At its 2013 Cemex Day, Cemex set out its ambitious target to increase its EBITDA from US$2.6bn in 2012 to US$4.7bn in 2016 as the company charts its recovery. The plans of the Mexico-based cement major are supported by three main pillars. Firstly, a recovery in volumes accounts for US$1.4bn of the advance. In addition, Cemex intends to be more disciplined on pricing in future, budgeting a US$1bn price increase over variable cost rises and restrict the advances in fixed costs to US$0.3bn during the four-year period.
In terms of cement volumes, Cemex intends to raise its sales by an average of around four per cent annually. Leading the way in volume growth will be USA and Canada as this market expands by 10.1 per cent, according to the strategic vision presented by CEO Lorenzo H Zambrano. In addition Greater India, South East Asia and sub-Saharan Africa are expected to deliver significant expansion of 7.8, 5.9 and 5.5 per cent. Cemex also predicts moderate growth in the markets of Central and South America and the Caribbean, Russia, Greater China, Middle East and Africa and the Central Asia and Caucasus. Back home, in Mexico it forecasts 3.1 per cent expansion, perhaps somewhat erring on the cautious as demographics, the self-construction outlook and continued public infrastructure spending support growth. East Asia and Oceania are expected to advance 2.1 per cent. However, the company’s plans to sell 1.7 per cent more YoY could be rather optimistic, according to some analysts, which view 0-1 per cent as more realistic.
Cemex’s more disciplined stance on pricing is in line with policy changes announced by the other three global cement companies at their investor days in the past year. Between 2007 and 2012, price increases only boosted Cemex’s EBITDA by US$0.1bn, US$1.2bn less than the increase in variable costs. From 2012-16, the group sees a four per cent annual increase in its prices, one per cent over its annual variable cost rise. As a result the US$2.3bn extra contribution to EBITDA should significantly offset the US$1.3bn increase in variable costs.
So far, price increases implemented, raising the average Cemex US cement price by 2.5-3 per cent, have had mixed success. In the US, the higher price levels have held in Florida, the North East and Mountain regions, but was only partially successful in California. The company plans further increases in Texas and the South East in April and hopes for further rises in the middle of the year in other US markets. Elsewhere, the company plans to lift its prices by EUR4.2/t from 1 March in Germany as well as 13 per cent in Spain, 12 per cent in Egypt and five per cent in South America.
Meanwhile, fixed costs are forecast to increase by US$0.3bn in the four-year period to 2016. Between 2007-12, Cemex saw these costs cut by US$1.5bn, but as demand recovers, they have a tendency to reappear.
As the company’s performance improves and plans come to fruition, Zambrano expects Cemex “to be back in investment grade territory by 2016” as it brings down its leverage ratio from 5.44 in 2012 to under three four years later.