The FINANCIAL — The continued recovery of the construction industry in North America and the United Kingdom contributed to an overall positive development of sales volumes in the first quarter. Sales volumes in the North America Group area increased in all business lines. The development in cement and aggregates in the North Region and California was particularly positive.
In Europe, sales volumes remained approximately at the level of the same quarter of the previous year, which was very strong due to favourable weather conditions. While the previous year’s figures for cement were not fully reached, sales volumes in aggregates, ready-mixed concrete, and asphalt increased partly significantly. The markets in Asia and Africa also developed positively overall. A decline in cement deliveries in Indonesia, due, among other things, to heavy rainfalls, was more than offset by double-digit growth in Africa and increased deliveries in other Asian countries, according to HeidelbergCement.
The Group’s cement and clinker sales volumes fell slightly by 0.8% to 16.8 million tonnes (previous year: 17.0). Deliveries of aggregates amounted to 46.3 million tonnes (previous year: 44.3), an increase of 4.4%. Ready-mixed concrete deliveries rose by 1.9% to 7.9 million cubic metres (previous year: 7.7). Asphalt sales volumes grew by 2.6% to 1.6 million tonnes (previous year: 1.5).
Revenue and operating income significantly increased
Group revenue rose considerably in the first quarter of 2015 by 12.4% to €2,835 million (previous year: 2,522). Excluding consolidation and currency effects, the increase amounted to 3.6%. This primarily reflects the positive development of sales volumes in the aggregates and ready-mixed concrete-asphalt business lines, and the successfully implemented price increases in major markets. While the positive effects from changes in the consolidation scope to the amount of €6 million were negligible, the weakening of the euro against numerous currencies amounting to €210 million had a positive impact on the development of revenue.
Operating income before depreciation (OIBD) improved significantly by €94 million, or 45.8%, to €299 million (previous year: 205). Besides the price increases and the successful implementation of the margin improvement programmes – especially in the aggregates business – the declining cost of fuels also made a contribution to the positive development of results. Operating income also increased significantly by €74 million, or 183%, to €115 million (previous year: 41). Positive exchange rate effects impacted operating income before depreciation (OIBD) by €25 million and operating income by €14 million.
“In operational terms, the first quarter 2015 was the best since the financial crisis and has therefore upheld the positive trend of the previous year,” says Dr. Bernd Scheifele, Chairman of the Managing Board. “The continued recovery in our mature markets and the sustained growth in Asia and Africa have made a significant contribution. We were able to increase the margins in operational terms in all Group areas, thanks to our margin improvement programmes and price rises in core markets. Furthermore, we have benefited from the weak euro and declining fuel costs. Our balance sheet structure has been considerably strengthened following the sale of the building products business, and net debt is below the target figure of €6.5 billion.”
The additional ordinary result rose by €5 million to €16 million (previous year: 11). The financial result only improved slightly by €2 million to €-158 million (previous year: -160). Although net interest expenses were reduced considerably by €34 million, these savings were largely offset by currency losses and a declining other financial result which were the result of currency turbulences in Russia, the Ukraine, Kazakhstan, and Georgia.
Profit before tax from continuing operations rose by €79 million to €-33 million (previous year: -112). Expenses relating to income taxes increased by €32 million to €-34 million (previous year: -2). As a result, net loss from continuing operations improved to €-67 million (previous year: -114). At €-13 million, the net loss from discontinued operations mainly related to the building products business in North America and the United Kingdom that was sold on 13 March 2015.
Overall, the loss for the period amounted to €-80 million (previous year: -108). The profit attributable to non-controlling interests rose by €4 million to €43 million (previous year: 39). The Group share therefore improved to €-123 million (previous year: -147).
At the end of the first quarter of 2015, the number of employees at HeidelbergCement stood at 45,205 (previous year: 45,901). The decrease of 696 employees results essentially from two opposing developments: On the one hand, around 550 jobs were cut in some Eastern European countries, Benelux, Norway, India, and Malaysia in connection with efficiency increases in sales and administration and location optimisations. Furthermore, the number of employees was reduced by around 1,200 due to the sale of the Russian aggregates company OAO Voronezhskoe Rudoupravlenije, a further aggregates company in Indonesia, and our participation in the cement company Cimgabon S.A. in Gabon, as well as additional portfolio optimisations. On the other hand, around 150 new employees were hired in growth markets, in particular in Africa, as well as by HC Trading. Owing to the positive development in demand in the United Kingdom, Sweden, Germany, and Australia, close to 700 employees were recruited. Furthermore our number of employees rose by more than 250 thanks to increases in the shareholdings in four Icelandic participations, which were previously included as associates, as well as the acquisition of a majority participation in the Canadian Cindercrete Products Group and a quarry in Australia as part of an asset deal transaction.
Net debt significantly reduced
Net debt at the end of the first quarter amounted to €6.1 billion and was €1.74 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 €1.25 billion. The net debt-to-equity ratio (gearing) at the end of the first quarter improved correspondingly to 38.3% (previous year: 63.1%). The dynamic gearing ratio fell to 2.6x and was thus within the targeted range of below 2.8x. The liquidity reserve increased to €4.4 billion.
At the end of March, the rating agency Moody’s raised its outlook for the BA1 rating for HeidelbergCement from stable to positive. The change in outlook was linked to expectations of a positive development of performance and further reduction in debt by HeidelbergCement.
Outlook for 2015 confirmed
In its most recent forecast, the International Monetary Fund (IMF) continues to expect the global economy’s growth in 2015 to experience a slight increase to 3.5% in comparison with the previous year. The acceleration is supported by the continued rise in economic growth in the USA and a further recovery of the economy in the euro zone. The significant drop in the oil price since September 2014 is also acting as an additional economic stimulus programme for countries that import crude oil. In contrast, the growth rate of the emerging countries is expected to stagnate. On the one hand, this is due to the weakening growth in China, and on the other hand, the subdued outlook for countries that export raw materials is likely to take its toll. Uncertainties concerning the future development of the oil price represent an additional risk factor for global economic development. These 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. Overall, we anticipate a further rise in demand for building materials in Central Asia. While the crisis in eastern Ukraine is impairing the sales volumes and results of the country, it has not yet had a significant effect on the operating activities in Russia. However, the currencies of both countries have depreciated considerably against the euro since the crisis began. In Western and Northern Europe, positive market development is expected. This is based on the recovery in the United Kingdom, the consistent solid condition of the German economy, and stable economic development in Northern Europe and Benelux. In Asia and Africa, the Group continues to expect sustained growth in demand.
In view of the positive development of demand and the commissioning of new capacities, HeidelbergCement anticipates an increase in the overall sales volumes of the core products cement, aggregates, and ready-mixed concrete.
HeidelbergCement estimates that the cost base for energy will undergo slight to moderate growth in 2015 on account of the forecast growth in sales volumes, the elimination of subsidies for electricity and fuels in Indonesia, and the weakening of the euro. A moderate rise in the cost of raw materials and personnel is also expected, partly because of the devaluation of the euro. The objective is to offset this by means of suitable measures and to further improve our 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 will be 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.
On the basis of these assumptions, the Managing Board has set the goal of significantly increasing revenue, operating income, and profit for the financial year before non-recurring items in 2015. Furthermore, HeidelbergCement is expected to earn its cost of capital in 2015.
“Business development in the first quarter has strengthened our conviction in our outlook for 2015,” explains Dr. Bernd Scheifele. “Our strategic focal points remain unchanged: cost leadership through continuous efficiency improvements, deleveraging with the aim of attaining investment grade status, and targeted investment in cement capacities in growth markets as well as in raw material deposits to strengthen our global market leadership in aggregates.”
“We are confident about 2015,” continues Dr. Bernd Scheifele. “The outlook for the global economy is positive, but there are still macroeconomic and especially geopolitical risks. We will continue to benefit from the positive development in North America, the United Kingdom, Germany, and Northern Europe. These countries generate almost 50% of our revenue. 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.”