HeidelbergCement publishes Group annual results 2012

HeidelbergCement increases revenue and operating income in 2012 – net debt significantly reduced

2012 consolidated financial statements

• Group revenue improved by 9% to €14.0 billion
• Operating income before depreciation (OIBD) increased by 7% to €2.48 billion
• Free cash flow significantly improved
• Profit for the financial year raised by 2% to €545 million despite considerable one-off charges
• Dividend proposal €0.47 per share (+34%)
• Net debt lowered to €7.0 billion – ratio of net debt to operating income before depreciation (OIBD) reduced to 2.8x

Outlook

• Asia, Africa, North America, Russia: continuing the positive development
• Europe: weak with the exception of Germany and Scandinavia
• Focus on margin improvement with the price initiatives “PERFORM” for cement and “CLIMB Commercial” for aggregates
• “FOX 2013”: three-year target increased to €1,010 million (originally €600 million)
• Debt reduction continues to have high priority
• Expansion of cement capacities in growth markets is continued
• HeidelbergCement well-positioned to over-proportionally benefit from economic growth

Another important step towards achieving the strategic goals

HeidelbergCement has brought the 2012 financial year to a successful close despite a weaker than expected development in Europe. The Group’s geographical positioning in markets with high growth rates for cement such as North America, Asia, and Africa, successfully implemented price increases, as well as surpassing the saving goals from the “FOX 2013” programme were the main factors for this achievement.

“In 2012, we took the next consistent step towards reaching our strategic goals”, said Dr. Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “We were able to further improve operating income, reverse the negative margin trend, and, in particular, have considerably reduced our net debt. A major contributing factor was the significant increase in free cash flow. Once again, the HeidelbergCement team has demonstrated cost effectiveness, speed, and strength of implementation.”

Revenue and operating income improved – proposed dividend increased by 34%

Cement sales volumes rose slightly by 1.4% year on year because the positive development in sales volumes in the North America, Asia-Pacific, and Africa-Mediterranean Basin Group areas more than offset the weak demand in Europe. The sales of aggregates and asphalt fell due to decreasing infrastructure investments in the USA, the United Kingdom, and several Eastern European countries. Revenue rose by 9% to €14,020 million (previous year: 12,902) despite the mixed development in sales volumes. Our successfully implemented price increases and exchange rate effects arising from the weakening euro contributed to this development.

Operating income before depreciation rose by 7% to €2,477 million (previous year: 2,321); operating income increased by 9% to €1,613 million (previous year: 1,474). Apart from price increases and exchange rate effects, the positive development of results can also be attributed to the successful implementation of the “FOX 2013” savings programme. It significantly exceeded expectations and led to cash-relevant savings of €384 million in 2012.

The combination of price increases and cost reductions made it possible to stop the drop in operating margin in the first half of 2012 and increase it again during the second half of the year, such that the figure for the whole year slightly exceeded the previous year’s level.

The financial result dropped by €58 million, predominantly due to revaluations of long-term provisions triggered by changes in interest rates.

Despite considerable non-cash one-off effects, the profit for the financial year improved by 2% to €545 million (previous year: 534). The non-cash one-off effects include €257 million impairment losses from goodwill and property, plant, and equipment as well as losses arising from divestments totalling €49 million. This is primarily attributable to two factors: firstly, the second recession in the United Kingdom following the financial crisis and secondly, the re-positioning of the building products business line in North America, part of which involved disposals, the establishment of joint ventures, and plant closures. In contrast, a positive result of €89 million was recorded from discontinued operations due to a significantly reduced risk position from the Hanson asbestos claims filed in the USA. Earnings per share fell to €1.61 (previous year: 1.86) due to the one-off effects and the further increase in profit attributable to non-controlling interests (mainly Indocement).

In view of the positive business development, the Managing Board and Supervisory Board will propose to the Annual General Meeting on 8 May 2013 to increase the dividend by 34% to €0.47 (previous year: €0.35) per share. With this dividend proposal, HeidelbergCement is gradually nearing its medium-term goal of a payout ratio of 30% to 35%. Given the substantial on-going global economic uncertainties the Group believes that a cautious, gradual approach, prioritising the further reduction of debt, is the better choice for the Group and for its shareholders.

Net debt significantly reduced – high liquidity reserve

In 2012, HeidelbergCement further improved its financing structure through the successful issue of a €300 million bond and the extension of the syndicated credit facility of €3 billion until the end of 2015.

Thanks to successful cost-saving measures and consistent cash management, HeidelbergCement significantly increased its free cash flow and further reduced its net debt by more than €700 million to €7.0 billion. As a result, gearing improved to 51.3% (previous year: 57.0%) and the ratio of net debt to operating income before depreciation (OIBD) improved to 2.8x. The liquidity reserve totalled €4.2 billion at the end of 2012.

Targeted expansion of market position in growth markets

In 2012, HeidelbergCement remained consistent and disciplined in continuing the targeted expansion of its market position in the cement business line in growth markets. At the start of 2012, we commissioned a cement mill in Bangladesh with a capacity of approximately 0.8 million tonnes. The expansion of cement grinding capacities by 1.4 million tonnes at the Polish cement plant Górazdze was completed in March 2012. In Ghana, we inaugurated a new cement mill in November 2012 with a capacity of 1 million tonnes. For 2013, we are planning to commission new cement capacities of more than 5 million tonnes. The expansion of capacities in central India by 2.9 million tonnes was already completed in February 2013. During the course of the year, new grinding capacities will start operation in Indonesia (1.9 million tonnes) and Liberia (0.5 million tonnes). Consequently, HeidelbergCement is gradually creating new potential for further growth.

Outlook 2013

In its forecast from January 2013, the International Monetary Fund (IMF) expects the world economy’s growth rate to increase slightly during 2013 in comparison with the previous year. However, this is subject to the industrial countries in North America and Europe continuing unabated with their efforts to resolve the debt crisis and to achieve budgetary consolidation. The euro debt crisis, the high level of debt in the USA, and the armed conflicts in the Middle East continue to pose political risks to the development of the world economy.

In North America, HeidelbergCement expects a continuing economic recovery and consequently a further increasing demand for building materials, especially from residential construction and the raw materials industry. In Europe and central Asia, a divided development is anticipated: while markets in Germany, Northern Europe, Russia, and central Asia should remain stable or continue growing, a weak development of the economy and demand for building materials is expected in all other regions. In Asia and Africa, the Group continues to expect sustained growth of demand.

In terms of costs, the Group expects a slight to moderate increase in the cost base for energy, raw materials, and personnel. The goal is to recover the margin loss that has arisen from the massively increasing energy costs in recent years. Thereby price increases have top priority. To this end, the Group has started the two pricing initiatives “PERFORM” for the cement business in the USA and Europe as well as “CLIMB Commercial” for the aggregates business line. After “FOX 2013” clearly exceeded expectations in 2011 and 2012, HeidelbergCement increased the savings goal for the 2011 to 2013 period from €600 million to €1,010 million. The Group wants to realise a further €240 million of this total in 2013, in comparison with the base year 2010. Furthermore, HeidelbergCement has launched the “LEO” programme for optimising logistics, which has the goal of achieving cost reductions of €150 million over the coming years.

On the basis of these assumptions, the Managing Board has set the objective of further increasing revenue and operating income in 2013 and significantly improving profit before tax.

“Our strategic points of focus remain unchanged in 2013”, explains Dr. Bernd Scheifele. “Deleveraging remains a high priority for us, in order to improve the relevant financial key figures to investment grade level. We will also remain on course with our successful strategy of targeted investments to expand cement capacities in emerging countries. We will continue our efforts to lower costs and increase efficiency with the “FOX 2013” and “LEO” programmes. A new point of focus is definitely the increase of sales prices. For this purpose, we will implement the “PERFORM” and “CLIMB Commercial” pricing initiatives with high priority in order to achieve margin improvements totalling €350 million. With our global market leadership in the aggregates business line and our advantageous geographical positioning in attractive markets, we will make every effort to benefit over-proportionally from the continued economic growth.”

Overview of the HeidelbergCement Group

*     At constant scope and exchange rates
**   Attributable to the parent entity
*** Excluding puttable minorities

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