Global Cement Q3 Postcript: Lower Costs Main Driver of Margin Improvement

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  • Summary. Q3 profits increased for 11 of the 14 largest global cement companies mainly due to lower costs which boosted margins. Votorantim (+58.5%) and Dangote (+54.3%) reported the largest EBITDA increases on a like-for-like basis, with results converted to US dollars to improve comparability.
  • Comparison of 14 global cement companies Q3/nine month results. This note compares the performance in the third quarter and for the first nine months of 2020 of 14 of the largest cement companies globally. These include five global companies headquartered in the developed world (Buzzi, Heidelberg, LafargeHolcim, Titan and Vicat) and three headquartered in emerging markets (Argos, Cemex and Votorantim). The other six companies are headquartered in emerging markets and operate mainly in their home country; Anhui Conch, China Resources and CNBM (China), Ultratech (India), Semen Indonesia and Dangote (Nigeria).
  • Growth in Q3 profitability. Eight of the ten companies reporting Q3 EBITDA had an increase. The three Chinese companies only published sufficient data for us to calculate their Q3 EBIT but it increased for all three companies, with China Resources reporting the largest increase. Buzzi did not report its Q3 profitability.
  • Increased sales. Twelve of the 14 companies reported an increase in their Q3 sales on a like-for-like basis after they were converted into US dollars to make them comparable. Anhui Conch (+29.2%) and Dangote (+27.9%) reported the largest percentage increases. Argos (-15.5%) and Semen Indonesia (-22.5%) were the only two companies to report a decline.
  • Growth in cement volumes. Seven of the eleven companies reporting their Q3 cement volumes announced an increase as COVID restrictions were relaxed. Dangote (+23.9%) reported the largest increase. China Resources (+11.4%) and Votorantim (+15.0%) also reported double-digit percentage increases.
  • Higher Margins. All ten companies that published their Q3 EBITDA increased their margins. Dangote again reported the highest EBITDA margin at 48.1%. Votorantim reported the largest increase at 8.7 percentage points. Data on price increases is limited but we estimate that both higher prices and particularly lower costs boosted Q3 margins.
  • Price increases. Cemex reported an average cement price 2% higher in Q3-2020 than in Q3-2019 but 1% lower than in Q2-2020. LafargeHolcim reported an average 1.8% price increase comparing Q3-2020 with Q3-2019. Price increases were even more substantial in individual countries. For example they grew by a double-digit percentage in parts of Brazil.
  • Lower costs were the main driver of the increase in Q3 profitability. They included cost cutting programs designed to reduce the impact of COVID-19 on profitability, including cutbacks in travelling, as well as a significant reduction in fuel costs, particularly for coal and petcoke. We are able to calculate Cost of Goods Sold (COGS) and General and Administrative (G&A) expenses, both as a percentage of sales, for eight of the companies. Six of the eight had a lower COGS percentage in Q3-2020 than in Q3-2019 and all eight had a lower G&A percentage.
  • Outlook. Only four of the 14 companies provided guidance on the outlook for the remainder of 2020. Generally they were more cautious on the outlook for Q4 than their Q3 performance, possibly due to the recent increase in COVID cases in many countries. Cement is though protected better than most industries, as it is generally classified as an essential industry.