Cementir Holding announced a good set of results, in line with our expectations. It recorded an increase in revenues in all segments due to a weak base and a favourable macro-economic backdrop, except for in the US where, even though it had flat volume sales, revenues were impacted by softer pricing and unfavourable FX. EBITDA was up by 49.4% due to a recovery in the Belgium, Denmark and Turkey.
Since the results and the guidance for the full year are in line with our expectations, we will not make any significant changes to our model.
Performance by division
- Nordic and Baltic (revenue: €138.4m): Denmark reported good results with both grey and white cement volumes up due to increased market activity in the domestic markets but exports were slightly down. EBITDA was up 8%, driven mainly by the ready-mix business. Norway saw a decline in the construction activities and the postponement of some infrastructure projects, thus registering a sales volume decline of 3%. In Sweden, there was favourable weather and a robust construction market resulting in 20% growth in RMX and 8% in aggregates. There was a positive effect of FX overall.
- Belgium and France (revenue: €63m): This segment demonstrated a strong performance with 89% growth in EBITDA, thanks to the rebound in the French market and some important projects getting underway.
- North America (revenue: €34.9m): The US saw sustained volume demand but, due to currency translation and softer pricing, revenues for the group were down by 4.2%. Due to higher distribution and energy costs, there was an over-proportional decline in the EBITDA of 15%.
- Asia Pacific (revenue: €21m): APAC observed a sharp recovery in demand and export volumes, resulting in a 43% increase in revenues and 46% increase in EBITDA.
- Turkey (revenue: €35.6m): Turkey continues to see recovery in its domestic market. Revenue reached €35.6m, up by 35.1% yoy despite the negative FX effect (-32% compared with the average exchange rate in Q1 20). EBITDA stood at €1.1m, up from €-3.4m in Q1 20, due to higher sales which were partly offset by higher input costs.
- Egypt (revenue: €12.9m): Egypt benefited from a significant increase in export volumes (+30%), which were impacted last year due to COVID-19 restrictions. The EBITDA margin increased by 360bp due to higher sales prices because of product-mix and energy cost savings, which were partly offset by higher raw material costs.
Price increase momentum most likely to be sustainable
In China, with the government’s recent move to curb emissions, many of Cementir Holding’s less efficient competitors are suffering and there is a constraint in cement supply which may remain. In Europe as well, the increasing carbon prices and the introduction of a border tax in the medium term are discouraging cement players from expanding their capacity, which could again have an impact on the supply of cement. Along with cost inflation, these factors could result in increasing prices. It will then depend on the individual players on how good their pricing power is, and how well they manage their price-cost mix. Given Cementir Holding has a significant presence in the niche white cement market, it should continue to have good pricing power.
Cautious on M&A despite nearly zero net-debt position
By the end of this year, Cementir Holding will have a nearly zero net debt position and, hence, it is capable of carrying out a big acquisition. However, management is unwilling to do this because of less visibility on allowances under the Phase IV of the ETS scheme. Hence, for a year or two, the group is unlikely to go for anything big, especially in Europe. But it will not come as a surprise to us if the group goes ahead with a big acquisition in countries that are not impacted by EU-ETS or similar, given a favourable macro-economic backdrop on top of the strong balance sheet.
Cementir Holding posted a good set of results, and we expect this momentum to continue in Q2 as well. However, we are a bit cautious about H2 when EBITDA might be negatively impacted by increasing energy and raw material costs, and due to the fading catch-up effect that was observed in Q1. Hence, we will stick to our current estimates without making any upward revisions to our numbers.
