Cementir Holding

This research has been commissioned and paid for by the company and does therefore not constitute an inducement caught by the prohibition under MiFID II

Cementir Holding ^CR	Bloomberg CEM IM
Cement & Aggregates / Italy	Web Site \| Investors Relation
Also operates in : Holding Companies

Solid position in a niche market

Sustainability score

Company (Sector)
3.5 (6.0)

Sustainability is made of analytical items contributing to the E, the S and the G, that can be highlighted as sustainability precursors and can be combined in an intellectually acceptable way. This is the only scale made available

More on Sustainability / ESG ...

	Score	Weight

Governance
Independent directors rate	3/10	25%	More ...
Board geographic diversity	3/10	20%
Chairman vs. Executive split		5%

Environment
CO² Emission	3/10	25%	More ...
Water withdrawal	2/10	10%

Social
Wage dispersion trend	7/10	5%	More ...
Job satisfaction	10/10	5%
Internal communication	10/10	5%

Sustainability score

3.5/10

100%

Sustainability matters

The Building materials and products sector scores low on the sustainability front (average score of 6/10), primarily because of: 1/ a low environment score as this industry is one of the largest polluters, contributing 5% to global emissions, and 2/ a significant number of companies in this sector are family owned, a factor which has a significant influence on the composition of the board, voting rights and the executive role of the chairman of the board. Cementir Holding’s low independent directors rate (score: 3/10), lack of geographic diversity at the board level (score: 3/10) along with high emissions (score: 3/10) are the key reasons for its low sustainability score of 3.5.

Governance score

Company (Sector)	Independent board
6.3 (7.5)	No

Parameters	Company	Sector	Score	Weight
Number of board members	8	10	8/10	5.0%
Board feminization (%)	50	38	10/10	5.0%
Board domestic density (%)	87	72	3/10	10.0%
Average age of board's members	54	59	8/10	5.0%
Type of company : Mid cap, controlled			7/10	10.0%
Independent directors rate	25	57	3/10	20.0%
One share, one vote				10.0%
Chairman vs. Executive split				0.0%
Chairman not ex executive				5.0%
Full disclosure on mgt pay				5.0%
Disclosure of performance anchor for bonus trigger				5.0%
Compensation committee reporting to board of directors				5.0%
Straightforward, clean by-laws				15.0%
Governance score			6.3/10	100.0%

Governance matters

The AlphaValue governance rating result is not satisfactory with a score of 6.3 (below industry average of 7.5), which is driven mainly by the directors’ low independence rate of 25%. This is significantly below the 33% rate claimed by the company, mainly due to the fact that we consider a director not to be independent if he has stayed in the BoD for more than seven years. Additionally, the CEO is a board member (independent management and control are usually positive for shareholders). However, on the positive side, Cementir Holding has a good board feminisation rate of 50% and straightforward clean by-laws.

Name (8)	Indep. (2/8)	Function	Completion of current mandate	Birth date	Date in	Date out	Fees / indemnity, in k€ (year)	Value of holding, in k€ (year)

Francesco CALTAGIRONE	M	President/Ch...	2023	1968	1995		6,277 (2023)	68,978 (2023)
Alessandro CALTAGIRONE	M	Member	2023	1969	2006		11.0 (2023)	ND (2023)
Azzurra CALTAGIRONE	F	Member	2023	1973	2006		11.0 (2023)	ND (2023)
Saverio CALTAGIRONE	M	Member	2023	1971	2003		10.0 (2023)	ND (2023)
Fabio CORSICO	M	Member	2023	1973	2008		271 (2023)	ND (2023)
Adriana LAMBERTO FLORISTAN	F	Member		1973	2023		40.0 (2023)	ND (2023)
Benedetta NAVARRA	F	Member		1967	2023		41.0 (2023)	ND (2023)
Annalisa PESCATORI	F	Member		1964	2023		41.0 (2023)	ND (2023)
Edoardo CALTAGIRONE	M	Member	2023	1944	1992	2023	2.00 (2023)	ND (2023)
Veronica DE ROMANIS	F	Member	2023	1969	2015	2023	62.0 (2022)	ND (2022)
Paolo DI BENEDETTO	M	Member	2023	1947	2012	2023	50.0 (2022)	ND (2022)
Chiara MANCINI	F	Member	2023	1972	2015	2023	62.0 (2022)	ND (2022)

Changes to Board of directors : 31/07/2024

Name (8)	Indep. (2/8)	Challenged (conflicted interests, distant or current)	Die hard (7 years or more)	Improbable (too young, disconnected profile)	Overloaded (too many boards, too old)	Specific agenda (gov. or staff rep)	Tied (family, business relations, executive)	Unknown (lack of history, short CV)

Francesco CALTAGIRONE
Alessandro CALTAGIRONE
Azzurra CALTAGIRONE
Saverio CALTAGIRONE
Fabio CORSICO
Adriana LAMBERTO FLORISTAN
Benedetta NAVARRA
Annalisa PESCATORI

Name (3)				Function	Birth date	Date in	Date out	Compensation, in k€ (year)
Name (3)				Function	Birth date	Date in	Date out	Cash	Equity linked

Francesco CALTAGIRONE	M	CEO	1968	1996	6,277 (2023)	ND (2023)
Giovanni LUISE	M	CFO		2018	ND (2023)	ND (2023)
Paolo ZUGARO	M	COO		2017	ND (2023)	ND (2023)

Changes to Management : 10/06/2024

Existing committees

Audit / Governance Committee
Compensation committee
Financial Statements Committee
Litigation Committee
Nomination Committee
Safety committee
SRI / Environment

Environmental score

Company (Sector)
2.9 (4.2)

Data sets evaluated as trends on rolling calendar, made sector relative

More ...

Parameters	Score	Sector	Weight
CO² Emission	3/10	4/10	30%
Water withdrawal	2/10	5/10	30%
Energy	3/10	4/10	25%
Waste	4/10	4/10	15%
Environmental score	2.9		100%

Environment matters

Sustainability at its core in this decade

Tightened regulations by policymakers meant to reduce carbon emissions pose a big challenge over the next few years for cement companies as it puts a lid on the growth opportunities that have come along with various stimuli announced by governments worldwide. The cement industry is expected to be heavily impacted by the increasing carbon certificate prices and reducing carbon allowance in Phase IV (2021-30) of the EU Emission Trading System (ETS) which allows companies to trade excess emission rights freely. These will drastically increase the production cost. The cement industry is a capital-intensive industry with low price elasticity. Hence, cost-cutting and efficiency will be key drivers for profitability, while revolving around sustainability.

Greater the emission = greater the scope of improvement

A few players have already reduced their carbon footprint significantly, leading them to a carbon level of <600kg CO2/t of cementitious material. Holcim currently leads the race with 2020 emissions standing at 555kg/t, while Cementir Holding is the laggard with emissions in 2020 standing at 718kg/t. However, Cementir Holding holds this title not for long because its aims to cut its emission level by 20% and 31% by 2025 and 2030, respectively (from the 2020 emission level). At first glance, one may believe that the emission reduction targets are too aggressive. We thought so too. But in reality, the targets are quite achievable as about 2/3rds of the set targets for 2025 and 2030 will be met in the EU via the existing technologies and the investments that the company has planned for 2021-23. We would like to highlight two key contributors: FUTURECEM™ and kiln upgradation in Belgium.

We appreciate this effort and, hence, in our environment scoring system, we score the companies based on their efforts and progress, rather than just considering sector thematics. Cementir Holding currently has a low score but, given its strong balance sheet (net cash position from 2023 onwards), it is possible for Cementir Holding to boost its capex, accelerate emission reduction and offset its additional carbon-related costs by lower financial expenses, thus improving its score and, consequently, our DCF value which has a sustainability component.

Arbitrage opportunity from Turkey

Beyond the assumptions that we have already made, there is a possibility of imports from Turkey too. In 2021, the European Commission announced the much-anticipated Carbon Border Adjustment Mechanism (CBAM), which is aimed at curtailing carbon leakage. However, CBAM will be in a transitional phase from 2023 to 2025 and will become fully operational only by 2026. So, until then, Cementir Holding will be able to capitalise on its Izmir plant in Turkey, which has a capacity of 2.6mt, with only about 0.7mt exported up to now. So, if we consider that just 1mt of cement per annum will be exported from Turkey to the EU until 2025, and the additional cost of transportation is estimated at €20/t, it will lower our estimated carbon cost by €100m to €360m over 2022-30. This estimated carbon cost is far below the one that we calculated using the group’s guidance of 600,000t worth of carbon rights needed to be bought from 2022 onwards. While the group has a more sophisticated model in place with the active management of the rights integrated in the model, the difference of €100m is too big for us to ignore.

Environmental metrics

23,801 Energy (GJ) per €m in capital employed	4,765 CO² tons per €m in capital employed	6,884 Cubic meter water withdrawal per €m in capital employed	39 Tons waste generated per €m in capital employed

Cementir Holding Building Prod. & Materials

Sector figures

Company	Environment score	Energy (total, in GJ)	CO2 Emissions (in tons)	Water Withdrawal (in m3)	Waste (total, (in tons)

Belimo^BH	10/10	35,067	813	12,712	1
Buzzi	4/10	99,604,000	18,858,000	7,349,000	153,200
Cementir Holding^CR	3/10	38,005,771	7,608,519	10,993,000	62,710
CRH	3/10	180,720,000	31,000,000	109,700,000	2,200,000
dormakaba^BH	7/10	860,652	64,621	700,787	36,685
Forbo^BH	6/10	2,079,768	74,804	975	33,401
Geberit^BH	8/10	788,400	150,591	908,407	67,554
Heidelberg Materials	4/10	329,775,000	65,700,000	58,200,000	476,500
Holcim	3/10	420,000,000	80,000,000	98,000,000	2,100,000
Imerys	3/10	24,090,412	1,898,000	50,477,000	96,232
Saint-Gobain	5/10	142,572,038	8,827,350	42,650,587	1,179,009
Sika^BH	8/10	4,430,000	316,000	3,522,335	152,237
Vicat	3/10	87,278,800	18,700,000	7,000,000

MORE DATA

Social score

Company (Sector)
6.6 (7.0)

Social matters

Overall, Cementir Holding has an average social score but it is worth mentioning that it has a favourable wage dispersion trend, which means that the company is putting in sufficient efforts to keep the wage disparity of the top management with the rest of the workforce low.

Quantitative metrics (67%)

Set of staff related numerical metrics available in AlphaValue proprietary modelling aimed at ranking on social/HR matters

More ...

Parameters	Score	Weight
Staffing Trend	5/10	15%
Average wage trend	7/10	30%
Share of added value taken up by staff cost	3/10	20%
Share of added value taken up by taxes	7/10	15%
Wage dispersion trend	7/10	20%
Pension bonus (0 or 1)	0
Quantitative score	5.9/10	100%

Qualitative metrics (33%)

Set of listed qualitative criterias and for the analyst to tick

More ...

Parameters	Score	Weight
Accidents at work	4/10	25%
Human resources development	9/10	35%
Pay	10/10	20%
Job satisfaction	10/10	10%
Internal communication	10/10	10%

Qualitative score	8.2/10	100%

Sector figures

Company	Social Score	Quantitative score	Qualitative score	Staffing

dormakaba^BH	8.4	7.8	9.7	15,444
Belimo^BH	7.7	6.6	10.0	2,070
Geberit^BH	7.6	6.5	10.0	10,361
Forbo^BH	7.4	6.1	10.0	5,139
Sika^BH	7.1	5.7	10.0	39,293
Saint-Gobain	7.1	6.7	7.9	156,818
Heidelberg Materials	6.8	7.0	6.5	51,573
Vicat	6.8	5.5	9.3	10,002
Imerys	6.7	6.3	7.6	12,876
CRH	6.6	6.8	6.2	77,715
Holcim	6.6	6.4	6.9	62,814
Buzzi	4.8	5.6	3.2	9,716

MORE DATA

Sustainability / ESG by AlphaValue:

Doubt driven, focused on dynamics

AlphaValue was set up in 2009 as an ESG native firm: since inception, no research could be published without filling up the ESG relevant items. ESG has always been there as a natural building block of the research effort.

Without much pretence, AlphaValue has accumulated 11 years of proprietary, practical data in a consistent way that has been made to “talk” with financial data. The efforts have been aimed at solving the main conundrum of ESG analytics: avoiding useless and noisy data. AlphaValue ESG data is intimately connected to the fundamental research work and its continuous updating process. In other words, AlphaValue ESG data can be made to resonate at will in terms of financial implications for those investors with the willingness to do so.

Over the last 3 years, this data, or rather the dynamic of this data, has been put at work so that it impacts directly and consistently on valuations across AlphaValue’s 450 + stocks universe. This is considerable progress vs. the dominant “consumption” of ESG raw data: ESG-type conclusions are sitting next to valuation fundamentals but hardly any investor is in a position to bridge effectively the two in a consistent and repeatable way. It takes more than a spreadsheet to get stable and auditable results that work 100% of the time.

AlphaValue reckons that it currently is the only equity research provider in Europe to have reached this stage: a perfectly smooth on-boarding of ESG data, on a continuing basis, impacting valuation fundamentals day and night.

This is available on every stock, every sector, every stock selection, every day.

Heretical ESG opinions?

ESG is a contradiction in terms. Without a good Governance, the Social and Environment items will never show progress. Social is for stakeholders and thus unlikely to please shareholders. The long-term view that good pay/working conditions are ultimately good for shareholders is, like any promise, better left to those who want to believe in it. It does not work for normal investment horizons

Environmental gains will not happen without good Governance but this is not enough as environmental progress will not happen without coercion from governments/supra-governments. There is no reason why a corporate will spend more for a possible collective gain tomorrow when it can have better returns now for its shareholders.

The environment is a cost of massive complexity and a universal one as data improves and allows for intricate tracking of what corporates are up to. There is no practical way a corporate can be valued through a web of changing definitions of environmental data. AlphaValue holds the view that all corporates are made to pay through lower GDP growth expectations resulting from friction costs. The only dimension that really matters from an investment perspective is whether a given corporate makes an extra effort vs. peers. A good ‘E’ rating shall not be driven by absolute levels but by the dynamic of emission controls relative to peers. Dumping cement stocks because they spit out carbon is a narrow view of what ESG implies.

Sustainability scores only

AlphaValue always refused to supply a pecking order of its coverage along some improbable ESG scale. It just does not make sense to mix opposing signals in a single ranking.

Sustainability is a different proposition where analytical items contributing to the E, the S and the G can be highlighted as sustainability precursors and combined in an intellectually acceptable way. This is the only scale made available by AlphaValue.

Sustainability impacts target prices

From 1-12-2020, AlphaValue substituted sustainability metrics for its Governance and Social ones when it comes to impacting valuations;

Indeed since 2019, all DCF (or DCF equivalents for Financials) have been impacted by Governance and Social metrics to connect directly ESG-type findings into share price targets and bring consistency across the board. The impact is driven by adjusting the small ‘g’ conventionally used to assess the growth to infinity. This is being tweaked to recognise, say, that good governance ultimately pays off.

The same procedure is now stemming from Sustainability metrics instead.

For the record, this has been made possible as AlphaValue has finalised its proprietary E scoring, now extended to 4 items (GHG, Waste, Water, Energy) on which a degree of data stability seems to emerge.

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