How long have you been covering the cement sector, and in which regions?
I have been an investment analyst for 23 years. I have covered the building materials industry
throughout that period. The biggest sub-sector within this classification is the cement industry.
The major publicly quoted cement groups have become increasingly global in their portfolio of
cement assets and my stock coverage has also become increasingly global.
Over the years, which companies in the global arena have struck you as being the most astute in
charting strategy and implementing it?
The global cement majors have each pursued slightly different strategies. Holderbank, the world's
largest cement manufacturer, has retained its focus on cement whilst continuing to benefit from,
and invest in, emerging economies which offer superior organic growth rates. The thrust of its
expansion moves over
the last decade has been predominantly directed at capital investment in its cement capacity,
both greenfield expansion and modernisation of existing facilities, although it has also been
active in acquiring cement assets.
Lafarge, the world's second largest cement manufacturer with an annualised production capacity of
110 m tonnes in 1999, has a broad range of building materials interests. It has also pursued a
strategy of increasing the involvement of its cement division in emerging markets. Acquisition
growth has been an important part of the group's development over the last decade.
Cemex has focused predominantly on cement. It has continued to broaden its portfolio of emerging
market interests (outside its domestic base in Mexico), whilst significantly improving its
operational and financial ratios over recent years. Cemex is an excellent vehicle for
participating in the long-term
growth potential of emerging markets.
How do you compare cement companies in different countries? What is/are the yardstick(s) that you
use to value cement companies in economies with different demand-supply dynamics?
Financial comparison is focused on recurrent PER and PCF ratios and EV/EBITDA multiples.
EV/cement capacity multiples are useful, but should be treated with great caution, not least
because of the nature and variability of that cement capacity. The market position, the long-term
growth potential of that market, the cost of production, the age of the plants, the length of
consented raw material reserves, the scope for the import/export of cement and the degree of
consolidation of a market are all important considerations.
India has over 80 million tonnes of capacity with the top 10 groups controlling about 70% of
capacity and then many small manufacturers? How does that level of concentration compare with the
India is more fragmented than most major cement markets (excluding China), although the degree of
concentration would be similar to the USA. Clearly, the vigour with which anti-trust regulators
monitor and control their regional (European Commission) and national (FTC in USA and Kartellamt
in Germany) markets is an important factor on the degree of industry consolidation and the
potential for further consolidation. However, there is a common theme of consolidation across
almost all national and regional markets. Globally, the cement industry has been experiencing an
accelerating pace of consolidation
over the last decade. Finally, in assessing the degree of consolidation of the domestic
manufacturing capacity, investors need to be cognizant of the degree of cement import
In France, the market is controlled by four cement groups. In the UK, the market is controlled by
three cement groups. In Portugal, the market is controlled by two cement groups In Denmark, there
is only one domestic cement manufacturer. In the other major European markets (Germany, Italy,
Spain and Poland), the top five cement groups typically control about 70% of the market. In
South East Asia and Latin America, the cement industry now has similar degrees of concentration
as in Europe.
Of course, the heavy capital investment costs required for cement manufacture are always going to
act as a constraint on new entrants to the industry.
Which country in the cement sector fascinates you the most? Why?
India is a particularly fascinating market currently. All the global cement majors would appear
to be positioning themselves to increase their involvement. The US cement market is also very
interesting currently. After several years of upward demand momentum and with infrastructure
spending prospects remaining buoyant, the extent to which domestic manufacturers respond with
additional capacity will be very interesting.
What are your views on the Indian cement industry (recently Lafarge has become active)?
The long-term growth prospects for the Indian cement market are very exciting. In addition, there
are clear signs that the process of industry consolidation, which has already started, is
accelerating. The entry of the global cement majors in to the Indian market, notably Lafarge and
Italcementi/Ciments Francais is likely to act as a further catalyst for the process of industry
How does it feel tracking an old economy sector? Are clients (fund managers) even looking at this
sector at all?
I must confess that the last year has been particularly difficult. However, February 2000 was
probably the low point (in terms of investors' attitude to this industry) and there are signs of
investors increasingly recognising the outstanding value offered by the low multiples of many
groups, the good visibility of their earnings over the next two years and the strong cash
generation characteristics of the industry.
What do you do in your non-work time? Any hobbies?
One of the advantages of following the global cement industry is the opportunity to travel. There
are always numerous ideas for subsequent family holidays, although these tend not to include the
local cement plant as part of the tourist trail.