Displaying items by tag: Mexico
Cemex revenue falls slightly in first half of 2016
27 July 2016Mexico: Cemex’s sales revenue fell slightly year-on-year to US$6.88bn in the first half of 2016. Its net income rose to US$242m from a loss of US$31.6m. Its cement sales volumes rose by 2% to 33.6Mt from 32.9Mt.
“Our solid second quarter and first half 2016 results demonstrate the resilience of our portfolio, which is largely comprised of high-growth markets that are experiencing attractive supply-demand conditions,” said Fernando A Gonzalez, Chief Executive Officer of Cemex. The cement producer attributed the increases in sales in the second quarter to high prices overall and increased high sales volumes in Mexico, the US and Europe.
By region, Cemex reported a rise in cement sales volumes in all territories except Mexico. Here, cement volumes started to rise in the second quarter of 2016. The highest half-year increase in cement sales volumes was reported in the US at 7%, driven by residential and infrastructure activity.
The Great Wall of Donald Trump
20 July 2016Back in the May 2016 issue of Global Cement Magazine we asked key people at the Portland Cement Association how they thought the US presidential election might affect the local cement industry. Wisely, for an advocacy organisation with offices in Washington DC, no one would be drawn, citing a lack of information. At that point it was still unclear who was going to be on the final ticket. However, we all missed a trick because one candidate, Donald Trump, had been talking about building ‘a border fence like you have never seen before’ since at least mid-2014. And that fence could potentially require a lot of cement.
Researchers at market analysts Bernstein’s sent a note to clients last week ahead of the Republican National Convention looking at the implications of if Donald Trump became president of the US and actually set out to build his 40ft high concrete wall between the US and Mexico. The result would be a 2.4Mt boost in demand for cement from cement producers near to the border. In terms of market demand Bernstein concluded that this would add over 1% to cement demand in both 2018 and 2019, a healthy ‘shot in the arm’ to the already pepped-up US cement industry, which is currently growing at around 5%/yr.
Map 1: Map of cement and ready-mix concrete plants near to the US - Mexico border. Source: Bernstein Materials Blast. Note – Bernstein does not show the Capitol Cement plant in San Antonio.
Needless to say, Bernstein’s calculations pile-drive assumptions into assumptions, atop of Trump’s political rhetoric. It bases its calculations on a border wall similar to the Israeli West Bank barrier built out of precast concrete panels. It also tries to model how much concrete and cement would be required depending on the differing height’s Trump has trumpeted at his rallies.
The kicker to this tongue-in-cheek analysis is that the construction company that stands to benefit the most from this infrastructure project is Mexican!
Cemex has significantly more cement plants and ready-mix concrete plants than any other company within a 200-mile zone either side of the border. Looking at integrated cement plants alone, it has six plants in the regions near to the proposed wall from the east and west coasts. Its nearest competitors, CalPortland with four plants and Grupo Cementos de Chihuahua with three plants, are more regionally based in the western US and Chihuahua state in Mexico. Clearly Cemex didn’t rate the chances of Donald Trump’s wall actually happening when it agreed to sell its Odessa cement plant to Grupo Cementos de Chihuahua in May 2016.
All of this goes to show that, wherever you stand on the Donald Trump presidency bid, if you manufacture cement near the US-Mexican border you might be working overtime if he (a) actually becomes president, (b) actually manages to start building his wall and (c) actually decides to make it using cement. Yet before anybody starts popping champagne corks consider this: there might also be unintended consequences for the cement sector. Restricting current legal and illegal migration trends from Mexico to the US might have a greater negative effect on the US cement industry, and the overall economy, than ordering one large infrastructure project. Working that one out is harder than a guesstimate of how much cement a border wall might consume. Probably best not to ask at this stage who might actually pay for the Great Wall of Donald Trump.
Mexico: The International Finance Corporation (IFC) has granted Cemex a loan of Euro106m to support the cement producer’s sustainable investment programs in emerging markets. The IFC will grant Cemex funding for projects designed to enhance environmental performance that were completed in 2014 and 2015 as well as on-going during 2016, which are part of the capital expenditure plan previously communicated by Cemex. Approximately 60% of the funds will be allocated for projects related to the reduction of Cemex’s greenhouse gas emissions, while the remainder of the funds will be allocated to cover improvements to Cemex’s overall air emission controls.
“IFC’s financing to Cemex sustainable programs is part of our commitment to invest in critical climate-smart solutions across emerging markets,” said Liz Bronder, IFC Director for Latin America and the Caribbean. “We are encouraged by Cemex’s innovative initiatives and look forward to the company’s leadership expanding the climate change agenda among global key players”.
The IFC is joining Cemex’s facilities agreement dated 29 September 2014, as amended and restated maturing in 2020. This transaction increases the currently outstanding commitments under this credit agreement by approximately Euro106m and diversifies Cemex’s sources of funding.
Mexico: Corporacion Moctezuma has announced that Fabrizio Donega will become its new general director from 3 October 2016. Donega will replace Pedro Carranza Andresen, who is due to retire after 10 years working for the corporation. Corporacion Moctezuma was formed in 1982 from the merger of Cementos Moctezuma and Concretos Moctezuma.
Mexico: Cemex has closed the sale of its operations in Bangladesh and Thailand to Siam City Cement for approximately US$53m. The proceeds obtained from this transaction will be used mainly for debt reduction and for general corporate purposes. The deal was announced in March 2016.
Cemex to sell major cement assets in US
04 May 2016US: Mexico’s Cemex has agreed to sell a raft of assets in the US in a US$400m divestment to pay down the company's debt. The assets include the Lyons cement plant in Colorado, the Odessa cement plant in Texas, three terminals in Texas and building materials businesses in Texas and New Mexico.
The assets will be purchased by Mexican rival Grupo Cementos de Chihuahua (GCC), which already has three integrated cement plants in the south and central United States. The acquisition, due to be completed by the end of 2016, will increase GCC’s cement capacity in the US by 1Mt/yr to around 5.6Mt/yr.
Cemex is expected to sell up to US$1.5bn worth of assets during the course of 2016 and 2017. It is still reeling from debt that it took on from its 2007 acquisition of Australian rival Rinker, which came directly before the onset of the global economic downturn.
Mexico: Cemex’s net sales have risen by 3% year-on-year to US$3.2bn in the first quarter of 2016 when adjusted for ongoing operations and for currency fluctuations. Its adjusted gross profit rose by 10% to US$1bn and its operating earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 3% to US$583m before adjustment. The Mexico-based cement producer attributed the rising sales to higher prices and sales volumes increases in selected territories.
“We continue to see favourable results from the implementation of our value-before-volume strategy, with increases in sequential pricing in our three core products,” said Cemex chief executive Fernando A Gonzalez.
The company’s overall cement sales volumes rose slightly to 15.6Mt from 15.5Mt. By region, cement volumes rose by 8% in the US, by 3% in South American, Central America and the Caribbean and by 10% in Asia, Middle East and Africa. Volumes remained static in Europe and fell by 13% in Mexico.
Cemex takes charge of its debts
16 March 2016Cemex has taken action towards its debts over the course of the last week. First, it announced that it had amended its credit agreements in order to delay the looming effects of consolidated financial leverage and coverage ratio limits by one year to March 2017 with other similar deadlines also delayed. Then it announced the pricing of US$1bn of Senior Secured Notes due in 2026, a form of secured borrowing. This was followed by confirmation of asset sales in Bangladesh and Thailand. Finally, it announced that it was seeking regulatory permission to sell a minority stake in its subsidiary in the Philippines.
This column has discussed the on-going financial travails at Cemex a few times, notably recently when the group released its fourth quarter results for 2015 and in the wake of HeidelbergCement’s announcement to buy Italcementi. Basically, it all comes down to debt, as the following graph shows.
Figure 1 - Cemex assets, debt and equity, 2006 - 2015
Cemex took on large amounts of debt following its acquisition of Rinker in 2007. Since then the value of its assets have been falling faster than it has been able to reduce its debts. However, its equity (assets minus debts) is looking like it might dip below its debts in 2016. Hence, action needs to be taken. Cemex appears to have attempted to do this over the last week. Will it be enough?
The credit amendment was probably the most pressing issue for the Cemex management given that the terms have been reliant on maintaining a leverage ratio (debt divided by assets) below a set limit. Cemex has extended the terms of the borrowing in its favour so it can keep the leverage ratio higher for longer without penalty from its creditors. Note that the leverage ratio here means the ratio between debt and operating earnings before interest, taxation, depreciation and amortisation (EBIDTA).
Selling assets and shares in Asia is the next step in cutting debt in the window the group has negotiated for itself. It holds minor cement production assets in Thailand and Bangladesh that it is selling to Siam City Cement for US$53m. These include a 0.8Mt/yr integrated cement plant in Saraburi, Thailand and a 0.52Mt/yr cement grinding plant in Madangonj, Bangladesh. Unfortunately for Cemex it purchased the Saraburi plant for US$77m in 2001 from Saraburi Cement making it a loss of at least US$24m.
A minority sale of shares in its Philippines assets is more promising. The group runs two integrated cement plants in the country, the Solid Cement Plant in Rizal and the APO Cement Plant in Cebu with a combined cement production capacity of 6.23Mt/yr and a new 1.5Mt/yr production line on the way at Solid Cement also. Local media estimate that the sale could earn Cemex as much as US$850m from the booming market. The Cement Manufacturer's Association of the Philippines reported that cement sales volumes grew by 14.3% to 24.4Mt in 2015 with more growth predicted for 2016.
The credit amendment and asset sales of US$0.9bn may give Cemex the breathing room it requires to keep the creditors at bay for a while longer. It originally refinanced its debts in 2009 at the height of the financial crisis to keep the business running until the markets picked up again. They haven’t. A question that might be legitimately asked at Cemex’s analyst day later this week, on 17 March 2016, is this: when is Cemex going to seriously tackle its debts? As the situation continues the group may end up devoting more time to managing its debts than it will to actually making cement and other building products.
Mexico/Thailand/Bangladesh: Cemex has signed an agreement for the sale of its operations in Bangladesh and Thailand to Siam City Cement for US$53m. The proceeds obtained from this transaction will be used mainly for debt reduction and for general corporate purposes. The deal is expected to be finalised in the second quarter of 2016 subject to regulatory approval.
Cemex runs a 0.8Mt/yr integrated cement plant in Saraburi, Thailand. The plant was originally purchased from Saraburi Cement for US$77m in 2001. Cemex operates a 0.52Mt/yr cement grinding plant in Madangonj, Bangladesh.
Cemex obtains consent to amend its credit agreement
08 March 2016Mexico: Cemex has obtained consent to amend its credit agreement dated 29 September 2014 in order to delay the scheduled tightening in its consolidated financial leverage and coverage ratio limits by one year. The formalisation of the amendment is subject to customary conditions and is expected to be finalised in the following days.
The amendment to the credit agreement will allow the leverage ratio covenant to remain at 6.0 times until and including 31 March 2017. It will then gradually decline to 4.0 times by 30 June 2020. The margin grid in the credit agreement will be modified such that if the consolidated leverage ratio is greater than 5.50 times in the reference periods ending on 31 December 2016, 31 March 2017, 30 June 2017 and 30 September 2017. The applicable margin will be 425 bps instead of 400 bps. All other levels in the margin grid remain unchanged.
In addition, the credit agreement will be amended to allow Cemex the right, subject to meeting local requirements in the Philippines, to sell a minority stake in a subsidiary that directly and indirectly mainly owns Cemex’s cement manufacturing assets in the Philippines.