Vicat can expect higher returns in USA and Brazil

Vicat can expect higher returns in USA and Brazil
10 May 2019

This week Vicat announced its 1Q19 results with a positive turnover increase of 4.7 per cent to EUR600m. It is a good opportunity to take a closer look at this multinational and the strength of cement demand in some of the countries where it is operating.

In France, where the company's headquarters are located, the market has been one of the key supports in Vicat's 8.1 per cent rise in turnover to EUR225m. The company cited favourable macroeconomic and industry conditions supported by high levels of infrastructure, industry and commercial segments, offsetting the contraction in the residential segment. Looking ahead Vicat said the fall in building permits was likely to be “offset by very healthy trends in the public works, commercial and industry sectors, with prices heading upwards.” 

While cement sales for the group rose by 5.1 per cent in France, there was less growth in Switzerland, where operational sales rose by 1.2 per cent. The Swiss market has seen growth of CEMII cements but OPC Type1 sales have been falling. The Italian sales grew by 73 per cent after the reallocation of Vicat Prompt cement sales.

The company's second-largest market is the Americas, which consists of the USA and Brazil. In the USA sales of cement dropped by 6.2 per cent. Vicat pointed towards a contraction of demand in California after record rain activity, although selling prices rose and the decline in demand was more moderate in the southeast. Cement sales in USA for the group totalled EUR91m which was -3.7 per cent down on 1Q18. I Brazil, the company has recently invested heavily in acquiring Ciplan. Therefore, cement sales rose to EUR19.3m with volumes close to 350,000t. Prices importantly have started to rise compared to 2018.

The Asian region for Vicat is made up of India and Kazakhstan. Both are growing markets, but they are faced with significant challenges. In India the competition remains very strong and cement volumes were down more than 14 per cent at close to 1.5Mt in 1Q19. Vicat prioritised selling prices over volumes and saw price increases. The Kazakh market was positive for the cement producer with volumes up 11 per cent and 218,000t delivered in the 1Q19 along with higher selling prices.

 The company describes Kazakhstan's domestic cement markets as being 'dynamic' at the beginning of the year. The Gezhouba Group's Shieli plant was commissioned in December 2018, while Steppe Cement sold some 266,393t of cement in 1Q19 and a new plant was announced in Aktobe in February 2019 and in Kerbulak.

However, the toughest environments for the company remain the Mediterranean markets of Egypt and Turkey although some news was received in case of the former. In Turkey operational cement sales dropped by -27.1 per cent with exchange rates down by -44.2 per cent. Cement volumes contracted by 41 per cent in the quarter as Vicat noted a slowdown in construction and industrial activity. The Egyptian sector picked up in 1Q19 as military operations had affected northern Sinai in 1Q18 forcing the factory to close for two months a year ago.

The smaller African markets of Senegal, Mali and Mauritania reported a nearly six per cent drop in cement volumes. Prices in Mali and Mauritania fell but firmed up in Senegal. Vicat's subsidiary Sococim suffered from operational interruptions in 1Q19 causing a temporary fall in sales from its Rufisque facility. Sococim could now see competition from an import recovy in the next few months with concerns over cement shortages being highlighted in the local press. Cement prices in the country were reported at ZOF60,000t (US$103/t) in 1Q19.

In 2019 Vicat expects strong variations in growth, with forecast energy prices to show a further increase before becoming more favourable in the 2H19. The company will continue its policy to hedge its energy requirements and its strategy of fossil fuel substitution. In this context, Vicat predicts a marked improvement in profitability.

Published under Cement News