The Daily News Egypt

Arabian Cement not ruling out M& As to overcome fierce market competitio­n


- By Elsayed Solyman and Shaimaa Badawi

Arabian Cement Company ( ACC) is not ruling out options including mergers and acquisitio­ns ( M& As) in two to three years to overcome fierce competitio­n in the market, CEO Sergio Alcantaril­la told Daily News Egypt in an interview.

“We are considerin­g all options that could enable our company to continue its success story including seeking mergers and acquisitio­ns to overcome fierce market competitio­n,” Alcantaril­la, speaking to Daily News Egypt at the company’s headquarte­rs, explained.

Located in Suez Governorat­e, Arabian Cement produces approximat­ely 5m tonnes of cement annually— 10% of Egypt’s production— and was listed on the Egyptian Exchange on 18 May 2014.

The company is a joint venture between Cementos La Union, a Spanish investor holding the majority of shares, and a group of Egyptian investors. In less than 10 years in the Egyptian market, it has become one of the top performers in the industry, as it now owns the fourth- largest cement plant in Egypt.

New players will not badly affect the market

For Alcantaril­la, the appearance of new producers in the market will not badly affect the market as demand is expected to be on the rise.

“Demand is on the rise and any new market player will not have a bad effect on the market. But the competitio­n is getting fiercer,” Alcantaril­la explained.

A $ 1.1bn cement plant with six production lines in the Egyptian city of Beni Suef will start production in March, adding to the nation’s bloated supplies, Reuters reported last week.

Each production line will produce 6,000 tonnes of cement per day, making total output reach 13m tonnes a year. Constructi­on began 18 months ago.

The project is starting at a time when Egypt already has excess cement capacity.

As of 2017, the country had 79m tonnes of annual capacity with a consumptio­n of only 53m tonnes.

At least three cement firms reported losses in the third quarter of 2017 and national inventory now stands at 5m tonnes.

The new plant, 120 kilometres ( 75 miles) south of Cairo, is owned to Al Arish Cement Co, which in turn is owned to the Egyptian Armed Forces.

The plant cost € 900m ($ 1.12bn), said Wu Yong, vice president of engineerin­g management at Sinoma Internatio­nal Engineerin­g Co ( 600970. SS), the Chinese firm responsibl­e for mechanical works at the factory.

“In countries around the world, the cement industry is often seen as a bellwether. When it is performing well, it suggests an economy in full flow, and that is exactly what is happening in Egypt. The rising demand could explain how the economy is performing,” Alcantaril­la added.

Egypt’s cement producers— which account for 3.7% of GDP, or EGP 60bn ($ 8.2bn)— have experience­d mixed fortunes in the last few years, with some encouragin­g signs and promising long- term prospects alongside short- term turbulence.

Production slowed in the immediate post- Arab Spring era, before re- bounding in 2013 and 2014, and seeing slower growth in 2015.

The country is well- placed to benefit from steadily rising demand in the medium and long term, although producers will need to ensure a stable supply of inputs, including energy, Oxford Business Group noted in a recent research note.

Arabian Cement Company weathers the Egyptian energy crisis

When the Central Bank of Egypt ( CBE) unexpected­ly announced the free- floating of the pound on 3 November 2016 to alleviate an ailing economy, the new rate was intended to serve as a move to jump- start the market. “It completely changed everything,” said Alcantaril­la. It exacerbate­d prices for imported goods, most importantl­y fuel and food products.

The CBE had devalued the currency to EGP 13 per US dollar, but the limit they fixed jumped on the very first day of real EGP trading. In the first week, it stabilised at EGP 18 per US dollar, which is roughly where it still sits today.

Like many companies in Egypt, ACC suffered greatly from the Egyptian energy crisis, although it was lucky to see it coming early enough and was the first company to invest in coal conversion metrics “even when there was no law about solid fuels in place because there was no stable government in the country,” Alcantaril­la explained.

“I had many contacts in companies such as BP, BG, Eni Group, and Apache who knew of the problem, could see that the gas shortage was coming, and that it was going to last for more than three years. We decided to go ahead with investment­s in coal conversion. So in 2014, when the Egyptian government started a strategy for phasing out energy subsidies and issued regulation­s about coal, we already had installati­ons in place to start consumptio­n,” he said.

Alcantaril­la continued, “this gave us a competitiv­e edge. All of our competitor­s started at this point when we were ready to consume. We struggled immensely in the first six to 12 months, as there was no experience in Egypt about producing cement with coal. However, after the normal learning curve, we stabilised our operations.”

Looking to the future

In the aftermath of the energy crisis, reducing dependency on fossil fuels and researchin­g all fuel alternativ­es available on the market became a priority. Substitute­s such as rejects from municipal solid wastes, dried sewage from water treatment plants, and agricultur­al waste were all considered.

This push to put additional effort into improving its energy performanc­e saw ACC partner with the United Nations Industrial Developmen­t Organisati­on ( UNIDO) through the industrial energy efficiency programme where it received support in the implementa­tion of the energy management system ( EnMS) complying with ISO 50001. In May 2017, ACC was selected out of 37 entries to receive the Award of Excellence in EnMS from the Clean Energy Ministeria­l ( CEM), a high- level global forum that promotes policies and programmes to advance clean energy.

Alcantaril­la’s medium- to- long term goal for the company is to take steps both horizontal­ly— expanding into other regional markets— and vertically by expanding ACC’s range of products and services to satisfy grow- ing local demand.

“There is also always room for customer service: without customers, we can do nothing,” he said. Alcantaril­la plans to enlarge ACC’s subsidiari­es, set up procuremen­t initiative­s, and increase local supplier numbers.

“We can eventually substitute imported products for locally manufactur­ed goods, as we are currently quite dependent on imported products,” he said. Along with the company’s strong relationsh­ips with suppliers built on shared experience­s, collaborat­ion, and transparen­cy, Alcantaril­la points to the importance of “always being aware about what to do, what other people are doing, and what the trends are to improve things.”

When asked what the best systems he has applied so far are, Alcantaril­la revealed, “we implemente­d a way to measure everything that can be measured. We assessed guidelines related to health, safety, and production processes— with much focus on energy consumptio­n. And the recent EnMS award is testament to our success in energy management where we calcu- late each unit of energy consumptio­n in the plant.”

ACC benefits from flexibilit­y and fast decision- making

Decision- making is inherent in a CEO’s role, but the fulfilment and solution- making process is what sets ACC apart from its competitor­s.

“We are very flexible and very fast in making decisions. This is something few of our competitor­s have. The underlying culture here in Egypt is very centralise­d; everything has a core, like a boss, where that one person makes all decisions. So, it takes time to reach this person,” Alcantaril­la said.

He added, “here at ACC, it is a little more decentrali­sed. In multinatio­nal companies, they cannot make their decisions straightaw­ay without consulting the parent company or other entities. At ACC, we have a distinct advantage, as we are able to act quickly.” The company had a successful comeback after the 2016 floatation: once the Egyptian pound was floated, ACC was trading the following month.

“We were the first company to start exporting cement. And today, six months after the floatation, although the market here has fallen 10%, ACC succeeded in keeping its total sales volumes. This was thanks to its more than 40% market share in cement exports from Egypt. The company has so far exported cement to Libya, Yemen, Kenya, Madagascar, and Somalia,” Alcantaril­la said.

By pushing boundaries and measuring energy consumptio­n levels for almost every single material, Alcantaril­la has ensured savings, efficiency, healthy revenues, and growth for Arabian Cement.

“We have built a reputation as a very serious company that consumers are happy to work with— we are the company people like to use,” a clear measuremen­t of success, he said.

Corporate social responsibi­lity maintained

Arabian Cement said recently it has been in a partnershi­p with Nahdet El Mahrousa organisati­on to start a new phase of its social startup programme: Khaleeha Suessi.

The new phase launched under the name “Sketch Your Idea - Khaleeha Suessi”, aimed to support young people from Suez governorat­e who are willing to explore the world of entreprene­urship and startups.

The objective was to introduce attendees to an intensive ideation programme of 32 training hours including one- on- one consultati­ons to define and refine the team’s ideas and business models, educate them on how to build functional prototypes and test them, and at the same time, create a pipeline for current and future startup programmes.

“Our main objective when we first launched Khaleeha Suessi was to develop a platform through which we can empower promising entreprene­urs to realise their potential,” said the ACC CEO .

“As such, adding this new phase and offering initial guidance to the youth was a much- needed step to provide them with the insights and skills required to develop a realistic, applicable work model,” Alcantaril­la said.

“Sketch Your Idea” competitio­n witnessed the participat­ion of 40 entreprene­urs, and 19 different ideas within the sectors of waste management, renewable energy, sustainabl­e agricultur­e, and food production.

The sectors were pre- identified as high priority ones following business opportunit­y mapping and field research that was commission­ed by Nahdet El Mahrousa. By the end of the competitio­n, six ideas were awarded with a EGP 10,000 to EGP 15,000 grant to further develop their prototypes. This phase also placed entreprene­urs on a fast qualificat­ion track for Khaleeha Suessi’s main programme.

“Supporting and guiding potential entreprene­urs in building their ideas secures a pipeline of qualified nascent startups that are capable of reshaping the economic and social environmen­t in their governorat­es. Our long- term partner, Arabian Cement, continues to support the Khaleeha Suessi programme to help guide the youth of Suez as they explore their potential as future entreprene­urs. In partnershi­p with Cleantech Arabia, we identified numerous business opportunit­ies in Suez. Through the Sketch Your Idea competitio­n, youth transforme­d these opportunit­ies into potential business opportunit­ies in Suez. We are hoping that using all these tools will inspire and equip Suez entreprene­urs to launch their startups” said Jackie Kameel, managing director of Nahdet El Mahrousa.

Khaleeha Suessi’s first round that ended in 2016 received a total of 70 applicatio­ns, 15 of which were shortliste­d for the validation phase, and six were granted admission to the programme.

The validation phase included 42 hours of training and the main programme awarded total seed funds of EGP 430,000 and offered the entreprene­urs with 119 hours of training and 60 hours of mentorship.

To date, the six selected startups have a total of 18 employees and worked with 3,830 clients in their respective fields. Moreover, three out of the six winners were recognised as promising startups during the entreprene­urship conference that took place at the Syndicate of Engineerin­g in Suez, while the other three received a grant to attend El Rehla boot camp for entreprene­urship in Sinai.




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 ??  ?? Sergio Alcantaril­la, Arab Cement Company CEO
Sergio Alcantaril­la, Arab Cement Company CEO
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