HeidelbergCement expects stronger second-half
While second quarter sales by HeidelbergCement were impaired by fewer working days due religious holidays as well as adverse weather conditions in large parts of North America, the German building materials major expects "significantly stronger" development in the second half of the year.
The company's sales volumes over the first six months of 2017 rose substantially as a result of the consolidation of Italcementi. Group cement and clinker deliveries increased by 52.1 per cent to 60.66Mt, while the aggregate tonnage rose by 20.2 per cent to 142.3Mt and ready-mixed concrete deliveries were ahead by 26.2 per cent to 22.62Mm3. Asphalt sales were 1.3 per cent lower at 3.91Mt. Excluding consolidation effects, cement deliveries rose by just one per cent with growth in 2Q sales volumes affected by fewer working days due to Easter and the end of Ramadan, as well as rainy weather, especially in the South, Northeast and Midwest of the USA.
Europe in recovery mode
In Western Europe, cement and clinker shipments were 79.6 per cent ahead at 14.31Mt, thanks to Italcementi, with the underlying increase being just 0.8 per cent. Improving volumes were seen in the Benelux, Spain, Italy and France, while German volumes were stable.
However, the company warned during its 2Q earnings call that in the UK, the London market is clearly slowing due to Brexit uncertainty and delays were seen to infrastructure projects, most notably the Hinkley power plant, as well as the Thames Tideway project and High Speed Rail. Against this backdrop, UK volumes are expected to come down in the second half and a “clear question mark” hangs over the outlook for the market, cautioned Bernd Scheifele, HeidelbergCement CEO.
In other regional markets, HeidelbergCement expects Germany to deliver better results for full-year 2017 than last year. A better environment was seen in Italy where volumes were flat but pricing was up by about EUR3/t. Prices were also slightly up in France and Spain, with both markets showing growth.
Nordic stronghold
Northern and Eastern European and Central Asian cement deliveries were 13.8 per cent higher at 12.01Mt helped by the initial inclusion of the Italcementi operations in Bulgaria, Greece and Kazakhstan. Generally generally positive trends were seen elsewhere (eg, Norway volumes +11 per cent, Sweden +16 per cent), with the exception of Russia and the Ukraine where volumes were down. Going forward, the outlook is strong, especially in Nordics, according to management.
Progress in the Prairies
North American cement deliveries were 29.07 per cent higher at 7.26Mt but the underlying increase was a more modest 4.9 per cent. Cement prices were ahead, but profitability was negatively affected by production issues at the Permanente works in Cupertino, CA.
In western Canada both housebuilding and infrastructure spending was ahead, while in Alberta there was an improvement from low levels of activity. The key message for this group region is that the Prairies markets are over the worst. Significantly more activity is being seen in the oil well sector where historically HeidelbergCement sold about 0.3Mt compared to a trough 0.1Mt. This year volumes are expected to be around 0.2Mt.
Overall, HeidelbergCement expects a pick up of activities in the second half, driven by strong markets in the Southeast. Texas, especially Northern Texas and also California, should also be fairly strong.
Asia-Pacific improvements ahead?
Asia-Pacific cement and clinker deliveries were 42.6 per cent higher at 16.63Mt but on a comparable basis declined by 3.9 per cent. In Indonesia, Indocement’s domestic volumes suffered from a delayed recovery because of the Ramadan holidays, and the Thai market was also weak.
However, Mr Scheifele highlighted that Indonesian volumes were up by 7.5 per cent in the months of June and July combined, indicating that the underlying market trend is strong and supporting management's confidence that the market is improving. At the same time, pricing remained flat owing to a competitive environment. Mr Scheifele further noted that pricing in Thailand is now stabilising and stronger public investment is expected in the second half.
The Indian subsidiary saw improved prices and lower energy costs and improved profits. The Chinese joint ventures experienced improved profitability thanks to improved pricing. The Cement Australia joint venture saw improved pricing and the 1Q volume losses were recovered in the second quarter.
Africa & the Mediterranean adjustments
In Africa & the Mediterranean cement and clinker shipments jumped from 3.82Mt to 9.86Mt thanks to the initial consolidation of Italcementi’s operations in Egypt, Morocco and Turkey, but on a comparative basis there was a four per cent decline. High competitive pressure in Ghana (where prices were down to around US$94/t compared to US$120/t a year ago) was largely compensated for by a substantial increase in volumes. Management remains relatively optimistic for the market in Ghana after two years of the market being negative.
The Turkish joint venture saw continued good volumes and a US$4/t price increase is being implemented in the country. HeidelbergCement anticipates expect stronger volumes in Turkey post-Ramadan, and expects to benefit from significant infrastructure projects in the Marmara region and around its plant in Çanakkale. Egypt remains a difficult market with pricing under pressure due to currency devaluation. A new coal mill in the Helwan plant will enable fuel costs savings for the full year. A major restructuring programme is underway in Egypt where Mr Scheifele noted that "anything except our good cement plants," will be disposed of, such as packing plants, property, etc.
Cautious optimism maintained
Following the second quarter headwinds, and having seen a "clear upward trend since Easter," Heidelbergcement expects to have a better run in the remainder of the year, particularly in light of the full benefit of the synergies with Italcementi in the second half. Management has confirmed guidance for “mid-single to double digit” like-for-like EBITDA growth assuming higher cement, aggregates and ready-mix volume. The US is a key variable in the outlook. In Europe, the group foresees a broad recovery, with variations between country to country, but overall Continental Europe should do better. Importantly, it believes the worst is over in its three trouble spots of Indonesia, Ghana and Thailand.
