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H1 24: the recovery is yet to come

H1 24: the recovery is yet to come

EARNINGS/SALES RELEASES

Cementir Holding’s H1 results showed a positive performance in group volumes, largely driven by strong demand in Turkey. However, due to continued low volumes in many other markets, the company has revised down its sales expectations for FY24. Despite this, a recovery in volumes is anticipated for the second half of the year.

FACT


Revenue: €811.8m (vs €840.7m in H1 ‘23)
EBITDA: €192.7m (vs €200.5m in H1 ‘23)
Outlook: Sales at €1.7bn / EBITDA at €385m / Net Cash at €300m / Capex at €135m



ANALYSIS

Cementir Holding’s H1 results revealed growth in group volumes. Cement and clinker volumes were flat after a slowdown in the Q2. RMC volumes increased by 4%, and Aggregates by 6%. This growth was primarily driven by strong demand in Turkey, which offset the decline in volumes in other regions. However, despite this positive trend, sales declined by 3.2% and EBITDA by 3.9%, leading to a 20 bps decrease in the company’s margin. The decline in sales and EBITDA appeared to slow in the Q2 compared to Q1, indicating an operational improvement due to a weaker comparison base in the Q2.
The decrease in sales was primarily attributed to lower volumes in Europe, resulting from adverse weather conditions, a sluggish residential market, and delays in significant infrastructure projects. Additionally, sales were negatively impacted by a €98 million currency effect, mainly due to the devaluation of the Turkish lira, which partially offset the positive operational results from Turkey.
The cost of raw materials decreased by 15%, driven by both lower prices and reduced volumes. This decline in costs is expected to persist throughout the year. However, the company may still face wage inflation, as personnel costs rose by 2.3% this semester despite a reduction in the number of employees.
Overall, the company’s performance appears to be improving, with stable pricing across all markets. The pricing mechanism in Turkey, which allows for weekly adjustments in response to inflation, has been effective. Year-over-year volume growth is now positive, with regions like Turkey, the USA, and Malaysia showing signs of a recovery. However, the European market continues to face challenges, prompting a cautious outlook. Consequently, the company has lowered its sales expectations, primarily due to delays in the commencement of infrastructure projects and a ban on exports from Turkey to Israel. Sales are now projected to reach €1.7 billion, down from the previous estimate of €1.8 billion. Despite this, the company maintains a positive outlook on margins, keeping its EBITDA guidance steady at €385 million. The net cash and Capex targets also remain unchanged at €300 million and €135 million, respectively.
Performance by division
The Nordic and Baltic region, accounting for 43% of the group’s EBITDA, saw a decline in sales (down by 9%) and EBITDA (down by 12%) due to low volumes across all countries. In Denmark, volumes were impacted in the Q1 by severe weather conditions and a persistently weak residential market, along with delays in the start of the Fehmarn Belt project. Norway faced similar challenges, with adverse weather and delays in infrastructure projects affecting volume sales. In Sweden, there was a mixed performance, with RMC sales increasing by 25%, but aggregates volumes decreasing by 12%.
The Belgium and France segment showed resilience, achieving a 13% increase in EBITDA despite a 10% decrease in sales due to lower volumes. This strong performance was attributed to reduced production costs compared to the first half of the year.
Turkey experienced the strongest demand among all the regions, with domestic cement volumes increasing by 10%, cement exports up by 10%, and ready-mix concrete (RMC) volumes rising by 24%, along with positive trends in aggregates demand. Despite this strong performance, sales declined by 1.1%, largely due to the 58.7% devaluation of the Turkish lira. Additionally, recurring EBITDA decreased by 7.7% as a result of higher operating costs and the negative impact of foreign exchange, despite the higher volumes and prices.
In Egypt, domestic white cement volumes dropped by 12%, while export volumes increased. Despite a 23% increase in revenues in local currency, driven by higher selling prices, this growth was completely offset by the devaluation of the Egyptian pound. As a result, sales declined by 10%. Nevertheless, EBITDA increased by 2.8%, thanks to higher prices.
In North America, deliveries were affected by harsh weather conditions and fewer working days, coupled with a still-weak residential market. This led to a 2.7% decline in sales and a 12% decrease in EBITDA, due to lower prices amid tough competition. However, there was a slight improvement in volumes.
In China, revenues fell by 16% due to lower volumes and prices. This, combined with higher transport costs, led to a 36% decline in EBITDA. In Malaysia, despite stable cement volumes and a moderate increase in exports, sales dropped by 12%. However, EBITDA remained stable, thanks to effective management of variable costs.


IMPACT

Despite the decline in sales and EBITDA, the results were consistent with the company’s expectations. There is optimism for a volume recovery in the second half of the year, fueled by the start of significant infrastructure projects that were previously delayed. Although the market remains challenging due to the impact of these delays and the export ban to Israel, the management has lowered its sales guidance while reaffirming all the other expectations for FY24. Consequently, we have adjusted our sales forecast to reflect a stable year-over-year performance for FY24, with improved margins. Overall, we maintain our Buy recommendation on the stock.