Displaying items by tag: CRH
Update on Ukraine, May 2024
15 May 2024Before Russia invaded mainland Ukraine on 24 February 2023, many predicted that full-scale conflict would be averted. When the attack began, Russian President Vladimir Putin himself expected a 10-day war, according to think tank RUSI.1 15 May 2024 marks two years, two months and three weeks of fighting, with no end in sight.
Ukrcement, the Ukrainian cement association, recently published its cement market data for 2023, the first full year of the war. The data showed domestic cement consumption of 5.4Mt, up by 17% year-on-year from 4.6Mt in 2022, but down by 49% from pre-war levels of 10.6Mt in 2021. In 2023, Ukraine’s 14.8Mt/yr production capacity was 2.7 times greater than its consumption, compared to 1.4 times in 2021. Of Ukraine’s nine cement plants, one (the 1.8Mt/yr Amwrossijiwka plant in Donetsk Oblast) now lies behind Russian lines. Four others sit within 300km of the front line in Eastern and Southern Ukraine. Among these, the 4.4Mt/yr Balakliia plant in Kharkiv Oblast, the largest in the country, first fell to the Russians, but was subsequently liberated in September 2022.
Before the war, Ukrcement’s members held a 95% share in the local cement market. Their only competitors were Turkish cement exporters across the Black Sea, after the Ukrainian Interdepartmental Commission on International Trade successfully implemented anti-dumping duties against cement from Moldova and now-sanctioned Belarus and Russia in 2019. Since then, Turkish cement, has also become subject to tariffs of 33 – 51% upon entry into Ukraine until September 2026. The relative shortfall in consumption has led Ukraine’s cement producers to lean on their own export markets. They increased their exports by 33% year-on-year to 1.24Mt in 2023, 330,000t (27%) of it to neighbouring Poland.
Russia’s invasion has made 3.5m Ukrainians homeless and put the homes of 2.4m more in need of repair. In a report published in Ukrainian, the US Agency for International Development (USAID) set out its three-year rebuilding plan for the country. USAID projects an investment cost of €451bn, with the ‘main task’ besides homebuilding being to increase the share of industrial production in the economy. Ukraine is 90% equipped to produce all building materials required under the plan. Their production, in turn, will create or maintain 100,000 jobs and US$6.5bn in tax revenues. Reconstruction will also involve the Ukrainian cement industry returning to close to full capacity utilisation, producing 15 – 16Mt/yr of cement.
CRH, an established local player of 25 years, looks best set to claim a share of the proceeds. Stepping down an order of magnitude from billions to millions, Global Cement recently reported CRH’s total investments in Ukraine to date as €465m. Since war broke out, the company has more than tripled its rate of investment, to €74.5m. The Ireland-based group is in the protracted administrative process of acquiring the Ukrainian business of Italy-based Buzzi. If successful, the deal will raise its Ukrainian capacity by 56%, to 8.4Mt/yr – 57% of national capacity. This unusual clumping of ownership may be made possible by the participation of European Bank for Reconstruction and Development in partly acquiring the assets, as per a mandate letter signed with CRH in 2023.
Leading Ukrainian cement buyer Kovalska Industrial-Construction Group bemoaned the anticipated increase in market concentration. On the one hand, this sounds like a classic tiff between cement producers and users with shallow pockets. On the other hand, an antebellum allegation of cement industry cartelisation should give us pause for thought. Non-governmental organisation The Antitrust League previously reported Ukraine’s four cement producers to the government’s Anti-Monopoly Committee for alleged anticompetitive behavior. This was in September 2021, when Ukraine was barely out of lockdown, let alone up in arms. With all that has happened since, it may seem almost ancient history, yet the players are the same, CRH and Buzzi among them.
Ukrcement and its members have secured favourable protections from the Trade Commission, and, for whatever reasons, evaded the inconvenience of investigation by the Anti-Monopoly Committee – a state of affairs over which the Antitrust League called the committee ‘very weak.’ The league says that producers previously raised prices by 35 – 50% in the three years up to 2021. In planning a fair and equitable reconstruction, Ukrainians might reasonably seek assurance that this will not happen again.
All these discussions are subject to a time-based uncertainty: the end of the war in Ukraine. A second question is where the finances might come from. The EU approved funding for €17bn in grants and €33bn in loans for Ukraine on 14 May 2024. Meanwhile, countries including the UK have enacted legislation to ensure Russia settles the cost of the conflict at war’s end. If Ukraine achieves its military aims, then the finances may flow from the same direction as did the armaments that demolished Ukrainian infrastructure in the first place.
The first piece of Ukraine annexed by Russia was Crimea in February 2014, making the invasion over a decade old. Against such a weight of tragedy, the country cannot lose sight of the coming restoration work, and of the need to ensure that it best serve Ukrainians.
Ireland: CRH has reported a positive start to 2024, with total revenues reaching US$6.5bn in the first quarter of 2024, marking a 2% year-on-year increase from US$6.4bn in the same period of 2023. The company attributes this growth to early-season project activity and favourable weather in parts of the US, alongside gains from pricing strategies and acquisitions which helped counterbalance lower volumes in Europe. CRH turned a net income of US$114m, an improvement from a net loss of US$31m in the first quarter of 2023. Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) also rose by 15% year-on-year to US$445m.
As a reward for investors following this profit rise, CRH has launched an additional US$300m share buyback. This new tranche, set to be completed by 7 August 2024, follows the US$600m in shares the company has already repurchased this year as part of its ongoing buyback programme. CRH also indicated it would continue to evaluate its buyback strategy throughout the remainder of 2024.
Albert Manifold, CEO, said "We are pleased to report a good first quarter performance in what is the seasonally least significant period for our business. That performance was supported by positive pricing momentum, early-season project activity, favourable weather in certain regions and the contribution from acquisitions.”
Ukraine: The cost to rebuild Ukraine post-war is projected at US$487bn, according to a report commissioned by the United States Agency for International Development. The report states that to support the reconstruction, Ukraine must produce 15-16Mt/yr of cement for three years, a significant increase from current capacities. Protectionist measures in place since 2019 have restricted cement imports and a decline in production and a shrinking market could lead to an increase in construction costs, according to the Kyiv Independent.
Amid these projections, CRH, which operates three plants in Ukraine, announced in summer 2023 that it aims to purchase two more from Buzzi's subsidiary Dyckerhoff. This deal is valued at €100m, with the company stressing the importance of its investments in Ukrainian cement plants to boost the country’s domestic production to 15Mt/yr, according to Forbes Ukraine. The deal is reportedly under scrutiny by Ukraine's Anti-Monopoly Committee due to market concentration concerns, which could drive up cement prices and overall reconstruction costs.
Serhiy Pylypenko, CEO of the Ukrainian building supplies firm Kovalska, Ukraine’s largest cement user, said “We need more players and to diversify the market instead of making it more compact because the competition is very weak. Market concentration allows uncontrolled pricing and the cost of construction and the cost of recovery to skyrocket."
Ukraine: CRH has invested €465m in Ukraine since entering the country in 1999, €74.5m of it since the start of Russia’s invasion in February 2022. CRH Central and Eastern Europe president Guillaume Cavalier noted the double role of locally-produced cement in generating employment and state revenues.
Cavalier said "Investing in the expansion of production now is crucial to ensure the potential growth of the Ukrainian cement market following its integration into the EU."
Update on France, April 2024
10 April 2024Heidelberg Materials announced this week that it is preparing to close its integrated cement plants at Beffes and Villiers-au-Bouin in France by October 2025. It framed the restructuring as a response to ‘a significant decline in cement sales in France’ and a plan to focus on low-carbon products. Unfortunately, local media reported that around 170 jobs will be lost at the two sites. The company says it is looking at ‘socially acceptable solutions’ including redeployment to other locations in the country.
Investment has been forthcoming from Heidelberg Materials France in recent years. It reminded everyone that it initiated a Euro400m scheme at its France-based subsidiary Ciments Calcia in late 2020. Most of this was earmarked towards a new production line at the Airvault plant, which is currently being built. Other schemes at the Beaucaire, Bussac-Forêt and Couvrot integrated plants followed. More recently, Heidelberg Materials launched a carbon capture, utilisation and storage (CCUS) project at Airvault, part of the GOCO2 initiative, with the aim of starting initial capture in 2030 with full 1Mt/yr capture planned later. What the company didn’t mention though was at the time of that 2020 investment it was also preparing to convert the integrated Gargenville plant into a grinding unit, stop white cement production at its Cruas plant with the intention of turning the site into a terminal and it wanted to reduce its workforce by around 140. To be fair to Heidelberg Materials though, it did have the same goal of reducing its specific net CO2 emissions. The added detail this week was that the group aims to generate half of its revenue from sustainable products that are either low-carbon or circular by 2030.
Heidelberg Materials France is not alone with its ambitions for low-carbon products. Holcim notably opened in early 2023 what it said was the first calcined clay unit in Europe at its Saint-Pierre-la-Cour cement plant. Heidelberg Materials then followed in May 2023 with the announcement of a calcined clay project at its Bussac-Forêt cement plant. Other clay projects from Vicat, NeoCem and Neo-Eco have been reported since then. The other prominent France-based blended cement producer that has steadily been building its business in recent years is Hoffmann Green Cement. More general plant upgrade projects that are also worth mentioning include Eqiom’s (CRH) upgrade to its Lumbres plant in February 2024 and the ignition of a new kiln at Lafarge France’s Martres-Tolosane plant in October 2023. Both of these projects have been framed as driving sustainability.
Graph 1: Cement production in France, 2014 - 2022. Source: France Ciment.
Heidelberg Materials’ assessment about the poor state of the cement market has been confirmed by local media. Sales reportedly started falling in 2022, were down by 6% year-on-year in 2023 and further downward pressure is expected in 2024. Production data shown in Graph 1 above released by France Ciment, the national cement association, doesn’t really show what has been happening with sales. Over the last 20 years production hit a high of around 22Mt in the mid-2000s before settling around 16 - 17Mt/yr from 2015 onwards. The more telling trend, perhaps, has been the increase in CEM II blended cements from 50% in 2012 to 64% in 2022. Cement production may have stayed roughly the same over the last decade but it is using less clinker than it used to. Hence the pressure on companies like Ciments Calcia to reduce clinker capacity.
A further cost pressure facing cement producers in France is the impending end to the price cap on electricity scheduled by the end of 2025. The government enacted the scheme in late 2021 at the end of the Covid-19 pandemic, but then carried on as energy prices spiked following the Russian invasion of Ukraine. France Ciment lobbied in August 2023 for further protection for the sector using the argument that decarbonisation was not possible without electricity available for a reasonable price. It added that decarbonising the cement sector in France with carbon capture would cost around Euro3.5bn. Electricity prices started rising in February 2024 as part of the government’s phase out of the scheme.
Finally, 17 people were arrested on 5 April 2024 in connection with a demonstration at Lafarge France’s Val-de-Reuil ready-mixed concrete plant in Eure. Environmental activists reportedly trespassed on the site, according to local press, causing an estimated Euro450,000 in damages with acts such as spraying foam into machinery, ripping up bags of cement, breaking windows and more. The activists presented their actions as a response to both the environmental impact of cement and concrete production and the ongoing legal allegations about Lafarge’s actions in Syria in the early 2010s. Lafarge France’s La Malle integrated plant was also similarly targeted in December 2022 when around 200 activists stormed the site and caused damage to machinery and property. Lafarge’s response at the time was to remark that there was a feeling of misunderstanding given that the La Malle plant was piloting various decarbonisation methods.
All of this presents a febrile picture of the cement sector in France. Sales are down, electricity costs are set to go up and producers are switching to low-carbon cement products. Alongside this they are also closing clinker production plants but are also investing in new decarbonisation projects. At the same time environmental protestors have also been targeting cement and concrete plants and Lafarge’s association with its former actions in Syria appear to have made it more of a target than the other manufacturers. It is unsurprising then that Holcim, the parent company of Lafarge France, has raised the risk of damage to the group’s reputation, with both the general public and investors, should it fail to meet its targets. Reaching net zero was never going to be easy but setting unrealistic targets is increasingly not an option.
CRH sells UK lime business
27 March 2024Ireland: CRH says that it has completed the sale of its UK lime business. The sale concludes the second phase of the group’s divestment of its lime operations in Europe, first announced in November 2023. The total sale value of CRH’s European lime business is US$1.1bn.
2023 roundup for the cement multinationals
06 March 2024Cement producers appear to have doubled down on the lessons they learned in 2022 by seeking profits wherever they could in 2023, despite stagnant markets in certain key places. Even with sales volumes of cement going down for most of the multinational cement companies covered here, revenues and earnings rose through price rises or business realignment.
Heidelberg Materials can often be relied upon to sprinkle a bit less sugar on its financial commentary compared to some of its competitors. Thus it is always worth reflecting on what it says. In its view, “In 2023, high inflation rates across the globe, increased financing costs, and persistently high energy and raw material prices significantly impaired construction activity and thus demand for our building materials. The decline in demand in private residential construction, which was massive in some cases, could not be offset by a solid development in industrial commercial construction and infrastructure projects.” Other opinions are available.
Graph 1: Sales revenue from selected cement producers in 2022 and 2023. Source: Company reports. Note: Figures calculated for UltraTech Cement.
Heidelberg Materials is notably missing in Graph 2 (below), though as the company is likely to be holding back its cement sales volume numbers until it releases its full annual report for 2023 towards the end of March 2024. However, Holcim and Heidelberg Materials reached similar sales volumes of cement in 2022 and this looks likely to have continued in 2023, or even gone further. Holcim divested its India-based and Brazil-based operations in 2022 and Africa-based ones in South Africa, Tanzania and Uganda in 2023. Heidelberg Materials has also slimmed down, albeit at a slower pace, with the sale of its businesses in Southern Spain in 2022 and The Gambia in 2023. Note that CRH and Holcim have swapped places in terms of sales revenue from 2022 to 2023. 65% of CRH’s sales came from its Americas divisions.
The outlier here is UltraTech Cement. It increased its sales volumes as the India-based market continues to push forward. Dangote Cement, meanwhile, delivered a surprise with a fall in volumes, due to poor trading at home in Nigeria. Sales outside of Nigeria grew significantly though. A real key moment for the evolution of Dangote Cement as a multinational player will be when its sales, volumes and earnings outside of Nigeria surpass those from back home. It’s not there yet but it looks likely to happen in the next few years.
Graph 2: Cement sales volumes from selected cement producers in 2022 and 2023. Source: Company reports. Note: Figures calculated for CRH and UltraTech Cement.
The progress of the construction market in the US compared to elsewhere has wielded an outsized effect on balance sheets for companies. Signs of this have been apparent for several years but it really picked up in 2023 with CRH switching its primary listing to the US in September 2023 and then Holcim announcing that it is planning to spin-off its North American business (for more on this see GCW 645). Heidelberg Materials was asked during its analysts’ conference call for its 2023 financial results what its plans were for the US. Chair Dominik von Achten said he was against splitting the business off from the rest of the group but that all other options were on the table. Various media outlets have interpreted this to mean that an initial public offering in the US is a likely possibility.
What Cemex does with this situation, if anything, might be worth watching. The company is already North America-focused. Its key markets are in Mexico, the US and Europe, and it is already listed in Mexico and the US. Subsequently in 2023 the market in Mexico bounced back and operating earnings rose sharply in both Mexico and the US. Finally on this theme, Buzzi, the fifth largest cement producer in the US by capacity, may also face a similar dilemma to its peers about what to do with its largest earning business area.
The increasing dominance of the US market for western-based multinational cement producers may be accelerating a trend towards large regional companies everywhere. China-based cement players already dominate the top 10 list of the world’s largest cement producers by capacity. Companies from India and elsewhere are on the way to do likewise as they grow and concentrate on one geographic area. The situation in the US meanwhile is persuading the multinationals to do the same thing in reverse as they reconfigure themselves based on market demand. In financial terms, this may mean chasing growth in the US, learning to cope with high carbon prices in Europe or diversifying away from heavy building materials. Elsewhere, despite the proliferation of regional giants, such as the China-based cement companies, few seem keen to become truly multinational in a hurry, although opportunities, such as the ongoing sale of InterCement in Brazil or CRH’s acquisition of AdBri in Australia, are still present.
Global Cement Weekly will return to look at the large China-based cement companies when they release their financial results later in March 2024
CRH sales grow in 2023
01 March 2024Ireland: CRH reported a 7% year-on-year increase in revenues to US$34.9bn in 2023. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) grew by 15% to US$6.2bn. It attributed its earnings growth to favourable weather conditions that facilitated the clearance of work backlogs. Looking ahead, CRH forecasts EBITDA of US$6.55 – 6.85bn in 2024.
CEO Albert Manifold said “Despite continued inflationary cost pressures during 2023 we expanded our margins and delivered further growth in profits, cash generation and returns.”
CRH to acquire Adbri majority stake for US$1.4bn
27 February 2024Australia: CRH has concluded a deal to acquire the remaining 57% of shares in Adbri not owned by Barro Group for US$1.4bn.
CRH CEO Albert Manifold said “We are pleased to reach this important milestone in the potential acquisition of Adbri in partnership with the Barro family. Adbri is an attractive business with high-quality assets and leading market positions that complement our core competencies in cement, concrete and aggregates, while creating additional opportunities for growth and development for our existing Australian business. We look forward to working with the Barro family over the coming years to enhance the long-term growth and performance of Adbri.”
Eqiom’s Lumbres cement plant upgrade to expand capacity by 57%
26 February 2024France: Eqiom plans to expand its Lumbres cement plant by 57% from 700,000t/yr to 1.1Mt/yr by 2026. The project involves the installation of a new kiln and aims to reduce the plant's CO2 emissions by 20%, its fuel consumption by 35% and its NOx and SO2 emissions by 40% and 80% respectively. The producer plans to invest €300m, including €40m from France Relance funds.