Displaying items by tag: Buzzi Unicem

After the initial shocking coverage of the Russian invasion of Ukraine, which began in February 2022, came announcements of the most extensive sanctions in history by the EU, G7 nations and others against Russia. In the EU, this effectively deconsolidated companies' Russian subsidiaries, leaving decision makers with the choice whether to sell up or hold out for better times.¹ Four Russian-facing EU cement producers - Buzzi Unicem, CRH, Heidelberg Materials and Holcim - finalised their strategic responses in March 2022.

One year on, on 15 March 2023, 666 (21%) of 3110 eligible multinationals have withdrawn from Russia, according to the KSE Institute.² Ireland-based CRH led the cement sector exit. It abandoned its Finland-based subsidiary Rudus' ready-mix concrete joint venture, LujaBetomix, on 2 March 2022. Switzerland-based Holcim took longer, but affected its exit on 14 December 2022, agreeing to sell Holcim Russia to local management. One condition of the sale was a rebrand (to Cementum, in February 2023) to withdraw the Holcim name from Russia. Unlike CRH, Holcim's Russian business included multiple cement plants - though the producer stated that it contributed less than 1% of group sales during 2021.

The KSE Institute uses the equivocal label of 'waiting' for companies which have paused investments, or scaled back operations, in Russia, while retaining their subsidiaries. This applies to 500 companies globally (16% of the pre-war total). Germany-based Heidelberg Materials acted swiftly to freeze further investments in HeidelbergCement Russia on 10 March 2022. At that time, its three cement plants were in winter shutdown. In terms of capacity, the 4.7Mt/yr-capacity Heidelberg Materials Russia constitutes 2.8% of Heidelberg Materials. In 2022, Heidelberg Materials suffered a Euro102m impairment on account of its Russian business. CEO Dominik von Achten, announcing the freeze, had described the subsidiary as a 'pure local business with no imports or exports.' Its website has since come offline, but the corporate structure presumably maintains in its frozen isolation.

1220 global multinationals - 39% of all those previously operating in Russia - are still 'continuing operations.' Among these is Buzzi Unicem. Having decided that 12 months was long enough, the Ukrainian National Agency for the Prevention of Corruption (NAPC) placed Italy-based Buzzi Unicem on its list of Russian war sponsors on 8 March 2023 for the actions of its subsidiary SLK Cement. A scathing denouncement accompanied the listing, in which the NAPC set out its main charges. It accused Buzzi Unicem of:

1. Expanding its business in Russia since the invasion;

2. Supplying its products to Russian state-owned businesses, including energy suppliers Rosatom and Rosneft;

3. Voicing support for the invasion via its social media presence.

The NAPC concluded “Buzzi Unicem's continued business in Russia means direct support and sponsorship of terrorism by Russia.”

Buzzi Unicem responded in no uncertain terms that these allegations are untrue: it has no business in Russia, and the entity bearing its logo on its (SLK Cement's) website is entirely independent in its decision-making and commercial actions.

This goes to the root of what it means to be a subsidiary of a corporation. Buzzi Unicem seeks to define the relationship as beginning and ending in operational involvement. Yet Buzzi Unicem and other corporations have invested large sums in businesses like SLK Cement. According to the NAPC, Buzzi Unicem paid Euro62m in taxes alone in Russia between 2016 and 2021. Whether they have elected to 'continue operations,' 'wait' or write in favourable buy-back options into sales contracts, as has happened in other industries, companies can be expected to seek to return to their investment.

As such, it is not entirely surprising that Buzzi Unicem should have followed up its rebuttal with a defence of SLK Cement. It stated "SLK Cement is a Russian domiciled entity operating exclusively in that country and therefore subject to domestic legislation. Payment of taxes and having employees being mobilised to the army are not discretionary decisions, rather legal obligations within the Russian jurisdiction."

In the decision to sell or hold, multinationals face the usual considerations: can they afford to yield their market share to other - less conscientious - competitors? Or, in this instance, those from Türkiye, India and China, whose potential investments are unrestrained by sanctions? Even as Holcim thrashed out its exit deal in October 2022, China-based West China Cement announced plans for a new US$260m, 1.2Mt/yr cement plant in Tatarstan, Volga Federal District. Meanwhile, Cemros (formerly Eurocement) is carrying out a Euro3m mill upgrade at its Lipetsk integrated cement plant in Central Federal District, which will increase the plant's capacity by 20% upon commissioning in early 2023. Between them, Central Federal District and Volga Federal District host four former Holcim cement plants.

12 months into the Russian invasion of Ukraine, an onslaught of withdrawals has shrunk, but not collapsed, the Russian economy.³ The Russian government insists that cement demand remains high (up by 2.1% year-on-year to 58.3Mt during the first 11 months of 2022, according to the Russian cement association Soyuzcement).⁴ The country has substituted new sources of imports for those lost since the beginning of the invasion, the government claims. It is even preparing for a cement shortage from 2024 onward by 'further developing domestic production capacities.'

Far from shrinking, Russian cement production rose by approximately 2.5% year-on-year to 60.7Mt in 2022.^{4, 5} The two aforementioned districts - Central Federal District and Volga Federal District - contributed a healthy 15.3Mt (25%) and 13.4Mt (22%) respectively. If the statistics are to be believed, the EU's recalled producers are missing out on a bonanza.

At the same time, all four EU-based producers face the parallel burden of increased costs in their key markets, as sanctions keep energy prices at an all-time high, and nowhere more so than in Europe. These sanctions purport to target Russian businesses and individuals, but their bite is far less discriminating. Companies may well wonder why they are being penalised by governments whose policies failed to prevent a Russian invasion of Ukraine in the first place.

We have no idea what will happen in Ukraine and Russia in the rest of 2023, but we can be sure it will be uncertain territory for the two countries’ cement producers. Those with (former) assets in the Russian market will have to continue their delicate balancing act.

1. European Commission, 'Frequently Asked Questions,' 16 March 2022, https://trade.ec.europa.eu/doclib/docs/2022/march/tradoc_160079.pdf

2. KSE Institute, 'Stop Doing Business with Russia,' 15 March 2023, https://leave-russia.org/leaving-companies?flt%5B147%5D%5Beq%5D%5B%5D=9062

3. European Council, 'Infographic - Impact of sanctions on the Russian economy ,' 9 March 2023, https://www.consilium.europa.eu/en/infographics/impact-sanctions-russian-economy/

4. Soyuzcement, 'Cement Review,' December 2022, https://soyuzcem.ru/documents/%D0%A6%D0%B5%D0%BC%D0%B5%D0%BD%D1%82%D0%BD%D0%BE%D0%B5_%D0%BE%D0%B1%D0%BE%D0%B7%D1%80%D0%B5%D0%BD%D0%B8%D0%B5_%D0%B4%D0%B5%D0%BA%D0%B0%D0%B1%D1%80%D1%8C%202022.pdf

5. BusinessStat, 'In 2022, 60.7 million tons of cement were produced in Russia,' 21 February 2023, https://marketing.rbc.ru/articles/14025/

US: Buzzi Unicem subsidiary Alamo Cement Company has successfully commissioned its new 17,800MWh solar power plant at its San Antonio cement plant in Texas. The producer says that the facility will eliminate 8000t/yr-worth of CO₂ emissions from the plant's operations. It spans an area of 18.2 hectares at the site of the 1.1Mt/yr cement plant. Texas-based energy provider CPS Energy built the installation.

Alamo Cement's director of engineering and construction management William Kovacs said "I am incredibly proud of the multi-discipline work that went into this first-of-its-kind project for Alamo Cement in San Antonio. It is an example of the type of collaboration necessary to continue to unlock and apply new energy sources for cement producers. It was a collective effort that brought together our corporate team, CPS Energy and regional engineering firms and contractors."

Ukraine/Italy: The Ukrainian National Agency for the Prevention of Corruption (NAPC) has placed Italy-based Buzzi Unicem on its list of Russian war sponsors. Ukrinform has reported that the NAPC accuses Buzzi Unicem of expanding its business in Russia since the country's invasion of Ukraine in February 2022, of supplying its products to Russian state-owned businesses including energy suppliers Rosatom and Rosneft, and of voicing support for the on-going invasion via its social media presence.

Between 2016 and 2021, Buzzi Unicem reportedly paid Euro62m-worth of taxes to Russia. In a statement, the NAPC said "For comparison, this is the cost of 206 Tochka U missiles." It concluded “Buzzi Unicem's continued business in Russia means direct support and sponsorship of terrorism by Russia.”

On 10 March 2023, Buzzi Unicem clarified that it has no business in Russia, calling the NAPC's listing 'defamatory.' The group explained that it has 'no involvement' in its Russian subsidiary SLK Cement's decision-making process related to local initiatives and commercial actions.

Buzzi Unicem said "Buzzi Unicem already clarified in its press release dated 12 May 2022 the decision to cease with immediate effect any operational involvement in the activities carried out by the subsidiary SLK Cement in Russia and to suspend all strategic initiatives and investments in the country." It defended the subsidiary, saying "SLK Cement is a Russian domiciled entity operating exclusively in that country and therefore subject to domestic legislation. Payment of taxes and having employees being mobilised to the army are not discretionary decisions, rather legal obligations within the Russian jurisdiction."

The group also voiced its support for Ukraine, saying "Despite significant financial losses incurred as a consequence of the Russian invasion, Buzzi Unicem did not stop operations in Ukraine, keeps supplying products to Ukrainian customers, paying taxes in Ukraine and providing job and humanitarian aid to its nearly 1000 employees and families in the country."

The English language release may be found here.

US: Alamo Cement has completed a new solar power unit that supports its integrated cement plant in San Antonio, Texas. The unit has a capacity of 17,800MWhr and is situated on an 18 hectare site. It is expected to generate up to 15% of the plant’s annual power consumption and reduce electricity costs.

US: The Environmental Protection Agency (EPA) has announced that 10 cements plants have received its Energy Star certification in 2022 from a total of 86 manufacturing plants across all industries. The certification is awarded to the top 25% performers in energy efficiency in each sector. The EPA cited examples of how Titan America’s Troutville plant in Virginia and its Medley plant in Florida had converted production to Portland Limestone Cement (PLC), and achieved a 12% reduction in electricity use and an 18% reduction in CO2 emissions, respectively, thanks to improved energy management. It also mentioned Cemex’s Miami plant in Florida, which increased its energy performance in 2022 by modifying a finish mill, optimising the ball charge on the largest mill and identifying and correcting potential energy losses while also increasing the production of PLC.

Cement plants awarded the Energy Star certification in 2022 include: Drake Cement’s Paulden plant and Salt River Materials Group’ Clarkdale plant in Arizona; GCC’s Pueblo plant in Colorado, Cemex’s Miami plant and Titan America’s Medley plant in Florida; Argos USA’s Harleyville plant in South Carolina; GCC’s Rapid City plant in South Dakota; Buzzi Unicem USA’s Chattanooga plant in Tennessee; Titan America’s Troutville plant in Virginia; and Ash Grove Cement’s Seattle plant in Washington.

The key trends to note from the financial results of cement producers in 2022 released so far are that sales revenues are up, sales volumes of cement are mostly down and earnings have mostly dropped too. Readers are not going to be surprised that 2022 was a tough year for business as the raw materials and services inflation coming out of the coronavirus period was heightened by energy cost spikes caused by the Russian invasion of Ukraine. Producers put their prices up in response to deliver often record high annual revenues.

Graph 1: Sales revenue from selected cement producers in 2021 and 2022. Source: Company reports. Note: Figures calculated for UltraTech Cement.

What sticks out by looking at the sales volumes of cement figures in Graph 2 (below) is that Holcim’s cement sales volumes were about the same as Heidelberg Materials’ were in 2022, at around 120Mt. Remember, Holcim’s cement sales volumes were 200Mt in 2021 and 256Mt in 2015 at the time of the merger with Lafarge. Large divestments have followed with the sale to Adani Group of Holcim’s India-based companies in 2022 being one of the biggest. UltraTech Cement, meanwhile, has been steadily increasing its India-based cement production capacity.

Graph 2: Cement sales volumes from selected cement producers in 2021 and 2022. Source: Company reports. Note: Figures calculated for UltraTech Cement.

By company, Holcim’s diversification and regionalisation strategy appears to be paying off well. Reducing its exposure to the cement market is giving it a strong story to tell as it grows its light building materials division, frames this as a success in sustainability and moves out of developing markets. How well this will work if and when it ends the divestment and investment stage remains to be seen. One point to highlight is that its operating profit fell by 18% year-on-year on a like-for-like basis to US$3.43bn in 2022. As well as contending with high costs in 2022, a subsidiary connected to the group was fined US$778m by the US Department of Justice in late 2022.

Heidelberg Materials’ approach to the current economic conditions in 2022 seems to have been to keep its head down and push on for decarbonisation rather than diversifying its business. So it followed the ‘sales up, costs up but earnings down’ pattern of a few of the other cement companies covered here. Although, that said, it did diversify its name to ‘Materials’ from ‘Cement’ in September 2022.

Cemex experienced the same problems as the other companies for most of 2022 but conditions started to improve in the fourth quarter in most of its territories. In particular, it reported that earnings started to grow in Mexico towards the end of 2022 despite falling sales volumes of cement. It attributed this to its pricing strategy. Of note this week, the Mexican government is preparing to support higher levels of imports of cement into the country due to a shortage in the southeast of the country.

Buzzi Unicem, meanwhile, noticed a faster slowdown in cement deliveries in its key markets in Italy, the US and Eastern Europe in the last quarter of 2022 from a general trend that could also be seen earlier in the year. In its largest market, the US, it reported that investment in residential construction slowed. This was further affected by the growing cost of building materials and the rate of inflation, although increasing spending on infrastructure helped to keep domestic consumption stable. A favourable currency exchange rate between the US and the Euro also helped the company to report provisional earnings growth. Vicat’s US businesses in the US and Brazil helped cushion the group somewhat with a large rise in sales revenue. However, earnings in the US were hit by the costs related to the start up of the new kiln at the Ragland plant in Alabama, as well as general energy cost inflation. Its business in France fought against inflation with ‘significant’ price rises delivering a high increase in sales revenue but this was insufficient to prevent earnings from dropping.

The non-European based cement producers present a different picture. Despite the high energy costs, UltraTech Cement managed to increase its revenue and sales volumes of cement in 2022. Its net profit fell though year-on-year in the nine months to 31 December 2022. The company is targeting a cement production capacity of 159Mt/yr by around the 2025 financial year with the aim of becoming the largest cement producing company in the world outside of China. Dangote Cement managed to raise its prices at home in Nigeria to fight off inflation and hold revenue and earnings up. This was harder internationally though with supply chain disruption, high commodity prices, high freight rates and a plant shutdown in Congo blamed for holding earnings back.

Inflation and the energy markets will be clear concerns in 2023. If energy prices for industry stabilise globally then there is more of a chance for business as usual as markets cope better with higher costs. The continued dilemma for multinational cement companies remains whether to decarbonise through diversification or investment in new processes, and how far to go along either path. Meanwhile, the large regional producers are starting to show themselves outside of China, as UltraTech Cement’s growth trajectory testifies. One test for these companies is balancing the risk of expansion versus potential tighter local environmental regulations. The environmental rules of export markets are also a factor to consider here with the head of AdBri calling this week for an Australian equivalent to the European Union’s border adjustment mechanism to block so-called ‘dirty’ imports.

The next set of financial results from the cement sector in 2022 to look out for will be those from the large China-based cement producers. Once these are released we will examine them in more detail.

Greece/Italy: The Hercules international research project, which has 27 partners from 10 countries, has been launched officially at Milan Polytechnic, Italy. Hercules, an acronym for ‘Heroes in Southern Europe to decarbonise industry with CCUS’ will test new solutions in the CO₂ capture, transport, use and storage value chain and transform them into a scalable industrial process. Buzzi Unicem and Titan Group are two of the 27 partners, alongside waste-to-energy players and developers of advanced CO₂ capture equipment. This includes ‘calcium looping’ technology from Finnish Sumitomo SHI FW and cryogenic purification technology from TPI in Italy.

A part of the pure CO₂ flow will be destined for use in production processes. These include the production of new cementitious materials that could replace conventional concrete, as well as uses in the technical gas sector. Hercules will also investigate the transport of CO₂ from the industrial capture sites to geological storage sites at Ravenna (Eni) and Prinos (Energean). The gas will be handled by Air Liquide and Titan Cement.

Italy: Buzzi Unicem recorded consolidated sales of Euro4bn in 2022, up by 16% year-on-year from 2021 levels. The producer's earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 22% year-on-year to Euro288m. The earnings figure is 33% higher than Buzzi Unicem's previous full-year 2022 EBITDA forecast of Euro216m.

Buzzi Unicem said that group cement sales fell by 9.2% to 28.3Mt, and volumes contracted in Italy, Eastern Europe and the US. The producer noted logistical issues disrupting sales in the US.

Italy: Buzzi Unicem's board of directors has elected to exercise an option of early repayment on a Euro500m bond loan. Italian Collection News has reported that the producer will make the payment on 28 January 2023. The bonds have a coupon of 2.1% and will mature on 28 April 2023.

US: The Portland Cement Association (PCA) has elected Filiberto Ruiz as its next chair. He is the current vice-chair of the association and is the president and chief executive officer (CEO) of Votorantim Cimentos North America. He will succeed Ron Henley, the president of GCC of America, in the post.

Massimo Toso has been elected as the vice chair. He is the PCA’s Climate and Sustainability Council co-chair and is the president and CEO of Buzzi Unicem USA. David Loomes, the president of Continental Cement Company, has also joined the PCA board. He succeeds Tom Beck, the executive vice president of Summit Materials, who has stepped down from the board.