HeidelbergCement reports on strong 2Q14

2Q14 highlights

• Strong operating performance compared with previous year.
• Increased sales volumes in all business lines.
• Group revenue stable at €3.6 billion (like-for-like: +8%).
• Operating income improved slightly to €516 million despite negative exchange rate effects (like-for-like: +12%).
• EPS at €1.24 (previous year: €1.96, therein €0.99 one-time effect).
• Operating cash flow improved significantly and net debt reduced.

Sales volumes

The continued recovery of the markets in North America, the United Kingdom and Eastern Europe, as well as the sustained growth in the emerging countries, have had a favourable impact on HeidelbergCement’s sales volumes – all business lines recorded increasing sales volumes.

The Group’s cement and clinker sales volumes rose by 4% to 22.3 million t (previous year: 21.4 million t) in 2Q14. The strongest growth was achieved in the Eastern Europe-Central Asia Group area, followed by North America and Asia-Pacific. Cement sales volumes in the Western and Northern Europe Group area remained more or less stable. The continued recovery of the construction sector in the United Kingdom led to a notable increase in the demand for cement. In the other countries of the Group area, cement sales volumes remained slightly below the same quarter of the previous year due to anticipatory effects in construction owing to the mild winter weather in the first quarter and a lower number of working days. The Africa-Mediterranean Basin Group area saw a decrease in sales volumes due to the sale of our Gabon activities and a non- recurring export order in 2Q13. However, production volumes rose by 6% in all other countries. Adjusted for consolidation effects, Group cement sales volumes rose by 5%.

Deliveries of aggregates increased by 3% (adjusted for consolidation effects +2%) to 64.3 million t (previous year: 62.1 million t). Higher sales volumes, particularly in the North America, Eastern Europe-Central Asia and Asia-Pacific Group areas, as well as in the United Kingdom, contributed to this development. Deliveries of ready-mixed concrete rose marginally by 1% to 9.5 million m³ (previous year: 9.5 million m³). The Australian and North American markets were key growth drivers.

In 1H14, cement and clinker sales volumes rose by 7% to 39.8 million t (previous year: 37.3 million t). Deliveries of aggregates increased by 6% to 108.6 million t (previous year: 102 million t) and deliveries of ready-mixed concrete rose by 5% to 17.2 million m³ (previous year: 16.4 million m³). Asphalt sales volumes grew by 17% to 3.8 million t (previous year: 3.3 million t).

Revenue and results

2Q14

Group revenue remained virtually stable in 2Q14 at €3.568 billion (previous year: €3.585 billion). The weakening of numerous currencies against the euro since the middle of last year had a negative impact on revenue and operating income also in the second quarter. Translation effects impaired revenue by €261 million, operating income before depreciation (OIBD) by €67 million, and operating income by €56 million. Adjusted for exchange rate and the negligible consolidation effects in the second quarter, revenue was improved by 8%.

Tax expenses in 2Q14 were €52 million higher at €88 million (previous year: €36 million). The low level of the same quarter of the previous year was primarily due to the capitalisation of deferred taxes arising from losses carried forward. Net income from discontinued operations decreased from €96 million in 2Q13 to a net loss from discontinued operations of €-2 million in 2Q14. In the context of court ruling related to the Hanson asbestos claims, receivables against primary insurers were recognised in profit & loss in 2Q13 and in the following the aforementioned deferred taxes were capitalised. Overall, this led to a positive impact of around €186 million on the profit for the period and the Group share of profit or €0.99 per share in the same quarter of the previous year.

As a result, the profit for the financial year decreased in 2Q14 by 32% to €290 million (previous year: €428 million), and the Group share of profit dropped by 37% to €233 million (previous year: €368 million). Accordingly, earnings per share fell to €1.24 (previous year: €1.96). However, without taking into consideration the one-off effect in the previous year, profit, Group share of profit, and earnings per share have improved.

1H14

In the first half of the year, Group revenue rose despite negative exchange rate effects of €482 million by 2% to €6.318 billion (previous year: €6.187 billion). Like-for-like, revenue rose considerably by 11%. Operating income before depreciation (OIBD) improved by 2% to €928 million (previous year: €908 million); operating income grew by 8% to €566 million (previous year: €524 million). Adjusted for negative currency effects and negligible consolidation effects, operating income before depreciation (OIBD) increased significantly by 15% and operating income even rose by 28%. Net income from discontinued operations fell to €-3 million (previous year: €96 million) due to the previous year's income in connection with the lowering of the risk position related to the Hanson asbestos claims in the United States. The profit attributable to non-controlling interests decreased to €96 million (previous year: €108 million). The Group share of profit fell to €87 million (previous year: €133 million) because of the aforementioned one-off effect in the previous year, but increased considerably on a comparable basis.

Operating cash flow

Operating cash flow improved considerably in the second quarter from around €64 million to €393 million. This development is attributable to the good operational performance and the sustained discipline in the management of net current assets. The days working capital was further optimised and reduced to the record low of 42 days. Furthermore, the antitrust fine of €161 million was paid in full in the second quarter of the previous year. Net debt at the end of the second quarter amounted to €8 billion, which was around €27 million less than at the end of the same quarter of the previous year.

Margin improvement initiatives and expansion in growth markets

The “PERFORM” project for cement, “CLIMB Commercial” for aggregates and “LEO” for reducing logistics costs, which were launched in order to improve margins, are progressing according to plan and have contributed to margin improvements in 2Q14. In June, HeidelbergCement launched the CIP (Continuous Improvement Program) for the continuous improvement of work processes in cement production. The new programme aims to introduce a systematic approach in 65 cement plants around the world to generate, prioritise, and implement employee ideas. Process improvements are expected to achieve a sustainable improvement in results of at least €120 million by the end of 2017.

In the second quarter, HeidelbergCement started preliminary production at its new integrated cement plant in Shetpe, Kazakhstan. The official commissioning of the location with a capacity of 0.8 million tpa is scheduled for 2H14. The new vertical mill at the Citeureup location in Indonesia with an annual capacity of 1.9 million t has also commenced operations. In 2H14, HeidelbergCement is planning the start of production and commissioning of additional production capacities, among others the clinker plant in Togo with an annual capacity of 1.5 million t and the cement mills in Ghana (0.8 million tpa), Tanzania (0.7 million tpa), and Burkina Faso (0.7 million tpa). The capacity expansion enables HeidelbergCement to serve the growing markets in key coastal towns and therefore to ensure its competitive advantage in West Africa.

Outlook for 2014

The Managing Board has set the goal of further increasing revenue, operating income and profit for the financial year in 2014 on a like-for-like basis.

“Considering the positive development in the second quarter, we confirm our earnings outlook for 2014”, explained Dr Bernd Scheifele. “We will continue to pursue the objective of improving our key financial ratios in order to qualify again for an investment grade credit rating. To this end, we will continue to be very disciplined in our spending and focus more intensively on the sale of the building products business line in the United Kingdom, the United States and Eastern Canada, as well as other assets that do not belong to our core business. At the same time, we will remain on course with our successful strategy of targeted expansion of our cement capacities in growth markets. Furthermore, we will move along unabated with our existing programmes for margin improvement and simultaneously gather and implement new ideas from our employees to improve our business processes with the help of the Continuous Improvement Program (CIP).”

“In 2014, we will benefit from the economic development in the industrial countries, particularly in North America, the United Kingdom, Germany and Northern Europe”, continued Scheifele. “These countries generate almost 50% of our revenue. Furthermore, we are improving our market position in growth markets with the commissioning of modern production facilities. In view of these factors as well as our high operational efficiency, we consider ourselves well-equipped to benefit over-proportionally from the accelerating economic growth in the interests of our shareholders.”

Adapted from press release by Rosalie Starling

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