August 26 (SeeNews) - The half-year net profit of Bosnia's Tvornica Cementa Kakanj (TCK), majority-owned by Germany's HeidelbergCement, fell by nearly a third from the same period of 2008 due to the global economic downturn but the company strives to remain profitable by cutting costs, TCK director general Branimir Muidza told SeeNews in an interview.
After raising its net profit by 38% to 48.96 million marka ($35 million/25 million euro) last year thanks to record-high cement output of 770,000 tonnes, TCK saw its fortunes dwindling in the first half of 2009, when net profit shrank 27% year-on-year to 20.8 million marka.
TCK, founded in 1978, is based in the town of Kakanj, some 50 kilometres northwest of the Bosnian capital Sarajevo. HeidelbergCement bought 51% of TCK for 28 million euro ($40 million) in 2000 and raised its stake to 91.15% in the following years. HeidelbergCement's investment in TCK topped 61.4 million euro by the end of 2008, exceeding the majority owner's initial pledge to invest 49 million euro in its Bosnian unit and related businesses through 2010.
Here is what Branimir Muidza told SeeNews:
Q.: What is the impact of the global crisis on the business of TCK?
A.: After we scored record high financial results in 2008 (turnover, profit, sales and output), in the first half of 2009 our business shared the fate of the construction sector, which saw a significant drop in operations, some 30%. The company management, however, continuously plans and implements all the necessary measures in order to cut costs in all business segments, maintain competitiveness, improve business processes and working conditions, and achieve long-term stability and positive results.
Q.: What are your short-term and long-term expectations regarding the economic downturn and its impact on the cement production and the construction sector, both in Bosnia and Herzegovina and on a global scale?
A.: In the short term, I reckon, we still have not seen the bottom of the crisis and I expect this will happen in a few months. In the long term, construction workers and the whole economy will suffer the consequences and I believe we will be faced with an extremely volatile economy, which [...] will oscillate wildly in both the positive and the negative direction, which will change direction in shorter periods compared to last century. This means only flexible companies will survive, companies whose management will be able to adapt fast and efficiently to the changing conditions for doing business.
Q.: What are the priorities in TCK's anti-crisis plan?
A.: Being part of a big international group, we have been able to monitor all global economic trends that significantly influence the overall operations of the group. From the very beginning of the global economic crisis we introduced a comprehensive plan for managing costs. Through a special expert analysis we determined all possible segments […] in which it is possible to make savings and improve efficiency, and these savings already affected the 2008 results.
The adopted business plan for 2009 is realistic and in line with the needs of the market projected for this year. Yet, it is obvious that the expected considerable drop in sales will, despite our cost-cutting measures, influence our result and we will not reach last year's record level. It will, however, remain positive. This year we will remain competitive, enter new markets in neighbouring countries, improve our operations and continue investment.
Q.: What is TCK's investment policy? Has the crisis affected the company's investment plans?
A.: We have invested more than 130 million marka in ecology, modernization, reconstruction and improvement of TCK’s operations, and in production units for ready-mixed concrete since 2000 to date. TKC today operates according to the highest European standards. TCK capacities and their usage have been significantly enhanced, which is proved by our production and financial results getting better and better. In 2008 we completed an upgrade of the clinker silo, which significantly reduced secondary dust emissions.
In July, we introduced a closed-circuit cold water supply system and now the technological water does not flow back into the Bosnia river but is recirculated through the plant. Despite tougher business conditions we carry on with planned investments with an emphasis on environmental standards.[...] For example, dust emissions from the main chimney are 50% below the legal requirements.
The most significant project we have started so far this year is the construction of a new clinker silo with capacity of 70,000 tonnes - an investment worth 14 million marka. With the silo construction we will completely eliminate the secondary sources of dust related to the handling of clinker in an outdoor deposit. Other significant projects for the 2009-2010 period are modernizations of cement mills and the raw materials mill, which will further cut the noise emission from our plants, also a new ring for the gliding furnace system, secondary grinder and other upgrades.
Q.: What is your company’s share of the Bosnian market? Do you plan to increase it and how are you going to do this?
A: At least six cement companies supply the Bosnian market. Three of them, based in neighbouring Croatia, supply a third of the market, small quantities arrive from Serbia, while the two local producers – TCK and Fabrika Cementa Lukavac [owned by Austria's Asamer Holding] – supply the remainder. Bosnia and Herzegovina is one of the countries in the region with the largest share of imports of cement and other construction materials. When exporting to Bosnia, foreign producers generally do not certify their cement with the Bosnian institutions, and so the customers and local producers remain without protection, while for example in Croatia certifying is obligatory together with additional import restrictions the country has imposed.
Q.: Does your company export? What percentage of its output and where to?
A.: We export to Croatia and other regional markets some 9.0% to 11% per year. Our exports are restricted by transport costs. [...] Yet, in a situation when the domestic market contracts and in order to utilize our capacities, we need to consider increasing exports and finding new markets.
Q.: Which is the most significant infrastructure or architectural project, in which TCK has taken part in Bosnia and Herzegovina, and what was its impact on the company’s business?
A.: The Kakanj cement has been built into the biggest construction projects in Bosnia and Herzegovina, including the Bocac, Salakovac, Mostar and Visegrad hydropower plants, and the sport facilities for the 1984 Winter Olympics in Sarajevo. Of the more recent projects I would mention the largest infrastructure project since the [1992-1995] war – the construction of [the Bosnian stretch of EU-defined] transport Corridor Vc.