Cracks be­gin to ap­pear in lo­cal ce­ment in­dus­try

As its foun­da­tions shake, wealthy for­eign­ers pre­pare to move in

The East African - - FRONT PAGE - By AL­LAN OLINGO

The re­gion’s big­gest ce­ment firm, Bam­buri Ce­ment, will for the sec­ond year in a row see its prof­its fall be­low $14.22 mil­lion — its low­est earn­ings in over 10 years.

This would not have come at a worse time, given that deep-pock­eted in­ter­na­tional play­ers have their eyes on the re­gion’s ce­ment sec­tor.

For ex­am­ple, the re­gion’s top sup­plier of clinker, Omani com­pany Ray­sut Ce­ment, has lined up more than $100 mil­lion through ac­qui­si­tions in Kenya and Uganda.

Bam­buri, owned by the French gi­ant La­farge, this week is­sued its sec­ond profit warn­ing, barely a year af­ter it re­ported a 67 per cent drop in prof­its to $19.06 mil­lion.

“The com­pany wishes to in­form the share­hold­ers and po­ten­tial in­vestors that, based on the pre­lim­i­nary assess­ment of the unau­dited con­sol­i­dated man­age­ment ac­counts, the 2018 full year earn­ings of the Group are ex­pected to de­crease by more than 25 per cent, com­pared with the year ended De­cem­ber 31, 2017,” the board said.

Ag­gres­sive strat­egy

The firm blames this drop in prof­its on dif­fi­cult mar­ket con­di­tions and es­ca­lat­ing in­ter­na­tional en­ergy prices in Kenya and Uganda.

The re­gion’s ce­ment man­u­fac­tur­ers are go­ing through tur­bu­lent times, with some fall­ing into loss-mak­ing ter­ri­tory as they face stiff com­pe­ti­tion from cheap im­ports and high power costs amid slow­ing de­mand in the hous­ing and con­struc­tion sec­tors.

East Africa Port­land Ce­ment, for in­stance, is barely sur­viv­ing, hop­ing for cash in­jec­tion through as­set sale to re­deem its mar­ket share, while once top per­former Athi River Min­ing is un­der ad­min­is­tra­tion, sad­dled with debt run­ning to $140 mil­lion.

Tan­za­nian ce­ment firms are also re­port­ing a drop in their mar­gins as a re­sult of price wars and over­ca­pac­ity.

As they grap­ple with these prob­lems, deep-pock­eted in­vestors are cir­cling, seek­ing quick ac­qui­si­tions.

On Tues­day, Oman’s Ray­sut put for­ward a $100 mil­lion bid to buy out trou­bled ARM Ce­ment, as part of its in­vest­ment strat­egy in the re­gion, with planned ac­qui­si­tion of Kam­pala Ce­ment on the cards too.

“We are look­ing to be­com­ing a global com­pany by way of ex­pan­sion, and mov­ing with a ma­jor fo­cus on East and Cen­tral Africa and Ge­or­gia,” Joey Ghose, Rayut’s chief ex­ec­u­tive of­fi­cer, told The Hindu Busi­ness Line.

Ray­sut is now eye­ing ARM Ce­ment of Kenya as part of the com­pany’s ag­gres­sive strat­egy to ex­pand in East and Cen­tral Africa.

Athi River Min­ing was placed un­der re­ceiver­ship in Au­gust by Nige­ria’s United Bank of Africa Group over a $3.5 mil­lion loan, as part of a to­tal debt of over $140 mil­lion; and now Dan­gote Ce­ment and Ray­sut are com­pet­ing to snap it up.

Ray­sut ex­pressed its in­ter­est to the ad­min­is­tra­tors in ac­quir­ing 70 per cent of the trou­bled firm at $100 mil­lion.

Prox­im­ity to con­sumers

The ac­qui­si­tion, Ray­sut said will com­ple­ment its ef­forts to man­u­fac­ture clinker in prox­im­ity to the mar­kets it sup­plies in the re­gion, in­clud­ing Tan­za­nia and Uganda. Ray­sut Ce­ment is al­ready in the process of set­ting up a grind­ing unit in So­ma­liland and Mo­gadishu, So­ma­lia with a Dubai-based part­ner. The com­pany is also in dis­cus­sions to ac­quire var­i­ous ce­ment pro­duc­ers in Uganda and Dji­bouti. It also plans to build a mil­lion-tonne per an­num ce­ment plant in Ber­bera, So­ma­lia and the con­struc­tion work could start as early as Jan­uary 2019. Ray­sut is one of the ma­jor clinker sup­pli­ers to the re­gion and the ARM as­sets will fit very well with its plans for East Africa where, in the last quar­ter alone, it sup­plied over 300,000 tonnes of clinker from its home plant at Salalah, Oman to Kenya and Tan­za­nia.

Tripling pro­duc­tion

With these ex­pan­sion plans, to be funded through in­ter­nal funds and bank loans, Ray­sut in­tends to more than triple its pro­duc­tion ca­pac­ity to 20 mil­lion-tonne from its cur­rent six mil­lion tonnes.

If suc­cess­ful, Ray­sut will have re­gional op­er­a­tions in Kenya, Uganda, Tan­za­nia and Rwanda.

How­ever, the Oman-based firm will also have to con­tend with com­pe­ti­tion from Nige­ria-based Dan­gote, which is also eye­ing an en­try into Kenya and Rwanda via a buy­out of the ARM as­sets.

Last month, Dan­gote said it planned to buy out trou­bled re­gional ce­ment firm, Athi River Min­ing Ce­ment be­fore mid-next year, ef­fec­tively giv­ing it con­trol the re­gion’s ce­ment mar­ket.

Bid­ding war

The buy­out if suc­cess­ful, will see the Nige­rian firm aban­don its orig­i­nal plan to con­struct two plants in Rwanda, three in Dar es Salaam, and one in Bu­rundi, with an­other in Jinja, Uganda.

It had also planned to start pro­duc­ing ce­ment in Kenya through its Ki­tui-based plant with an an­nual pro­duc­tion ca­pac­ity of three mil­lion tonnes.

“We plan to list our busi­ness at the Lon­don Stock Ex­change. In prepa­ra­tion, we are con­sol­i­dat­ing our ce­ment busi­ness. This has seen us in­crease ca­pac­ity in var­i­ous mar­kets and make sev­eral ac­qui­si­tions ahead of the IPO. There is also a ce­ment com­pany with op­er­a­tions in Tan­za­nia, Kenya and Rwanda and we hope to take them over,” Dan­gote Group chair­man Aliko Dan­gote told Bloomberg.

Dan­gote is vy­ing with three other African com­peti­tors La­farge­hol­cim, Hei­del­berg Ce­ment AG, and Ti­tan Ce­ment Co. SA of Greece for the ac­qui­si­tion of ARM Ce­ment.

Even as ce­ment man­u­fac­tur­ers strug­gle with ei­ther re­duced rev­enues, pro­duc­tion chal­lenges or the high cost of do­ing busi­ness, the re­gion is ex­pect­ing to see an in­creased pro­duc­tion ca­pac­ity.

The es­ti­mated plant util­i­sa­tion rate within the re­gion is 61.7 per cent but Dyer & Blair In­vest­ment Bank pre­dicts that this will fall to 45.4 per cent by the end of month, cast­ing doubt on the ef­fec­tive­ness of these ex­pan­sion moves.

We plan to list at the Lon­don Stock Ex­change. In prepa­ra­tion, we are con­sol­i­dat­ing our ce­ment busi­ness.” Aliko Dan­gote, Chair­man of Dan­gote Group

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