Holcim on track: solid first quarter 2005 despite negative seasonal factors

2 May 2005
  • Net sales declined by 1.1 percent to CHF 2.730 billion
  • Operating profit increased by 9.6 percent to CHF 411 million
  • Operating EBITDA margin reaches 24.1 percent (first quarter 2004: 25.1)
  • Net income lifted by 67.3 percent to CHF 169 million
  • Cash flow from operating activities rose to CHF 77 million (first quarter 2004: 60)


Geographic diversification is a strength
Thanks to its worldwide market presence, Holcim achieved further volume and earnings growth in the first quarter of 2005. However, the result was depressed by strong increases in energy and transport costs and the continued depreciation of the US dollar. Poorer weather conditions than in the first quarter of 2004 and an early Easter had an adverse impact on construction activity in Europe and North America.

Cement and clinker deliveries nonetheless increased by 1.8 percent. Ready-mix concrete sales volumes rose by 3.3 percent, shored up by strong results in Group regions Africa Middle East and Asia Pacific. Sales of aggregates decreased by 9.9 percent. The biggest declines in sales in this segment were in Europe and North America.

Mainly as a result of currency translation, consolidated net sales decreased by 1.1 percent to CHF 2.730 billion, and operating EBITDA was CHF 658 million (first quarter 2004: 694). Internal operating EBITDA declines in Europe (-19.4 percent) and Latin America (-12.3 percent) were largely offset by growth in North America (+62.1 percent), Africa Middle East (+34.8 percent) and Asia Pacific (+6 percent). Adjusted for currency and consolidation effects, this is reflected in a slight decline of 4.5 percent in internal operating EBITDA growth. By contrast, operating profit rose by 9.6 percent to CHF 411 million, and net income increased by 67.3 percent to CHF 169 million. This was brought about by additions to the scope of consolidation as well as changes under the new International Financial Reporting Standards (IFRS). Goodwill, which is no longer depreciated in accordance with IFRS, negatively impacted prior-year results by CHF 59 million. Despite higher financing costs, cash flow from operating activities increased to CHF 77 million (first quarter 2004: 60). Overall, the results for the first quarter were within expectations.

Construction activity in Europe held back by snowy winter
In the first quarter of 2005, business in Europe was greatly impaired by heavy snowfalls and prolonged periods of frosty weather, which persisted until March in many places. Construction activity virtually ground to a halt for several weeks not only in the north of the continent, but also in Italy, Croatia and in large parts of southeastern Europe. Cement sales declined as a result, in some cases appreciably. As a consequence of the high volumes of deliveries during the mild winter last year, fluctuation was comparatively pronounced. Cement sales rose only in Spain, Romania and - because of an acquisition - in Bulgaria. On balance, there was a decline in cement deliveries in Group region Europe.

Group region Europe's operating EBITDA decreased by 19 percent to CHF 175 million and internal operating EBITDA growth declined by 19.4 percent. In addition to the adverse weather conditions, stiffer competition in Belgium and northern Italy and persistent sluggish construction activity in Germany pressured the performance.

Strong demand in North America
The North American construction sector saw a seamless continuation of last year's positive trend. The United States witnessed a revival in commercial and industrial construction activity. Indeed, the number of new housing starts reached a 20-year peak. Additional stimuli came from the accelerated expansion and modernization of transport infrastructure, with cement consumption continuing to rise. Holcim US once again increased cement deliveries and improved sales prices in all market regions - markedly in some instances.

In Canada too, the construction sector continued to operate at a high level. St. Lawrence Cement increased domestic cement deliveries, but on balance volumes declined owing to delivery bottlenecks in the northeastern US. St. Lawrence Cement also saw a slight decline in sales of aggregates and ready-mix concrete, mainly owing to weather conditions.

Group region North America accomplished yet another major step forward. Operating EBITDA increased to CHF 43 million (first quarter 2004: 29) together with impressive internal operating EBITDA growth of 62.1 percent.

This gratifying development is also attributable to a combination of improved price levels and efficiency gains. The continued modernization of the production base and strict cost management are delivering the expected results.

Mixed trend in Latin America
Group region Latin America began the year in line with expectations. Cement deliveries increased - supported by Cemento de El Salvador, which was newly consolidated as from the beginning of the year.

At Holcim Apasco in Mexico, sales volumes decreased in the cement and ready-mix concrete segments owing to a weak construction sector, a tougher competitive environment and an early Easter. However, the decline was partially offset by increases in cement exports and clinker sales. In Costa Rica, the new kiln line at the Cartago plant facilitated a rise in production. This includes an increase in deliveries to the sister company in Nicaragua. Other Group companies in Central America essentially matched their year-back levels. A sharp upturn in cement deliveries was achieved in Ecuador and Venezuela, and Holcim Brazil also increased its sales thanks to a slight improvement in the economic situation. Sales of ready-mix concrete fell back somewhat as a result of market conditions and optimization of the sales network. With demand for construction materials still brisk across all segments in Argentina and Chile, Minetti and Cemento Polpaico were both able to expand deliveries of cement and ready-mix concrete.

Operating EBITDA decreased overall by 12 percent to CHF 250 million and internal operating EBITDA growth was also negative, declining 12.3 percent. This reflects the lower sales volume in Mexico, an increase in competitive pressure accompanied by price discounts in Brazil and Colombia, and higher energy costs.

Holcim has increased the shareholding in Cemento de El Salvador from 20.3 percent to 64.2 percent with a total investment of USD 220 million. The company has an annual installed capacity of 1.7 million tonnes of cement and strengthens the Group's market presence in Central America.

Solid growth in Africa Middle East
Holcim South Africa reported a sharp rise in cement sales. The Lebanese Group company also saw a significant upturn in deliveries thanks to an increase in cement exports. Holcim Morocco maintained last year's solid performance despite heavy rainfalls. Egyptian Cement, however, could only partly offset the seasonal falloff in domestic sales by stepping up cement exports. Sales remained depressed in West Africa owing to political instability.

In terms of earnings, the Group region achieved significantly improved results. Operating EBITDA increased by 38 percent to CHF 127 million, and internal operating EBITDA growth reached 34.8 percent. With the exception of the West African countries, all Group companies contributed to the improved results. Particular mention should be made of Holcim South Africa, which virtually doubled operating EBITDA. In addition to an increase in cement sales, another positive factor was an increase in demand for ready-mix concrete.

To better meet dynamic market developments in the Middle East and Persian Gulf area, Holcim Trading opened a representative office in Dubai in the first quarter of 2005.

Robust construction activity in Asia Pacific
Virtually all Group companies in Asia Pacific benefited from sustained robust demand for construction materials and reported higher sales volumes. The exceptions were Holcim Philippines and Holcim Malaysia, where seasonal factors and tight budgets put a brake on public-sector construction activity and cement sales.

The highest growth in cement sales was recorded by Siam City Cement in Thailand, followed by PT Semen Cibinong in Indonesia. Both Group companies benefited from a rise in domestic demand and were also able to export significantly more cement. Holcim Vietnam operated at the limit of its capacity, but thanks to additional grinding and logistics capacity near Ho Chi Minh City it was able to substantially increase cement output for consumers in the South of the country. Cement Australia and Holcim New Zealand also exceeded the already high delivery levels of the first quarter 2004.

For the most part, consolidated cement deliveries by Group companies in Asia Pacific increased. In the aggregates segment, sales volumes decreased, contrasting with a marked increase in sales of ready-mix concrete.

Operating EBITDA of Group region Asia Pacific remained unchanged at CHF 117 million (first quarter 2004: 117) despite generally weaker exchange rates, with internal operating EBITDA growth accounting for 6 percent. Key contributions came from Cement Australia as well as Group companies in Thailand, the Philippines and New Zealand.

Strategic investments strengthen market position and offer new potential
In the first quarter of 2005, Holcim made two key strategic investments which will generate important new impulses.

In an initial transaction, Holcim acquired Aggregate Industries via a recommended public offer. With 650 sites in the UK and USA, Aggregate Industries is a leading and exceptionally well positioned producer of building materials. The company is also a major cement customer, with an annual consumption of some 3 million tonnes of cement.

The integration of Aggregate Industries into the Holcim Group provides access to the aggregates, asphalt and ready-mix concrete businesses in a number of key US markets as well as an opportunity to establish a foothold in the UK building materials sector, a market which is both important and profitable. Aggregate Industries is the owner of major strategic aggregates reserves for more than 70 years in geographically well situated locations.

Holcim currently holds over 96 percent of the share capital of Aggregate Industries and in April 2005 initiated the procedure for the mandatory buy-out of the remaining minority shareholders.

In a parallel transaction, Holcim entered into a strategic partnership with Gujarat Ambuja Cements in India. This alliance was accomplished through Ambuja Cement India, in which Holcim has a 67 percent interest and Gujarat Ambuja Cements a 33 percent stake. With a 35 percent stake, this holding company is now the largest single shareholder of The Associated Cement Companies. It also holds 94 percent of the share capital of Ambuja Cement Eastern.
India's second largest cement manufacturer, The Associated Cement Companies operates nationwide. Together with Ambuja Cement Eastern, it has 13 cement plants and 4 grinding stations with an annual installed capacity of over 20 million tonnes of cement.

Holcim financed both investments with existing liquid resources and by drawing on firmly committed credit facilities. In this context, treasury shares worth approximately CHF 430 million were successfully placed in the market during the period under review. These sizable investments have increased gearing to 112 percent. However, the target range of 80 to 100 percent should be reached again by the end of 2006.

Further growth in 2005
The guidance for the 2005 business year published in March 2005 remains valid. Still intact construction activity will further support demand at a high level in most countries. Holcim is endeavoring to further enhance efficiency within the Group. The Board of Directors and Executive Committee again expect to see an improvement in results for the current business year. As projected earlier, internal operating EBITDA growth is once more likely to exceed the long-term average of 5 percent. Weather-related and seasonal losses sustained in the first quarter ought thus to be offset over the remainder of the year.

The two profitable companies in the UK and India are to be rapidly integrated into the Group and should soon generate additional value.

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Holcim is one of the world's leading suppliers of cement, as well as aggregates (crushed stone, sand and gravel), concrete and construction-related services. The Group has majority and minority interests in more than 70 countries on all continents.
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You can download the complete first quarter report from www.holcim.com
The consolidated statement of income, consolidated balance sheet, statement of changes in consolidated equity and the consolidated cash flow statement are also available on the website.


Key figures

Holcim Group January-March   2005 2004
+/-% +/-% local currency
Annual cement production capacity million t 154.1 154.1 1 -  
Sales of cement and clinker million t 22.3 21.9 +1.8  
Sales of aggregates million t 18.2 20.2 -9.9  
Sales of ready-mix concrete million m 3 6.3 6.1 +3.3  
Net sales million CHF 2,730 2,760 -1.1 +2.1
Operating EBITDA million CHF 658 694 -5.2 -1.3
Operating EBITDA margin % 24.1 25.1    
EBITDA million CHF 680 708 -4.0 -0.7
Operating profit million CHF 411 375 +9.6 +14.4
Operating profit margin % 15.1 13.6    
Net income million CHF 169 101 +67.3 +73.3
Net income attributatble to equity holders of Holcim Ltd million CHF 128 45 +184.4 +195.6
Net income margin (share Holcim Ltd) % 4.7 1.6    
Cash flow from operating activities million CHF 77 60 +28.3 +33.3
Cash flow margin % 2.8 2.2    
Net financial debt million CHF 13,027 6,846 1 +90.3 +83.6
Total shareholders equity million CHF 11,659 10,661 1 +9.4 +7.0
Gearing 2 % 111.7 64.2 1    
Personnel 31.3. 56,554 46,909 +20.6  
Earnings per dividend-bearing share CHF 0.56 0.23 +143.5 +154.0
Fully diluted earnings per share CHF 0.56 0.23 +143.5 +154.0
Cash earnings per dividend bearing share 3 CHF 0.61 0.63 -3.2 -


Principal key figures in USD (illustrative) 4          
Net sales million USD 2,314 2,190 +5.7  
Operating EBITDA million USD 558 551 +1.3  
Operating profit million USD 348 298 +16.8  
Net income attributable to equity holders of Holcim Ltd million USD 108 36 +200.0  
Cash flow from operating activities million USD 65 48 +35.4  
Net financial debt million USD 10,857 6,005 1 +80.8  
Total shareholders' equity million USD 9,716 9,352 1 +3.9  
Earnings per dividend-bearing share USD 0.47 0.18 +161.1  


Principal key figures in EUR (illustrative) 4          
Net sales million EUR 1,761 1,758 +0.2  
Operating EBITDA million EUR 425 442 -3.8  
Operating profit million EUR 265 239 +10.9  
Net income attributable to equity holders of Holcim Ltd million EUR 83 29 +186.2  
Cash flow from operating activities million EUR 50 38 +31.6  
Net financial debt million EUR 8,405 4,417 1 +90.3  
Total shareholders' equity million EUR 7,522 6,878 1 +9.4  
Earnings per dividend-bearing share EUR 0.36 0.15 +140.0  
  1. As of December 31, 2004.
  2. Net financial debt divided by total shareholders' equity.
  3. Excludes the amortization of goodwill and other intangible assets.
  4. Income statement figures translated at average rate; balance sheet figures at year-end rate.
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