US cement market boosted FY19 financial results

This week, several leading cement producers reported on their FY19 business results. ICR has taken a look at the results of HeidelbergCement, LafargeHolcim, Dangote Cement, Vicat and Argos to see what regional patterns can be discerned from the recent results of these industry players. In terms of cement sales volumes (see Table 1), growth was limited to less than one per cent in 2019. Argos saw the largest advance at 0.7 per cent, but LafargeHolcim was well behind the other producers with its sales performance down -6.3 per cent. This was also reflected in revenues (see Table 2), where Argos was the big winner seeing a rise of 11.4 per cent YoY, while Vicat and HeidelbergCement also made strong returns.

Africa
Starting in Africa, it is clear that the cement sector has been facing increased competition in many African countries in 2019. Dangote Cement saw Nigerian cement volumes remain fairly unchanged with 14.11Mt sold in 2019, compared to 14.17Mt in 2018. The company made strategic decisions on where to raise its cement production, based on the most profitable markets. Ghana was a casualty of this strategy, where Dangote sold just over 500,000t of cement in 2019, down 34 per cent on its volumes there in 2018. The Tanzanian operations saw a large upswing in volumes rising 94 per cent, but this was from a low base of comparison. The Mtwara plant was shut down for six months in 2018 but operated for the full year in 2019 with ex-factory prices averaging US$72/t.

LafargeHolcim's African and Middle East sales are reported together. The cement producer did announce that price pressure continued in 2019 in Algeria and Nigeria, but it saw robust cement demand in eastern Africa.

HeidelbergCement's results for the region cover Africa and eastern Mediterranean basin. It reported continuing strong results improvement in all of sub-Saharan Africa, but slow recovery in its north African operations, while it indicated that the worst was behind in Egypt's depressed market. Even so, the group reported cement volumes of 19.5Mt in the region in 2019, slightly down on the 19.7Mt in 2018.

Total African sales for Vicat are limited to Senegal, Mali and Mauritania. The company reported a decline of 7.7 per cent YoY to EUR217m (US$238.6m) for cement and aggregate sales in these countries while cement sales slipped by 2.6 per cent YoY. Much of this was accounted for by the parliamentary elections in Senegal and the political decision to freeze prices there, while operational issues for cement plants and labour disputes regarding Senegalese transport particularly affected aggregates sales.

Europe
Europe remains a central pillar for the portfolios of Vicat, LafargeHolcim and HeidelbergCement and growth returned in these cement markets in 2019. LafargeHolcim saw its European cement operations sell 46.3Mt, compared to 45.3Mt in 2018, up by 2.3 per cent. It said eastern and central European markets were especially robust with ongoing public infrastructure and spending, while successful price increases were implemented in all business segments in France, Germany, Poland and Russia.

However, HeidelbergCement reported a drop in its cement volumes in Europe. In 2019 it achieved cement sales of 53.79Mt in Europe, split into 29.87Mt from west and southern Europe, and 23.92Mt from north and eastern Europe. This compares to a total of 56.4Mt cement sales in Europe in 2018, made up of 30.8Mt in west and southern Europe and 25.6Mt in north and eastern Europe. HeidelbergCement refers to local market problems in 4Q19 and lower volumes along with solid price increases, while 4Q19 saw infrastructure delays in Nordic countries.

Meanwhile, Vicat reported a rise by 2.8 per cent in its cement sales in Switzerland and Italy in 2019, while in France operational sales rose by 1.7 per cent.

North America
Switching attention to Argos' heartlands in the Americas, and more specifically the USA, the company reported that is cement shipments rose by 9.5 per cent to 6.3Mt, backed by low mortgage rates, which have reduced housing inventories and increased public spending on construction.
 
Vicat could similarly share positive news from its US sales that rose by 6.4 per cent on a LfL basis and by 45.7 per cent on a reported basis to EUR589m (US$648.1m) up from EUR404m (US$444.5m) in 2018. Its cement sales increased 4.5 per cent LfL.

The North American operations of HeidelbergCement include Canada and USA, but the company reported cement volumes at 16.114Mt in 2019, down from 16.2Mt in 2018. However, regional cement sales are likely to rise in 2020 for the group with the completion of Lehigh Hanson Inc’s acquisition of the Giant Cement 1.1Mta Keystone cement plant and its US$600m modernisation of the Mitchell facility in Indiana.

LafargeHolcim saw cement sales rise by 1Mt in 2019 to 20.8Mt in North America, up 5.3 per cent on 2018. The company also made three bolt-on acquisitions in 2019 for its ready-mix sector to strengthen its cement end markets in the USA.

Outlook
The 1H20 may see some results affected by the outbreak of the Coronavirus (COVID-19), especially in China. LafargeHolcim refers to this in its outlook and, if the situation turns into a pandemic, it will affect construction markets all over the world. Other headwinds include the forthcoming changes to the EU-ETS Phase 4, which are likely to change the terms of business for cement producers in Europe. The USA has been one of the strongest-performing cement markets, and is forecast by the PCA to grow at the moderate pace of 1.7 per cent in 2020.