HeidelbergCement revaluates business units with impairment test

Due to the COVID 19 pandemic, HeidelbergCement AG has reviewed the business prospects of all significant local business units of the group, and has carried out an impairment test on its asset portfolio in the 2Q20.

The audit leads to an impairment of goodwill and tangible fixed assets shown in the consolidated balance sheet totalling around EUR3.4bn (US$3.8bn) before tax.

Regionally, the impairments relate mainly to business units in western and southern Europe (UK, France, Belgium, The Netherlands, Italy, and Spain) with approximately EUR2.7bn, North America with approximately EUR0.3bn, Asia/Pacific (Malaysia, Australia, and Indonesia) with approximately EUR0.2bn, as well as northern/eastern Europe and Central Asia (Kazakhstan and Bulgaria) with approximately EUR0.1bn.

Approximately two thirds of the impairments relate to the portfolio of assets acquired as part of the Hanson acquisition, around one fifth relate to the Italcementi acquisition. Overall, around half of the impairments are attributable to assets in the UK.

The main reasons for the impairment are due to three factors, says HeidelbergCement. Firstly, the influence of the coronavirus pandemic, the original business expectations have shifted into the future and have decreased within the specified planning period. Secondly, economic special effects in individual countries in which HeidelbergCement operates (particularly in the UK due to the country's withdrawal from the European Union). Thirdly, the increase of the market risk premium used for valuation purposes from six to seven per cent based on the increased recommendation for the cost of capital by the Institut der Wirtschaftsprüfer (IdW).

The impairment is independent of the short-term operational development of the company. With the COPE action plan, the company launched a comprehensive bundle of measures in February that focusses on maintaining liquidity and cost savings. HeidelbergCement assumes that these measures will already take effect in the short term and partially compensate the impact caused by the decline in sales volumes in the 2Q20.