HeidelbergCement reports Q1 2013 results

HeidelbergCement increases operating income in Q1 2013 despite long winter – outlook confirmed for 2013

• Sales volumes of building materials impaired by long and cold winter in Europe and parts of North America and less working days in Q1
• Growth in cement sales volumes in North America, Asia, and Africa mostly compensates for weakness in Europe
• Group revenue almost stable at €2.8 billion
• Operating income before depreciation up 3% to €219 million
• Improvement of margins continued:
  • successful price increases
  • cost saving programmes on track
  • lower energy cost
• Sizeable expansion of cement capacities:
  • 2.9 mt annual cement capacity commissioned in Central India
  • increase in stake in Cement Australia from 25% to 50% (+ 1 mt)
• Net debt reduced by €598 million compared to previous year
• Outlook confirmed for 2013:
  • continuing growth in Asia-Pacific and Africa-Mediterranean Basin; sustained recovery in North America; Europe weak, with the exception of Germany, Scandinavia, and Russia
  • target for 2013: increase in revenue and operating income as well as significant improvement in profit before tax

Overview January – March 2013

* Amounts restated according to IAS 19R and IFRIC 20

Q1 cement sales volumes sustained by North America and Asia

Sales volumes recorded a two-track development in Q1 2013. While construction activity in Europe and large parts of North America was hindered due to the long, cold winter, our building material deliveries benefited from the sustained growth in demand in our Asian and African markets as well as from the continued economic recovery in North America. Sales volumes were also negatively affected by the reduced number of working days compared with the previous year.

The Group’s cement and clinker sales volumes remained relatively stable with a slight decline of 0.7% to 18.1 million tonnes (previous year: 18.2). The growth in sales volumes in the North America, Asia-Pacific, and Africa-Mediterranean Basin Group areas almost completely compensated for losses in the European markets. Despite poor weather in eastern and northern USA, North America overall still achieved solid growth in sales volumes. In the Asia-Pacific and Africa-Mediterranean Basin Group areas, the expansion of our cement capacities in India and the high increase in volumes in Ghana and Togo contributed, among others, to a slight increase in sales volumes. Cement sales volumes in the Western and Northern Europe Group area declined significantly due to the poor weather conditions. The harsh winter, coupled with difficult market conditions in some countries, also resulted in a loss of sales volumes in Eastern Europe-Central Asia.

Aggregates sales volumes decreased Group wide by 10.8% to 41.9 million tonnes (previous year: 47.0). Ready-mixed concrete deliveries fell by 2.1% to 7.9 million cubic metres (previous year: 8.1). Asphalt sales volumes decreased by 8.6% to 1.3 million tonnes (previous year: 1.4).

Revenue almost stable – operating income improved

Group revenue for the period from January to March 2013 decreased slightly by 1.4% to €2,761 million (previous year: 2,799). The prolonged winter put a strain on sales volumes and revenue primarily in the Western and Northern Europe and Eastern Europe-Central Asia Group areas. In operational terms, the other Group areas achieved an increase in revenue of more than 5%. Successful price increases in cement and aggregates in all Group areas had a positive impact on revenue development. The impact of changes in the consolidation scope and exchange rate effects almost completely offset each other.

Operating income before depreciation rose by 3.5% to €219 million (previous year: 212). Operating income increased by 35% to €16 million (previous year: 12). Successful price increases and decreasing energy costs were decisive for the improvement of operating income compared to the previous year.

“The improved operating income in Q1, despite declining sales volumes and revenue, shows that we are on the right track”, says Chairman of the Managing Board Dr. Bernd Scheifele. “The measures we introduced for improving the margins are showing results. The efficiency improvement programmes are going according to plan and we were already able to implement price increases in many of our markets.”

The additional ordinary result fell by €22 million to €-32 million (previous year: -10). This relates primarily to the addition to provisions totalling €32 million owing to the ruling of the Federal Court of Justice in the German antitrust proceedings. The financial result improved by €3 million to €-145 million (previous year: -148).

Profit before tax from continuing operations fell by €15 million to €-162 million (previous year: -147). Expenses relating to taxes on income increased by €19 million to €23 million (previous year: 4). As in the previous year, the figure was primarily characterised by non-capitalised deferred taxes on losses carried forward in North America. Profit after tax from continuing operations amounts to €-184 million (previous year: -151).

Overall, the loss for the period amounts to €-184 million (previous year: -159). The profit attributable to non-controlling interests rose by €2 million to €50 million (previous year: 48). The Group share therefore amounts to €-235 million (previous year: -208).

At the end of Q1 2013, the number of employees at HeidelbergCement stood at 52,613 (previous year: 53,230). The decrease of 617 employees essentially results from two opposing developments: on the one hand, around 1,800 jobs were cut in the North America Group area, in the United Kingdom, in Spain, and some Eastern European countries in connection with efficiency increases in sales and administration, location optimisations, and capacity adjustments. On the other hand, we have hired more than 900 new employees in growing markets such as India and Indonesia. In addition, the number of our employees in Australia has grown by around 250 following the increase in the stake in the proportionately consolidated cement company Cement Australia.

“FOX 2013” programme further progressing according to plan

The three-year programme for financial and operational excellence (“FOX 2013”) led to an improvement in cash flow of €39 million in Q1 2013. It is thus well on the way to achieving the targeted improvement of €1,010 million over the three-year horizon. In 2011 and 2012, the programme already generated cash effective savings totalling €767 million.

Net debt significantly reduced compared to previous year

Due to its successful cost saving measures and consistent cash management, HeidelbergCement was able to further improve free cash flow and reduce net debt by €0.6 billion to €7.79 billion compared to the end of Q1 2012. Gearing improved to 56.2% (previous year: 63.5%).

Targeted expansion of market position in growth markets

In mid-February, HeidelbergCement completed the expansion of its cement and clinker capacities in Central India. The plants, which have an annual capacity of 2.9 million tonnes, are located in the Damoh district (Narsingarh and Imlai) in the federal state of Madhya Pradesh and in Jhansi in the federal state of Uttar Pradesh. Test runs had already been conducted successfully between November 2012 and January 2013.

At the end of March, HeidelbergCement increased its stake in Australia’s largest cement producer, Cement Australia, from 25% to 50%, doubling the available annual cement capacity to more than 2 million tonnes. In the second half of 2013, a new grinding plant with an annual capacity of 1.1 million tonnes is scheduled to start operation in Port Kembla. The increase in the stake in Cement Australia is a good example for HeidelbergCement’s strategy of low risk bolt-on acquisitions. Following this strategy, HeidelbergCement also increased its stake in the Russian cement producer, CJSC Construction Materials in Bashkortostan, from 51% to 100% and in the British building materials producer, Midland Quarry Products (MQP), from 50% to 100%. The share of non-controlling interests in the Group share of profit decreases thereby in favour of HeidelbergCement shareholders.

The planned expansion of cement capacity thereby rose to just under 7 million tonnes in 2013.

Outlook confirmed for 2013

In its latest forecast, the International Monetary Fund (IMF) slightly lowered the growth rates for the global economy and some key countries such as the USA, China, and Germany, but continues to expect a gentle acceleration in the global economy compared with the previous year. However, this remains subject to the industrial countries in North America and Europe continuing unabatedly 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 global economy. As a result of automatic budget cuts, the North American Portland Cement Association reduced its estimate for US cement consumption in 2013 from 8.1% to 6.1% at the end of April; yet it simultaneously increased its estimates for the following years so that even a slight increase is projected for 2015.

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, HeidelbergCement anticipates a divided development: 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 company expects a sustained positive demand.

In terms of costs, the company anticipates a light to moderate increase in the cost base for raw materials and personnel. Regarding the energy costs, the Group expects an overall stable development in 2013 following the slight decline in energy costs in the first quarter 2013 compared to the previous year. The objective is still to recover the margin loss that has arisen from the massively increasing energy costs in recent years. As a result, price increases have top priority. In 2012, the Group therefore started the two sales excellence programmes “PERFORM” for the cement business in the USA and Europe as well as “CLIMB Commercial” for the aggregates business line, in order to achieve margin improvements totalling €350 million by 2015. The Group wants to realise a further €240 million of cash savings in 2013 as part of the “FOX 2013” programme, in comparison with the base year 2010. Furthermore, HeidelbergCement is pursuing the “LEO” programme for optimising supply chains, which has the goal of achieving cost reductions of €150 million over the coming years.

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

“Business development in the first quarter has strengthened our conviction in our prospects for the 2013 financial year,” says Dr. Bernd Scheifele. “We will continue to focus our efforts on increasing sales prices. For this purpose, we will implement the sales excellence programmes “PERFORM” and “CLIMB Commercial” with high priority. At the same time, we will continue to drive our efforts to lower costs and increase efficiency with the “FOX 2013” and “LEO” programmes. The consistent reduction of net debt is still a top priority for us, with the aim of improving the relevant financial key figures to an investment grade level. We will also remain on course with our successful strategy of targeted investments to expand cement capacity in emerging countries. With our global market leadership in aggregates and our advantageous geographical positioning in attractive markets, we will do our utmost to benefit over-proportionally from the continued economic growth.”

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