Global Cement News

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.

UK: Quinn Building Products has appointed Lee Gillman as its new Sales and Marketing Director for the UK. Lee has worked for Quinn’s commercial team for three years. He has been promoted to lead on the management and development of core products within the Quinn portfolio in the UK. His experience working with merchants and contractors is intended to help the company continue to grow its client base on a national level.

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.

Canada: Christian Gagnon, the president and chief executive officer of McInnis Cement, has left the company. The board of directors announced the departure and said that the cement producer is currently recruiting his replacement. A new executive committee has been put in place to take over the management of the company until the vacancy has been filled. It is composed of the following members: Louis Laporte, Chief of Operations; Ronald Bougie, Executive Vice-President, Engineering, Construction and Operations; and Marc Baillargeon, Management Advisor acting on behalf of la Caisse.

In other changes to the company’s executive team, Ronald Bougie has been appointed with immediate effect as the Executive Vice-President, Engineering, Construction and Operations. Bougie has experience in the construction of large industrial projects including the Stornoway site, a project in which Caisse de dépôt et de placement du Québec invested. Until a new president and chief executive officer is appointed, Bougie will report directly to McInnis Cement’s Executive Committee. Bougie will have direct access to the Board of Directors to provide progress reports. The board will closely monitor the final stages of the site’s construction.

And the winner of the Italcementi assets in Belgium is… Cementir. The Italian multinational cement producer picked up Compagnie des Ciments Belges for Euro312m this week. The deal included all of Italcementi's cement, ready-mix and aggregates assets in Belgium, Italcementi's stake in an existing limestone joint-venture with LafargeHolcim and a portion of HeidelbergCement's limestone quarry in Antoing. It was offered by HeidelbergCement to the European Commission to ensure approval of its acquisition of Italcementi.

The assets from Compagnie des Ciments Belges comprise one 2.5Mt/yr integrated cement plant, three terminals and 10 ready-mix concrete plants. As ever, the add-ons confuse the final price but the deal values the cement production capacity at Euro125/t or US$138/t. This figures seems low compared to the other big sale this week of Holcim Lanka to Siam City Cement. There, the Thai producer picked up an integrated cement plant and a grinding plant with a combined cement production capacity of 1.6Mt/yr for US$400m. That values the cement production capacity at US$250/t.

Increasing its presence in western Europe makes a lot of sense for Cementir. It’s one of the smaller European multinational cement producers with 14 cement plants, often white cement producers, in Italy, Turkey, Denmark, Egypt, the US, China and Malaysia. Altogether this comes to 15.1Mt/yr in cement production capacity. In its press release, Cementir described Gaurain-Ramecroix, the cement plant it is buying, as the largest integrated cement plant in France-Benelux, region with ‘state-of-the-art’ technology and long-life mineral reserves.

Italcementi reported a 2.9% year-on-year fall in cement and clinker sales volumes in Belgium in 2015, noting a general reduction in cement consumption in all areas of the construction industry. The mineral reserves were confirmed at least as environmental clearance as granted and work began at the new Barry quarry at Gaurain-Ramecroix.

Cementir has rebuilt its revenue since hitting a high of Euro1.15bn in 2007 although it dipped again in 2014. Despite this ordinary portland and white cement sales volumes have been slowly falling from a high of 10.5Mt in 2011 to 9.37Mt in 2015. That said though its businesses in Scandinavia generated just under half of its operating revenue in 2015. So far in 2016, total group revenue rose by 2.8% to Euro210m in the first quarter of the year, with a fair portion of that attributable to Scandinavia. Bolting on a cement and concrete business in (relatively) nearby Belgium makes sense in this context provided the construction market eventually rallies.

Yet, another on-going Cementir acquisition back home in Italy may make the company reflect on the risks of buying assets in Belgium. Cementir is drawing closer to purchasing the cement and concrete arm of Sacci as it plans to pick up five cement plants and assorted ready-mix concrete assets for the bargain price of Euro125m, following a protracted bankruptcy. Cementir may remember that Lafarge sold some of these assets to Sacci for Euro290m in 2008 before the situation deteriorated. The top brass at Cementir must be praying that the Sacci’s fate doesn’t await them in Belgium.