Mexican cement-maker Cemex will step up efforts to cut costs in its bid to return to profitability as demand recovers and as a “prudent” financial strategy starts to pay off – despite disappointing first quarter results – its chief financial officer has said.
CFO Fernando González told LatinFinance in an interview that the company’s multi-billion dollar debt restructuring process has granted the company much-needed flexibility to cut costs further by tackling interest expenses.
This could mean smaller and more targeted transactions, while the company will also consider exploring asset sales as well as measures to extract more profit from those sales.
“We are in a favorable position to reduce interest expenses,” González said. “These are the types of challenges nowadays.”
His comments come just weeks after the company reported a wider than expected loss in the first quarter, following a drop in cement sales.
Cemex reported a net loss of $281 million in that period, compared to $30 million a year before. Sales in the quarter fell 5% from a year earlier to $3.3 billion, attributed mainly to a slump in Europe.
But González insisted the company now has a “liquidity runway” to reduce its costs further, González said, adding that the company has embarked on a “new phase” in its strategy following a turbulent few years.
Following a collapse in its sales in the wake of the financial crisis, Cemex “paid a high price” and was forced to issue debt in the high single-digit yields amid concern over its ability to meet its debt covenants.
“What we have to do, the type of transactions or amount of what we have to do in next three to four years is 30-40% compared to what we did in last four years. The types of transactions [going forward] are going to be different,” González said.
Although Cemex has no short-term refinancing needs until 2017, it recently received shareholder approval to exchange three series of convertible bonds. A tender could happen as soon as this year, González said.
As of December, Cemex is able to call $2.2 billion dollars in debt on which it pays interest of just above 9.5%, he said.
Noting pricing of $600 million 5.875% 2019 senior secured notes in March, the opportunity for interest reduction is immense, González said. Savings could total $450 million – a fact that could help the cement producer on its quest for a return to investment grade.
The $600 million sale in March was part of a process to replace €200 million ($260 million) of its 4.75% 2014 bonds.
Following four years of market declines after the global financial crisis, Cemex has started to see a turnaround in its core US business, boosting cashflow and Ebitda in 2012. González said 2013 is on track to be “a second recovery year”.
Cemex expects the Americas to perform better than its European operations, where growth will remain lackluster over the next four years. The company plans to offset weakness there through increased business diversification, González said.
Part of its new strategy includes finding new efficiencies and economies of scale. Cemex has undertaken a 10-year strategic agreement with IBM to deliver business process and information technology services to the cement company. Cemex is expected to generate savings close to US$1 billion over the life of the contract, González said. LF
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