|
|
|
 Home
Holcim produces solid results despite difficult economic environment
Aug, 21 2008
Holcim produces solid results despite the difficult economic environment and a strong increase in energy prices.
 Development on a like-for-like basis*:
• Cement deliveries increased by 3 percent and ready-mix concrete volumes grew by 9.9 percent; sales of aggregates fell by 6.9 percent
• Net sales appreciated by 8.2 percent
• Operating EBITDA decreased by 0.9 percent
• Adjusted to a non-recurring capital gain and special dividend of CHF 1.3 billion in 2007, net income attributable to equity holders of Holcim Ltd increased by 2.6 percent
• Holcim expects in 2008 to match its excellent previous-year result on a like-for-like basis on the level of operating EBITDA
* The scope of consolidation has undergone substantial changes. Holcim South Africa and Egyptian Cement are no more included in the result for the first half of 2008. Another factor which has negatively impacted earnings is the strength of the Swiss franc. The changes in the scope of consolidation and currency translation effects need to be factored out of any comparisons with the corresponding period of the previous year.
Altered conditions
The turbulences in the financial markets, rising inflation and the strong rise in energy prices have put the global economy under increased strain. After a prolonged period of very solid economic growth, this has had a noticeable dampening effect on the economies of the US, the UK and Spain in particular.
The cement industry, with its energy-intensive production process, is feeling the impact of the rapid increase in the price of thermal and electrical power sources very directly. So far, the resulting cost increases have only partially been passed on to customers and with a delay.
On a like-for-like basis, Holcim presents a solid result which is in line with that of the previous year. The construction sector has developed well in four out of five Group regions and there has been an increase – on a like-for-like basis – in consolidated sales of cement and ready-mix concrete.
Sales development and financial results
Consolidated cement deliveries decreased by 2.3 percent to 72.5 million tonnes and consolidated sales of aggregates declined by 8.7 percent to 79.7 million tonnes. Ready-mix concrete volumes increased by 11.3 percent to 23.6 million cubic meters. Sales of asphalt fell by 4.9 percent to 5.8 million tonnes.
Half year results 2008 – Group (January-June and April-June 2008)
Consolidated net sales fell by 4.4 percent to CHF 12.434 billion and operating EBITDA dropped by 15.7 percent to CHF 2.802 billion. Factoring out changes in the scope of consolidation totaling CHF 210 million and negative currency translation effects of CHF 283 million, operating EBITDA decreased by only 0.9 percent. The purchase of clinker in the forefront of commissioning new cement capacities negatively impacted the margin. In comparison with the first quarter of 2008, the operating EBITDA margin of 22.5 percent (first half of 2007: 25.6) improved in all segments. In the aggregates segment, operating EBITDA margin increased by 1.7 percentage points compared with the previous year’s first half. As a result of the lower operating EBITDA and the increase in net working capital, cash flow from operating activities came to CHF 664 million (first half of 2007: 1,733). Group net income declined by 53.2 percent to CHF 1.338 billion. However, comparisons with net income in the first half of 2007 need to take account of one-off factors: the capital gain and the special dividend totaling CHF 1.3 billion arising from the sale of the stake in South Africa. Net income attributable to equity holders of Holcim Ltd decreased by 56 percent to CHF 1.066 billion. Taking into consideration the changes in the scope of consolidation and currency translation effects as well as the previous year's non-recurring capital gain and special dividend, it increased by 2.6 percent or CHF 30 million.
Lively construction activity in Europe
In Europe too, the decline in the global economic environment has slowed down progress in recent months. Demand for building materials has fallen markedly in some markets. In Spain and the UK, residential construction dropped sharply, but in eastern and southeastern Europe, construction remained a key pillar of economic success. Dynamic construction activity was evident, primarily in Romania, Bulgaria, Russia and Azerbaijan.
Half year results 2008 – Europe (January-June and April-June 2008)
In cement and ready-mix concrete, Holcim France Benelux surpassed the previous year’s delivery levels. However, sales volumes of aggregates declined slightly. Aggregate Industries UK also sold less gravel and sand. Nevertheless, due to a steady flow of orders in the Greater London area, deliveries of ready-mix concrete increased. Holcim Germany achieved higher sales of cement both in the domestic market and abroad, and sales volumes of aggregates and ready-mix concrete increased. Cement sales at Holcim Southern Germany also improved. The company secured major aggregates reserves through the purchase of two quarries near Karlsruhe in Germany.
Sales increased in all segments at Holcim Switzerland. The business environment was challenging in the South of Europe. Due to a good start to the year, Holcim Italy succeeded in maintaining domestic deliveries of cement and increasing sales of ready-mix concrete. Holcim Spain could not entirely offset lower volumes in residential construction with deliveries in other construction sectors. As a result, sales of cement and aggregates dropped considerably. Volumes of ready-mix concrete rose slightly.
In eastern and southeastern Europe, Holcim Romania achieved the strongest growth in cement. Steady domestic demand also enabled the Group companies in Bulgaria and Serbia to substantially increase deliveries. Holcim Slovakia benefited from growing cement exports to Hungary. The expansion of Vienna’s central railway station has triggered additional requirements for building materials at the Austrian Group company. In line with acquisitions, deliveries of aggregates rose in Croatia and Slovakia. Sales of ready-mix concrete went up in Hungary for the same reason. Alpha Cement in Russia was able to assert itself in the market despite a drop in deliveries due to maintenance work at its cement plants and increasing pressure from imports. Thanks to the construction boom in Azerbaijan, cement sales of Garadagh Cement developed strongly.
Overall, cement deliveries in Europe grew by 1.8 percent to 17.1 million tonnes. Sales of aggregates fell by 4.5 percent to 48.7 million tonnes. Ready-mix concrete volumes rose by 8.4 percent to 10.3 million cubic meters.
Operating EBITDA decreased by 1.8 percent to CHF 1.115 billion. This reflects the difficult sales situation in the UK and Spain. Almost all the other Group companies improved their operating results. Higher costs – primarily for energy – were largely compensated by efficiency gains and price increases. Internal operating EBITDA growth reached 3.3 percent.
Holcim Spain will substantially expand its aggregates and ready-mix concrete business by purchasing Tarmac Iberia. The acquisition of this very firmly established building materials company will strengthen Holcim Spain’s current business in the centre of the country and along the Mediterranean coast, and will generate synergies. Tarmac Iberia operates 43 ready-mix concrete plants and 8 quarries, with another quarry to be opened shortly. In August 2008, the competition authority has approved the takeover of Tarmac Iberia.
North America under strain as US market declines
There has been a further deterioration in the economic environment in the US due to the real estate crisis, the instability of the financial markets and rising inflation. Private residential construction activity continued to decline and there were growing signs of a downturn in the commercial and industrial sectors. The only glimmer of light was the multiannual government infrastructure program. In Canada, the moderate growth development in the construction sector continued.
Half year results 2008 - North America (January-June and April-June 2008)
At the beginning of 2008, Holcim US took over the cement business in the northeastern US from its Canadian sister company. As a result of the economic situation, the Group company saw a decline in deliveries, which was particularly evident in this region of the country and in the catchment areas of the Mississippi and Missouri Rivers. Rainfall and floods in May and June were an aggravating factor. Market conditions were a little more stable in Texas and Oklahoma. Holcim US adjusted production to the change in market conditions and cut back output at several plants. No cement was imported.
Aggregate Industries US was unable to escape the difficult market environment. On top of this, unfavorable construction weather hampered the start to the road building season, resulting in lower sales of aggregates, ready-mix concrete and asphalt.
St. Lawrence Cement sold more cement in its newly defined, smaller market territory of Canada. In the Province of Ontario, the impetus came from apartment construction and rising demand for retail and office space. In Quebec, the Group company benefited from the continuing solid order situation. However, in the civil engineering sector a number of major projects faced delays. As a result, the Group company sold significantly less aggregates. Deliveries of ready-mix concrete increased notably due to acquisition-related factors.
Consolidated cement sales in North America declined by 10.7 percent to 6.7 million tonnes, while the volume of aggregates decreased by 11.8 percent to 20.9 million tonnes. By contrast, deliveries of ready-mix concrete increased by 6.7 percent to 3.2 million cubic meters.
Also due to the weak US-Dollar, operating EBITDA declined in Group region North America by 42 percent to CHF 199 million. Internal operating EBITDA growth was negative at –33.8 percent.
Holcim US was not able to adjust prices in line with the rise in energy and operating costs. At Aggregate Industries US, extensive cost-cutting measures partially compensated for the decrease in operating EBITDA. St. Lawrence Cement fell just short of matching its previous year’s result in local currency. The company benefited from the expected synergies generated in connection with the reorganization.
Solid demand for construction materials in Latin America
The construction sector developed well despite regional differences. Cement consumption – supported by robust domestic demand and an expanding export industry – increased in all markets supplied by Holcim. Investment focused on public and private sector housing construction and large infrastructure projects.
Half year results 2008 - Latin America (January-June and April-June 2008)
Holcim Apasco in Mexico increased domestic cement deliveries and also exported larger volumes of clinker. Brisk construction activity in the industrial and commercial sectors and the expansion of the expressway network resulted in double-digit growth rates for aggregates and ready-mix concrete.
Central America experienced an increase in cement sales. The Group company in Costa Rica benefited from a strong domestic market. Holcim El Salvador increased its cement exports to Guatemala.
Holcim Venezuela also sold more cement. However, production restrictions limited output of aggregates and affected the ready-mix concrete business, too. The markets in Ecuador and Colombia remained robust, and both Group companies consistently sold higher volumes. At Holcim Colombia’s Nobsa plant, work began on a substantial expansion of capacity to meet the predicted growth in demand.
Due to an increase in construction activity, Holcim Brazil recorded a sharp rise in deliveries in all segments. In Argentina, Minetti also made progress, with volume growth in ready-mix concrete even reaching double-digit figures. Despite increasing competitive pressure, Cemento Polpaico in Chile increased its deliveries of cement and ready-mix concrete compared with the previous year.
Cement deliveries in Group region Latin America grew by 6.2 percent to 13.7 million tonnes. Aggregates were up by 8.2 percent to 6.6 million tonnes. Due to the sharp rise in demand in Mexico, ready-mix concrete sales increased by 20 percent to 6 million cubic meters.
Operating EBITDA in Group region Latin America increased in local currency. In Swiss francs, it was practically on par with the previous year at CHF 607 million (–0.2 percent). The huge increase in energy costs, which was compounded in some cases by state price controls and less favorable exchange rates, prevented the achievement of a better result. Holcim Brazil made considerable progress in terms of volumes and prices. Internal operating EBITDA growth in Group region Latin America reached 13.3 percent.
In April 2008, the Venezuelan government announced the nationalization of at least 60 percent of all foreign cement producers operating in the country. On August 18, a basic agreement was signed between the Venezuelan government and Holcim. This agreement stipulates that the State of Venezuela will purchase 85 percent of Holcim Venezuela and the Holcim Group will keep a stake of 15 percent. The two parties also reached an agreement in principle on the compensation which is subject to a financial due diligence. The final contract should be prepared and signed in the following weeks. In the negotiations, Holcim was determined to safeguard the interests of Holcim and its local employees in accordance with the bilateral investment protection agreements in place between Switzerland and Venezuela.
Strong construction activity in Africa Middle East
Group region Africa Middle East held up well in the first half of 2008, with demand for construction materials developing particularly positive in North Africa and the Indian Ocean region. The Lebanese economy was hampered by the country’s political instability.
Half year results 2008 - Africa Middle East (January-June and April-June 2008)
Morocco enjoyed a period of very brisk construction activity, with investment focusing mainly on social housing projects, the expansion of the road and rail network and the construction of tourist facilities on the Atlantic coast. Due to the additional production volume from the new Settat cement plant, Holcim Morocco achieved above-average increases in sales of cement. Deliveries of aggregates and ready-mix concrete benefited from the increase in processing and distribution capacity. Holcim Lebanon saw a fall in domestic sales of cement, but additional volumes were exported. Ready-mix concrete deliveries to customers in the Beirut region increased slightly. The West African country group saw a rise in cement sales in the first half of 2008. In the Indian Ocean region, deliveries of cement, aggregates and ready-mix concrete increased as a result of higher demand in Madagascar and La Réunion.
As a consequence of the deconsolidations in Egypt and South Africa, sales of cement in Group region Africa Middle East decreased; overall by 39.2 percent to 4.8 million tonnes. Volumes of aggregates declined by 73.9 percent to 1.2 million tonnes and ready-mix concrete deliveries decreased by 50 percent to 0.6 million cubic meters. Factoring out these important changes in the scope of consolidation, cement sales increased by 8.9 percent, aggregates by 2.2 percent and ready-mix concrete by 8.3 percent.
Operating EBITDA of Group region Africa Middle East declined by 47 percent to CHF 206 million. Both, Holcim Morocco and Holcim Outre-Mer improved their financial performance. By contrast, Holcim Lebanon and the West African country group lagged behind the previous year’s results. Group region Africa Middle East recorded internal operating EBITDA growth of 12.3 percent.
Rising delivery volumes in Asia Pacific
The construction sector continued to grow in the first half of 2008. With the exception of Thailand, where the political situation is still dampening the investment climate, cement consumption increased in all major Group countries, but sector growth lost some of its momentum. The rapid rise in energy prices and the weakening of local currencies in parallel with the US dollar led to a decrease in purchasing power.
Half year results 2008 - Asia Pacific (January-June and April-June 2008)
The two Indian Group companies increased their cement deliveries compared with the same period last year. The continuing expansion of the ready-mix concrete business was reflected in a significant rise in sales generated by private and public housing construction and major infrastructure projects. The early start of the monsoon season and cyclical demand fluctuations in some markets of the Indian subcontinent led to a slight tapering of growth. The Group companies in Bangladesh and Sri Lanka delivered more cement, and Holcim Lanka benefited from taking over the terminal of Ambuja Cements in the South of the island.
In Vietnam and Malaysia, the Group companies achieved a significant increase in volumes. Siam City Cement in Thailand saw a fall in domestic cement sales. The temporary mothballing of two smaller kiln lines at the Saraburi plant resulted in a decline in exports of lower-margin cement and clinker. There was a substantial increase in sales of aggregates and a rise in deliveries of ready-mix concrete. The Group companies in the Philippines and in Indonesia took advantage of the attractive domestic market and accepted a decline in exports. During the period under review, Holcim Indonesia increased its production capacity by acquiring a grinding plant in Western Java, thereby strengthening its distribution base on the main island of Java.
Australia saw an increase in cement deliveries, particularly on the East coast. Due to the greater availability of fly ash, sales of composite cements also rose. At Holcim New Zealand, cement sales stabilized at the high previous-year level. Weaker activity in the construction sector led to a decline in volumes of aggregates and ready-mix concrete sold.
Consolidated cement deliveries grew by 3.1 percent to 33.5 million tonnes. Sales of aggregates rose by 21.1 percent to 2.3 million tonnes. Ready-mix concrete enjoyed an impressive growth rate, surging by 40 percent to 3.5 million cubic meters. This reflects the expansion of the market presence in Singapore and other major urban centers in the region.
The higher sales volumes led to improvements in the results of several Group companies in local currency terms, but in Swiss francs the operating EBITDA of Group region Asia Pacific declined by 16.7 percent to CHF 783 million, resulting in negative internal operating EBITDA growth of –6.9 percent.
There are three main reasons for the operating EBITDA reduction: Firstly, there was a massive rise in costs – particularly for coal, electricity and transport – within a short time period, which could only be marginally offset by increases in efficiency or greater use of alternative fuels. Secondly, it was not possible to adequately adjust selling prices to rising inflation in all markets. This was particularly true for India, where the cement industry had to support the government’s anti-inflation program and to postpone necessary price increases. Thirdly, with the weakening of the US dollar, a number of Asian currencies also lost ground against the Swiss franc, leading to massive currency translation losses. This particularly affected the Group companies in India, Thailand, Vietnam and Indonesia.
Outlook
Because of the company's excellent global positioning, further efficiency improvements in the energy sector, cost-cutting measures and initial price adjustments in individual countries, Holcim practically maintained its previous-year operating result on a like-for-like basis. However, growing inflationary pressure and a huge rise in energy and resource costs represent a burden on all energy-intensive industrial sectors, which will require further sales price increases.
In the second half of the year, the Board of Directors and the Executive Committee expect the sustained favorable construction activity in eastern Europe to be sufficient to compensate for the weaker conditions in the construction sector in individual markets in western and southern Europe. In North America, Canada can be expected to hold its own, but the US construction sector will have to bear a further reduction. In Latin America, Holcim is expecting a continuing positive order situation. Also in Group region Africa Middle East, there is no sign of weakness. Apart from a few exceptions, Asia Pacific should develop positively in terms of volumes. However, in India, which accounts for more than half of Holcim’s regional sales, it will take some time to improve the margins through efficiency gains and price adjustments.
Holcim’s long-term objective is to achieve an average annual internal growth rate of 5 percent on the level of operating EBITDA. In recent years, this objective has been significantly exceeded in a positive business climate. Due to the measures taken to cut costs on all fronts and to well-directed price increases, Holcim expects in 2008 to match its excellent previous-year result on a like-for-like basis on the level of operating EBITDA.
Click For More
|
|
|