Italcementi plans to raise capacity, exports of Bulgarian plant

Italcementi plans to raise capacity, exports of Bulgarian plant
Published: 13 October 2006

Italcementi plans to raise its exports from Bulgaria, which will join the European Union next year, on the back of increased capacities, a senior official of the company said on Thursday.

Italcementi, which owns the Devnya cement plant near Bulgaria’s Black Sea city of Varna and Vulkan in southern Bulgaria, will invest some 180m euro (US$225.7m) to reconstruct the Devnya plant and raise its annual capacity by 50 per cent to 3Mt within three years.

"[Devnya exports will rise] in between 30 and 40 per cent in the future with the new capacity, because on one hand the domestic market is growing, and on the other, we would like to have higher capacity to export," Italcementi CEO Carlo Pesenti told SeeNews in an interview after a presentation of the company’s investment programme.

The Devnya plant exported cement for 20m last year, which made 20 per cent of the sales of Italcementi Bulgaria.

"In the future we will have more production available and we will export to the United States, Italy, to European countries like Spain and Turkey, so the Bulgarian plant will be part of this network," Pesenti said. Italcementi uses mainly the Black Sea port of Varna for its exports from Bulgaria.

Pesenti forecast a "strong increase" in Italcementi Bulgaria’s revenue after the investment programme is completed, but underlined that "the biggest return will come from the cost cutting effect, because through the new technology we will be able to reduce dramatically our production costs".

"Today the EBITDA margin in Bulgaria is in the range of 30%, hopefully we will go up to 40 per cent [within three years]," said Pesenti.

The Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin is equal to EBITDA divided by total revenue. It measures the extent to which cash operating expenses use up revenue.

Domestic market

Bulgarian market demand annual growth is in the range of five to six percent, said Pesenti. He forecast that the trend would remain stable in the medium term.

"On one hand we will have a recovery from the drop in 1991-1992, there is a structure trend driven by investments in the residential sector and also in the non-residential sector [...]. By entering the EU Bulgaria will get financing in order to renew and revamp the infrastructure network," Pesenti said.

Bulgaria’s government has unveiled strategies outlining multi-billion euro projects for development of the country’s roads, railways, ports and airports until 2015.

The country plans to invest 3.305bn in the construction of motorways alone.

The ex-communist state of nearly eight million people is still 38% behind the annual cement consumption of five million tonnes in the late 1980s, despite its flourishing construction sector, focused mainly on residential buildings, sea and mountain resorts.

Cement consumption rose to 3.1Mt last year from 1.4Mt in 2001.

Italcementi competes in Bulgaria with global cement producer Holcim and Greece’s Titan and claims to hold two-thirds of the domestic market.

The combined annual capacity of the three majors in Bulgaria currently stands at about 4.5Mt, according to Italcementi estimates.

The group has so far invested 260m in its Bulgarian units.

Italcementi ( ) saw group net profit rise 59.3 per cent in the first half of 2006 to 339.7m on the back of higher volumes and a general increase in prices, particularly in North America, Italy, Spain, India, Egypt, Turkey and Kazakhstan.