30 July 2014

HeidelbergCement Publishes Q2 2014 Results

HeidelbergCement increases revenue and results in the second quarter on a comparable basis

Highlights Q2 2014 and outlook:

  • Strong operating performance compared with previous year:
    • Increased sales volumes in all business lines
    • Group revenue stable at €3.6 billion (like-for-like1): +8%)
    • Operating income improved slightly to €516 million despite negative exchange rate effects (like-for-like: +12%)
  • EPS at €1.24 (previous year: €1.96, therein €0.99 one-time effect)
  • Operating cash flow improved significantly and net debt reduced
  • Outlook for 2014 confirmed:
    • Positive outlook for global economy due to recovery in the mature markets of North America and Northern Europe, esp. USA and UK
    • Growth in sales volumes of cement, aggregates, and ready-mixed concrete
    • Increase in revenue, operating income, and profit for the financial year before currency, consolidation and one-time effects

Overview Jan. to June 2014

Overview January to June 2014Year to dateQ2
€m2013*)2014VarianceLike-for- like1)2013*)2014VarianceLike-for- like1)
Sales volumes
Cement (Mt)37,25139,7597%8%21,35522,2804%5%
Aggregates (Mt)101,987108,6146%5%62,14064,2843%2%
Ready-mixed concrete (Mm3)16,38817,2455%6%9,4559,5381%1%
Asphalt (Mt)3,2703,83117%7%2,0782,30311%2%
Income statement
Operating income before depreciation (OIBD)9089282%15%710699-2%8%
  in % of revenue14.7%14.7%19.8%19.6%
Operating income5245668%28%5155160%12%
Profit before tax from continuing operations20427635%3683803%
Profit for the period2)241182-24%428290-32%
Earnings per share in € (IAS 33)3)0.710.46-35%1.961.24-37%
Statement of cash flows and balance sheet
Cash flow from operating activities-2867736364393329
Investments (cash outflow)-711-436275-297-180117
Net debt4)8,0458,016-27

* 2013 values were restated due to the retrospective application of IFRS 10 and 11
1) Like-for-like: adjusted for currency and consolidation effects
2) 2013 values include a one-time positive impact of €m 186 due to the set-up of receivables against primary insurers and the capitalisation of deferred taxes in the context of a court ruling related to asbestos claims.
3) Attributable to the parent entity
4) Excluding puttable minorities

Q2 sales volumes of building materials benefited from recovery in North America, the United Kingdom, and Eastern Europe, as well as growth in Asia

The continued recovery of the markets in North America, the United Kingdom, and Eastern Europe, as well as the sustained growth in the emerging countries, have had a favourable impact on HeidelbergCement’s sales volumes. All business lines recorded increasing sales volumes.

The Group’s cement and clinker sales volumes rose by 4% to 22.3 million tonnes (previous year: 21.4) in the second quarter. The strongest growth was achieved in the Eastern Europe-Central Asia Group area, followed by North America and Asia-Pacific. Cement sales volumes in the Western and Northern Europe Group area remained more or less stable. The continued recovery of the construction sector in the United Kingdom led to a notable increase in the demand for cement. In the other countries of the Group area, cement sales volumes remained slightly below the same quarter of the previous year due to anticipatory effects in construction owing to the mild winter weather in the first quarter and a lower number of working days. The Africa-Mediterranean Basin Group area saw a decrease in sales volumes due to the sale of our Gabon activities and a non- recurring export order in Q2 2013. However, production volumes rose by 6% in all other countries. Adjusted for consolidation effects, Group cement sales volumes rose by 5%.

Deliveries of aggregates increased by 3% (adjusted for consolidation effects +2%) to 64.3 million tonnes (previous year: 62.1). Higher sales volumes, particularly in the North America, Eastern Europe-Central Asia, and Asia-Pacific Group areas, as well as in the United Kingdom, contributed to this development. Deliveries of ready-mixed concrete rose marginally by 1% to 9.5 million cubic metres (previous year: 9.5). The Australian and North American markets were key growth drivers.

In the first half of the year, cement and clinker sales volumes rose by 7% to 39.8 million tonnes (previous year: 37.3). Deliveries of aggregates increased by 6% to 108.6 million tonnes (previous year: 102.0) and deliveries of ready-mixed concrete rose by 5% to 17.2 million cubic metres (previous year: 16.4). Asphalt sales volumes grew by 17% to 3.8 million tonnes (previous year: 3.3).

Development of revenue and results

Group revenue remained virtually stable in the second quarter at €3,568 million (previous year: 3,585). The weakening of numerous currencies against the euro since the middle of last year had a negative impact on revenue and operating income also in the second quarter. Translation effects impaired revenue by €261 million, operating income before depreciation (OIBD) by €67 million, and operating income by €56 million. Adjusted for exchange rate and the negligible consolidation effects in the second quarter, revenue was improved by 8%. All Group areas contributed to this growth. The higher sales volumes of our core products and successfully implemented price increases in major markets played a significant role.

Nominally, operating income before depreciation (OIBD) fell slightly to €699 million (previous year: 710), while operating income rose marginally to €516 million (previous year: 515). Adjusted for currency and consolidation effects, operating income before depreciation (OIBD) rose by 8% and operating income grew significantly by 12%. Successful price increases and declining energy and raw material prices contributed to the improvement in results.

“HeidelbergCement has continued the positive operational trend of the previous quarters”, stated Dr. Bernd Scheifele, Chairman of the Managing Board. “Revenue and results were notably improved on a like-for-like basis. Strict cost management, successful price increases in major markets, and, not least, our advantageous geographical positioning have contributed to this achievement. Moreover, our debt reduction is back on track thanks to our disciplined financial management. The negative exchange rate effects, which particularly impacted us in the second quarter, are expected to ease in the second half of the year.”

The additional ordinary result in the second quarter improved slightly to €1 million (previous year: -15). The financial result recorded a marginal decline of €4 million to €-147 million (previous year: -143). Although net interest expenses were reduced by €10 million, this was not sufficient to compensate currency losses and a declining other financial result. Profit before tax from continuing operations improved by 3% to €380 million (previous year: 368).

Tax expenses in the second quarter of 2014 were €52 million higher at €88 million (previous year: 36). The low level of the same quarter of the previous year was primarily due to the capitalisation of deferred taxes arising from losses carried forward. Net income from discontinued operations decreased from €96 million in the second quarter of 2013 to a net loss from discontinued operations of €-2 million in the second quarter of 2014. In the context of court ruling related to the Hanson asbestos claims, receivables against primary insurers were recognised in profit & loss in the second quarter of 2013 and in the following the aforementioned deferred taxes were capitalised. Overall, this led to a positive impact of around €186 million on the profit for the period and the Group share of profit or €0.99 per share in the same quarter of the previous year.

As a result, the profit for the financial year decreased in the second quarter of 2014 by 32% to €290 million (previous year: 428), and the Group share of profit dropped by 37% to €233 million (previous year: 368). Accordingly, earnings per share fell to €1.24 (previous year: 1.96). However, without taking into consideration the one-off effect in the previous year, profit, Group share of profit, and earnings per share have improved.

In the first half of the year, Group revenue rose despite negative exchange rate effects of €482 million by 2% to €6,318 million (previous year: 6,187). Like-for-like, revenue rose considerably by 11%. Operating income before depreciation (OIBD) improved by 2% to €928 million (previous year: 908); operating income grew by 8% to €566 million (previous year: 524). Adjusted for negative currency effects and negligible consolidation effects, operating income before depreciation (OIBD) increased significantly by 15% and operating income even rose by 28%. Net income from discontinued operations fell to €-3 million (previous year: 96) due to the previous year's income in connection with the lowering of the risk position related to the Hanson asbestos claims in the United States. The profit attributable to non-controlling interests decreased to €96 million (previous year: 108). The Group share of profit fell to €87 million (previous year: 133) because of the aforementioned one-off effect in the previous year, but increased considerably on a comparable basis.

At the end of the first half of 2014, the number of employees at HeidelbergCement stood almost unchanged in comparison with the previous year at 50,884 (previous year: 50,869). In the last twelve months, two opposing developments were recorded: on the one hand, around 300 jobs were cut in some Eastern European countries, in Benelux, and in India in connection with efficiency increases in sales and administration as well as location optimisations. Furthermore, the number of employees was reduced by around 1,400 due to the sale of the cement grinding plant in Raigad, India, the Russian aggregates company OAO Voronezhskoe Rudoupravlenije, and our participation in the cement company Cimgabon S.A. in Gabon as well as a result of further portfolio optimisations. On the other hand, around 700 new employees were hired in growth markets such as Indonesia and Central Asia. In the United Kingdom, Germany, North America, and Australia, the workforce grew by more than 900 employees as a result of the good market development. Moreover, our number of employees increased by around 100 due the increase in shares in January 2014 in Cimescaut Group, Belgium, which was previously accounted for at equity.

Disciplined management of cash flow and current assets – net debt reduced

Operating cash flow improved considerably in the second quarter from around €64 million to €393 million. This development is attributable to the good operational performance and the sustained discipline in the management of net current assets. The days working capital was further optimised and reduced to the record low of 42 days. Furthermore, the antitrust fine of €161 million was paid in full in the second quarter of the previous year. Net debt at the end of the second quarter amounted to €8.0 billion, which was around €27 million less than at the end of the same quarter of the previous year. At the end of 2013, net debt was still around €0.5 billion above the previous year’s figure. The relative reduction is a result of the improved operating cash flow and high investment discipline. The cash-relevant investments of €180 million were considerably lower than the €297 million for the same quarter of the previous year. In 2013, HeidelbergCement increased its shares in the Russian cement manufacturer CJSC Construction Materials in Bashkortostan from 51% to 100% and in the British building materials manufacturer Midland Quarry Products (MQP) from 50% to 100% within the scope of its strategically reasonable acquisitions with a low risk profile.

At the end of the second quarter, gearing was at 63.4% (previous year: 60.9%) and the ratio of net debt to operating income before depreciation (OIBD) was 3.4x. The liquidity reserve remained almost unchanged at €4.1 billion.

Margin improvement initiatives “PERFORM”, “CLIMB Commercial”, and “LEO” progressing according to plan – Continuous Improvement Program (CIP) launched

The projects launched in order to improve margins – “PERFORM” for cement, “CLIMB Commercial” for aggregates, and “LEO” to reduce logistics costs – are progressing according to plan and have contributed to margin improvements in the second quarter.

In June, HeidelbergCement launched the CIP (Continuous Improvement Program) for the continuous improvement of work processes in cement production. The new programme aims to introduce a systematic approach in 65 cement plants around the world to generate, prioritise, and implement employee ideas. Process improvements are expected to achieve a sustainable improvement in results of at least €120 million by the end of 2017.

Targeted expansion of market position in growth markets

In the second quarter, HeidelbergCement started preliminary production at its new integrated cement plant in Shetpe, Kazakhstan. The official commissioning of the location with a capacity of 0.8 million tonnes per year is scheduled for the second half of the year. The new vertical mill at the Citeureup location in Indonesia with an annual capacity of 1.9 million tonnes has also commenced operations. In the second half of the year, HeidelbergCement is planning the start of production and commissioning of additional production capacities, among others the clinker plant in Togo with an annual capacity of 1.5 million tonnes and the cement mills in Ghana (0.8 million tonnes per year), Tanzania (0.7 million tonnes per year), and Burkina Faso (0.7 million tonnes per year). The capacity expansion enables HeidelbergCement to serve the growing markets in key coastal towns and therefore to ensure its competitive advantage in West Africa.

Outlook confirmed for 2014

In its latest forecast, the International Monetary Fund (IMF) lowered again slightly the growth rates for the global economy, but continues to expect an acceleration in economic growth compared with the previous year. The slowdown is solely attributable to weaker performance in the emerging countries and the effects of the harsh winter in the United States in the first quarter. In the mature markets, the growth rates were even slightly raised in part, e.g. for Germany and the United Kingdom. However, the necessary budgetary consolidation measures in the industrial countries and their effects on the emerging countries continue to threaten the development of the global economy. The tapering of the US Federal Reserve led to capital outflows and exchange rate adjustments in the last twelve months. In addition, the political tensions in the Middle East and the Ukraine pose risks to the economic development.

In North America, HeidelbergCement expects a continuing economic recovery and consequently a further growth in demand for building materials. Besides residential construction, commercial and infrastructural construction are increasingly making a contribution to this growth. A stabilisation of the Eastern European market is anticipated following the weak phase experienced during 2013. Poland is the first country in this Group area to profit from an incipient recovery. We project a further rise in demand for building materials in Central Asia. To date, the crisis in Ukraine has not had any significant impact on operating activities in Ukraine and Russia. However, the currencies of both countries have depreciated considerably against the euro since the crisis began. In Western and Northern Europe, positive market development is expected in all countries. This is based on the healthy economic development in Germany and Northern Europe, as well as a recovery in the United Kingdom and Benelux. In Asia and Africa, the Group still counts on sustained growth in demand. In view of the positive development of demand and the commissioning of new capacities, HeidelbergCement anticipates an increase in the overall sales volumes of the core products cement, aggregates, and ready-mixed concrete. The negative impact of exchange rate effects on revenue and results should ease noticeably in the second half of the year due to base effects.

In terms of costs, the Group expects a light to moderate rise in the cost base for energy, raw materials, and personnel. The objective is to offset this increase by means of suitable measures and to improve our margins in the cement and aggregates business lines, bringing them back to pre-crisis levels. To this end, HeidelbergCement will continue pursuing its two price initiatives “PERFORM” for the cement business in the United States and Europe, and “CLIMB Commercial” for the aggregates business. Another area of focus in 2014 will be to not only safeguard but continuously improve the cost savings and efficiency increases in cement and aggregates that were achieved in the past few years with “OPEX” and “CLIMB”. For this purpose, the CIP (Continuous Improvement Program) was launched for the cement business. Moreover, the “LEO” programme aims to optimise logistics with the goal of reducing costs by €150 million over the next few years. Despite the higher level of net debt at the start of the year, HeidelbergCement projects for 2014 a slight decline in financing costs due to the improved financing structure.

On the basis of these assumptions, the Managing Board has set the goal of further increasing revenue, operating income, and profit for the financial year in 2014 on a like-for-like basis, i.e. adjusted for exchange rate, consolidation, and non-recurring effects.

“Considering the positive development in the second quarter, we confirm our earnings outlook for 2014”, explains Dr. Bernd Scheifele. “We will continue to pursue the objective of improving our key financial ratios in order to qualify again for an investment grade credit rating. To this end, we will continue to be very disciplined in our spending and focus more intensively on the sale of the building products business line in the United Kingdom, the United States, and Eastern Canada, as well as other assets that do not belong to our core business. At the same time, we will remain on course with our successful strategy of targeted expansion of our cement capacities in growth markets. Furthermore, we will move along unabated with our existing programmes for margin improvement and simultaneously gather and implement new ideas from our employees to improve our business processes with the help of the Continuous Improvement Program (CIP).”

“In 2014, we will benefit from the economic development in the industrial countries, particularly in North America, the United Kingdom, Germany, and Northern Europe”, continues Dr. Bernd Scheifele. “These countries generate almost 50% of our revenue. Furthermore, we are improving our market position in growth markets with the commissioning of modern production facilities. In view of these factors as well as our high operational efficiency, we consider ourselves well-equipped to benefit over-proportionally from the accelerating economic growth in the interests of our shareholders.”

Consolidated income statement January to June 2014 (short version)

€mYear to dateQ2
2013 *)2014Variance2013 *)2014Variance
Revenue6,187 6,318 2 % 3,585 3,568 0 % 
OIBD908 928 2 % 710 699 -2 % 
in % of revenue14.7%14.7%19.8%19.6%
Depreciation and amortisation-384 -361 6 % -196 -183 6 % 
Operating income524 566 8 % 515 516 0 % 
Additional ordinary result-46 12 -15 
Result from participations10 -40 % 11 10 -12 % 
Earnings before interest and income taxes (EBIT)487 584 20 % 511 527 3 % 
Financial result-284 -308 -9 % -143 -147 -2 % 
Profit before tax from continuing operations204 276 35 % 368 380 3 % 
Income taxes1)-59 -90 -53 % -36 -88 -146 % 
Net result from discontinued operations2)96 -3 96 -2 
Profit for the period241 182 -24 % 428 290 -32 % 
Minorities-108 -96 11 % -60 -57 6 % 
Group share of profit133 87 -35 % 368 233 -37 % 

* Values were restated due to the retrospective application of IFRS 10 and 11
1) 2013 values include a positive deferred tax impact due to the set-up of asbestos related receivables against primary insurers of €m 67
2) 2013 values include income due to the set-up of asbestos related receivables against primary insurers of €m 119 

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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