Q1 22: profitability outpacing cost inflation
Q1 22: profitability outpacing cost inflationEARNINGS/SALES RELEASES
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 higher average selling price and has been able to manage its margins well, thanks to its hedging policy and presence in niche markets. EBITDA was up by 26%, notably without margin dilution.
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.
FACT
Revenue: €362.3m (vs €300.5m in Q1 21)
Increase in revenue observed in all markets, largely supported by the increase in prices
EBITDA: €60.7m (vs €48.1m in Q1 21)
PBT: €42.4m (vs €15.6m in Q1 21)
Outlook for the full year re-iterated
ANALYSIS
Performance by division
Nordic and Baltic (revenue: €162m): Denmark and Norway saw good demand along with price increases. As a result, EBITDA in these regions were positively impacted. Sweden on the other hand saw the completion of major infrastructure projects and a slowdown in the residential sector, which led to a significant volume decline in this country (RMC -20% and Agg -28%). However, the higher revenue generated in the domestic markets was partially offset by a 19% decline in white cement exports, not because of lower demand, but because of the group’s reorganisation of its distribution network (white cement to the US now exported from the group’s trading company Spartan Hive).
Belgium and France (revenue: €76m): This segment demonstrated a strong performance with 63% growth in EBITDA, thanks to a 5% increase in cement volumes, 18% in RMC and 16% in aggregates. The EBITDA margin was up by 540bp, benefiting from higher volumes and prices, despite higher raw materials, transport and electricity costs in cement.
North America (revenue: €44.6m): The US saw sustained volume demand (+3.5%) driven by Texas and California, along with an increase in the average price. The EBITDA margin was up by 380bp due to higher sales volumes and prices accompanied by well-managed costs. The 7% USD revaluation vs the EUR also helped improve the numbers.
Asia Pacific (revenue: €25.3m): In China, revenue was up by 23% driven by cement price increases while volumes were down by 3% (limited impact from partial lockdown). EBITDA was up by 17% due to higher prices, significant government grands and favourable FX. In Malaysia, revenue was up 18% driven by good pricing, a 2% increase in volumes and 7% increase in exports. The price increase was able to offset the impact of higher fuel and transport costs.
Turkey (revenue: €41.3m): Even though the domestic market was weak in Turkey (high inflation and bad weather), sales increased by 108% in local currency driven by price increases and a 4% increase in exports, overshadowing the impact of the 9% decline in domestic cement volumes. EBITDA stood at €1.6m, up 55%, with a 90bp improvement in the EBITDA margin.
Egypt (revenue: €14.3m): Egypt saw a decline in domestic as well as export cement volumes due to inventory build-up by Egyptian customers in Q4 21. However, price increases and the 4.7% revaluation of EGP vs the EUR helped increase revenue by 11%.
Margins maintained despite cost inflation
Cementir Holding’s performance was commendable under such an inflationary environment. Its hedging strategy and presence in niche markets helped it in managing costs as well as prices. Even though it hedged just about 75% of its fuel and electricity needs (which is below the 85-90% hedged by some of its peers), it has a better cost management because it hedged well in advance, far earlier than six months or a year, which is the usual norm in this industry. Additionally, the constantly increasing carbon prices (now standing at €90) is closing the cost (and hence pricing) gap between the normal cement and FutureCEM®. This will lead to increased sale of latter, which will in turn contribute to extra profitability.
IMPACT
Despite a very strong quarter, management has taken a conservative stance due to uncertainty around the pandemic and the impact of Ukraine war. Nonetheless, it has confirmed its full-year guidance of revenue over €1.5bn, EBITDA in the range of €305-315m and a net cash position of ~€60m. We too have a similar view and, hence, we will stick to our current estimates without making any upward revisions to our numbers.
Cementir Holding is an Italian multinational company that produces and distributes grey and white cement, ready-mix concrete, aggregates and concrete products.
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