HeidelbergCement sees improved results across the board for 3Q16

In its first results that include the consolidation of Italcementi, HeidelbergCement reported a significant improvement in sales volumes, revenue and operating income in the third quarter of 2016.

Cement sales jumped 52 per cent to 33Mt while aggregates volumes advanced 11 per cent to 80Mt and ready-mix concrete deliveries were up 29 per cent to 12Mm³. In terms of deliveries, demand rose in several markets, particularly in Europe, but in some parts of North America the company reported a modest decline as a very rainy summer affected the construction sector. Group revenues increased by a quarter to EUR4.5bn when compared with 3Q15 revenues of EUR3.6bn.

Operating income before depreciation (OIBD) rose 17 per cent to EUR1bn (EUR865m in 3Q15).

Following the payment of the acquisition price for a 49 per cent stake in Italcementi and taking over the Italy-based cement producer’s liabilities, there was a rise in net debt to EUR8.9bn. As of 12 October 2016 HeidelbergCement holds 100 per cent of Italcementi shares and the sales of business activities in Belgium and the USA is nearly completed. Divestment proceeds totalled EUR1.14bn.

“With the acquisition of Italcementi, HeidelbergCement made a big leap in growth and is now the clear number two in the building materials industry,” said Dr Bernd Scheifele, chairman of the Managing Board. “In the third quarter, we also recorded a further increase in operational terms despite adverse conditions in some markets. The integration of Italcementi is progressing faster than expected and we are very confident that we will be able to exceed the identified synergies of EUR400m and to continue our profitable growth both quickly and successfully.”

The sales volumes of Italcementi’s markets in Italy, France, Spain, Greece, Bulgaria, Kazakhstan, India, Thailand, Egypt, Morocco, Mauritania, Gambia, and North America were included for the first time. Taking into account Italcementi’s deliveries in the same period of the previous year on a pro forma basis, the growth amounts to five per cent. Cement sales could be increased in all group areas. The strongest rise on a pro forma basis was achieved in the Northern and Eastern Europe-Central Asia Group area, followed by Asia-Pacific, and Africa-Eastern Mediterranean Basin. In North America, sales volumes rose slightly despite adverse weather conditions in some regions.

On a pro forma basis, revenues increased slightly by around one per cent on a like-for-like basis while operating income before depreciation on the same basis edged up two per cent. Operating income after depreciation improved by four per cent. The company attributed the positive development of results not only to improved sales and prices in core markets but also to the declining cost of fuels.

9M16 results
In the first nine months of 2016, cement and clinker sales volumes increased by four per cent on a pro forma basis to 94.2Mt while aggregates and ready-mixed concrete rose by three per cent to 214.1Mt and by two per cent to 35.7Mm3, respectively.

Group revenues in 9M16 expanded significantly by 8.5 per cent to EUR10.927bn while OIBD improved 10.7 per cent to EUR2.121m and operating income was up 9.7 per cent to EUR1.477m when compared with 9M15.

On a comparable proforma basis, revenue increased slightly by one per cent to EUR12.8bn, OIBD by 6.4 per cent to EUR2.4bn and operating income by 10.4 per cent to EUR1.6bn.  

Outlook
Looking forward, Heidelberg Cement anticipates a rise in sales volumes of cement, aggregates and ready-mxied concrete as a result of overall positive development of demand and helped by the commissioning of new capacities.

Excluding the Italcementi consolidation, HeidelbergCement estimates that the cost base for energy will remain stable in 2016, leading to a drop in energy prices and sales volumes increase throughout the year. A moderate rise in the cost of raw materials and personnel is expected. HeidelbergCement further focusses on the continuous improvement of efficiency and margins.

“To this end, we started the “Continuous Improvement” programmes in the cement and aggregates business lines to establish a culture of continuous improvement of operational and commercial work processes at employee level. Process optimisations are expected to achieve a sustainable improvement in results of at least EUR120m in both business lines over a three-year period. The ‘CIP’ programme for the cement business line started at the beginning of 2015, and the ‘Aggregates CI’ programme was launched at the beginning of 2016. We also continue to optimise our logistics with the ‘LEO’ programme, which has the goal of reducing costs by a total of EUR150m over a period of several years. In addition, the ‘FOX’ programme in purchasing is expected to achieve cost savings of around EUR100m,” said the company in a statement.

“The outlook for the global economy is positive, even though the macroeconomic and political risks have increased following the Brexit decision. HeidelbergCement will continue to benefit from the good and stable economic development in the industrial countries, above all in the USA, Germany, Northern Europe, and Australia. With the acquisition of Italcementi, we have strengthened our global market position,” according to Dr Scheifele.