Cemex bolstered by improving US sales
Cemex has reported an improved profit line for the first-half of 2012, as sales from its US division move into long-awaited positive territory signalling that the debt-laden producer could be heading in the right direction despite declines in its two biggest markets of Mexico and Europe.
The company's first half turnover declined by 2.1 per cent to US$7373.1m but EBITDA improved 9.4 per cent to US$1273.2m and the trading profit rose 40.7 per cent to US$611.9m. Meanwhile, in the second-quarter EBITDA rose 11 per cent to US$702m its highest quarterly operating core profit in nearly three years and the fourth consecutive quarter of YoY EBITDA increases. Still, it had a consolidated controlling net loss of US$187m for the quarter compared with a net loss of US$209m.
Recent advances in EBITDA have been buoyed by a pick-up in US cement sales which increased 15 per cent in the April-June period to US$795m – the highest quarterly level since the end of 2008. "We are very positive of the evolution of the market in the US, finally, after so many years," Fernando Gonzalez, Cemex's vice president of finance and administration, told analysts during a conference call. The company said demand has recovered in most areas it serves, notably accelerated growth in Texas and California which are outperforming the overall US market. In the first-half of 2012, Cemex's US turnover recovered by 23.3 per cent to US$1479.6m and turned in a positive EBITDA of US$2.6m compared with a US$62.3m loss a year earlier. Cement shipments advanced by 21 per cent, but the average price received was little changed. While there is still much room for an improvement in terms of sales, based on first-half results, Cemex has increased its 2012 US cement volume guidance from mid- to high-single digit growth.
The improving situation in the US is in contrast to challenges being faced in the group markets of Mexico and Northern European. First-half 2012 Mexican turnover fell 7.6 per cent to US$1670.2m but the EBITDA was only off by 1.6 per cent to US$596.9m. Sales were down by one per cent in the period, but did fall by five per cent in the second quarter from a very strong base. Government spending on the infrastructure was also lower and housing continued to face shortages of finance. Cemex said more infrastructure spending later this year or next may boost domestic consumption and for 2012 it sees cement sales rising two per cent.
Northern European turnover declined 14.5 per cent in 1H12 to US$1978m but the EBITDA still improved by 14.5 per cent to US$179.9m. European cement deliveries suffered from a severe winter and fell by around 14 per cent, with prices being three per cent higher. To adjust for reduced demand the company has reduced production at several plants. In the UK, it has permanently closed its Barrington works and the South Ferriby plant is operating at 50 per cent capacity from one of the two kilns. All kilns in Düsseldorf, Germany have been demolished and in Poland the group said it does not expect to restart Kiln Line 3 at the Rudniki plant with the possibility of further temporary kiln closures in that country. On its outlook for the region, Cemex expects volumes to be lower for the year, but not by as much as in the first half.
The Mediterranean area generated a turnover 16.6 per cent lower at US$761.4m and volumes dropped by a quarter. In the case of Spain, depressed infrastructure spending levels together with a lackluster performance from the residential sector placed downward pressure on quarterly volumes. Exports from Spain accounted for about one-third of volumes during the quarter in an effort to mitigate domestic declines.
The South America Central America and the Caribbean division, helped offset declines with first-half turnover up by 25.3 per cent to US$1053.6m and record volumes were achieved in Panama and in Colombia. Asia also delivered a positive first-half performance with domestic deliveries cement deliveries rising 16 per cent, boosted by a 20 per cent advance in the Philippines.
For the year, Cemex is forecasting cement volumes to improve by one per cent and for downstream volumes to be flat overall. The cost of energy, on a per tonne of cement produced basis, is forecast to decline by about three per cent.
The company continues to struggle under its heavy debt mountain which totaled US$17.6bn including perpetual notes as of 30 June 2012. While net debt was reduced by 4.3 per cent in 1H12, the gearing level jumped by 56.8 per cent YoY to 156.8 per cent. Earlier this month, the company presented creditors with a refinancing plan that calls for a debt exchange and revised financial covenants to gain breathing room ahead of the maturing of US$7.25bn in debt in 2014. The offer includes a three-year extension of the final maturity until February 2017 and the company said it would sell a stake in operations in some countries and select US and European assets to raise around US$1bn it needs for a 2013 paydown. In the first half of this year it sold US$50m worth of non-core assets, and said it is confident it would meet a total target of US$200m-300m by year-end.
