6 November 2014
Q3 2014 Results
HeidelbergCement increases revenue and operating income in the third quarter
Highlights Q3 2014 and outlook:
Best operating income since financial crisis:
Increased sales volumes in all business lines
Group revenue increased by 4% to €3.8 billion (like-for-like1): +7%)
Operating income improved by 13% to €675 million despite negative exchange rate effects (like-for-like: +19%)
EPS at €1.96 (previous year: €3.27, therein €1.38 one-time effect)
Operating cash flow improved and net debt reduced
Outlook for 2014 confirmed:
Positive outlook for global economy due to recovery in the mature markets of North America and Western 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 January to September 2014
Overview January to September
|Year to date||Q3|
|€m||2013*)||2014||Variance||Like-for- like1)||2013*)||2014||Varinace||Like-for- like1)|
|Ready-mixed concrete (Mm3)||25,839||27,046||5%||5%||9,451||9,800||4%||4%|
|Operating income before depreciation (OIBD)||1,697||1,794||6%||15%||789||866||10%||14%|
|in % of revenue||17.2%||17.7%||21.5%||22.7%|
|Profit before tax from continuing operations||949||803||-15%||746||527||-29%|
|Profit for the period2)||901||599||-34%||660||417||-37%|
|Earnings per share in € (IAS 33) 3)||3.98||2.42||-39%||3.27||1.96||-40%|
|Statement of cash flows and balance sheet|
|Cash flow from operating activities||236||718||482||522||641||119|
|Investments (cash outflow)||-914||-733||180||-203||-297||-94|
|Net debt 4)||7,872||7,629||-243|
*) 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 one-time positive effects 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 (in Q2), and €m 259 of additional ordinary result due to the unwinding of an obsolete Hanson corporate structure in the UK (in Q3)
3) Attributable to the parent entity
4) Excluding puttable minorities
Q3 sales volumes of building materials benefited from recovery in North America, the United Kingdom, and Eastern Europe, as well as continued 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 3% to 23.1 million tonnes (previous year: 22.4) in the third quarter. The strongest growth was achieved in the Asia-Pacific Group area, followed by North America and Eastern Europe-Central Asia. In contrast, cement sales volumes in the Western and Northern Europe Group area declined slightly. 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. The decrease in cement sales volumes in Ukraine due to the conflict in the east of the country was more than offset by increasing volumes in other countries of the Group area. The Africa-Mediterranean Basin Group area saw a decrease in sales volumes due to the sale of our Gabon activities. A slight increase in sales volumes was achieved, however, in the remaining countries. The Ebola epidemic has not yet had a significant effect on cement sales. Adjusted for consolidation effects, Group cement sales volumes rose by 4%.
Deliveries of aggregates increased by 3% to 72.1 million tonnes (previous year: 70.3). 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 by 4% to 9.8 million cubic metres (previous year: 9.5). The markets in North America, Australia, and the United Kingdom were key growth drivers.
In the first nine months of the year, cement and clinker sales volumes rose by 5% to 62.9 million tonnes (previous year: 59.6). In addition, deliveries of aggregates increased by 5% to 180.8 million tonnes (previous year: 172.3) and deliveries of ready-mixed concrete also rose by 5% to 27.0 million cubic metres (previous year: 25.8); asphalt sales volumes even improved by 14% to 6.9 million tonnes (previous year: 6.1).
Development of revenue and results
Group revenue rose by 4% in the third quarter to €3,809 million (previous year: 3,675). The impact of negative exchange rate effects on revenue and operating income eased noticeably in the third quarter. Translation effects impaired revenue by €89 million, operating income before depreciation (OIBD) by €31 million, and operating income by €29 million. Excluding exchange rate effects and the negligible consolidation effects in the third quarter, revenue improved by 6%. North America and the United Kingdom achieved the highest growth. Overall, all Group areas recorded an increase in revenue. Successfully implemented price increases in major markets, such as North America, the United Kingdom, and Indonesia also played a key role.
Operating income before depreciation (OIBD) improved by 10% to €866 million (previous year: 789) and operating income even rose by 13% to €675 million (previous year: 595). Adjusted for exchange rate and consolidation effects, operating income before depreciation (OIBD) increased by 14% and operating income grew significantly by 19%. Successful price increases and declining energy prices contributed to the positive development of results. In addition, the operating income of the building products business in North America and the United Kingdom improved considerably
“In the third quarter, we generated the best operating income since the financial crisis started in 2008”, remarks Chairman of the Managing Board Dr. Bernd Scheifele. “Furthermore, we have been able to improve the operating margins in all business lines. Our advantageous geographical positioning, successful price increases in key markets, and strict cost management have contributed to this achievement. As a result, we have also been able to improve our cash flow and continue to reduce net debt.”
The additional ordinary result from the third quarter fell by €275 million to €-5 million (previous year: 269). The same quarter of the previous year included non-cash gains from the unwinding of a corporate structure owned by Hanson in the United Kingdom that had become obsolete. The financial result fell by €24 million to €-154 million (previous year: -130). Although net interest expenses were reduced slightly, this was not sufficient to compensate currency losses and the declining other financial result. The profit before tax from continuing operations decreased by 29% to €527 million (previous year: 746).
Tax expenses in the third quarter of 2014 amounted to €109 million (previous year: 85). As a result, net income from continuing operations fell to €418 million (previous year: 661).
Consequently, the profit for the financial year decreased in the third quarter of 2014 by 37% to €417 million (previous year: 660), and the Group share dropped by 40% to €368 million (previous year: 612). Accordingly, earnings per share fell to €1.96 (previous year: 3.27). However, without taking into consideration the one-off effect in the previous year of around €1.38 per share, earnings per share have improved.
In the first nine months, Group revenue rose by 3% despite negative exchange rate effects of €571 million to €10,127 million (previous year: 9,862). On a comparable basis, revenue rose considerably by 9%. Operating income before depreciation (OIBD) improved by 6% to €1,794 million (previous year: 1,697); operating income increased significantly by 11% to €1,241 million (previous year: 1,119). Adjusted for negative currency effects and negligible consolidation effects, operating income before depreciation (OIBD) increased considerably by 15% and operating income even rose by 23%. Profit before tax fell to €803 million (previous year: 949) due to the aforementioned non-cash gains in the third quarter of the previous year. Net result from discontinued operations fell to €-5 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 €145 million (previous year: 156). The Group share of profit dropped to €454 million (previous year: 745) because of the aforementioned one-off effects in the previous year. Earnings per share declined to €2.42 (previous year: 3.98). The previous year’s figure, however, includes around €2.37 owing to the aforementioned one-off effects.
At the end of September 2014, the number of employees at HeidelbergCement stood at 51,013 (previous year: 50,913). The increase of 100 employees essentially results from two opposing developments: on the one hand, more than 300 jobs were cut in some Eastern European countries, Benelux, Scandinavia, and 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, more than 800 new employees were hired in growth markets such as Indonesia, Central Asia, and Africa. In the United Kingdom, Germany, North America, and Australia, the workforce grew by around 800 employees as a result of the good market development. Moreover, our number of employees rose by around 200 due to the increase in shares in Cimescaut Group, Belgium, which was previously accounted for at equity, and the acquisition of a majority stake in Cindercrete Products Group, Canada.
Operating cash flow improved – net debt reduced
The operating cash flow also increased in the third quarter from €522 million to €641 million due to the good operating performance. The days working capital was further optimised and reduced to the record low of 41 days. Net debt at the end of the third quarter amounted to €7.6 billion, which was around €243 million less than at the end of the same quarter of the previous year. At the end of the third quarter, gearing was at 54.7% (previous year: 60.9) and the ratio of net debt to operating income before depreciation (OIBD) was 3.1x. The liquidity reserve remained almost unchanged at €4.1 billion.
Targeted expansion of market position in growth markets
At the start of October, HeidelbergCement commissioned a new cement mill with a capacity of 0.8 million tonnes per year in its cement plant at Dar Es Salaam, Tanzania. In the fourth quarter, 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 mill in Burkina Faso (0.7 million tonnes per year). The commissioning of a further cement mill in Takoradi, Ghana, (0.8 million tonnes per year) is expected at the start of 2015. The capacity expansion enables HeidelbergCement to serve the growing markets in West Africa and therefore to secure its competitive advantage in this region.
Outlook for 2014
In its latest forecast, the International Monetary Fund (IMF) has once again slightly reduced growth rates for the world economy and now anticipates economic growth that is comparable with the previous year. The slowdown is attributable to weaker performance in the emerging countries of Latin America and Africa and in some core markets of Europe. In contrast, growth rates have been increased for North America, after the economy has improved noticeably again following the harsh winter. The necessary budgetary consolidation measures in the industrial countries and their effects on the emerging countries continue to threaten the recovery of the global economy. The tapering of the US Federal Reserve led to capital outflows and exchange rate adjustments in the last eighteen months. In addition, the armed conflicts in the Middle East and 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. The crisis in eastern Ukraine is impairing the sales volumes and result of the country, but has not yet had a significant effect on the operating activities of HeidelbergCement in Russia. However, the currencies of both countries have depreciated considerably against the euro since the crisis began. In Western and Northern Europe, a positive market development is expected. This is based on the recovery in the United Kingdom, the healthy economy in Germany, and the stable economic development in Northern Europe, 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 has already eased in the third quarter.
In terms of costs, the Group expects a light to moderate rise in the cost base for raw materials and personnel. For energy costs, we anticipate a stable to slightly declining development for 2014 as a whole, after the first nine months saw a slight decrease. The objective remains to improve our margins in the cement and aggregates business lines by means of suitable measures, 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 is 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 increasing revenue and operating income for the financial year in 2014 on a like-for-like basis, i.e. adjusted for exchange rate and consolidation effects, and further improving profit adjusted for non-recurring effects.
“Due to the strong operating development in the first nine months, we are very confident that we will achieve our results outlook for 2014”, explains Dr. Bernd Scheifele. “The HeidelbergCement management continues to focus on operational improvements, cost efficiency, customer excellence and financial discipline. In this context we will furthermore 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 benefit from the economic development in the industrial countries, particularly in North America and the United Kingdom, but also in 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 September 2014 (short version)
|€m||September Year to Date||Q3|
|Revenue||9,862||10,127||3 %||3,675||3,809||4 %|
|Result from joint ventures||66||98||49 %||32||38||19 %|
|Operating EBITDA||1,697||1,794||6 %||789||866||10 %|
|in % of revenue||17.2%||17.7%||21.5%||22.7%|
|Depreciation and amortisation||-578||-552||4 %||-194||-191||1 %|
|Operating income||1,119||1,241||11 %||595||675||13 %|
|Additional ordinary result1)||223||7||-97 %||269||-5|
|Result from participations||20||17||-14 %||11||12||10 %|
|Earnings before interest and income taxes (EBIT)||1,363||1,266||-7 %||875||681||-22 %|
|Financial result||-413||-463||-12 %||-130||-154||-19 %|
|Profit before tax||949||803||-15 %||746||527||-29 %|
|Income taxes2)||-144||-199||-39 %||-85||-109||-28 %|
|Net result from discontinued operations3)||96||-5||-1||-1||-135 %|
|Profit for the period||901||599||-34 %||660||417||-37 %|
|Minorities||-156||-145||7 %||-48||-49||-3 %|
|Group share of profit||745||454||-39 %||612||368||-40 %|
*) Values were restated due to the retrospective application of IFRS 10 and 11
1) 2013 values include €m 259 of additional ordinary result due to the unwinding of an obsolete Hanson corporate structure in the UK in Q3
2) 2013 values include a positive deferred tax impact due to the set-up of asbestos related receivables against primary insurers of €m 67
3) 2013 values include income due to the set-up of asbestos related receivables against primary insurers of €m 119
Heidelberg, 6 November 2014
Consolidated financial accounts 2014: 19 March 2015
Press conference on annual accounts: 19 March 2015
Interim Financial Report January to March 2015: 7 May 2015
Annual General Meeting 2015: 7 May 2015
Half-Year Financial Report January to June 2015: 29 July 2015
Interim Financial Report January to September 2015: 5 November 2015