7 November 2013

HeidelbergCement reports Q3 2013 results

HeidelbergCement doubles Group profit in Q3 2013 – currency effects burden operating income

Highlights Q3 2013 and outlook:

  • Solid operational performance concealed by currency effects:
    • Cement volumes up +4%; aggregates volumes up +6%;
    • RMC volumes up +4%
    • Group revenue stable at €3.9 billion (like-for-like +5%)
    • Operating income before depreciation (OIBD) decreased by 7% to
    • €811 million (like-for-like -2%; excluding prior year gain from exhausted quarry sale +4%)
  • Margin improvement programmes are well on track:
    • Successful price increases in principal markets
    • “FOX 2013“ already achieves full-year target after 9 months
    • Lower energy costs
  • Earnings per share more than doubled to €3.10
  • Outlook for 2013 confirmed; target achievement more challenging due to currency effectsOverview January to September 2013

Overview January to September 2013

Operating income before depreciation (OIBD)8728111,7791,764
in % of revenue22.1%20.8%16.9%16.9%
Operating income6476031,1521,143
Additional ordinary result-59236-113232
Result from participations17163329
Earnings before interest and income taxes (EBIT)6068561,0721,404
Profit before tax423721590975
Net income from continuing operations324628404816
Net income/loss from discontinued operations-6-1096
Profit for the period318627403912
Group share of profit254580226755

* Amounts restated

Q3 sales volumes benefit from recovery in Europe and North America as well as sustained growth in emerging countries

Sales volumes improved in all business lines compared with the third quarter of 2012 due to the continued recovery of demand for construction materials in Europe and North America as well as the sustained growth in Asian and African countries.

During the third quarter, the Group’s cement and clinker sales volumes increased by 4.1% to 25.3 million tonnes (previous year: 24.3). The North America Group area experienced the strongest growth in sales volumes, followed by Asia-Pacific and Africa-Mediterranean Basin. Cement sales volumes in Western and Northern Europe as well as Eastern Europe-Central Asia increased also slightly. Deliveries in the United Kingdom were more than 10% above those of the previous year due to the recovery in private residential construction and current infrastructure projects in the area of London. Following the drop in demand in the first half of the year, cement sales volumes stabilised in Eastern Europe. Adjusted for consolidation effects, cement sales volumes increased by 2.9%. Deliveries of aggregates rose significantly by 6.3% to 73.1 million tonnes (previous year: 68.8); adjusted for consolidation effects, the increase amounted to 5.5%. Especially in North America, aggregates sales volumes increased considerably. Deliveries of ready-mixed concrete rose by 4.5% to 11.0 million cubic metres (previous year: 10.5). Key growth drivers were the markets in Asia, especially in Indonesia. Asphalt sales volumes fell slightly by 0.6% to 2.8 million tonnes (previous year: 2.9).

In the first nine months of the year, cement and clinker sales volumes increased slightly by 1.0% to 67.7 million tonnes (previous year: 67.0). While deliveries of aggregates fell marginally by 1.2% to 180.6 million tonnes (previous year: 182.9), deliveries of ready-mixed concrete rose by 2.6% to 29.8 million cubic metres (previous year: 29.0); asphalt sales volumes declined by 2.5% to 6.4 million tonnes (previous year: 6.5).

Development of revenue and results

Group revenue remained almost stable at €3.891 million (previous year: 3.944). The increase in sales volumes and successful cement and aggregates price increases in principal markets could not fully offset negative currency effects in the Group areas. Excluding exchange rate and consolidation effects, revenue grew by 4.9%, with all Group areas recording an increase, except for Eastern Europe-Central Asia.

Operating income before depreciation (OIBD) declined by 7.0% to €811 million (previous year: 872), operating income decreased by 6.8% to €603 million (previous year: 647). Although the increase in sales volumes, successful price increases, and declining energy and raw material costs contributed positively to the development in results, they could not fully compensate for negative currency effects. Excluding exchange rate and consolidation effects as well as a €48 million gain from the sale of a depleted quarry in the third quarter 2012, operating income before depreciation increased by 4.2% and operating income by 7.1%.

“The positive development of sales volumes, prices, and costs shows, that we continue to be operationally well on track”, says Dr. Bernd Scheifele, Chairman of the Managing Board. “Thanks to the cost savings measures implemented at an early stage, we see a significant increase in results in North America and the United Kingdom. On Group level, however, we had to face growing headwind in revenue and operating income in the third quarter, due to the significant strengthening of the euro. Our efficiency improvement programmes continue to progress according to plan.”

Additional ordinary result of the third quarter improved by €295.3 million to €236.3 million (previous year: -59.0), mainly due to a non-cash effective profit from the unwinding of an obsolete corporate structure of Hanson in the UK. Furthermore, the same quarter of the previous year included a loss of €43.8 million from the disposal of business units in North America. Financial result rose significantly by €48.0 million to €-135.0 million (previous year: -183.0) mainly due to a decrease in net interest expenses by 14% to €123 million.

Profit before tax from continuing operations improved considerably by 70.5% to €720.5 million (previous year: 422.5). Tax expenses in the third quarter of 2013 amounted to €92.4 million (previous year: 98.7). Net income from continuing operations rose to €628.1 million (previous year: 323.8).

Overall, profit for the period rose notably by 97.6% to €627.4 million (previous year: 317.6) in the third quarter. The share of profit attributable to non-controlling interests fell by €16.3 million to €47.7 million (previous year: 64.0). This was mainly the result of currency effects and the increase in the stake in the Russian cement producer CJSC Construction Materials in the Republic of Bashkortostan from 51% to 100%. Group share of profit increased by 128.6% to €579.8 million (previous year: 253.6). Accordingly, earnings per share improved considerably to €3.10 (previous year: 1.36).

In the first nine months of the year, Group revenue remained almost at previous year’s level with €10,450 million (previous year: 10,525). Operating income before depreciation (OIBD) fell by 0.9% to €1,764 million (previous year: 1,779); operating income declined also slightly by 0.7% to €1,143 million (previous year: 1,152). Profit for the first nine months of the financial year rose significantly to €912 million (previous year: 403). Profit attributable to non-controlling interests decreased to €157 million (previous year: 177). Group share of profit, therefore, improved considerably to €755 million (previous year: 226).

At the end of September 2013, the number of employees at HeidelbergCement stood at 53,621 (previous year: 53,729). The decrease of 108 employees results essentially from two opposing developments: on the one hand, the number of jobs in the North America Group area, in Benelux, Spain, and some Eastern European countries declined by more than 1,100 as a result of efficiency improvements in sales and administration, location optimisations, and capacity adjustments. On the other hand, more than 700 new employees were hired in growth markets such as Indonesia and central Asia. Furthermore, the number of employees rose by around 300 due to the increase of our stake in the proportionately consolidated cement company Cement Australia and the acquisition of the remaining 50% in the hitherto proportionately consolidated Midland Quarry Products, United Kingdom.

Net debt increased slightly compared to the previous year – financing structure improved

At the end of the third quarter of 2013, HeidelbergCement’s net debt amounted to €8.0 billion, which is €0.2 billion higher compared with the end of the third quarter of 2012. Thereby, gearing rose to 61.5% (previous year: 55.0%).

Development of net debt was influenced by the complete payment of €161 million for the cartel fine confirmed by the Federal Court of Justice in Germany in April, negative currency effects, and higher investments in the first half of the year compared with the previous year. The higher amount of investments in the first half of 2013 results from the increase in HeidelbergCement’s stake in Cement Australia and in the British building materials producer Midland Quarry Products. In the first nine months of 2013, cash flow investments amounted to €930.1 million (previous year: 511.2). The overall restrictive investment policy remains unchanged.

HeidelbergCement further improved its financing structure. In October, HeidelbergCement issued a 7 year Eurobond with an issuance volume of €300 million and a yield to maturity of 3.375%. Compared with the last Eurobond issued in spring 2012, the terms have improved once again despite longer maturity. This is a clear proof of the improved credit quality of HeidelbergCement.

“FOX 2013” programme already achieves full-year target after 9 months – margin improvement programmes “PERFORM”, “CLIMB Commercial”, and “LEO” progress according to plan

After only nine months, the three-year programme for financial and operational excellence “FOX 2013” exceeded the 2013 savings target of €240 million and generated cash savings of €253 million. The reduction of working capital as well as savings achieved in procurement and the “OPEX” project exceeded expectations. The projects that were launched to improve margins – “PERFORM” for cement, “CLIMB Commercial” for aggregates, and “LEO” for reduction of logistics costs – continue to progress according to plan.

Outlook for 2013

In its latest forecast, the International Monetary Fund (IMF) has further reduced growth rates for the world economy. The on-going slower growth in China and the possible ending of the extremely relaxed monetary policy in the USA have negatively impacted the growth potential and exchange rates of emerging countries. For 2013, the IMF expects a growth rate of 2.9% only, compared to 3.2% in 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 world economy.

In North America, HeidelbergCement continues to expect an on-going economic recovery and consequently a further increasing demand for building materials, especially from residential construction and the raw materials industry. A three-layered economic development is anticipated in Europe and central Asia: The markets in Germany, Northern Europe, and the United Kingdom should continue to develop positively. Markets in central Asia should stabilise, and in Benelux and Eastern Europe a continuing weak development of the economy and demand for building materials is anticipated. In Asia and Africa, HeidelbergCement expects no changes in the sustained growth in demand.

In terms of costs, the Group anticipates a light to moderate increase in the cost base for raw materials and personnel. For energy costs, HeidelbergCement expects a stable or slightly declining development overall for 2013, following the slight decline in the first nine months of the year. The objective remains to recover the margin loss that has arisen from the massively increasing energy costs in recent years. Price increases have top priority. To this end, the Group started two sales excellence programmes in 2012 – “PERFORM” for the cement business in the USA and Europe as well as “CLIMB Commercial” for the aggregates business line – with the objective of achieving a margin improvement of €350 million by 2015. The Group wants to realise a further €240 million of cash-relevant savings in 2013 as part of the “FOX 2013” programme, in comparison with the base year 2010. Furthermore, HeidelbergCement is continuing the “LEO” programme for optimising supply chains, which should reduce costs by €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.

Based on the increase in the stake of Cement Australia, Midland Quarry Products, and CJSC “Construction Materials”, the Group will probably exceed its target of €1.1 billion for cash flow investments and reach a level of about €1.35 billion. HeidelbergCement nevertheless sticks to the original target and will continue with its disciplined investment policy.

“Despite the growing headwind, we confirm our earnings outlook for 2013, even though reaching our targets is much more challenging than assumed at the end of the first half of the year”, says Dr. Bernd Scheifele. “In view of the weakening economic development and exchange rates in some emerging countries, we will continue unabatedly with our measures to improve margins. We will maintain our focus on increasing sales prices. For this purpose, we will intensify our implementation efforts for the “PERFORM” and “CLIMB Commercial” sales excellence programmes. At the same time, we will continue to drive our efforts to lower costs and increase efficiency with the “FOX 2013” and “LEO” programmes. Deleveraging with the aim to improve the decisive key financial ratios is still a top priority for us, in order to qualify for an investment grade rating. We will also remain on course with our successful strategy of targeted investments to expand cement capacities in emerging countries. With our global market leadership in the aggregates business line and our advantageous geographical positioning in attractive markets, we will do all we can to benefit over-proportionally from the continued economic growth.”

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Andreas Schaller

Group Spokesman, Director Group Communication & Investor Relations
+49 6221 481 13249
+49 6221 481 13217
HeidelbergCement AG
Berliner Straße 6
69120 Heidelberg