ACC CEO: Revolution did not change anything from the government's bureaucracy.. Officials are still indecisive.. Gov't allocates international aids wrongly.. Energy subsidies must be lift 

 

April 27, 2014

 

 

 

 

 

Jose Magrina, ACC CEO, said that Egyptian market is one of the most competitive markets in the world and needs quick decisions. The cement market doesn't suffer from monopoly. The Egyptian officials are still indecisive as they cannot make decisions quickly. The Company will float part of the Egyptian stake, up to 22.5 % of the company. The energy crises, the constant change of laws, and terrorism, are the most common problems that scare foreign investors.

 

The interview:

 

How do you see the Egyptian market and economy?

 

The performance of the economy and the cement sector are inseparable. The cement sector and the economy have a great potential, but there are decisions that the government must take quickly for a comprehensive economic reform, including lifting energy subsidies, restructuring the governmental body to be more efficient and this is not a personal opinion but it's the opinion of international institutions such as the International Monetary Fund, the World Bank and others. These decisions must be taken sooner or later, and if this happened, the Egyptian economy will revive.

 

What would happen if the government does not take these actions now?

 

If these actions have not been taken, things would be getting worse, especially with energy shortage. Egypt has witnessed huge events as large as the two revolutions, lack of security, and instability. Even though officials don't take an action, which could be seen by some not suitable for the Egyptians and the market now, but in the long run it will be beneficial for the market and for the people.

 

Has the government changed its way of dealing with investors?

 

No, nothing has changed, Government's performance hasn't improved after the revolution, and there are decisions can be taken in a short time, but it takes months to be decided. The situation was pretty bad for a year and a half, and no one can make a decision. There is currently a slight improvement, but overall things have not improved much and still need a lot more.

 

When you meet foreign investors, what do you advise them for the Egyptian market and how they look to Egypt?

 

I meet a large number of foreign investors, and I always see that they are worried the most about the lack of legislative stability in the Egyptian market. When an investor signs a contract with the government, the next government changes the laws, and the terms of the contracts, the theme that scares investors and cause them incurring significant losses. I agree with holding any official liable when making mistakes, but It must also respect the signed contracts.

 

What is the company's share in the domestic market and is there any intention to expand in the coming period?

 

Around 8% in terms of quantity sold. The Company does not currently have any plans to open any factories outside Egypt. Regarding the expansion plan, it depends on two factors; first solving the energy crisis, and secondly, demand rates, especially as the total consumption reached 50 million tons per year, while the total production 70 million tons per year, taking into account that the energy crisis doesn't allow plants to operate at full capacity. The company produces 4 million tons a year, and its maximum capacity about 5 million tons.

 

What do you advise them when they ask you about these problems?

 

I advise them to invest in Egypt, especially in the field of real estate and building materials as Egypt is the largest market in the Middle East. I also advise them to invest in the field of energy, sanitation and other important sectors.

 

If the Prime Minister Ibrahim Mahlab asked cement companies to determine certain demands to be implemented to activate the cement sector, what would you ask?

 

There must be a legislation that allows companies to import energy sources by their own, and this will be useful for the government and companies, because the energy that was used in the industry will be used to generate electricity, and as a result the power outage crises will end. Energy is the key to economic growth and economic growth reflected on the stability. A problem like that should not have to wait several years to be solved, but we must make decisions immediately , and use all available means, especially as 92% of cement companies in the world are using solid fuels, such as coal.

 

What is the company's share in the domestic market and is there any intention to expand now?

 

Around 8% in terms of quantity sold in 2013. For the expansion plan, it depends on two factors; first solving the energy crisis, and secondly, demand rates. Especially that the total consumption reached 50 million tons per year, and the total production 70 million tons per year. Moreover, the energy crisis doesn't allow the plant to operate at full capacity. The company produced 4 million tons a year, and its maximum capacity reaches 5 million tons.

 

What are the company's sources of funding and what is the position of the loans obtained by the company?

 

We have got a loan from the National Bank of Egypt seven years ago. The company has paid two-thirds of the loan and still has 4 years remaining to repay its existing debt. Regarding the funding sources, it's from the Company's capital, loans, and retained profits,

 

So why will the company offer its shares on the stock market?

 

The company's ownership is structured as 60% a Spanish Company and 40% Egyptian Investors. The Company will float part of the Egyptian stake, up to 22.5 % of the company to allow part of the minority shareholders to monetize their investment in the Company.

 

Does the company's stocks been evaluated?

 

Yes, but I can not disclose it now, and will be disclosed on April 28. EFG Hermes, CI Capital has evaluated the stock and all the details will be announced through the prospectus at the end of this month.

 

Has natural gas shortage affected the company's activity?

 

We received only 76% of natural gas supplies last year. The theme that reduced the company's production by one million tons, and I know that some of the cement companies have stopped operation completely and some by 50%.

 

If the government approved using coal, will you import it or you will rely on domestic production?

 

In the first phase, we will rely on domestic coal, because there are laws regulating using and transporting it. ACC will not import coal only until regulations for importing it are issued. The Company is waiting MSEA's approval in order to use it before the summer, in order to save gas to produce electricity.

 

When the coal is used, how it will affect the cement price?

 

There's no direct correlation between price and cost of production, and by using coal, the cost will increase a bit, and thus could increase the price a little bit, but the price depends on supply and demand mechanisms more than anything else.

 

Is there a real competition between cement companies operating in the Egyptian market or is there a monopoly?

 

There is fierce competition in the Egyptian market, and there are 22 different companies, and each company has a certain price, and a specific and different products. There are two governmental companies and a company owned by the Army, and a number of companies that are different from each other in the way of pricing, so it's impossible to be monopoly in the Egyptian market.