The ability to fund investment
Debt levels among the cement majors have generally come down since the beginning of last year, in many cases helped by rights issues. The two Italian controlled majors, Italcementi and Buzzi Unicem, concerned about maintaining family control are, and have been, more cautious about debt funded acquisitions and have pretty comfortable balance sheets, with gearing levels of 51.6% and 44.6% respectively, without having to raise any new equity. This gives them the scope to act to secure any opportunities that may appear, without calling on shareholders for additional funding. The family-controlled Vicat has a similar philosophy – and a gearing level of 31.4% at the end of last year.
Debt can be reduced through cash flow, deferring capital expenditure, rights issues, asset disposals and the sale of minority participations. Cemex, by example has been doing, or aims to do all of these.
A fair amount of de-leveraging has already been undertaken by the leading cement groups in the past fifteen months. Lafarge, Holcim, CRH and Cemex all raised between €1500m and €1200m last year, with HeidelbergCement raising considerably more, or €2312m. As a result, HeidelbergCement saw elimination of family control, that was further reduced by the sale of shares to reduce the debt in the family controlled business hat had lost considerable amounts of money through speculations that went badly wrong. Some rights issues have bordered on the opportunistic, such as CRH's which, in combination with a curtailment of capital expenditure saw gearing drop from 74.7% to 38.3% last year. The Irish multinational is thus in a position to spend on acquisitions when it sees the right opportunities appear.
Cementos Portland Valderrivas, the leading Spanish producer which is also active in the United States, saw group cement deliveries drop from a peak of 18.2Mt in 2007 to 12.3Mt last year. A rights issue, the sale of financial assets and a sharp reduction in capital expenditure enabled the group to cut net debt, allowing gearing to fall from 142.2% to 98.7%. Cimpor, another Iberian-based cement producer reduced its gearing from 109.2% to 88.3%.
The privately owned Votorantim Industrial, where cement is the biggest generator of turnover, was 70.4% geared at the end of last year. With the strong growth in cash flow from cement and metals in particular, financing both strong organic growth and some acquisitions should not be a problem, in spite of family ownership and no current plans to widen the shareholder base.
Cemex not wishing to dilute the voting control of by its controlling shareholders, is in a more awkward position, because of its heavy acquisition and capital spending. It has had to drastically reduce capital expenditure and divest of assets that it would rather have kept. To be able to invest in new projects considered to be promising, it has formed Blue Rock Cement Holdings with financial investors that will provide most of the capital, while the projects will be managed by Cemex staff
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