Displaying items by tag: Egyptian pound
Update on Egypt
19 June 2019Tourah Cement in Egypt took the tough decision last week to temporarily stop production. It blamed this on an acute financial crisis rendering it unable to pay its running costs. The subsidiary of Germany’s HeidelbergCement was reported in the Global Cement Directory 2019 as already being partly closed. This latest news is regrettable but not surprising.
Graph 1: Cement consumption and production in Egypt. Sources: Industrial Development Agency, Global Cement Directory 2019, Cement division of the Building Materials Chamber of the Federation of Egyptian Industries.
As Graph 1 shows that the backdrop here is of a local cement sector rife with overcapacity. Capacity utilisation rates have hovered around 70% in recent years. The sector breaks down into about a quarter of production capacity under state control and the remainder owned by private companies. Overall, about half of the production capacity is run by multinational companies like Greece’s Titan, France’s Vicat and Germany’s HeidelbergCement.
The country hosts some of the largest cement plants in the world as well as several very big plants by European or North American standards anyway. The whopping 13Mt/yr government/army-run El-Arish Cement plant at Beni Suef opened fully in 2018. It seemed likely that there were going to be losers in the industry following that kind of disruption from a state-owned player. Indeed, Medhat Istvanos, head of the cement division of the Building Materials Chamber of the Federation of Egyptian Industries, explicitly blamed the El-Arish Cement plant for making the situation worse in September 2018. He said that the decision to build the plant was ‘not based on precise information’ and that it had harmed local production.
In the wider picture, the cement sector started to move away from subsidised natural gas and heavy fuel oil to coal instead in the mid-2010s. Tourah Cement mentioned this in its statement about halting production. The government has supported the cement industry through large-scale infrastructure projects and a state-sponsored compensation system under the Contractors Compensation Act that offset the loss prompted by the Egyptian pound’s floatation in 2017.
However, overcapacity has consistently been a problem and this was clear when the El-Arish Cement plant was approved. Exports of cement crept up to 1Mt/yr in 2017 from 0.1Mt/yr in 2015. Yet, as the Low-Carbon Roadmap for the Egyptian Cement Industry pointed out, Egyptian FOB exports of cement cost US$20/t higher than regional competitors such as Turkey. At this kind of disadvantage Egypt lacks the traditional escape route for an overproducing cement sector.
In these kinds of conditions, consolidation appears to be crucial while organic or government-backed demand plays catch-up with the production base. Certainly Egypt has the population and the development potential as its economy grows in the medium to long term. The government stabilising the economy after recent troubles is crucial for the construction industry. In the meantime all is not lost as the focus is on efficiency gains and cost cutting. The growth of alternative fuels as the sector’s fuel mix continues to adjust to the new normal following the abolition of subsidies on natural gas is one example of this.
Titan’s turnover remains stable in 2017
28 March 2018Greece: Titan Group’s turnover fell slightly to Euro1.51bn in 2017. Bad weather, the devaluation of the Egyptian Pound and weakening of the US Dollar affected its operating results despite a buoyant US market. Its earnings before interest, taxation, depreciation and amortisation (EBTIDA) fell by 1.9% year-on-year to Euro273m in 2017 from Euro279m in 2016. Its net profit fell by 66.5% to Euro42.7m from Euro127m.
The cement producer’s turnover grew by 9.9% to Euro873m in the US despite Hurricane Irma in September 2017 and other poor weather effects. In Greece it reported that build activity weakened further in 2017. It said that although export volumes remained high, its profit margins were hit by the lowering value of the US Dollar and increased fuel prices. Overall, the turnover of its Greece and Western Europe region fell by 4.8% to Euro249m. In Southeastern Europe turnover rose by 10.5% to Euro226m due to increased demand for building materials. Turnover in the Eastern Mediterranean region fell by 36.5% to Euro158m due to negative currency effects in Egypt and a fall in cement demand.
Titan reports a 66% drop in net profit
03 August 2011Greece: Titan Group has recorded a poor set of financial results for the second quarter and first half of 2011, in line with independent forecasts. Turnover in the first six months of 2011 was down by 18.2% year-on-year to Euro557m, earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 12.4% to Euro141.4m and the group's net profit was Euro23.4m, down a massive 65.7% on 2010.
The weakening of the Egyptian pound and Turkish Lira, as well as the US Dollar versus the Euro, led to negative foreign exchange effects. At stable exchange rates, the decline in Group turnover would have stood at 14.1% and the decline in EBITDA would have been 6.6%. The group's results were also negatively impacted by increases in the price of fuels.
The deterioration in operating results was mainly attributed to the sharp decline in construction activity in Greece (reaching a nearly 40-year low), in conjunction with the deep and persisting depression of construction activity in the USA. In contrast, Group's activities in developing countries, particularly in the Eastern Mediterranean region, increased their contribution to the group's operating results.
In Greece, the combination of growing uncertainty regarding employment and attendant future household income, coupled with the decline in new loans issuance on the part of banks and the existing surplus housing stock, resulted in a sharp decline in demand for building materials. The repeated cutbacks in public investment programmes and the state's inability to cover its arrears, have brought public works to a standstill. In Greece Titan's EBITDA consequently declined by 49.4% compared to the first six months of 2010 to stand at Euro26.9m.
In the USA, construction activity continues to be faced with a very poor set of circumstances. Uncertainty regarding the timing of the economy's turnaround in conjunction with the country's debt crisis, the containment of public expenditure and the high levels of unemployment are preventing the recovery of the construction sector. Activity in the south east states, where Titan is primarily active, remains particularly stagnant at the very low levels witnessed in recent years. EBITDA in the USA recorded a loss of Euro4.8m in the first six months of 2011.
In south east Europe, indications emerged that the recovery in the region's economies is gradually beginning to have a positive impact on construction activity. Within the context of its stated goal of reducing its carbon footprint, the group completed the installation of a new unit in Bulgaria within the plant's perimeter for the pre-processing and recycling of municipal waste, which is expected to come on stream in the third quarter of 2011. EBITDA in the region of south east Europe recorded marginal growth, reaching Euro42.7m.
The social upheaval in Egypt is gradually affecting the country's growth rates and subsequently also pulling down the construction sector. In contrast, the growth of the Turkish economy has led to higher demand in the construction sector as well. EBITDA in the eastern Mediterranean region grew by 19.5% to Euro76.5m.
The prospects for Greece in the second half of 2011 remain very poor. Cement demand for the full year is forecast to stand at just 35% of 2006-7 levels. Support from the EU, which aims to kick-start investments and public works, is not expected to lead to a meaningful improvement in the coming year. In line with poor expectations in Greece and Titan's other major areas of interest, the group has said that it will continue to focus its efforts on the generation of free cash flow aiming at improving its financial flexibility.