He was one of the most significant executives which comes to mind when cement sector is of question. A couple of months ago, he resigned from the company he had been working for 25 years. Now he is going on to transfer his experiences to the sector in a company he has founded in Switzerland. Experiencing 5 economic downturns in 25 years Mehmet Hacıkamiloğlu provided the prescription for overcoming the downturn in cement sector. We discussed the status of the cement sector, expectations for 2019, what shall be done and the future goals with Mr. Hacıkamiloğlu.
Can you evaluate the current status of the cement sector?
We are now in a difficult period as the cement sector. 2019 seems to become one of the challenging years in cement. Yet, as we know, cement sector follows the construction sector and the construction sector follows GDP. There is a significant correlation between these three. While the economy grows and the growth accelerates, construction sector grows faster then the economy. In the contrary case, the construction sector regresses faster. For instance, if the economy recesses by 2 percent, the cement sector will regress by 5 percent. And this is always realized with 6 months delay. Therefore, it has always been very easy for the cement sector to see its future.
Changes in economy are first felt by banking, finance sector and then by retail sector. Its reflection to cement sector takes about 6 months. This constitutes an advantage for the sector. Required measures are taken within those 6 months. As the cement sector, we got used to such downturns. We experienced similar ones in 1994, 1999, 2001, 2008. This is the 5th downturn in my career of 25 years. In the past, the rallies would take 5 years. There are normally cycles for the cement sector. It would go well for 4 years, recession would occur in the 5th, and growth once again would start after another year. We have always experienced and expected that. However, this depression seems to last longer this time. It seems that this downturn will be more severe compared to others.
No distress was experienced in production until June this year. However, recession rate has accelerated a little following June. It seems that a growth comparable to the previous year will not be achieved by the end of this year. A certain amount of regression may even occur. However, it seems that 2019 will demonstrate a worse picture. Cement and construction sectors will experience the real impact of this current downturn in 2019. This is not something we are unfamiliar with. We have experienced this before. Cement sector will overcome these again.
Having experienced 5 downturns in your career, what do you suggest the sector executives to do, what kind of measures shall be taken? What would you do if you were them?
This period is the period of managing the cash properly. The ones who are capable of managing the cash will survive. Rules of managing the cash are not actually difficult, indeed, simple. However, reflecting this to the field cannot be as easy as telling it. What we would you: If you are in debt you need to manage your debt well. You need to be able to circulate your financial and commercial debts. Particularly if you indebted to banks. We did not take foreign exchange position for years. We were indebted in foreign exchange only as much as we did export. Therefore, even in case of foreign exchange loss in the balance sheet, the company did not suffer from that since we paid it within 1 year. All sectors in Turkey already have to be aware of this fact and act accordingly. This is one of the most critical points. There are 3 and a half formulas to overcome this downturn with minimal loss:
1. You shall be a hawk for your receivables
2. You shall be a pigeon for your debts.
3 .You shall not work to increase your stock
3.5. You shall revise your investments.
What I mean by saying to review the investments is that if the investments you make offer a return in a very short time it is good or if there are investments which can be completed in a short time you need to complete them as soon as possible. However, if you did not start a new investment, you shall avoid starting it. Because, cash is important. It is very important to be able to collect your receivables. And this highly depends on construction companies. There is an upcoming difficult period there too. It is evident that there will be ones that are in default. There are companies which have got position, made high housing investments but failed to sell them in that sector too. Therefore, being able to collect the receivables from them is very important. We know the formula, however, whether being able to do that or not depends on the field team, your pursuing skills and vigilance. It is not so easy. The main failure that is made here is to give them an inch and they will take a yard. However, it is better to lose the saddle than the horse. It is necessary to avoid getting position with foreign currency loans when taking loans in relationships with the banks and to neither get position for decrease or increase. Indebtedness in foreign exchange shall correspond to your export. While I am saying that 2019 will be worse, exporter companies shall be excluded from that. Foreign exchange rates will not impact them since they make sale over foreign currency. However, the ones which only sell at home will be impacted more. I also necessary to avoid working to increase stock. The formula is actually that simple.
What shall we do to minimize costs during downturn periods?
Cost, efficiency and optimization are very important aspects. These are the tasks that the cement sector always carry out. To follow up costs closely and to take measures against costs. Opting for inexpensive fuels, for example, domestic coal. These have already been realized in the sector, however, they need to be accelerated now on. Electricity prices have increased significantly. Therefore, what I say for fuel is identically applicable for electricity. There are good efforts which are realized for savings in this case. We shall not save on sales and marketing. People generally consider that as a burden, however, my personal opinion is to avoid saving on sales and production. This is not the place for savings. The place for savings is back-office tasks which are routine and unable to create value. Relying on electronics, digitalization and automation in those tasks will bring along te savings.
The world has changed so fast at that positions too. We had to but gigantic servers in the past. Now, the cloud is launched and we are not required to invest in that. We need to use technology further both in production process and the logistics. In other words, the recipe for overcoming the downturn with minimal loss is: Collect your receivables on time, manage your debt properly, have it restructured if necessary, avoid working to increase your stock, postpone your investments if they don’t offer a very short return period. You always need to be fit in terms of costs.
The sector will recess in 2019. Can it recover through export? Is it possible to overcome the downturn more easily through export to markets such as Chine and Africa?
Export will be our emergency door. In this distressful period, cement manufacturers will strive to fill the gap created by decreasing cement consumption in Turkey, through export. There were periods when we exported 20 million tons of cement and clinker. Therefore, the infrastructure to realize it is highly available. Turkey is highly developed in terms of port and loading facilities. The USA market is there when we consider the overseas. Export is increasing by 5-6 percent each year. And it will go on to increase. The flagship sector of the USA economy is construction just like ours. African market is important for us and it will always be lasting. Carbon taxes have increased in Europe again. Therefore, Europeans will prefer import rather than cement production and to utilize their carbon quotas in a more efficient manner. Carbon tax rates have reached to the levels of Euro 24 per ton. Therefore, abstaining from production is made more favorable through such figures. We have experienced these before. It went down to the levels of Euro 4 in 2008 downturn. Indeed, we have a neighbor called Syria. I hope that it will become a market which can be absorbed by the cement plants particularly in the Southeast region, when the problems are solved. At the end of the day, export can be a rescuer for Turkey during hard days. It is an appropriate and health method in terms of capacity utilization in plants which are located on coasts and boundaries, in particular. It will bring in foreign exchange, you can do hedging if you have foreign exchange input. However, I don’t feel comfortable with building cement plants in Turkey with the ideal of increasing export or to make export. Cement is not an added value product. In conclusion, we are exporting input and energy.
What is the quantity of cement production in Turkey?
Currently, cement production is higher than 100 million tons. In theory, it is 110 million tons. Therefore, we shall not increase the capacity. Indeed, you cannot tell the people what they will do in free market economy. On the other hand, the central authority needs to intervene with the investments which are not favorable for Turkey. Yet, every investment that is made is imported. Machinery is imported, energy is imported. Selling cement with a price tag of 30-40 dollars while importing those is an issue we really think on. Let me give you an example of Israel. If I am right, we exported nearly 1 million tons of cement to Israel in 2016. Considering each ton to be 50 dollars, it equals to 50 million dollars. Israel’s export to us is 157 million dollars per 1 container. In other words, they buy 1 million tons of cement from us and they send here a single container in exchange and this is 3-fold of ours. To summarize, it is right to make export to utilize the capacity. However, it is not right to make cement investment for the sake of making export.
What shall be done to increase export?
Cement sector realized factory purchases abroad. They established mills in Europe and Africa. They got lasting positions. These will ensure continuity. You become a permanent player in those markets when you do that. I hope the cement manufacturers will avoid the same mistakes they have done in the past. I hope they won’t decrease their export prices due to increase of foreign exchange rates.
Is it better to invest in abroad instead of export?
Cement is heavy in weight but light in value. You need to consume it at the production point. For instance, China solved that issue. They decreased the capacities, it gave up the obsolete technologies and inefficient plants. They don’t export cement.
So, do you think we can export to China as Turkey?
Unfortunately, China is the farthest country for us in terms of distance. It has a self sufficient capacity. Therefore, it does not need us. I think that exporting to China is a delusion. However, we can increase export to other developed countries which have demand such as the USA.
You mentioned about minimizing the costs. There are attempts in the sector for alternative fuels for a long time. For instance, wastes. You also had efforts in this field. Can you give us information about that?
There is much progress Turkey needs to make in terms of alternative fuels. There is still a lot to do to recover both domestic wastes and industrial wastes to generate heat or electricity. There is no high investment requirements to utilize wastes as fuel. Most cement plants in Europe earn money by incinerating wastes. Cement production has become a byproduct. In Turkey, environmental pressure is not created sufficiently. Uncontrolled dumping is still the primary solution for waste producers. Normally, there is a hierarchy of waste. This hierarchy primarily dictates: Minimize waste. Recover if you cannot minimize. Use as fuel and convert it into energy if you cannot recover. Finally söyif you are not able to do anything else, as a last resort, store it in other words, bury it. Unfortunately, this is just opposite with us. We directly bury it.
Did you contact municipalities regarding this? For instance, municipalities are selling the wastes. Did the cement sector make an attempt in this respect?
This idea of selling waste is unique to Turkish people. In the world, the one who produces waste shall also bear the costs of recovery or disposal. But since we are used to make two and even three tasks out of only one task, some people are visiting the municipalities to offer money against wastes. Whereas, we are paying the garbage collection task, for instance, if you buy tires or a phone, you pay the recycling fee in advance. Therefore, this collected resource shall be administered properly for recovery of wastes. There is a very serious potential at municipalities. Everyone I know wants to make money from this. However, when cement plants want to turn domestic waste into fuel and use them to fire the furnaces, they will need to make an investment. And they will assume a serious risk, since the content is uncertain due to the unknowable nature of waste and the production can be impaired. Therefore, you don’t need to pay money but to receive money for that. As I have mentioned just now, fuel costs in cement sector in Europe are negative figures. Cement plants make money by burning wastes. This is not a thing that everyone would consent now. Because there are still alternative places for dumping. When there are no dumping places left, then they will be eliminated by incineration.
You are in the cement sector for a quarter century. How was the sector when you first started and how is it now? Can you give an example for the change?
When I started to work in the sector, there were 2 computers in the plant. We would wait in the queue to prepare the daily reports. There was not a phone on each desk. They were only available in managers’ rooms. Today, you can do your work even without going to the office. For instance, they warn you about an engine failure immediately with an acoustic signal. Even, there are software, apps which are intended to troubleshoot the failure. Today, artificial intelligence threatens the white collar and robots threaten the blue collar employees. For instance, President of the USA, Donald Trump means this by telling the USA companies to make their production at home. Labor force advantages are now eliminated by the use of robots. For instance, China is losing its labor force advantages. In other words, there is no possibility to ensure competitive advantage through low workmanship costs. What threatens the white collar is artificial intelligence. For instance, a task which takes 3 days to be completed by 3 engineers can be performed by artificial intelligence while the people are sleeping. The software can even take into account the weather conditions and perform product planning while you are sleeping. Technology has changed a lot. Human resources have also changed. In the period when we started our career, loyalty was a very important value. However, today, ‘Y’ generation is not aware of this concept much. Most of the methods which were used for managing the human resource when I first started is now obsolete. Now, quite different requirements are of question. Even clock-in and clock-out times have gone away.
If this period is managed properly, the rally will take start for the cement sector by April, 2020.
What are your recommendations for the young colleagues in the sector and the young people who are planning to build a career in the sector?
Regardless of the sector. The most important criteria in the beginning is learning. They shall stay in the sector and the company as long as they are trained well. And they shall avoid staying there if they are not learning anything. This is the most important criterion for the first 5 years. If they are to claim something, it shall be learning rather than the salary. They should be glad if they are learning and developing themselves. If they are not learning anything, they shall switch to places where they can learn something, without losing time. What I say is applicable for the lifetime. What keeps a person alive is the skill and desire to learn. The moment you give up learning is the moment you are getting one foot in the grave.
When will the cement sector overcome this downturn in your opinion?
If this period is managed properly, the rally will take start for the cement sector by April, 2020. If it is managed badly or extraordinary things out of our control happen, such as worldwide economic downturn, it may take a couple of years. However, cement sector will come out of this downturn stronger. Yet, this country needs cement for infrastructure and superstructure. People have accomodation and transportation needs. Therefore, there is no other available material that is more suitable than cement. We are a young country. We need 600 thousand new housings each year. We need to demolish and rebuild 7-8 million housings before the earthquake destroys themç We still need infrastructure and roads, ports, airports. Therefore, the negative course that will be followed by the cement sector will be short. However, I don’t think that increasing the capacity in excess of the demand due to these needs is a good approach. Production in sufficient quantities is the right production for the cement sector.
You worked for 25 years in Sabancı Group. You leaved your position recently. What do you do now?
Upon leaving the group which I have been working for 25 years, I am now assisting my friends in the sector in the company we have established in Switzerland, namely, Akmina Ag. As Mehmet Hacıkamiloğlu, I will go on doing the works I have believed in, for this country. I am only 49 years old. I will go on working for at least 10 years. This can be a professional role or to attempt to do the right tasks from outside. Briefly to say, I will go on working. I worked for Sabancı group for 25 years. I was there for more than half of my life. I owe them a lot both morally and materially for the things I have today. They strived so many for me. I hope they bless me and I bless them if I had efforts for them too. I left there with very pleasant feelings and in a friendly manner. I wish the best for everyone. Blood exchange is normal for such large companies.