HeidelbergCement reports significant revenue growth

In 2018, HeidelbergCement further increased its sales volumes and revenue, as was forecast in the company’s 2017 annual report. The result from current operations and before depreciation and amortisation (RCOBD) showed a slight decline, which was also in line with the outlook that was partially adjusted in October. Although unable to offset considerably higher than expected cost inflation, these developments are thought to be due to the solid demand for building materials in numerous countries and successfully implemented price increases. In addition, exchange rate effect had a negative impact on the development of revenue and results.

Preliminary Group figures

The Group’s cement and clinker sales volumes in 2018 showed a moderate increase of 3% compared to 2017, growing to 130 million t. Deliveries of aggregates rose slightly, by 1% to 309 million t, and deliveries of ready-mixed concrete increased by 4%, to 49 million m³.

The result of an increase in sales volumes in all business lines and successful price increases, Group revenue increased by 5% to €18.1 billion. Currency effects of around €592 million had an adverse impact on the development of revenue. Revenue growth was as high as 8% after adjustment for currency and positive consolidation effects. In contrast, RCOBD fell by 7% to €3.1 billion. Negative currency and consolidation effects impaired the development of results by €153 million. In addition, the non-recurring income of €79 million that was generated in 4Q17 from the sale of exhausted quarry was not repeated. Adjusted slightly for currency and consolidation effects, the result of current operations decreased slightly by 2%. The development of results was stable after adjustment for the sale of the quarry in the previous year. Cost inflation before currency effects was almost offset by higher sales volumes, price increases, and consistent cost management, particularly in the view of the increased energy costs.

4Q18

The company increased sales volumes of cement and ready-mixed concrete compared to 4Q17. Driven by solid growth in Europe and Asia, cement and clinker sales volumes rose by 2% to 33 million t, compared to 32 million t in 2017. Deliveries of aggregates remained stable at 76 million t. Growth in North America and in Western and Southern Europe offset declines in other Group areas. Compared to 12 million t in 4Q17, sales volumes of ready-mixed concrete increased by 8% to 13 million t.

There was a considerable rise in Group revenue by 10% to €4.7 billion, compared to €4.3 billion in 4Q17. Currency and consolidation effects had barely any impact on the development of revenue. The results from current operations before depreciation and amortisation declined by 5% to €847 million, compared to €892 million in 4Q17. The figure increased slightly when adjusted for the sale of an exhausted quarry in the US in 4Q17.

North America

Demand for building materials in North America increased further, particularly as a result of sustained economic growth and falling unemployment figures. However, construction activity was hampered by the long winter in the North and heavy rainfall, particularly in the South and Southeast of the US. Like-for-like, the company achieved a slight increase in sales volumes of cement, aggregates, and ready-mixed concrete in 2018. This was despite adverse weather conditions, both over the whole year and in 4Q18.

Negative currency effects impaired the development of revenue. Like-for-like, revenue increased by 3% for FY18 and by 4% for 4Q18. In contrast, the result from current operations in 2018 was below the previous year. Non-recurring income of €79 million from the sale of an exhausted quarry in 4Q17 was not available in 2018. In addition, the development of results was negatively impacted by a considerable increase in costs, including fuel costs.

Western and Southern Europe

While construction activity in the eurozone developed positively in 2018, the UK suffered from uncertainty connected to the Brexit vote. Thanks to strong demand in residential construction, construction investments in Germany increased. In Italy, construction activity was hampered by weak economic development but exceeded the previous year. In the UK, construction activity declined as a result of weak commercial and non-residential construction.

Overall, building materials deliveries increased in all business lines for FY18, but particularly in 4Q18. In January 2018, the takeover of Cementir Italia had a positive impact on the growth of cement sales volumes. Cement deliveries also increased after adjustment for consolidation effects.

Revenue rose in line with the development of sales volumes. The result from current operations before depreciation and amortisation grew slightly compared like-for-like to 2017. This was despite significantly rising variable costs for electricity, fuels, and bitumen. A significant recovery in results was seen in 4Q18, due to the positive development of sales volumes and improved efficiency.

Northern and Eastern Europe-Cetral Asia

In the Northern and Eastern Europe-Central Asia Group area, the strong level of construction activity in the countries of Northern Europe continued. In Norway, infrastructure projects resulted in a further increase. In Sweden, private residential construction and infrastructure projects were the main drivers of demand. Boosted by residential and infrastructure construction, construction activity also developed positively in Eastern Europe, with a double-digit increase in Poland and Hungary. Czechia also recorded pleasing growth, supported by residential construction.

Cement sales volumes in the Group area declined slightly following the deconsolidation of business activities in Georgia. Adjusted for consolidation effects, a moderate increase was recorded in sales volumes of cement, as well as a significant rise in ready-mixed concrete sales volumes. The positive development of sales volumes continued in 4Q18. The rise of revenue and results, adjusted for consolidation effects, reflects this positive development of sales volumes, successful price increases, and consistent cost management.

Asia-Pacific

In the Asia-Pacific Group area, economic growth has stabilised. Demand for cement increased further in Indonesia, India, and Bangladesh. However, delays in infrastructure projects and weak private construction activity in Thailand resulted in a decline in cement sales volumes. Australia recorded healthy growth in sales volumes as a result of strong infrastructure construction in the metropolitan regions of Sydney and Melbourne. Overall, sales volumes rose in all business lines.

For FY18, moderate growth in revenue was recorded. The results from current operations was below FY17, as a result of the still tense competition situation in Indonesia at the beginning of the year. The trough of the results development in Indonesia occurred during 3Q18. Since then, the trend has been positive. This is reflected in the moderate increase in results in 4Q18.

Africa-Eastern Mediterranean Basin

Overall demand for building materials in Africa remained positive in 2018. Cement sales volumes rose in most of the countries South of the Sahara – significantly in some cases. In contrast, sales volumes of aggregates declined in Israel as a result of expiring mining licenses.

The positive development of sales volumes is reflected in revenue and the result from current operations increased slightly. Improvements in results in the countries South of the Sahara more than offset losses in Turkey and Israel. In 4Q18, cement sales volumes fell because of declining quantities in Egypt. However, revenue rose because of the sustained positive development in the countries South of the Sahara.

Initial outlook for 2019

In its forecast from January 2019, the International Monetary Fund expects the global upturn to continue on a broad scale. Global economic growth will slightly weaken from 3.7% in 2018, to 3.5% in 2019. This is in connection with trade disputes between the US and China, as well as recently reduced dynamics in Europe. The risks that could continue to jeopardise growth include a further escalation of trade disputes, high public and private debt, a disorderly Brexit, and a stronger than expected economic slowdown in China.

HeidelbergCement has announced that it expects worldwide demand for cement to increase further in 2019. This particularly applies to Indonesia, India, Africa South of the Sahara, and North America.

“In 2018, we achieved new record values in sales volumes and revenue,” said Dr Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “In operational terms, we were almost able to offset the impact of adverse weather conditions, particularly in the US, and the higher than expected cost inflation through growth in sales volumes and price increases. Our action plan is also producing its first results: thanks to the accelerated portfolio optimisation and expenditure discipline, we were able to reduce net debt at year end below €8.4 billion.

“Considering the overall positive outlook for the global economy, we are confident about the future. We assume that some of the factors that impaired our results in 2018 will not be present in 2019. In particular, this relates to the adverse weather conditions in the US, energy price inflation that was stronger than expected, and the price collapse in Indonesia. In 2019, we will focus on our action plan in order to accelerate our portfolio optimisation and increase cash flow and margins. In addition, we will press ahead with the digitalisation of our entire value chain in order to further improve our operational excellence. In view of our strong positioning in raw material reserves and production sites in attractive locations, the unique vertical integration, our excellent product portfolio, and our industry-leading margin management, we believe we are well equipped for the opportunities and challenges of 2019.”

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