It's clear that 2020 wasn’t the best year in history - people were fired, many industries were closed, and firms experienced significant losses. As of late, the light at the end of the tunnel seems to be closer… at least for Cemex. In its second quarter, the company not only experienced a terrific comeback, but it also improved its development compared with pre-pandemic levels. The Mexican firm deployed stunning results in most areas.
Last year Latin America and the Caribbean experienced severe government lockdown measures, resulting in less-than-optimal demand and cement volumes. But even so, as stated by Cemex CEO Fernando A. González, this region is having a roaring and unexpected comeback. SCAC (South, Central America, and the Caribbean) region exhibited the best performance in Cemex’s regions, showing an increase of 50% in net sales and a favorable growth in its EBITDA of 79%.
Net sales performance was not only exceptional in this region - on the whole, net sales reached a total of 3.9 billion which represents a 25% year-over-year increase. This growth is mainly due to higher volumes and prices in all its regions and products.
Not only did net sales improve, but cost sales and operating expenses showed an advance too. The former decreased by 1.6pp and the latter passed from 22.5 to 20.1% as a percentage of the net sales.
The improvement of the two previous concepts is also reflected in one of the most important highlights, the operating EBITDA. EBITDA grew by 39% to US$818mn, compared to the same period in the previous year. This progress was not merely in 2Q20 but also compared with the second semester of 2019 where it rose 31%.
The operating EBITDA of the second quarter of 2021 is the highest reported of any Q2 since 2007. The firm stated that this is explained by the impulse in cement volumes, higher prices, an increased contribution from the growth investment portfolio, and a favorable base effect.
This general improvement can also be seen in the net income, where it resulted in an income of US$270mn compared with a loss of US$44 million in the same period last year.
Net income also grew 74% in comparison with the second quarter of 2019. This increase is mainly explained by higher operating earnings, a positive variation from discontinued operations, and a decrease in financial expenses.
Free cash flow increased 187% and 85% compared with 2Q19, this derived from a strong EBITDA and lower finance costs.
Cemex wanted to gradually decrease its leverage ratio and in this quarter the firm not only reached the goal, but surpassed it. Net debt was reduced by US$743mn and, as a result, Cemex significantly reduced its leverage ratio in 2Q21 from 3.61 to 2.85.
With these results, the company announced that it will spend US$925mn between 2021 and 2023 to increase production and expand its capacity.
Mexico and the United States
The relief of most of the government sanitary measures in Mexico brought the return of most industries, which is why Cemex enjoyed a bulk of demand for many of its products. Mexico’s net sales rose 43% compared to 2Q20.
In the second quarter of 2021, cement volumes experienced an increase of 28% and, at the same time, ready-mix grew 56% just as the aggregates.
On the other hand, Cemex continued to enjoy a solid demand in the United States where most of its markets were sold out. Even though net sales were not as strong as Mexico’s, it is expected that demand in the US will continue to rise due to the recovery efforts.
Europe, Middle East, Africa, and Asia
In the EMEA region, net sales increased 21% and EBITDA improved 25% year-over-year, primarily because of Europe and the Philippines. European volumes experienced important growth, reflecting better expectations and an increase in infrastructure and residential activity.
A few days after Cemex’s financial results were reported, the firm announced its expectations of a US$3.1bn EBITDA for 2021. Market analysts say that if the company keeps its strong performance, the goal is attainable. The future of the Mexican cement producer seems to be bright - many industries are reopening and demand is increasing, Furthermore, it is expected that market demand in the U.S will increase by 20%-30% due to the recovery plan.
Even though the markets are still tight, Cemex is aware of the increasing demand.
Cemex CFO declared: “The reality is that our markets’ supply-demand dynamics are tight virtually everywhere, and of course … in the case of Mexico, especially in the central and southern central regions of Mexico, we – and I believe most of our competitors – are pretty much in sold-out positions and we’re expanding capacity as much as possible.”
In addition, Cemex recently joined two World-Leading initiatives to achieve carbon neutrality, reflecting the company’s commitment to climate change, a commitment that is crucial for investors.
