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H1 23: positive price-cost spread

H1 23: positive price-cost spread

EARNINGS/SALES RELEASES

Cementir Holding announced a good set of results, which were in line with our expectations. Despite a decline in volume, the company managed to keep revenue stable thanks to higher average selling prices, while improving its margins thanks to its hedging policy and a presence in niche markets. EBITDA, excluding one-off effects, increased by 34% and the margin increased by 5.6pp.

FACT


Revenue: €840.7m (vs €831.6m in H1 22)
EBITDA: €200.5m (vs €143.8m in H1 22)
Net profit: €90.3m (vs €66.6m in H1 22)
Outlook upgraded: EBITDA now around €365m (previously €335-345m)



ANALYSIS

Cementir Holding has reported a good set of H1 results, with a significant increase in revenue and EBITDA. Despite a decrease in the volumes of cement (-5.5%), RMC (-11.3%) and aggregates (-15.3%), the company managed to achieve a 1.1% increase in revenue and a 39.5% increase in EBITDA due to its successful management of price over costs.
The higher EBITDA was seen in all markets, allowing the company to reach a margin of 23.9%, 6.6pp higher than in the previous year thanks to strong pricing as well as the company’s careful management of energy costs, supported by a strong hedging policy. It is worth noting that EBITDA includes €7.5m of capital gains; excluding this one-off, the margin stands at 22.9%, 5.6pp higher than in the previous year.
While energy costs have reached their peak in the last year, they have now stabilised at a level that is still higher than the average of previous years. Consequently, we anticipate that prices will follow the same trend in the coming quarter and stabilise. However, it is important to note that inflation might cause labour and financial costs to continue to rise this year.
Performance by division
In the Nordic and Baltic regions, which contributed 40% of the group’s EBITDA, sales experienced a 5.7% decrease due to declining volumes in both domestic and export markets. However, there are signs of stabilisation in the volume decline. The negative trend in these regions can be attributed to high inflation and increased interest rates, which have impacted the residential sector and investments in public works. Despite these challenges, there is a notable development with the construction of an underwater tunnel connecting Denmark to Germany, which managed to offset partially the volume decline in Denmark. As a result, Denmark saw a 4.7% increase in revenue and a significant 53.7% rise in EBITDA. On the other hand, Norway and Sweden were more severely affected, experiencing a 22% drop in revenue and a substantial 64% decline in EBITDA year on year. Nevertheless, the margin still increased by 8.3pp.
The Belgium and France segment showed a strong performance, with a 12% increase in revenue and an 18% increase in EBITDA, despite a double-digit volume decline. This was mainly due to successful price increases that offset the volume decline, and the EBITDA margin also saw a significant increase of 120bp, thanks to the efficient management of energy costs.
In North America, the US market encountered a 14% decrease in volume in Texas and California, mainly caused by competitive pressure from imports. As a result, despite implementing price increases and benefiting from a positive FX impact of 1.1%, revenue experienced a decline of 1.1%. Additionally, EBITDA also suffered, dropping by 18% due to higher operating costs, leading to a significant decrease of 320bp in the EBITDA margin.
In the Asia Pacific region, China experienced a 1.5% rise in revenue, attributed to the easing of COVID-19 restrictions in Q2. The substantial increase in volumes more than compensated for the decline observed in Q1. However, EBITDA, excluding one-time effects, decreased by 18% due to lower prices. On the other hand, in Malaysia, revenue remained stable despite a significant decrease in white cement exports, as it was offset by strong demand in the local market. Notably, EBITDA in Malaysia saw a remarkable increase of 43%, primarily driven by higher selling prices and reduced freight costs, partially balanced by increased production costs. Additionally, it is worth mentioning that both the Chinese Yuan (CNY) and Malaysian Ringgit (MYR) depreciated over the same period.
The company shifted focus from cement exports (down by 50%) to the more profitable domestic market. Antiseismic investment-driven projects increased demand, leading to a 38% revenue increase. EBITDA more than doubled to €34m as higher cement prices offset production costs. Excluding one-off effects, EBITDA reached €29m, with an 18% margin. Notably, the TRY devaluated by 32.7% compared to the Euro during the period.
In Egypt, revenue decreased by 5.1% primarily due to the negative impact of FX (74%). However, EBITDA increased by 44% due to the efficient management of production costs and an increase in selling prices, resulting in a 970bp increase in the margin.


IMPACT

The company has raised its FY23 guidance and now anticipates EBITDA to be around €365m. Despite a robust quarter in a challenging environment, the management has adopted a cautious approach due to uncertainties related to the devaluation of the Turkish lira and the ongoing demand slowdown in the Nordics. Accounting for these factors, the estimates have been adjusted upwards, and the recommendation to buy the stock is reiterated.