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HeidelbergCement announces successful conclusion of 2018

Published by , Editorial Assistant
World Cement,

HeidelbergCement has announced its 2018 consolidated financial statements. The company has recorded a revenue rise of 5% to €18.1 billion. Profit for FY18 improved by 22% to €1286 million, while earnings per share went up by 25% to €5.76. The company earned significant premium on the cost of capital.

Outlook for 2019 in brief

The company expects positive macroeconomic development to continue despite a slight weakening of economic growth. Growth in the sales volumes of cement, aggregates, and ready-mixed concrete is also expected. It is also thought that a moderate increase in revenue will result from current operations, as well as profit for the financial year. The company has stated that it will focus on its action plan of accelerated portfolio optimisation, its efficiency programme, and its commercial excellence initiative, as well as an increase in cash flow.

Record figures in a demanding environment

Despite a challenging environment, the company has announced that it brought FY18 to a successful close. Sales volumes and revenue were reported to reach record highs, due to strong demand and price increases. Profit for the financial year could be significantly increased as planned.

“In 2018, HeidelbergCement achieved most of its goals in an operationally challenging environment,” said Dr Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “In its 145 year history, our group has never sold more cement, concrete, sand, and gravel than in 2018. With more than €18 billion, a new record figure was also achieved in revenue. The decrease in results from current operations could be more than offset by increased proceeds from portfolio optimisation, as well as lower restructuring and financing costs. All things considered, we were able to raise earnings per share disproportionately by 25%. Therefore, we propose a significantly increased dividend of €2.10.”

Profit increased significantly

As a result of strong demand, the company has reported that its total sales volumes of cement, aggregates, and ready-mixed concrete reached new record figures. In cement and aggregates, the company benefitted from solid demand in North America, Europe, and Australia, as well as the positive development of some emerging countries, such as Indonesia, Ghana, or Tanzania.

Revenue rose by 5% to €18.1 billion (compared to €17.3 billion the previous year), even though it was impaired by negative currency effects of €592 million. Adjusted for currency and consolidation effects, revenue increased by 8%.

In contrast, results from current operations decreased slightly by 2% to €2.2 billion on a comparable basis, which is in line with the outlook revised in October 2018. Adverse weather conditions, especially in the core markets of North America, a stronger than expected rise in energy and electricity costs, and lower than planned proceeds from the sales of depleted quarries could not be completely offset by price and sales volumes increases, as well as efficiency improvements.

The additional ordinary result increased considerably by €241 million to €108 million (this was €-133 million in 2017). Primarily, this reflects increased proceeds from portfolio optimisation and lower restructuring costs following the successful integration of Italcementi.

The financial result improved significantly by €52 million to €-367 million (compared to €-418 million in 2017). The company has stated that this was particularly due to lower interest expenses thanks to the more favourable refinancing of maturities.

Income taxes decreased to €464 million (from €579 million in 2017). It is thought that the reason for this decline was a special effect in the previous year from the revaluation of the deferred tax item resulting from the US tax reform.

Overall, this resulted in a significantly increased profit for FY18, of €1286 million (compared to €1058 million for FY17). The group share of profit rose to €1143 million (compared to €918 million in 2017). Earnings per share improved by 25% to €5.76. Also in 2018, the company earned a significant premium on the cost of capital. Although the return on invested capital decreased slightly from 7.2% in 2017 to 6.9% in 2018, it was still above the weighted average cost of capital of 6.3%.

Portfolio optimised and net debt further reduced

Cash flow also developed positively in 2018. The company generated sufficient cash to pay a full dividend, reduce liabilities by €328 million, and strengthen market positions by means of substantial investments in growth.

With the purchase of Cementir Italia, Italcementi has continued to strengthen its market leadership in Italy and has laid the foundation for additional synergies. In Australia, HeidelbergCement acquired the Alex Fraser Group – a leading producer of recycled building materials and asphalt, thus strengthening its market position in the metropolitan regions of Melbourne and Brisbane.

At the same time, disposals of activities that were not part of the company’s core business or did not meet its return requirements generated proceeds of almost €600 million. The company was able to reduce net debt from almost €8.7 million to below €8.4 million at the end of 2018. At the end of the year, gearing reduced to 49.7% (compared to 54.4% in 2017). Due to the lower result from current operations before depreciation and amortisation, the dynamic gearing ratio increased slightly to 2.7x (compared to 2.6x in 2017).

Dividend proposal

In view of the positive business development, the managing and supervisory boards will propose to the annual general meeting at the beginning of May, a significant increase of 11% in the dividend to €2.10/share (compared to €1.90/share in 2017). This dividend proposal is in line with the progressive dividend policy announced previously, reflecting the company’s strategic priority of value creation for shareholders, and the company’s focus on solid investment grade rating. This is the ninth consecutive increase in dividends, and the proposed dividend represents a new record figure in the history of the company.

Sustainability and innovation

Sustainable business is an integral part of HeidelbergCement’s business strategy. In 2018, the focus was on the key topics of Sustainability Commitments 2030. The company decreased the accident frequency rate across the group by 12%. It has stated that it is working continuously to minimise the risks for employees, contractors, and third parties, with the aim of achieving a goal of zero harm.

In 2018, the fourth edition of the biodiversity competition, the Quarry Life Award, took place. The company has noted that by running this competition it supports innovative approaches to the exploration and promotion of biodiversity in quarries and aggregate pits. More than 300 project proposals were submitted from 25 countries.

In the area of climate protection, the company increased the proportion of alternative fuels and reduced specific net CO2 emissions. In addition to the modernisation of its plants, the company further developed technologies to capture and recycle CO2 and, in doing so, holds a leading position in the industry. Innovations at the product and technology level play an important role in achieving this. In 2018, CDP (formerly the Carbon Disclosure Project) named HeidelbergCement the best company in its sector. This was on account of the company’s transparency and pioneering role. The company’s vision is to offer a CO2-neutral concrete by 2050.

Outlook for 2019

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

In view of the overall positive economic development, HeidelbergCement expects increasing sales volumes for the core products cement, aggregates, and ready-mixed concrete for 2019. Price increases will be prioritised in order to repair the margins lost in 2018. The company will also consistently pursue its global programmes to optimise costs and processes, as well as to increase margins and focus on the implementation of the action plan announced in November 2018. Furthermore, tailwinds from energy cost inflation, a clear result improvement in Indonesia, and solid developments in Europe and North America (among others driven by new state infrastructure projects) should result in a solid result improvement.

On the basis of these assumptions, the managing board has set the goal for 2019 of moderately increasing the revenue and result from current operations before currency and consolidation effects, as well as moderately improving the profit for the financial year before non-recurring effects.

“Considering the overall positive outlook for the global economy, we are confident about the future,” said Scheifele. “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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