Displaying items by tag: coronavirus

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.”

Gabon: A new 0.35Mt/yr production line has started production at Ciments d'Afrique’s (CIMAF) Owendo grinding plant. Spain-based Cemengal supplied a 50t/hr Plug&Grind X-treme grinding plant for the project. Successful commissioning and start-up of the unit was managed remotely from Madrid in Spain due to the coronavirus pandemic. The upgrade cost around US$16m.

The addition brings the plant’s total production capacity to 0.85Mt/yr, according to Direct Infos Gabon. The cement producer is also planning to spend US$120m towards building an integrated plant in the country. Nationally, the country reportedly now has a production capacity of around 1.2Mt/yr.

Egypt: HeidelbergCement subsidiary Suez Cement recorded a net loss of Euro38.0m in the first half of 2020, up by 99% year-on-year from 19.1m in the first half of 2019. The company made sales worth Euro145m over the period, down by 18% from Euro177m. The causes of the decline were market saturation and reduced demand in the short term due to the coronavirus lockdown from 19 March 2020 to 27 June 2020.

China: Huaxin Cement’s sales and profit fell in the first half of 2020 due to the coronavirus outbreak. It said that the health situation, “resulted in grave insufficient demand in the markets of main products and rapid slump in price, coupled with restrictions on personnel flow and traffic, equipment maintenance plan was affected severely.” The cement producer disposed of medical waste for free at its Yangxin, Wuxue and Yichang plants before the market recovered in the second quarter.

Huaxin’s sales revenue fell by 12.7% year-on-year to US$1.84bn in the first half of 2020 from US$2.11bn in the same period in 2019. Its net profit dropped by 29% to US$330m from US$463m. Cement sales and concrete volumes declined by 8% to 32.7Mt. The company also started clinker production at its 2Mt/yr Jizzakh cement plant in Uzbekistan in June 2020.

India: JK Cement’s profit in the three months ended 30 June 2020, the first quarter of the 2021 financial year, was US$6.85m, down by 62% year-on-year from US$18.1m in the first quarter of the 2020 financial year. Revenues fell by 28% to US$138m from US$191m. The company said, “The operations and business performance of the group during the quarter ended 30 June 2020 was adversely impacted by the shutdown of the group's plants at various locations due to the lockdown announced by the government after the outbreak of the Covid-19 pandemic in March 2020.”

Denmark: FLSmidth has announced the reinstatement of its 2020 guidance. The guidance predicts full-year sales of Euro2.28bn, down by 18% year-on-year from Euro2.77bn. Earnings before taxation, interest, depreciation and amortisation (EBITDA) margin is expected to decline to 6.0% from 8.1%. The company said that the guidance is “subject to higher uncertainty than usual” and conditional upon “no further escalation of Covid-19, no further extensive lockdowns or travel restrictions occurring before year-end, a gradual improvement in business sentiment for the remainder of 2020, and business improvement implementation of around Euro28.2m, of which Euro18.8m relate to the previously communicated improvement activities and around Euro9.40m relate to further improvement activities in cement.” It added, “The cement industry has been severely impacted, and the timing and extent of a rebound remain uncertain. Our goal for the cement business is to generate more stable, higher-margin earnings.”

Pakistan: Lucky Cement’s profit for the 2020 financial year ended 30 June 2020 was US$19.9m, down by 68% year-on-year from US$62.4m in the 2019 financial year. The company recorded a 13% sales drop to US$249m from US$285m, which it said was due to the impacts of the coronavirus pandemic.

Malaysia: Cahya Mata Sarawak recorded a profit of US$8.72m in the first half of 2020, down by 63% year-on-year from US$23.4m in the first half of 2019. Total sales declined by 40% to US$117m from US$196m. Cement sales also declined, by 31% to US$46.8m from US$68.1m. The company attributed this to the impacts of the coronavirus lockdown.

Namibia: Ohorongo Cement, despite not having any coronavirus cases itself, has seen a steep decline in demand for cement due to the economic effects of the Covid-19 pandemic. In an interview with local press, Frankleen Alberts, Manager of Customer Relations and Public Affairs at Namibia’s only integrated cement plant, said that, while domestic sales had suffered from a slowdown in public works and lower private construction levels, the closure of Namibia’s borders had all but eliminated opportunities for exports. It had also hampered the company’s supply chains.

Alberts said, “Cement sales have been affected since the outbreak of the virus. We were able to continue supplying our Namibian market without major interruptions while adhering to the regulations under the state of emergency. However, due to the restrictions and quarantine rules by neighbouring countries, our export market suffered adversely.” She added, “Due to the restrictions on travel and flights, the supply chain is affected and this includes inbound and outbound logistics, in terms of export sales.”

Alberts said that day-to-day operations at the company have not been affected by the ongoing Covid-19 pandemic as the company had introduced regulations as published by government and as required by the ministry of mines and energy to ensure the safety of employees while continuing with operations. None of the company’s employees was furloughed or laid off.