Ciments Francais: brighter earnings outlook

Ciments Francais: brighter earnings outlook
Published: 16 April 2010

Earnings for Ciments Français look set to become brighter after 2010, with analysts at CM-CIC releasing new estimates for the company in light of management efforts to clean up operations of the group’s accounts and assets. The full impact of these measures is expected to be felt by the French producer next year.

In 2009, Ciments Français, majority-owned by the Italcementi Group, reported a strong slowdown in cement demand in European countries and North America. In emerging countries, after a slight decline earlier in the year, consumption evolved more favourably.

Against this backdrop, 2009 revenues were down 12% at EUR4215m compared to 2008. However, cost containment programmes contributed to bringing EBITDA to EUR909m (down 10% YoY) thus improving EBITDA margins from the previous year. Net consolidated profit amounted to EUR337m, down 4%. Group net profit dropped by 12% at EUR234m. 

Although 1Q10 will still be challenging and some markets remain difficult (notably Bulgaria, Spain and Greece), in 2010 CM-CIC expects the group to start to see growth from efforts to reduce charges carried out over two years (just under EUR300m with sales down by EUR500m). Sales estimates for this year have been revised down from EUR4600m to EUR4272m. EBITDA in 2010 is expected to rise 3% YoY to EUR934m, with a 13% and 12% forecast for 2011 and 2012, respectively.

In the US and Thailand alone, the networks that were affected by the crisis have been slimmed significantly to be brought in line with domestic demand and reduce the unit cost per tonne. CM-CIC estimates the potential earnings leverage at over EUR100m for 2010-12 compared with the modest EBITDA generated by these two assets in 2009 (EUR35m).

In North America, the 2Mt Martinsburg plant was brought on-stream at competitive costs close to EUR25/t, according to CM-SIC estimates. The new works replaces three wet-process lines with cash costs close to EUR45/t. The company also temporary mothballed its Speed plant, Indiana, and halted under-utilised small kilns at other units. Overall, CM-CIC believes that active capacity was lowered from 7Mt to 5.5Mt.

In Thailand, the decision was taken to focus on the best-performing Asia Cement unit where the fixed costs are spread thinly (ie Saraburi 4.99Mt) and to close the Jalaprathan kilns (Cha-Am and Takli kilns, 2.34Mt capacity).

The issue of buying out minority shareholders has also recently hit the headlines. Earlier this month Ciments Français bought out nearly all of the US noteholders who blocked a 2009 takeover from Italcementi. It successfully acquired 92% of the notes issued in 2002 (US$200m) and 100% of those issued in 2006. The move sparked market talk of renewed merger plans with Italcementi, but such speculation has been discarded by the Italian producer.