Cemex eyes US$925mn investment pipeline through 2023

Mexican cement giant Cemex plans to roll out US$925mn in investments from 2021 to 2023, including “selective investments” in Mexico and other projects in Latin America and the Caribbean (LAC), according to strategic business planning VP José Antonio González.

Speaking at Thursday’s investor day presentation, González said the spending breaks down into US$425mn for 2021-23 capex on large cement projects aimed at adding 10Mt in capacity as well as roughly US$500mn in smaller bolt-on M&A and margin-enhancing investments.

Cemex said it looked to cross the US$3bn Ebitda-mark this year, with 2021 guidance at US$3.1bn, and planned investments to position the company for a sustained period of growth. 

To that end, González said large project capex would eventually result in “steady state Ebitda” of about US$170mn annually, while the bolt-on and margin-enhancing acquisitions should incrementally add around US$350mn per year. 

Boosting capacity

“In Mexico, industry capacity utilization today is running at the highest level we have seen in many years,” said González, while the rest of the region has “returned to growth mode” after a challenging pandemic year.

Cemex is already seeing high capacity utilization in markets like the Dominican Republic, Guatemala and Jamaica, he added. 

The executive said capacity expansion projects included legacy investments started years ago in Mexico, Colombia and the Philippines, which should bring online an additional 4.3Mt of capacity over the next year and a half.

The company expects these projects to start delivering production by 2022 and they should be running at a steady pace within a few years, González said.

Cemex also looks to bring another 5.7Mt online with ongoing “de-bottlenecking investments, brownfields, additional grinding mills, and also reopening of idle capacity,” where these ongoing projects require “relatively small” investments.

Altogether, projects in Mexico should create additional cement capacity of around 3.5Mt in the country, said González, consisting of 1.5Mt of additional grinding capacity at the Tepeaca plant in Puebla state, a 0.5Mt expansion at the Huichapan plant in Hidalgo state, and 1.5Mt of additional capacity “by bringing online both lines at our formerly idle CPN plant in Sonora [state].” 

Other investments include “another 1Mt of additional capacity” in the rest of LAC, including the restart of a kiln in the Dominican Republic and a new grinding mill in Guatemala. 

M&A-led growth

Of the bolt-on and margin-enhancing investments, 17% will be in Mexico and 3% will take place elsewhere in LAC, translating into roughly US$85mn and US$15mn, respectively.

In terms of potential acquisitions, González said Cemex is “looking at possibilities of adding assets that are adjacent to our existing business or that complement our footprint.”

González was also asked whether Cemex might be looking at divesting assets in emerging markets, a move potentially driven by plans to reach investment grade status by late 2022 or early 2023 that could be helped by a higher portfolio mix of developed-market assets.

“When we think about in addition to incremental investments … managing the portfolio composition, we would be open to reducing exposure to emerging markets [under] the right conditions,” he said.

In the past, González added, Cemex has been “very selective” about to whom it sells off assets, “always identifying another party whose footprint is perhaps even better suited for a particular asset,” and this would be the conditions they would look for in upcoming divestments in emerging markets.

Cemex is however not looking to sell its remaining stake in Chihuahua-based cement producer GCC, with González saying that while they did decide to sell a 23% stake in the company in 2017, “we remain as an indirect holder of 20% of the company and our view with this company is long-term.” 

“We like the company’s footprint and we have a very close relationship,” he added.

Price hikes

With the pandemic in mind, Cemex reported that domestic sales increased 16% when comparing 1Q21 with 1Q19 and 5% over the same period for Central and South America and the Caribbean.  

“Pricing has been very good in Mexico,” said CFO Mahar Al-Haffar in the presentation, with prices up 5% in 1Q21. “We’re optimistic … the supply-demand dynamics there are very attractive.”

Al-Haffar also cited news indicating that US legislators have arrived at a US$1.2tn bipartisan infrastructure deal, saying its passage should translate into increased cement demand in a market where it is very difficult to add capacity.

The investments moving ahead in LAC, “such as the reactivation of our CPN plant in Sonora, will allow us to serve incremental demand in the US,” González added.

As such, the company has announced new price hikes in Mexico for July on top of those made earlier this year in the “mid-single digit” range, which is aimed at keeping up with inflation and a “very busy” cement industry, said Cemex CEO Fernando A. González.