Displaying items by tag: LafargeHolcim

One fascinating statistic stands out in a study on how the Islamic State of Iraq and Syria (ISIS) pays its bills: cement represented 4% of its revenue in 2015 or around US$100m. The Centre for the Analysis of Terrorism (CAT) came up with this figure as part of its analysis on how the group finances itself. Its data was based on available information such as local sources, internal ISIS documents and reports from governments and institutions.

What’s more, the previous year in 2014, CAT estimated that ISIS brought in US$300m from cement sales. The difference in revenue between 2015 and 2014 came about from the group losing control of territory. In late 2014 it controlled four cement plants: the Lafarge Al-Jalabiya plant in Ayn al-Arabin, the Al-Raqqah Guris Cement plant and Fallujah, Kubaisa and Al-Qa’im plants in Iraq. Altogether it had a cement production capacity of 7.5Mt/yr, a higher capacity than 62% of the cement producing nations that are recognised formally by the United Nations. Briefly it had production parity with countries like Angola, Uzbekistan and Kuwait.

However the loss of the Al-Jalabiya and Kubaisa plants has stifled this revenue stream. At its peak ISIS couldn’t have been selling cement for more than something like US$40/t (capacity / revenue) if the plants were operating at full capacity. Yet it’s much more likely that the plants were chronically under-utilised and prices significantly higher in the heat, dust and confusion of a militant group attempting to form a state in a warzone.

Global Cement Weekly has covered previously the furore that erupted when French media accused Lafarge of cutting deals with ISIS to keep its Jalabiya cement plant during the early stages of the Syrian Civil War. At the time of the revelations in June 2016 LafargeHolcim said that its first priority was the safety and security of its employees at the plant before it eventually closed it, although it did not deny accusations directly.

Since then the plant’s former security manager Jacob Waerness has popped up in an interview with Bloomberg in connection with a book he wrote about the affair. According to Waerness, Lafarge stayed in the country for too long before the plant was finally seized by ISIS in September 2014.

The problem for Lafarge, as other multinational companies left the warzone, was that the US$680m plant had only been operational since late 2010 before hostilities broke out in 2011. Essentially, it tried to wait out the conflict and then got left behind. Pertinent to the start of this column, Waerness says that as the more extreme groups took control of the surrounding area he was offered and declined a meeting with the IS finance chief in Raqqa in the summer of 2013. However else one might describe IS, it was and clearly is well aware of the revenue to be gained from functioning cement plants.

LafargeHolcim has since started an internal review into the reported allegations under the auspices of its Finance & Audit Committee. In September 2016 the Iranian-backed Fars News Agency was reporting that US special forces were using the Jalabiya plant as a base. If and when peace comes to the region it will be intriguing to find out what condition the plant is in. Until then, LafargeHolcim will have to wait and take the loss on its investment.

Tensions have boiled over regarding imports of cement to Kenya in recent weeks as different importers have received opprobrium in the local press. Last week Dangote Cement was attacked for importing cheap cement into the country from Ethiopia, allegedly off the back of a cheap electricity deal. This week, Chinese imports have been in the firing line, following data reportedly seen by the Business Daily newspaper that showed that the value of Chinese cement imports rose tenfold year-on-year in the first half of 2016.

At the heart of these rows lies a strong demand for cement: Kenya had a cement production utilisation rate of 90% in 2015 according to Kenya National Bureau of Statistics (KNBS) data. It produced 6.35Mt in that year and used 5.71Mt for consumption and stocks. Its utilisation rate has been rising steadily since 2012. It was 93% for the first six months of 2016.

Unfortunately for the local producers this kind of demand attracts competition from within and without. Nigeria’s Dangote Cement is planning to build a 3Mt/yr plant at Kitui and Cemtech Kenya, a subsidiary of India’s Sanghi Group, is planning to build a 1.2Mt/yr plant at Pakot.

Local producer ARM Cement reported both falling turnover and a loss for the first half of 2016. It blamed this on increased competition in Tanzania. However, in 2015 it increased its turnover in Kenya by importing clinker over the border from its new Tanga plant in Tanzania. It also noted a ‘competitive landscape’ in Kenya and lamented the effects of currency devaluation on its financies as a whole. East African Portland Cement had a tougher time of it for its half-year that ended on 31 December 2015, issuing a profit warning of a loss and expected reduced profits despite a rise of 12% in sales revenue. By contrast, Bamburi Cement, LafargeHolcim’s subsidiary, reported both increases in revenue and operating profit in 2015. Although it too noted problems with interest rates and currency depreciation in the country during this period.

The focus on Chinese imports follows Chinese contractors winning some of the biggest infrastructure projects in the country. The China Rail & Bridge Corporation (CRBC), for example, is building a railway between Mombasa and Nairobi. The Business Daily newspaper has found data showing that Chinese cement imports worth US$19.8m to Kenya in the first half of 2016 compared to US$1.99m in the same period of 2015. The background to this is that China has more than doubled the value of all of its imports to Kenya since 2011 according to the KNBS. Total import volumes of clinker from all foreign countries increased by 51% in 2015 from 1.31Mt in 2014, the largest increase in at least five years.

If local cement producers are being locked out of supplying these kind of deals no wonder they are getting angry. However, another angle on what’s happening here might be that local producers who are suffering from increased competition, falling prices and a precarious national financial situation are lashing out at the easiest target. The local press doesn’t appear to have criticised ARM Cement for moving its Tanzanian clinker north of the border for example. Likewise, a Bamburi Cement spokesperson previously said that the producer had supplied 300,000t of cement to the rail project since September 2014, earning it nearly US$10m. Kenya needs cement as it builds its infrastructure. Fortunes will be made and tempers will be lost as it does so.

China: Huaxin Cement has proposed Ron Wirahadiraksa and Daniel Bach as candidates for its board of directors. The proposals will be submitted to the shareholders general meeting for approval.

Ron Wirahadiraksa, a Dutch national born in 1960, has been the chief financial officers of LafargeHolcim since 1 December 2015. He graduated with a Doctoral in Business Economics from the Free University of Amsterdam, the Netherlands. He also graduated as a Certified Registered Controller from the Free University of Amsterdam. Wirahadiraksa joined the Philips group in 1987. He became Chief Financial Officer at LG Philips LCD in South Korea in 1999, during which time he shared operating leadership with the Korean CEO. He became Chief Financial Officer at Philips Healthcare in 2008 and in 2011 he took over as CFO for the Philips Group.

Daniel Bach, a Swiss national born in 1963, has been the Area Manager South East Asia and China (Huaxin) for LafargeHolcim since July 2016. He joined Holcim as project engineer and manager in 1994. In 1998, he moved to Corporate Business Risk Management and in 2002 was made Technical Director for Holcim Indonesia. From 2004 – 2007, Bach acted as assistant to a member of the Holcim Executive Committee before being appointed Senior VP Manufacturing for Holcim Philippines. He became the Area Manager for South East Asia in 2011. He holds a PhD in Mechanical Engineering from the Swiss Federal Institute of Technology (ETH) in Zürich.

Huaxin Cement is an association company of LafargeHolcim. As of 31 December 2015, the group held 41.8 % of the voting rights in the associate company.

LafargeHolcim was the last major European cement producer to release its second quarter financial results last week. The collective picture is confused. Cement sales volumes have risen but sales revenue have fallen.

Most of the producers have blamed negative currency effects for their falls in revenue during the first half of 2016. Holding a mixed geographical portfolio of building materials production assets has kept these companies afloat over the last decade but this has come with a price. The recent appreciation of the Euro versus currencies in various key markets, such as in Egypt, has hit balance sheets, since the majority of these firms are based in Europe and mostly use the Euro for their accounting. Meanwhile, sales volumes of cement have mostly risen for the companies we have examined making currency effects a major contributor.

Graph 1 - Changes in cement sales volumes for major non-Chinese cement producers in the first half of 2016 compared to the first half of 2015 (%). Data labels are the volumes reported in 2016. Source: Company reports.

As can be seen in Graph 1, sales volumes have risen for most of the producers, with the exception of LafargeHolcim. Despite blaming shortages of gas in Nigeria for hitting its operating income, LafargeHolcim actually saw its biggest drop in sales volumes in Latin America by 13.2% year-on-year to 11.8Mt. The other surprise here was that its North American region reported a 2.7% fall to 8.8Mt with Canada the likely cause. Vicat deserves mention here for its giant boost in sales volumes due to recovery in France and good performance in Egypt and the US, amongst other territories.

Graph 2 - Changes in sales revenue for major non-Chinese cement producers in the first half of 2016 compared to the first half of 2015 (%). Data labels are the sales reported in 2016. Source: Company reports.

Overall sales revenue for these companies presents a gloomier scenario with the majority of them losing revenue in the first half of the year, with most of them blaming negative currency effects for this. Titan is included in this graph to show that it’s not all bad news. Its growth in revenue was supported by good performance in the US and Egypt. Likewise, good performance in Eastern Europe and the US helped Buzzi Unicem turn in a positive increase in its sales revenue. They remain, however, the exception.

Looking at sales revenue generated from cement offers one way to disentangle currency effects from performance. Unfortunately, only about half of the companies looked at here actually published this for the reporting period. Of these, LafargeHolcim reported a massive rise that was probably due to the accounting coping with the merger process that finalised in 2015. Of the rest - HeidelbergCement, Italcementi and Vicat – the sales revenue from each company’s cement businesses fell at a faster rate than overall sales. Like-for-like figures here would help clarify this situation.

Meanwhile, a mixed global patchwork of cement demand is focusing multinational attention on key countries with growing economies like Egypt and Nigeria. Both of these countries have undergone currency devaluation versus the Euro and are facing energy shortages for various reasons. The exposure of the multinational cement producers to such places may become clearer in the second half of the year.

Switzerland: Alain Bourguignon, region head for North America, and Ian Thackwray, region head for Asia Pacific will leave LafargeHolcim following a reorganisation of its executive committee. The group said the changes reflected an evolution of its portfolio following recent divestments and the closure of its integration phase following the merger between Lafarge and Holcim.

Pascal Casanova, currently responsible for the Latin America Region, will take responsibility for North America including Mexico. Roland Köhler, currently responsible for the Europe Region will add Australia, New Zealand and Trading to his responsibilities. Martin Kriegner, currently responsible for India, will join the Executive Committee and take additional responsibility for South East Asia. Oliver Osswald, currently responsible for our operations in Argentina, will join the Executive Committee with responsibility for Central and South America.

As of 5 August 2016, the executive committee, chaired by Eric Olsen, will be composed of the following members:

• Urs Bleisch, Group Head of Performance & Cost;
• Pascal Casanova, Region Head North America including Mexico;
• Roland Köhler, Region Head Europe & Australia / New Zealand & Trading;
• Martin Kriegner, Region Head India & South East Asia;
• Gérard Kuperfarb, Group Head of Growth & Innovation;
• Caroline Luscombe, Group Head of Organization and Human Resources;
• Oliver Osswald, Region Head Central & South America;
• Saâd Sebbar, Region Head Middle East & Africa and
• Ron Wirahadiraksa, Chief Financial Officer.

Shock news this week: Dangote Cement has decided to slow its expansion in Africa. The announcement from CEO Onne van der Weijde topped a half-year financial report that trumpeted high revenues and sales volumes of cement but one that also had to explain why earnings before interest, taxes, depreciation, and amortisation (EBITDA) had fallen by 10% year-on-year. The decline was blamed on lower cement prices and higher fuel costs, as well as the costs of setting up new cement plants.

The mixed bag of results can be demonstrated by a 38.8% leap in cement sales volumes in Nigeria to 8.77Mt for the half year. Dangote attributed this in part to price cut in September 2015. This then netted an increase in revenue of 4.2% to US$677m but its EBITDA in Nigeria fell at a faster rate than the group total.

As an indication of some the pressures facing Dangote at home, it reported that its fuels costs rose by 32.3% to US$14.4/t in the reporting period. The backdrop to this has been the general poor state of the Nigerian economy. The International Monetary Forum (IMF) forecast that its gross domestic product (GDP) will fall by 1.8% in 2016 in its World Economic Outlook Update published in mid-July. Given that over three-quarters of Dangote Cement’s sales revenue came from Nigeria in 2015 this might explain the decision to slow its expansion plans down.

Outside of Nigeria, Dangote did extremely well in its West & Central Africa region, pushing up sales volumes, revenue and EBITDA by triple figure percentages helped by commissioning of a new plant in Ethiopia. Exports were also highlighted as a key part of this region’s strategy to neighbouring countries. It also stated that its recent procurement of about 1000 trucks in Ghana would ensure that an increased share of that country’s imported cement would come from Dangote’s Ibese plant in Nigeria. South & East Africa was a different story, however with sales volumes and revenues rising as new cement plants bedded in but the region was dogged by currency devaluations and poor economies.

Dangote Cement’s response to its current situation is to protect its margins through cost cutting, by adjusting its prices and by slowing its expansion strategy to a five-year programme. However, it isn’t alone in its struggles to preserve profit in its Nigerian business. LafargeHolcim also reported a ‘challenging’ market in its first quarter results for 2016. Its cement sales volumes fell in that quarter due to what it said were energy shortages and logistics-related issues. Its mid-year financial report, out on 5 August 2016, will make interesting reading to see if its experience in Nigeria matches Dangote’s.

Elsewhere, it appears that both PPC and LafargeHolcim have also been struggling in South Africa. PPC’s revenue from cement sales within the country fell by 5% year-on-year to US$171m its half-year to the end of March 2016. It blamed the drop on increased competition. LafargeHolcim noted similar problems in South Africa without going into too much detail in its first quarter.

With the Nigeria Naira-US Dollar exchange rate devalued by over 50% since the start of 2016 and the Nigerian economy bracing itself for a recession, it seems unlikely that Dangote Cement could do anything else than slow down its expansion plans given how much of its revenue comes from within Nigeria. As we also report this week, PPC is in a similar bind. Its CEO had to reassure shareholders that the group’s new plant in Zimbabwe would be finished on schedule later in the year. Controlling imports and exports of cement in Africa has suddenly become more important than ever.

Both companies need to expand internationally to protect themselves from regional economic downturns but the current situation in each of their home territories is preventing this. In the meantime their own export markets are set to become more important than ever. Any target markets that declare themselves ‘self-sufficient’ in cement will be a big impediment to this.

Romania: Veronica Dobre has been appointed as the new Communication Manager at Holcim Romania. She succeeds Ioana Borangic who worked for the company for six years.

Dobre, aged 35 years, holds a Public Relations degree from the UK Chartered Institute of Public Relations and graduated from Political Sciences as well as Communication and Public Relations at the National School of Political and Administrative Studies of Bucharest. She started her career at a public relations agency then worked for more than 10 years in the pharmaceutical industry, building experience in corporate and brand communications.

Another week and another massive Indian cement industry deal. This week Nirma has won the bidding for the assets of Lafarge India that LafargeHolcim is selling. Before we get too carried away though, the diversified conglomerate entered into a letter agreement with LafargeHolcim on 7 July 2016 to pay US$1.4bn for three cement plants and two grinding plants with a total cement production capacity of 11Mt/yr.

It is worth noting that this is only a letter agreement. LafargeHolcim signed one previously with Birla Corporation for some of the same assets in August 2015. Unfortunately, an ambiguous amendment to the Mines and Minerals (Development and Regulation) (MMDR) Act struck in January 2015 made it unclear how easily mineral rights could be transferred with an industrial plant sale. After much likely internal squabbling Lafarge India said it was selling all of its assets in January 2016 followed by threats of legal action by Birla.

Some commentators in the Indian media have flagged the new deal as expensive for Nirma. It will be paying US$127/t for the new capacity compared to the US$118/t that UltraTech Cement is offering Jaiprakash Associates for its laboured deal. The Nirma deal comprises integrated cement plants at Sonadih in Chattisgarh, Arasmeta in Chattisgarh and Chittorgarh in Rajasthan, and cement grinding plants at Jojobera in Jharkhand and Mejia, West Bengal. Other assets include 63 ready mix concrete plants, two aggregate plants and a blending unit.

However, unlike UltraTech, Nirma is a relatively new entrant in the cement industry. Its main industries are in detergents and soda ash manufacture. It invested US$194m in a 2.28Mt/yr cement plant in Rajasthan that was commissioned in November 2014. It also ran into environmental issues over a proposal to build a new cement plant at Mahuva in Gujarat. One report compiled under request by the Indian Supreme Court in 2011 cited the presence of Asiatic lions as a reason for concern!

Lions aside, Nirma may be paying over the odds for its new cement business but it will gain a bigger presence in the industry quickly and diversify from its other existing industries in which it faces fierce competition. The Lafarge India plants are mostly in eastern Indian states compared to Nirma’s plant in Rajasthan in the west, giving it a reasonable geographic spread.

Nirma reportedly plans to finance the purchase through a leveraged buyout and the Mint business newspaper has described this as the largest transaction of its kind in India to date. The risk here will be how the Indian cement market plays out in the short term. LafargeHolcim reported that its cement volumes fell in 2015, although this has since picked up in the first half of 2016. UltraTech did better in its 2015 – 2016 financial year but it reported a slow construction market. Longer-term demographic trends suggest that the cement industry will grow, especially in the east of the country. With this in mind it may be a while before Nirma’s cement business roars.

Switzerland: LafargeHolcim has appointed Alessandra Girolami as the group’s new Head of Investor Relations from 1 September 2016. Girolami will report to group chief financial officer Ron Wirahadiraksa. She replaces Michel Gerber, who will leave the group.

Girolami joins LafargeHolcim from the Carrefour Group, where she has been in Investor Relations since 2005 and Head of Financial Communications and Investor Relations since 2014. She began her career at ABN AMRO as a sell-side analyst. Girolami graduated from ESCP Europe with a major in finance and holds a postgraduate degree in Applied Economics from the Institut d’Etudes Politiques in Paris.

Back in 2001 a UK government advisor gained infamy for trying to use the terrorist attacks on 11 September 2001 to bury bad news. This week’s column is trying hard NOT to be about the UK vote to leave the European Union (for more on that try our editorial director’s column in the latest issue of Global Cement Magazine). They’ll be plenty of time for that later on when the repercussions for the cement and construction industries sink in. However, it has inadvertently buried some bad news coverage for LafargeHolcim.

The French newspaper Le Monde reported on 21 June 2016 that Lafarge’s Syrian subsidiary paid money to Islamic State (IS) militants in order to keep its Jalabiya cement plant in operation in 2013 and 2014. The paper said that the plant was kept in operation until September 2014 as the result of ‘agreements with local armed groups, including the Islamic State.’ It added, that Lafarge ‘indirectly financed the jihadist organisation.’

LafargeHolcim issued a statement on the story on same day. However, it didn’t deny the accusations. It stated that the company, as Lafarge, was under control of the plant in Jalabiya between 2010 and September 2014 and that the safety of its employees had always been its first priority. Part of the statement read, “Once the conflict reached the area of the plant, the first priority for Lafarge was the safety and security of the employees, while planning for the eventual closure of the plant. In September 2014, Lafarge stopped operating the Jalabiya plant. After that, all employees were evacuated, put on paid leave and were no longer allowed to access the plant. In December 2015, given the evolution of the situation in Syria, the decision was taken to terminate all employee contracts and, where possible, transfer employees to other parts of the group.”

The company may yet face prosecution for the dealings if it is found to have financed any terrorist organisation. Emmanuel Daoud, a specialist in international law quoted by various media sources, speculated that the outcome of any potential investigation might depend on whether the company was protecting its staff or protecting its profits. Additional complications also arise from the subsequent merger of France’s Lafarge and Switzerland Holcim to form LafargeHolcim.

It should be remembered though that cement plants and their staff are often very real targets in regional conflicts. They can also be held under switching jurisdictions. We reported that a Lafarge Syria plant near Aleppo was attacked and set on fire in 2014. Before the site was abandoned to protect the staff the site was first under the auspices of the Syrian army and then the Syrian Kurdish Democratic Union Party. Paying ‘taxes’ to the loosing side in a civil war might well be interpreted as funding terrorists in the aftermath.

A similar story resolved itself this week with the news that seven quarry workers kidnapped in Nigeria were released. Unfortunately there was one death and injuries sustained in the ambush that trapped them. Sy van Dyk, the chief executive of Macmahon, the company involved, refused to comment to local press on whether his company had paid a ransom to release the workers.

This all links to the wider issue of how multinational companies should deal with armed groups and de-facto governments in unstable areas. For example, the UK and US governments discourage paying ransoms to kidnappers because they say it encourages it as a business. Yet, other European nations notably paid to release their nationals during the earlier stages of the Syrian conflict and elsewhere. This in turn offers insight towards why Lafarge, a French multinational company, might have been more likely to negotiate with armed groups in Syria than say a British or American one. If an official investigation into Lafarge’s dealings follows then more details may emerge but there are no easy answers to these kinds of issues.