The publication of LafargeHolcim’s annual financial results for 2016 this week starts to give us a review of the year as a whole for the multinational cement producers. Of the larger producers, CNBM, Anhui Conch and Votorantim are expected to make their releases in April 2016, so we’ll focus here on the available data from LafargeHolcim, HeidelbergCement, Cemex and BuzziUnicem, with UltraTech Cement included for some regional variety.
Graph 1: Sales revenue from multinational cement producers in 2015 and 2016 (Euro millions). Source: Company financial reports.
As can be seen in Graph 1 currency exchange effects have caused problems for producers’ sales revenues, with LafargeHolcim, HeidelbergCement and Cemex all reporting falling sales on a direct comparison. Subsequently like-for-like adjustments have cropped up repeatedly on balance sheets to try and present a more investor-friendly picture, although even this has still seen LafargeHolcim and HeidelbergCement report small declines. In this sense it’s a little unfair to include India’s UtraTech Cement, given that the bulk of its business is in just one country. Operating in just one country though has its own risks, one of which we’ll discuss below.
Unsurprisingly, given the poor sales, the focus for the multinationals has generally been on earnings measures such as operating earnings before interest, taxation, depreciation and amortisation (EBITDA). Here, LafargeHolcim and Cemex have done far better as they have streamlined their businesses. For example, LafargeHolcim’s operating EBITDA rose by 12.9% year-on-year to Euro4.895bn in 2016.
Graph 2: Cement sales volumes from multinational cement producers in 2015 and 2016 (Mt). Source: Company financial reports.
Graph 2 looks at cement sales volumes. Most of the producers have made small gains or losses in 2016 with the stark exception of LafargeHolcim. Its cement sales fell by 12.9% to 233Mt in 2016. More alarmingly, for the fourth quarter of 2016 LafargeHolcim blamed an increased rate of declining cement sales volumes on demonetisation in India, tough trading conditions in Indonesia and a unusually good year (in 2015) to compare itself against in the US.
On that point about India, UltraTech may not have released any sales volumes figures but other larger Indian producers have experienced problems with the government’s decision to remove certain banknotes from circulation in November 2016. A report by HDFC Securities this week suggests that cement volumes fell by 13% year-on-year in January 2017 following a 9% decline in December 2016. The country may be facing its first decline in cement sales volumes since 2001. This is squarely down to government policy.
On a regional basis probably the most worrying theme has been an apparent slowdown in the US towards the end of the year. As mentioned above LafargeHolcim has blamed it on a good previous year and Cemex concurred. Buzzi Unicem also reported the same trend but didn’t attribute it to anything in paticular. President Donald Trump’s push for US$1tr investment on infrastructure in the US should help to reverse this along with anything that happens with his Mexican border wall plans.
The other area to pay attention to is Indonesia. Both LafargeHolcim and HeidelbergCement reported tough trading here prompted by production overcapacity. Locally, Semen Indonesia said this week that its sales revenue fell by 3% to US$1.95bn in 2016 and it still has new cement plants to be commissioned in 2017.
The overall picture for 2016 from these cement producers appears to be one of companies treading water and making savings as their sales were battered. As mentioned previously (The global cement industry in 2016, Global Cement Magazine, December 2016) the geographic spread of assets the multinationals own doesn’t seem to be protecting them from world events as well as they once did. On the plus side northern Europe seemed to pick up or at least hold steady in 2016 but various political shocks such as the UK departure from the European Union and elections in France and Germany may scupper this. In a similar vein India remains one of the key markets but government policy has potentially dented its growth this year. In the US cement volumes may be slowing but Donald Trump is riding to the rescue! With this continued high level of potentially disruptive events cement producers are probably hoping for a quiet year in 2017.