Cemex commences 'Operation Resilience'
Cemex has outlined its 'Operation Resilience' programme, its business strategy from 2020-23 on a risk-adjusted basis. The company announced a need to focus on its core US and European markets as well as in metropolises where market demand is growing.
Fernando A González, Cemex's CEO, said the company will look to grow the profitability of the business through cost reductions and optimising the portfolio through divestments while redeploying its assets in new investments in its core businesses.
As well as cement, ready-mix and aggregates the company now adds urbanisation solutions to its core business sectors. Currently eight per cent of the company's revenues are generated by this business sector.
Rapid market recovery
Cemex has seen a 'V-shaped' recovery in most of its markets and attributes this to the actions it took back in February and March combined with government actions at the same time to halt the progress of COVID-19.
"Volumes have recovered, the speed has been surprising and growth in pricing and strength of bagged cement in emerging markets, as well as the momentum in the US residential markets," said Mr González.
Prices rose by between 1-4 per cent in the 1H20: cement rose one per cent, aggregates by four per cent and ready-mix by three per cent in Cemex's markets. Cemex expects EBITDA in the 3Q20 to be 12 per cent higher on a LfL basis than 3Q19, increasing to ~US$700m and full-year EBITDA is expected to be up four per cent to ~US$2.35bn.
Robust demand and pricing in Mexico and USA
In Cemex's two main markets of Mexico and the USA, it has been pleased to see fast recoveries since the 2Q20. The USA is seeing a boom in housing construction. Texas, Arizona and Colorado have seen prices rising gradually for building materials and absorption by the market have been good.
In California the market has sold out of cement. Maher Al-Haffar, Cemex's CFO, said, "Supply and demand are tight here. The most expensive cement is the cement you do not have so there is a more successful pricing dynamic here."
In addition, Mr Al- Haffar said: "Housing is coming back strongly. There is a peak level of starts and three or four months of new single-family homes in the market. Mortgage rates are also working through the system which bodes well for the pricing environment in the US."
Meanwhile, In Mexico project incentives for buying cement are found in schools, hospitals and rural roads etc. The lockdown of construction didn't impact the retail part of the business. Selling in material stores was not interrupted in general terms in 2Q20, said Mr González.
Debt repayments
Cemex will pay down approximately US$3bn of debt in the 2H20. The company is working with the banks to restructure its 2017 US$4bn facilities agreement and expects to reduce the amount by US$600m in 2020. Cemex will also use some of its liquidity to pay down its facility agreement revolver of US$1bn and US$350m in short-term working capital loans. This week Cemex is also calling US$895m of maturing 2024 redemption bonds and it expects the banks to extend the maturity of US$1.1bn of long-term loans to 2025. In addition, Cemex's US$1.1bn revolver loan is already suspected to be extended to 2023, while sustainability-linked metrics will be embedded in the new ESG facilities agreement.
Optimising for growth
Cemex will further delever and lower its risk in emerging markets. It aims to have more of its core business investments weighted to Europe and the USA by 2023.
The company is targeting below or equal to three times net revenue leverage by 2023, supporting its drive to achieve an investment-grade capital structure. It has identified US$280m of cost reductions in 2020.
Sustainability goals
Mr González added that the company will also "Pursue sustainability as a business as a competitive advantage in its business and the right thing to do."
Cemex has reached a reduction of more than 22 per cent in CO2 emissions from its 1990 baseline and has targeted a 35 per cent reduction by 2030. By 2050 it has announced that it will be able to deliver net-zero CO2 concrete.
Outlook
Even with COVID-19, Cemex's EBITDA will be similar to 2019 and perhaps a little bit higher, said Mr González. The company primarily wants to address growth additional and further integration of aggregates and ready-mix opportunities in the USA and Europe.
Cemex entered 2020 expecting EBITDA to be around US$2.6bn before COVID-19 struck. It had finished 2019 with an EBITDA of US$2.3bn and it expects to end 2020 in a similar position, ie coming out flat compared to 2019 or perhaps slightly better.
