HeidelbergCement: Q1 2016 Interim Financial Report

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  • Growth in sales volumes of cement, aggregates, and ready-mixed concrete

    Group revenue stable at 2.8 billion (like-for-like 1) +1%)

    Operating income improved by 19.9% to 138 million (previous year: 115; like-for-like 1) +34.9%)

    Margin improvement in all business lines

    Net debt reduced to 5.9 billion (previous year: 6.1)

    Outlook for 2016 raised: Positive outlook for the global economy; geopolitical and macroeconomic risks remain Increase in sales volumes of cement, aggregates, and ready-mixed concrete expected Moderate rise in revenue 1) and high single to double digit increase in operating income1)

    and profit for the financial year 2)

    Conclusion of the Italcementi takeover in the second half of 2016 HeidelbergCement well positioned to benefit from continued recovery, particularly in the

    USA and the United Kingdom, Northern Europe, and Australia

    1) Adjusted for currency and consolidation effects; 2) Adjusted for non-recurring items

    Overview January to March 2016 January - March

    m 2015 2016

    Revenue 2,835 2,832

    Result from joint ventures 38 31

    Operating income before depreciation (OIBD) 299 321

    OIBD margin in % 10.6% 11.3%

    Operating income 115 138

    Additional ordinary result 16 -4

    Result from participations -6 -5

    Earnings before interest and income taxes (EBIT) 125 129

    Profit / loss before tax -33 14

    Net loss from continuing operations -67 -21

    Net loss from discontinued operations -13 -10

    Loss for the period -80 -31

    Group share of loss -123 -72

    Investments 188 257

    Due to rounding, numbers presented in the Interim Financial Report may not add up precisely to the totals provided.

  • Interim Group management report

    Business trend January to March 2016

    Changes in the reporting structureStarting with the first quarter of 2016, we have reorganised our Group areas and thus the reporting structure. The changes were made in the context of the generation change on the Managing Board and the intended acquisition of Italcementi. HeidelbergCement is divided into six Group areas:

    Western and Southern Europe: Belgium, Germany, Netherlands, United Kingdom, and Spain Northern and Eastern Europe-Central Asia: Denmark, Iceland, Norway, Sweden, and the Baltic States as well

    as Bosnia-Herzegovina, Croatia, Czech Republic, Georgia, Hungary, Kazakhstan, Poland, Romania, Russia, Slovakia, and Ukraine

    North America: Canada and USA Asia-Pacific: Bangladesh, Brunei, China, India, Indonesia, Malaysia, Singapore, and Australia Africa-Eastern Mediterranean Basin: Benin, Burkina Faso, DR Congo, Ghana, Liberia, Sierra Leone, Tanzania,

    Togo, as well as Israel and Turkey As before, Group Services comprise our trading activities.

    The only changes concern the shift of the northern European countries from the former Western and Northern Europe Group area to Northern and Eastern Europe-Central Asia and of Spain from the former Africa-Mediter-ranean Basin Group area to Western and Southern Europe.

    Economic environmentGlobal economic growth is continuing, albeit at a slower pace than previously expected. The national economies of Asia and the African countries south of the Sahara remain on a growth trajectory. In Europe, the moderate recovery is continuing. In the USA, economic growth slowed down noticeably in the first quarter of 2016; however, a significant improvement in economic activity is expected in the coming quarters.

    Sales volumes in the first quarter benefit from market recovery in North America, Europe and AsiaThe continued recovery of the construction industry in North America and Europe as well as a trend reversal in Asia, particularly in Indonesia, has contributed to a positive development of sales volumes in the first quarter. In the North America Group area, sales volumes for cement and aggregates even grew in the double-digit percentage range. The development in the North and South regions, as well as in Canada for aggregates, was particularly pleasing. In Europe, sales volumes for cement increased in Germany, Benelux, Northern Europe, and Romania. While cement sales volumes rose in all countries of Asia, they remained at approximately the previous years level in Africa. In Indonesia, the demand situation improved following the delayed start to infrastructure projects.

    The Groups cement and clinker sales volumes rose by 4.5% to 17.6 million tonnes (previous year: 16.8). Deliveries of aggregates across the Group amounted to 49.3 million tonnes (previous year: 46.3), representing an increase of 6.5%. Deliveries of ready-mixed concrete rose marginally by 1.3% to 8.0 million cubic metres (previous year: 7.9). Asphalt sales volumes fell by 11.9% to 1.4 million tonnes (previous year: 1.6).

    Sales volumes January - March

    2015 2016 Change

    Cement and clinker (million tonnes) 16.8 17.6 4.5%

    Aggregates (million tonnes) 46.3 49.3 6.5%

    Ready-mixed concrete (million cubic metres) 7.9 8.0 1.3%

    Asphalt (million tonnes) 1.6 1.4 -11.9%

    1HeidelbergCement | Interim Financial Report January to March 2016

  • Development of revenue and resultsGroup revenue in the period from January to March 2016 remained virtually unchanged at 2,832 million (pre-vious year: 2,835). Excluding consolidation and exchange rate effects, a slight increase of 0.9% was recorded. This primarily reflects the pleasing development of sales volumes in the cement and aggregates business lines. Changes to the scope of consolidation of 57 million had a positive impact on revenue. Exchange rate effects, however, reduced revenue by 83 million.

    In the reporting period, material costs decreased by 6.0% to 1,189 million (previous year: 1,264). This decline primarily related to energy costs, raw materials, and goods purchased for resale. The material cost ratio improved considerably from 44.6% to 42.0%. Other operating expenses and income were 1.9% above the previous years level at -782 million (previous year: -767), largely due to increased third-party repairs and services as well as higher rental and leasing expenses. Personnel costs rose slightly by 4 million to 548 million (previous year: 544). Income from joint ventures fell by 7 million to 31 million (previous year: 38), essentially owing to a negative business development in the Chinese markets.

    Operating income before depreciation (OIBD) improved by 7.2% to 321 million (previous year: 299). The increase of 22 million included 36 million from the improvement in operational activity and -14 million from negative currency effects. Operating income rose substantially by 19.9% to 138 million (previous year: 115).

    The additional ordinary result deteriorated by 20 million to -4 million (previous year: 16).

    The financial result improved by 43 million to -114 million (previous year: -158). Aside from the 19 million reduction in interest expenses, the 29 million increase in currency results contributed to this figure.

    Profit before tax from continuing operations rose significantly by 47 million to 14 million (previous year: -33). Expenses relating to taxes on income increased marginally by 1 million to 36 million (previous year: 34). As a result, net loss from continuing operations improved to -21 million (previous year: -67).

    Net loss from discontinued operations of -10 million accounts for operations of the Hanson Group that were discontinued in previous years.

    Overall, the shortfall for the period adds up to -31 million (previous year: -80). The profit attributable to non-controlling interests declined by 2 million to 41 million (previous year: 43). The Group share therefore amounts to -72 million (previous year: -123).

    Earnings per share Group share in accordance with IAS 33 improved by 0.27 to -0.38 (previous year: -0.65).

    The statement of comprehensive income and the derivation of the earnings per share are shown in detail in the Notes.

    Statement of cash flowsThe seasonal cash outflow from operating activities of continuing operations decreased by 66 million in the first quarter of 2016 to 262 million (previous year: 328). This was mainly attributable to an improved opera-tional performance, which led to an increase of 87 million in the cash flow before interest and tax payments to 402 million (previous year: 315).

    At 61 million (previous year: 32), dividends received exceeded the previous years level and essentially include dividends received from joint ventures and associates. This increase was largely related to dividend payments, which in the previous year were not paid until the second quarter. Interest received remained almost unchanged in comparison with the same period of the previous year. Interest payments fell by 24 million to 140 million (previous year: 164), essentially as a result of the decrease in net debt. Income taxes paid increased by 7 million

    2 HeidelbergCement | Interim Financial Report January to March 2016

    Interim Financial Report January to March 2016

  • to 84 million (previous year: 77). Changes in working capital improved by 33 million to -344 million (pre-vious year: -377). In the reporting quarter, provisions of 120 million (previous year: 52) were utilised through payments. This higher utilisation was essentially due to the endowment of a Group contractual trust agreement (CTA) of 51 million for the insolvency protection of pension entitlements.

    Net cash used in investing activities of continuing operations rose by 75 million to 238 million (previous year: 163). This surge is most notably due to the acquisition of the business of Rocla Quarry Products (RQP) in Australia in exchange for a cash payment of 98 million. These factors were counteracted by lower invest ments in property, plant, and equipment.

    Financing activities of continuing operations generated a cash inflow of 1,214 million (previous year: cash outflow of 444) in the reporting period. Proceeds from and repayments of bonds and loans primarily include the issue of a bond of 1 billion and debt certificates of 645 million as well as the repayment of a bond of 300 million and of the syndicated credit line in use. Dividend payments to non-controlling interests led to a cash outflow of 7 million (previous year: 3).

    The cash inflows and outflows during the previous year from operating activities as well as from investing and financing activities of discontinued operations relate to the sale of the building products business in North America and the United Kingdom in March 2015.

    InvestmentsCash flow investments increased in the first quarter to 257 million (previous year: 188). Investments in property, plant, and equipment, including intangible assets, which primarily related to optimisation and environmental protection measures at our production sites, but also expansion projects in growth markets, accounted for 155 million (previous year: 180) of this total. Investments in financial assets and other business units rose to 102 million (previous year: 8); these related primarily to the purchase of the Australian aggregates company Rocla Quarry Products and smaller acquisitions to round off shareholdings.

    Balance sheetThe balance sheet total rose by 152 million to 28,527 million (previous year: 28,374) as at 31 March 2016.

    Non-current assets fell by 578 million to 23,090 million (previous year: 23,668). The decrease mainly resulted from exchange rate effects of -683 million. The decline of 262 million in goodwill to 9,919 million (previous year: 10,181) almost exclusively related to exchange rate effects. The change of -270 million in property, plant, and equipment to 9,601 million (previous year: 9,871) was also largely attributable to exchange rate effects of -260 million. Additions of 151 million to property, plant, and equipment were offset by depreciation and amortisation of 177 million. The decrease of 85 million in financial assets to 1,747 million (previous year: 1,832) primarily resulted from the change in shares in joint ventures.

    Current assets increased by 730 million to 5,437 million (previous year: 4,707). As a result of seasonal factors, trade receivables grew by 72 million to 1,287 million (previous year: 1,215). Cash and cash equivalents rose by 696 million to 2,046 (previous year: 1,350). The changes are explained in the Statement of cash flows section.

    On the equity and liabilities side, equity decreased by 768 million to 15,209 million (previous year: 15,976). This reduction is essentially owing to the total comprehensive income of -765 million, which is composed of the 31 million shortfall for the period as well as of the currency translation differences of -753 million recognised in other comprehensive income and of the actuarial gains of 21 million.

    Interest-bearing liabilities rose by 1,265 million to 7,977 million (previous year: 6,712). The increase in net debt (interest-bearing liabilities less cash and cash equivalents) of 604 million to 5,890 million (previous year: 5,286) is attributable to the seasonal financing of the winter business in the first quarter. Total provisions

    3HeidelbergCement | Interim Financial Report January to March 2016

    Business trend January to March 2016

    Outlook

    Risk and opportunity report

    Consolidated income statement

    Consolidated statement of comprehensive income

    Consolidated statement of cash flows

    Consolidated balance sheet

    Consolidated statement of changes in equity

    Segment reporting / Notes

    Notes to the interim consolidated financial statements

  • decreased by 89 million to 2,334 million (previous year: 2,423), mainly as a result of exchange rate effects. The reduction of 260 million in operating liabilities to 2,567 million (previous year: 2,827) relates primarily to the decline of 176 million in trade payables to 1,275 million (previous year: 1,451) in addition to the decrease of 69 million in other current operating liabilities to 1,022 million (previous year: 1,091).

    FinancingIn the first quarter of 2016, HeidelbergCement issued debt certificates and a Eurobond, thereby further strength-ening its financing structure.

    On 14 January 2016, HeidelbergCement placed debt certificates in the amount of 625 million. On 4 February 2016, the volume was increased by 20 million to 645 million. The debt certificates, with a maturity date of 20 January 2022, consist of two tranches: one tranche with a floating rate and the other with a fixed rate. The fixed rate tranche yields at 1.85% p.a. and the floating tranche at 1.5% p.a. over 6 months Euribor.

    On 30 March 2016, HeidelbergCement issued a Eurobond under its 10 billion EMTN Programme with an issue volume of 1 billion and a maturity date of 30 March 2023. The 7 year bond bears a fixed coupon of 2.25% p.a. The issue price was at 99.616%, resulting in a yield to maturity of 2.31%.

    The proceeds of the debt certificates and the Eurobond will be utilised to pre-fund the upcoming Italcementi acquisition. Thereby the volume of the bridge financing is reduced from 3.3 billion to the minimum volume required for the mandatory takeover offer of 2 billion. The refinancing needs in the bond market decline to below 1 billion in li...