Half-year report 2004 Holcim Ltd

27 August 2004
  • Sales volumes increase across all segments.
  • Consolidated net sales up 8.8 percent to CHF 6.317 billion.
  • Operating profit rises by 21.2 percent to CHF 1.071 billion.
  • Operating EBITDA margin reaches 27.2 percent (first half 2003: 26.3).
  • Consolidated net income after minority interests jumps 35.5 percent to CHF 370 million.
  • Cash flow from operating activities at CHF 688 million (first half 2003: 602).


Group results show satisfying trend
Holcim reported strong operating gains in the first half of 2004 and has posted solid financial results. This encouraging performance was shaped by an increase in building activity since the second half of 2003 and by more favorable weather conditions for construction work in Europe and North America. The unique geographic spread, with a strong focus on growth markets, was also an important factor in renewed margin improvements, as were further advances in operating efficiency.

The Group increased sales in all three core segments of cement, ready-mix concrete and aggregates in all Group regions.

Net sales increased by 8.8 percent to CHF 6,317 million (first half 2003: 5,804) and consolidated operating profit rose by an above-average 21.2 percent to CHF 1,071 million (first half 2003: 884). There was also significant improvement in consolidated net income after minority interests, amounting to CHF 370 million (first half 2003: 273). Cash flow from operating activities also significantly exceeded the year-back result at CHF 688 million (first half 2003: 602).

The first half of 2004 was shaped by two important Group events: the successful conclusion of the public tender to minority shareholders of Holcim Apasco, and the equally successful capital increase. The inflow of some CHF 1.5 billion in new funds enabled Holcim to buy out virtually all minority shareholders in Mexico and underpin the financial investments made since the last capital increase with approximately 50 percent shareholders' equity. This leaves Holcim with a substantially stronger balance sheet.

European construction sector gains momentum
The first half of 2004 saw the European construction sector continue to recover and gather momentum. In Western Europe, Spain showed the strongest surge in growth, while France and the Benelux countries also experienced increases in demand. In Germany, the construction sector failed to make any significant headway against a still difficult backdrop. In Switzerland, any gains were temporary, and confined to major projects involving large quantities of cement. However, improving cement sales in the Switzerland/South Germany region was particularly supported by the rapid integration of the Dotternhausen cement plant into the Group. In Italy, cement consumption reached the same high level as the previous year and demand for construction materials remains robust in markets supplied by Holcim in Central and Southeast Europe. Overall, in Group region Europe deliveries increased significantly in all segments. The first-time consolidation of the majority position in Russia also had a positive impact on cement sales.

Holcim Spain fully utilized its production facilities in the south of the country as well as in the central market of Madrid. The Italian Group company posted higher delivery volumes and at Holcim (France Benelux), a revival in housing and infrastructure demand boosted sales of cement and ready-mix concrete. Holcim Germany maintained its market share, and posted higher net revenues. In Central and Southeast Europe, Group companies in Romania and Bulgaria posted clear increases in sales. With the final acquisition of the Pleven cement plant in northern Bulgaria, Holcim has strengthened its long-term position in this growth market.

Consolidated operating profit in Group region Europe rose sharply in local currency terms. In Swiss francs, it also increased by a substantial 31.6 percent to CHF 350 million (first half 2003: 266). Most European Group companies contributed to this success. Thanks to the systematic implementation of restructuring measures and an improvement in the revenue situation, the operating loss of the North German Group company narrowed significantly compared to the same period last year.

Rising demand for cement in North America
In North America, positive demand growth in the construction sector matched the upturn in the economy as a whole. The United States in particular experienced an appreciable increase in demand for construction materials. Alongside housing and road building, commercial construction projects also generated additional impetus. Even though the US cement industry operated at capacity in many regional markets, cement imports were still needed. In Canada, St. Lawrence Cement profited from the continuing robust economic situation.

Cement deliveries increased considerably in this favorable environment. Progress was primarily attributable to the higher sales volumes posted by Group company Holcim US. The latter also benefited from newly installed plant capacity at Holly Hill, South Carolina. Canadian St. Lawrence Cement also increased volumes. The aggregates segment made the strongest progress thanks to new quarries in Ontario.

In regard to operating results, Group region North America took a major step forward in local currency terms. In Swiss francs, consolidated operating profit increased to CHF 95 million (first half 2003: 45) despite the persistent weakness of the US dollar against the Swiss franc. Efficiency gains and higher output led to cost savings and in conjunction with higher prices helped bring about a marked improvement in the result.

Holcim US has overcome an important obstacle in the extensive approval procedure for the construction of a new cement factory near Ste. Geneviève on the Mississippi. Relevant authorities have issued all necessary approvals.

At the beginning of August 2004, Holcim US wound up the Holnam Texas Limited Partnership and bought out its partners in this company. The Midlothian plant, with an annual capacity of 2.1 million tonnes of cement, is now wholly owned by Holcim US and brings all US Group company operations under full ownership.

Stronger construction activity in Latin America
Taken as a whole, Group region Latin America turned in a strong performance in the first half of the year. With the exception of Brazil and Chile, all markets supplied by Holcim saw cement consumption increase. Growth was driven by private housebuilding and investments in transport infrastructure. In Venezuela and Colombia, demand for construction materials was also bolstered by the slightly more stable political environment. Consolidated sales volumes increased in all three core segments.

In Mexico, Holcim Apasco increased both cement deliveries and sales of ready-mix concrete and aggregates. Group companies in Central America, Colombia and Venezuela all posted higher cement volumes. At Holcim Brazil, delivery quantities contracted somewhat due to continuing sluggish economic conditions and higher competitive pressure. In Chile, cement consumption declined slightly as major investments in the infrastructure sector came to an end. With the completion of construction work on a dam in the south of the country, Cemento Polpaico's cement sales also fell back marginally. Argentinean Minetti recorded consistently solid order levels and a sharp increase in cement sales.

Group region Latin America saw a further increase in operating profit in US dollar terms, the USD being the region's main reference currency. In Swiss francs, negative exchange rate movements led to a slight decline in consolidated operating profit to CHF 372 million (first half 2003: 385).

Higher value added in Africa Middle East region
Holcim's key cement markets in Africa Middle East held up well amid irregular regional growth.

Business remained robust in North Africa. Holcim Morocco's sales of cement and ready-mix concrete were buoyed by an expansion of the transport network and high demand in housing and tourism. Egyptian Cement maintained stable volumes and Holcim Lebanon significantly expanded cement deliveries thanks to an increase in export activity. The Group companies in the Indian Ocean region also saw cement sales increase. Holcim South Africa bettered the high benchmarks set the previous year and expanded sales across all segments. With the commissioning of a third kiln line at the Dudfield plant, the company directly benefited from the continuing increase in demand for cement, the additional capacity ensuring optimized customer deliveries.

Consolidated operating profit for Group region Africa Middle East rose appreciably, not only in local currency, but also in Swiss francs, reaching CHF 163 million (first half 2003: 121). While all Holcim companies in the region participated in the positive result, the significantly higher contribution made by Holcim Lebanon and Egyptian Cement deserves special mention. Holcim Morocco and the South African Group company have also continued to improve their financial performance.

Potential intact in Asia Pacific
The economic environment was mostly positive in Group region Asia Pacific. Impending elections in Indonesia and the Philippines, however, have dampened investor interest somewhat in these markets. In several countries growth was effectively driven by construction activity. Practically all Group companies reported increased cement sales in the first half.

Group companies in Australia, New Zealand, Azerbaijan, Vietnam, Sri Lanka and Malaysia all achieved significant volume growth. Siam City Cement in Thailand and PT Semen Cibinong in Indonesia also benefited from stronger domestic demand, but a decline in cement exports left total sales volumes in these two countries unchanged on balance. Philippines-based Union Cement saw slightly better cement sales.

Consolidated operating profit for Group region Asia Pacific increased in local currency terms and in Swiss francs to CHF 120 million (first half 2003: 96). The main contributors to the improved operating result were Group companies in Australia, New Zealand, Thailand and the Philippines.

During the first half, Holcim achieved full control of National Cement Industries in Singapore, increasing a stake previously held under a joint venture. Integration into the Holcim Group and expansion of the ready-mix company Eastern Concrete will strengthen Holcim's foothold in this crucial Asian city state. As expected, Holcim will commission the new grinding plant in Thi Vai in the third quarter 2004, thus strengthening its market position in southern Vietnam.

2004 sees substantial progress
In Europe, demand for building materials should continue to develop at an impressive pace and, in conjunction with more stable market conditions in Germany, is expected to have a positive impact on Holcim's profits in this Group region. Holcim also expects delivery volumes and selling prices to increase in North America. Together with greater operating efficiency, margins will continue to rise. In Latin America, Holcim anticipates a robust result overall, and improvements in operating results in Group regions Africa Middle East and Asia Pacific are also predicted.

After the good first-half result, the Board of Directors and Executive Committee are confident in their outlook for 2004 as a whole. However, the positive trend will need to continue over the months ahead, bearing in mind the very strong results posted in the second half of 2003 as economic conditions began to pick up. Despite this and rising energy costs, we will exceed the annual forecast of 8 percent internal growth on operating profit.

Key Figures
Group Holcim
First half
  2004 2003 +/-% +/-% local currency
Annual cement production capacity million t 145.9 145.2 1 +0.5  
Sales of cement and clinker million t 49.3 44.8 +10.0  
Sales of aggregates million t 48.6 42.9 +13.3  
Sales of ready-mix concrete million m 3 13.8 12.6 +9.5  
Net sales million CHF 6,317 5,804 +8.8 +9.8
Operating EBITDA million CHF 1,720 1,527 +12.6 +14.8
Operating EBITDA margin % 27.2 26.3    
EBITDA million CHF 1,752 1,566 +11.9 +14.5
Operating profit million CHF 1,071 884 +21.2 +23.6
Operating profit margin % 17.0 15.2    
Net income before minority interests million CHF 491 402 +22.1 +27.9
Net income after minority interests million CHF 370 273 +35.5 +42.9
Net income margin % 5.9 4.7    
Cash flow from operating activities million CHF 688 602 +14.3 +17.3
Cash flow margin % 10.9 10.4    
Net financial debt million CHF 8,061 8,299 1 -2.9 -2.1
Shareholders' equity including interests of minority shareholders million CHF 10,623 9,499 1 +11.8 +11.2
Gearing 2 % 75.9 87.4 1    
Personnel 30.6. 48,556 48,220 1 +0.7  
Earnings per dividend-bearing share CHF 1.85 1.40 +32.1 +39.3
Earnings per share (fully diluted) CHF 1.85 1.40 +32.1 +39.3
Cash earnings per share 3 CHF 2.66 2.15 +23.7 +28.4
Principal key figures in USD (illustrative) 4          
Net sales million USD 4,974 4,299 +15.7  
Operating EBITDA million USD 1,354 1,131 +19.7  
Operating profit million USD 843 655 +28.7  
Net income after minority interests million USD 291 202 +44.1  
Cash flow from operating activities million USD 542 446 +21.5  
Net financial debt million USD 6,398 6,693 1 -4.4  
Shareholders' equity million USD 8,431 7,660 1 +10.1  
Earnings per dividend-bearing share USD 1.46 1.04 +40.4  
Principal key figures in EUR (illustrative) 4          
Net sales million EUR 4,075 3,869 +5.3  
Operating EBITDA million EUR 1,110 1,018 +9.0  
Operating profit million EUR 691 589 +17.3  
Net income after minority interests million EUR 239 182 +31.3  
Cash flow from operating activities million EUR 444 401 +10.7  
Net financial debt million EUR 5,269 5,320 1 -1.0  
Shareholders' equity million EUR 6,943 6,089 1 +14.0  
Earnings per dividend-bearing share EUR 1.19 0.93 +28.0  


1 As of December 31, 2003.
2 Net financial debt divided by shareholders' equity including interests ofminority shareholders.
3 Excludes the amortization of goodwill and other intangible assets.
Income statement figures translated at average rate; balance sheet figures at year-end-rate.

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Holcim is one of the world's leading suppliers of cement, as well as aggregates (gravel and sand), concrete and construction-related services. The Group has majority and minority interests in more than 70 countries on all continents.
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