Blue Circle Shrugging off the Asian Malaise

Daily Mail (London), September 9, 1997 | Go to article overview

Blue Circle Shrugging off the Asian Malaise


Byline: STEPHEN BENZIKIE

ANY company which controls 48pc of its home market is, you might think, in an enviable position. Blue Circle Industries, Britain's biggest cement producer, knows more than most that it's tough at the top.

Eager to avoid wild swings in UK cement profits - the fixed costs of cement kilns stay high in a building slump - BCI spent almost [pounds sterling]1bn on an ill-starred diversification into home products. The group then decided to stick to what it knows best, while expanding overseas.

The plan has worked pretty well up to now, producing strong results from plants and joint ventures in Africa and the the Americas.

BCI has also been a major supplier to the Far East's building boom, but a major customer is Malaysia, where gyrating currency and stock markets threaten to put the brakes on strong economic growth.

Chief executive Keith Orrell-Jones boasts that demand for cement runs at about twice the rate of GDP growth in Malaysia. With 10pc growth, that is great news, but a slowdown could hit BCI's bottom line hard. Higher production costs have already helped to squeeze profits in Malaysia by 6pc in the first half of this year.

The Malaysian government has also said it will delay some of its largest infrastructure projects, including the [pounds sterling]4bn Bakun dam. BCI insists it is still 'in a very healthy position'.

Ironically, it was a strong showing from the good old UK cement business that helped lift BCI's pre-tax profits by 22pc to [pounds sterling]141.9m in the six months to June. That was before a one-off hit of [pounds sterling]25m to cover a pioneering deal with UK trade unions over more than 200 voluntary redundancies. It includes a three-year wages deal and promises of job security for remaining workers.

The interim dividend is up 9pc to 4.65p.

BCI's heating arm has already been reorganised. The City believed Blue Circle would emerge from the last recession without heating, which takes in Myson radiators and Potter-ton boilers. Instead, Orrell-Jones decided to shake it up, setting aside [pounds sterling]55m in 1995 with the aim of making it a major player in the European market.

The benefits are starting to come through. The division doubled first-half profits to [pounds sterling]18m in a flat market, although the intriguingly named 'wall-hung condensing boiler sector' is booming.

Longer term, a supply agreement with Mannesman should help. …

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