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Update on HeidelbergCement takeover of Italcementi
17 February 2016HeidelbergCement has finally provided a little more detail about its acquisition of Italcementi with the releases of its preliminary results for 2015. The key message is that all is well. Expected savings from the takeover are growing, less borrowing is required to make the purchase and the approvals from competition commissions around the world are rolling in.
Looking at the cost savings first, the potential for synergies or operational savings was first estimated at Euro175m at the time of the takeover announcement in late July 2015. At that time HeidelbergCement hoped to be able to deliver almost 30% of this figure in 2016. If it goes ahead this will sweeten the honeymoon period considerably following the completion of the deal. The largest savings were expected to come from the commercial area and in purchasing.
This figure then grew to Euro300m at the time of HeidelbergCement’s third quarter results in November 2015. Now, the effects of financing costs and taxes were included. At this point some more strategy about how HeidelbergCement was planning to use Italcementi’s resources started to emerge in the synergy calculations. HeidelbergCement intends to use its global trading business with Italcementi’s ‘export orientated’ cement plants. Import demand, for example in North America or Africa, that used to be bought from third party sources previously, can now be supplied by Italcementi’s plants after the merger, meeting demand and holding capacity utilisation rates up. With the publication of the preliminary results for 2015 the savings figure has grown to Euro400m with little explanation. If only it were that easy to find Euro100m down the back of my sofa.
The financing has also been proceeding smoothly. The loan value required for the takeover has fallen from Euro4.4bn to Euro2bn. Reasons for this include the exclusion of the risk of a mandatory takeover offer to minority shareholders in Morocco, some of Italcementi’s creditor banks agreeing to waive their change of control clauses and the issuance of a Euro625m bond in January 2016. The bridge financing, available initially from Deutsche Bank and Morgan Stanley, remains at Euro2.7bn.
Finally, competition commission approval has been granted in India, Canada, Morocco and Kazakhstan. Despite holding a cement product capacity of 10.5Mt/yr in India with 4.1Mt/yr additional capacity in development, this was unlikely to be a problem in India, with its total national capacity of 280Mt/yr. The commission implemented the Elzinga Hogarty Test and concluded that there is sufficient competition.
This leaves the possibly trickier approvals outstanding in Europe and the US. Belgium is likely to be the main issue in Europe given that the two companies run 73% or 4.5Mt/yr of the market in production capacity. Divestments are expected here.
In the US, precedent should save HeidelbergCement from interference. HeidelbergCement’s and Italcementi’s combined cement production assets will give it a production capacity of 16.4Mt/yr or around 14% or market share. This will make it the second biggest producer in the country after LafargeHolcim which had its merger approved in 2015. There are no obvious overlaps in their clinker production assets except for a minor one in Pennsylvania which holds both the 2Mt/yr Ordinary Portland Cement Essroc (Italcementi) Nazareth Plant and the 0.13Mt/yr Lehigh White Cement (HeidelbergCement). These two plants are unlikely to be considered in competition with each other.
So, continued smooth sailing is expected for the takeover. Since most of the information regarding the acquisition has come directly from HeidelbergCement it was unlikely to appear otherwise. Let’s see whether this remains the case when Italcementi releases its financial results for 2015 later in the week on 19 February 2016.
Vulcan Materials appoints four staff to management team
17 February 2016US: Vulcan Materials has appointed Stan Bass, Michael Mills, Jerry Perkins and Brock Lodge to its management team.
Stan Bass, aged 54 years, formerly Senior Vice President, West, with responsibility for Vulcan’s Western and Mountain West Divisions, has been named to the new position of Chief Growth Officer for the company. Michael Mills, aged 55 years, formerly Senior Vice President & General Counsel, has been named to the new role of Chief Administrative Officer. Jerry Perkins, aged 46 years, formerly Assistant General Counsel and Corporate Secretary, has been named General Counsel and Corporate Secretary, succeeding Michael Mills. Brock Lodge, aged 43 years, formerly Vice President & General Manager of Vulcan’s Western Division that includes all operations in California, has been promoted to President of that Division.
Bass, as Chief Growth Officer, will be responsible for leading the company’s business development, commercial excellence and strategic growth initiatives. Mills as Chief Administrative Officer will be responsible for the executive oversight of the non-financial, administrative functions of the company.
Camilo Restrepo appointed Vice President of Caribbean and Central Region for Cementos Argos
17 February 2016Colombia: Camilo Restrepo has been appointed the Vice President of the Caribbean and Central Region for Cementos Argos. He replaces Mauricio Ossa, who recently became president of the Colombia construction company Odinsa.
Restrepo was educated at the University of Maryland and is currently completing MBA studies at Emory University's Goizueta Business School in Atlanta, US. He joined Cementos Argos in 2005 as a research and development analyst. He became the Vice President of Innovation in 2012.
Votorantim orders Loesche mill for Sivas 2 RM project
17 February 2016Turkey: Votorantim has placed an order for a type LM 48.4 Loesche mill for grinding cement at its Sivas 2 RM project at its Sivas cement plant. The order was placed on behalf of Votorantim by the Tianjin Cement Industry Design & Research Institute (TDI).
The raw mill will be designed with a capacity of 420t/hr and the material will be ground to a fineness of 14% R90μm. The gearbox will have a power output of 2860kW. The engineering for the cyclone separators is also included in the scope of supply. The lead time for the main components of the mill is eight months and the gearbox will be supplied within the next nine months. The commissioning of the vertical roller mill is planned for the end of 2017.
Previous collaborations between Votoranim and Loesche include projects at cement plants in Rio Branco, Laranjeiras, Salto de Pirapora, Primavera, Edealina and Cuiaba.
Financial irregularities raised at Calcom Cement
17 February 2016India: The Oriental Bank of Commerce has raised allegations of ‘mismanagement and siphoning of public money’ at Calcom Cement in a letter sent to its lenders, according to Business Line. The bank was quoting allegations made by Bawri Group.
Together Bawri Group and Dalmia Bharat Group run Calcom Cement, a 2.1Mt/yr cement plant in Assam, as a joint venture. Dalmia Bharat owns a 76% stake in Calcom through its subsidiary Dalmia Cement Bharat.
The letter, dated 14 January 2016, was addressed to Axis Bank, lead lender in a consortium of lenders to Calcom. It stated that, “affairs at CCIL (Calcom) are not being managed in a prudent manner and (there have been) several financial irregularities including fund diversion through circular transactions.” Axis Bank declined to comment on an individual account. Dalmia Bharat said it would not speak to the media, pending arbitration proceedings with the Bawri group.
Paraguay: Industria Nacional del Cemento (INC) has shut down its clinker kiln for 30 days to start work on a fuel upgrade project. The US$45m project is intended to allow the kiln to use other fuels as well as the fuel oil it currently uses. A further 90-day stoppage period has been scheduled for mid-2016. The project is expected to be complete by the end of the year.
INC’s president Jorge Mendez has reassured the public that the cement supply from his plant will not drop during the maintenance period. INC will continue delivering between 50,000 - 55,000 bags/day. The firm has 86,500t of clinker in stock. In addition the government will also import 200,000t of cement to maintain levels. INC is the country’s sole integrated cement plant.
Cementos Pacasmayo’s profit rises by 12.1% to US$60.4m in 2015
17 February 2016Peru: Cementos Pacasmayo’s net income rose by 12.1% year-on-year to US$60.4m in 2015 from US$53.8m in 2014. Its revenue fell slightly to US$351m from US$354m. Its cement production volumes fell slightly by 0.7% to 2.3Mt from 2.35Mt.
The cement producer attributed its profit growth to cost savings despite a ‘challenging’ operating environment. It managed to hold its cement production volumes at a stable level due to the ramping up of its Piura cement plant in the fourth quarter of 2015 despite falling volumes at its Pacasmayo and Rioja cement plants.
Hetauda Cement plant reopens after fuel blockade lifts
17 February 2016Nepal: The Hetauda Cement plant has started producing cement again following the lifting of an unofficial fuel blockade by India. The plant was shut after it could not import coal from India in the autumn of 2016. Hetauda resumed production on 11 February 2016, according to the Katmandu Post. Factory officials say the plant lost US$0.9m during the enforced closure.
India: HeidelbergCement India has successfully commissioned a waste heat recovery unit at its Narsingarh cement plant in Damoh, Madhya Pradesh. The new power plant will use waste heat generated by the clinker lines at the plant. It will be able to generate up to 12MW of power from this source.
HeidelbergCement profit rises by 16% in 2015
16 February 2016Germany: HeidelbergCement has reported that its operating income or profit has risen by 16% year-on-year to Euro1.85bn in 2015 from Euro1.6bn in 2014 in its preliminary results for 2015. Its revenue grew by 6.7% to Euro13.5bn from Euro12.6bn in the same period. It attributed the growth to efficiency drives, price increases in key markets, lower energy costs and currency effects due to a weakening Euro.
“2015 was by far the best year for HeidelbergCement since the financial crisis,” said Bernd Scheifele, Chairman of the Managing Board. “Despite the slowdown of the global economy in the course of the year, we were able to significantly increase our operating income as anticipated. Our strict focus on improving efficiency and margins in recent years, our advantageous geographical positioning, and continuous investments in growth have made a significant contribution.”
The group reported that sales volumes of cement remained stable in 2015. A rise in cement deliveries in North America and Africa almost compensated for the decrease in Europe and Asia. Sales also benefited in the fourth quarter of 2015 from mild weather extending the construction period in parts of Europe. Overall the group reported that sales volumes of cement, clinker and ground-granulated blast-furnace slag (GGBS) fell slightly to 81.8Mt in 2015 from 81.1Mt in 2014. A similar trend was reported in the fourth quarter of 2015.
By region, overall sales revenue rose in Western and Northern Europe in 2015 driven by demand for building materials in the UK, price increases, currency effects and reduced energy costs. Despite all of this cement sales volumes fell slightly. In Eastern Europe and Central Asia both sales revenue and volumes fell in 2015 mainly due to decreased demand in Ukraine and Russia. In North America both sales revenue and volumes grew in 2015 with a particular positive trend in the west of the US. Revenue grew by 22.9% to Euro3.75bn. Sales volumes in cement grew by 1.9% to 12.3Mt. Asia-Pacific reported both sales revenue and volumes falling in 2015 led by a downturn in Indonesia and Malaysia. Sales revenue and volumes grew in Africa-Mediterranean Basin in 2015 in most countries with the exception of Ghana, where sales volumes fell due to negative effects due to the falling oil price.
HeidelbergCement noted in its preliminary results that the ‘evaluation of potential synergies was provisionally concluded at the start of 2016’ for its takeover of Italcementi. As such its cost-saving target for the takeover has been raised from Euro300m to Euro400m. Approvals have been granted by the competition authorities in India, Canada, Morocco, and Kazakhstan. Discussions with the competition authorities in the US and in Europe are currently ongoing. HeidelbergCement expects the purchase of the 45% stake to be concluded in the first half of 2016.