Displaying items by tag: CRH
Lafarge Republic to hike output by 17% in 2015
16 April 2015Philippines: Lafarge Republic Inc expects to raise its cement output by 17% with the opening of new mills at its plants in Rizal and Bulacan. Lafarge Republic president Renato Sunico said that the company expects to produce >7Mt/yr of cement by the end of 2015, up from 6Mt/yr at present.
The US$20.1m grinding mill at the plant in Teresa, Rizal that was inaugurated in April 2015 is expected to produce 850,000t/yr of cement. This increases the plant's output to 2Mt/yr. The new mill will also contribute to Lafarge Republic's commitment to sustainability as it reduces the plant's energy consumption by 40%. A similar 850,000t/yr capacity mill will also be installed at the plant in Norzagaray in Bulacan by December 2015. "The reason why we put up a new mill in Teresa and why we want to put up a new mill in Norzagaray, is because we want to make sure that we can serve demand," said Sunico.
With regards to the LafargeHolcim merger, no consolidation of the two companies' operations in the Philippines is required as Holcim has expressed plans to purchase some of LafargeRepublic's assets such as Lafarge Iligan Inc, Lafarge Mindanao Inc, Lafarge Republic Aggregates Inc and the Star Terminal at the Harbour Centre in Manila. CRH has also been given rights to acquire the remaining assets of Lafarge Republic, including the plants in Rizal, Bulacan, Batangas and Cebu.
CRH sells 45% stake in Doras for Euro37m
15 April 2015France: CRH has sold its stake in a French joint venture company called Doras to its partner, Samse, for just under Euro37m. Doras operates specialist and general builders merchants and is particularly prominent in the Burgundy and Franche Comté regions in eastern France. CRH has now sold its 45% stake in the company to the Samse Group, which already holds a 55% share in the firm, for Euro36.6m. The move was recently given the green light by the Competition Authority.
Ireland: CRH is paying Euro700m 'over the odds' for a Euro6.5bn acquisition that would make it the world's third-biggest building materials supplier, according to a report from US-based AllianceBernstein (AB), a global asset management company.
CRH has agreed to buy a number of mostly European assets from Lafarge and Holcim for Euro6.5bn so the merging companies can get competition clearance for their plan to create the cement industry's biggest company. However, AB has raised doubts about the value of the deal for CRH. The move was also was overwhelmingly approved by shareholders at a recent extraordinary general meeting.
In a detailed report into the deal, AB said that the move represented "A step in the wrong direction for CRH. The acquisition price of Euro6.5bn is 12% above our Euro5.8bn estimate of the fair value of the assets."
CRH assumes LafargeHolcim merger will proceed
19 March 2015Europe: Ireland's CRH is assuming that the LafargeHolcim merger will still happen, according to CRH chief executive Albert Manifold. "At this moment in time, we're working forward on the basis that the deal will close, the merger will happen," said Manifold. He added that he had spoken to both companies on 19 March 2015.
CRH has agreed to buy a number of mostly European assets from Lafarge and Holcim for Euro6.5bn so that Lafarge and Holcim can get antitrust clearance for their plan to merge. According to Reuters, CRH's shareholders voted to approve the acquisition on 19 March 2015 at its extraordinary general meeting. According to Manifold, the CRH vote was a procedural step that had to be done, regardless of the uncertainty at Lafarge and Holcim, as a failure to approve the asset purchase would have left CRH exposed to a potential Euro158m break-up fee.
Manifold also confirmed that if the merger should fail, the break-up fee would apply in the other direction. "Likewise, if other parties don't conclude this deal for whatever reason, we would then be in receipt of a break fee," said Manifold. "I'm not going to speculate on whether it is or isn't going to happen. There are discussions going on to decide what they want to do over the next couple of days," said Manifold, adding that CRH was interested in buying the assets even if the merger falls through.
According to CRH, the LafargeHolcim assets would transform CRH into the world's third-largest building materials supplier, the biggest in central and eastern Europe, and double its presence in emerging markets. CRH makes about half its sales in the US and wants more exposure to new markets such as the Philippines and parts of Europe it believes are beginning to recover.
Manifold said that CRH also has its eye on other acquisitions, should the purchase of Lafarge and Holcim assets fall through. "This deal is an important part of the strategy of CRH, but it is not the strategy of CRH," said Manifold.
Europe: The boards of Lafarge and Holcim met separately on 17 March 2015 to try and salvage their merger.
According to Reuters, one source said ahead of the Lafarge board meeting that Lafarge would not accept renegotiations on the governance of LafargeHolcim. The original merger agreement designated a board made up of seven members from each company and Lafarge boss Bruno Lafont as CEO. "The board cannot give satisfaction to Holcim on all points," the source said. "It cannot accept both a change of parity and a taking of control."
On 15 March 2015, Holcim said that it wanted to open talks on the exchange ratio and on 'governance issues' because the original merger terms were no longer acceptable to its board. Lafarge said on 16 March 2015 that it would consider revising the share exchange ratio, but nothing else. According to another source, Holcim has proposed changing the previously-agreed 1:1 exchange ratio to 0.875 Holcim shares for each Lafarge share, but Lafarge wants a 0.93:1 ratio.
One Holcim shareholder who opposes the deal reportedly said that the appointment of Lafarge's Lafont as head of LafargeHolcim has become a bone of contention, with some questioning his ability to deliver promised cost savings of Euro1.4bn/yr.
Ireland's CRH, which planned to buy a large portion of Lafarge and Holcim's assets to appease competition authorities, could experience collateral damage if the merger is cancelled. According to Reuters, if the merger fails, CRH is still liable for a break-up fee of Euro158m.
Lafarge and Holcim in talks to renegotiate merger
12 March 2015Europe: Holcim and Lafarge are in talks to renegotiate the terms of their Euro41bn merger after a divergence in the value of the two companies over the past year. The two sides are holding discussions that might result in changes to the terms of the one-for-one share deal announced last April 2015, according to The Financial Times.
It in unclear how the renegotiation might affect CRH, which agreed in February 2015 to pay Euro6.5bn for assets being sold by the two companies as they sought to address potential competition concerns over the deal.
In recent weeks Holcim shareholders have raised concerns over the terms of the deal, most vocally a representative for the Schmidheiny family, which is Holcim's largest investor. Thomas Schmidheiny, head of the family and a former Holcim chairman, wanted the terms of the deal renegotiated. Holcim's second largest shareholder, Eurocement, which is owned by Russian Filaret Galchev and holds 10% of the shares, has not publicly supported the deal.
On the face of it this week's 'news' that CRH expects to receive the regulatory decisions it needs on its Euro6.5bn purchase of Lafarge and Holcim's joint divestments without significant delay is not particularly ground-breaking. However, the press release helpfully suggests that the deal will proceed according to CRH's desired outcome and only needs to be rubber-stamped. This is not strictly the case, with approval required in the EU, Philippines, Brazil, Canada and Serbia.
So... this story could just be incidental 'puffery' and the timing irrelevant. However, if read in the context of the letter concerning the acquisition from CRH Chairman Nicholas Hartery to company shareholders, it makes for a far more interesting read. Issued on 20 February 2015, the letter notifies shareholders of CRH's planned Extraordinary General Meeting (EGM) on 19 March 2015 and it starts fairly innocuously. The Chairman recommends that shareholders approve CRH's resolution to proceed with the acquisition of the LafargeHolcim assets. He describes the strong overlap between the divestments and CRH's existing portfolio, as well as the financial reasons behind the move. So far, as expected.
However, later in the document, the language gets fairly heated, bordering on bizarre in places. Hartery says that CRH has given 'hell or high-water' commitments to Lafarge and Holcim regarding the purchase This language indicates the importance of the deal to the board and possibly the level of personal involvement in the process to this point.
'What has CRH done?' we are supposed to ask. Are we led to believe that CRH has, in poker parlance, gone 'all in?' Any shareholders that are in doubt as to the board's position need look no further than the section concerning 'break fees.' If CRH backs away from the deal for any reason, for example by failing to approve the resolution at the EGM, the company will have to give a combined Euro158m to Lafarge and Holcim. This would be a sizeable headache and CRH can take no chances.
Returning to CRH's press release, its timing is even more intriguing when we consider reports out of Switzerland this week. Swiss newspaper Sonntagszeitung reports that Holcim has considered offering its shareholders a 'sweetener' to win their approval for the merger. It says that this could involve 'creative methods' to sway its shareholders into backing the deal, including a generous special dividend or a share buyback. The paper reports that Holcim is wary of not securing investor approval for a capital increase for financing, which is required for it to satisfy its side of the deal.
Holcim's actions may in turn be motivated by Reuters reports from 23 February 2015, which state that analysts have seen a potential divergence in earnings outlooks between Lafarge and Holcim as a potential 'spanner in the works' of the deal. This is in response to Lafarge's apparent poor performance relative to Holcim in the fourth quarter of 2014. Reuters even refers to analysts' rumblings that the terms of the whole mega-merger may be up for renegotiation in light of this.
CRH has said that it is prepared to move hell and high water to buy the LafargeHolcim divestments, but will it be able to if there is no LafargeHolcim from which to divest?
The full letter to CRH shareholders and associated information about the proposed CRH acquisition of Lafarge and Holcim's proposed divestments can be seen here.
Ireland: CRH expects to receive regulatory decisions on a Euro6.5bn purchase Holcim and Lafarge operations as soon as March 2015. CRH chief executive Albert Manifold said that the acquired facilities would help CRH to expand in both North America and Europe, where it sees opportunities to expand its business.
"There are significant building needs and funding going to countries like Poland, Slovakia and Romania," said Manifold. He added that construction growth in those countries could be as high as 4%/yr over the next 10 years. Manifold said that CRH had already begun discussions with regulators in the various markets and expected decisions in March and April 2015. The acquisitions require the approval of CRH shareholders and an extraordinary shareholders meeting has been scheduled for 19 March 2015 for this purpose. Manifold said that CRH would continue to trim its portfolio and make further acquisitions.
Did LafargeHolcim overprice its sale to CRH?
25 February 2015One of the compelling issues to emerge from the Global CemFuels conference last week in Dubai was how alternative fuel (AF) use by cement producers might change while oil prices are low. Dirk Lechtenberg, of MVW Lechtenberg hinged his overview talk on both low energy prices and the on-going Lafarge-Holcim merger. The unspoken implication was that Holcim and Lafarge are offloading cement plants that use increasingly unprofitable AF. Cement plants are increasingly being out-bid for AF by energy-from-waste plants and 'gate fees' are dwindling accordingly.
Here's how it works. CRH is buying nine plants from Lafarge and Holcim in western Europe and five in eastern Europe. These are plants with high AF substitution rates. For example, Holcim's plants in France and Belgium have a substitution rate of 50% using around 250,000t/yr of waste fuels. Similarly, the Lafarge Zement Wössingen cement plant has permits for a 60% AF rate.
Globally, Lafarge and Holcim had substitution rates of 17.2% and 12.8% in 2013. CRH had a substitution rate of 21.2% in the same year. Post merger LafargeHolcim is estimated to have a substitution rate of below 10% in 2015. Meanwhile CRH is estimated to have a rate over 30%. After establishing this, Lechtenberg demonstrated how a thermal substitution model might be affected by fluctuating coal prices whilst using a refuse-derived fuels (RDF) rate of 35%. Put the price of coal below US$55/t and the savings of using RDF vanish.
Other delegates at the conference pointed out various limitations in Lechtenberg's methodology and figures. External legislation such as a carbon tax can disrupt this model for example. However, once coal becomes cheap and abundant enough it will displace most AF on economic grounds due to its high calorific value. Very few waste fuels can beat it.
At the time of writing the Brent crude oil price is just below US$60/barrel following a steep decline since mid-2014. The Australian coal price, the world's biggest export hub, has seen a steady fall since 2011 hitting just over US$60/t in January 2015. However, how interconnected are the oil and coal price?
This is difficult to link because bulk energy consumers switch supply according to price and other variables such as which fuels they can actually use. That last point is important in this discussion because preparing a cement plant to use AF requires an investment cost. Meanwhile, energy producers vary production depending on how much profit they want to make. Throw in new energy sources such as waste fuels and fracking and the overall picture becomes messy as all of these factors and others (OPEC policy, legislation etc) interact. Low oil prices do not necessarily mean low coal prices. For example, one analyst looking at BP's Statistical Review of World Energy in 2014 concluded that oil and coal consumption hold an inverse relationship to each other. When the proportion used of one rises, the proportion used of the other falls, and vice versa.
With all of this in mind there is ambiguity over whether CRH has been handed a time bomb in terms of its new cement plants' energy policies. Given that widely assumed production costs for the major oil producing nations are mostly above the current cost of crude oil, if the producers are controlling the price, then it seems likely that the price can't stay this low on a sustained basis. However, the cost of coal is on a five year low also. Is this the new normal or a market blip?
Cement plants using AF have a capital expenditure cushion against changing their fuels mix in the short to medium term but it can only last so long. The longer fossil fuel energy prices remain low the longer CRH will make less money from the fuel strategy it will inherit at its new plants.
Opportunity in Brazil?
11 February 2015Russian refractory manufacturer Magnezit Group has struck a deal this week with Vamtec to sell product in Brazil. What such a cooperation agreement will actually entail, as ever, remains vague but it is an interesting time for a cement equipment supplier to enter the market. The majority of refractories sales are to the iron and steel industries but cement and lime holds the biggest minority market. Industrial research analysts Roskill placed the cement and lime share at 13% in a recent market report.
Competitor refractory producer RHI placed Magnezit in the same Euro0.5 – 1bn revenue bracket with producers such as a Magnesita, Inerys, Krosaki and Shinagawa. Magnesita is the most relevant company out of that list because it is headquartered in Belo Horizonte in Brazil. It is a global company but some of its major mines and production sites are based in Brazil. In 2013 its revenue grew by 8% to US$937m despite static refractory sales volumes led by falling steel production. In 2013 its refractory revenues came mainly from South America. So far in 2014 it appears to have increased its refractory sales volumes, despite a declining marking in Brazil and South America as a whole, by moving into new markets.
A similar situation has been reported by RHI in the region so far in 2014 with falling steel production hitting refractory revenue. RHI originally planned to build a refractory plant in Rio de Janeiro in 2011 but this was amended in late 2012. In this environment it seems that Magnezit may be testing the market rather than planning a full-scale incursion into Brazil.
For the first half of 2014 the Sindicato Nacional Da Indústria Do Cimento (SNIC) has reported that cement sales were 34.5Mt in Brazil, a rise of 2.8% compared to the same period in 2013. Despite this modest growth, Brazilian cement producers will see this as disappointing following years of higher growth prior to 2013.
However, events may not be that gloomy in Brazil after all. The prospect of CRH's impending purchase of three cement plants and two grinding plants from Lafarge and Holcim in Brazil with a cement production capacity of 3.6Mt/yr may stir up the market. For starters CRH may audit the suppliers the new plants are using and decide whether they want to continue using them. The acquisition will add a new player to compete with the existing producers in the high producing states of Minas Gerais and Rio De Janeiro. Competition authority Conselho Administrativo de Defesa Econômica (CADE) set up the terms for what Lafarge and Holcim would have to sell in December 2014, so now that a buyer has been found the move may go smoothly. Needless to say this presents an opening for any, say, Russian-based refractory producers looking for new clients!