Displaying items by tag: LafargeHolcim

Kenya: Bamburi Cement’s profit before tax grew by 17% year-on-year to US$6.9m in 2019 from US$5.8m in 2018. It attributed the result to cost cutting and an optimisation initiative under its ‘Building for Growth’ plan. It said that this was achieved in spite of a decline in the Kenyan cement market and lower selling prices.

“Despite market challenges, including the absence of sales to Rwanda through Hima Cement, the shelving of major infrastructural projects such as Phase 2B of the Standard Gauge Railway (SGR) project in Kenya, contraction of the Kenyan market and price erosion fuelled by aggressive competitive pressure, both Bamburi Cement and Hima Cement grew share while sustaining respective market leadership,” said Bamburi Cement’s Group Managing Director Seddiq Hassani. He added that Bamburi Cement and Hima Cement remained resilient despite ‘challenging’ economic conditions.

The subsidiary of LafargeHolcim reported an increase in finance costs due to debt related to a capacity expansion project commissioned by Hima Cement in 2018. An impairment of assets in Rwanda was caused by its Hima Cement subsidiary in Uganda being unable to ‘access’ the market in Rwanda. The closure of the border between Uganda and Rwanda in February 2019 also further negatively impacted growth.

In Kenya, overall sales were negatively affected by the shift of volumes previously exported to Uganda from Bamburi Cement, following the commissioning of Hima Cement capacity expansion project in 2018, further reducing despatches from Bamburi Cement. In Uganda, although overall sales were negatively impacted by the inability to access the Rwanda market, Hima Cement domestic volumes grew.

Philippines: LafargeHolcim’s sale of its 86% stake in Holcim Philippines to San Miguel Corporation for US$2.15bn has fallen through after the Philippines Competition Authority (PCC) failed to approve the deal within 12 months of its conclusion. Reuters News has reported that the agreement, dated 10 May 2020, covered the exchange of four integrated plants and one grinding plant. LafargeHolcim has been divesting assets to pay off debt. The sale of its Holcim Philippines stake would have completed its withdrawal from the South-East Asia market, where its operations across Indonesia, Malaysia, Singapore and the Philippines had been valued at US$4.90bn.

LafargeHolcim has said that three of its four integrated Philippines cement plants have been able to resume operations following the lockdown due to the coronavirus outbreak. It says that it will ‘focus on strengthening operations in the Philippines.’

US: Switzerland-based LafargeHolcim has named the eight recipients of its 38th annual Gygi and von Wyss Foundation Scholarship. LafargeHolcim subsidiary US Cement CEO Jamie Gentoso said, “It’s essential to invest in the education of the next generation and, with the rising costs of higher education, scholarships are more important than ever to help reduce the impact and assist in these students’ success.” Under the scholarship scheme, children of LafargeHolcim employees in the US can receive US$6000 towards higher education for a year and again for three subsequent years subject to academic performance.

LafargeHolcim’s first quarter results last week bore all the signs of a prizefighter on the receiving end of a punch. It’s taking pain now but it’s likely to be temporary. A volley of market disruption caused by coronavirus-related government lockdowns can be seen wreaking havoc steadily across its different geographical reporting areas. Asia Pacific region has been most affected so far, followed by its Middle East Africa, Europe, South America and North America regions. That last one didn’t show any top-line financial effects from health control measures, although they are surely coming. The worst is yet to come as chief executive officer (CEO) Jan Jenisch said, “The biggest impact from Covid-19 is expected in Q2. The full impact of the crisis on the company’s 2020 results cannot be assessed at this point.”

Depending on how easing the lockdowns plays out, LafargeHocim’s multinational nature may cushion it from the worst effects. Despite the group’s cement sales volumes falling in the first quarter in most regions on a like-for-like basis, it performed strongly in North America with an 8% rise year-on-year to 3.6Mt. Aggregate and concrete volumes were also up, as well as net sales and earnings before interest, taxation, depreciation and amortisation (EBITDA). Sadly, this is about to change. Most of Europe brought in its lockdown measures in early to mid-March but the US enacted its own lockdown later. The group was quick to point out that it had found the April 2020 data on the rebound of activity in China ‘encouraging.’ If this is the pattern for all regions and second waves are suppressed without resorting to more lockdowns then the group’s wide geographical presence may help it.

As discussed a few weeks ago the major multinational building materials producer is actually in a better position for the unexpected given its success in reducing its debt levels in recent years, notably following divestments in South-East Asia in 2018 and 2019As discussed a few weeks ago the major multinational building materials producer is actually in a better position for the unexpected given its success in reducing its debt levels in recent years, notably following divestments in South-East Asia in 2018 and 2019. Naturally, it was keen to point this out in its press release with talk of its net financial debt to recurring EBITDA of 1.5x as at the end 2019, liquidity of Euro7.5bn in cash and credit lines and a Baa2/outlook stable credit rating from Moody’s in late April 2020. That sense of confidence was later reinforced with, “The building industry is resilient and expected to benefit from future recovery plans from governments and central banks.” This last point is important given that most economic recovery plans tend to involve building things.

HeidelbergCement’s financial results for the first quarter of 2020 are due out on 7 May 2020. Once these come in, some sort of comparison between the larger multinational cement producers, including Cemex and CRH, will be possible. However, the different geographical footprint of each of these companies will hinder this kind of analysis given the progressive way the coronavirus outbreak has spread. In the meantime check out Global Cement Magazine’s feature on the North American cement market (written before the lockdowns) and be sure to register for Global Cement Live this week, which includes an update on the US from consultant John Kline.

Czech Republic: Lafarge Cement has appointed Miroslav Kratochvíl as its chief executive officer (CEO). He has succeeded João Paulo Pereira da Silva, who has taken up a new role outside of the LafargeHolcim Group.

Kratochvíl joined Lafarge Cement in 2013 as a sales director where he relaunched the Čížkovický Cement brand. Prior to this he worked for Tremco Illbruck, a European building materials producer and supplier, managing sales in Eastern European countries.

Switzerland: LafargeHolcim has reported sales of Euro5.03bn in the first quarter of 2020, down by 11% year-on-year from Euro5.66bn in the corresponding period of 2019. Cement sales over the period fell by 10% year-on-year to 45.0Mt from 50.0Mt. The group’s earnings before interest and taxation (EBIT) was Euro249m, down by 14% from Euro290m.

LafargeHolcim CEO Jan Jenisch said that the results showed the group’s ‘resilience, despite the COVID-19 outbreak in China’ in January 2020. Other markets were disrupted from mid-March. “I am confident that LafargeHolcim will emerge from this pandemic as an important contributor to economic recovery as building activity gets back to normal,” he added.

LafargeHolcim’s coronavirus action plan consists of a Euro380m year-on-year capex reduction, a Euro285m year-on-year fixed cost reduction, realisation of energy price reductions, a review of all third party products and services and a reduction of net working capital in line with the level of activity.

Switzerland: The board of directors of LafargeHolcim will request its shareholders to approve the appointment of Philippe Block and Kim Fausing as new members at its annual general meeting (AGM), due to be held on 12 May 2020. The appointments are intended to add perspectives from academia and the building industry to the board.

Block, a Belgian national born in 1980, is a Professor of Architecture and Structure at the Swiss Federal Institute of Technology (ETH) in Zurich, Switzerland. He is the founder and co-director of the Block Research Group at ETH where his research focuses on the analysis of unreinforced masonry structures, structural design, computational form finding and new construction techniques. Since 2014 he has served on the Academic Committee of the LafargeHolcim Foundation for Sustainable Construction.

Fausing, a Danish national born in 1964, began his professional career with the Hilti Group in Denmark 1990. He went on to run its operations then took over country operations in Austria and Japan before becoming Division President at its headquarters in Liechtenstein. In 2007 Fausing moved to the Danish Danfoss Group to assume the role of chief operating officer. In January 2008 he became a member of its executive committee, which he has chaired since July 2017 as president and chief executive officer (CEO).

Except for Paul Desmarais, Jr, all other existing members of the Board will stand for re-election, with Beat Hess remaining as chairman. Hess said, “on behalf of the entire Board of Directors I would like to thank Paul Desmarais, Jr, for his generous contributions over the past years. He will be missed. At the same time I am glad we can propose these two outstanding candidates. I’m confident they would strengthen our board’s expertise by adding vast experience from multinational corporations as well as the perspective of a renowned academic who has focused on creating sustainable solutions.”

India: The impact of the coronavirus pandemic was visible in the financial performance of ACC, one of LafargeHolcim’s major Indian subsidiaries, during the three months to 31 March 2020. For the quarter, the company’s consolidated net profit fell by 6.6% on a year-on-year basis to US$42.1m, while net sales declined by 11% to US$448m on the back of a steep fall in volumes, which came to 6.6Mt, 12% lower year-on-year. ACC’s ready mix concrete (RMC) volumes remained stable at 930,000t.

The pandemic mainly impacted sales volumes in March 2020, whereas January and February 2020 saw healthy growth in both cement and RMC sales. ACC said that this was due to a focus on premium products, increase in value-added solutions in its ready mix business, cost reductions on the manufacturing side and logistics-derived savings. Input cost of raw materials were lower on account of material source mix optimisation and supply chain efficiencies. Consequently, the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the first quarter increased by 10% year-on-year to US$76.4m.

Sridhar Balakrishnan, ACC’s managing director and chief executive officer (CEO), said, “We believe that with a high probability of a normal monsoon season, growth in the rural economy will revive and stay strong. We expect cement demand to increase in the medium term once the pandemic subsides and business operations commence”.

Yesterday, on 14 April 2020, the International Monetary Fund (IMF) forecast a 3% gross domestic product (GDP) growth contraction in 2020 due to negative economic effects from the coronavirus outbreak and its containment. Most regions around the world may experience negative growth in 2020 with exceptions only in so-called Emerging and Developing Asia and Low-income Developing Countries. This is just one projection among many coming out at the moment but the prognosis is downward. This begs the questions: how will cement companies cope?

Markets for building materials are not going to disappear in these conditions but demand looks likely to be reduced. Added to this, an industry that’s been facing increasing production overcapacity over the years may be challenged by additional competition effects. Here we will look at the debt profile of some of the major multinational cement producers outside of China. Please note that this is a cursory examination of corporate debt that only looks at simple financial indicators. Company financial officers want to present themselves in best possible light and will have alternatives that point to their strengths. For a detailed view we refer readers to the credit rating agencies and the companies’ published financial information directly.

Graph 1: Net debt and EBITDA for selected multinational cement companies in 2019. Source: Company financial reports and investor presentations. Note, Conversion for reporting currencies to US$, HeidelbergCement uses Result from Current Operations Before Depreciation and Amortisation (RCOBD) and UltraTech Cement results from 2018 – 2019 financial year.

Graph 1 presents a comparison between net debt and earnings before interest, taxation, depreciation and amortisation (EBITDA) in real terms. The bigger the gap between debt and earnings then the more one starts to wonder how it can be repaid. One feature to note in this graph is the size of the debt of the three largest producers – LafargeHolcim, HeidelbergCement and Cemex – despite the fact that the companies are of different sizes. Cemex’s high debt to earnings ratio has been much commented on previously following its acquisition of Rinker just before the financial crash in 2007 and 2008. Unfortunately though, despite strenuous mitigation efforts, it remains prominent. Other positions to note are those of Buzzi Unicem and Dangote Cement, which have higher earnings than debts. These are envious positions to be in.

Graph 2: Net debt/EBITDA and EBITDA Margin for selected multinational cement companies in 2019. Source and notes as in Graph 1.

Graph 2 shows the ratio of net debt and EBITDA and the EBITDA Margin, a company’s earnings divided by its revenue. This graph better shows the relationship between debt and earnings. This can be seen well in a comparison between LafargeHolcim and HeidelbergCement. The latter has higher debts with respect to its earnings. Its debt jumped in 2016 following its acquisition of Italcementi. LafargeHolcim’s debts ballooned followed its formation by merger in 2015 but this was in line with the jump in its equity. Where it struggled was with slow earnings in the years afterwards. However, bold divestments in South-East Asia in 2018 and 2019 appear to have fixed this.

Other companies to watch in the higher Net debt/EBITDA category include India’s UltraTech Cement and both of the large Brazilian multinationals, Votorantim and InterCement. In recent years UltraTech Cement has been busy buying up other cement producers in India. The difference between the Brazilian companies may reflect the fallout from their fight to buy Cimpor back in 2012. InterCement and its parent company Camargo Corrêa won the battle to acquire the Portuguese company but Votorantim was given selected international assets outside of Brazil. Unfortunately, the Brazilian market then collapsed and Camargo Corrêa has reportedly been trying to sell some or all of its cement assets ever since.

The other financial indicator in Graph 2 is EBITDA margin or earnings/operating profit as a percentage of revenue. Higher is generally seen as better here in comparison to other companies in the same sector. Note how LafargeHolcim is ahead of HeidelbergCement and Cemex, possibly due to its cost cutting and synergies since the merger. InterCement also has a relatively high EBITDA margin, boosted by a pickup by the Brazilian economy in 2019. Again, Buzzi Unicem and Dangote Cement stand out. Both of these are public companies but are associated with family or individual ownership, although in very different markets. Neither has really indulged in any large-scale acquisitions in recent years. Dangote Cement has been steadily expanding but through building its own plants and distribution networks.

We’ve not mentioned CRH as its figures seem ‘average’ compared to the other cement producers discussed here. Average is of course relative for one of the world’s biggest building materials manufacturers with a net of debt of US$7.4bn in 2019! Yet, despite battles with activist investors over board member pay aside, CRH might be the rare producer that knows when to stop expanding. Notably in 2018 after an expansion phase, including acquisitions of Ash Grove Cement and LafargeHolcim assets previously, it publicly decided in 2018 to take a pause. There may be weaknesses in the company’s balance sheets yet to be revealed but they are not apparent using these metrics.

In summary, we’ve focused on corporate acquisitions here as the main source of debt in cement producers. This is simplistic but timing is everything when taking on a large amount of debt. Cemex is still carrying the scars from buying Rinker over a decade ago and InterCement and HeidelbergCement, to a lesser extent, are ones to watch through the next bad patch. Other things to consider are a general move to a more regional model for these producers away from a global one. UltraTech Cement’s focus on the Indian sub-continent or Dangote Cement’s work in Africa are examples of this. This approach could go wrong if the sole regions they operate in suffer disproportionately from the economic fallout from coronavirus. Or, if any producer, even one with high debts, has the good fortune to be present in a territory that suffers less from the downturn it may benefit. On a final note, it is worth mentioning that government data reports that China’s domestic cement production capacity utilisation in the two-week period ending on 10 April 2020 bounced back to 95% following the relaxation of the lockdown.

UK: Aggregate Industries has announced a donation of materials to the NHS for use in construction of the Louisa Jordan temporary coronavirus hospital in the Scottish Exhibition Centre (SEC) Glasgow. The hospital will host up to 1000 patients when completed in April 2020.