M&A in Italy: a step in the right direction
News that Buzzi Unicem is acquiring fellow Italian cement producer Cementizillo SpA is seen as a small but welcome step in the right direction for the fragmented Italian cement industry.
Last Friday Buzzi announced it had acquired 47.9 per cent of the share capital of Cementizillo and the remaining 52.1 per cent will be purchased from Mr AG Zillo, the sole director, in early July. The acquisition includes two integrated cement plants at Moncelice and at Fanna and will make Buzzi the clear leader in the northeast of the country. In 2015, Cementizillo had a 4.3 per cent share of the Italian cement market and cement and clinker sales amounted to some 1.1Mta in 2016. Moreover, with a cement capacity of 9Mta at the end of 2016, Buzzi will close the gap on market leader Italcementi which sits at the top of the domestic capacity table with a capacity 11Mta.
Buzzi expects the Cementizillo acquisition to be immediately accretive to its profitability and quickly add EUR5m in EBITDA synergies. Bernstein notes that Cementizillo is one of the more efficient operators in the north. However, it views the deal as an “an opportunistic acquisition at an attractive price, but in itself is not one of the big consolidation moves we had predicted, as it does not address the oversupply problem in the Centre. "This is nevertheless an important transaction for Buzzi that increases its national sales by 37 per cent for a relatively small outlay. It is a first step in a new wave of consolidation that does not preclude Buzzi participating in further transactions," it writes.
The acquisition comes after Buzzi’s failed bid to acquire bid to acquire the cement and ready-mix concrete business units of the Italian group Sacci SpA having been outbid by local rival Cementir. The acquisition doubled the number of plants under Cementir's wing from four to eight and increased its cement capacity by 58 per cent from 4.3Mta to 6.8Mta.
Currently there are 25 companies operating a total of 68 plants. Of these 37 are integrated and 31 are grinding centres and total cement capacity at the end of 2016 stood at 52Mta. The combination of a fragmented market and falling consumption rates for almost a decade has put immense pressure on the industry in Italy leading to producers streamlining efforts and in Italcementi's case suspending operations in full or in part at a number of factories. Exports have gone some way to alleviating the pressures, climbing to almost 3Mt in 2016 versus 1.6Mta in 2011. Meanwhile, Italian cement prices are among the lowest in Europe having come under considerable downward pressure in 2014-15. In 2016, average prices were noted at EUR62/t, more or less level with the year before.
In terms of recent performances by leading domestic producers, HeidelbergCement (which acquired Italcementi last year) reported lower volumes in the country over the first three months of 2017. Following the acquisition, Italcementi is set to become even less dependent upon what was until now its home market. Meanwhile, Buzzi reported that its Italian turnover increased by 12.7 per cent to EUR95.1m in the three months to the end of March 2017, with deliveries of cement and clinker showing a good improvement thanks to higher exports and clinker sales, but prices were slightly easier. Cementir's Italian turnover benefitted from the consolidation of Sacci and rose by 88.1 per cent to EUR37.4m. Sales volumes in cement and concrete were two per cent ahead of the comparative volumes last year, helped by a good performance of the Spoleto works.
Looking at the wider picture, the good news is that the domestic cement market appears to have turned a corner having suffered from declines in demand every year since reaching a peak in 2006. Following a 3.4 per cent contraction in 2016 to 18.93Mt, this year a moderate single-digit increase is expected followed by a further slight advance in 2018. While the industry is making gradual moves to consolidate the production base, the domestic cement sector still remains highly fragmented and no substantial investment is expected, particularly in light of high excess capacity even when clinker and cement exports are taken into account.
