Cement competitors holding talks on co-operation

Press, 8 March 1984, Page 28

Cement competitors holding talks on co-operation

Business editor New Zealand’s two strongly competing cement makers, weakened by fighting for the static market, announced yesterday that they are holding talks on restructuring the industry.

Both New Zealand Cement Holdings, Ltd, and the Golden Bay Cement Company, Ltd, have been spending heavily on facilities, and both have had poorer results in the last year or so. New Zealand Cement Holdings has recently undertaken a $lO million expansion, with development of the plant at Cape Foulwind and the setting up of several new depots throughout the country. Signs of strain have emerged with delays in announcing the date when the firm’s planned $l5O million plant at Oamaru will begin production. All planning approval by local bodies has been given to the company. Golden Bay has also pushed ahead with developments, such as new cement silos at Lyttelton and the spending of $47 million changing the process used at its Portland plant. With the country’s low rate of economic growth, and a

drop in public works of the type which use huge amounts of concrete, it has been clear for some time that the country’s cement makers have been headed for trouble.

Given the high costs of harnessing the country’s remaining untapped hydro-electric resources, given the state of the country’s roading in relation to the density of population, and given that a slow rate of economic and population growth will not foster a building boom, the future of the country’s cement industry must lie in exporting. Success in this will require financial strength arising from “rationalisation” in the home market.

Last year, the industry ran at about 60 per cent maximum output. Golden Bay laid off workers, and the president of the Golden Bay Cement Workers' Union, Mr Laurie Wederell, said that two of the country’s four cement works might have to close.

The plight of the industry was highlighted at the annual meeting of Golden Bay Cement, in Wellington last May, when a shareholder drew attention to what he described as the folly of the rival companies’ building separate, expensive cement-handling facilities at Wellington and Dunedin respectively. This shareholder and another at the meeting said the directors of both companies should get together to consider the value of “this needless expenditure.”

For the first six months ol 1983, Golden Bay Cement’s profit, at $2,209,000, was 56 per cent down on the result for the first six months of 1982.

The profit of New Zealand Cement for the year to July 31 last year was down 61.5 per cent at $2,063,000.

The companies now must clearly either reach some measure of agreement on partitioning the market and reducing their output capacity, or fight on until one company is absorbed or driven out. The first course would clearly be the best from Christchurch’s point of view. The city would be sure to retain the headquarters functions of New Zealand Cement.

The headquarters of national companies generate business for advertising agents, architects, and various consultants. They also provide high-income jobs in a city. Christchurch has lost several national headquarters in recent years, Aulsebrook’s, and Andrews and Beaven, to name two.

Therefore anything which

will keep New Zealand Cement Holdings healthy and in Christchurch is to the city’s benefit. However, if rationalisation extends to closing cement works, the South Island as a whole will suffer, for three of the four cement works in the country are in the south. Announcing the discussions on “possible restructuring” the directors of the two companies said in a statement to the Stock Exchange yesterday: “The objective of reorganisation is to improve the efficiency of both manufacture and distribution so that the industry can survive in today’s .severe economic conditions.

“The industry must be able to provide for confining plant modernisation and re-equip-ment with consequent substantial benefits to the industry and its customers. This will also improve international competitiveness, thus increasing the industry’s ability to export profitably.

“The Government has been advised of the discussions and the benefits and improved efficiency that would result from

a reduction in the number of production and distribution facilities and from the proposed formation of a joint distribution company.” The directors said that such restructuring would maintain the continued independence of the two cement manufacturing companies. Any restructuring would be subject to the consent of the Overseas Investment Commission, the Commerce Commission, and other Government authorities. (Swiss interests own almost 40 per cent of NewZealand Cement Holdings.) Shares in Golden Bay Cement rose 2c to 64c (largest parcel) yesterday, New Zealand Cement shares rose 5c to 135 c.