The world's largest cement maker, Holcim, plans to achieve higher sales and "overproportional increase in margins" in 2023, expecting energy costs to exert minimal pressure on the company's financial results.
Holcim's energy costs for 2022 were lower than might have been expected considering the sharp rise in prices for fuels like petroleum coke, coal and natural gas, which reached record highs last year.
"The markets have increased by 80pc in 2022 when our energy bill has only increased by 40pc," Holcim's chief financial officer Geraldine Picaud said. The company was able to manage costs through hedges and "smart prebuying," according to Holcim chief executive Jan Jenisch.
The Swiss-based multinational plans to continue optimizing its fuel mix and focus on long-term procurements to reduce its exposure to volatility in the energy market. Although the outlook for energy costs this year remains somewhat uncertain, "we are confident we have good pricing in place," Jenisch said.
"Honestly, after managing the hyperinflation last year on a weekly basis, however the cost environment will carve out this year, we are prepared," Jenisch said.
While some analysts have questioned whether cement prices will trend down this year as energy costs recede from the record high levels of 2022, Jenisch emphasized that the company's pricing strategy is not correlated with energy costs. Holcim has increased sales prices for the past five years and will keep doing so in 2023, he said. "That's why we are so confident on the margin."
The company expects energy costs may range from flat to an increase in the high single-digits on a percentage basis in 2023.
One factor driving Holcim's cement price increases was the EU's carbon emissions trading scheme. The limitations on CO2 certificates kept production volumes lower in the European market, which "led to extremely strong pricing in the European market," Jenisch said. Holcim benefited from the increase in CO2 credit costs because it is reducing CO2 at a faster rate than its competitors.
Holcim last year achieved a 21pc reduction in CO2 emissions against 2021, dropping to 3,700t of CO2/mn t of sales. It is looking to reduce CO2 by a further 10pc in 2023 and will continue its strategy to reduce higher-carbon fuels purchases.
But the company also said that its energy costs may increase if additional carbon taxes are levied outside of Europe, as governments look to collect new revenue while addressing climate change.
New business grows, cement volumes fall
During the first two months of 2023, Holcim continued expanding into new markets by making seven acquisitions, all outside of cement, in roofing, aggregates and ready-mix concrete. This follows six acquisitions in last year in its Solutions and Products division, which includes roofing, and 13 bolt-ons in aggregates and ready-mix, although it also completed four divestments in India, Zimbabwe and Brazil.
The firm plans to make additional acquisitions this year.
The Solutions and Products division is becoming a larger slice of the company's portfolio. Last year its share was around 19pc of net sales, up from 8pc in 2020. The firm plans to increase this to 30pc by 2025. This comes as its cement share of the portfolio is dropping — making up only about 50pc in 2022, down from 60pc in 2020.
Although Holcim expects a decline in cement volumes from Europe, it anticipates growth in volumes in Latin and North America. "So when you put it all together, we are also on the volume side with a positive outlook," Jenisch said.
North America will remain Holcim's biggest market in 2023, growing to 40pc of the total, up from 35pc in 2022.
The company also notes strong growth of Latin American markets, mainly in Mexico, Colombia and El Salvador. But Asia was a challenging market for Holcim last year, reflecting high inflation in India and softening demand in China during Covid-19 lockdowns.
