Cemex remains confident that it is on track to meet its medium-term EBITDA goal as it continues to capture the full potential from its existing portfolio to improve profitability and return to investment-grade status, the company said during its annual investor gathering.
Speaking on the company’s strategy and outlook during Cemex Day 2014 held yesterday, Juan Pablo San Agustin, executive VP of strategic planning and new business development, reiterated the company's intention of achieving its US$4.7bn EBITDA target in 2016, or 2017 at the outside. Mr Augustin explained that most of the expected EBITDA would be generated by Mexico (US$1.5bn), followed by the United States (US$1.2bn) and the regions of South/Central America and the Caribbean (in excess of US$1bn) with the remainder coming from the northern European, Mediterranean and Asian divisions. In 2012 and 2013 the company achieved EBITDA of US$2.6bn and the projected consensus for 2014 is US$3-3.1bn.
Mr Augustin added that the medium-term growth target can be met without major capital spending. Current utilisation levels from the company’s 94Mta of cement capacity stand at 60 per cent, leaving high potential for leverage across all regions. There are a few exceptions, however, as the company is expanding its Odessa plant in Texas, USA, largely to cater for oilwell demand, and is also expanding in South America to meet growing market needs. By 2016 utilisation is expected to reach 75 per cent, giving the company further scope for growth, but rates in the US and Asia are expected to be over the 90 per cent mark by the end of the forecast period.
Aggressive structural cost reductions have been a central focus to achieving a leaner organisation, Mr Augustin continued. Such measures have included outsourcing back-office functions to yield US$100m per annum in savings. The company has also been successful in increasing its alternative fuels substitution rates to 28 per cent, resulting in savings of US$135m per year. Moreover, the company has divested US$700m in non-operating assets over the last four years to the end of December 2013 and plans to sell US$180m assets this year. A further US$350m of divestments are planned for 2015-16, taking the total to over US$1.1bn. Mr Augustin said the company expects to continue to generate savings, sell assets and raise prices to improve profitability so that in the coming years EBITDA should grow twice as fast as sales.
Regional outlook
Cemex is hopeful that the global recovery will provide some tailwinds to support its main regions of operation. The company stressed that it remains geared to high growth and, for the time being, relatively low-risk markets. This includes the US, which in 2013 proved to be one of the company's best performers as it staged a 496.4 per cent recovery in EBITDA. Cemex expects US growth to continue in 2014, bolstered by advances, particularly in the housing sector. Cement demand in most of the company's main US markets is expected to grow faster than the 11 per cent national average, according to Karl Watson, president of Cemex USA.
Elsewhere, Cemex expects sound mid-term prospects in its major northern European markets in the infrastructure, residential and non-residential sectors. In the Mediterranean region, operations grew 10 per cent on a like-for-like basis despite a challenging environment, but the company attributed its success to increased sales in added-value products with Egypt and Israel, for example. Prospects in Central/South America and the Caribbean remain upbeat given public infrastructure development programmes, housing deficits and low per capita demand. Growth in Asia, meanwhile, is translating into strong results and Cemex highlighted that the Philippines is enjoying particularly strong fundamentals and is another area where Cemex is expanding. Over 2013-14 the company is investing US$80m in a 1.5Mta cement mill, terminals and logistics facilities.
Mexico remains critical for the medium-term EBITDA goal. Last year, Cemex’s domestic turnover declined by 5.7 per cent to US$3186.7m and EBITDA fell 16.5 per cent to US$1008.5m. The country generated 38.2 per cent of group EBITDA compared with 46.2 per cent in 2013 and 50.9 per cent a year before. Domestic cement deliveries fell by an average eight per cent in the year while prices declined by three per cent. The commercial and industrial sector continued to be positive and civil engineering picked up during the second half, but housebuilding was held back by overhanging stock and financing constraints. However, the worst appears to be over and the country is thought to be turning a corner. Juan Romero, president of Cemex Mexico, said the company expects mid-single digit volume growth led by the infrastructure segment resulting from the government's ambitious infrastructure plans. He also sees significant upside potential from energy reforms and positive underlying conditions for a housing recovery.
