Displaying items by tag: Divestments

There have been rumours in the press this week that LafargeHolcim is weighing up its options in South Africa. Reports in the local press allege that the building materials company has tasked Credit Suisse Group with finding a buyer for its business. This may or may not be true, only time will tell, but South Africa certainly feels like a market where LafargeHolcim should be considering its future.

As a prominent but smaller producer in the country, Lafarge South Africa is behind PPC and AfriSam in terms of clinker production capacity. InterCement’s subsidiary Natal Portland Cement and Dangote’s subsidiary Sephaku Cement have a similar production base with an integrated plant each and one or two grinding plants. Halfway through 2019 LafargeHolcim was describing market conditions as ‘difficult’ in the country with it being the sole Sub-Saharan market holding back regional growth for the group. By the third quarter the situation had reportedly improved but net sales and cement sales volumes were flat for the year to date. A clearer picture should emerge when LafargeHolcim publishes its fourth quarter results at the end of February 2020.

PPC provided its view of the market in its half-year results to 30 September 2019. Its estimate was that the South African cement industry declined by 10 - 15% for the period, creating a competitive environment. It added that the situation had been, ‘exacerbated by imports and blender activity.’ Both its revenue and earnings fell year-on-year, although a 30% rise in fuel costs didn’t help either. Sephaku Cement suffered a similar time of it, with a 19% fall in cement sales volumes during the first half, although it reported improvement in the subsequent quarter. Overall, it blamed falling infrastructure investment for pressurising the market and allowing blending activity to mount. Sephaku Cement was also wary of the local carbon tax that started in June 2019 warning of a potential US$2.8m/yr bill.

PPC noted that cement imports had risen by 5% to 0.85Mt in the year to August 2019. This followed a lobbying effort by The Concrete Institute (TCI) in mid-2019 to implore the International Trade Administration Commission (ITAC) to look into rising imports levels. At the time the TCI’s managing director Brian Perrie expressed incomprehension that a country with six different cement production companies with an over-capacity rate of 30% could be facing this problem. This latest broadside tails South Africa’s previous attempt to fend off imports when it instituted anti-dumping duties of 17 – 70% against importers from Pakistan in 2015. Imports duly fell in 2016 but rose again in 2017 and 2018, mainly from Vietnam and China.

All of this sounds familiar following LafargeHolcim’s departure from the ‘hyper-competitive’ South-East Asian countries in 2019. Those countries also suffered from competition and raging imports. Bloomberg pointed out in a report on the local industry in 2016 that PPC’s, AfriSam’s and LafargeHolcim’s kilns had an average age of 32 years, suggesting that efficiency and maintenance were going to be concerns in the future. Also of note is LargeHolcim’s decision to move its South African operations from one subsidiary, Lafarge Africa, to another, Caricement, in mid-2019.

Some level of market consolidation would certainly help local overcapacity. Plus, surely, LafargeHolcim’s mix of inland integrated capacity and a grinding plant near the coast could prove enticing to some of the Asian companies pumping out all of those imports. The thought on the minds of potential buyers everywhere must be, if LafargeHolcim chief Jan Jenisch was bold enough to sell up in South-East Asia, how can he not in South Africa?!”

South Africa: LafargeHolcim is planning to sell its South African operations as the world's largest building material maker continues to streamline its portfolio, according to sources close to a deal who spoke to Bloomberg. The Swiss company is working with adviser Credit Suisse Group to seek a buyer for the business. It has apparently already reached out to local competitors, Chinese cement producers and buyout firms, but may struggle to attract interest for the unit due to challenging dynamics in the country's cement industry. South Africa is Africa’s most mature cement market but it is hampered by decreasing demand, old production facilities, tight domestic competition and cheap imports from the Middle East. A representative for LafargeHolcim declined to comment.

India: Ireland’s CRH is planning to sell its 50% stake in My Home Industries, according to sources quoted by investor information services group VCCircle. It is reportedly in talks to sell the stake to My Home Group, the company that owns the other half of the subsidiary. My Home Industries operates two integrated plants and two grinding plants with a production capacity of 10Mt/yr. It also runs two ready-mixed concrete plants.

In November 2019 CRH was reported to be looking to sell its assets in the Philippines. At the time of its second quarter results in 2019 chief executive officer (CEO) Albert Manifold described emerging markets as a small part of the group’s business with, “too much disruption, too much dislocation, too much uncertainty.” He added that the company’s focus was on its developed market businesses.

Cemex pushed ahead yesterday and announced that it had sold the Kosmos Cement Company to Eagle Materials for around US$665m. It owns a 75% stake in the company, with Italy’s Buzzi Unicem owning the remaining share, giving it roughly US$449m once the deal completes. Proceeds from the sale will go towards debt reduction and general corporate purposes. The sale inventory includes a 1.7Mt/yr integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.

The decision to sell assets makes sense given Cemex’s financial results so far in 2019. It reported falling sales, cement volumes and earnings in the first nine months of the year although much of this was down to poor market conditions in Mexico. However, the US, along with Europe, was one of its stronger territories with rising sales. Earnings were impaired in the US, possibly due to bad weather in the southeast and competition in Florida, but infrastructure and residential development were reported to be promising.

Graph 1: Portland & Blended Cement shipments in 2018 and 2019. Source: United States Geological Survey (USGS).

Graph 2: Change in imports of hydraulic cement & clinker to the US in 2018 and 2019 from selected countries. Source: USGS.

United States Geological Survey (USGS) data also supports a picture of a growing US market. Shipments of Ordinary Portland Cement and blended cements grew by 2.4% year-on-year to 66.9Mt for the first eight months of 2019 from 65.4Mt in the same period in 2018. By region growth can be seen in the North-East, South and imports. Declines were reported in the West and Midwest. The states of Alabama, Kentucky, Tennessee – the area where the Kosmos plant is located – saw shipments grow by 4% to 4.77Mt from 4.58Mt. It is worth noting that Louisville is in the north of Kentucky near the border with Indiana, where shipments also grew.

The Portland Cement Association’s (PCA) fall forecast may also have helped Cemex’s decision. Ed Sullivan, PCA Senior Vice President and Chief Economist, said that he expected cement consumption in the US to continue growing in 2019 and 2020 but with a slowing trend into 2021 following general gross domestic product (GDP) predictions. The PCA’s view is that pent-up demand following the recession in 2008 was gone and the economy was gradually weakening. Crucially though it didn’t think a recession was impending. In this scenario Cemex might be taking a medium-term view with regards to the Kosmos Cement Company.

Another more general interesting data point from the USGS was the change in import origins to the US. Imports grew by 11.3% to 66.9Mt in January to August 2019. The top five importing countries and their overall share remained the same but there was some movement between them. Turkish and Mexican imports surged at the expensive of Chinese ones as can be seen in Graph 2. The go-to explanation for this would be the on-going US - China trade war. Cemex is a Mexican company with a strong presence in both the US and Mexico. This change in the make-up of the import market in the US may also have informed its decision to sell Kosmos Cement as it looked at the macro scale.

More generally the US market is looking buoyant in the short to medium term. Plants are being sold like Kosmos Cement to Eagle Cement and the Keystone cement plant in Bath, Pennsylvania to HeidelbergCement and a major upgrade project is underway on the new production line at the Mitchell plant in Indiana. In Cemex’s case, as ever with asset sales, the seller sometimes has to make the hard decision of whether to divest a plant in a growing region to help the business in other places that might not be doing so well. The growth of America’s largest locally owned producer, Eagle Cement, may also give cheer to the US’ current ‘America First’ administration.

US: Cemex says it has agreed to sell the Kosmos Cement Company to Eagle Materials for around US$665m. The Mexican company owns a 75% stake in the company and Italy’s Buzzi Unicem manages the remainder. It expects to receive US$499m from the transaction. This will be spent on debt reduction and for general corporate purposes. The sale includes the 1.7Mt/yr Kosmos integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.

“This is another key milestone in achieving our ‘A Stronger Cemex’ objectives. Now, closed or announced asset sales are in excess of US$1.3bn under this program. We are pleased with the continued favourable asset-divestment dynamics in our industry,” said Fernando A Gonzalez, chief executive officer (CEO) of Cemex.

Completion of the deal is subject to regulatory approval. It is expected to complete in the first quarter of 2020.

US: Cemex is looking to sell its majority stake in the Kosmos Cement plant at Louisville in Kentucky. Sources quoted by the El Financiero newspaper said that the integrated plant could be valued as high as US$750m. Cemex is working with Bank of America and Citigroup on the potential sale. Buzzi Unicem, through its subsidiary Dyckerhoff, owns the remaining stake in the plant. Cemex’s decision to try and sell the plant follows falling sales and profits for the Mexican building materials producer so far in 2019.

Philippines: Irish-based CRH has engaged JP Morgan, the bankers, for the sale of its entire Philippine unit. The company operates 3.1Mt/yr of integrated and 0.8Mt/yr clinker grinding capacity via its stake in Republic Cement’s three integrated plants and one grinding plant, inherited in 2015 from Lafarge and Holcim as a part of the pair’s merger.

The Irish Times has reported the estimated value of the divestment at between Euro1.82bn and Euro 2.73bn. The announcement caused CRH’s share price to rise to its highest level since May 2017.

Bangladesh: UltraTech Cement Middle East Investments (UCMEI) has announced that it has entered into a binding agreement by which it will sell its entire shareholding in Emirates Cement Bangladesh and Emirates Power Company to HeidelbergCement Bangladesh.

Under the terms of the agreement, UCMEI will divest its entire shareholding at an enterprise value of US$29.5m. The deal is subject to regulatory approvals in compliance with the laws of Bangladesh.

Spain: Following its 2018 appeal against a Euro445m fine for misreporting losses, granted on condition of the company paying the court Euro300m in line with its obtaining specified mortgages and land sales, Cemex continues to release its holdings on the Iberian peninsula.

Cinco Días has reported that Cemex’s Spain operations closed its sale to Turkey’s Çimsa of its White Cement division in the first quarter of 2019 for 180 million. In 2018, the Spanish subsidiary of Cemex divested itself of five pieces of property at a profit of Euro17,000. Its Azuara production line in Saragossa Province generated capital gains of Euro462,000.

In the first half of 2019, Cemex reported earnings before interest, taxes, depreciation and amortisation (EBITDA) in Europe of Euro185m, up by 21% from US$168m in the same period of 2018.

Cemex’s Spanish presence began in 1992, when it acquired the country’s two largest cement companies, and it was hit by the downturn of 2008. La Nueva España reports that Cemex has applied for concessions from the Port of Gijón for storage of a dissembled biomass fuel hopper which had been awaiting shipment to Cemex’s Tilbury plant when the recession struck, grounding it in the the port, where it has remained ever since. Autoridad Portuaria de Gijón, the administrative body responsible, is currently considering Cemex’s application.

Germany: HeidelbergCement’s profit fell in the first half of 2019 due to non-recurring effects related to the divestment of its assets in Ukraine. Its profit fell by 33% year-on-year to Euro291m in the first half of 2019 from Euro435m from in the same period in 2018. Its revenue rose by 9% to Euro9.21bn from Euro8.43bn. Its sales volumes of cement fell slightly to 61Mt and ready-mixed concrete sales volumes grew by 6% to 24.4Mm³. Its profit fell by 33% to Euro435m from Euro291m.

“In general, the market dynamics weakened slightly in the second quarter in comparison with the first quarter. Nevertheless, we were able to improve our result in the second quarter because of our strong global positioning. Good margins in Asia, as well as Western and Southern Europe, more than compensated for the weaker business due to adverse weather conditions in North America and the Africa-Eastern Mediterranean Basin Group area,” said Bernd Scheifele, the chairman of the managing board of HeidelbergCement.