4 November 2010

HeidelbergCement reports Q3 2010 results

HeidelbergCement's turnover and results increase in third quarter – Good geographical positioning and cost-saving programmes make an impact

Highlights Q3 2010 and outlook:

  • Positive trend continued in Q3: sales volumes of cement, aggregates, and ready-mixed concrete increase in comparison with last year
  • Turnover reaches EUR 3.4 billion (+12.6% from the same quarter last year)
  • Operating income margin before depreciation increases to 22.8 % l-f-l*
  • Clear improvement of profit for the period to EUR 368 million (+81%)
  • Net debt reduced to EUR 8.6 billion
  • Cost-saving programme "FitnessPlus 2010" progressing as planned
  • Sustained growth in Asia-Pacific and Africa-Mediterranean Basin and continuation of recovery in North America and Europe expected
  • Focus on reducing debt and targeted expansion of cement capacities in growth regions

Overview Q3 and January – September 2010

Operating income before depreciation (OIBD)7707771,6061,642
in % of turnover25.5%22.8%19.1%18.5%
in % of turnover like-for-like*22.5%22.8%18.3%18.4%
Operating income5715731,0281,047
Additional ordinary result-351811-33
Results from participations27134817
Earnings before interest and income taxes (EBIT)5636041,0871,031
Profit before tax281441442464
Net income from continuing operations209379537396
Net loss from discontinued operations-6-11-15-24
Profit for the period203368522372
Group share in profit149322419243

*) Excluding exchange rate and consolidation effects as well as proceeds from sale of CO2 emission rights (EURm 83 in Q3 2009)

Q3 sales volumes benefit from positive development of demand

Thanks to sustained growth in Asia-Pacific and Africa, as well as recovering markets in North America and Europe, the sales volumes for cement, aggregates, and ready-mixed concrete in the third quarter were above the figures for the same quarter of the previous year. North America continued to benefit from the infrastructure projects; in Western and Northern Europe, the demand for aggregates and ready-mixed concrete exceeded the previous year's level, as it did in the second quarter. In the Eastern Europe-Central Asia Group area, sales volumes were still below the same quarter of the previous year, however, the decline has further slowed down. The growth in the other Group areas clearly outweighed these declines.

During the third quarter, the Group’s cement and clinker sales volumes rose by 1% to 21.8 million tonnes (previous year: 21.5). The largest contribution was made by the Asia-Pacific Group area, followed by Africa-Mediterranean Basin. In Asia, HeidelbergCement continued to benefit from its strong position in Indonesia. In Africa-Mediterranean Basin, the countries south of the Sahara are experiencing an increase in production and demand. Sales volumes in North America stabilised at the relatively high level of the previous year, thanks to continued positive business development in Canada and increases in sales volumes in the south and west of the US. While volumes in Eastern Europe-Central Asia still experienced a significant decline, in Western and Northern Europe they almost reached the previous year's level. Deliveries of aggregates grew by 3.6% to 73.0 million tonnes (previous year: 70.4); adjusted for consolidation effects, the increase amounted to 0.6%. This rise was primarily due to the higher demand in North America and in Western and Northern Europe, based on the ongoing infrastructure projects. Deliveries of ready-mixed concrete rose by 4.0% to 9.7 million cubic metres (previous year: 9.3). Adjusted for consolidation effects, asphalt sales volumes fell by 6.0% to 3.0 million tonnes.

In the first nine months of 2010, cement and clinker sales volumes slightly decreased by 0.6% to 58.8 million tonnes (previous year: 59.2). Deliveries of aggregates rose by 1.5% to 181.3 million tonnes (previous year: 178.7). Deliveries of ready-mixed concrete remained stable at 26.2 million cubic metres, while asphalt sales volumes decreased by 11.0% to 6.8 million tonnes (previous year: 7.6).

Positive development of turnover and results

Group turnover rose by 12.6% in the third quarter to EUR 3,401 million (previous year: 3,021). Turnover improved in all Group areas except Eastern Europe-Central Asia. Excluding exchange rate and consolidation effects, turnover increased by 1.8%. Operating income before depreciation (OIBD) improved by 0.9% to EUR 777 million (previous year: 770) and operating income rose slightly to EUR 573 million (previous year: 571). The business years 2009 and 2010 differ with respect to the timing of the sale of excess CO2 emission rights. The operating income of the third quarter of 2009 included proceeds from the sale of CO2 emission rights amounting to EUR 83 million, whereas there were almost no proceeds of this kind in the third quarter of 2010. The majority of the sale of excess CO2 emission rights will happen in the fourth quarter of the current year. Adjusted for the sale of CO2 emission rights and excluding exchange rate and consolidation effects, OIBD improved by 3% in the third quarter of 2010 and operating income even by 6% in comparison with the same quarter of the previous year.

"In the third quarter, we were able to further increase our turnover and results in comparison with the previous year because of our advantageous geographical positioning in local growth markets and the successful continuation of our efficiency and cost-saving programmes," explained Chairman of the Managing Board Dr. Bernd Scheifele. "In the last three months, we have been able to reduce our net debt by over EUR 400 million to around EUR 8.6 billion thanks to the positive business development. Our 'FitnessPlus 2010' programme is still on schedule and generated savings of EUR 203 million in the first nine months."

The financial result for the third quarter improved considerably to EUR -162.5 million (previous year: -282.4). This is essentially due to the non-occurrence in the third quarter 2010 of costs in connection with the measures to reorganise the financing structure in 2009.

The profit before tax from continuing operations improved clearly to EUR 441.3 million (previous year: 280.5). As a result, the net income from continuing operations rose to EUR 379.0 million (previous year: 209.2). The Group share improved to EUR 321.8 million (previous year: 149.3).

In the first nine months of 2010, Group turnover rose by 5.8% to EUR 8,877 million (previous year: 8,391). Excluding exchange rate and consolidation effects, turnover decreased by 1.8%. OIBD improved by 2.2% to EUR 1,642 million (previous year: 1,606) and operating income increased by 1.8% to EUR 1,047 million (previous year: 1,028). The profit for the first nine months of the financial year amounted to EUR 372.1 million (previous year: 521.6) and the Group share of profit to EUR 243.0 million (previous year: 419.3).

At the end of the third quarter of 2010, the number of employees at HeidelbergCement was 54,742 (previous year: 55,796). The decrease of 1,054 employees results essentially from two opposing developments: the location optimisations and capacity adjustments linked with job cuts, particularly in North America and the United Kingdom, and the increase in the number of employees in Africa because of the first-time consolidation of the cement activities in the Democratic Republic of Congo.

Net debt reduced – USD 750 million Hanson bond repaid

As a result of a further improvement in the operational cash flow, net debt was reduced by over EUR 300 million to EUR 8,647 million at the end of September 2010 (EUR 8,971 million at the end of September 2009). This led to an improvement in the gearing to 71.3% (81.9% at the end of September 2009). On 27 September, HeidelbergCement repaid a mature Hanson bond with a nominal value of USD 750 million from free cash flow and by using free credit lines. Despite the refinancing of the bond, the available liquidity from cash and unused credit lines amounted to EUR 2,915 million as at the end of September 2010.

Targeted expansion of cement capacities in growth markets

In the third quarter, HeidelbergCement continued the targeted expansion of cement capacities in growth markets. In Indonesia, two new cement mills were commissioned, with a total capacity of 1.5 million tonnes. In the Democratic Republic of Congo, HeidelbergCement entered into a partnership with the local market leader Forrest Group and acquired a majority share in three cement plants. The expansion of cement capacities in emerging countries is to be consistently continued with the aim of increasing the proportion of cement capacities in growing markets from around 58% at present to 67% in the long term.


So far, economic development in 2010 has been better than originally expected. The IMF's growth forecasts for the end of 2010 and for 2011 were recently reduced, however, because of increased risks connected with the national debt in individual countries and weaker-than-expected consumer spending in the US.

Development dynamics of the economic growth still clearly differ from region to region. In Asia and Africa, the positive trend is expected to continue. An improvement in economic output is also anticipated for North America and Europe. Uncertainties will still remain over the strength and timescale of the economic recovery because of the high level of unemployment and national debt in individual countries.

For Asia, HeidelbergCement expects sustained strong growth in China, Indonesia, India and Bangladesh. In Australia, stable development is anticipated overall. Above-average growth in comparison with the region south of the Sahara is expected for our core markets in Tanzania, Ghana, and the Democratic Republic of the Congo.

In North America, on the basis of the sustained expenditure on road construction in the US, the recovery of sales volumes is expected to slowly continue on into the next few quarters. The extent and speed of this recovery are still dependent on spending behaviour in the US states. A reduction in the unemployment figures remains a crucial factor for an upturn in private residential construction in the US. In Canada, the expansion of the oil sand industry in Alberta is expected to continue to drive demand for building materials.

In Western Europe, the expectations for future development present a varied picture. For Northern Europe and Germany, we anticipate a significant recovery driven by the strong economic development in Germany as well as other factors. The recently announced cost-saving measures in the United Kingdom proved to be less severe than expected. In particular, several important road-building projects were excluded from the cutbacks. Because of an expected decline in construction activity in Belgium and a weak Dutch construction market, further price pressure is anticipated in this region.

The recovery in Eastern Europe and Central Asia has taken the longest time to arrive. Construction activity in Poland is currently gathering pace again and growth rates are expected to increase towards pre-crisis levels. While demand in the Czech Republic is expected to stabilise and subsequently improve, we anticipate a continuation of the weak development in Hungary and Romania. In the countries in the eastern part of Eastern Europe and in Central Asia, increasing cement volumes (albeit from a low level) and a price recovery are expected.

"Demand for our building materials has further improved in the third quarter," explains Dr. Bernd Scheifele. "In terms of ongoing development, there are still uncertainties connected with the continuing high level of unemployment, particularly in the US, and the budgetary consolidations in individual countries. Therefore we will consistently complete our 'FitnessPlus 2010' cost-saving programme and keep working towards our savings goal of EUR 300 million for 2010. Debt reduction remains an important area of focus. At the same time, we will continue with our targeted investments in future growth, particularly in cement activities, in the emerging countries of Asia, Africa, and Eastern Europe. With improved cost structures, our operational strength, and leading market positions in attractive growth markets, we believe we are well-equipped to benefit to an above average degree from an economic upturn in the course of this year and the next."

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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