18 March 2010
HeidelbergCement reports Group annual results 2009
HeidelbergCement strengthens balance sheet and liquidity in the crisis – Well-positioned for 2010
2009 annual accounts
- Shareholders’ equity strengthened by EUR 2.23 billion capital increase
- Net debt reduced by EUR 3.2 billion – gearing stands at 76.5%
- Liquidity reserve of app. EUR 3 billion
- Cost reduction goals exceeded – savings of EUR 550 million achieved
- Gross margin increased – operating margin maintained at a high level
- Net profit for the financial year of EUR 168 million – one-time extraordinary charges of EUR 790 million
- Continued focus on costs and cash flow
- Slow recovery in Europe and North America, primarily in the second half of the year
- Positive growth prospects in Asia, Australia, and Africa
- Cement capacity expansion of 17 million tonnes creates potential for new growth
- HeidelbergCement well-positioned to benefit to a relatively strong degree from a recovery of the global economy
Acting decisively during the crisis
During the global economic crisis, HeidelbergCement demonstrated operational strength and uncompromising cost and cash management. Thanks to a carefully balanced package of measures, the Group's capital and financing structure was placed on a completely new and solid basis. The “Fitness 2009” programme to reduce costs, which was started at an early stage, exceeded its original goals considerably and strengthened HeidelbergCement's resistance in the face of the crisis.
"The HeidelbergCement team demonstrated convincingly that it can act quickly, decisively, and successfully even in extremely difficult market conditions," said Dr. Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. "Despite extraordinary charges, we achieved a respectable profit for the financial year. The strong dedication of our employees and management, as well as the strengthened balance sheet and cost structure, are a good starting point for future success."
In 2009, HeidelbergCement’s global business was characterised by the economic crisis. As expected, turnover and results were below the previous year's level. Group turnover fell by 21.6% to EUR 11,117 million (previous year: 14,187). The decline in turnover reflects the significant slump in sales volumes in the core business areas of cement, aggregates, and ready-mixed concrete. In addition, Group turnover was impaired by negative exchange rate effects of EUR 437 million.
Operating income before depreciation (OIBD) fell by 28.6% to EUR 2,102 million (previous year: 2,946); operating income declined by 38.6% to EUR 1,317 million (previous year: 2,147). The adverse impact of exchange rate effects on these figures amounted to EUR 126 million and EUR 109 million respectively. In addition, the decrease in working capital, especially in the business areas of aggregates and building products, had a negative effect on results. The US and United Kingdom were particularly hard hit by the declining construction industry. Nevertheless, a positive operating income was recorded in both countries. In the Europe Group area, Spain, Russia, Ukraine, Georgia, and the Baltic region were particularly affected by a considerable decline in results. In contrast, a pleasing development was recorded in the Asia-Australia-Africa Group area. The Group area's OIBD reached a new record value, with EUR 741 million and a margin of 25.8%. This was partly due to the recovery in demand, which started from the first quarter of 2009, particularly in China, India, Indonesia, and Bangladesh.
"Fitness 2009" programme: savings of EUR 550 million
HeidelbergCement responded at an early stage to the worldwide recession and, in July 2008, decided on its "Fitness 2009" programme with comprehensive cost reduction measures. The programme focused on savings in the area of fixed costs and the consistent adjustment of production capacities to the declining markets. The original cost reduction goal of EUR 250 million was exceeded by a considerable margin, with savings of EUR 550 million being ultimately achieved. The strict but necessary measures led to a decrease of around 7,500 employees across the Group in 2009. As at the end of the year, HeidelbergCement had 53,302 employees.
The success of the "Fitness 2009" programme is particularly evident in the operating income: the gross margin in the Group rose by one percentage point to around 49%. Despite the heavy decline in sales volumes, we succeeded in exercising strict pricing discipline with slightly lower energy and raw material costs. Adjusted for one-time effects in connection with the reduction in stock, the operating margin before depreciation remained almost at the previous year’s level in the core business areas of cement and aggregates.
Net profit for the financial year of EUR 168 million
The profit for the financial year was significantly impaired by one-time effects totalling around EUR 790 million, incurred in connection with the refinancing measures, restructuring costs, and non-cash goodwill impairment and depreciation on production facilities – on account of the low capacity utilisation. Despite these negative effects and the adverse impact of exchange rate fluctuations, the company achieved a net profit for the financial year of EUR 168 million, thanks to the successful cost reduction measures.
According to the Managing Board and Supervisory Board's proposal, the dividend of EUR 0.12 per share is set to remain stable in comparison with the previous year.
Capital and financing structure strengthened
In 2009, HeidelbergCement placed the Group's capital and financing structure on a completely new and solid basis. The shareholders’ equity was strengthened by the capital increase of EUR 2.23 billion, and the net debt fell by EUR 3.2 billion. At the end of 2009, the shareholders’ equity ratio stood at 43.2% and the gearing at 76.5%. The liquidity reserve amounted to around EUR 3 billion at the end of 2009.
The "Cash is king" initiative, which was started immediately following the Lehman Brothers collapse, played a crucial role in the reduction of the net debt: the cash flow was increased by around EUR 1.5 billion as a result of a targeted reduction of inventories across the Group, optimisation of the cash payments cycle, strict investment discipline, and successful sales of non-strategic business units of the Group. With the successful implementation of the "Cash is king" initiative, we created a solid foundation for the subsequent reorganisation of the capital and financing structure.
In June 2009, the Group successfully negotiated a syndicated loan totalling EUR 8.7 billion with more than 50 banks, which refinanced the existing credit agreements connected with the takeover of Hanson in 2007 and, notably, extended the term until December 2011.
Capital measures successfully completed – credit rating improved
HeidelbergCement made use of the positive momentum in the capital market following the successful completion of the refinancing to carry out a substantial capital increase in September 2009, which brought the Group a total of around EUR 2.23 billion. As a result of the capital increase and the simultaneous sale of shares by the main shareholders, HeidelbergCement's free float increased significantly to over 75%. The Group subsequently issued bonds totalling EUR 2.5 billion in October 2009, and used the issue proceeds, as well as the proceeds from the capital increase, to repay bank debt.
The issue of further Eurobonds totalling EUR 1.4 billion in January 2010 allowed HeidelbergCement to reduce the bank term debt to around EUR 700 million. The package of measures to reduce the net debt and refinance the bank debt also led to a comprehensive optimisation of the maturity structure. The rating agencies reacted to the successful refinancing measures with a significant upgrade of the credit rating.
Targeted expansion of market position in growing markets
Despite the economic crisis and the considerable extraordinary charges in 2009, HeidelbergCement continued its strategy of targeted expansion of its market position in the cement business line in growth markets. At the Cirebon plant in Indonesia, two new cement mills were installed, which will increase the available capacities by around 1.5 million tonnes from 2010. In Tanzania, HeidelbergCement installed a new kiln line, expanding the capacity by around 1 million tonnes. In the Beremend cement plant in Hungary and the Mokra plant in the Czech Republic, completely renovated state-of-the-art kiln lines commenced operation.
Construction work on the new Tula cement plant in Russia, with a capacity of 2 million tonnes, proceeded as planned, and the start of production for delivery to the Moscow market is set to begin in early 2011. In Bangladesh, the cement capacities are to be expanded by around 1 million tonnes. In addition, a project was started to expand the capacities in central India by 2.9 million tonnes. The complete expansion programme for growth markets, which started as early as 2008 with the expansion of the Chinese capacities by 4.5 million tonnes, involves capacity expansions of around 17 million tonnes by 2012. HeidelbergCement is thus creating potential for new growth.
HeidelbergCement expects the global economy to recover slowly, with differences in development between growth markets and industrialised countries. The Group anticipates worldwide growth in cement, aggregates, and ready-mixed concrete in 2010, driven by continued positive development in Asia and Africa.
For the US and Europe, HeidelbergCement expects further declines in volumes in the first half of the year, partly because of the long and hard winter. In the US, a market recovery is anticipated in the second half of the year; the extent and speed of this will strongly depend on the further development in residential construction, the spending of the US states, and the pending decision of the US Congress regarding the financing of the Federal Highway Program.
In Europe, HeidelbergCement expects a stabilisation of residential construction at a historically low level, a noticeable decline in commercial construction, and a positive development in infrastructure.
Based on its strategy of vertical integration and better capacity utilisation as a result of substantial inventory reductions, the Group expects a stable price development in the core business areas of cement and aggregates.
"We are continuing our consistent cost management with the 'FitnessPlus 2010' cost-saving programme," said Dr. Bernd Scheifele. "We are maintaining our focus on cash flow and stable margins in order to reduce our debt and further improve our key financial ratios. As the world market leader in aggregates and because of our strong global market position, we are in an ideal position to benefit to a relatively strong degree from a recovery of the global economy."
With the significant rise in the free float, there has also been a substantial increase in interest from investors and analysts. HeidelbergCement intends to further develop its capital market orientation and communication accordingly. The Group's goal for 2010 continues to be the inclusion in the German benchmark DAX index.
Overview of the HeidelbergCement Group
|Profit and Loss Accounts|
|in % of turnover||20.8%||18.9%||20.1%|
|Net profit before maxit & goodwill impairment||972||588||-39.5%|
|Earnings per share (IAS 33)**||14.55||0.30||-97.3%|
|EPS before maxit & goodwill impairment||6.93||3.26||-53.0%|
|Cash flow statement|
|Cash flow from operating activities||1,523||1,164||-23.8%|
* At constant scope, exchange rates, and stock level.
** Attributable to the parent entity.
*** Excluding putable minorities.