Media Release Half-Year 2009
- Due to its strong presence in growth markets, Holcim performed well in a difficult economic environment and significantly increased its cash flow
- Robust organic growth in Asia Pacific, Latin America and Africa Middle East in the second quarter
- At 24.8 percent in the second quarter, operating EBITDA margin exceeds previous year's 23.8 percent
- Strong balance sheet and sound liquidity
- Based on the successful cost management, the target for fixed costs reduction in 2009 has been increased from CHF 375 million to CHF 600 million
- Asia will continue to grow and Latin America and Africa Middle East are also likely to follow favorable trends; in Europe and North America, the stimulus programs will have a positive impact on demand building up gradually over the next year
Sales development and financial results
During the first half of 2009, demand for construction services declined again in North America as well as in Western and Eastern Europe. The announced government stimulus packages have yet to make an impact on the construction sector, although in the US the negative trend slowed in the second quarter.
Most of the Asian emerging markets, and India in particular, continued to grow. Positive growth was evident in most of Latin America and in Group region Africa Middle East, construction activity maintained the high level of the previous year.
Following a harsh winter, operating results improved significantly in the second quarter. Also in the second quarter, Group companies in Asia Pacific, Latin America and Africa Middle East achieved strong organic growth.
The Group-wide cost-cutting program is showing its effect. By mid-year, fixed costs have already been reduced by CHF 381 million. This means that the targeted annual reduction has already been achieved, mainly due to the rapid capacity reduction in critical markets. The related unavoidable job losses were conducted in such a way as to minimize the social impact.
Holcim has a strong balance sheet and sound liquidity. Since the beginning of the year, debt totaling CHF 5 billion has been refinanced. Furthermore, at an extraordinary general meeting held in July, shareholders decided to increase the company's equity base by CHF 2.1 billion in order to finance strategic investments in Australia and China.
In the first half, consolidated deliveries of cement decreased by 10.2 percent to 65.1 million tonnes, while sales of aggregates declined by 21.6 percent to 62.5 million tonnes. Sales of ready-mix concrete fell by 18.2 percent to 19.3 million cubic meters. Asphalt sales totaled 4.3 million tonnes, which represents a reduction of 25.9 percent.
Consolidated net sales were down by 18.9 percent to CHF 10.1 billion. Operating EBITDA fell by 23.5 percent to CHF 2.1 billion. The corresponding margin amounted to 21.3 percent (first half of 2008: 22.5). However, in the second quarter, the operating EBITDA margin recovered to 24.8 percent (second quarter of 2008: 23.8). The predominantly stable pricing environment and the success of the cost reduction effort had a positive impact. Despite the lower operating EBITDA, cash flow from operating activities was significantly higher at CHF 805 million (first half of 2008: 664). Net income decreased by 41.2 percent to CHF 787 million. Net income attributable to equity holders of Holcim Ltd declined by 50.6 percent to CHF 527 million. Among other factors, this reflects the reduced contribution of Group region Europe.
Sales of building materials still falling in Europe
Most European countries are currently enduring the worst economic crisis since the 1970s and in some markets, the recession has intensified even more since the beginning of the year. In particular, Spain, the UK and Eastern Europe including Russia and Azerbaijan are suffering from the economic downturn. While the poor start to the new year was largely attributed to the hard winter, construction activity during the second quarter was depressed by a lack of investment activity. Cement consumption declined significantly in comparison with the previous year.
Although housebuilding saw some stabilization, Aggregate Industries UK reported a decline in volumes in all segments. The core markets of Holcim Spain in Andalusia and Madrid suffered more than other regions of the country from the impact of the housebuilding crisis.
Holcim France Benelux recorded a decline in deliveries of building materials, particularly in France and Belgium. In the Netherlands, the downward trend was less pronounced. Holcim Germany saw a decline in cement sales as a result of the combination of weaker domestic demand and dwindling exports. Thanks to acquisitions, sales of aggregates and ready-mix concrete were on par with the previous year. In the south of the country, new construction projects were sparse, adversely affecting cement sales of Holcim Southern Germany. However, the aggregates companies acquired in the region of Karlsruhe the previous year led to an increase in sales.
Holcim Switzerland benefited from solid construction demand, particularly in the big cities. The Group company nearly made up for the winter months, with volumes in all segments only slightly below the previous year's level. In Italy, after the sharp drop in the first quarter, volumes continued to decline.
In Eastern and Southeastern Europe, the economic downturn, which followed a period of prolonged growth, was significant. Investment halt, project holdups and a shortage of new orders led to a decline in cement sales. The Group companies in the Czech Republic, Slovakia and Hungary were hard hit. Holcim held up better in Austria and Croatia thanks to major projects requiring large amounts of ready-mix concrete. In Romania, liquidity bottlenecks affecting customers led to a further slowdown in demand for building materials and in Bulgaria, the general market weakness was compounded by massive cement imports from Turkey.
In Russia, cement consumption virtually halved in comparison with the previous year, although toward the end of the first half Alpha Cement was at least able to reverse some of the initial sharp decline in deliveries. However, cement sales declined significantly in the period under review. Garadagh Cement in Azerbaijan also sold less cement. The key factors were the decline in demand for building materials in the housebuilding and industrial sectors and the pressure of imports from Russia and Turkey.
The Group companies in the UK, Spain and Eastern Europe quickly adjusted production capacity in all segments to the changed market environment. In the cement segment, the Russian Group company Alpha Cement and Holcim Hungary both mothballed one of their kiln lines. The Pleven cement plant in Bulgaria is presently only operating as a grinding station; the clinker is shipped from the Beli Izvor plant. As announced, the Torredonjimeno plant in the south of Spain was permanently closed in the second quarter of 2009.
In the first half, consolidated cement deliveries in Group region Europe decreased by 24 percent to 13 million tonnes. Sales of aggregates declined by 22 percent to 38 million tonnes. Deliveries of ready-mix concrete contracted by 19.4 percent to 8.3 million cubic meters.
Operating EBITDA fell by 49.9 percent to CHF 559 million. Despite the systematic implementation of cost-cutting measures in all areas, no Group companies, with the exception of Germany and Switzerland, were able to match their prior-year performance. The deterioration in the results of Aggregate Industries UK, Holcim Spain and Holcim France Benelux had a major impact. The Group companies in Eastern and Southeastern Europe, including Alpha Cement in Russia, also fell well short of their previous year's figures. At -44.8 percent, Group region Europe posted a negative internal operating EBITDA development.
Still no upturn in North America
In North America, the economic situation remained fraught throughout the first half of the year. In the US, the deep recession continued to shape events in all markets, although the downturn became less severe in the second quarter. Canada too continued to lose ground and, after many years of positive growth, saw a decline in overall economic output.
In the US, private construction was particularly strongly affected by the difficult economic environment. Housebuilding was still down compared with the previous year. In the commercial construction segment, the industry and healthcare sectors were unable to make up for the marked slump in demand for office and business premises. Volumes were at least supported by investment in public safety and the government's multi-year infrastructure plan. The announced stimulus programs did not yet have an impact on the construction sector during the period under review.
Holcim US registered a further decline in cement deliveries. This mainly affected the east of the country, but also the sales areas along the Mississippi and Missouri rivers and Texas. The harsh winter and the unfavorable weather conditions for building work in spring further depressed shipments on the East Coast. The Group company responded swiftly to the decline in the market. In addition to the closure of the Dundee and Clarksville plants, the key measures taken in the first quarter of 2009 included the mothballing of the Artesia and Mason City plants.
Aggregate Industries US saw further declines in sales of aggregates, ready-mix concrete and asphalt and systematically continued with measures to cut costs and reduce capacity.
Holcim Canada, the former St. Lawrence Cement, also suffered from the decline in demand with a reduction in sales in all market regions and segments. The decline was felt strongly in the industrial province of Ontario, although the picture was somewhat brightened by a number of major building and infrastructure projects.
In the first half, consolidated cement deliveries in North America fell by 25.4 percent to 5 million tonnes. Aggregates volumes declined by 26.8 percent to 15.3 million tonnes. Deliveries of ready-mix concrete also decreased by 28.1 percent to 2.3 million cubic meters.
Operating EBITDA declined by 57.3 percent to CHF 85 million, mainly because of the deterioration in business activity at Holcim US. Despite cost-cutting programs, the Group companies were only able to a limited extent to offset the decline in volumes through efficiency improvements. Aggregate Industries US benefited from the cost-cutting measures, which had already been initiated in the previous year. Holcim Canada's result was supported by construction services. At -57.3 percent, Group region North America posted a negative internal operating EBITDA development.
For the first time, Holcim US produced clinker at its new Ste. Genevieve plant in July 2009. During the coming months, production will be gradually increased and the plant will start to deliver cement.
Regionally mixed demand in Latin America
The global slowdown in growth had a mixed impact on the Latin American continent. While construction activity slowed in Mexico and El Salvador due to the North American recession, sales of building materials continued to develop positively in Ecuador and Colombia owing to the housebuilding and infrastructure sectors.
Mexico's construction sector had to contend with the recessionary environment and the banks' reluctance to lend. Holcim Apasco's deliveries of building materials decreased in the first half of 2009. Exports of clinker and cement also fell. However, government economic stimulus measures supported construction activity particularly in the center and south of the country.
Cemento de El Salvador saw a decline in delivery volumes. The presidential elections did not provide the stimuli to boost the construction sector. In Costa Rica, private property developers struggled in the face of tougher financing terms. With the exception of a large dam, infrastructure construction failed to make any real headway. While the Group company reported a slight decline in all segments, sister company Holcim Nicaragua succeeded in increasing deliveries of ready-mix concrete.
Holcim Ecuador recorded significant increases in volumes across its entire product range. After the previous year's strong growth, Holcim Colombia sold less cement, but increased its sales of aggregates and ready-mix concrete. The Brazilian construction sector proved relatively crisis-resistant thanks to government investment in building projects and low interest rates. Holcim Brazil stepped up marketing efforts in the high-margin cement segment, while consciously accepting a decline in volumes. The Group company increased its sales of ready-mix concrete. In Argentina, Minetti partially compensated for lower domestic cement sales through higher exports. Despite delays in roadbuilding projects, deliveries of aggregates and ready-mix concrete increased. As a result of new competitors and a fall-off in construction activity, Cemento Polpaico in Chile experienced a decline in sales volumes of aggregates in particular.
The Group companies affected by the decline in demand were quick to respond to the changing market environment and adjusted production capacity. The first half of the year saw the mothballing of one kiln each in Mexico, El Salvador, Brazil, Chile and Argentina. In addition, the ready-mix concrete network was streamlined in several markets.
In the first half, cement sales in Group region Latin America fell by 18.2 percent to 11.2 million tonnes. Deliveries of aggregates were down by 10.6 percent to 5.9 million tonnes, and ready-mix concrete volumes contracted by 18.3 percent to 4.9 million cubic meters.
Despite the deconsolidation of Holcim Venezuela, Group region Latin America achieved good operating results in local currency terms. The decline in volumes was fully offset by the predominantly stable price environment, extensive cost-cutting measures and lower energy costs. As a result, operating margins improved. In Swiss franc terms, operating EBITDA declined by 10.5 percent to CHF 543 million, mainly due to the unfavorable exchange rate development against the Mexican peso and the Brazilian real. However, in this Group region internal operating EBITDA growth reached 6.6 percent.
By the end of the first half of 2009, no compensation payment had been received for the nationalization of Holcim Venezuela. In February, Holcim appealed to the relevant court of arbitration at the World Bank in Washington D.C. and is demanding full compensation for the expropriation in line with the market value of the company.
As a consequence of the nationalization of Holcim Venezuela, the long-term economics of supplying clinker and cement from Holcim production to the grinding stations and terminals in Panama and the Caribbean is no longer viable. As a result, at the end of July 2009, Holcim sold its interests in Panama and the Caribbean to its Colombian joint venture partner Argos. The proceeds from the disposals amount to USD 157 million.
Holcim increased its stake in Cemento de El Salvador from 64 percent to more than 90 percent. The company is a leading nationwide supplier of cement, gravel and ready-mix concrete as well as a regional cement exporter.
Stable construction materials markets in Africa and the Middle East
Despite slightly weaker economic growth, the markets supplied by Holcim in Group region Africa Middle East developed largely stable. In Morocco, the high demand for building materials for housebuilding and infrastructure projects led to a satisfactory workload in the construction industry. The easing of political tensions in Lebanon stimulated construction activity virtually throughout the country.
After a sluggish start of the year and a strike lasting several weeks in the transport sector, Holcim Morocco was able to increase cement deliveries slightly. However, sales of aggregates and ready-mix concrete increased significantly. In Lebanon, the Chekka plant produced at full capacity. Sales of ready-mix concrete increased. To meet the robust domestic demand, Holcim Lebanon had to reduce its cement exports to neighboring countries. The commissioning of a second cement mill at National Cement in Abu Dhabi, an affiliated company, strengthened the market position in the Gulf region.
Sales of cement decreased in the West African group of countries managed by Holcim Trading. Also the companies in the Indian Ocean got off to a muted start in the first half of the year, recording a decline in volumes in all segments. This was due to the political crisis in Madagascar, the drop in housebuilding and a lack of follow-on projects in the infrastructure sector in La Réunion.
In the first half and like-for-like, Group region Africa Middle East slightly increased its cement sales to 4.5 million tonnes. Deliveries of aggregates and ready-mix concrete maintained the previous year's level of 1.2 million tonnes and 0.6 million cubic meters respectively.
Operating EBITDA of Group region Africa Middle East declined by 9.7 percent to CHF 186 million. Internal operating EBITDA development came to -1.5 percent.
Asia Pacific construction sector generally growing
Asia Pacific defied the global economic crisis and construction activity remained lively. In India in particular, high pent-up demand in the infrastructure sector and the positive development of the agriculture sector led to rising demand for building materials. The first half of the year also saw brisk construction activity in the Philippines. However, there are also countries in this Group region where growth momentum was slowed by the global economic crisis.
The two Indian Group companies posted significant increases in cement deliveries in all regions of the country. Sales of ready-mix concrete also slightly increased. Holcim Bangladesh reported higher sales volumes. In Sri Lanka, demand for building materials did not yet pick up following the end of the civil war. As a result, Holcim Lanka sold less cement than in the previous year.
In Thailand, cement consumption decreased nationwide. Siam City Cement managed to sell virtually the same amount of cement as in the previous year, and the decline in the volume of clinker and cement exports also remained within narrow limits. Sales of aggregates developed positively, while deliveries of ready-mix concrete declined. Holcim Vietnam increased cement sales and made a determined effort to expand the ready-mix concrete business in the greater Ho Chi Minh City area. At Holcim Malaysia, industrial construction in Johor underpinned cement deliveries, which were otherwise in decline. Holcim Singapore was able to maintain ready-mix concrete volumes virtually at the previous year's level despite the city state's sharp economic downturn.
Brisk demand for building materials in both private and public projects enabled Holcim Philippines to increase its domestic shipments of cement and sales of ready-mix concrete. The focus was on commercial projects and infrastructure expansion. As a result, the Group company reduced its export activity. In Indonesia, the decline in construction activity led to rising competition. In the cement segment, the Group company nearly matched its prior-year volumes thanks to higher exports. Sales of aggregates and ready-mix concrete declined significantly.
In Australia, demand for building materials declined in the context of the economic slowdown - a situation aggravated by adverse weather conditions in the first quarter. As a result of the decrease in demand for cement in the housebuilding and commercial sectors, Cement Australia saw falls in volumes on the East Coast in particular. In New Zealand, deliveries of cement and ready-mix concrete declined, although deliveries of aggregates were up compared to the previous year.
As a result of higher volumes in India, consolidated cement deliveries in Group region Asia Pacific increased in the first half by 1.8 percent to 34.1 million tonnes. Shipments of aggregates contracted by 8.7 percent to 2.1 million tonnes, while deliveries of ready-mix concrete were reduced by 8.6 percent to 3.2 million cubic meters. The low level of business activity in New Zealand was a major factor in the decline of ready-mix concrete deliveries, as was the downturn in construction activity in some urban centers in Asia.
In local currency terms, the majority of Group companies posted an increase in operating EBITDA, which had a positive impact on operating margins in this Group region. Besides favorable market conditions, efficiency improvements, the consistent implementation of cost-cutting measures and lower energy costs contributed to the result. In addition, innovative sales concepts and customer-specific system solutions for major projects were supportive. The positive development of results seen in India, Vietnam, Indonesia and the Philippines is remarkable. Despite predominantly unfavorable exchange rates, the Group region also increased its operating EBITDA in Swiss francs, by 11.5 percent to CHF 873 million. The Group region posted internal operating EBITDA growth of 22.5 percent.
As explained in several releases and communications and at the extraordinary general meeting, Holcim will pay CHF 1.8 billion for the acquisition of Cemex Australia, a company with nationwide operations in the aggregates, ready-mix concrete and concrete products sectors, including a 25 percent interest in the Group company Cement Australia. The due diligence process has now been successfully completed. The Australian authorities have yet to give the final go-ahead. Once the transaction has been successfully completed, Holcim will fully consolidate Cemex Australia and Cement Australia.
Furthermore, Holcim has reconfirmed its strategic partnership in China by announcing it will fully participate in the planned private placement of Huaxin Cement. Funds totaling CHF 252 million have been earmarked for this purpose. China's fourth-largest cement manufacturer will use the proceeds of the capital increase to expand its production capacity from 38 million tonnes to 55 million tonnes in order to participate in the continuing growth of the market.
In the first half of the year, there was no sign of an economic turnaround. Markets such as the US, the UK, Spain and Eastern Europe are expected to remain challenging. In contrast, Asia, and India in particular, will likely continue to show growth. In Latin America and in Africa Middle East, Holcim expects business to likewise follow a favorable trend. On balance, Holcim's strong footprint in the emerging markets partially offsets the negative EBITDA development in the mature markets. In Europe and North America, the government stimulus programs will have a positive impact on demand building up gradually over the next year.
Therefore, Holcim will continue to concentrate its strength on factors that it can influence. This includes focusing on the continued rapid reduction of production capacity in all segments to changes in the market environment and the consistent implementation of the cost-cutting programs. The targeted reduction in fixed costs in 2009 has been increased from CHF 375 million to CHF 600 million.
Furthermore, continued high priority is given to the financial strength of the Group. Investments will continue to be kept to a minimum, and current assets will be strictly managed.
The Board of Directors and the Executive Committee believe that the rigorous cost reduction, the favorable development of cash flow from operating activities, the successful capital market and refinancing transactions as well as the strategic expansion in Australia and China, as approved by shareholders, provide the basis for strengthening the Group in preparation for the next economic upturn.* * * * * * *
Holcim is one of the world's leading suppliers of cement and aggregates (crushed stone, gravel and sand) as well as further activities such as ready-mix concrete and asphalt including services. The Group holds majority and minority interests in around 70 countries on all continents.
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Corporate Communications: Tel. +41 58 858 87 10
Investor Relations: Tel. +41 58 858 87 87
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The Half-Year Report 2009 is available at www.holcim.com/reports
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