28 July 2015

HeidelbergCement Publishes Q2 2015 Results

HeidelbergCement increases sales volumes, revenue, and results in second quarter

Highlights Q2 2015 and prospects:

  • Sales volumes increased in all business lines
  • Group revenue up by 10% to €3.6 billion (previous year: 3.3; like-for-like* +0.4%)
  • Operating income before depreciation (OIBD) improved by 15% to €752 million (previous year: 655; like-for-like* +6%)
  • OIBD margin improved to 20.7%
  • Reduction in net debt compared with the previous year by €1.6 billion to €6.3 billion
  • Outlook for 2015 confirmed:
    • Positive outlook for the global economy; geopolitical and macroeconomic risks remain
    • Growth in sales volumes of cement, aggregates, and ready-mixed concrete expected
    • Significant rise in revenue, operating income, and profit for the financial year**
    • Generation of cost of capital
    • HeidelbergCement well positioned to benefit over-proportionally from the continued economic recovery, particularly in the USA and the United Kingdom

*Adjusted for currency and consolidation effects; ** adjusted for non-recurring items

Q2 sales volumes of building materials benefited from recovery in North America and the United Kingdom

The continued recovery of the markets in North America and the United Kingdom has had a favourable impact on HeidelbergCement’s sales volumes. Sales volumes were increased in all business lines.

The Group’s cement and clinker sales volumes rose by 0.9% to 21.9 million tonnes (previous year: 21.7) in the second quarter. The strongest growth was achieved in the Africa-Mediterranean Basin Group area, followed by North America and Western and Northern Europe. Cement sales volumes in Africa increased, in particular in Togo, where a new clinker plant was commissioned at the end of last year. North America continued to benefit from the sustained positive construction activity. The continued recovery of the construction sector in the United Kingdom led to a notable increase in the demand for cement. In contrast, cement sales volumes fell in the Asia-Pacific Group area due to the delayed start of infrastructure projects in Indonesia.

Deliveries of aggregates increased by 4.4% (adjusted for consolidation effects 4.2%) to 67.1 million tonnes (previous year: 64.3). Higher sales volumes, particularly in the North America and Eastern Europe-Central Asia Group areas, as well as in the United Kingdom, contributed to this development. Deliveries of ready-mixed concrete rose marginally by 0.2% to 9.6 million cubic metres (previous year: 9.5) and of asphalt by 7.2% to 2.4 million tonnes (previous year: 2.3).

In the first half of the year, cement and clinker sales volumes increased slightly by 0.1% to 38.8 million tonnes (previous year: 38.7). Deliveries of aggregates rose by 4.4% to 113.4 million tonnes (previous year: 108.6) and ready-mixed concrete by 1% to 17.4 million cubic metres (previous year: 17.2). Asphalt sales volumes grew by 5.4% to 4.0 million tonnes (previous year: 3.8).

Revenue and operating income significantly increased

Group revenue rose considerably in the second quarter of 2015 by 10.4% to €3,635 million (previous year: 3,294). Excluding consolidation and exchange rate effects, the increase amounted to 0.4%. The rise of sales volumes in all business lines contributed to the growth in revenue. While the positive effects from changes in the consolidation scope to the amount of €23 million were negligible, the weakening of the euro against numerous currencies amounting to €303 million had a favourable impact on the development of revenue as a whole.

Operating income before depreciation (OIBD) improved significantly by €97 million, or 14.9%, to €752 million (previous year: 655). Besides the price increases in key core markets and the successful implementation of the margin improvement programmes, in the aggregates business line in particular, the low fuel costs also made a contribution to the positive development of results. Likewise, operating income increased significantly by €71 million, or 14.7%, to €557 million (previous year: 486). Positive exchange rate effects impacted operating income before depreciation by €55 million and operating income by €41 million.

“The positive trend in terms of revenue and operating income continued in the second quarter,” said Dr. Bernd Scheifele, Chairman of the Managing Board. “The sustained recovery in our mature markets, particularly in the United Kingdom and the United States, has made a significant contribution. In operational terms, we were able to further increase the Group margin thanks to our margin improvement programmes and price increases in some of the core markets. Furthermore, we have benefited from the weak euro and low fuel costs.”

The additional ordinary result in the second quarter deteriorated slightly to €-5 million (previous year: 0). The financial result improved by €17 million to €-127 million (previous year: -144) due to the further reduction in net interest expenses. Profit before tax from continuing operations rose correspondingly by 25% to €439 million (previous year: 351).

In the second quarter of 2015, income taxes increased by €20 million to €108 million (previous year: 88). Net income from discontinued operations fell from €27 million in the second quarter of 2014 to €-9 million in the reporting quarter. The result of the second quarter of 2014 included the profit of the building products business, which was sold in March 2015.

Consequently, the profit for the period in the second quarter of 2015 rose by 11% to €322 million (previous year: 290). The profit attributable to non-controlling interests fell by €5 million to €51 million (previous year: 56). The Group share therefore improved by 16% to €271 million (previous year: 233).

In the first half of the year, Group revenue rose considerably by 11.2% to €6,470 million (previous year: 5,816). On a comparable basis, it increased by 1.8%. Operating income before depreciation improved by 22.2% to €1,052 million (previous year: 860); operating income grew by 27.6% to €672 million (previous year: 527). Adjusted for positive currency effects and negligible consolidation effects, operating income before depreciation still increased considerably by 11.4% and operating income even rose by 15.1%. The financial result improved by €19 million to €-285 million (previous year: -304), particularly due to reduced interest expenses and despite a lower other financial result. Profit before tax from continuing operations rose by €167 million to €406 million (previous year: 239). Expenses relating to income taxes increased by €52 million to €142 million (previous year: 90). As a result, net income from continuing operations improved to €264 million (previous year: 149). The net loss from discontinued operations amounted to €-22 million (previous year: 34) due to the sale of the building products business. The profit for the period amounted to €242 million (previous year: 182). The profit attributable to non-controlling interests decreased to €94 million (previous year: 96). The Group share of profit therefore improved to €148 million (previous year: 87).

At the end of the first half of 2015, the number of employees at HeidelbergCement stood at 45,558 (previous year: 45,858). The decrease of 300 employees essentially results from two opposing developments: on the one hand, more than 500 jobs were cut in particular in the Eastern Europe-Central Asia Group area and in Indonesia in connection with efficiency increases in sales and administration as well as location optimisations. On the other hand, around 100 new employees were hired in Africa due to capacity expansions. Before consolidation effects, the workforce in the Western and Northern Europe Group area grew by more than 100 employees as a result of the solid market development.

Net debt significantly reduced

Net debt at the end of the second quarter amounted to €6.3 billion and was €1.6 billion less than at the end of the same quarter of the previous year. The sale of the building products business, which was completed on 13 March 2015, made a major contribution to the significant reduction in debt with a cash inflow of €1.25 billion. The net debt-to-equity ratio (gearing) at the end of the second quarter improved correspondingly to 40.7% (previous year: 62.5%). The leverage fell to 2.5x and was thus within the targeted range of between 1.5x and 2.5x. The liquidity reserve amounted to €4.1 billion.

Outlook for 2015 confirmed

In its latest forecast, the International Monetary Fund (IMF) has marginally reduced growth rates for the world economy and now anticipates slightly lower economic growth of 3.3% compared with the previous year. This deceleration is essentially attributable to the lower-than-expected activity in the first quarter, primarily in North America. Nonetheless, the IMF continues to expect an acceleration of economic growth in the industrial countries. Aside from the fiscal policy in North America and the euro zone, the drivers behind this development are lower fuel prices and an improvement in labour market conditions and consumer confidence. In contrast, the growth rate of the emerging countries is expected to stagnate. This is due, on the one hand, to the weakening growth in China, and on the other hand, to the subdued outlook for countries that export raw materials. The risk factors continue to include the volatile development of prices on energy and raw material markets, effects of monetary policy measures – particularly those of the US Federal Reserve – on cash flows and exchange rates in the emerging countries, as well as geopolitical risks related to the political crises and conflicts in the Middle East as well as eastern Ukraine and Russia.

In North America, HeidelbergCement, in conformity with the IMF, expects a continuing economic recovery and consequently a further increase in demand for building materials. Besides new residential building, commercial and infrastructure construction is also making an increasingly strong contribution to this growth. In Eastern Europe, markets should continue to stabilise and the first impetus is expected to stem from the EU’s new infrastructure programme. While the crisis in eastern Ukraine is impairing the sales volumes and results of the country, it has not yet had a significant effect on the operating activities in 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. This is based on the recovery in the United Kingdom, the consistent solid condition of the German economy, and stable economic development in Northern Europe and Benelux. In Asia and Africa, the Group continues to expect 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.

HeidelbergCement estimates that the cost base for energy will undergo slight to moderate growth in 2015 on account of the forecast growth in sales volumes, the elimination of subsidies for electricity and fuels in Indonesia, and the weakening of the euro. A moderate rise in the cost of raw materials and personnel is also expected, partly because of the devaluation of the euro. The objective is to offset this by means of suitable measures and to further improve the margins in the cement and aggregates business lines. To this end, HeidelbergCement will continue pursuing its two price initiatives – “PERFORM” for the cement business in the USA and Europe as well as “CLIMB Commercial” for the aggregates business. Another area of focus in 2015 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 this in mind, the Group launched the “Continuous Improvement Program” (CIP) in 2014, which will also establish a culture of continuous improvement of work processes. Process optimisations are expected to achieve a sustainable improvement in results of at least €120 million by the end of 2017. In addition, the optimisation of logistics activities in connection with the “LEO” programme will be pursued with the aim of reducing costs by €150 million over a period of several years.

For 2015, HeidelbergCement anticipates a significant decrease in financing costs because of the noticeable decline in net debt based on cash flow from operating activities and the sale of the building products business.

On the basis of these assumptions, the Managing Board has set the goal of significantly increasing revenue, operating income, and profit for the financial year before non-recurring items in 2015. Furthermore, HeidelbergCement is expected to earn its cost of capital in 2015.

“Thanks to the good results of the second quarter, we remain on course to achieve our outlook for 2015”, explains Dr. Bernd Scheifele. “We updated our strategic focus at the beginning of June as part of our Capital Markets Day. From now on, we will focus on accelerated growth and higher earnings for our shareholders. The payout ratio is expected to increase from 29% in 2014 to between 40% and 45% in 2019. Furthermore, we want to reduce leverage to a level that enables a solid investment grade rating.”

“We are confident about 2015,” continues Dr. Bernd Scheifele. “We will continue to benefit from the positive development in North America, the United Kingdom, Germany, and Northern Europe. These countries generate almost 50% of our revenue. The considerable drop in the oil price and the weaker euro will provide us with additional tailwind. In view of our strong positioning in raw material reserves, our production sites in attractive locations, our outstanding vertical integration, and our excellent product portfolio, we are well positioned to achieve our goals.”

Overview of the HeidelbergCement Group

Key financial figures

€m20141)2015VarianceLike-for- like4)20141)2015VarianceLike-for- like4)
Sales volumes
Cement (Mt)38.72338.7780%0%21.73521.9341%1%
Aggregates (Mt)108.614113.4054%5%64.28467.1284%4%
Ready-mixed concrete (Mm3)17.24517.4191%1%9.5389.5620%0%
Asphalt (Mt)3.8314.0385%5%2.3032.4707%7%
Income statement
Operating income before depreciation (OIBD)8601.05222%11%65575215%6%
  in % of revenue14,8%16,3%19,9%20,7%
Operating income52767228%15%48655715%5%
Profit before tax from continuing operations23940670%35143925%
Profit for the period18224233%29032211%
Earnings per share in € (IAS 33) 2)0,460,7971%1,241,4416%
Statement of cash flows and balance sheet
Cash flow from operating activities81-15-96376359-17
Investments (cash outflow)-419-40613-171-218-47
Net debt 3)7.8926.305-1.587

1) Amounts were restated (Cement Australia, discontinued operations, IAS 7.16)
2) Attributable to parent entity
3) Excluding non-controlling interests with put options
4) Adjusted for currency and consolidation effects

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Financial Calendar

Andreas Schaller

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