LafargeHolcim was the last of the major non-Chinese cement producers to report its annual financial results when it did so on 17 March 2016. With the full set in, as it were, Global Cement will compare the progress of the world’s largest multinational cement companies in 2015.
The first thing to note is that whilst cement production growth rates have hardly been inspiring in 2015, growth or holding the status quo is occurring. The emerging markets have faced challenges in 2015 following the prolonged depression in the construction sector in Europe since 2008. As Wolfgang Reitzle and Eric Olsen put it in the forward of the 2015 LafargeHolcim annual report, “…our share price has been significantly affected, mainly by the volatility associated with emerging markets.”
Figure 1: Cement & clinker sales volumes from five major cement producers, 2011 – 2015. Source: Annual reports. Note: Sales volumes are calculated for LafargeHolcim for 2011 – 2013.
Figure 1 shows cement and clinker sales volumes for the major cement producers from 2011 to 2015. This graph isn’t quite as depressing as it looks because it shows a drop in cement production for the major producers and it has started to show remedial action being taken. Where growth isn’t happening in a market, pressure builds to find it through mergers and acquisitions.
So, Lafarge and Holcim merged and the decision may be now starting to show promise with its sales volumes remaining static year-on-year in 2015 rather than falling. It should be noted here that the drop from 2013 to 2014 is due to the divestments Lafarge and Holcim both made before the merger to satisfy competition bodies and because the sales volumes were calculated here from the separate Lafarge and Holcim annual reports.
Even more so, HeidelbergCement’s plan to buy Italcementi may be a good idea here. Already it has been growing its cement production each year since 2013. The acquisition could potentially speed up the growth considerably. Elsewhere, both Cemex and Buzzi Unicem are showing signs of picking up cement production since 2013.
Figure 2: Earnings before interest and taxation (EBIT) for five major cement producers, 2011 – 2015. Source: Annual reports. Note: Cemex and LafargeHolcim figures have been converted from US Dollars and Swiss Francs respectively at current exchange rates.
Figure 2 shows one indicator of profitability for the major cement producers by comparing their earnings before interest and taxation (EBIT). This is less useful than cement sales volumes because it covers the producers’ entire businesses including aggregate and concrete sectors. However, it does show the problems Italcementi has faced and it offers one reason why the company might have allowed itself to be taken over. Note also how Cemex has continued to increase its EBIT despite its high levels of debts.
Returning to the LafargeHolcim comments about volatile emerging markets, most of the producers reported tough trading in their Asian territories in 2015. The exceptions were Cemex with its reliance on the Philippines booming market and Buzzi with its limited assets in the region. However, Cemex suffered in its own major emerging market in South and Central America. Despite these setbacks though all of the producers featured here benefitted from growing sales volumes in North America, particularly in the US.
Both LafargeHolcim and Cemex announced divestments promptly following their results announcements suggesting that they feel they need to do more to regain the profitability they once had. LafargeHolcim plans to sell assets in South Korea and Saudi Arabia. Cemex has agreed to sell cement plants in Bangladesh and Thailand and a minority stake in its business in the Philippines. This last decision may suggest how serious Cemex is about tackling its debts considering the strong market in that country at present. HeidelbergCement is due to complete its acquisition of Italcementi in the second half of 2016.
Finally, the major changes to the multinational cement producers will continue in 2016 as CRH asserts itself following its major acquisitions from Lafarge and Holcim in 2015. Already its Europe Heavyside Divison reported sales revenue of Euro3.61bn in 2015 surpassing that of Buzzi Unicem. Other international producers such as Eurocement, InterCement and Votorantim were also poised for continuing growing but poor domestic markets (Russia and Brazil) may cripple their ambitions in the short term.