HeidelbergCement publishes Q1 2012 results

HeidelbergCement increases revenue in first quarter – Outlook for 2012 confirmed

• Group revenue improved by 8% to €2.8 billion
• Increase in sales volumes in cement (+5%) and aggregates (+1%) despite cold wave in Europe:
  • Strong growth in North America: economic recovery and mild winter
  • Continued positive development in Asia, esp. in Indonesia
• Operating income before depreciation (OIBD) decreased by 16% to
• €214 million:
  • Increased costs of energy, freight, and maintenance (timing)
• Price increases launched and partly already successfully executed
• Net debt reduced by €248 million compared to previous year
• Outlook for 2012 confirmed:
  • Sustained growth in Asia-Pacific and Africa-Mediterranean Basin; continuing recovery in North America and parts of Europe
  • Increase in revenue and operating income envisaged

Overview January – March 2012

Q1 cement sales volumes driven by North America and Asia

Cement sales volumes in Q1 benefited from the continued economic recovery and mild winter weather in North America as well as from the strong growth of demand in HeidelbergCement markets in Asia and Africa. The increase in sales volumes in those Group areas more than compensated for the losses in Western and Northern Europe which where caused by an extreme cold wave in February. Due to a very positive development in North America, total aggregates sales volumes rose slightly, too.

The Group’s cement and clinker sales volumes rose by 5.0% to 18.2 million tonnes (previous year: 17.3). The North America and Asia-Pacific Group areas achieved double-digit growth rates. Particularly in Indonesia, demand continued to develop strongly. Cement sales volumes in Western and Northern Europe declined due to the cold wave in February. Higher capacities in Poland and Russia led to a slight increase in sales volumes in Eastern Europe-Central Asia.

Deliveries of aggregates across the Group amounted to 47.0 million tonnes (previous year: 46.3), an increase of 1.5%. Ready-mixed concrete deliveries declined by 3.2% to 8.1 million cubic metres (previous year: 8.4). Asphalt sales volumes fell by 13.7% to 1.4 million tonnes (previous year: 1.6).

Revenue improved – results affected by higher costs

Based on the increase in cement and aggregates sales volumes, Group revenue rose by 7.6%, to €2,799 million (previous year: 2,602) in the first quarter. The Group areas North America and Asia-Pacific recorded double-digit growth rates. While Eastern Europe-Central Asia and Africa-Mediterranean Basin achieved moderate growth, the Western and Northern Europe Group area was negatively affected by the extreme cold wave in February. Positive exchange rate effects favoured the development of revenue in Asia-Pacific, North America, as well as Western and Northern Europe. Excluding exchange rate and consolidation effects, revenue increased by 5.7%. Operating income before depreciation (OIBD) declined by 15.5% to €214 million (previous year: 253). Operating income fell to €14 million (previous year: 60) due to increased costs of energy, freight, and maintenance. Compared to 2011, repair measures were carried out earlier in the year.

“The increase in revenue and sales volumes in the first quarter despite the extreme cold wave in Europe is further proof of the advantageous geographical positioning of our company”, explains Dr. Bernd Scheifele, CEO of HeidelbergCement. “In view of the higher costs of energy and raw materials, we launched price increases and in some markets we were already able to execute them in order to improve our operating margins.”

Financial result deteriorated by €7 million to €-147 (previous year: -140) due to the pre-financing of the 1 billion Eurobond repaid in January 2012.

The loss before tax from continuing operations adds up to €-144 million (previous year:
-87). The expenses relating to taxes on income amounted to €4 million (previous year:
29). Like in the previous year, this development was essentially due to deferred taxes on losses carried forward in North America, which were not capitalised in the reporting period. The loss after tax from continuing operations thus totals €-148 million (previous year: -116).

Overall, the loss for the first quarter amounts to €-155 million (previous year: -120). The Group share adds up to €-204 million (previous year: -161).

At the end of the first quarter of 2012, the number of employees at HeidelbergCement stood at 53,230 (previous year: 53,771). The reduction of 541 employees essentially results from two opposing developments: On the one hand, more than 1,000 job cuts were made in North America, the United Kingdom, and in some Eastern European countries as a result of efficiency improvement programmes in sales and administration, location optimisations, and capacity adjustments. On the other hand, HeidelbergCement hired about 500 new employees in growth markets where the company installed new capacities, for example in Indonesia and India.

“FOX 2013” programme progressing according to plan

The three-year programme for financial and operational excellence (“FOX 2013”) led to an improvement in cash flow of €39 million in the first quarter of 2012. It is thus well on track to achieving the targeted improvement of €850 million over the three-year horizon. In 2011, the programme already generated cash-effective savings totalling €384 million.

Financing structure improved and net debt reduced compared to previous year

In the first quarter, HeidelbergCement further improved its financing structure in view of the still uncertain situation on the financial markets. The company issued a Eurobond with an issuance volume of €300 million, a maturity of four years, and a yield of 4.00%. With the extension of the €3 billion syndicated credit facility in February 2012, HeidelbergCement secured sufficient liquidity until the end of 2015.

At the end of the first quarter of 2012, HeidelbergCement's net debt amounted to €8.39 billion, which corresponds to a decline of €0.25 billion compared to the end of the first quarter of 2011. As a result, the gearing improved to 63.6% (previous year: 71.0%).

Targeted expansion of market position in growth markets

At the beginning of January, HeidelbergCement commissioned a new cement mill with a capacity of 0.8 million tonnes in the harbour city of Chittagong in Bangladesh. At the end of March, the capacity expansion at the Górazdze cement plant in Poland was completed by putting a new mill into operation. The new mill with a capacity of 1.4 million tonnes per year is HeidelbergCement’s biggest ball mill in Europe and ideally complements the last year increased clinker capacity. In 2012 and 2013, HeidelbergCement plans an expansion of cement capacity of about 10 million tonnes.

Outlook for 2012 confirmed

In its latest forecast, the International Monetary Fund raised growth rates for the world economy and some key countries, like the US, China, and Germany, and thus anticipates a smaller weakening of the economic development compared to the previous year. The growth rates in the emerging countries of Asia and Africa will remain significantly above those of the mature markets in North America and Europe. The economic recovery of the US continued in the first quarter. Due to a stronger than anticipated decline of unemployment, the American Cement Association significantly increased its forecast of cement consumption in 2012 from 0.5% to 3.7%.

In the Western and Northern Europe Group area, HeidelbergCement expects further economic growth but a slight overall dip in demand and falling sales volumes in cement and aggregates. This is mainly due to the strong growth in sales volumes in the previous year, particularly because of the mild winter weather in 2011 as well as the extreme cold wave in Europe in the first quarter of 2012. In the Eastern Europe-Central Asia Group area, HeidelbergCement expects further growth in sales volumes of cement and aggregates, which will be largely driven by the additional capacities as well as ongoing and partly strong increases in demand in Russia, the Ukraine, and Central Asia. In North America, the company expects demand of cement and aggregates to grow because of the gradual recovery of investment in private residential construction as well as commercial construction. HeidelbergCement anticipates the demand for building materials from the raw materials industry in Canada and the US to support the company’s sales volumes once again in 2012. In the Group areas Asia-Pacific and Africa-Mediterranean Basin, the company expects a sustained positive demand trend.

With regard to costs, HeidelbergCement expects a further – albeit significantly weaker compared to the previous year – increase in energy and raw material prices as well as rising personnel costs. HeidelbergCement aims to offset the cost increase and gain back some of the margins lost in 2011 by placing a high priority on cost reduction measures and targeted price increases. The Managing Board has set the objective of further increasing revenue and operating income in 2012 compared to the previous year.

“The development of demand in the first quarter confirmed our outlook for the 2012 financial year”, explains Dr. Bernd Scheifele. “In view of the still quite high energy costs, we will unabatedly continue our efforts to reduce costs and improve efficiency under the “FOX 2013” programme and increase prices in our markets in a consequent way. Deleveraging remains the highest priority for us, in order to regain our investment grade rating. We will also continue our successful strategy of targeted investments to expand cement capacities in the growth markets of Asia, Africa, and Eastern Europe. Thanks to our advantageous geographical positioning in attractive markets – in both emerging and industrialised countries –, and the global market leadership in the aggregates business, HeidelbergCement is excellently positioned to benefit over-proportionally from the continued economic growth."

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