17 March 2016
HeidelbergCement publishes 2015 consolidated financial statements
HeidelbergCement increases revenue and results – net debt significantly reduced
2015 consolidated financial statements
- Revenue rises by 7% to €13.5 billion
- Operating income improves by 16% to €1.8 billion
- Group share of profit for the financial year rises by 65% to €800 million
- Net debt significantly reduced to €5.3 billion
- HeidelbergCement earns premium on cost of capital
- Dividend proposal: €1.30 per share (+73%)
Outlook for 2016
- Positive outlook for the global economy; geopolitical and macroeconomic risks increased
- Growth in sales volumes of cement, aggregates, and ready-mixed concrete expected
- Moderate increase in revenue and operating income before currency and consolidation effects; moderate improvement in profit for the financial year before non-recurring items
- Closing of the Italcementi takeover in the course of the year
- HeidelbergCement well positioned to benefit from the continued recovery, particularly in the USA, the United Kingdom, Northern Europe, and Australia
2015 – the best year since the financial crisis
HeidelbergCement has brought the 2015 financial year to a successful close despite a challenging environment. Aside from the Group’s advantageous geographical positioning in countries with solid economic development, this success was primarily due to the programmes to improve efficiency and margins, price increases in key markets, energy costs that were moderately below the previous year, and positive exchange rate effects due to the weakening of the euro.
“2015 was the most successful year for HeidelbergCement since the start of the financial crisis,” said Dr. Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “In addition to the strong development of results, we have achieved key goals and laid the foundation for a successful future. HeidelbergCement has substantially increased the profit for the financial year and, for the first time since the financial crisis, earned a premium on the cost of capital. Net debt was again reduced significantly, and the key financial ratios are now at investment grade level. Our new strategic priorities of ‘shareholder returns’ and ‘continuous growth’ are reflected in the considerably raised dividend proposal as well as in the planned takeover of Italcementi.”
Results significantly increased – premium on cost of capital earned
Sales volumes of cement and ready-mixed concrete remained stable in comparison with the previous year, while sales of aggregates rose. On the one hand, we benefited from the continuing recovery in North America and the United Kingdom as well as the growth in Africa. On the other hand, the weaker demand in Asia – primarily in Indonesia because of the delayed start of infrastructure projects – adversely impacted cement and ready-mixed concrete sales volumes. Revenue rose by 6.7% to €13,465 million (previous year: 12,614). Positive currency effects of €795 million arising from the loss in value of the euro against the US dollar, the British pound, and some Asian currencies in particular contributed to this increase. After adjustment for exchange rate and consolidation effects, revenue was at the level of the previous year.
Despite the weaker than originally expected development of sales volumes, operating income rose considerably by 16% and was therefore in line with the forecast of the 2014 Annual Report. Besides price increases and the successful margin improvement programmes, the moderately declining energy costs also made a contribution to the positive development of results. In addition, positive exchange rate effects contributed €84 million.
The additional ordinary result rose by €51 million to €-12 million (previous year: -63) and thus was almost balanced.
The financial result improved by €79 million to €-550 million (previous year: -629). Thanks to the substantially lowered net debt, the interest result improved by €66 million. Currency losses decreased, while the other financial result rose slightly. Profit before tax from continuing operations rose by €383 million to €1,313 million (previous year: 931).
Expenses relating to income taxes increased by €230 million to €295 million (previous year: 65). While current taxes rose by €12 million to €342 million (previous year: 330), deferred tax income fell significantly because of the sharp decline in capitalisation of existing losses carried forward in comparison with the previous year.
Net loss from discontinued operations improved by €143 million to €-36 million (previous year: -179). The result for 2014 includes a one-off valuation loss of €236 million in connection with the sale of the building products business. In 2015, income of €16 million related to the sale of the building products business while expenses of €52 million related to operations of the Hanson Group that were discontinued in previous years.
In line with the forecast, the profit for the financial year increased significantly by €296 million to €983 million (previous year: 687). The Group share improved by 65% to €800 million (previous year: 486). Thanks to the strong increase in results, the adjusted return on invested capital (ROIC) rose to 7.2%, thereby exceeding the weighted average cost of capital (WACC) of 7.0% for the first time since the financial crisis. As a result, HeidelbergCement earned a premium on its cost of capital in 2015.
Dividend proposal raised by 73%
In view of the positive business development and in line with the new strategic priorities concerning shareholder returns, the Managing Board and the Supervisory Board will propose to the Annual General Meeting on 4 May 2016 a substantial increase of 73% in the dividend to €1.30 (previous year: 0.75) per share. With this dividend proposal, we are within the target payout ratio for 2015 of 30% to 35% that was communicated to the capital market.
Operating cash flow improved – net debt markedly reduced
Operating cash flow from continuing operations increased by €137 million to around €1.5 billion as a result of the solid operating performance. In view of the pending takeover of Italcementi, investments were cut back by €123 million compared with the previous year to around €1 billion. Owing to proceeds of €1,265 million from the sale of the building products business as well as the disciplined cash management, net debt was reduced considerably from €7.0 billion at the end of 2014 to €5.3 billion at the end of 2015, thereby staying clearly below the target of €6.5 billion. The gearing (net debt-to-equity ratio) decreased to 33.1% (previous year: 48.8) by the end of the year. The dynamic gearing ratio (net debt-to-operating income before depreciation ratio) improved to 2.0x (previous year: 3.0x) and therefore was definitely within our strategic target range of 1.5x to 2.5x. The liquidity reserve rose slightly to €4.1 billion.
Acquisition of Italcementi
The planned full acquisition of Italcementi is to take place in two stages. Following all necessary approvals of the competition authorities, HeidelbergCement will initially acquire a controlling stake of 45% from Italmobiliare S.p.A. The purchase price of around €1.7 billion will be paid in cash and with a minimum of 7.75 million and a maximum of 10.5 million new HeidelbergCement shares from a capital increase in return for contributions in kind at a minimum price of €72.50. HeidelbergCement will then propose a public mandatory offer to the remaining shareholders for the acquisition of their shares in return for a cash payment. For the acquisition of all shares, the total purchase price for Italcementi will amount to around €3.7 billion. €645 million have already been pre-financed with the issuance of debt certificates in January 2016. In addition to the aforementioned capital increase, HeidelbergCement has access to bridge financing of €2.7 billion for the acquisition. HeidelbergCement expects the whole transaction to be finalised in the second half of 2016.
As part of the refinancing of the Italcementi acquisition, divestments with a targeted volume of €1.0 billion are planned. This includes the already agreed sale to Italmobiliare S.p.A. of the activities of Italcementi that are not part of the core business for around €250 million. Furthermore, HeidelbergCement intends to dispose of individual plants in regions in which the activities of the two companies overlap.
In 2015, Italcementi achieved revenue of €4.3 billion, an adjusted EBITDA of €636 million, and an EBIT of €148 million. According to its own statements, Italcementi anticipates a slight rise in sales volumes and an improvement in the operating margin in 2016. The consolidation of Italcementi will result in a correspondingly strong increase in revenue and operating income in the enlarged HeidelbergCement Group. The effect on the net result could not be estimated at the time the Annual Report was prepared.
Outlook for 2016
The expected development of the HeidelbergCement Group, without taking the Italcementi takeover into consideration, is described in the following.
In its forecast from January 2016, the International Monetary Fund (IMF) expects global economic growth to increase slightly, from 3.1% in 2015 to 3.4% in 2016. Drivers behind this trend are, on the one hand, the continued growth in the USA and the sustained economic recovery in the euro zone. On the other hand, it is anticipated that growth in the emerging countries will accelerate again, despite a further economic slowdown in China. Higher growth rates are expected in particular for countries in the Middle East and in Africa south of the Sahara.
Global risks have increased considerably compared with the previous year. This relates both to geopolitical and macroeconomic risks. Among the geopolitical risks, there are especially the conflicts in the Middle East and in eastern Ukraine. In terms of macroeconomic risks, the unpredictable consequences of the slowdown in the Chinese economy, the impact of the drop in the oil price on oil-producing countries, and the distortions resulting from disparity in US and European interest rate policies must be mentioned.
In North America, HeidelbergCement, in conformity with the IMF, expects a continuing economic recovery and consequently a further increase in demand for building materials. In Western and Northern Europe, positive market development is expected. This is based on the continued recovery in the United Kingdom, the consistent solid condition of the German economy, and stable economic growth in Northern Europe and Benelux. In Eastern Europe, we anticipate growing demand for building materials as result of the EU infrastructure programme, among other things. The crisis in eastern Ukraine is continuing to impair the sales volumes and results of the country. The economic situation in Russia and Kazakhstan remains difficult due to the low oil price. In the African markets, we expect a rise in competition besides the continuing growth in demand. In Asia, HeidelbergCement anticipates a general upturn in demand, thanks in particular to increasing infrastructure investments in Indonesia. In China, however, a further decline in demand and an increase in excess capacities are expected. The repercussions on exports are limited because a large proportion of Chinese capacities is located inland.
In view of the overall positive development of demand and the commissioning of new capacities, HeidelbergCement anticipates an increase in sales volumes of the core products cement, aggregates, and ready-mixed concrete.
HeidelbergCement estimates that the cost base for energy will undergo slight to moderate growth in 2016, based on the assumption that prices will remain stable and sales volumes will increase. If energy costs remain at the low level seen at the end of January 2016, there is a chance of overall decreasing energy prices and of a stable or slightly decreasing energy cost development. A moderate rise in the cost of raw materials and personnel is expected. HeidelbergCement further focuses on the continuous improvement of efficiency and margins. To this end we started the “Continuous Improvement” programmes in the cement and aggregates business lines to establish a culture of continuous improvement of operational and commercial work processes at employee level. Process optimisations are expected to achieve a sustainable improvement in results of at least €120 million in both business lines over a three-year period. The “CIP” programme for the cement business line started at the beginning of 2015, and the “Aggregates CI” programme for the aggregates business line was launched at the start of 2016. We also continue to optimise our logistics with the “LEO” programme, which has the goal of reducing costs by a total of €150 million over a period of several years. In addition, the “FOX” programme in purchasing is expected to achieve cost savings of around €100 million.
In 2016, we anticipate – without taking into account the takeover of Italcementi – a significant decrease in financing costs due to disciplined cash flow management and the refinancing of maturities at more favourable terms.
On the basis of these assumptions, the Managing Board has set the goal of moderately increasing revenue and operating income before exchange rate and consolidation effects and the profit for the financial year before non-recurring items in 2016.
“Now that we have fully achieved the goals of previous years in terms of cost leadership, debt reduction, and organic growth, we will focus on shareholder returns and continuous growth,” explains Dr. Bernd Scheifele. “Key prerequisites for the achievement of these goals are investment discipline, a solid investment grade rating, and a progressive dividend policy. Furthermore, we are concentrating on four strategic levers: high operating leverage, maintenance of cost leadership, pronounced vertical integration, and optimal geographical positioning. In this way we will increase our efficiency and the satisfaction of our customers, especially in the world’s rapidly growing metropolitan areas. Our global programmes to optimise costs and processes and to increase margins will once again be consistently pursued in 2016. These include, in particular, the Continuous Improvement Programmes for the aggregates (“Aggregates CI”) and cement (“CIP”) business lines, as well as “FOX” for purchasing.”
“We remain cautiously optimistic about 2016,” continues Dr. Bernd Scheifele. “While the outlook for the global economy is positive, there are major macroeconomic and particularly geopolitical risks. HeidelbergCement will benefit from the good and stable economic development in the industrial countries, above all in the USA, the United Kingdom, Germany, Northern Europe, and Australia. These countries generate approximately 60% of our revenue. With the acquisition of Italcementi, we are strengthening our global market position. In our core business lines aggregates, cement, and ready-mixed concrete, we will occupy first, second, and third place on a global scale. In the next few years, we intend to consistently develop the characteristics that set HeidelbergCement apart from the competitors: cost leadership and operational excellence. At the same time, we plan to achieve a sustainable level of earnings power for shareholders that is unprecedented in the Group.”
Overview of the HeidelbergCement Group
|Cement ('000 t)||81,847||81,105||-1%||-1%|
|Aggregates ('000 t)||243,604||249,244||2%||2%|
|Ready-mixed concrete ('000 m3)||36,591||36,708||0%||0%|
|Asphalt ('000 t)||9,309||9,122||-2%||-2%|
|Operating income before depreciation (OIBD)||2,288||2,613||14%||8%|
|in % of revenue||18.1%||19.4%|
|Profit for the year||687||983||43%|
|Group share of profit||486||800||65%|
|Earnings per share in € (IAS 33)2)||2.59||4.26||65%|
|Dividend in €3)||0.75||1.30||73%|
|Statement of cash flows and balance sheet|
|Cash flow from operating activities||1,480||1,449||-31|
|Investments (cash outflow)||-1,125||-1,002||-123|
1) Adjusted for currency and consolidation effects
2) Attributable to parent entity
3) Proposal to the Annual General Meeting on 4 May 2016