Cemex's new growth phase
Cemex Day was held last week and looked at the company's investment and sustainability strategy going forwards.
One of the most significant developments for the company is it reaching an investment-grade (IG) capital structure by the end of June.
"We believe that we currently have the best market outlook in years, and that we are entering a period of sustainable growth. We can turn the page on what has been a lengthy chapter for Cemex and open a new book where we consolidate our recent achievements and shift our strategic balance a bit more towards growth," said Fernando A. González, Cemex CEO.
The company is looking to maintain its investment grade rating throughout the upcoming growth cycles, supported by EBITDA generated from its investment pipeline.
"An IG rating means we have a more flexible capital structure that can sustain the ebb and flow of economic cycles, and which translates to a lower cost of capital" said Maher Al-Haffar, CFO. As cement companies are capital-intensive by nature, every reduction in the cost of capital results in a higher valuation for the company.
Regarding the company’s planned investment pipeline, it is split into two sections – new capacity and bolt-on investments/margin enhancement projects.
Cement projects
The new capacity projects are expected to be brought online by the end of 2023 and will represent around US$425m of incremental investment, while contributing around 10Mta to the company’s total cement capacity. The plans are designed to target rising demand in the US, Mexico, South America and the Caribbean, and are expected to deliver around US$170m of EBITDA on a steady-state basis.
Cemex’s 10Mta of capacity improvement includes 4.3Mta from legacy investments which began in Mexico, Colombia and the Philippines years ago. The remaining 5.7Mta constitutes de-bottlenecking works, brownfield expansions, new grinding mills and the reopening of idle capacity.
Around 3.5Mta of cement capacity will be added in Mexico alone. This is through 1.5Mta of additional capacity at Tepeaca, an 0.5Mta expansion at Huichapan and 1.5Mta of capacity by bringing both lines back online at its mothballed CPN plant in Sonora. One of the lines at Sonora is already producing cement, according to José Antonio González, EVP of Strategic Planning & Business development.
Furthermore, 1.2Mta will be added in the US and Europe, including expanding grinding capacity at two European plants. Around 1Mta of capacity will be introduced in South America, including restarting a 0.5Mta kiln in the Dominican Republic, alongside a new 0.5Mta grinding mill in Guatemala.
Bolt-ons & margin enhancement projects
The other side of its investment growth plan, bolt-ons & margin enhancement projects, has a US$500m pipeline but could return a steady-state EBIDTA of US$350m. Aside from capacity projects, these investments include improvements to operational efficiency and reducing the group’s CO2 footprint.
"Regarding our CO2 reduction investments, these are directed mostly towards increasing alternative fuels and also at reducing our clinker factor. These initiatives also generate attractive returns. […] We expect to invest at a rate of US$60m per year in carbon reduction initiatives," said the EVP.
As reported recently, these plans include setting a carbon reduction target of below 475kg of CO2 per tonne of clinker produced, approximately a 40 per cent reduction in CO2 emissions by 2030. The new target is below the two degree global warming scenario of the Science Based Targets Initiative (SBTi).
This investment stream will also be targeted at adding reserves and increasing production in its aggregates segment, enhancing vertical integration for ready-mix, and improving the commercial capabilities of its Urbanisation Solutions division.
Overall, Cemex is driving towards a new period of sustainable growth, where it can maintain its investment-grade rating while investing in new cement capacity in high demand areas and reducing its CO2 footprint.
For more information on Cemex’s role in Mexico and the country’s encouraging demand recovery, read Credit Suisse’s report in ICR July.
