competitors, with cement sales rising slightly over the first three quarters but concrete and aggregate sales dropping. Among other reasons it blamed the situation on the completion of road and civil engineering projects.

Cembureau, the European Cement Association of which Cemsuisse is a member, forecast a stable year in 2017 following the wind-down of infrastructure projects with support from the housing sector. However, it then expected the market to soften as demographic trends saw slower growth in population reduce housing demand. This state appears to have arrived early. On the plus side though the industry’s sustainability credentials have grown as the split between truck and train transport of cement hit its highest ratio in favour of rail in 2017 at 53%. The trend switched from truck to train in 2013 and it hasn’t looked back since then.

As a mature economy in the heart of Europe, Switzerland generally pops up in the industry news as the home of the world’s largest non-Chinese cement multinational, LafargeHolcim. That company’s headquarters are in Jona and Holcim had its headquarters in Holderbank. LafargeHolcim’s single largest shareholder, with an 11% share, is the Swiss billionaire Thomas Schmidheiny, who inherited his portion of the family business. He notably called for a better deal for Holcim during the merger negotiations between Lafarge and Holcim in 2015 and boardroom struggles have dogged the combined company ever since. Consideration should also be granted to the country’s other engineering and construction industry related multinationals such as ABB, Sika and the like. By the numbers Switzerland has a case for being one of the world’s most important nations for the cement industry.

Ireland: Ernst Bärtschi has retired from the board of CRH. He was appointed to the board of directors in 2011. A Swiss national he was previously the chief executive officer of Sika and had worked for Schindler Group.

There are two significant cement producers around the world up for sale at the moment. Last week we dealt with India’s Binani Cement, which has so far attracted 15 separate bids from a number of international and domestic players. Now, we turn our attention to South Africa, where PPC remains the target of approaches by LafargeHolcim and CRH.

This week PPC rejected a partial offer from Canada’s Fairfax Holdings, which it considered neither fair nor reasonable. Like a mutual friend at a party that insists two people ‘really are perfect for each other,’ Fairfax had stipulated in its terms that PPC should merge with AfriSam to create a South African super-producer. It does not appear that this idea went down well and that particular combination now seems further away than ever.

When the news broke that it had rejected Fairfax, we thought that PPC’s stance seemed a little ‘too cool.’ However, looking just at the oversized and import-addled South African market does not give the full picture of what’s happening for PPC at the moment. It has significant and growing activities in the rest of Africa too.

Later this week PPC released its results for the first half of its 2018 fiscal year. Suddenly, its handling of the Fairfax offer made more sense. Over the six months to 30 September 2017, PPC nearly tripled its profit to US$21.1m. Crucially, sales from outside South Africa grew far more rapidly than those at home. While domestic earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 4%, EBITDA from elsewhere increased by 25%. These results bode well for a potential bidding war that now favours PPC.

Even from this greatly enhanced position, PPC was not finished with its announcements for the week. Today it revealed that it plans to build a new ‘mega-factory’ in the Western Cape. Johan Claassen, the interim chief executive of PPC, said there would probably be a formal announcement about new capacity in the Western Cape in 2018. He said that PPC had decided to conduct a feasibility study into a possible replacement for its Riebeeck plant. An Environmental Impact Assessment (EIA) is in progress and the plant is reported to be ‘semi-brownfield.’ Claassen said that the new facility would use around 25% of the current Riebeeck equipment and cost US$200/t of installed capacity.

The news of its results and announcement of the new plant represent a good PR move by PPC given the difficulties faced by the wider South African market. The new information will certainly give cause for CRH and LafargeHolcim to think again about the values of their offers, should PPC also be of the view that these also undervalue the company.

India’s Economic Times (ET) has run a story today that really illustrates the heart of the current oversupply issues surrounding the cement sector in India. It reports that Binani Cement, one of the country’s many medium-sized domestic players, is circling the drain ahead of full bankruptcy proceedings. According to ‘senior officials,’ who spoke on the condition of anonymity, the company has already attracted interest from LafargeHolcim, HeidelbergCement and CRH, as well as a plethora of domestic players. There are a total of 15 interested parties so far: the three multinationals, nine domestic cement producers and three investment firms.

With 11.3Mt/yr of capacity, Binani Cement is not a small player by international standards. Unusually for an Indian producer, it even has capacity elsewhere, in China and Dubai. It is part of the larger BRAJ Binani Group, which is involved in glass fibre, energy, IT and more. The fact that the cement company is now up for sale really underscores the extent to which India doesn’t need the 100Mt/yr of extra capacity that was highlighted by the Cement Manufacturers Association in September 2017. India could lose 10 Binani Cements overnight and still have enough capacity to meet domestic demand!

Binani’s issues are, at least in part, geographic. It has assets exclusively in the north of India, which has seen weakened homebuilding and infrastructure activities since the implementation of the government’s demonetisation policy, as well as the highest impacts from rising imported fossil fuel prices. The implementation of India’s new Goods and Services Tax (GST), which has increased cement prices, has not helped. The bulk of Binani’s operations are in Rajasthan and Uttar Pradesh, both states far from the coast. When even UltraTech Cement’s profit is down, the squeeze for some smaller producers is becoming too much. On its own Binani cannot handle the heat, but its assets would certainly make a nice addition for a larger player.

In this way, the consolidating Indian cement sector represents a microcosm of the global situation. Binani’s troubles highlight how much better large companies are at spreading the risks of operating in different markets. As discussed in our forthcoming December 2017 issue, the advantages of being a multinational player with a large number of geographical markets appears to be gradually returning once again, with smaller regional players once again suffering from geographical disadvantages.

Of course, in an environment ripe for consolidation it is very interesting to note that CRH is among the international players linked to Binani. It clearly wants the benefits of being a fully-fledged multinational and is going full-steam ahead to get there. It has spent Euro1.34bn on 27 acquisitions of various sizes in 2017, most notably the on-going purchase of Ash Grove Cement in the US. It is making a strong case to purchase PPC in Africa and a larger Indian base makes sense for the company in the longer term. It lost out on Lafarge India’s assets to Nirma in 2016.

We can be sure that the pace of mergers and acquisitions will continue to grow in the rest of 2017 and into 2018 in India and elsewhere. Would you bet against CRH pulling off an Ash Grove, PPC and Binani ‘triple?’ With the group finance director Senan Murphy stating that there was additional room for expansion in 2018, its intent certainly can’t be faulted.

Well it doesn’t normally happen like this. In late September 2017 Ash Grove Cement announced that it was set to be bought by Ireland’s CRH. The words it used were a ‘definitive merger agreement.’ Then suddenly this week on 5 October 2017 Ash Grove said that it had received a higher offer from an unnamed third party and that it was extending its so-called ‘window shop period.’ So much for definitive! The following day Reuters revealed that the new bid was from Summit Materials.

The on-going board machinations at LafargeHolcim and the PPC-AfriSam merger saga in South Africa show that the cement industry has its moments of boardroom high drama. Indeed, both of these long-rumbling stories have had murmurs this week with the early departure of LafargeHolcim’s finance director Ron Wirahadiraksa after less than two years and Dangote Cement’s decision to exit the ring from the PPC bidding. However, it’s rare that cement companies are publicly announced as sold and then get gazumped instead.

The Ash Grove debacle also carries a personal dimension. Ash Grove chairman Charlie Sunderland initially described CRH as his company’s biggest customer and one with a close relationship to the firm. Yet a US$300m higher bid suggests how much those ‘kind’ words were actually worth. To add insult to injury the chief executive officer (CEO) of Summit Materials, Tom Hill, used to work for CRH. This no doubt gave him an idea of how the management of CRH thinks. CRH’s public response so far has been that it has noted the extended shareholder approval period at Ash Grove.

At first glimpse Summit Materials and CRH have a similar cement production base in the US. Both companies operate two integrated plants in the country. Summit Materials runs plants at Hannibal, Missouri and Davenport, Iowa. CRH runs plants at Sumterville, Florida and Trident, Montana. Summit then has 10 cement terminals along the Mississippi River from Minnesota to Louisiana compared to CRH US’ five cement terminals in Detroit, Michigan, Cleveland, Ohio, Dundee, Michigan, Buffalo, New York and Duluth, Minnesota.

Yet, CRH also has two plants in Canada. Then the sheer scale of CRH’s other operations in North America simply dwarfs Summit’s. CRH Americas reported sales of US$16.7bn in 2016, more than 10 times higher than the US$1.6bn that Summit Materials declared. Both companies cover aggregates, asphalt, readymix concrete and cement but CRH is by far the larger of the two. So much so in fact that Summit Materials might potentially be taking on a serious amount of debt to finance the Ash Grove sale. As such any blip to the US cement market over the next few years could have serious repercussions to an overleveraged Summit Materials.

On face value the possible engagement with Summit Materials might appear to show that there is a lack of trust between CRH and Ash Grove. However, this cannot be inferred. As its shares are traded over the counter, Ash Grove’s shareholders have allowed a two-week shop window to enable other companies to counter-offer. This is to ensure that they get the best possible value. Talking to Summit is part of this process and may, or may not, mean that the last remaining US-owned cement producer stays based in the US after all.