Displaying items by tag: Strategy

Germany: HeidelbergCement has presented a new business strategy, involving an accelerated climate action plan, called Beyond 2020. Under the Strategy, the company will aim to reduce its specific carbon dioxide (CO₂) emissions by 10% to 525kg/t of cement by 2025 from 585kg/t in 2019. Its financial targets over the period are “a significant increase in earnings before interest, taxation, depreciation and amortisation (EBITDA) margin by 300 basis points and return on invested capital (ROIC) to clearly above 8%. The group says that it will target a leverage ratio between 1.5 and 2 times its result from current operations in 2020.

Chief executive officer (CEO) Dominik von Achten said, “We see climate change and digitalisation as the two central challenges of the future for society and for our company. As one of the world's leading building materials producers, we have the ambition and the innovative strength to actively shape this change in a pioneering role. At the same time, we see further optimisation potential in our plants and processes. Ecology and economy are not contradictory. Our new medium-term targets for 2025 illustrate this claim.”

Cemex’s transition from a multinational building materials producer to a regional one continued this week with the launch of its ‘Operation Resilience’ strategy. The plan is a stew of coronavirus response, earnings growth, debt reduction, portfolio sharpening and sustainability measures. Yet the intent to “construct a portfolio more weighted towards the US and Europe” marks a public confirmation of the company’s direction in recent years.

Chart 1: Geographic breakdown of Cemex’s revenue in the first half of 2020. Source: Cemex.

This direction of travel for the company has at least two threads that can be seen in the announcements surrounding its new strategy. The first covers the geographical spread of its current portfolio of assets. European countries and the US represented a little under half of Cemex’s revenue in the first half of 2020 as can be seen in the chart above. So focussing on these territories makes sense from an existing portfolio perspective, especially if growth has continued throughout the coronavirus crisis, as is the case in the US. In the general information accompanying its new strategy it broke down revenue by business line so far in 2020 as cement (42%), concrete (41%) and aggregates (17%).

To be fair to Cemex, its decision to focus on certain geographical regions mirrors recent moves at other multinational producers like LafargeHolcim and CRH. The former (mostly) sold its operations in South-East Asia in 2018 and 2019. Albert Manifold, the chief executive officer (CEO) of the latter, memorably favoured the safe and stable earnings of investing in assets in Europe or North America over doing so in somewhere ‘more exotic’ in an earnings meeting in 2019. However, Cemex doesn’t seem overly wedded to sticking to assets in Europe and/or the US either. It recently decided to mothball its South Ferriby integrated cement plant in the UK and sold a plant owned by its Kosmos Cement subsidiary in the US earlier in the year. Fernando A González, the chief executive officer (CEO) of Cemex, confirmed this in the questions and answer session after the strategy launch on 10 September 2020. When asked whether the company was considering selling assets in Asia and Latin America he replied that Cemex was open to divestments in Latin America or in the Mediterranean or in Asia but that driving down debt was the motivator, not coronavirus.

Debt is the other factor that has been persuading Cemex to focus on the US and Europe. It has been the smell clinging to its decisions over the last decade since its poorly timed acquisition of Rinker in 2007. The company stuck out with a high debt to earnings ratio when this column looked at the state of the major cement producers as the coronavirus lockdowns started in Europe: hence all the talk of paying down debt in its ‘Operation Resilience’ strategy. The company now hopes to whittle its net leverage down to at most 3x by 2023. At the same time as this market-calming announcement, it is in the process of changing some of its credit agreements such as extending a US$1.1bn loan from 2022 to 2025. It has also priced another US$1bn worth of senior secured bonds this week in its ongoing drive to raise more funds. This reliance on loans may explain why Cemex has shrunk back towards ‘safe’ markets over the last decade.

Cemex isn’t alone in cooing out market-calming noises as the coronavirus crisis continues. Buzzi Unicem has done the same thing this week for example. Yet, these announcements are instructive because they show what’s on the minds of these companies at least, or what they think investors want them to be thinking about. In Cemex’s case it could be summarised as: make more money more efficiently, cut debt and try to factor sustainability into all of this. Note, however, that as dominance in both industry and geopolitics heads east, Cemex is sticking to the west.

Italy: Buzzi Unicem says that it has implemented a number of measures to enable it to deal with any economic downturn resulting from the financial impacts of the coronavirus outbreak. The Il Sole newspaper has reported that the company’s strategies fall under two headings, namely increasing efficiencies and improving products and services. As such, the company is targeting a medium-term increase of Italian cement plant capacity utilisation of 70 - 75% from 55 - 60%, while also increasing its product range to offer custom concrete blends “to best suit the needs of the customer.”

Mexico: Cemex has launched Operation Resilience, its 2020 medium-term strategy. The plan consists of strategic divestments, US$280m in cost reduction and optimisation of the company’s portfolio towards European and US markets.

Chief executive officer (CEO) Fernando Gonzalez said, “Operation Resilience lays the foundation for our future. It allows Cemex to optimise its portfolio for profitable growth while securing its position as a leading vertically-integrated heavy building materials company with a focus on four core businesses: cement, ready-mix, aggregates and urbanisation solutions. We will concentrate on developing sustainable urbanisation solutions which meet the needs of growing metropolises while we ourselves progress towards achieving our long-term decarbonisation goals.”

Mexico: Cemex has announced that its chief executive officer (CEO), Fernando González, will host a ‘virtual conversation,’ in which he will discuss aspects of the group’s financial and business strategy and its operation resilience post-Covid-19 performance enhancement programme, on 10 September 2020. The company says that chief financial officer (CFO) Maher Al-Haffar and strategic planning and business development executive vice president José González will also be on hand to answer questions.

It’s back to work for many in Europe this week following the summer break and so too for the Global Cement and Concrete Association (GCCA) with the release of its 2050 Climate Ambition mission statement. Talk about setting the bar high for the rest of us struggling to remember how to log into our computers! The short version is that the association aspires to deliver society with carbon neutral concrete by 2050. The actual detail will be published in the second half of 2021.

What it does say is that, “detailed actions and milestones” will be set out in the forthcoming roadmap. This will include, “working across the built environment value chain to deliver the vision of carbon neutral concrete in a circular economy, whole life context.” This focus on concrete and end-product life-cycles looks likely to be the wriggle room cement and building materials producers need to actually meet the goal. To put it another way, as the press release helpfully reminds us, things that people need are made out of concrete. So, until a viable alternative to clinker turns up, the cost in CO₂ emissions needs to be spread as far and wide as possible. At the same time everyone needs to be continually told how much they need cementitious products: don’t think of the CO₂ released to build your new house. Rather: think of the CO₂ saved annually by living in a well-constructed dwelling, as opposed to the alternatives, and consider what happens to the concrete once the structure is demolished.

A few ideas of what strategies the roadmap may use to reach its target are revealed. This is fairly standard current thinking including: cutting direct energy-related emissions; increasing co-processing; increased renewable electricity usage; reducing process emissions through new technologies and deployment of carbon capture at scale; reducing the content of both clinker in cement and cement in concrete; more efficient use of concrete in construction; reprocessing concrete from construction and demolition waste to produce recycled aggregates; and quantifying and enhancing the level of CO₂ uptake of concrete through recarbonation in a circular economy, whole life context.

It’s early days yet, with the roadmap not due for at least a year, but deploying carbon capture methods at scale will be expensive and difficult. Whatever target the GCCA sets here will be keenly observed, especially so given that the association is a global concern. So far carbon capture in the cement industry has generally been linked to regions with market or legislative encouragement. How, for example, would a producer in a country with low environmental restrictions react to its peers trying to get it to make cement production more expensive? The rest of the points seems more tangible at the moment but will require lots of work to realise. They are also interlinked and this reinforces the need for someone to continually remind society about the life cycle of concrete. Taking concrete recycling into the mainstream is great but the world has to be told that it is happening.

This last point brings us to the perceived success of the GCCA’s ambitions: will a successfully realised strategy to make carbon neutral concrete by 2050 be enough to make environmental activists like Greta Thunberg happy? Probably not. Pure environmentalists seem unlikely to accept whole lifecycle thinking while limestone decomposition in kilns continues without capture or cessation. Even if the cement and concrete industries hit the target they will have to shake off the taint that the achievement was at least partly down to sneaky carbon accounting. Suddenly saying that concrete buildings have been sucking up CO₂ all along and that the industry is now, say, 20% closer to its carbon neutral target may feel like cheating to some observers. Step forward a global association to say otherwise. The need for industry associations making the case for the sector’s aspirations seems more essential than ever.

UK: The Global Cement and Concrete Association (GCCA) has published its 2050 Climate Ambition, a joint industry commitment to net-zero carbon dioxide (CO₂) emissions by 2050. The association’s 40 members have committed to, “eliminating direct energy-related emissions and maximizing the co-processing of waste from other industries, reducing and eliminating indirect energy emissions through renewable electricity sources, reducing process emissions through new technologies and deployment of carbon capture at scale, reducing the content of both clinker in cement and cement in concrete, as well as more efficient use of concrete in buildings and infrastructure, reprocessing concrete from construction and demolition waste to produce recycled aggregates to be used in concrete manufacturing and quantifying and enhancing the level of CO₂ uptake of concrete through re-carbonation and enhanced re-carbonation in a circular economy, whole-life context.”

President Albert Manifold said, “The 2050 Climate Ambition represents our industry’s commitment to further reducing emissions and ensuring that the vital product we provide can be delivered on a carbon-neutral basis by 2050. There is a significant challenge involved in doing so and achieving alignment across our industry on a sustainable way forward is an important first step. We cannot however succeed alone and in launching our ambition statement we are also highlighting the need for our industry to work collaboratively with other stakeholders in support of our ambition for a more sustainable future.”

Australia: Adelaide Brighton has extended its lease over its Sellicks Hill quarry in South Australia until 2090. The Advertiser newspaper has reported that the signing of the lease, which secures the company’s local supply of limestone, “coincides with a rise in local cement consumption due to the government’s South Australia HomeBuilder building and renovation subsidy scheme,” according to the company. In August 2020 Adelaide Brighton signed supply contracts with BHP and OZ Minerals for infrastructure projects in the state.

Vietnam: The government has adopted a cement industry development strategy under which all plants below 0.9Mt/yr capacity must make investments to improve their productivity, product quality, energy saving and environmental protection by 2025. In order to facilitate this, the government says it will improve institutions and policies and improve the efficiency of raw materials exploitation, scientific research and industrial application, promoting domestic consumption, increasing available training and tightening environmental protections, according to Việt Nam News. Plants which fail to increase productivity in the specified ways will face closure.

The government says that strategy aims, “to develop the cement industry to an advanced and modern level, to produce cement of international standard quality with economical and efficient use of energy, giving high competitiveness in the international market, while meeting the needs of the domestic market, completely eliminating out-dated, natural resource-consuming and polluting technology for production.” The measure specifically targets the country’s overcapacity issue in its efforts to develop demand and its emphasis on product quality.

Mexico: Cemex says that the ongoing coronavirus pandemic will not delay its ‘Climate Action Strategy’ that was previously announced in February 2020. The building materials producer has developed a CO₂ reduction roadmap to help guide it towards a towards a targeted 35% reduction in net specific CO₂ emissions between 1990 and 2030.

The roadmap consists of: reduction of CO₂ emissions of clinker through “the production of novel clinkers with lower heat consumption”; use of “alternative decarbonated raw materials”; increased alternative fuel substitution; and increased substitution of clinker with “alternative cementitious materials, using admixtures to enhance strength, and adopting new grinding technologies to improve performance”; in addition to the increased use of renewable energy.

Cemex chief executive officer (CEO) Fernando Gonzalez said, “Climate change is one of the biggest challenges of our time, and we believe that we can continue to address it as a fundamental component of our efforts to recover from the Covid-19 pandemic.”