5 November 2015

HeidelbergCement Publishes Q3 2015 Results

HeidelbergCement increases revenue and results in the third quarter despite adverse market conditions

Highlights Q3 2015 and outlook:

  • Improved operational performance for the eighth consecutive quarter
    • Group revenue up by 3% to €3.6 billion
    • Operating income before depreciation (OIBD) rose by 8% to €865 million
    • Double-digit increase in OIBD in North America, Western and Northern Europe and Africa-Mediterranean Basin
    • OIBD margin significantly increased from 23.0% to 24.0%
  • Substantial improvement of all major financial key figures
    • Earnings per share up by 30% to €2.55 (previous year: 1.96)
    • Further reduction in net debt to €6 billion and leverage to 2.3x
    • Clear increase in ROIC to 6.9% since the beginning of the year (Dec. 2014: 6.2%)
  • Acquisition of Italcementi is making good progress
    • Best practices identified; synergy target significantly increased to €300 million
    • All necessary pre-filings and filings were lodged with the competition authorities; clearance received from India
    • Investment target reduced from €1.2 billion to 0.9 billion in accordance with the capex savings announced in the context of the acquisition of Italcementi
    • Bridge financing reduced by €1.1 billion to €3.3 billion
  • Development of results confirms positive outlook for 2015
    • Significant increase in operating income and profit for the financial year1); in the results, lower increase in revenue is compensated by decrease in energy costs
    • Earn cost of capital
    • HeidelbergCement is well positioned: important contributions come from the USA and United Kingdom

1) Adjusted for non-recurring items

Q3 sales volumes close to the previous year’s level

In the third quarter, the sales volumes of building materials developed rather differently in the individual markets due to a variety of factors. While the cement sales volumes did not quite reach the previous year’s level, partly due to adverse market conditions, the aggregates sales volumes continued to grow. Overall, the sales volumes reached about the same level as the previous year.

During the third quarter, the Group’s cement and clinker sales volumes fell by 3% to 21.8 million tonnes (previous year: 22.5). Whereas Africa was able to register double-digit growth, volumes in the other Group areas remained stable or declined slightly. In Asia, the delayed start of the infrastructure projects announced by the Indonesian government had a negative impact on our sales volumes. Cement sales volumes decreased in the Eastern Europe-Central Asia Group area and Russia, in particular, due to a downturn in investments. In the Western and Northern Europe Group area, especially the Netherlands and the Baltic States recorded a decline in sales volumes. In North America, deliveries remained more or less at the previous year’s level despite the bad weather in Texas and the unfavourable timing of building projects in Florida.

Deliveries of aggregates increased by 1% to 72.6 million tonnes (previous year: 72.1). Higher sales volumes, particularly in the North America and Eastern Europe-Central Asia Group areas, contributed to this development. The deliveries of ready-mixed concrete fell slightly by 1% to 9.7 million cubic metres (previous year: 9.8). Asphalt sales volumes dropped by 8% to 2.9 million tonnes (previous year: 3.1).

In the first nine months of 2015, cement and clinker sales volumes decreased by 1% to 60.6 million tonnes (previous year: 61.3). Deliveries of aggregates increased by 3% to 186.0 million tonnes (previous year: 180.8), and deliveries of ready-mixed concrete also rose slightly to 27.1 million cubic metres (previous year: 27.0). Asphalt sales volumes remained stable at 6.9 million tonnes.

Development of revenue and results

Group revenue rose by 3% in the third quarter to €3,606 million (previous year: 3,490). Excluding consolidation and exchange rate effects, revenue decreased by 1.9%. While the 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 €162 million in total had a positive impact on the development of revenue. Compared with the previous quarter, however, exchange rate effects had considerably less impact.

Operating income before depreciation (OIBD) improved by 8% to €865 million (previous year: 803), and operating income also rose by 8% to €675 million (previous year: 627). Adjusted for exchange rate and consolidation effects, operating income could be improved both before and after depreciation by 3%, respectively. 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 cost of fuels also made a contribution to the positive development of results.

“Despite partly adverse market conditions, the third quarter saw us continue our successful development and further increase our results,” says Chairman of the Managing Board Dr. Bernd Scheifele. “This was largely due to our advantageous geographical positioning and our overall good cost management. Consequently, we were able to considerably improve our operating margins once again. From our perspective, the weaker development of sales volumes compared with the previous quarters is temporary in nature. The acquisition of Italcementi is making good progress and we significantly increased the synergy target to €300 million.”

The additional ordinary result from the third quarter deteriorated by €6 million to €-11 million (previous year: -5). The financial result improved by €9 million to
€-142 million (previous year: -151) due to the further reduction in net interest expenses. Profit before tax from continuing operations rose correspondingly by 13% to €546 million (previous year: 484).

Tax expenses in the third quarter of 2015 amounted to €74 million (previous year: 103). As a result, net income from continuing operations improved to €472 million (previous year: 381).

Consequently, the profit for the period in the third quarter of 2015 rose by 25% to €520 million (previous year: 417). The profit attributable to non-controlling interests fell by €8 million to €41 million (previous year: 49). The Group share therefore improved by 30% to €479 million (previous year: 368) and the earnings per share to €2.55 (previous year: 1.96).

In the first nine months, Group revenue rose considerably by 8.3% to €10,076 million (previous year: 9,306). On a comparable basis, it increased by 0.4%. Operating income before depreciation (OIBD) improved by 15.2% to €1,916 million (previous year: 1,663); operating income grew by 16.8% to €1,347 million (previous year: 1,154). Adjusted for positive currency effects and negligible consolidation effects, operating income before depreciation (OIBD) increased by 7.4% and operating income by 8.7%. The financial result improved by €28 million to €-427 million (previous year: -455) due to a reduction in interest expenses, in particular, and despite a lower other financial result. Profit before tax from continuing operations rose by €230 million to €953 million (previous year: 723). Expenses relating to income taxes increased by €24 million to €217 million (previous year: 193). As a result, net income from continuing operations improved to €736 million (previous year: 529). Net income from discontinued operations fell to €27 million (previous year: 70) owing to the sale of the building products business. The profit for the period rose to €762 million (previous year: 599). The profit attributable to non-controlling interests decreased to €135 million (previous year: 145). The Group share therefore improved to €628 million (previous year: 454).

At the end of September 2015, the number of employees at HeidelbergCement stood at 46,772 (previous year: 45,939). The increase of 833 employees essentially results from two opposing developments: on the one hand, more than 800 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, the number of employees in Northern Europe rose by around 1,400 due to the merger of our Swedish subsidiary Abetong AB and Contiga AB to form Nordic Precast Group AB. Before consolidation effects, the workforce in the Western and Northern Europe Group area grew by more than 200 employees as a result of the solid market development.

HeidelbergCement is well on track to earn its cost of capital

Since the beginning of the year, return on invested capital (ROIC) rose from 6.2% to 6.9%. ROIC is defined as the ratio of earnings before interest but after tax payments, adjusted for non-recurring items, to the sum of shareholders’ equity and net debt. The weighted average cost of capital (WACC) totaled also 6.9% at the end of 2014. Thanks to the improved result and the linked increase in ROIC, HeidelbergCement is well on track to earn its cost of capital.

Net debt significantly reduced

Net debt at the end of the third quarter amounted to €5.97 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 €1.27 billion. The net debt-to-equity ratio (gearing) at the end of the third quarter improved correspondingly to 39.0% (previous year: 54.1%). The leverage fell to 2.3x and was thus within the targeted range of between 1.5x and 2.5x. The liquidity reserve amounted to €3.8 billion.

Acquisition of Italcementi is making good progress

At the beginning of September, joint work teams from Italcementi and HeidelbergCement started preparing for the integration. In the first instance, they embarked on best-practice comparisons and carried out an assessment of potential synergies. Based on the initial findings, we were thus able to noticeably increase the post-closing synergy target from an original €175 million to €300 million. The positive effects of financing costs and taxes were taken into account for the first time in the new synergy target. The combination of Italcementi’s export-oriented cement plants in the Mediterranean Basin with the global trading business of HeidelbergCement following completion of the transaction also gives rise to significant potential beyond the identified synergies as does the optimal use of Italcementi’s high-quality production facilities. Import demand, for example in North America or Africa, that used to be bought from third party sources in the past, can be covered by Italcementi’s plants in the future, thus leading to a higher capacity utilization, there. Moreover, a savings potential in current assets of €100 million could be confirmed.

Financing of the takeover is also making good progress. The bridge financing could be reduced by €1.1 billion to €3.3 billion because, on the one hand, the initial risk of a mandatory takeover offer to minority shareholders in Morocco could be excluded and, on the other hand, some of Italcementi’s creditor banks have agreed to waive their change of control clauses. In addition, HeidelbergCement has reduced its target for cash-relevant investments from €1.2 billion to €0.9 billion in accordance with the capex savings announced in the context of the takeover of Italcementi.

All necessary filings or pre-filings were lodged with the competition authorities in October as planned. The competition authority in India has already given its approval. Currently, HeidelbergCement expects the acquisition of the 45% stake to be completed in the first half of 2016.

Outlook for 2015

In its latest forecast, the International Monetary Fund (IMF) has once again marginally reduced the growth rates for the world economy and now anticipates a slightly lower economic growth of 3.1% for 2015 compared with the previous year. The IMF continues to expect a slight acceleration in 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 crude oil prices and an improvement in labour market conditions and consumer confidence. In contrast, the growth rate of the emerging countries is expected to weaken. On the one hand, this is because of the declining raw material prices, and on the other hand, the devaluation of local currencies and the increased volatility in the financial markets. The risk factors continue to include the effects of monetary policy measures, particularly those of the US Federal Reserve, on capital flows and exchange rates in the emerging countries, in addition to 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. The crisis in eastern Ukraine is impairing the sales volumes and results of the country. The decline in crude oil prices has led to an economic downturn in Russia, which is partially being offset by the government’s infrastructure projects. In Western and Northern Europe, a stable overall market development is expected. This is based on the recovery in the United Kingdom, the stable development in Benelux, and a slight slowdown in Germany as well as in Northern Europe where exports are declining. In Asia, the delay in infrastructure projects in Indonesia is leading to a reduction in cement and ready-mixed concrete sales volumes. In Africa, the Group is still counting on a sustained growth in demand.

Given the different developments of demand in the individual regions during the first nine months, HeidelbergCement anticipates stable sales volumes for the core products of cement and ready-mixed concrete and an increase in the sales volumes of aggregates for the year as a whole.

As a result of the sustained fall in prices for crude oil and fuels, HeidelbergCement expects a moderately declining cost basis for energy in 2015. A modest rise in the cost of raw materials and personnel is still expected, partly owing to 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 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 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.

Based on the developments described in the first nine months, the Group expects a moderate to significant growth in revenue and remains confident that the operating income and profit for the financial year before non-recurring items will increase significantly in 2015. Furthermore, HeidelbergCement is expected to earn its cost of capital in 2015.

“We remain on track for significantly increasing our results and substantially reducing net debt in 2015,” explains Dr. Bernd Scheifele. “This provides us with a solid base for the acquisition of Italcementi. The acquisition process is on schedule and we expect the share purchase from Italmobiliare to be completed in the first half of 2016. Thereby, we significantly accelerate the growth of HeidelbergCement and create additional potential for higher returns for our shareholders. Following the acquisition, we want to reduce the leverage by the end of 2016 to a level that is in line with a solid investment grade rating.”

“We will continue to benefit from the economic development in the industrial countries in 2015, particularly in North America and the United Kingdom,” adds Dr. Bernd Scheifele. “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 figuresJanuary-SeptemberQ3
€m20141)2015VarianceLike-for- like4)20141)2015VarianceLike-for- like4)
Sales volumes
Cement (Mt)61,25060,580-1%-1%22,52721,802-3%-3%
Aggregates (Mt)180,755185,9873%3%72,14172,5821%0%
Ready-mixed concrete (Mm3)27,04627,1230%0%9,8009,704-1%-2%
Asphalt (Mt)6,9496,9200%0%3.1182,882-8%-8%
Income statement
Operating income before depreciation (OIBD)1,663


  in % of revenue17.9%19.0%23.0%24.0%
Operating income1,1541,34717%9%6276758%3%
Profit before tax from continuing operations72395332%48454613%
Profit for the period59976227%41752025%
Earnings per share in € (IAS 33) 2)2.423.3438%1.962.5530%
Statement of cash flows and balance sheet
Cash flow from operating activities652537-115571552-19
Investments (cash outflow)-702-63171-283-22559
Net debt 3)7,5385,970-1,568

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

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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