Solid operating results in challenging environment

13 May 2003

In the first quarter 2003, Holcim succeeded in further improving its operating margins, even though its consolidated result was severely depressed by negative currency effects and typical seasonal fluctuations in the construction sector in the first few months of the year.

Economic conditions
Global economic conditions remained very subdued, particularly with the Iraq conflict overshadowing already sluggish business activity. Holcim's unique country mix, particularly its strong presence in Latin America and Asia, enabled the company to hold its own well in this environment. However, in comparison with the first quarter 2002 the construction industry was adversely affected by significantly less favorable weather conditions throughout large parts of Europe and North America - an important factor to consider when assessing the financial results is the currency trend. Gratifyingly, most Group companies made further progress in local currency terms. However, the consolidated results were adversely affected by the US dollar's massive 19.1% year-on-year depreciation against the Swiss franc and by the weakness of other major Group currencies.

Sales development and financial results
The period under review saw a slight rise in cement and clinker sales and there was also an increase in the volume of ready-mix concrete compared with the prior-year quarter. By contrast, deliveries of aggregates remained virtually stable. Group companies in Latin America, Africa and Asia reported higher cement sales. Consolidated net sales fell back 13.3% to CHF 2.467 billion. However, on the level of operating profit this decrease, which was attributable to currency factors and to prices, was partially offset by cost savings, resulting in only a 7.4% decline to CHF 287 million and improved operating margins. Group net income after minority interests came to CHF 10 million (first quarter 2002: 77). Factors that contributed to the decrease included higher financial expenses and a higher tax burden as a result of different earnings and losses among the Group companies, although on balance the tax effects of these will be evened out during the course of the year. Another factor that had a negative impact was the complete write-off of CHF 19 million of the shareholding in Swiss International Air Lines. Cash flow from operating activities once again reached an attractive CHF 98 million (first quarter 2002: 108). In light of the challenging external factors, the quarterly statement can be described as solid and in line with expectations.

Construction activity in Europe hit by snow and frost
In the first quarter 2003, business in Europe was greatly impaired by an exceptionally severe and prolonged period of cold weather. At many construction sites virtually no concreting work could be carried out for several weeks. As a result, cement deliveries by the national companies declined, in some cases markedly. This contrasted with a renewed increase in delivery volumes in markets in southern Europe such as Spain and Italy, where economic conditions were favorable. However, the positive trend in orders placed from March onward was not sufficient to offset the weather-related declines of the two previous months. Despite operational improvements in margins, the operating profit of the Group's Europe region slumped by 26.6% to CHF 58 million. Difficult market conditions in Germany had a role to play here. The signing of a contract for the takeover of Cementos de Hispania S.A. on April 24, 2003 enabled Holcim to strengthen its market position on the Iberian Peninsula and - thanks to the Yeles cement plant - make an ideal addition to its existing aggregate and concrete business in the Greater Madrid region.

Lackluster construction activity in North America
The construction sector made no significant progress in North America. The general uncertainty in the lead-up to the Iraq War dampened investment activity across the board and an extremely hard winter with record sub-zero temperatures hindered construction activity in large parts of the continent. Holcim US was nonetheless able to maintain cement deliveries to the markets it serves at the same level as the previous year. This was also a reflection of the extra production capacity provided by the new Portland plant. The slag cement business (GranCem) also performed well. The Canadian economy is still in good shape and the construction sector there has a solid backlog of orders. Canadian construction activity was also hit by a wave of severe cold weather. In comparison with the previous year's mild winter, this resulted in a noticeable decline in sales across all sectors at St. Lawrence Cement. Aggregates bore the brunt of the decline, followed by ready-mix concrete and cement. However, the situation will soon normalize with the arrival of the spring weather. The financial results of the Group's North America region were further depressed by adverse currency movements. Nonetheless, compared with the prior-year period an advance is becoming apparent - as a result of an improvement in the performance of Holcim US the regional operating loss has halved to CHF 24 million.

Latin America remains stable
In Latin America, most Group markets once again held up very well and significant business progress was made in most countries, confirming the continent's resistance to the prevailing crises. The Mexican Group company Apasco reported a significant rise in cement deliveries in the first quarter 2003. Cement deliveries also increased in Chile. While sales remained stable in Central America, continued political instability in Venezuela adversely affected the market there throughout the period under review. Even so, Cementos Caribe was still able to slightly offset the massive downturn in domestic demand by increasing exports. Despite the sluggish economic trend, construction activity in Brazil fell back only slightly, and Holcim Brazil was even able to expand sales of ready-mix concrete. In Argentina, Minetti's sales recovered slightly at a low level. Operating profit was up throughout Latin America in both local currencies and US dollars (the USD being the region's key currency). However, unfavorable exchange rates depressed consolidated operating profit in Latin America and the result was a 11.5% decline to CHF 185 million.

Positive signals from Africa - uncertainty in the Middle East
The South African and Indian Ocean Group companies, which include the holdings in Madagascar and La Réunion reported a very positive sales trend. Holcim Morocco also continued to operate in a stable market environment. By contrast, regional uncertainties depressed economic performance in West Africa and the Middle East. In Egypt, where additional installed capacity was fully available, Egyptian Cement saw its financial performance adversely affected by sharp falls in prices and the massive erosion of the local currency. Difficult market conditions prevented Holcim Lebanon from matching its strong performance in the first quarter 2002. Remarkable progress was once again made in South Africa, where Alpha (Pty) Limited took a major step forward in both operational and financial terms. Holcim Morocco also reported a favorable earnings trend. The consolidated operating profit of this Group region nonetheless declined by 18.2% to CHF 45 million. This primarily reflects the unfavorable exchange rate situation - first and foremost in relation to the Egyptian pound - and the declining results at Holcim Lebanon and in the West Africa group.

Predominantly solid market performance in Asia Pacific
Consolidated sales volumes increased in all segments in the Asia Pacific Group region. The ASEAN countries performed well in a global context and were able to make gains in the construction sector. Malaysia and Thailand were the only countries to see a slight decline in demand for cement. Due to the change in structure, the largest rise in sales volumes was reported by the Philippine company Union Cement, which is now fully consolidated following its successful merger with Alsons Cement. In Vietnam, demand for cement once again increased, enabling the plants in Hon Chong and Cat Lai to operate at full capacity. The project to increase grinding capacity at
Ho Chi Minh City is proceeding according to schedule. Most of the Holcim companies in the region improved their financial results, with the advances made by Siam City Cement in Thailand and PT Semen Cibinong in Indonesia worthy of particular mention. Despite the negative exchange rate trend compared with the prior-year quarter, consolidated operating profit in Asia Pacific increased by 8.8% to CHF 37 million.

Outlook still intact
Holcim firmly believes that the forecasts made in March 2003 for fiscal 2003 as a whole remain valid. In Europe, an increase in operating performance is anticipated despite persisting price pressure, and North America will see a sustained improvement in local currency terms. Without any change in the economic situation, Latin America will present another solid operating result and the importance to the consolidated financial statements of the African and Asian markets will continue to grow.

Key figures

Group Holcim first quarter   2003 2002 +/-% +/-% local currency
Annual cement production capacity million t 140.4 141.9 1 -1.1  
Sales of cement and clinker million t 19.4 19.1 +1.6  
Sales of aggregates million t 17.8 17.9 -0.6  
Sales of ready-mix concrete mio m3 5.6 5.5 +1.8  
Net sales million CHF 2,467 2,847 -13.3 -2.5
Operating EBITDA million CHF 597 666 -10.4 +2.9
Operating EBITDA margin   24.2 23.4    
EBITDA million CHF 609 683 -10.8 +2.2
EBITDA margin   24.7 24.0    
Operating profit million CHF 287 310 -7.4 +7.7
Operating profit margin   11.6 10.9    
Net income before minority interests million CHF 58 129 -55.0 -43.4
Net income after minority interests million CHF 10 77 -87.0 -79.2
Net income margin   0.4 2.7    
Cash flow from operating activities million CHF 98 108 -9.3 +14.8
Cash flow margin   4.0 3.8    
Net financial debt million CHF 9,085 8,857 1 +2.6 +3.3
Shareholders' equity including interests of minority shareholders million CHF 9,386 9,435 1 -0.5 +0.3
Gearing 2   96.8 93.9 1    
Employees 31.3. 47,953 51,115 1 -6.2  
Earnings per dividend-bearing bearer share CHF 0.25 1.97 -87.3  
Earnings per dividend-bearing registered share CHF 0.05 0.39 -87.3  
Cash earnings per bearer share 3 CHF 1.94 3.79 -48.8  
Cash earnings per registered share 3 CHF 0.39 0.76 -48.8
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