ALGERIA: Clash of the cement giants

A clash of the giants is imminent between PPC Ltd and Nigeria’s Dangote in the cement industry in SA, as the new player gears up to challenge PPC Ltd in both the local and the rest of Africa’s cement trade.

Yesterday, PPC Ltd announced that it would gain a 49% stake in the Hodna Cement Company pla-cing its foot firm on the door of the cement industry in Algeria.

The company plans to construct a $350m plant in the country in a deal which will be funded on a project finance basis.

According to PPC Ltd’s announcement, 80% of the debt funding of this deal will be obtained from local Algerian banks.

This was another step in realising the company’s ambitions to be a significant player in emerging markets throughout Africa. However, Dangote Cement, through its subsidiary, Sephaku Cement, also has plans to open its 3m ton per year integrated cement plant at Aganang, North West province in early 2014, said Global Cement in a statement.

According to figures from Global Cement, “it will be the first time the Nigerian cement giant will be producing cement in the same country as its competitor in sub-Saharan Africa. The encounter will set the tone for the producers’ next clash when they both open cement plants in Ethiopia in 2015,” said the organisation.

PPC Ltd has a strong presence in Botswana, Zimbabwe and Mozambique. Both companies are looking to make inroads into Ethiopia, the DRC and Rwanda as cement plants are being rapidly constructed in these areas.

Azola Lowan, an executive for strategy and investor relations at PPC Ltd said the goal was to increase emerging market contribution towards revenue to 40% by 2017. That target would be achievable by becoming the leading player in emerging markets. Currently, the rest of Africa contributed 24% towards revenue at PPC Ltd, explained Lowan.

“Our Rest of Africa Strategy is on track to achieve our initial target to grow revenue outside of SA from 20-40%. We have increased our stake to 30% in Habesha Cement, in Ethiopia and acquired a 51% stake in CIMERWA, in Rwanda. We also have over R2bn invested in operating efficiencies and our 2013 cash flow generated from operations increased by 26%.”

Jean Pierre Verster an equity analyst at 36ONE Asset Management said the key to Dangote’s successful entry into SA would be its strategy on pricing which comes down to how much the company would cut their cement selling prices below those of competitors to entice buyers. Dangote owns 64% of Sephaku Cement, which has recently started cement production at their new Delmas plant and will bring their second plant online in the second quarter of this year, said Verster.

“With Dangote Cement coming south, PPC is going north and doing what comes naturally when a company’s core market is under pressure – look for new markets. There are very few other producers in the rest of Africa and PPC is an established player with over 100 years of experience in the industry. Locally, Sephaku is a new entrant, with their Aganang plant only starting to generate revenue later this year, so their initial pricing strategy is critical in securing a slice of the market,” he said.