Displaying items by tag: PPC

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.

South Africa: PPC has appointed Peter Nelson as its interim chairman following the retirement of Bheki Sibiya. A permanent replacement for Sibiya is expected to be recruited by September 2016.

Nelson was appointed to the Board as an independent non-executive director on 25 January 2015. His experience covers manufacturing, mining, telecommunications, healthcare, leisure, property, packaging and the motor industry in listed and private entities in South Africa, the United Kingdom, Zimbabwe and Nigeria. He has served as chief financial officer on several Boards including Telkom, Netcare and Mondi.

Zimbabwe: Kelibone Masiyane has been appointed as the managing director of PPC Zimbabwe. He replaces Njombo Lekula, who recently became the managing director of PPC's international operations. Previous to the appointment, Masiyane’s was the general manager of the Colleen Bawn and the Bulawayo cement plants.

"Kelibone's promotion will see him assume overall responsibility for PPC Zimbabwe's business, with his key focus our Harare factory," said Lekula. Other recent promotions include those of Iain Sheasby and Karen Mhazo to the roles of Commercial Director and General Manager of Finance respectively, and that of current Group Human Resources Manager designate Trust Mabaya in March 2016.

South Africa: Bheki Lindinkosi Sibiya retired as Chairman of the Board of PPC on 25 January 2016 following the company's annual general meeting. He held the post since 2008. No successor has yet been announced.

PPC acknowledged that Sibiya had overseen the successful conversion of the company's mining rights and the initiation of its African expansion strategy during his tenure. It also mentioned his role in ensuring board continuity and preservation of corporate expertise during a 'challenging phase' in the company's history.

Other retirements announced include Mangalani Peter Malungani, who has served as Non-Executive Director of PPC since February 2009, and Zibusiso Kganyago, who has been a member of the board since October 2007.

Salukazi Dakile-Hlongwane has been elected as a Non-Executive Director of the Board. Dakile-Hlongwane is currently the Chairperson and co-founder of Nozala Investments Pty Limited. Her career includes posts at Lesotho National Development Corporation, African Development Bank (Abidjan-Cote d'Ivoire), the Development Bank of Southern Africa, FirstCorp Merchant Bank and BOE Specialised Finance. She holds a Bachelor's degree in economics and statistics from the National University of Lesotho and a Master's degree in development economics from Williams College in Massachusetts, USA.

In early 2014 the top of the global cement producer charts looked very different to how it does today. The big four multinationals, Lafarge, Holcim, HeidelbergCement and Cemex, were clearly out in front and ahead of the rest of the global top 10. While there was discrepancy in their sizes, the largest, Lafarge (224Mt/yr) had just over twice the cement capacity of fourth-placed Cemex (95Mt/yr), with Holcim (218Mt/yr) and HeidelbergCement (122Mt/yr) between these extremes.¹ With an impressive 659Mt/yr of capacity between them, these four accounted for just shy of half of global cement capacity outside of China.

However, as those with even a passing interest in the cement sector will know, this is no longer the case. The merger between Lafarge and Holcim and the subsequent acquisition of Italcementi by HeidelbergCement has stretched out the range of the top producers significantly. Today LafargeHolcim has around 340Mt/yr of installed capacity and HeidelbergCement 200Mt/yr. Meanwhile Cemex is still 'stuck in the 90s,' with a capacity of around 92Mt/yr following the sale of its Croatian cement assets last week. The Mexican 'giant' is now almost a quarter of the size of LafargeHolcim. What does this mean for the world's number three (excluding Chinese producers) and what might the future hold?

Well... the old adage goes that you have to move forward to stand still. However, Cemex has not moved forward over the past two years, meaning that is hasn't kept up the pace with its immediate rivals. It hasn't been able to, hemmed in by the debt that it took on from its poorly-timed acquisition of Rinker in 2007. Indeed, Cemex is looking to contract further, with aims to shed a further Euro600 - 1100m of non-core assets in 2015.² Against improved positions at LafargeHolcim and HeidelbergCement, Cemex increasingly looks like an 'Americas specialist' rather than a full-blown multinational. A stake in Cemex LatAm Holdings is up for sale, but the sale of more cement plants may also be on the way. This is all being done to improve Cemex's investment grade rating from B-plus, four grades below investment grade.

If Cemex does have to shed further physical assets on the ground, it is very unlikely that it would chose to do so in the Americas, where it is a very major player. It is number one in Mexico, third in the US and well-postitioned in numerous growth markets in Central America. If push comes to shove, it is far more likely that it would sell assets that are further from home. These are in Europe, the Middle East and the Far East.

Cemex has 43% of its production capacity outside the Americas. Certain assets, such as those in Thailand, Bangladesh and the Philippines, may be appealing to CRH, which is already set to acquire LafargeHolcim divestments there and is known to be considering other purchases in the region.³ Cemex also owns several cement plants in better-performing EU economies like Germany and the UK. In Germany, the company has already completed a small downsizing exercise by selling its Kollenbach plant to Holcim (LafargeHolcim). Meanwhile, Cemex UK is a major player in the UK, where the Competition Commission has recently been very keen to increase the number of producers. Elsewhere, Cemex's share in Assuit Cement in Egypt could provide much needed revenue, as could its small stake in the Emirati markets.

Thinking more radically, and in keeping with the current trend of mega-mergers and large-scale acquisitions, could Cemex find itself the target of the next global cement mega-merger / acquisition? Certainly, its strength in Central and South America completely complements HeidelbergCement's lack of coverage here, making a future 'HeidelbergCemex' a potential winner.

The other option, if/when Cemex regains its investment rating, would be for Cemex to acquire or merge with a company further down the list of global cement produers. Africa is an obvious target, with rapid growth and a lack of Cemex assets at present. A foreigner buying up Dangote is probably out of the question, but PPC would be an interesting target, as would increasingly isolated Brazilian producers that could help shore up Cemex's South American position.

If the past 18 months in the global cement industry have shown anything, it is that we should expect the unexpected. It will be very interesting to see how all players, both large and small, will react to the recent goings on in the rest of 2015 and beyond.

1. 1. Saunders A.; 'Top 75 Cement Producers,' in Global Cement Magazine – December 2013. Epsom, UK, December 2013.

1. 2. Reuters website, 'Mexico's Cemex could sell part of business to pay down debt: CEO,' 10 February 2015. http://www.reuters.com/article/2015/02/11/us-mexico-cemex-idUSKBN0LF05320150211.

1. 3. Global Cement website, 'CRH investment spend set to pass Euro7bn with South Korea cement deal,' 12 June 2015, http://www.globalcement.com/news/item/3721-crh-investment-spend-set-to-pass-euro7bn-with-south-korea-cement-deal.

The other big cement producer merger collapsed this week when PPC announced that it had terminated discussions with AfriSam. Details were scant due to a confidentiality agreement between the South African cement producers. However, the CEO of PPC, Darryll Castle, confirmed that neither party could agree the terms of the merger. PPC's shares rose by 5% on the news of the breakdown.

Financially the decision may have made sense. As an unlisted company AfriSam doesn't publish its financial results but PPC did report a revenue of US$742m in 2014. Comparing cement production capacity in South Africa gives PPC 4.75Mt/yr and Afrisam 3.50Mt/yr. Roughly this is a 58:42 split although this doesn't take into account both companies' aggregates, ready-mix concrete and other product concerns.

It's possible that disagreements over the value of the two companies caused the breakdown. At the time the merger was first proposed in December 2014 PPC was reeling from the resignation of its CEO Ketso Gordhan in September 2014. Some media commentators viewed the proposal as opportunistic on the part of AfriSam given all the internal problems PPC was coping with. Also, given that the combined companies would have held a 60% share of the market, it is likely that the Competition Commission of South Africa would have taken a keen interest.

The uneven ratio of sizes between the two companies considering merging is similar to the problems now facing Lafarge and Holcim. The European building materials companies started out trumpeting their merger of equals before Lafarge's relative poor financial performance and fluctuating currencies made a mockery of this parity. Once this became clear then major shareholders in Holcim started to question the merger.

Back to Africa, the question with PPC and AfriSam is whether they should have swallowed their differences in view of future growth. With Dangote expanding across the continent and Lafarge consolidating its local activity under the Lafarge Africa banner it seems like the time to merge resources and expand.

AfriSam has been saddled with debt since a buyout in 2007 when Holcim reduced its share from 85% to 15%. In 2011 it agreed to pay a penalty of US$16m, representing 3% of its 2010 cement annual turnover in the Southern African Customs Union, due to cartel activity. Then in 2013 investment holding company Pembani Group reduced AfriSam's debt for shares and a controlling say on its board. By contrast PPC has been expanding across Africa, in countries such as the Democratic Republic of Congo (DRC), Zimbabwe, Algeria and Mozambique, to boost foreign sales to 40% by 2017. The programme is anticipated to raise PPC's cement production capacity from 8Mt/yr to 12Mt/yr.

Domination at home in South Africa and firm plans for continental expansion suggest that this deal wasn't in PPC's interest, although its domestic cement sales have declined which may have also made the case for consolidation more tempting. Dangote's progress in west African must be both inspiring and troubling for South African cement producers.

South Africa: The board of PPC has been newly-constituted following the company's annual general meeting. Shareholders have elected six new board members. From a reduced list of 10 nominees, shareholders elected former Reserve Bank governor Tito Mboweni, former PPC finance director Peter Nelson, Nicky Goldin, Timothy Leaf-Wright, former Afrisam CEO Charles Naude and Daniel Ufitikirezi. Ufitikirezi is chairperson of PPC's Rwandan business. The appointment of Darryll Castle as CEO was also approved by shareholders and Tryphosa Ramano retained her position as CFO.

South Africa: PPC has named a mining industry veteran as CEO, ending a three-month leadership vacuum that has hit its share price. Darryll Castle will take over as CEO from 12 January 2014. Castle previously worked as chief operating officer (COO) at base metal miner Metorex, which has since been acquired by China's Jinchuan Group. A chartered financial analyst, he has been CEO of Trafigura Mining Group and Anvil Mining. Castle's experience includes projects in Zambia, Angola and Tanzania.

For the last issue of Global Cement Weekly before the Christmas and New Year break we're following our tradition of reviewing some of the major industry news stories of the year. Remember this is just one view of the year's events. If you think we've missed anything important let us know via LinkedIn, Twitter or This email address is being protected from spambots. You need JavaScript enabled to view it..

Lafarge and Holcim merger
The year has been dominated by one story: the merger of the two largest European-based cement producers, Lafarge and Holcim. The implications are massive. At a stroke the new company can dispose of less profitable units, clear debts and benefit from new mega-economies of scale. As Europe emerges from the recession, LafargeHolcim will be ready. Worldwide it is a rebuff to the consolidating Chinese cement producers who are poised, if they wish, to emerge from China and dominate international markets. The process has appeared surprisingly smooth so far with considerable forward planning. This week the European Commission has approved the proposed merger.

Lafarge CEO Bruno Lafont described the deal as 'a merger of equals'. What he didn't say is that the merger will leave LafargeHolcim with no equal. However, one question remains. Once the merger is complete will the new company be profitable?

China heads abroad
State planners in Hebei Province revealed plans to move excess cement production capacity outside of China in their usual sparse style. The quiet tone of the announcement failed to match its intentions to move 30Mt of capacity abroad by 2023. It is the next step after becoming the world's biggest cement producer, capturing swathes of the equipment market and consolidating its many local producers. How Chinese cement producers will fare in the wider global market remains to be seen. Yet while its economy remains strong the gobbling up of European utilities by Chinese companies suggests that, if all else fails, money talks.

Coal for India
If you can't fire-up your kiln you can't make clinker. With Indian cement producers reporting falling profits in 2014 the squabbling over coal allocation in the country summed up some of the input cost and infrastructure problems facing the country's cement industry. The coal blocks are due to be auctioned off from January 2015. Meanwhile analysts predict that Indian cement demand is unlikely to grow until 2016.

Sub-Saharan scares and skirmishes
The creation of Lafarge Africa means that three producers are now in a skirmish in Sub-Saharan Africa: Lafarge, Dangote and PPC. All three companies are present in multiple countries and expanding fast. This week, for example, PPC announced proposed merger plans with AfriSam. Given the low cement consumption per capita in this region the benefits of getting in early are immense. Unfortunately, there are many speed bumps along this road to development. One is the on-going Ebola epidemic. Left unchecked it could cause untold economic damage.

ASEAN set to open up
The Association of Southeast Asian Nations (ASEAN) is set to drop import tariffs in 2015 as it establishes a common market. Already in preparation cement producers have started to change their strategies, thinking regionally instead of nationally. Holcim Philippines, for example, announced in February 2014 that it was considering delaying building a new plant as it analysed the situation. The region, including high-growth countries like Indonesia and Thailand, could see its cement industry go into overdrive. However, the benefits may not be uniform as countries like the Philippines may lose out.

The US, fracking and falling oil prices
Of the western economies recovering from the 2007 recession, the US cement industry has rebounded the fastest, due in part to fracking which has brought down the cost of energy. The Brent Crude price hit a low of US$60 per barrel this week and this has consequences for everybody in the cement industry as fuel procurement strategies adapt.

For starters, cement producers gain a fuel bill cut as the cost of fuels fall. Producers in Egypt who have been frenziedly converting kilns from gas to coal may suddenly find their margins improve. Low energy prices also take away financial motivation to co-process alternative fuels in cement kilns. Finally, what of the giant infrastructure projects in Organisation of the Petroleum Exporting Countries (OPEC) like Saudi Arabia? Take away the petrodollars propping up these builds and cement demand may evaporate.

For more a more detailed look at trends in the cement industry check out the Global Cement Top 100 Report.

Global Cement Weekly will return on 7 January 2015. Enjoy the festive break!

South Africa: On 23 October 2014 PPC confirmed the resignation of Richard Tomes, joint managing director of PPC's South African business and one of the business's key sales and marketing personnel.

The resignation of Tomes comes a month after Ketso Gordhan resigned as CEO and the company's board subsequently plunged into a tussle with group shareholders seeking a new board. PPC said that Tomes, who joined the firm in 1998 and who shared the job as head of domestic operations with Johann Claassen, had resigned effective Thursday to 'pursue other opportunities.'

With his departure, Claassen will lead PPC's South African cement business, while Pepe Meijer remains managing director of PPC's international business. While PPC has lost an experienced managing director in Tomes, it sought to assure investors that its South African business remained under strong leadership: "Johan is a professional engineer who joined PPC in 1989 and has served as executive of cement operations and of lime," said PPC. "He has also held various other senior and general management roles across the cement and lime divisions."