6 August 2007

HeidelbergCement – Interim Report January to June 2007

– Extract –

HeidelbergCement further on course for growth

  • Group turnover rises by 12.5% to EUR 4.8 billion
  • Significant improvement in operating income
  • Hanson shareholders approve recommended cash offer
  • New Managing Board position established
  • Expansion in Russia, China and Turkey

Overview January-June 2007

April-JuneJanuary-June
EURm2006200720062007
Turnover2,5322,7504,2764,811
Operating income before depreciation (OIBD)624691814974
Operating income498561562720
Additional ordinary result3979261829
Results from participations558982107
Earnings before interest and income taxes (EBIT)5921,4427051,656
Profit before tax5351,3756031,536
Profit for the financial year3781,2234151,342
Group share in profit3461,1943751,303
Investments1423,4003043,639

During the first half of the year, HeidelbergCement’s cement and clinker sales volumes rose by 12.5% to 41.1 million tonnes (previous year: 36.6). Excluding consolidation effects, the increase amounted to 5.0%. The growth was strongest in the Asia-Africa-Mediterranean Basin Group area, followed by Europe-Central Asia. In North America, our sales volumes decreased only slightly in the second quarter.

In the first six months, Group turnover grew by 12.5% to EUR 4,811 million (previous year: 4,276). Negative exchange rate effects resulting from the strong euro outweighed the growth from new consolidations. Excluding currency and consolidation effects, turnover increased by 13.5%. Operating income before depreciation (OIBD) improved by 19.7%, reaching EUR 974 million (previous year: 814). An increase of 28.1% was recorded in operating income, which amounted to EUR 720 million (previous year: 562). By far the biggest contribution to the improvement in results came from Europe-Central Asia. North America recorded a decline as a result of cyclical and currency-related factors. Despite a decline, operating profit of the North America Group Area remained at a high level.

The additional ordinary result of EUR 829 million (previous year: 61) is heavily characterised by the sale of our participation Vicat. The inclusion of Hanson PLC for the first time as an associated company and the pro rata profit for the financial year achieved by Vicat led to an overall increase of EUR 24.2 million in results from participations, which amounted to EUR 106.7 million. The change of EUR -17.8 million in the financial results is essentially attributable to the additional financing required for the Hanson acquisition. Sustained growth and one-off effects, particularly in the second quarter, led to a profit before tax of EUR 1,536 million (previous year: 603). Taxes on income increased by EUR 6 million to EUR 194 million (previous year: 188). The disproportionately small increase in taxes is due to the below-average taxation of capital gains and the further reduction in Group tax rate. The profit for the financial year improved to EUR 1,342 million (previous year: 415). The Group share in profit more than trebled to EUR 1,303 million (previous year: 375). Without consideration of the additional ordinary result from the sale of our stake in Vicat, Group share in profit rose by 35% to EUR 508 million (previous year: 375).

The balance sheet total increased by EUR 3.4 billion to EUR 15.7 billion in the first half of 2007. The increase in shares in associated companies amounting to EUR 2.6 billion mainly results from the purchase of 27.6 % of the shares in Hanson PLC and the sale of our investment in Vicat. The increase in trade receivables by EUR 0.3 billion to EUR 1.4 billion reflects the seasonal nature of our business. The changes in shareholders’ equity and liabilities result mainly from the cash capital increase of EUR 0.5 billion, the profit for the financial year of EUR 1.3 billion and the increase in interest-bearing liabilities of EUR 1.5 billion.

Takeover of Hanson PLC

On 15 May 2007, HeidelbergCement submitted a formal cash takeover bid to all shareholders of the British building material manufacturer Hanson PLC for the acquisition of their shares at the price of 1,100 pence per share. Hanson values this bid at around GBP 8 billion (approximately EUR 11.7 billion). Hanson’s Board of Directors has recommended that its shareholders accept the bid. The Hanson shareholders gave their consent in an Extraordinary General Meeting on 31 July with a convincing majority of over 99%. Authorisation from the American anti-trust authorities and the European Commission is still required before the takeover can be deemed complete. We remain confident that we can complete the transaction in August or September.

The recommended cash offer submitted to the shareholders of Hanson PLC is a logical consequence of the reorientation of our strategy: To strengthen its market position in the long term, HeidelbergCement is taking a dual strategic approach with a focus on cement in growing markets and on aggregates in mature markets and North America. Taking over Hanson would mean that HeidelbergCement now belongs to the select group of global players in our industry and become the global market leader for aggregates.

Financing measures

The necessary acquisition financing is initially being provided via a credit facility concluded with Deutsche Bank and the Royal Bank of Scotland. This facility has now been successfully syndicated to 46 banks. HeidelbergCement received around EUR 527 million from a capital increase for cash with a subscription price of EUR 120 per share; VEM Vermögensverwaltung GmbH, which belongs to the Merckle group, subscribed to the capital increase. The net cash generated from the sale of our participation in Vicat S.A., amounting to around EUR 1.4 billion, was used for early repayment of part of the syndicated loan already utilised. Furthermore, the intention is that the facility will be partially refinanced by the issue of a hybrid loan as well as via senior loans and the divestment of parts of the Group that do not form part of the core business.

Changes on the Managing Board

The Personnel Committee of HeidelbergCement has decided to recommend to the Supervisory Board that two positions on the Managing Board be re-assigned. A new Managing Board position is to be created in order to cope with the increasing size of the Group, a result of the planned takeover of Hanson, and ensure that the company is rapidly integrated. From 1 October, Dr. Dominik von Achten, formerly a responsible partner & Managing Director of The Boston Consulting Group, will be the head of this Managing Board responsibility.

Dr. Albert Scheuer, who has belonged to the Group since 1992, will also be appointed to the Managing Board. He has held the position of Executive Vice-President of Lehigh Cement Company in the US since 1 August and will continue to do so until the end of the year. From 1 January 2008, he will succeed Helmut S. Erhard, who is retiring, as President and CEO of Lehigh Cement Company.

Sale of Vicat

In June, HeidelbergCement sold its 35% participation in the French building materials company Vicat as part of its strategic reorientation. The total sales revenue of EUR 1.4 billion was used to partially repay the aforementioned syndicated loan.

Important expansion measures in our Group areas

In April 2007, the foundation stone was laid for the construction of the Tulacement plant in Russia. The cement plant, located 130 km south of Moscow in Gurovo in the Tula region, will have a capacity of 2 million tonnes and will supply Russia’s largest cement market – the Moscow area. The ultra-modern plant, constructed according to the latest environmental standards, is to be commissioned at the end of 2008.

At the end of June, we commissioned the new Jingyang cement plant in the Chinese province of Shaanxi, which we operate as a joint venture with the Chinese cement manufacturer Jidong Cement. The plant, with a capacity of 2.3 million tonnes of cement, primarily supplies the growing market around the provincial capital Xi’an.

In Turkey, our joint venture Akçansa acquired the Ladik cement plant, 80 km from the harbour city of Samsun. By taking over this plant with a cement capacity of 1.2 million tonnes, Akçansa is extending its activities to the Central Black Sea region and securing its leading market position in Turkey.

Prospects

The broad-based upturn in the global economy should continue in the second half of 2007, with only a slight fall in dynamics. Growth rates are particularly strong in the emerging countries, not only in China, but now also in India. Overall, Europe is continuing its solid growth trend. The German economy will be primarily supported by the unabated level of export activity, while consumption is still characterised by a backlog of demand. The Eastern European countries are growing at a considerably above-average rate. On the other hand, the weakness of the American housing market and the significant devaluation of the US dollar still pose high risks.

With its broad geographical positioning, HeidelbergCement is confident of once again achieving the planned significant improvement in turnover and results in 2007. The Eastern European and Asian markets will play a particularly important role in reaching this target. The expansion of our capacities, as well as investments to improve efficiency and protect the environment, increases our results potential.

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Andreas Schaller

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

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