Holcim profit leaps, sales below expectations

Holcim’s first-half results were boosted by higher net income but sales disappointed, particularly in India, the group's key market in Asia. For the full-year, the Swiss major now expects more muted earnings growth than previously forecast.

For the first six months to the end of June, Holcim's turnover declined by 5.1 per cent to CHF9649m, or by 6.9 per cent in euro terms to EUR7847m.  The running EBITDA was 3.4 per cent lower at CHF1819m while the trading profit eased by 3.3 per cent to CHF1046m (EUR 851m). Net attributable profit again improved by 47.7 per cent to CHF571m (EUR468m).

Cement deliveries were off by 1.4 per cent to 86.6Mt in the first six months, but the underlying decline was just 0.3 per cent. Sales of other mineral components fell by 20.2 per cent to 1.7Mt. Aggregate shipments declined by 7.2 per cent to 69.4Mt and ready-mix concrete deliveries fell 15 per cent to 18.8Mm3 and asphalt sales declined 8.3 per cent to 3.3Mt.

Weaker-than-expected global growth
The company attributed the decline in sales to a weaker than expected global economy and adverse weather. “Global economic growth in the first half of 2013 was weaker than foreseen. Construction activity was hurt by the severe winter as well as the bad weather encountered in many regions. Demand fell short of expectations in India, Canada, Mexico and Morocco in particular. By contrast, the economic climate was significantly better in the Philippines and Ecuador, among other markets."

India particularly weighed on growth in the Asia-Pacific division where regional cement deliveries eased by an underlying 3.7 per cent to 36.4Mt, having been up at 41.2Mt a year earlier (before reducing the stake in Cement Australia and de-consolidating Thailand). The strongest volume declines were seen in New Zealand (-9.9 per cent) and Sri Lanka (-9.3 per cent). In India, by far the largest market, volumes were off by 2.5 per cent and prices by 2.6 per cent, a performance below Holcim's earlier expectations as volumes declined by 1.8 per cent at ACC and by 3.5 per cent at Ambuja Cements. Prices advanced by 18.7 per cent in Sri Lanka (18.7 per cent), the Philippines (9.4 per cent) and Indonesia (eight per cent), but retreated by 5.4 per cent in Malaysia. However, Malaysia saw the best volume performance, with a 4.3 per cent increase.

Stronger results were seen in Latin America where turnover edged up by 0.6 per cent to CHF1718m and EBITDA improved by 8.4 per cent to CHF500m. Cement deliveries were 1.4 per cent ahead at 12.3Mt with notable volume increases in Ecuador and Costa Rica at 18.2 and 16.9 per cent, respectively and also moved ahead in Argentina (+3.9 per cent). Elsewhere, volumes showed low single-figure reductions, except in Mexico where the decline reached 8.7 per cent and prices also eased by 5.1 per cent.

The North American construction sector only made slow headway and cement deliveries were 6.7 per cent lower at 5Mt, with the eastern Canadian volumes in decline by 15 per cent. This was due to bad weather, a slower Toronto housing market and a strike in Montreal. In the United States, volumes were 5.6 per cent lower, though the average price improved by 6.2 per cent.

The group said it experienced a challenging environment in Africa-Middle East where cement deliveries declined by 13.1 per cent to 3.9Mt. Morocco is the most important market in the division and here cement volumes fell by some 24 per cent in a market that was down by 21 per cent and has one additional producer. The other weak spot was Guinea, where cement volumes fell by 36.1 per cent and prices by 14.3 per cent.

Leadership Journey on-track
Holcim said that its programme to contain costs was going well and action to restructure the business was beginning to have a clear effect in Latin America and in Europe. There was a stronger-than-expected contribution of CHF186m in 2Q13 from the company’s cost leadership programme, up from CHF143m in 1Q13, resulting in a total saving of CHF329m in 1H13. Its full-year target remains at CHF400-500m.

Guidance trimmed
The company has reduced its full-year guidance from "significant" to organic growth in operating EBITDA and operating profit. The downgrade reflects the headwinds of a weaker 1H in India. It continues to be cautious on the volume outlook in Europe and Africa-Middle East regions. The firm has also cautioned on North America as it expects sales to be flat, down from previous guidance of higher sales. However, Holcim continues to be optimistic on the outlook for its other region, and overall expects an increase in its cement volumes in 2013. Higher pricing is anticipated in US, Indonesia, Morocco and Colombia while a further contribution is also expected from cost savings.