Anhui Conch Cement (600585), the largest cement producer in China, plans to invest 10 billion yuan this year to upgrade technology, undertake mergers and acquisitions and reduce emissions, reports China Business News, citing company chairman Guo Wensan.
Conch Cement achieved market leadership through capacity expansion in the Yangtze River Delta and the Pearl River Delta regions, the two most important markets in China, during the period of the 11th Five-Year Plan. During the same period, the company sought to enter into the markets of west China.
According to the report, the recent growth of China National Building Material Group Corporation in the cement sector through mergers and acquisitions is threatening the market leadership position of Conch Cement. This has led to Conch Cement pursuing mergers and acquisitions.
Liu Zuoyi, C.E.O. of Digital Cement, said that Conch Cement had in the past relied on capacity expansion to expand its business.
The Chinese government released regulations in September 2009 aimed at curbing excessive capacity in a number of industries. One of the industries targeted was the cement industry.
According to the regulations, cement projects that were not operative before the end of September 2009 were directed to suspend production.
Guo said that Conch Cement will expand capacity by more than 10 percent in 2011.
At present, the company has annual production capacity of 140 million tons of cement and has affiliates in about 20 provinces and cities.
The report added that though the pace of mergers and acquisitions in the cement industry stepped up over the past two years, the concentration rate in the cement industry is still below 30 percent.
Among the major cement producers, Conch Cement has the lowest leverage ratio while having the highest operating cash flows.
The cost of mergers and acquisitions may increase due to the rise in cement prices resulting from the restrictions imposed by the government on power usage.
Guo added that Conch Cement would consider the profitability, geographic location and mine resources of the target companies in its assessment.
The price of cement increased 13 percent in 2010, and is expected to continue to rise in 2011, said Guo.
Anhui Conch Cement predicts that 2010 net profit could increase by more than 50 percent. It posted 2009 net profit of 3.54 billion yuan.
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