How Guatemala's Cementos Progreso took advantage of Cemex's exit from Costa Rica and El Salvador

As Mexican cement giant Cemex reduced its operations in Central America to focus on other markets, it opened the door for local players to expand in the region.

One of them is Guatemalan company Cementos Progreso, which in 2022 announced the acquisition of Cemex's operations in Costa Rica and El Salvador for US$329mn.

In this interview, BNamericas speaks with CEO José Raúl González about the company's plans for the new markets.

BNamericas: How did the reduction of Cemex's operations impact the cement market in the region?

González: There has not been an impact per se on the construction industry since it is driven by other dynamics: disposable income, investment in government infrastructure, and the ability of citizens to expand and remodel their houses. We, who are the suppliers of the materials, are looking at how we can spur these initiatives to become reality. So I think that for us it simply represented the opportunity to grow in these countries. I believe that there was a coincidence of changes in strategy that allowed us to take advantage of that opportunity and carry out the operation.

BNamericas: How was the expansion to Costa Rica and El Salvador implemented?

González: We had a long-held aspiration to take the business vision of our founder Carlos Novela and make it grow in the Central American region, which is our market. We were lucky: the combination of being prepared and the opportunity presenting itself. We were ready, it was a combination of strategy changes and we managed to seal the deal in December 2021. It took us a bit more time to comply with all the regulatory requirements, so in the last quarter of 2022 we took control of the operations in both countries.

It was a dream come true; we are very proud of the team's ability to make this a reality amid the effects of the pandemic. But above all being happy to have incorporated more than 300 Salvadoran and Costa Rican brothers into the 'Progreso family'.

BNamericas: How did your company prepare?

González: By having the necessary competence to undertake complex transactions of this nature, to perform due diligence in two countries at the same time, even in the midst of travel restrictions and health requirements related to COVID-19; to have enough capital ready for the transaction to be financed in a prudent manner, without exposing us to a financial risk in the midst of an uncertain environment like the one the world is facing today. [Also] having executives who are capable of implementing the integration processes, but above all having a business culture that allows for it to be embraced by the staff of the new company, and in this way guarantee not only short-term sustainability but also for the long term. The strategy for the game may be ready but things change on the pitch, and fortunately we were able to overcome all the obstacles that emerged.

BNamericas: In how many countries do you have operations?

González: Progreso has operations in seven countries, starting with the plants in Guatemala, which is our home country. We are also shareholders in Cementos del Norte in Honduras, we own a mill in Belize, we have sales operations in El Salvador, an integrated operation in Costa Rica, a cement mill in Panama and cement sales in Colombia, and with that we cover seven countries.

BNamericas: What kind of projects do you find attractive in these markets?

González: Both markets offer great opportunities. In the first place, our strategic imperative is to be a catalyst for the construction industry’s development throughout the region - and we see Costa Rica and El Salvador with vast potential to continue consolidating their urbanization processes. These are not mature in the region, and we believe we can contribute a lot in terms of construction materials. We also look at the opportunities that exist in the changes of housing, and we have special programs to expand, improve and build houses. Infrastructure also has a great opportunity to continue to develop. We believe there is no better investment with an immediate social return than improving countries’ infrastructure, because this contributes enormously to reducing the transportation costs of our products and lowering the logistics costs for merchants and farmers, which greatly help them obtain a stable income and better living conditions. Urbanization, housing and infrastructure is where we believe there are opportunities to continue developing the core purpose of Progreso.

BNamericas: What kind of infrastructure projects are you looking at?

González: What we are mainly looking at in Guatemala and Costa Rica is the development of highways. Whether it is building new roads or expanding existing ones, which is why I point out that there is a huge opportunity to improve in terms of cost of travel and travel times, and also the speed at which our freight vehicles travel. 

We also believe that we can support the consolidation of the Central American integration process by facilitating countries' customs operations. I think this would add a great advantage to the entire region through movements at higher speeds, with products arriving in a fresher state and at a lower cost. 

BNamericas: What are the challenges in the region?

González: The problem we have is, that in Mexico or Brazil you can make investments of US$500mn as they can absorb such investments, but those coming to this region are necessarily smaller because we lack the capacity to absorb larger ones. However, Cementos Progreso did make an investment of that magnitude in the San Gabriel plant, which is the last factory we built in Guatemala, in just three years. But naturally it was for a construction materials market that goes beyond our borders.

BNamericas: Are you looking at any other markets?

González: No, we have really been focused on our consolidation process in Costa Rica and El Salvador. We want to continue expanding and looking at opportunities, but also developing domestic markets because growing is not only about being international. It is also about being a catalyst for growth in the construction industries in the countries where we operate. These catalysts will then be reflected in urbanization, infrastructure and housing developments so that new demand for construction materials is generated. And the opportunities that arise in the international arena will be analyzed in due course.

BNamericas: Does Cementos Progreso's plan for 2023 focus on consolidation?

González: Without a doubt, we believe that we have managed to show that we can grow, that we can have a presence in seven countries. But of course, the task is to show our clients that we deserve to be their preferred option and we are going to be very focused on that. Our sustainability policy mandates that we not only be the supplier of choice but also the employer of choice, and to be an environmental leader and a responsible corporate citizen. Those four pillars of sustainability in our businesses are what will keep us strongly focused and busy in 2023.

BNamericas: What level of growth do you expect for this year?

González: What we expect is that industries will expand in line with the growth rates of the countries where we are present. That is what normally happens, although this year we face enormous challenges due to global inflation, the war between Russia and Ukraine that has had a terrible effect on the costs of energy – on thermal and electric energy, as well as fuels. We believe that the countries where we operate still have a resilience that will allow the construction industry to expand at similar growth levels as the economies. So this year we are hoping to gradually return to normal even in the midst of these challenges. There is uncertainty whether 2023 will give us a recession or not, and in the case of a recession, if it will be strong, average, or mild. But the truth is that in our DNA it is more about thinking for the long term instead of just one year.

BNamericas: What other challenges do you face?

González: The challenge is to understand that the world has changed because of factors that are completely unrelated to the corporate world. It is clear we are now in a world where we have the highest inflation in the last 40 years, and it is a phenomenon that will continue to accompany us. We believe that after this recession has passed, the world will see less of the global trade that had become the norm in the 1990s and from the year 2000 onward. It will suffer from the geopolitical tensions that can be seen in Europe, in China. We also believe that the US, as Latin America's big trading partner, will seek to reduce its supply chains with what they have called nearshoring. This represents an opportunity that will allow many Latin American business leaders to take advantage of a large market like the US one and seek to boost exports, which will benefit all of us as it will stimulate economic growth.

BNamericas: What are the objectives for the long term?

González: We expect to continue focusing on the company's sustainability, to be the preferred supplier, the preferred employer, the environmental leader and a responsible [corporate] citizen. We seek to create value for all our shareholders. Profits are not the goal, they are the result. We believe that if we do not create economic, social and environmental value, the long-term objective does not exist. The long term is about creating this triple value so that we can be not only economically viable but also sustainable in the long run.