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Cement industry on an investment spree

THE news that Blue Circle is poised for another shake-up of its UK cement business marks a further stage in the restructuring that is sweeping through the building materials industry.

After the corporate upheavals of the past 18 months which have seen Redland pull out of bricks, Wimpey out of aggregates and ARC emerge as the major marine aggregates producer the industry is now showing a willingness to modernise its plant.

Like Rugby, which is building a new 100 million plant in its home town, Blue Circle is building a state-of-the-art flagship plant and replacing some older plants with a more productive new one.

The stock market signalled its approval by pushing Blue Circles shares ahead by 4p to 366p. The new investment should save the firm 50 million annually and improve its returns in the UK, which apparently dont match those it makes in the US and Chile.

That said, it is somewhat bizarre to see Blue Circles chief executive, Keith Orrell-Jones, blaming the cement industrys price cartel which was abandoned in 1987 for holding back the groups progress on productivity.

Blue Circle was a vigorous

defender of the UK cement

industrys common pricing agreement, which ensured that cement prices in Britain were higher than on the Continent for much of the post-war period. When it was finally abandoned in 1987, Blue Circle argued that it stood to be a major beneficiary of a competitive market.

As it has turned out, the industry has shed labour but the market shares among the three UK cement manufacturers have remained virtually constant. Cement prices today are 28 per cent higher than they were in 1990, suggesting the industry has not had such a bad recession. It would be nice to think that some of the savings from the cement industrys current investment spree will be shared with its customers.

THE recent performance of Morrisons shares suggests the City continues to hold out high hopes for the Private Finance Initiative (PFI).

Morrisons shares have climbed to 163p from 115p since October, when it joined the stock market and raised 20 million, partly to devote to PFI projects.

None of these schemes contributed to the 50 per cent increase in pre- tax profits which the Edinburgh-based firm reported this week.

But the re-rating of Morrisons shares suggests that the City is beginning to value earnings from contractors with a PFI/non-traditonal workload somewhat more highly than those of their traditional bretheren.

If shares in PFI-related contractors continue to out-perform it should enable them to raise capital more cheaply and invest more readily in new schemes or acquisitions.

Of course, this virtuous circle ultimately depends on companies actually making money out of PFI which still appears to be some way off.

Bill Fishlock