Building Products Bulletin October 2015 - EYFILE/ey-building-products-bulletin-october-2015.pdf · Heavy construction material ... Meanwhile, in other Asian markets, PPPs remain a

October 2015

Building Products Bulletin

1 Building Products Bulletin

Executive summary

1 Executive summary2 Market fundamentals5 Country update13 M&A activity14 Management changes14 Share price movements

In this editionHeavy construction material (HCM) volumes showed a mixed performance in an otherwise positive environment during 1H15. The construction markets continued to benefit from the positive sentiments, effectively increasing demand for building materials. In the US, housing recovery is expected to continue, and government financing is in a better position than in the past. Both commercial real estate investment and public construction are also expected to make positive contributions.

Margins have improved overall, driven by strong cost-cutting, restructuring and efficiency improvement initiatives. Furthermore, innovations toward low-energy solutions such as use of alternate fuels including municipal waste and lean have supported cost-cutting measures. The industry has been witnessing a number of transactions, mostly triggered by the global Holcim-Lafarge merger and the shift in industry cycles in some countries.

However, the boom was offset by decline in demand in Europe. In 2015, companies are expecting the demand for building materials to increase across major regions, except Europe, where growth is likely to be largely flat. However, with Europe’s new infrastructure program, markets should stabilize. The CIS countries are likely to continue facing a downturn in the construction industry due to ongoing Russia–Ukraine political turmoil, which will hamper infrastructure development and also limit the industry’s ability to obtain adequate financing. Latin America might face uncertainties in Brazil, but should overall show slight growth in 2015.

Moreover, in Asian countries, particularly India and China, public–private partnerships (PPPs) should remain subdued, while private investment is expected to be weak over the next few years due to unfavorable market structures and high debt levels of companies. Meanwhile, in other Asian markets, PPPs remain a challenge given the absence of legal frameworks to execute PPP projects, limited financing options and inadequate institutional capacity. Nonetheless, emerging economies exhibit a positive outlook in the medium to long term on the back of increase in disposable income and growing middle class. This is expected to boost demand for construction and balance the existing situation of excess supply of HCM (such as cement) in many countries.

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2Building Products Bulletin

Market fundamentals

Volume trendsThe quarter ending June 2015 witnessed a mixed performance in HCM volumes across major regions.

In North America, economic growth was impacted by cold winter affecting large parts of the region earlier in 2015. The construction markets continued to benefit from the positive sentiments, leading to a rise in the demand for building materials. During 2Q15, Holcim’s cement volumes increased by only 1.7% y-o-y. The execution of backlogged projects also had a positive impact on cement volumes, particularly in the North Central and Northeast regions.

Over the same quarter, CEMEX’s cement volumes increased by 4% y-o-y, while ready-mix volumes increased by 2% y-o-y, as a result of increased activity in industrial, commercial and residential sectors. In the US, the cement volumes remained flat, while ready-mix and aggregates increased by 10% and 3%, respectively, during the period. Lafarge’s cement and aggregates volumes grew by 5% and 6% y-o-y, respectively, driven by growth in both residential and nonresidential construction in the US and Canada. HeidelbergCement reported a volume growth of 2% y-o-y for cement and 8% y-o-y for aggregates in North America.1

In 1H15, the Americas operations for CRH materials’ division benefitted from the normal weather in most markets vs. the previous year, resulting in to a 6% y-o-y increase in volumes for aggregates and asphalt. CRH experienced a good demand from its core regions, particularly the Central, Western and Mid-Atlantic markets. As a result, the company’s operating loss reduced to EUR34m in 1H15 from EUR61m in 1H14.

Europe witnessed a mixed performance during 2Q15. Many industry players struggled with sustaining sales volume as the general economic deterioration negatively affected infrastructure financing and led to cancellation or postponement of nonresidential building projects. Some European economies showed signs of a recovery, while improvement efforts in others did not result in notable growth in demand for building materials. In 1H15, the cement volumes of CRH decreased by 10% y-o-y in Switzerland as a result of challenging market conditions and a slowdown in construction activity, particularly in residential sector. In Poland, cement volumes were flat (a 1% increase). In 2Q15, Holcim reported a 4% y-o-y decline in cement volume (countries

1. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf, accessed 19 August 2015; “Financial report: Period ended June 30 2015,” Lafarge website, http://www.lafarge.com/sites/default/files/atoms/files/07292015-press_finance-lafarge_financial_report_june_2015-uk.pdf, accessed 19 August 2015; “Half year financial report 2015,” Italcementi website, http://www.italcementigroup.com/NR/rdonlyres/E2D957CB-21E6-4516-B6E8-3AA4DAA2CD89/0/ITC_SEMESTRALE_2015_UK.pdf, accessed 19 August 2015; “2015 second quarter results,” CEMEX website, http://www.cemex.com/InvestorCenter/files/2015/CXING15-2.pdf, accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015. “2015 interim results,” CRH website, http://www.crh.com/docs/2015-interim-results/interim-2015-announcement-with-disclaimer.pdf?sfvrsn=2, accessed 27 August 2015.

like Azerbaijan were adversely affected by decline in oil prices, and the Eurozone was also negatively impacted by the discussions about the possible exit of Greece from the single currency and the subsequent uncertainty in many markets). Lafarge cement volumes decreased by 1% y-o-y in Western Europe and increased by 4% y-o-y in Central and Eastern Europe. HeidelbergCement reported an increase of 1%–2% y-o-y in cement, aggregates and ready-mix volume in Western Europe; a decrease of 6% y-o-y in the Eastern Europe-Central Asia region for cement; and 7% and 14% y-o-y increase for aggregates and ready-mix, respectively. The main reason for the decline was the lack of financing for infrastructure projects, which adversely affected the construction industry in many countries. Italcementi cement volumes and aggregates remained flat compared to the previous year in Central and Western Europe.2

Economic activity in the Asia-Pacific region witnessed moderate growth as the slowdown in China impacted the entire region. India and Indonesia also experienced a dip in construction activity. In 2Q15, CEMEX reported a 19% y-o-y increase in cement volume in Asia, due to an increase in the number of housing projects, stable inflation and low mortgage rates in the Philippines where cement demand grew by 25%. During the quarter, the Philippines experienced strong growth supported by the private construction sector with continued strong demand in offices, retail and housing. Italcementi reported growth of 1.6%, whereas Lafarge had a flat growth in spite of 6% higher volumes in India, which were offset by subdued demand in Malaysia, South Korea and Indonesia. HeidelbergCement reported a decrease in cement volumes by 3% y-o-y in the Asia-Pacific region.2

In Latin America, Lafarge reported a 30% y-o-y decrease in cement volumes, impacted by the divestment of its cement operations in Ecuador (the transaction completed in November 2014). Lafarge Brazil alone reported a drop of 18% y-o-y. This was on account of challenging economic environment coupled with lower government spending in the construction projects. The subdued market in the region was due to slowdown in the construction activity in many markets and an overall challenging economic situation. In 2Q15, Holcim reported growth of just 1.4% y-o-y in cement volumes.3

2. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf, accessed 19 August 2015; “Financial report: Period ended June 30 2015,Lafarge website,” http://www.lafarge.com/sites/default/files/atoms/files/07292015-press_finance-lafarge_financial_report_june_2015-uk.pdf, accessed 19 August 2015; “Half year financial report 2015,” http://www.italcementigroup.com/NR/rdonlyres/E2D957CB-21E6-4516-B6E8-3AA4DAA2CD89/0/ITC_SEMESTRALE_2015_UK.pdf, accessed 19 August 2015; “2015 second quarter results,” CEMEX website, http://www.cemex.com/InvestorCenter/files/2015/CXING15-2.pdf, accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015.3. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf, accessed 19 August 2015; “Financial report: Period ended June 30 2015,” Lafarge website, http://www.lafarge.com/sites/default/files/atoms/files/07292015-press_finance-lafarge_financial_report_june_2015-uk.pdf, accessed 19 August 2015; “Half year financial report 2015,” http://www.italcementigroup.com/NR/rdonlyres/E2D957CB-21E6-4516-B6E8-3AA4DAA2CD89/0/ITC_SEMESTRALE_2015_UK.pdf, accessed 19 August 2015; “2015 second quarter results,” CEMEX website, http://www.cemex.com/InvestorCenter/files/2015/CXING15-2.pdf, accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015.

3 Building Products Bulletin3

In 2Q15, due to the continued political tensions and depreciation in the local currency, the MENA region witnessed a mixture of demand scenarios, with some negative developments from the African perspective.

Lafarge’s cement volumes decreased by 10% y-o-y in the quarter, while those for Italcementi declined by 2.6% y-o-y. CEMEX reported an 11% y-o-y decline in volumes in the Mediterranean region due to lower activity over Ramadan. However, in Spain, the company reported 37% y-o-y increase in volumes due to favorable financing conditions in the infrastructure sector. Cement volumes for Holcim declined by 6.9%, mainly due to the political uncertainty in Lebanon. The construction industry was also impacted by the region’s unfavorable weather conditions leading to lower demand for building materials. However, Heidelberg showed a 23% increase in cement volumes as a result of new capacity additions in Tanzania, Togo and Burkina Faso, which made a significant contribution to the overall volumes in Africa.4

MarginsMany cement and building materials players were able to achieve an increase in profitability through using innovative low-energy solutions such as municipal waste and lean. These innovations were supported by efficiency in operations such as power optimization in vertical roller mills.

In 2Q15, the operating EBITDA for Holcim decreased by 9.5% partly on account of merger-related costs and lower financial performance in Europe and the Asia-Pacific. EBITDA for Lafarge was up by only 1%, although the EBITDA margin went down by 90bps at 23.2%. The positive impact of cost-cutting and innovation measures was offset by cost inflation and price adjustments in some countries. CEMEX reported an increase in EBITDA of 1% y-o-y and EBITDA margin of 19.4% (increase of 170bps), as a result of higher contributions from the US, Mexico and the Asian region. Italcementi reported a 7.9% increase in

4. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf, accessed 19 August 2015; “Financial report: Period ended June 30 2015,” Lafarge website, http://www.lafarge.com/sites/default/files/atoms/files/07292015-press_finance-lafarge_financial_report_june_2015-uk.pdf, accessed 19 August 2015; “Half year financial report 2015,” http://www.italcementigroup.com/NR/rdonlyres/E2D957CB-21E6-4516-B6E8-3AA4DAA2CD89/0/ITC_SEMESTRALE_2015_UK.pdf, accessed 19 August 2015; “2015 second quarter results,” CEMEX website, http://www.cemex.com/InvestorCenter/files/2015/CXING15-2.pdf, accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015.

EBITDA in 2Q15, due to cost cutting, a positive exchange rate effect and higher income from the management of carbon emission rights. Heidelberg saw an increase in EBITDA of 15% y-o-y due to higher demand from North African markets and key European markets. This also led to a higher EBITDA margin of 20.7%. The EBITDA margin for CRH was lowered by 20bps at 5.9%. However, CRH reported an increase of 10% y-o-y in EBITDA for 1H15, largely due to robust demand in residential and nonresidential markets in the Americas. In Europe, the benefits were driven by the continuous profit improvement initiatives.5

HeidelbergCement acquires 45% shares in ItalcementiHeidelbergCement has agreed to buy 45% of Italcementi for EUR1.67b. The acquisition will make HeidelbergCement a global market leader in aggregates, the second-largest producer of cement and, globally, the third-largest ready-mix concrete player. The deal will also help Heidelberg expand its strong Western European portfolio with solid market positions in France and Italy. Further, it will strengthen the company’s market position in Eastern Canada, the US, India and Kazakhstan and help them gain new market positions in Egypt, Morocco and Thailand. Moreover, the plants have already gone through a capex spend of EUR3.5b over the past seven years, hence would not impact the cash flows in future. Soon after the deal closure HeidelbergCement aims to achieve synergies of EUR175m by 2018.6

CRH to buy US glazing products manufacturer CRL for US$1.3bCRH will enter a different segment of glazing products manufacturing with this acquisition. This will enable them to offer complimentary products to their customers, and help the utilisation of their existing supply chain and fixed costs in an efficient way. The deal would help CRH gain more customers on the consolidated level, as a result of diversified products offering.7

5. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf, accessed 19 August 2015; “Financial report: Period ended June 30 2015,” Lafarge website, http://www.lafarge.com/sites/default/files/atoms/files/07292015-press_finance-lafarge_financial_report_june_2015-uk.pdf, accessed 19 August 2015; “Half year financial report 2015,” http://www.italcementigroup.com/NR/rdonlyres/E2D957CB-21E6-4516-B6E8-3AA4DAA2CD89/0/ITC_SEMESTRALE_2015_UK.pdf, accessed 19 August 2015; “2015 second quarter results,” CEMEX website, http://www.cemex.com/InvestorCenter/files/2015/CXING15-2.pdf, accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015; “2015 interim results,” CRH website, http://www.crh.com/docs/2015-interim-results/interim-2015-announcement-with-disclaimer.pdf?sfvrsn=2, accessed 27 August 2015.6. “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/pr_28-07-2015_italcementi, accessed 19 August 2015.7. “CRH agrees $1.3bn US acquisition, posts 13pc sales jump,” Business Irish website, http://www.independent.ie/business/irish/crh-agrees-13bn-us-acquisition-posts-13pc-sales-jump-31481858.html, accessed 18 September 2015.


Market outlookThe IMF predicts growth of 3.3% for the world economy on the back of lower-than-expected activity in the first quarter, primarily in North America. Due to the weakening growth in China and subdued outlook for countries that export raw materials, the growth rate of emerging countries is expected to stagnate. The industrial economies are, at the same time, expected to grow. Demand for building materials is expected to increase in 2015 across major regions, except Europe where growth is likely to be largely flat. However, with Europe’s new infrastructure program, markets should stabilize. In the UK, key sectors, such as private housing and commercial real estate, with large infrastructure projects will continue to recover. In the US, the housing recovery is expected to continue, and government financing is in a better position than in the past. Both commercial real estate investment and public construction are expected to make positive contributions. Latin America might face uncertainties in Brazil, but should overall show slight growth in 2015.8

8. “Half yearly report 2015,” Holcim website, http://www.holcim.com/fileadmin/templates/CORP/doc/Q2_2015/EN_Q2-2015_Report.pdf , accessed 19 August 2015; “Q2 2015 Half year financial year report,” HeidelbergCement website, http://www.heidelbergcement.com/en/financial-reports-and-presentations, accessed 19 August 2015.


Country update

USIn 1H15, total construction spending in the US totalled US$616.9b, up 6.9% y-o-y. During this period, total residential construction spending increased by 7.3% y-o-y, and public nonresidential construction spending rose by 6.6% y-o-y.9 The increase in construction spending was primarily driven by strong nonresidential demand in both public and private sectors. The overall nonresidential construction spending grew to US$393.9b in 1H15.10

US construction spending growth rates for 1H15

Total 6.9% y-o-yPrivate 7.6% y-o-yPublic 4.9% y-o-yResidential 7.3% y-o-yNonresidential 6.6% y-o-y

Source: US Census Bureau

There has also been a rise in residential building permits, a positive indication for the US housing market. The increase in residential demand was also driven by low interest rates for potential home buyers. The 30-year fixed mortgage rate was 3.84% in May 2015 versus 4.19% a year before.11

The US Government has proposed to introduce tax-exempt qualified public infrastructure bonds (QPIBs), a new class of municipal bonds, to boost private investment in public infrastructure projects. The QPIBs will extend the benefits of municipal bonds to public–private partnerships (PPPs), such as those that involve long-term leasing and management contracts, thereby lowering the cost of borrowing and attracting new capital.12

The move comes as part of a larger initiative to revive the nation’s infrastructure by bridging the funding gap of US$1.6b for its infrastructure development and maintenance program during 2014−20.13 The US Government has been taking all possible measures to put the necessary funding in place. For instance, the Highway Trust Fund, which has almost exhausted its reserves because taxes on gasoline and other fuels have not kept up with spending, is being revitalized with a fresh funding of US$10.8b.14

9. “Construction spending,” US Census Bureau website, http://www.census.gov/construction/c30/c30index.html, accessed 18 August 2015.10. Ibid.11. “Why 2015 Is Looking Up for U.S. Homebuilders,” Inc.com, July 2015.12. “Obama proposes new financing tool for infra,” Infrastructure Investor, 22 January 2015, via Factiva, ©2015 PEI Media Ltd.13. “Obama puts $1.3 bln price tag on new infrastructure muni bond plan,” The Jerusalem Post online edition, www.jpost.com, 3 February 2015, via Factiva, ©2015 The Jerusalem Post.14. “U.S. Treasury Secretary calls for long-term infrastructure funding legislation,” Thai News Service, 12 September 2014, via Factiva; “Highway-Funding Bill Clears Congress; Senate Passes House Version of Legislation to Fund Highway and Mass-Transit Projects Through May, Acting Hours Before Government Was to Start Cutting Payments to States,” The Wall Street Journal Online, 1 August 2014, via Factiva, ©2014 Dow Jones & Company.

The nonresidential construction sector will face a downturn in 2015, given that lower energy prices have forced companies to cut their capex plans. This has led to lower investments in downstream structures and exploration and production infrastructure, and has also resulted in lower rig count. Moreover, harsh weather conditions and the strong dollar have led to lower housing growth in 1H15. Nonetheless, given the increasing residential permits and low mortgage rates, residential construction is expected to pick up (39% of total US construction) in 2H15.15

US Producer Price Index — Cement

US Producer Price Index — Aggregates

180.0

185.0

190.0

195.0

200.0

205.0

210.0

215.0

220.0

225.0

230.0

Jan

13Fe

b 13

Mar

13

Apr

13

May

13

Jun

13Ju

l 13

Aug

13

Sep

13O

ct 1

3N

ov 1

3De

c 13

Jan

14Fe

b 14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14O

ct 1

4N

ov 1

4De

c 14

Jan

15Fe

b 15

Mar

15

Apr

15

260.0

265.0

270.0

275.0

280.0

285.0

290.0

295.0

300.0

Jan

13Fe

b 13

Mar

13

Apr

13

May

13

Jun

13Ju

l 13

Aug

13

Sep

13O

ct 1

3N

ov 1

3De

c 13

Jan

14Fe

b 14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14O

ct 1

4N

ov 1

4De

c 14

Jan

15Fe

b 15

Mar

15

Apr

15

Note: Base year — 1982; data for construction sand/gravel/crushed stone is used to represent aggregates; greater volatility is seen in aggregates pricing as it can be adjusted quickly (unlike cement pricing) to suit market conditions without major fixed cost deleveraging. The data used is not seasonally adjusted.

Source: “Producer Price Index,” US Bureau of Labor Statistics website, http://www.bls.gov/regions/mid-atlantic/data/ProducerPriceIndexConcrete_US_ Table.htm, accessed 24 March 2015

15. “Industry Forecast - Infrastructure & Construction - Q3 2015,” BMI Research, 7 July 2015.


EuropeThe EU’s plan to promote infrastructure development through its Connecting Europe Facility (CEF) will boost the construction sector, removing infrastructural bottlenecks. The European Commission plans to allocate EUR13.1b for 276 transport projects under the CEF facility. The financing will total 20%–85% of the total project value.16

Germany

The German economy posted a budget surplus in 2014 and aims to remain in surplus until the 2017 elections. Budget surplus and no new borrowings remain the key objectives of the current administration. This has adversely impacted investment in infrastructure projects. Therefore, the IMF has asked Germany to boost infrastructure investments and revive aging residential facilities. The current account surplus was 7.6% of the GDP in 2014 and is expected to increase to 8.5% of the GDP in 2015, resulting in high savings and low domestic consumption in the economy.17

As part of the National Reform Programme (NRP) in April 2015, the Government plans to invest EUR10b on public infrastructure between 2016 and 2018. Further, a sum of EUR11b will be given to state and local authorities to invest in education, research and infrastructure.18 The German Construction Industry Association expects slower growth of real estate construction in 2015. This is due to a slowdown in demand, particularly in the higher price brackets.19

France

The French construction industry is facing challenges both in terms of demand and investment. The persistent weak economic conditions, along with the high unemployment rate, has dampened demand for residential/nonresidential buildings. The industry’s outlook seems subdued given that the residential/nonresidential buildings account for 80% of the country’s total construction industry value.

16. “Industry Trend Analysis - EU Facilitating Transport Connection Opportunities,” BMI Research, 02 July 2015.17. “IMF Urges Germany to Ramp Up Investment,” The Wall Street Journal, 15 July 2015.18. “Industry Forecast - Infrastructure & Construction - Q4 2015,” BMI Research, 28 July 2015.19. “German construction industry expects slower growth in 2015,” SeeNews Germany, 12 March 2015, via Factiva, ©2015 SeeNews.

The French economy is facing fundamental problems, such as high structural unemployment levels, low potential growth and higher debt levels. However, the economic growth has still expanded to 0.6% in the 1H15 because of favorable external influences such as lower oil prices, a weaker euro and lower interest rates. The country has to reduce government spending and curb debt levels in order to achieve moderate growth over the medium term.20

Furthermore, the Government’s inconsistent corporate tax policies with the cancellation of the ecotax initiative have deterred investment in the construction industry. The ecotax initiative was targeting to achieve EUR1b in taxes from heavy vehicles starting January 2015; however, the plan was scrapped in October 2014.

Nonetheless, France has a few projects in the pipeline over the medium term and this gives some comfort to the distressed industry. The country is expected to launch US$32b of projects by 2020.21 Moreover, the Government has been supporting PPP projects for infrastructure development while the country prepares to host UEFA Euro 2016 Football Championship. This along with the introduction of Caisse des Depots savings fund to finance up to 25% of the total cost of concessions and PPPs, particularly in transport and renewable energy projects, from 2011 onward would further boost investments. One such project supported by the savings fund is the development of Anjou territory over 2015–20, agreed upon between Angers City and Angers Loire Métropole in 2015.22

Italy

Italy’s construction industry is facing a downturn and is expected to contract for the eighth consecutive year in 2015. This is a result of low investment owing to poor government policies a lack of investor confidence. Moreover, the Government’s high fiscal debt at 141% of the GDP has forced it to adopt austerity measures to curb the debt. Nevertheless, Italy is committed to meeting the EU’s budget deficit target of below 3%. These measures will also limit public spending on infrastructure projects.

20. “France slammed by IMF for record-high spending,” CNBC, 20 May 2015.21. Industry Forecast — Infrastructure & Construction — Q3 2015,” BMI Research, 02 July 2015.22. “Caisse des Dépôts supports the development of Anjou territory,” Caisse des Depots, http://www.caissedesdepots.fr/en/news/all-the-news/en-region-hors-menu/caisse-des-depots-supports-the-development-of-anjou-territory.html, 6 March 2015.


Transport infrastructure is gaining investments through PPPs and foreign investors. One such example is the funding of Anas’s three-year plan to upgrade the Italian road network by the European Investment Bank (EIB) and the Economics and Finance Ministry (MEF). The total financing amounts to EUR300m, of which nearly 40% will be spent in Southern Italy and the Italian islands. The plan entails installing safety barriers, restructuring tunnels and constructing noise reduction systems.23 Moreover, the European Commission has agreed to provide EUR2.17b in funds from the European Regional Development Fund and the European Social Fund for five Italian operational programs.24

Poland

Poland’s construction industry is recovering, with EU support for infrastructure development, and low interest rates. The industry is expected to grow at 4% in 2015. The EU has provided EUR27.4b to Poland for the development of the infrastructure and environment sectors. Moreover, the Government’s “Apartments for Youth” scheme will provide properties to people at subsidized rates. This, along with low interest rates, enables the public to obtain mortgage financing at attractive rates.25 Moreover, in March, Poland registered five rail improvement projects worth a total of PLN8b as a part of CEF. In the road sector, previously cancelled A1 and A4 highways are on track and expected to be completed by 2016. Further, a lot of initiatives have been taken in the power sector with the construction of LNG import terminal at Swinoujscie, near Szczecin on the Baltic coast, to diversify its gas resources from Russia.

Poland would be allocating EUR8b investment toward EU’s Infrastructure Investment Plan for Europe over 2015–17. The investment will go toward modernizing transportation and energy efficiency projects.26

Spain

Spain’s construction industry is expected to grow after a seven-year contraction in 2015. In 2Q15, the industry created 32,300 more jobs.27 The industry is expected to grow at 3% in 2015, supported by the residential construction with 45,000 new houses starting under construction domiciles.28

23. “MEF-EIB agreement: EUR 133 million to Anas for road and tunnel safety,” European Investment Bank, 31 July 2015.24. “EC allocates EUR 2.2 bln to Italian development programmes,” Telecompaper Europe, 15 July 2015.25. “Poland’s construction industry to grow,” Market Insights, 12 March 2015.26. “Poland to Commit $8.5Bln to Investment Plan for EU - European Commission,” Sputnik News Service, 21 April 2015, via Factiva ©2015 Sputnik.27. “SPAIN,” Sunday Star Times, 23 August 2015 via Factiva.28. “Spanish construction industry to grow 3% in 2015,” SPACOL, 17 August 2015 via Factiva.

Although the economy is expected to recover in 2015, growth depends mainly on private consumption rather than any structural improvements. In addition, weak government spending and the possibility of the formation of a coalition government will further dampen investors’ confidence, leading to poor investment environment. Spain has a public debt to GDP of more than 100% and a fiscal deficit of more than 5%, which limits the Government’s ability to increase spending substantially.

Nonetheless, the Government aims to invest toward the development of transport. An investment of EUR5.2b has been included in the 2015 budget for railways. Moreover, like other EU nations, Spain has also received funds of EUR20.7b from EU as a part of CEF, which would support the funding of the Trans-European Transport Networks (TEN-T) and the Trans-European Energy Networks (TEN-E).

UK

UK‘s economic growth is estimated to remain strong at 2.7% in 2015 and 2.3% in 2016, supported by higher domestic demand and lower unemployment levels. Moreover, UK should follow accommodative monetary policy with lower interest rates owing to weak inflation levels.29 The construction sector is expected to post 3.5% y-o-y growth in 2015 and 2016, supported by the growth in the residential sector driven by the “Help to Buy” scheme.

UK’s construction sector remains bullish with a strong project pipeline, the two main projects being the Thameslink project and the High Speed Rail 2 Hybrid Bill, which will remove infrastructure hurdles. A total investment of GBP411b is expected to be made until 2020, 60% of which would be invested by the private sector. To till date, the national infrastructure pipeline lists 265 investment programs and 299 projects in energy, transport and other sectors.30

29. “IMF praises UK’s ‘solid’ growth,” ft.com, 14 April 2015.30. “Updated UK infrastructure ‘pipeline’ lists £411 billion of planned projects,” Out-Law.com, 22 July 2015.


CIS countriesThe ongoing standoff in Ukraine, between Russia and the West, continues to be a threat to CIS region’s construction sector. However, this may not materially impact European cement and building material companies. This is because most of them have limited exposure to the region, excluding companies such as Eurocement (40MTPA), Holcim (7.8MTPA), Lafarge (4.8MTPA) and Buzzi Unicem (4.5MTPA).

Russia

As the Russian economy is highly dependent on oil, declining oil prices have impacted the budget deficit. In 2014, the Government estimated a budget deficit of 0.5% of GDP, assuming oil prices would hover around US$96 per barrel. However, prices declined to US$50 per barrel, which will impact Russia’s foreign reserves to fill the gaps in the budget. Russian construction industry will contract in 2015 given high inflation, the weak rouble, slow economic growth and declining private investment.31 Moreover, the sanctions imposed on Russia post the Ukraine crisis have limited the country’s ability to acquire funds and to progress toward economic recovery.

Nevertheless, the Russian Government has provided RUB13.8b (US$242m) as state subsidies for the development of infrastructure projects in the underdeveloped regions of the Far East. A total investment of RUB2.7b will be made in 2015 with a focus on building roads, bridges, railways and power lines. Moreover, these projects will attract RUB125b in private investment along with creating 8,000 jobs in the region.32

The Russian construction industry is expected to recover in 2016, supported by easing inflation levels, which would help the Central Bank to cut rates and provide less expensive loans. In addition, it is expected that the political tensions will start improving from 2016, which will provide access to long-term international funding. Moreover, construction of large infrastructure projects will begin in 2H15 for the preparation of the 2018 FIFA World Cup.33 These include the construction of US$68b high-speed railways to and from Moscow, and US$170m for the development or refurbishment of large stadiums.

31. “Construction Industry in Russia to resume growth in 2016,” EuropaProperty.com, http://europaproperty.com/news/2015/04/construction-industry-in-russia-to-resume-growth-in-2016-1633, 13 April 2015.32. “Russian Government Invests $240 Million in Far East Infrastructure,” The Moscow Times, http://www.themoscowtimes.com/article/525758.html, 16 July 2015.33. “Industry Forecast - Infrastructure & Construction - Q4 2015,” BMI Research, 31 July 2015.

Ukraine

Ukraine’s construction industry is facing contraction and would continue to remain weak owing to the adverse political environment. A devaluating currency poses extreme financing risks for the economy, given that foreign investments would be limited. This, along with the Government’s budget cuts and tighter credit conditions, will hinder private investments as well.

Very few projects have been announced in 2015 for development. However, the European Investment Bank will provide EUR400m for the development of municipal infrastructure.34 Additionally, Germany will provide EUR1.5b for the economic development of Ukraine. A total of EUR200m would be allocated for the development of various sectors, such as energy efficiency, economy and infrastructure development.35

Kazakhstan

Kazakhstan’s economy is facing a downturn with revenues declining by 22% of the expected total as a result of a decrease in oil prices, cuts to government expenditure and tight credit conditions. The state budget revenue was estimated at KZT3.2t, which is KZT939.6b less than previously expected revenue. This has also resulted in a decline of KZT610.7b in state spending to KZT7.2t. Moreover, in August 2015, Kazakhstan switched to a free-floating exchange rate.36

Nevertheless, a Countercyclical Support Facility program of US$1b has been provided by the Asian Development Bank (ADB) to support the Kazakhstan economy and fiscal balances.37 Moreover, US$14b would be allocated to infrastructure development, such as roads and electrical supply networks over the next three years.38 Additionally, the construction economy will grow with the infrastructure development for Expo 2017 in Astana. The construction of complexes, rails, roadways and airports have been started with an initial state funding of US$360m in 2014.39

34. “EIB to allocate Ukraine EUR 400 mln for infrastructure,” Gorshenin Weekly: Polls & Reviews, 1 June 2015, via Factiva ©2015 Gorshenin Institute.35. “Germany To Give Ukraine EUR 1.4 Billion In 2015,” Ukrainian News, 28 April 2015, via Factiva ©2015 Ukrainian News Agency.36. “Kazakhstan budget shortfalls in 2015 estimated at 264 bln tenge — Nazarbayev,” Interfax, 20 August 2015, via Factiva ©2015 Interfax Information Services, B.V.37. “Asian Development Bank approves USD1-bil. loan to support slowing Kazakh economy,” IHS Global Insight Daily Analysis, 24 August 2015, via Factiva ©2015, IHS Global Insight Limited.38. “Some USD 14b to be allotted for infrastructure development,” Esmerk CIS news, 22 May 2015, via Factiva ©2015. M-Brain.39. “BMI Industry View - Kazakhstan - Q3 2015,” BMI Research, 8 June 2015.


IndiaThe FY16 (ending March 2016) budget indicates a positive outlook toward the construction sector growth in India. The budget included the formation of a National Investment and Infrastructure Fund with an annual allocation of US$3.25b. This fund will most likely be allocated to public infrastructure companies, given they have greater access to capital markets. The new Government has relaxed environmental laws for major infrastructure projects and cleared the backlog of projects awaiting environmental approval.

Roadways and railways remain key areas of focus in the FY16 budget. One such project is the 5,300km-long stretch connecting Gujarat and Mizoram, called Bharat Mala, with a total investment of US$2.2b. Other projects include the building of high-speed rail corridors.

The long-term outlook of the sector remains positive with greater access to funding and fast clearance processes. Along with the annual increase in the allocated budget, the Government is promoting PPP to boost growth. The Government is also increasing capex in the public infrastructure by 34% y-o-y with a view to improve the overall infrastructure until the private sector revives. It aims to resolve disputes to promote faster distribution of benefits through its Public Contracts (Resolution of Disputes) Bill.40

However, the short-term outlook remains uncertain, with growth in FY16 expected at 6% vs. 7% expected previously. The growth will be hampered mainly by slow bureaucratic procedures in land clearances, rehabilitation and resettlement problems, funding constraints and delays in material supply. Moreover, limited access to funding and highly leveraged local construction companies pose a threat to India’s construction industry’s growth.41

40. “Construction & InfrastructureF16e: India Budget: Visible Infra Focus,” Morgan Stanley, 1 March 2015, via ThomsonOne.41. “Industry Forecast - Infrastructure & Construction - Q3 2015,” BMI Research, 12 June 2015.

China Economic growth began slowing in 2014 followed by the decline in GDP growth from 7.4% to 6.8% y-o-y (per IMF) in 2015, which can be attributed to excess capacity in the industrial sector, local government debt and a cooling property market. In addition, the Chinese Government plans to run its biggest budget deficit since the global crisis in 2015 to support spending. China’s investment in transport infrastructure, including railways, roads, waterways and civil air transport, rose by 10.8% y-o-y to approximately CNY1t in 1H15, according to National Development and Reform Commission (NDRC). Moreover, infrastructure investment in the civil aviation sector increased by 28% in the same time period.42

Furthermore, the Government plans to broaden railway sector’s investment channels, financing options and pricing methodology. The NDRC and Chinese Government bodies announced various initiatives, such as supporting the PPP channels and providing discounted interest loans for Central and West China railway projects, which are funded by social capital. Moreover, NDRC is planning to issue CNY1t in long-term special financial bonds to support infrastructure investment. The first trench of bonds amounting to CNY300b will support local infrastructure projects, including security housing, water conservancy, and underground pipeline and gas.43 These measures will boost the domestic construction industry by providing access to capital, which has been major bottleneck for the development of infrastructure. The Government is putting in efforts to attract social capital for funding purposes. The Government has been promoting infrastructure development through its railway pricing reform in 2013, aimed at a market-oriented pricing scheme.44

China will remain the world’s largest construction market over the long term, supported by government structural reforms to overcome country’s structural deficit in urban infrastructure and transportation. About 80% of the freight is transported through roads, which is inefficient compared to railways and ports. Moreover, the “One Belt, One Road” initiative will also promote transport infrastructure projects.45

42. “NDRC: Transportation Infrastructure Investment Rises 10.8% YoY in 1H2015,” AAStocks Financial News, 27 August 2015, via Factiva ©2015 AAStocks.com Limited.43. “China to issue USD161 bil. targeted financial bonds to support infrastructure investment,” IHS Global Insight Daily Analysis, 6 August 2015, via Factiva ©2015, IHS Global Insight Limited.44. “Fitch: China’s Construction Sector Benefits from New Infrastructure Drive,” ENP Newswire, 4 August 2015, via Factiva ©2015, Electronic News Publishing.45. “Industry Forecast - Construction & Infrastructure — Q3 2015,” BMI Research, 29 June 2015.


Latin American countriesEven as Latin American economies have a divergent pace of development, there is a common need to bridge the widening infrastructure gap. The region suffers from poor connectivity, and the highway network has become inadequate to cope with regular traffic. Latin American countries have a long-standing shortage of housing, mainly due to political uncertainties, poor project implementation and bureaucratic barriers. The pressing need for infrastructure development, which is essential for economic growth, presents a huge potential for demand growth in building products.

Mexico

Mexico’s construction sector will continue to grow in 2015 with growth driven mainly by residential construction and the Government’s National Infrastructure Plan (NIP). However, weak oil prices will impact fiscal spending, thereby hindering recovery in non-residential construction. Moreover, budget cuts in railways and across other modes of transport in 2015 is expected to hamper industry growth, along with the austerity measures by the national oil company, Pemex, toward investment in downstream projects.46 Pemex had been the major driver of construction projects in 2014.

The Mexican Chamber of Construction Industry (CMIC) expects the construction industry to grow by 3% in 2015 vs. 3.5% expected previously, owing to the lack of public funding, which will impact new projects in the 2H15.47

46. “Mexico: Industry Forecast - Construction & Infrastructure - Q3 2015,” BMI Research, 28 May 2015.47. “Mexico: Construction sector reduces annual growth forecast to 3%,” Esmerk Latin American News, 17 August 2015, via Factiva ©2015. M-Brain.

Nonetheless, the NIP is expected to increase the contribution to the infrastructure segment to 8% of the GDP by 2018 vs. 4.5% in 2013. The plan outlines 743 projects to be developed over 2014–18, with a total amount of MXN7.7t. The projects will mainly be funded by the public sector with the revenues generated through Mexican tax reforms, with approximately 37% funded by the private sector. Moreover, as part of the plan, the Government will provide financial assistance for home ownership, mortgage financing and credit at low interest rates, which will further support the recovery of the infrastructure segment.48

New or ongoing projects include the construction of a new MXN180m terminal at Tuxtla Gutierrez airport.49 Along with this, the Mexican Secretariat of Communications and Transport (SCT) has invested MXN33b in road infrastructure projects in 1H15 and plans to invest MXN180b until 2018, with the target of completing 52 projects.50 Additionally, MXN1b will be invested in the rehabilitation of Chapultepec corridor. The project will be funded by Mexico City’s investment and development promotion agency, PROCDMX, and Proyectos de Infraestructura Chapultepec (PICSA) consortium.51

48. “Mexico Update: Infrastructure Plans Unveiled,” AS-COA, 9 October 2014.49. “Mexico: GAC to invest MXN 180mn in Tuxtla airport expansion,” Esmerk Latin American News, 6 August 2015, via Factiva ©2015. M-Brain.50. “Mexico: SCT spent MXN 33bn on road infrastructure in January-June 2015,” Esmerk Latin American News, 2 August 2015, via Factiva ©2015. M-Brain.51. “Mexico: Mexico City council will invest MXN 1bn in Chapultepec corridor,” Esmerk Latin American News, 19 August 2015, via Factiva ©2015. M-Brain.


Brazil

The Brazilian economy has entered into recession with the economy contracting by 1.9% between April and June 2015. The Government aims to revive the economy with austerity measures, however, a lack of support from Members of Parliament who want to increase spending has led to a political crisis. Moreover, S&P has downgraded Brazil’s rating from BBB- to BB-, which denotes substantial credit risk and a modest economic recovery in 2017.

Moreover, the capacity of Brazil’s construction industry declined to 60% in 1H15 vs. 69% in 1H14, owing to lower domestic demand and higher taxes. The Lava Jato corruption scandal, in which many of the private construction players with substantial project pipelines have been implicated, affects the near-term growth potential of the industry. This has constrained their financing abilities and has led to credit restructuring or bankruptcy of most of the companies involved.52

However, the Government has announced investment of US$64b to improve the infrastructure and revive economic growth. The projects will start in 2018. It aims to provide concessions to the private sector to construct and operate nearly 7,000km of roads, airports, ports and railways. Such a move is welcome given grain consumption doubled between 2000 and 2014, and the number of vehicles tripled during the same period, indicating an increasing need of infrastructure development.53

Under the logistics plan, Brazil will offer concessions of about BRL66b for roads to connect soybean growers to the ports, BRL86b for railways, BRL37b for ports, and nearly BRL9b for airports, along with infrastructure plans for Salvador, Florianópolis, Fortaleza and Porto Alegre. The plan also highlighted the US$40b agreement with China to build a bi-oceanic railway, which will connect Brazil to Peru via the Pacific.54 Though, the actual capex outlay for infrastructure development is yet to be seen.

52. “Brazil: Industry Forecast - Infrastructure & Construction - Q2 2015,” BMI Research,26 June 2015.53. “BRAZIL unveils $64 billion infrastructure plan,” Kuwait Times, 11 June 2015, via Factiva Kuwait Times ©2015.54. “Brazil outlines $65bn infrastructure package,” ft.com, 10 June 2015, via Factiva.

Colombia

The Colombian economy is facing downturn due to the drop in energy prices over the past year. The Government has announced a program called Stimulus Plan for Productivity and Employment 2.0 (PIPE 2.0) to spur economic growth, maintain economic stability and fiscal balance. The program investment totals COP16.8t, or 2.2% of GDP, and should create more than 300,000 jobs and a GDP growth rate of above 3.5% in 2015. The program aima to invest COP4t in transport infrastructure, such as roads and bridges. However, the successful implementation of the plan is in doubt, given the budget cuts announced by President Juan Manuel Santos in March 2015 and the persistent low level of oil prices.

Moreover, the Colombian Government has shown interest in promoting PPP projects in the infrastructure sector. A total of five projects have already been awarded and six more are in pre-feasibility or feasibility stages in 2015. The National Infrastructure Agency (ANI) estimates a total investment of COP15t in these projects which can be invested in social initiatives.55

Additionally, Colombia has one of the largest project pipelines in Latin America worth US$88.5b. Majority of the projects are in the transport sector, of which US$28.8b are in road sector. Colombia is well placed among its peers for its investment needs. The projects are funded not only by the Government, but also by pension funds, multilateral agencies, institutional investors and local banks. Also, foreign banks will support funding for the Government’s 4G road program providing about 30% of the required funds.56 Going forward, concessionaires will issue 15-year and 20-year bonds of between US$106.38m and US$265.96m, once construction of the projects has been completed.

55. “Colombia: Government seeks to expand private PPP projects,” Esmerk Latin American News, 1 June 2015, via Factiva ©2015. M-Brain.56. “FDN secures debt funds of COP 2tn for 4G road projects,” Esmerk Latin American News, 20 August 2015, via Factiva ©2015. M-Brain.


Peru

Peru’s economy posted lacklustre growth due to low prices for the base metals and commodities on which the country is dependent. The economy is expected to grow at 3% in 2015 vs. 4% expected previously. The construction sector also declined by 8.6% y-o-y in April 2015. Nonetheless, a rebound in Government spending is expected post the recent austerity measures, which will lead to improvement in infrastructure investment.57

The long-term outlook for the Peruvian construction industry looks positive with US$113b in investment approved for public infrastructure between 2015 and 2021. The plan consists of 2,083 projects, many of which will be financed by PPPs. Twenty-two PPP projects would be awarded this year with a few projects to be financed through a tax-swap program.58

Other Latin American nations

Other Latin American countries are also advancing major infrastructure projects. The Chilean Government has announced an economic stimulus program to drive growth with a 27% y-o-y increase in infrastructure spending, which would have a positive impact on the growth trajectory of Chile’s construction industry.59

Robust infrastructure and housing construction are driving HCM demand in Latin American countries. However, much of this demand is presently being met via imports. Similar to Asia, rising inflation in the Latin American region is a major concern for industry players. Corruption and permitting delays are other concerns.

57. “Peru’s construction sector to rebound with concessions,” Business News Americas, 19 August 2015, via Factiva ©2015 Business News Americas.58. “Peru lines up US$113bn in infra projects through 2021,” Business News Americas, 25 May 2015, via Factiva ©2015 Business News Americas.59. “Industry Risk/Reward Index - LatAm Infrastructure RRI: Strong Project Pipelines, Implementation Challenges,” BMI Research, 18 June 2015.

The Middle East and North Africa (MENA) The infrastructure industry of the MENA regions offers robust growth opportunities, driven by high levels of investment on a per capita basis. The MENA construction industry is forecast to grow from US$144b in 2013 to US$249b by 2018, at an average rate of 6.9% y-o-y. Middle East construction orders have declined due to a steep fall in oil prices. The projects awarded in MENA (ex-oil & gas and Iran) were 10% y-o-y down to US$88b but increased 21% vs. 2H14. The decline was mainly due to a slowdown in the UAE (-43% y-o-y) and Qatar (-31% y-o-y), partly offset by gain in award contracts in Saudi Arabia(+24% y-o-y) and Egypt (+253% y-o-y). Moreover, the spending on road infrastructure decreased to half, which was partially offset by the 35% y-o-y increase in power sector awards.60

The planned project pipeline in MENA is expected to be worth US$916b over the next five years, representing a 26% increase in projects awarded in the last five years. Saudi Arabia (28%) and the UAE (20%) represent almost half of the planned pipeline. The UAE has registered the largest increase in the planned project pipeline, driven primarily by the US$17.7b Dubai Creek Harbor development and the US$32b expansion of the Al Maktoum International Airport.61

The six Gulf Cooperation Council (GCC) states, made up of Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman, are building national interconnected rail networks along their borders by 2020.62 Moreover, GCC governments will further promote the participation of the private sector via PPPs, particularly in Oman and Kuwait. The GCC construction industry is expected to grow between 5% and 6% to 2024. Cement demand in the region is expected to be strong in medium term, supported by major events, including the 2022 FIFA World Cup in Qatar and the World Expo in 2020. In addition, high demand for affordable housing is expected to drive growth in the market. Saudi Arabia requires about 150,000 units every year to meet its housing shortage.63

60. “MENA - Building & Construction,” Morgan Stanley, 02 September 2015, via ThomsonOne.61. Ibid.62. “GULF NEWS - GCC RAILWAY CONNECTION BY 2020,” Pakistan and Gulf Economist, 15 March 2015, via Factiva, ©2015 Pakistan and Gulf Economist.63. “Industry Trend Analysis - GCC Infrastructure Round-up,” BMI Research, 3 August 2015.


• In February 2015, CRH Plc announced that it has entered into an agreement with Lafarge S.A. and Holcim Ltd to acquire assets for EUR6.5b. The acquisition will expand the company’s presence in Eastern Europe, Brazil and Philippines. Additionally, the assets double CRH’s cement production volumes and will lead to the expansion of its aggregates and ready-mixed concrete portfolios. The acquisition was completed in August 2015 with the exception of operations in the Philippines, which closed in September 2015.64

• Birla Corporation has agreed to acquire assets of Lafarge India for a total consideration of INR50b. Birla is acquiring a cement unit at Sonadih (Chhattisgarh) and a cement grinding unit at Jojobera (Jharkhand), along with Lafarge’s Concreto and PSC brands. The total capacity of these units is 5.15MTPA along with the mineral rights over adequate reserves of limestone.65

• HeidelbergCement AG has entered into an agreement with Italmobiliare S.p.A. to acquire a 45% stake in Italcementi S.p.A. The deal is expected to close in 2016 and is subject to regulatory approval in Europe and the US. The acquisition will add a valuable portfolio of assets while diversifying its geographical presence across 22 countries with strong footprint in France, Italy, the US and Canada.66

64. “CRH plc completes the Philippines element of Lafarge-Holcim transaction,” Press Release, CRH Website, http://www.crh.com/media/news-events/press-releases/2015/2015/09/15/crh-plc-completes-philippines-element-of-lafarge-holcim-transaction, 15 September 2015.65. “Birla Corp to acquire 2 Lafarge units for Rs 5k cr,” Business Standard, 18 August 2015.66. “HeidelbergCement to accelerate growth with the acquisition of Italcementi,” HeidelbergCement Group, 28 July 2015.

M&A activity

• Taiheiyo Cement Corporation announced that its subsidiary, CalPortlan Company, has entered into an agreement with Martin Marietta Materials, Inc. to buy its cement business previously held in California.67

• Summit Materials has entered into a definitive agreement with Lafarge North America (Lafarge NA) to acquire Lafarge NA’s 1.2m short ton capacity Davenport, IA cement plant and seven cement distribution terminals for US$450m and Summit’s Bettendorf Iowa cement distribution terminal. The deal will be financed through both debt and equity.68

• Anhui Conch will invest CNY220m in a joint venture to acquire Shengta Group’s cement-related assets. Post the acquisition, Anhui Conch will become the third largest cement producer behind CNBM and ACCH in Jiangxi province.69

67. “Purchase of California Cement Business Assets from Martin Marietta,” RIA Oreanda-News, 11 August 2015, via Factiva ©2015 Ria Oreanda.68. “Summit Materials Announces a Definitive Agreement to Acquire Cement Assets from Lafarge,” Summit Materials, http://summit-materials.com/about/news/summit-materials-announces-definitive-agreement-acquire-cement-assets-lafarge, 17 April 2015, via Factiva ©2015, Dow Jones & Company, Inc.69. “Anhui Conch to invest 220 mln yuan in JV for acquiring Shengta’s cement related assets,” Reuters, 15 June 2015, via Factiva ©2015 Thomson Reuters.


Management changes

• CRH plc announced the appointment of Ms. Rebecca McDonald as a non-executive director, effective from 1 September 2015. Ms. McDonald is also a non-executive director of Aggreko PLC, Veresen, Inc. and ITT Corporation.70

• CRH has appointed Senan Murphy as group finance director effective 4 January 2016. Mr. Murphy joins CRH from Bank of Ireland Group where he is currently the chief operating officer and a member of the group’s executive committee. He succeeds Maeve Carton who will become Group Transformation Director at the company.71

• West China Cement has announced the appointment of Liu Shan as non-executive director, effective from 1 July 2015.72

• LafargeHolcim has appointed Ujjwal Batria as the India CEO, effective from 22 June 2015. Ujjwal Batria has taken over the responsibility from Martin Kriegner, who has now been appointed as the area manager for Central Europe of LafargeHolcim. Earlier, Ujjwal Batria managed the cement business as the managing director of Lafarge India Pvt Ltd.73

70. “CRH announces non-executive Board appointment,” ENP Newswire, 31 July 2015 via Factiva ©2015, Electronic News Publishing.71. “CRH appoints Bank of Ireland executive as group finance director,” Press Release, CRH Website, http://www.crh.com/media/news-events/press-releases/2015/2015/09/07/crh-appoints-group-finance-director, 07 September 2015.72. “West China Cement appoints Liu Shan as director 06 July 2015,” People in Business, 6 July 2015, via Factiva ©2015. News Bites Pty Ltd.73. “Lafarge Appoints New India CEO,” contify.com, 1 July 2015, via Factiva ©2015 Economic Research India Pvt. Ltd.

• Imerys Group appointed Mr. Olivier Pirotte as the chief financial officer, effective from 1 June 2015. Prior to this, he served as the co-director of the Investments department of Groupe Bruxelles Lambert.74

• Lafarge and Holcim have announced the appointment of Eric Olsen as CEO for LafargeHolcim, effective post the closure of merger of the two companies. Currently, Eric Olsen is in charge of operations as the executive vice-president of Lafarge. He has been a member of the Group’s Executive Committee since 2007.75

• Dangote Cement has also announced the appointment of Onne Van der Weijde as its new managing director and CEO.76

74. “Imerys announces appointment of Mr Olivier Pirotte as Chief Financial Officer,” ENP Newswire, 7 May 2015, via Factiva ©2015, Electronic News Publishing.75. “Lafarge and Holcim appoint CEO for LafargeHolcim,” Marketline, 14 April 2015 via Factiva ©2015 MarketLine — an Informa plc business.76. “Dangote Cement appoints new CEO,” Business Day, 2 March 2015, via Factiva ©2015. A BusinessDay Media Ltd.

Name Currency Price as of 27 Sept 15

Price as of 27 Sept 14

% change Closing price — 12 month high

Closing price — 12 month low

Market Cap as of 27 Sept 15

CRH Plc EUR 19.9 17.8 11.8% 28.3 18.7 20,284

LafargeHolcim Ltd CHF 50.8 65.6 -22.6% 73.8 50.1 31,102

Heidelberg Cement AG EUR 13.9 13.4 3.7% 17.2 12.4 11,751

CEMEX SAB de CV MXN 7.0 12.5 -44% 12.7 6.1 153,623

Italcementi SpA EUR 10.8 6.4 68.7% 11.8 5.1 3,482

Buzzi Unicem SpA EUR 8.6 6.8 26.5% 8.9 5.8 2,894

Compagnie de Saint-Gobain SA EUR 38.7 36.0 7.5% 44.8 29.5 22,326

Wolseley Plc GBX 4,187.0 3,257.0 28.6% 4,398.0 2,990.0 10,969

Vulcan Materials Company USD 92.0 60.62 51.8% 102.7 54.1 12,256

Martin Marietta Materials, Inc. USD 159.4 129.7 22.9% 178.7 103.0 10,679

Source: ThomsonOne, EY research

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