HEIDELBERGCEMENT AG

HeidelbergCement expects growth in sales volumes of cement in 2017

HeidelbergCement has brought the 2016 financial year to a successful close despite a challenging environment. The decisive factors were the successful takeover of Italcementi and the strong operational development, especially as a result of the programmes to increase efficiency and margins as well as the significant decline in energy costs.

“2016 was an exceptional year for HeidelbergCement,” states Dr. Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “With the successful takeover of Italcementi, we have accelerated our growth and are now in an excellent strategic position. In our core business lines of aggregates, cement, and ready-mixed concrete, we occupy first, second, and third place globally.”

The sales volumes of cement, aggregates, and ready-mixed concrete increased significantly as a result of the acquisition of Italcementi. On a pro forma basis, i.e. taking into account the contributions of Italcementi for the full years 2015 and 2016, sales volumes rose moderately in all business lines in comparison with the previous year. On the one hand, HeidelbergCement benefited from the ongoing recovery in North America and Europe. On the other hand, the weaker demand in Asia – primarily in Indonesia due to the delayed start to infrastructure projects – adversely impacted cement and ready-mixed concrete sales volumes.

Revenue rose by 12.6 % to €15166 million (previous year: 13465). The consolidation of Italcementi in particular contributed to this positive development. On a comparable pro forma basis, revenue decreased slightly.

The result from current operations rose by 7.5 % to € 2.0 billion; on a comparable pro forma basis, the increase amounted to 6 %, which is in line with the updated outlook. Besides the successful margin improvement programmes and realisation of initial synergies, the significantly lower energy costs also contributed to the positive development of results.

The additional ordinary result of € -324 million (previous year: -12) is heavily influenced by the acquisition of Italcementi and includes, for example, transaction costs, restructuring expenses, and other non-recurring expenses.

The financial result improved by € 56 million to € -494 million (previous year: -550). Besides the reduction of €18 million in interest expenses, the financial result was positively affected by the increase of €19 million in currency results and the improvement of € 26 million in the other financial result.

This resulted in a profit for the financial year of € 896 million (previous year: 983). Adjusted for the non-recurring effects from the additional ordinary result of € -324 million, the profit for the financial year increased significantly by 24 % in line with the forecast.

Cash flow from operating activities from continuing operations increased by € 392 million to around € 1.9 billion as a result of the consolidation of Italcementi and the solid operational performance. In light of the takeover of Italcementi, other investments were cut back as planned; excluding the investment activities of Italcementi, they remained stable at around € 1 billion and thereby slightly below the target of € 1.1 billion.

Italcementi integration:

faster than anticipated

On taking over control at the beginning of July, the management at all of Italcementi’s major national organisations was replaced and HeidelbergCement’s management philosophy and bonus system were introduced. National headquarters that are no longer required have been closed and activities were consolidated in Heidelberg. The implementation of synergies is progressing more quickly than planned and HeidelbergCement has recorded projected savings of around € 155 million for the full year. By the end of 2016, 1870 jobs had already been cut worldwide, considerably more than the figure of just under 500 originally planned for the end of 2016. Overall, at least 2500 jobs worldwide are affected by the restructuring measures.

Outlook for 2017

In North America, HeidelbergCement 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 Eastern Europe, HeidelbergCement anti-cipates growing demand for building materials as result of the EU infrastructure programme, among other things. The crisis in eastern Ukraine is continuing to impair the sales volumes and results of the country. The economic situation in Russia and Kazakhstan has improved following the increase in the oil price. In the African markets, Heidelberg­Cement expects 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 repercussions on export volumes are limited, however, because a large proportion of Chinese capacities is located inland.

In view of the overall positive development of demand, HeidelbergCement projects an increase in the sales volumes of the core products cement, aggregates, and ready-mixed concrete.

HeidelbergCement estimates that the cost base for energy will increase considerably in 2017 as a result of the rising oil and coal prices since the beginning of 2016. A slight to moderate increase in the cost of raw materials and personnel is also expected. HeidelbergCement further focuses on the continuous improvement of efficiency and margins. In this context, HeidelbergCement is implementing the Continuous Improvement programmes in the cement and aggregates business lines to establish a culture of consistent improvement 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 each business line over a three-year period. The “CIP” programme for the cement business line commenced at the beginning of 2015, and the “Aggregates CI” programme for the aggregates business line was introduced at the start of 2016. HeidelbergCement also continues to optimise its logistics with the “LEO” programme, which has the goal of reducing costs by € 150 million over a period of several years. In addition, Heidelberg-Cement launched the new efficiency improvement programme “Competence Center Readymix” (CCR) in the ready-mixed concrete business line at the end of 2016. Over a three-year period, the optimisation of logistics and concrete formulations are expected to achieve an improvement in results of € 120 million.

“We remain cautiously optimistic about 2017,” continues Dr. Bernd Scheifele. “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 northern European countries, and Australia. These countries generate approximately 60 % of our revenue.”

www.heidelbergcement.com

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