Global Cement News

HeidelbergCement’s acquisition of Italcementi really sticks out in a comparison of the major multinational cement producers in 2017. Both its sales revenue and cement sales volumes jumped up by more than 10% year-on-year from 2016 to 2017. It still puts HeidelbergCement behind LafargeHolcim and CRH in revenue terms but the gap is shortening. Although, as we reported at the time of its preliminary results in late February 2018, on a like-for-like basis its sales and volumes only rose by 2.1% and 1.1% respectively.

Graph 1: Sales revenue from multinational cement producers in 2016 and 2017 (Euro billions). Source: Company financial reports.

The European markets may be back on their feet but serious growth came from mergers and acquisitions. Along the same lines, India’s UltraTech Cement is set to reap the reward of its US$2.5bn acquisition of six integrated cement plants and five grinding plants from Jaiprakash Associates in mid-2017. Although as can be seen in graphs 1 and 2 it had been doing fairly well even before this.

Graph 2: Cement sales volumes from multinational cement producers in 2016 and 2017 (Mt). Source: Company financial reports.

We’ve included Ireland’s CRH this year to present the scale of the company. When it says that it is the world’s biggest building materials company, it means it! CRH doesn’t publish its cement sales volumes, which makes it hard to compare it to other cement producers. In part this may be due to the company’s regional-focused structure and its approach to the construction industry. In Global Cement Magazine’s Top 100 Report 2017 – 2018 feature, CRH was placed as the seventh largest cement producer by installed capacity with 50.5Mt/yr. The major story with CRH in recent years has been its steady stream of acquisitions, notably Ash Grove Cement in the US in 2017.

LafargeHolcim may remain the biggest cement producer in the world outside of China but it made an income loss of Euro1.46bn in 2017. At face value its cement sales volumes fell by 10.2% to 210Mt in 2017 from 233Mt in 2016 but this was mainly due to divestments in China, Vietnam and Chile. On a like-for-for-like basis its volumes rose by 3.3%. To this kind of mood music the emphasis on the release of its 2017 results this week was the announcement of a five-year plan to refocus the company. However, reports of overcapacity in Algeria that also emerged this week suggest the group may have its work cut out.

Cemex described 2017 as a ‘challenging year’ as its operating earnings fell due to a lower contribution from the US and South America despite growth in Mexico and Europe. Hurricanes in Florida had a negative impact in the US and the Colombian market suffered from falling production in 2017. UltraTech Cement uses a different financial year to the other companies detailed here, which makes comparisons a little harder. However, its profit after tax fell in the third quarter that ended on 31 December 2017 due to rising costs of petcoke and coal. Undeterred though, its expansion drive continues this week with its continued efforts to try and win the bid for Binani Cement. Vicat, meanwhile, reported falling earnings in part due to the poor market in Egypt. Yet overall its sales and volumes rose in 2017 aided by recovery in France. Finally, Buzzi Unicem rode out the Italian market with its acquisition of Zillo Group delivering a rise in sales and cement volumes.

Wider trends are hard to call given the differing geographical spreads of these cement producers. Europe has been recovering from a decade of stagnation and Asian markets are no longer reliable. South America is mixed with places like Brazil, and now Colombia, underperforming. Yet Argentina is proving one of the fastest growing construction markets at the moment with local plants unable to meet demand. Africa remains profitable and promising as ever but divided between the north and the Sub-Saharan region.

Once the effects from mergers and acquisition activity by the larger cement producers start to fade then the actual situation may become clearer. In the meantime, the effects of the recent cold snap in Europe on the first quarter results for 2018 could be pretty varied. The Financial Times newspaper, for example, quoted one pundit from the Construction Products Association who estimated the industry lost 1% of its annual output to the bad weather in the UK. This may not be great news for any company relying on the European market.

Ireland: CRH has appointed Richard Boucher as a non-executive director.

Boucher, aged 59 years and an Irish citizen, has experience in all aspects of financial services and was the chief executive of Bank of Ireland Group between February 2009 and October 2017. He also held a number of senior management roles within Bank of Ireland, Royal Bank of Scotland and Ulster Bank. He is a past President of the Institute of Banking in Ireland and of the Irish Banking Federation.

He is a consultant for Fairfax Financial Group and acts as its nominee on the Board of Atlas Mara, a company with investments in banks in Africa. He is also a non-executive Director of Eurobank Ergasias, a bank based in Athens, Greece that has operations in Greece and several other European countries. He holds a Bachelor of Arts (Economics) from Trinity College, Dublin and is a Fellow of the Institute of Banking in Ireland.

Denmark: FLSmidth has appointed Mikael Lindholm as Chief Digital Officer (CDO) with effect from 1 May 2018. Lindholm has worked on digitalisation in the global Internet of Things since the mid-2000s, most recently in a position as Vice President, Internet of Things Asia with Telenor. His previous experience includes strategic and operational experience from both the service industry and traditional manufacturing.

US: CarbonCure Technologies has appointed Ted Jones as its Vice President of Sales and Marketing. Previously he worked as the sales and marketing lead with Oldcastle Precast, Contech Engineered Solutions, and The Fort Miller.

Jones succeeds Bill Holden as Vice President of Sales. He will be launching and spearheading a new Industry Advisory Council, which is an advisory board made up of concrete industry leaders. He will continue to sit on CarbonCure’s Board of Directors. Jennifer Wagner, the former Vice President of Marketing, has been promoted to the Executive Vice President of Corporate Development.

The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.