Displaying items by tag: Divestments

CRH, formerly Cement Roadstone Holdings, announced this week that CEO Albert Manifold is retiring at the end of 2024. He will be replaced by current chief financial officer Jim Mintern in the role. Manifold will continue to work as an advisor to CRH in 2025. Manifold’s time at the head of CRH marks a decade of considerable change at the group. Crudely, CRH had a market capitalisation of US$19bn at the start of 2014 when Manifold became CEO. At the end of 2023 the group’s market capitalisation was US$50bn.

From a cement sector perspective the big events during Manifold’s tenure include CRH’s acquisition of assets around the world from the Lafarge-Holcim merger in 2015, the purchase of Ash Grove Cement in the US in 2018, the divestment of various businesses in emerging markets and the move of the company’s primary listing to the New York Stock Exchange in 2023. However, at the same time, CRH has been constantly sharpening its portfolio. So, for example, the group bought Germany-based lime and aggregates company Fels in 2017 only to later sell off its European lime business in 2023 and 2024. In the late 2010s the group sold off its US and Europe-based distribution businesses. Then, in 2022, it divested its Building Envelope business. Manifold was also the inaugural president of the Global Cement and Concrete Association (GCCA) when it formed in 2018.

Fairly or unfairly, CRH has given the sense over the last decade of often being ahead of the curve in following the cement markets. After it increased its portfolio when Lafarge and Holcim merged, it sold up relatively quickly in India and Brazil. Famously during an earnings call for CRH’s second quarter results in 2019, Manifold said that the group was prioritising its businesses in the developed world. CRH’s focus on the US in the late 2010s through the acquisition of Ash Grove Cement set it up well for the current strength of the cement market in North America, long before others joined the party. Another striking Manifold statement came at the company’s annual general meeting in 2023 when, in the run-up to the US listing move, he described his company as a ‘de facto’ American company.

Things that may have gone less well for Manifold on the cement side, that we know about, include CRH’s quiet attempt to divest its business in the Philippines in the late 2010s. The company wasn’t alone in trying through. Holcim publicly said that it had signed a deal to sell its local business in 2019 only to declare that it wasn’t happening the following year. Cemex is currently in the process of selling its subsidiary in the country, DMCI Holdings, but it hasn’t concluded yet. More recent acquisitions such as assets from Martin Marietta Materials in Texas in early 2024 and a majority stake in Adbri in Australia are clearly strategic and fit the definition of ‘bolt-on’ but they seem to lack the grand ambition of the earlier big deals.

Questions have also been asked about Manifold’s pay over the years. From 2016 onwards the Institutional Shareholder Services (ISS), for example, has repeatedly raised concerns about executive pay rises at CRH and recommended on occasion that shareholders reject them. Manifold became the highest paid head of an Irish public company and was reportedly the third highest paid CEO on the Financial Times Stock Exchange 100 Index (FTSE 100) in 2022. His response from one interview with the Irish Times newspaper in 2018 was simply: “I’m employed and paid very well to deliver shareholder returns.”

Looking back over the last decade, CRH was well placed to take advantage of the Lafarge-Holcim merger before Manifold started in 2014 but once he was in place it went for it and he led the charge. Yet, the Ash Grove Cement acquisition may prove to be the more momentous move given the current divergence of the European and North American markets. As readers may remember from the time, Summit Materials made a public counter offer but it was rebuffed. Albert Manifold was in charge of CRH and so he takes the credit. These are big shoes to fill. As Richie Boucher, the chair of CRH said in Manifold’s outgoing statement, “Under Albert’s leadership CRH has delivered superior growth and performance with consistently improving profitability, cash generation and returns.”

Guatemala: Cemex has sold its operations in Guatemala to Holcim Group for US$200m. The deal includes one grinding mill, three ready-mix plants and five distribution centres. The grinding mill has a capacity of 0.6Mt/yr.

CEO of Cemex Fernando González said "In 2024, we have accelerated the execution of our portfolio rebalancing strategy with the announced sale of more than US$2bn in assets located primarily in emerging markets. We are now primed for the next stage by redeploying most of the divestment proceeds in developed markets, primarily the US. We expect these efforts to drive sustainable growth for our business in the short and medium term."

Europe: CRH has finalised the sale of its lime operations across Europe for US$1.1bn. The transaction concluded with the divestment of the group’s operations in Poland.

India: Adani Group is planning to sell a 2.84% stake in Ambuja Cements through its entity Holderind Investments, aiming to raise US$500m. The sale of 69.96 million shares will be at a price of US$7.15 per share. This move is part of a strategy to divest part of its substantial 70.33% holding in the cement company. Holderind Investments itself accounts for 50.90% of this ownership.

Cemex announced this week that it is preparing to divest its operations in the Dominican Republic for US$950m. At first this seems a little close to home for the Mexico-based company but it felt similar at the start of 2022 when it sold its businesses in Costa Rica and El Salvador to the same company, Cementos Progreso. Readers may also recall that the business press reported, correctly we now know, in mid-2023 that Cemex was seriously considering its options in the Dominican Republic.

The current agreement will see Cemex sell one cement plant in the Dominican Republic along with related cement, concrete, aggregates and marine terminal assets for US$950m. The deal is expected to close towards the end of 2024. Cemex says that it is making the transaction to reduce its exposure to emerging markets and refocus its capital upon priority markets, such as the US. This reasoning is very much in line with its international peers in the building materials sector, which have been doing likewise.

This is the potential biggest divestment Cemex will have made since 2009. It is bigger than the agreement to sell the share of its business in the Philippines, revealed earlier in 2024, for an enterprise value of US$660m. Back in 2000, Cemex sold its Australia-based subsidiary to Holcim for US$1.7bn. Holcim still operates in Australia today via Cement Australia, a joint-venture with Heidelberg Materials. Plus, CRH, one of Cemex’s competitors that has also shown a keen interest in the US market previously, concluded a deal to buy a stake in AdBri in July 2024. Infamously, Cemex took over building products company Rinker in 2007 just as the 2007 - 2008 financial crisis burst. It then spent the next decade-and-a-half reducing its debt levels. In April 2024 it was pleased to announce that it had been awarded full investment grade status by rating agency Fitch Ratings.

Selling up in the Dominican Republic seems curious at first but, as mentioned at the start, we’ve been here before with Cemex’s subsidiaries in Central America and the Caribbean, plus the company has been working on it for at least a year. It is worth noting though that Cemex reopened a second production line at its San Pedro de Macorís site in 2022 giving the plant a cement production capacity of 2.4Mt/yr. That gives the current deal a value of US$380/t based on capacity. Local competitor Domicem also started up a second line at its Sabana Grande de Palenque cement plant in late 2023, demonstrating that other cement companies have also been investing in the market. Cemex’s sales from its business in the country were reasonable in 2023 but its operating earnings were the fourth biggest in the group after Mexico, the US and the UK. In its results for the first half of 2024 the group noted that tourism projects were driving demand in the country.

Graph 1: Mix of sales by region for Cemex, 2019 - 2023. Source: Company reports.

Graph 1 above presents the general way Cemex has been directing its business internationally over the last five years. Sales were roughly half-and-half between Mexico & the US and the rest of the world in 2019. In 2023 the ratio was more like 60:40. Operating earnings have tracked the same way with an even greater emphasis on Mexico and the US. It should be noted though that despite sales revenue being higher in the US, operating earnings remain higher in Mexico.

Pretty much every western international cement company is watching the US market intently right now. So, Cemex’s decision to sell a profitable business in the Dominican Republic to fund further investment in the US makes sense. Although what it might actually want to buy at US prices right now might be a tough call. CRH, for example, paid US$2.1bn in late 2023 to buy the 2.1Mt/yr Hunter cement plant, a network of cement terminals and 20 ready-mix concrete batching plants in South Texas. This was arguably quite a high price. One last point to consider is that the financial press was reporting falls in the global stock markets this week amid fears over the outlook of the US economy. Whatever happens next, at least Cemex is selling rather than buying this time round.

Dominican Republic: Cemex has signed an agreement to sell its operations in the Dominican Republic to Cementos Progreso Holdings and partners for US$950m. The sale includes a cement plant with a capacity of 2.4Mt/yr, 12 concrete plants, a quarry and two distribution centres, as well as export businesses to Haiti.The divestment is expected to finalise in the fourth quarter of 2024, pending closing conditions.

Fernando Gonzalez, CEO of Cemex, said "This transaction advances us significantly in our portfolio rebalancing strategy which is focused on reducing our exposure in emerging markets and redeploying capital into growth investments in priority markets, primarily the US."

Tunisia: Votorantim Cimentos has signed an agreement to sell its Tunisian assets to China-based Sinoma Cement for US$130m, according to Yicai Global. The deal's completion depends on regulatory approvals from China, Tunisia and the Common Market for Eastern and Southern Africa (Comesa).

All of Votorantim Cimentos' plants and offices in Tunisia will continue to operate as usual during the regulatory review.

Philippines: Cemex has sold its Philippine cement brands to the Consunji family for US$12.55m. Cemex Holdings Philippines revealed that APO Cement and Solid Cement repurchased the brands from Cemex Innovation Holding in Switzerland. APO Cement, based in Naga, Cebu, acquired the ‘Apo Cement’ brand for US$8.2m, while Solid Cement, located in Antipolo, bought the ‘Rizal’ and ‘Island’ trademarks for US$4.53m. This follows Cemex's strategic withdrawal from the Philippines, completing the sale of Apo Cement and Solid Cement to DMCI Holdings, Dacon and Semirara Mining and Power of the Consunji family for US$305.6m in April 2024.

Kenya: The government has decided to sell its entire 25% stake in East African Portland Cement Company, as part of a strategic reform of its investments, guided by the International Monetary Fund. The Star newspaper has reported that the government expects to earn US$134m from the sale. It reportedly sold 30% of shares in the producer for US$117m in 2023.

Of East African Portland Cement Company’s multiple minority shareholders, the largest is Lafarge South Africa, with 42% of shares, followed by the Kenyan National Social Security Fund, with 27%.

Cemex announced this week that it is preparing to sells its operations in the Philippines to a consortium comprising Dacon, DMCI Holdings and Semirara Mining & Power. Rumours of the divestment first started to appear in the media in February 2024.

The main part of the deal covers Cemex’s cement subsidiaries, APO Cement and Solid Cement, which have been valued at an enterprise value of US$660m. However, this becomes confusing because the actual selling price is the enterprise value minus the net debt and adjusted for the minority shareholding of one of the parent companies, Cement Holdings Philippines (CHP). The deal also includes the sale of a 40% stake in APO Land & Quarry and Island Quarry and Aggregates. Based on a press release issued by CHP to the Philippine Stock Exchange, the actual cost of the divestment appears to be around US$305m. It is hoped that the divestment will complete by the end of 2024 subject to regulatory approval from the Philippines Competition Commission and other bodies.

Cemex entered the market in 1997 when it acquired a minority stake in Rizal Cement. It then built the business up to a cement production capacity of 5.7Mt/yr from its two main integrated plants, the Solid Cement plant in Antipolo City, Rizal and the APO Cement plant in Naga, Cebu. However, CHP has endured a hard time of late, with falling annual operating earnings before interest, taxation, depreciation and amortisation (EBITDA) since 2019 and falling net sales in 2022 and 2020. The bad news continued into 2023, with net sales falling by 17% year-on-year to US$300m in 2023 from US$356m in 2022. It reported a loss of US$35m in 2023, double that of 2022. The company blamed the fall in sales on lower volumes. It noted that prices were also down and energy costs had grown.

The three companies buying CHP are all controlled by the Consunji family so effectively DMCI Holdings is acquiring Cemex’s operations in the Philippines. The group focuses on construction, real state, energy, mining and water distribution. It previously announced in the late 2010s plans to build one integrated cement plant on Semirara and three cement grinding plants at Batangas, Iloilo and Zamboanga but these plans didn’t seem to go anywhere. Later it was linked to the proposed Holcim Philippines sale in 2019, although the subsidiary of Holcim eventually gave up on the idea.

This latest attempt to enter the cement business underlines DMCI Holdings’ intent and the group has immediately started saying what it plans to do next. In a statement chair and president Isidro A Consunji admitted that cement demand in the country was ‘soft’ but that it is expected to rebound due to the Build Better More national infrastructure program and an anticipated fall in internet rates. Consunji added, “We recognise CHP's operational and financial issues, but we are positive that we can turn it around by 2025 because of its ongoing capacity expansion and the clear synergies it brings to our group.” He was also keen to play up that CHP is currently building a new 1.5Mt/yr production line at its Solid Cement plant with commissioning scheduled by September 2024. DMCI plans to reduce CHP’s costs through various synergies including supplying it coal, electricity and fly ash from Semirara Mining & Power.

The acquisition of CHP by DMCI Holdings is the biggest shake-up in the local cement sector in a while. DMCI has long harboured ambitions in heavy building materials and now it’s close to becoming a reality. As evidenced by its statements following the official announcement of the deal it is already thinking ahead publicly to soothe shareholder concerns. What will be interesting to watch here is whether it can actually pull it off and whether it will face trouble from imports. Readers may recall that the Philippines cement sector has long battled overseas imports, particularly from Vietnam. Despite anti-dumping tariffs though the Cement Manufacturers Association of the Philippines (CEMAP) warned in January 2024 that workers could be laid off due to continued competition from imports. Good luck to DMCI.