INDONESIA: Overview of the Main Players

The year 2015 may be a good one for Indonesian cement makers. The Indonesian government under the leadership of Joko Widodo is eager to invest heavily in the country’s infrastructure as this is one of the main bottlenecks that blocks higher economic growth. In the Revised 2015 State Budget the central government set aside IDR 290.3 trillion (USD $22.3 billion) for infrastructure development. Surely, the country's large cement producers - Semen Indonesia, Indocement Tunggal Prakarsa, Holcim Indonesia and Semen Baturaja - will benefit from this.

However, when we take a look at domestic cement sales in the first quarter of 2015 the aforementioned positive picture has not materialized yet. Based on the latest data from the Indonesian Cement Association (ASI) Indonesia’s cement sales fell 3.3 percent (y/y) to 13.6 million tons in the first quarter of 2015. Widodo Santoso, Chairman of the Indonesian Cement Association, said that several factors explain why we see disappointing cement sales in Indonesia in the January-March 2015 period.

Firstly, several ambitious government infrastructure and property projects have not seen groundbreaking yet. It is not uncommon for projects in Indonesia to be delayed due to severe bureaucracy, legal issues (especially land acquisition), or the lack of financial means. Although the government reserved IDR 290.3 trillion in this year’s state budget for infrastructure spending, this amount is far too little to fund all needed infrastructure development across the country and therefore the government needs to team up with the private sector.

However, as Indonesia is not the easiest place to do business (Indonesia ranks 114th from a total of 189 countries in the World Bank’s latest ease of doing business survey) the private sector is hesitant to invest. Moreover, infrastructure projects are usually not the first choice of the private sector as these projects constitute relatively long-term commitments and are costly. Without possessing a good track-record of successful public-private partnerships (PPPs), the government has difficulty to attract large investment from the private sector for infrastructure projects.

Infrastructure projects that have been delayed include the Jakarta-Surabaya high-speed train project (delayed for at least five years as the costs are too high) and the Cilamaya seaport in West Java (which will be relocated to a different location as the initial location could disturb a local oil and gas production block). Projects that are expected to see groundbreaking in April 2015 are the 2,700 kilometers-long Trans-Sumatra toll road and the “One Million Houses Program”. These projects will require plenty of cement.

The second reason why Indonesian cement sales have been weak in the first quarter of 2015 is the high amount of rainfall amid the peak of the rain season. As about 80 percent of cement sales are retail, demand drops when it rains.

Despite weak results in the first quarter, Indonesian cement companies and analysts agree that cement demand will grow in the remainder of 2015, particularly because the government projects will boost cement sales. The ASI expects to see a total of 62 million metric tons of cement sales in 2015, up 3.3 percent from last year.

Semen Indonesia

Semen Indonesia, the largest cement producer in Indonesia, posted a 10.2 percentage point (y/y) growth in revenues to IDR 27.0 trillion (USD $2.1 billion) over 2014, while the company’s net profit rose 3.7 percent (y/y) to IDR 5.6 trillion (USD $431 million). The company is the market leader in Indonesia in terms of cement sales and is investing to stay on top. By 2017, it wants to have production capacity at 40.8 million tons of cement per year, up from around 32 million tons of cement in 2014.

Regarding 2015, Semen Indonesia’s revenues are expected to rise by 10 percent (y/y). However, net profit growth will be limited at an estimated 3.5 percent (y/y). Main reason for this sluggish growth is that President Joko Widodo forced state-owned cement companies to lower their cement prices in January 2015 in order to make it easier for the wider public in Indonesia to buy cement. Although only state-owned cement producers were forced to lower these prices (Semen Indonesia and Semen Baturaja are both state-owned), private producers will have to follow suit to stay competitive. As a result of this government policy, shares of listed cement producers fell in January 2015.

The other reason why Semen Indonesia is expected to post limited net profit growth in 2015 is that operational costs will rise due to higher electricity tariffs. To reduce these costs the company is increasingly using waste heat recovery solutions.

Indocement Tunggal Prakarsa

Indocement Tunggal Prakarsa (Indocement), the second-largest cement producer in Indonesia, posted a 7 percentage point (y/y) growth in revenues to IDR 19.9 trillion (USD $1.5 billion) over 2014. Meanwhile, net profit grew 5.2 percent (y/y) to IDR 5.3 trillion (USD $408 million).

Compared to Semen Indonesia, Indocement has more stable margins and lower operating costs, resulting in a gross profit margin stably above 45 percent. Indocement keeps a lower level of leverage and has a relatively strong cash flow.

Indocement’s revenues are estimated to grow 17 percent (y/y) in 2015, supported by an estimated 9 percentage point growth in sales volume to 20.4 million tons. The company’s net profit may rise 13 percent in 2015.

However, the company is vulnerable to rupiah depreciation as 50 percent of Indocement’s costs are US dollar-denominated. Amid tightening monetary policy in the USA, the rupiah is expected to continue to depreciate against the greenback in 2015. Indocement President Director Christian Kartawijaya said that the company is now in the process of hedging currency risks.

Indocement is also eager to expand cement production capacity. The company’s new cement factory in Citeureup (West Java) is nearly completed and should start operations at the end of 2015. This factory will add 4.4 million tons to the company’s total annual production capacity. Two more factories are planned to be constructed in Central Java and North Sumatra and will add 5 million tons of cement to the company’s annual production capacity. But it will take up to 2019 before both factories can start operations. The company's annual cement production capacity stood at 20.5 million tons at the end of 2014.

Holcim Indonesia

Holcim Indonesia, part of the Swiss-based Holcim Group, recorded an 8.6 percentage point growth in revenues to IDR 10.5 trillion (USD $807 million) over 2014. However, the company’s net profit fell 30 percent (y/y) to IDR 669 billion over the same period. The primary reason for this development was that operational costs surged by about 18.5 percent (y/y) due to higher trademark service costs and higher franchise costs. Moreover, and more than its rivals, Holcim Indonesia is affected by rupiah depreciation as a larger portion of the company costs (including imports) are US dollar-denominated.

Although facing tougher conditions than its rivals, Holcim’s sales and production capacity are expected to increase in 2015. The company’s Tuban II factory will commence operations this year and will raise the company’s total annual production capacity to 12.7 million tons.

Semen Baturaja

Semen Baturaja is the smallest player (in terms of sales) among the listed cement producers. However, as the company has a strong connection to the government (it is for 76 percent state-owned) Semen Baturaja is expected to benefit from government infrastructure projects. Moreover, the company is based on Sumatra where the government is eager to develop the 2,700-kilometers long Trans-Sumatra toll road project. As such, the company’s cement sales are estimated to grow 41 percent (y/y) in 2015. However, Semen Baturaja’s production capacity is still limited at 4 million tons of cement per year only, far below production capacity of the aforementioned cement producers. The company is in the process of developing a new plant but it can only become operational in 2016 or 2017.

CAMEROON: EMCC to build offloading wharf for Dangote Cement

Referred to as the “French leader in dredging, water and subaquatic works,”Entreprises Morillon Corvol Courbot (EMCC) has just created a subsidiary in Douala, Cameroon’s economic capital. This was announced in a legal notice published on April 7, 2015.

An official document reveals that EMCC Cameroon was created “to effect a contract signed with the Dangote Company to conduct dredging and also build a wharf along the Wouri River.” The wharf should facilitate the offloading of raw materials for the 1.6 million-tonne capacity per annum Dangote group cement factory which recently launched production on the banks of the Wouri River in Douala.

A member of the global construction leader, the Vinci group of companies, EMCC indicates on its website that it specialises in dredging, maritime construction, civil engineering, laying conduits and subaquatic works

USA: Summit Materials Announces a Definitive Agreement to Acquire Cement Assets from Lafarge

Summit Materials (“Summit”) is pleased to announce it has signed a definitive agreement with Lafarge North America (“Lafarge NA”) to acquire Lafarge NA’s 1.2 million short ton (1.1 million metric ton) capacity Davenport, IA cement plant and seven cement distribution terminals (“Davenport Assets”) for $450 million, subject to certain post-closing adjustments, plus Summit’s Bettendorf, Iowa cement distribution terminal. The transaction is expected to close in July 2015, pending final regulatory approval and the closing of the Lafarge-Holcim global merger.

The Davenport Assets will be integrated into Summit’s Continental Cement Company business based in Chesterfield, MO. The combined business will have 2.45 million short tons of cement capacity across two plants in Hannibal, MO and Davenport, and eight cement distribution terminals along the Mississippi River from Minneapolis, MN to New Orleans, LA.

Summit CEO, Tom Hill, commented, “The Davenport Assets are an excellent fit with our materials-based growth strategy and a continuation of Summit’s proven track record of value-added acquisitions. The combination of the Davenport Assets and Continental Cement creates a strategically compelling and complementary multi-plant cement business in very attractive markets along the Mississippi. We are looking forward to welcoming the Davenport plant and terminal employees to Summit, and to servicing new and existing customers with high quality product from our expanded cement operations.”

The purchase price of $450 million is expected to be funded with a combination of debt and equity.

VIETNAM: SMGR to acquire second Vietnamese cement firm

State-owned cement manufacturer Semen Indonesia (SMGR) would further strengthen its foothold in Vietnam’s cement market by acquiring another local cement producer in the country, the company’s executive said.

SMGR’s finance director Ahyanizzaman said in Jakarta on Thursday that the publicly listed company had allocated a total capital expenditure (capex) of between Rp 7 trillion (US$545.8 million) and Rp 11 trillion this year to expand its operations, which includes the acquisition of the Vietnamese company.

He said that the company was currently conducting a due diligence audit on the Vietnamese firm and this was expected to be completed by the end of the first half of this year.

“The Vietnamese company is a private firm, which has a local market share of about 4 percent,” Ahyanizzaman said after the company’s general shareholders meeting on Thursday.

If SMGR goes ahead with the acquisition plan, it will be Semen Indonesia’s second subsidiary in Vietnam. Through its Vietnamese subsidiary Thang Long Cement Company (TLCC), SMGR produces about 2.5 million tons a year in the country. 

Ahyanizzaman said the company would borrow up to Rp 1 trillion to support the international expansion plan.

SMGR president director Suparni said the acquisition plan was part of the company’s strategy to take advantage of the ASEAN Economic Community, which would be implemented before the end of this year.

“Domestic and regional operations cannot be separated when the AEC is implemented, so we want to synergize our business,” Suparni said. 

SMGR earlier said it planned to build a cement plant in Myanmar, but it was delayed because it failed to reach a business agreement with its local partner.

SMGR, which operates factories in Gresik, East Java, also has several local subsidiaries including Semen Padang, Semen Gresik and Semen Tonasa.

Suparni said the company expected a higher growth in sales volume in the third and fourth quarters this year after posting a sales growth of just 1.8 percent in the first quarter. 

“We plan to export between 150,000 and 200,000 tons in the first half. In the second half, exports will be reduced because domestic demand will usually reach its peak,” Suparni said.

According to the company’s review, Indonesia’s cement consumption reached 59.91 million tons as of last year, a 3.3 percent increase from 58 million tons a year earlier.

Semen Indonesia expects to increase its production capacity to 40 million tons by 2017, which will be supported by its two new facilities in Rembang, Central Java, and Indarung, West Sumatra, currently under construction.

The two facilities are expected to add a total capacity of 6 million tons annually to the company’s current production of 31.8 million tons, Suparni said.

Suparni said the company was also expecting add an additional capacity of 2 million tons through acquisitions of cement plants in the country.

Suparni said further that the company would also build a new plant worth Rp 1.95 trillion in 2016 in Ja-

yapura, Papua with a total capacity of 1 million tons per year. On Thursday, the company’s annual general shareholders meeting approved a 40 percent dividend payment worth Rp 2.2 trillion out of its total net profits of Rp 5.6 trillion as of last year, with price per share at Rp 375.3. In addition, Suparni said the meeting approved new directors Aunur Rosyidi and Rizkan Chandra, as well as new commissioner Sony Subrata.

CAMEROON: Dangote Cement Cameroon seeks to nab 30% of Lafarge’s cement market

With its factory built on the banks of the Wouri River in Douala, the Cameroonian economic capital, the Dangote Group is aiming to grab 30% of the local cement market in 2015 with an expected production of 950,000 tonnes. This was revealed by company heads during a site visit at a production plant on April 8, 2015. Dangote Cement Cameroon, which will only start producing 1.5 million tonnes in 2016, is planning to make serious inroads into the market share of Cimencam, the Lafarge subsidiary which has enjoyed a monopoly for some 48 years.

The battle between Lafarge and Dangote, respectively based in France and Nigeria, will cover the entire Central African market where Dangote Cement Cameroon also plans to claim 30% of the market in 2015, according to plans revealed on April 8, 2015 by heads of Cameroon’s 3rd largest cement factory.

In the interim, Dangote Cement Cameroon has recruited 65 distributors in Cameroon, “This figure will increase. With time, we will identify distributors that are serious and those that are not,” assured Dangote Cement Cameroon’s Managing Director. Malko Building’s promoter in Douala, Serge Fouoggi indicates that Dangote 3X bags of cement (42.5R) with a capacity of 50 kg will be sold for 4,500 FCFA instead of the 4,450 FCFA recommended by the company. “I sold 70 tonnes of cement in two days. On average 35 tonnes per day. Customers are buying a lot at the moment. I think that it’s because they want to try out Dangote Cement. So far the feedback has been good. If anything, the paper packaging could be strengthened,” he stated.

According to Philippe Pidy Kobba, Marketing and Sales Director, Dangote Cement Cameroon, in the first few months, careful attention has been paid to distributor and consumer feedback on the Dangote cement product. This feedback will be taken into account to ensure customer satisfaction. “Next week, we will be tripling two-layer packaging,” he explained

On the production end, Dangote Cement Cameroon Managing Director Abdullahi Baba assures that the process is not yet at full speed. “We aren’t producing on a continuous basis. We’re testing the equipment and making adjustments as needed. We haven’t started intense production, but we’ve produced 50,000 tonnes of cement,” he stated. The company is seeking to position itself as one of the best priced on the market. “We’re not trying to have the best price on the market. We are the best priced and we have the most affordable cement,” declared Abdullahi Baba.

Indeed, according to Dangote, its cement will be sold to consumers for 4,450 FCFA per 50 kg bag, which is 150 FCFA cheaper than Cimencam’s (4,600 FCFA) and Cimaf’s (4,400 FCFA), produced locally by the Moroccan company Addhoha.