Mexico’s top cement maker Cemex is outsourcing jobs worldwide to International Business Machines Corporation (IBM) in a deal that will help it save $1 billion over 10 years, the latest bid by the company to trim costs and boost its financial health.
Cemex, which was swamped by the collapse of the US housing market after paying out some $16 billion to buy Australian peer Rinker, has been working its way out of a deep debt hole for the past three years.
Cemex Chief Financial Officer Fernando Gonzalez told Reuters that the outsourcing deal with International Business Machines Corporation would likely affect between 1,500 and 2,000 jobs, which he said was a preliminary estimate.
Some of those jobs may be absorbed by IBM, Gonzalez said. Cemex will start passing jobs to IBM from September, and the entire transition should be complete by December 2013.
The company declined to give specifics about the types of jobs that would be outsourced or say where it would take place. Monterrey-based Cemex, employs about 42,000 people worldwide and has operations in over 50 countries.
It was not clear if jobs in Mexico would be affected.
“Starting 2014 is when we will have a full year of savings that we hope should be of more than $100 million per year,” Gonzalez said, adding that final numbers for the outsourcing plan would not be public until later this year.
The contract is IBM’s largest outsourcing deal with a Mexican company and ranks among the biggest IBM has agreed in Latin America, said Bob Hoey, general manager for IBM’s integrated technology services business.
“While $1 billion sounds pretty attractive, and it is definitely good news for the company, we won’t see the real benefits until they get reflected in their profits,” said Norma Lopez, an analyst with brokerage Multivalores.
By cutting costs and its debt burden, Cemex is getting back on its feet. Two weeks ago, the company posted its highest quarterly operating core profit in nearly three years on a pickup in its US business. IBM will provide Cemex with business process and information technology services. It will also include finance and accounting, and human resources back-office services.
Mexico has kept labor costs in check over the past decade and manufacturing has helped to power the economy, which last year outperformed Brazil for the first time in years.
Latin America’s second-biggest economy is expected to grow faster than Brazil again in 2012, and Mexico has been attracting new factories as rising Chinese wages make Mexico, with its proximity to the United States, more attractive.
Cemex is extending the maturity on a big chunk of its debt, which would help it dodge a maturity tsunami of $7.25 billion in early 2014, as it struggles with a stagnant construction market.
Cemex has proposed a debt exchange to lenders -selling assets, a pre-payment and revised financial covenants to gain breathing space. The proposal, announced in late June, has been negotiated with half of the creditors.
The exchange offer is due on Aug.20. So far, Cemex has reported strong participation by lenders.
Gonzalez said Cemex was reviewing operations worldwide to spot the ones that could be sold entirely, but it is open to unloading minority stakes, too. He declined to comment on which operations were being reviewed.
The largest cement maker in the Americas, boosted US sales to the highest level in more than three years, fueling share gains even as revenue fell in Mexico and Europe.
“We are very positive on the evolution of the market in the US - finally, after so many years,” said Fernando Gonzalez, on a conference call with analysts and investors.
Cemex has reported 11 straight quarterly net losses, having suffered during a US construction recession after the $14.2 billion acquisition in 2007 of Rinker Group, which generated more than 80 per cent of its sales in the US During 2010, 2011 and the first three months of this year, the US was the company’s only regional market that lost money in Ebitda terms.
“There’s a long way to go in the US, but it finally returned to positive territory,” said Esteban Polidura, an analyst at Deutsche Bank in Mexico City, who has a buy rating on Cemex shares.