Mixed signals from Cemex

Mixed signals from Cemex
Published: 30 January 2008

Including Rinker for six months, Cemex increased its turnover by 18.8% to US$21,673.0m in 2007.  Margins declined in response to the increased portion of business generated from downstream operations and by the further reduction in the profitability of the British business.  As a result, the EBITDA improved at a more modest pace of 10.8% to US$4,586.1m, while the pre-tax profit fell by 3.1% to US$2,793.0m.

Group cement shipments increased by 1.9% last year to 87.35Mt and the acquisition of Rinker, half way through the year, boosted the downstream operations in particular. As a result, ready-mixed concrete deliveries rose by 9.4% to 80.36m m³ and the aggregates tonnage jumped by 33.8% to 222.70Mt.

Capital expenditure rose by 33.3% to US$2,092m.  Cemex currently has around 12Mt of new integrated cement capacity and a further 4.5Mt of grinding capacity under construction. The net debt, on the company’s definition, more than trebled from US$5,811m to US$18,904m to give a gearing level of
101.19%, but including the perpetual debt gives a true rearing ratio of more like 116%.  While the weaker US market has made Cemex lower the expected return on the Rinker acquisition, this has been compensated for by the sharp fall in US interest rates.

In Mexico, turnover increased by 5.3% to US$3,829.1m, but increased competition limited the advance in EBITDA to just 1.1% to US$1,405.2m as margins eased from 38.3% to 36.7%. Domestic cement deliveries improved up by just under 4% while cement prices were off by around 1% in constant peso
terms though up by 4% in US dollar terms.
 
The US turnover increased by 18.2% to US$4,929.8m while the EBITDA down by 7.2% to US$1,119.6m, as the housebuilding recession continued to deteriorate.  The profit decline was much more marked at the trading level, where there was a 30.8% drop to US$636.6m.  In the USA, cement volume fell
by some 8%, but adjusting for the initial contribution from Rinker, the underlying decline was more like 18%. The average cement price was 4% higher over the year, but did ease slightly in the final quarter.

In the markets, Cemex rose US$1.48, or 6.2 percent, to $25.48 in New York Stock Exchange composite trading at 4pm tuesday. That marks the biggest increase of the Monterrey, Mexico-based company’s American depositary receipts since Nov 28. "They continue to see strong prices in most
countries, including in the US, even with the decline in volumes and the cost-reduction effort,’’ Gonzalo Fernandez, an analyst with Banco Santander SA in Mexico City, said yesterday.

The company also said today it will raise prices in April by US$5 per ton in California, Nevada and Colorado and by US$10 a ton in Texas even as its cement volume in the US is expected to decline 7 per cent.

Cemex can raise prices in the US, where it has plants, because high shipping rates are driving up the cost of imports, Hector Medina, chief of finance and planning for Cemex, said today on a conference call.

The US housing market still will be weak, especially in Cemex’s largest markets, which include Florida and California, Medina said. The company forecasts cement volume for residential housing will drop 19 per cent.