HeidelbergCement reported cement and clinker sales volumes up by 58% to 27.8m tonnes (previous year: 17.6) in its first quarter 2017 results.
The growth is the result of the Italcementi acquisition.
Revenue was up by 34% to $4.13bn (€3.8bn).
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Cement and clinker sales volumes at HeidelbergCement are up as a result of the Italcementi acquisition[/caption]
Cement sales volumes showed an improvement in all areas apart from Africa-Eastern Mediterranean basin.
The strongest increase on a pro forma basis was recorded in northern and eastern Europe-central Asia, followed by western and southern Europe as well as north America.
In Asia-Pacific, cement sales volumes grew in India in particular, while they declined in Thailand and Bangladesh.
Although sales volumes rose substantially in Africa south of the Sahara, they dropped sharply in Egypt due to the weak market development.
Deliveries of aggregates also registered an acquisition-related rise of 23% to 60.9m tonnes (previous year: 49.3). Taking into account Italcementi’s deliveries in the same period of the previous year, the growth amounts to 8%. Higher sales volumes in all HeidelbergCement areas, excluding Asia-Pacific, and particularly the consolidation of the Mibau Group in northern Europe contributed to this increase.
Deliveries of ready-mixed concrete also rose as a result of the new consolidations by 31% to 10.4m cubic metres (previous year: 8.0). On a pro forma basis, sales volumes fell slightly by 1%. Asphalt sales volumes grew by 6% to 1.5m tonnes (previous year: 1.4).
Highlights
- Sales volumes: 28 million tonnes of cement (+58%); 61 million tonnes of aggregates (+23%); 10 million cubic metres of ready-mixed concrete (+31%)
- Revenue up by 34% to €3.8 billion (previous year: 2.8)
- Result from current operations before depreciation and amortisation improved by 19% to €383 million (previous year: 321)
Financial result increased by €32 million to €-82 million (previous year: -114) - Typical seasonal shortfall (Group share) reduced to €-70 million (previous year: -72); earnings per share improved by 7%
“We continued our strong operational development in the first quarter and realised further synergies,” said Bernd Scheifele, chairman.
“We were able to almost offset the effect of higher energy costs, bad weather conditions, and increased competition in some emerging countries in the most seasonally weak quarter of the year. Thanks to the ongoing refinancing of our maturities at more favourable terms, we have successfully continued to improve the financial result and made an important contribution to the further rise in our cash flow. All in all, we have slightly increased the Group share of profit for the financial year despite the challenging environment.”
The additional ordinary result fell by €12 million to €-16 million (previous year: -4). The financial result substantially improved by €32 million to €-82 million (previous year: -114). Net interest expenses were reduced by a further €13 million. The currency result and other financial result also developed positively.
The profit before tax from continuing operations declined by €5 million to €9 million (previous year: 14). Expenses relating to income taxes rose to €48 million (previous year: 36). As a result, net loss from continuing operations increased to €-39 million (previous year: -21). The net income from discontinued operations of €4 million represents operations of the Hanson Group that were discontinued in previous years.
Overall, the typical seasonal loss for the period increased slightly to €-35 million (previous year: -31). The profit relating to non-controlling interests fell by €6 million to €35 million (previous year: 41). The Group share consequently improved to €-70 million (previous year: -72) and the loss per share to €-0.35 (previous year: -0.38).
HeidelbergCement outlook for 2017
In its latest forecast from April 2017, the International Monetary Fund (IMF) slightly increased the growth rate for the global economy and now anticipates a rise in global economic growth from 3.1% in 2016 to 3.5% in 2017. Accelerating growth in the USA is one of the drivers behind this trend. It is also anticipated that the growth rates in the emerging countries will increase again, despite a further economic slowdown in China. Higher growth rates are particularly expected for countries in Africa south of the Sahara and in Asian countries with the exception of China.
Global risks have increased considerably compared with the previous year. This relates both to geopolitical and macroeconomic risks. Among the geopolitical risks are notably the conflicts in the Middle East and in eastern Ukraine. In terms of macroeconomic risks, special mention must be made of the increase in energy prices and inflation, the unpredictable consequences of the downturn in the Chinese economy, the impact of monetary policy measures, particularly by the US Federal Reserve, and the shift of political measures towards protectionism.
In North America, HeidelbergCement, in conformity with the IMF, expects a stronger economic recovery and consequently a further increase in demand for building materials. In Western and Southern Europe, positive market development is expected. This is based on the continued recovery in the United Kingdom, the consistent solid condition of the German economy, and the stable economic development in Benelux. In Northern Europe, we expect a continuation of the good market conditions. In Eastern Europe, we anticipate growing demand for building materials as a result of the EU infrastructural programme, among other factors. The crisis in eastern Ukraine is continuing to impair the country’s sales volumes and result. The economic situation in Russia and Kazakhstan has improved following the increase in the oil price. In the African markets, we expect an acceleration in demand growth together with a persistent level of competition. In Asia, HeidelbergCement anticipates an upturn in demand, thanks in particular to increasing infrastructure investments in Indonesia. Nevertheless, a further decline in demand and an increase in excess capacities are expected in China. The impact on export volumes is limited, however, because a large proportion of Chinese capacities is located inland.
In view of the overall positive development of demand, HeidelbergCement projects increasing sales volumes of the core products cement, aggregates, and ready-mixed concrete.
HeidelbergCement estimates that the cost base for energy will increase moderately to significantly in 2017 as a result of the rising oil and coal prices since the beginning of 2016. A slight to moderate rise in the cost of raw materials and personnel is also expected. HeidelbergCement remains focused on the continuous improvement of efficiency and margins. With this in mind, we are implementing “Continuous Improvement” programmes in the cement and aggregates business lines to establish a culture of consistent advancement of operational and commercial work processes at employee level. Process optimisations are expected to achieve a sustainable improvement in results of at least €120 million in both business lines over a three-year period. The “CIP” programme for the cement business commenced at the beginning of 2015, and the “Aggregates CI” programme for the aggregates business line was introduced at the beginning of 2016. We also continue to optimise our logistics with the “LEO” programme, which has the goal of reducing costs by €150 million over a period of several years. In addition, we launched the new efficiency improvement programme “Competence Center Readymix” (CCR) in the ready-mixed concrete business at the end of 2016. Over a three-year period, the optimisation of logistics and concrete recipes is expected to achieve an improvement in result of €120 million.
In 2017, we anticipate a significant decrease in financing costs on account of our disciplined cash flow management and the refinancing of maturities on more favourable terms.
On the basis of these assumptions, the Managing Board has set the goal for 2017 of increasing revenue moderately and the result from current operations before exchange rate and consolidation effects by a mid-single to double-digit percentage on a pro forma basis – i.e. taking into account the contributions of Italcementi for the first half of 2016 – as well as significantly improving the profit for the financial year before non-recurring effects.
“We continued our strong operational development in the first quarter of 2017,” Scheifele said. “We will maintain our focus on concluding the integration of Italcementi and reducing net debt through disciplined cash flow management. Our declared aim is to maintain a long-term investment grade rating.
"In operational terms, we concentrate on five areas: an increase in customer satisfaction, high operating leverage, cost leadership, vertical integration, and optimised geographical positioning. As a result, we will increase our efficiency and the satisfaction level of our customers, especially in the world’s rapidly growing metropolitan areas. We will continue to drive forward our global programmes to optimise costs and processes as well as increase margins for aggregates, cement, ready-mixed concrete, and purchasing.”
“We remain cautiously optimistic about 2017,” Scheifele said.
"While the overall outlook for the global economy is positive, major macroeconomic and particularly geopolitical risks remain. HeidelbergCement will benefit from the good and stable economic development in the industrial countries, above all in the USA, Canada, the United Kingdom, Germany, the countries of Northern Europe, and Australia. These countries generate approximately 60% of our revenue. With the acquisition of Italcementi and its rapid integration, we have impressively demonstrated our tremendous business potential and strong momentum. From a global perspective, we are well positioned to achieve our strategic goals – continuous growth and sustainable returns for our shareholders.”
