Poor macro-economic conditions reduced the company’s sales and profit but the impact is tiny when compared to the group’s exposure to Erdoğan’s Turkey which went to rack and ruin in 2019. The poor performance in Turkey was partly offset by the good performance in Belgium and Denmark and the group’s overall health remained stable due to management’s strategic geographical diversification and laudable cash flow management. The result was in line with our estimates and, hence, we reiterate our Buy recommendation.
Cementir Holding announced preliminary figures in line with its guidance. As announced, after the line-by-line consolidation of the US company Lehigh White Cement Company, the company’s revenues reached €1,211m, up 1.3% compared to €1,196m in 2018. On a like-for-like basis, revenue fell 1.4% resulting from a significant drop in revenue in Turkey (due to the recession and the devaluation of the lira), which was largely offset by the performance in other regions. Volumes were significantly down as anticipated, with cement volumes down by 3.4%, aggregates by 2.4% and RMC by 16.4% mainly due to Turkey as it was the biggest RMC market in 2018.
EBITDA reached €263.8m, up 10.6% on €238.5m in 2018. The pre IFRS 16 EBITDA was at the same level as in 2018 but, if we reduce the scope effect as well, EBITDA reduced by 1.6%. EBIT at €151.7m was down by 1%. Pre IFRS 16 EBIT stood at €176.2m, 15% above the previous year level.
Geographical diversification paid-off
Like any other cement company with a presence in Turkey, Cementir was hit hard by the recession and the depreciation of the lira. However, diversification into other geographies has paid off well. While the lira depreciated, other currencies, specially US dollar appreciated, reducing the fluctuations in revenues and margins. This can be confirmed by the fact that at constant 2018 exchange rates, revenue would have reached €1,219.7m, up 2% on the previous year, and EBITDA would remain at the same level of €263.8m despite a €25.5m drop due to Turkey.
Exemplary cash generation
Net debt was affected by an additional €84.3m due to lease liabilities. Without this, net debt would have been down by €100m (post dividend payment and capex). Based on our rough calculations, the company has a free cash flow (pre div) of ~€120m. Give kudos to the management who continued to generate large positive free cash flow despite unfavourable macro-economic conditions.
The preliminary result announced by the company is largely in line with our estimates. We will make some minor tweaks that will have no major impact on the target price.
