No global economic recovery
After a first quarter beset by heavy winter snowfall in the northern hemisphere, the overall economic picture improved slightly. In some Western European markets and in North America, demand for building materials increased, and Asia remained on a growth trajectory. Latin America and in particular Group region Africa Middle East held up well. However, one cannot speak of a global economic recovery. Elements of uncertainty still exist and make forecasting difficult. These include high levels of government debt which are limiting further stimulus programs, particularly in Europe. Even though the US economy has improved, the upturn is not yet broadly based.
(Details on Group regions after the outlook)
The Group shows organic growth at operating EBITDA level
Important key figures of the Group have improved in comparison with the first half of 2009, and the company has achieved further growth. The Group benefited from its strong presence in the emerging markets, which accounted for more than 50 percent of consolidated net sales and more than 70 percent of operating EBITDA in the first half of the year. The large Asian economies such as India, Indonesia and the Philippines recorded particularly strong growth. Brazil witnessed a similar trend. Progress was also made in mature markets, particularly in North America.
Australia made an important contribution to the Group's success. Holcim Australia, with its substantial positions in the aggregates and ready-mix concrete sectors, has been fully consolidated since last fall - as has the local cement group Cement Australia.
Measures to cut costs and boost efficiency continued Group-wide. Despite the commissioning of approximately 5 million tonnes of new cement capacity, fixed costs on a like-for-like basis were reduced compared with the same period a year ago.
Higher sales volumes in all segments
In the first half of the year, consolidated cement sales grew by 4.1 percent to 67.8 million tonnes. Sales of aggregates increased by a more substantial 17.1 percent to 73.2 million tonnes, while sales of ready-mix concrete grew by 13.5 percent to 21.9 million cubic meters. In comparison with the first quarter of 2010, sales increased in all segments. The main contribution to volume growth came from the newly consolidated Holcim Australia. Group companies in the UK, Canada, Brazil and Morocco sold significantly more aggregates. The Group companies in Canada, India and Vietnam achieved marked increases in sales of ready-mix concrete.
Better operating results and higher cash flow from operating activities
Primarily as a result of acquisitions, consolidated net sales increased by 8.1 percent to CHF 10.9 billion, and operating EBITDA rose by 9.3 percent to CHF 2.3 billion. The biggest contributions to the result came from the mature markets in Australia and North America and from Group region Africa Middle East - supported by stringent cost management throughout the Group. Due to intensified competition in some markets, price pressure increased. Nevertheless, the margin improved slightly to 21.5 percent, and internal operating EBITDA growth reached 2 percent. Cash flow from operating activities increased by 12.5 percent to CHF 906 million.
Net income declined 22.4 percent to CHF 611 million, and the share attributable to shareholders of Holcim Ltd decreased by 37.2 percent to CHF 331 million. The lower earnings reflect the non-recurring cash-neutral tax charge of CHF 186 million recorded in the first quarter of 2010 in connection with the restructuring of the Group's interests in North America.
Appointments to the Executive Committee of Holcim Ltd
In the course of the succession process of the Executive Committee, Thomas Aebischer (born 1961), currently CFO of Holcim US, has been appointed a Member of the Executive Committee as of January 1, 2011. Effective April 1, 2011, he will take over Group CFO responsibility from Theophil H. Schlatter, who will be retiring at end of March 2011. Andreas Leu (born 1967), currently Area Manager and member of the senior management of Holcim Ltd, has been appointed a Member of the Executive Committee of Holcim Ltd as of January 1, 2011. He will take over responsibility for Latin America from Thomas Knöpfel, who will be retiring at year-end 2010.
The economic trend in Group regions Europe and North America remains considerably uncertain despite some positive market signals. Holcim expects demand in most countries of Latin America to be stable. Demand in the Group regions Africa Middle East and in particular Asia Pacific will grow further.
In the second half of the year, Holcim will continue to concentrate its efforts on factors it can directly influence, such as cost efficiency along the whole value chain and the efficient commissioning of new state-of-the-art production facilities in the fast-growing emerging markets.
Certain countries are witnessing signs of economic slowdown and increasing pressure on prices. Holcim is confident of coping well with these challenges thanks to the operational measures initiated at an early stage.
Detailed information on Group regions:
No major stimuli in Europe
In the first half of 2010, the development of the European economy differed regionally. In Western Europe, the economies of the UK, France and Germany bottomed out. In the south and east of the continent, the extremely tight public sector debt situation created uncertainty among potential investors. Nevertheless, the second quarter did see some recovery in construction activity, following a sluggish start to the new year due to difficult weather and market conditions.
After beginning the year on a subdued note, Aggregate Industries UK increased its sales of aggregates. Thanks to more stable conditions in the housebuilding sector, sales of ready-mix concrete declined only marginally. Asphalt deliveries developed positively.
France saw an increase in cement sales. Belgium's cement industry was impacted by imports and some degree of price pressure. Deliveries of aggregates declined in France and shipments of ready-mix concrete increased in both markets. Holcim Germany achieved a rise in exports which virtually offset the decline in domestic cement sales. Deliveries of aggregates increased, but sales of ready-mix concrete decreased compared with the previous year's first half. In Switzerland and Southern Germany, Holcim benefited from a persistently healthy order situation, posting volume growth in all segments.
Southern Europe suffered from the construction crisis. In Italy, overcapacity in the cement industry led to significant pressure on prices. The Group company also experienced a drop in sales of aggregates. Projects in Milan had a positive impact on deliveries of ready-mix concrete. The economic situation remained difficult in Spain and the Group company experienced a sales decrease in all segments.
Weak governmental and private investment impacted sales of building materials in Eastern and Southeastern Europe. However, in the Czech Republic, Holcim lifted sales of cement slightly due to modest recovery in demand since April. In Slovakia, two important projects led to a rise in delivery volumes in all product segments. Holcim Bulgaria suffered a major decline due to a reduction in construction activity and massive cement imports from Turkey. The Group companies in Romania, Croatia and Serbia also supplied less cement. Although major transport infrastructure projects are underway in numerous locations, there was a significant decline in volumes of aggregates and ready-mix concrete. The unfavorable trend was compounded by heavy rainfall and floods throughout the second quarter.
In Russia, despite rising oil prices, first signs of a recovery in demand were only visible in June. Overall, construction activity remained weak, depressing cement deliveries by Alpha Cement. In Azerbaijan, Garadagh Cement succeeded in increasing cement sales despite import pressure and floods. Work on the construction of new kiln lines in Shurovo (Russia) and Garadagh (Azerbaijan) proceeded according to plan.
In the first half of 2010, the cement sales of Group region Europe declined by 7.7 percent to 12 million tonnes. Aggregates fell by 1.3 percent to 37.5 million tonnes, while sales of ready-mix concrete decreased by 6 percent to 7.8 million cubic meters.
Factoring in the sale of CHF 66 million in CO2 emission certificates, operating EBITDA contracted by 10.6 percent to CHF 500 million. The weak euro accentuated the decline in Swiss franc terms. The deterioration in the results of the Group companies in Romania, Northern Germany and Russia was a major factor. Due to the decisive implementation of restructuring measures, Holcim Spain posted a clearly positive operating EBITDA compared with the first half of the previous year. In many locations, cost-cutting measures mitigated the impact of declining volumes and prices. At -8.6 percent, internal operating EBITDA development was negative.
Slightly better demand in North America
The better US economy and the government infrastructure programs had a positive impact on the construction sector. For the first time in years, cement consumption rose in the second quarter. However, given the high debt levels of many US states, and with unemployment still high, it remains unclear how sustainable the recovery of market conditions will be. In Canada, the economy gained momentum across a broad front, which supported construction activity.
Due to the improvement in market conditions in the second quarter, the delivery volumes of Holcim US only experienced a slight decline. Demand for residential and commercial real estate remained weak, while industrial construction and government infrastructure projects went some way toward evening out volumes.
Aggregate Industries US also experienced a weather-related decline in shipments of aggregates, ready-mix concrete and asphalt. The delivery shortfalls in the first quarter compared with last year could only partially be offset in the second quarter due to heavy rainfall. The construction of a new freeway interchange on the Atlantic coast absorbed significant volumes of aggregates. Sales of ready-mix concrete were supported by airport construction projects in Nevada and demand for asphalt was boosted by road surfacing work in the Mid-West.
Holcim Canada benefited from a positive business environment, with cement consumption picking up in the provinces of Quebec and Ontario in particular. The construction sector was strengthened by house building, commercial construction activity and numerous infrastructure projects. The Group company realized marked increases in sales across all segments.
Consolidated cement sales in North America remained stable at 5 million tonnes due to the increase in deliveries by Holcim Canada. Holcim recorded an increase of 1.3 percent to 15.5 million tonnes in sales of aggregates and sales of ready-mix concrete were up by 8.7 percent to 2.5 million cubic meters.
Operating EBITDA increased by 64.7 percent to CHF 140 million. The improved performance is largely a consequence of a stronger result from Holcim Canada. Despite slightly lower cement prices, Holcim US also posted a substantially better result, while Aggregate Industries US could not match its previous year's level. The systematic cost-cutting programs and the significantly lower production costs of the new Ste. Genevieve plant had a positive impact on performance. Internal operating EBITDA growth reached 57.6 percent.
Latin American markets mostly solid
Many South American markets reported sound construction activity. Business was particularly good in Brazil and Argentina. On the other hand, Mexico and Central America felt the dampening impact of the US economy.
As expected, Mexico saw a fall-off in public spending after the 2009 elections. Furthermore, already approved and financed public and private sector construction projects were postponed. The situation improved slightly in May, but a sustained market recovery failed to emerge. On balance, Holcim Apasco experienced a drop in domestic cement sales and exports came to a standstill. Sales of aggregates and ready-mix concrete slightly exceeded the previous year due to orders from the transport and utility sectors.
The markets of Holcim in Central America remained under pressure. In El Salvador, the government had to cancel programs to stimulate residential construction, and the start of building work on key motorway projects was delayed. Sales were down in all segments, and the Group company exported only little cement. In Costa Rica, cement sales were only slightly below the previous year' s level. The noticeable decline in special infrastructure projects impacted on the sales of aggregates and ready-mix concrete.
Holcim Colombia increased its sales of cement in the run-up to the presidential elections. Shipments of aggregates and ready-mix concrete decreased. In Ecuador, the construction sector slowed down after several years of expansion. The Group company felt the impact of declining governmental and private sector investment. In addition, heavy rainfall restricted construction activity in the coastal regions. In all segments, sales volumes fell short of the previous year's high levels.
In Brazil, robust domestic demand drove cement consumption to record levels. Supported by numerous infrastructure projects, Holcim Brazil has been steadily increasing its sales of cement and aggregates since the beginning of the year. Sales volumes of ready-mix concrete also gained momentum toward mid-year and reached approximately the previous year's level. Argentina's economy particularly benefited from the good soya harvest. Minetti also achieved higher domestic cement sales and exported more clinker to Bolivia and Paraguay. Deliveries of aggregates declined. However, due to infrastructure projects, volumes of ready-mix concrete increased. The decrease in cement sales at Cemento Polpaico in Chile reflected the arrival of a new competitor on the market, but was also due to the damage on the road system by the earthquake. Various mining projects and certain reconstruction measures led to an improvement in sales of aggregates and ready-mix concrete.
In Group region Latin America, consolidated cement shipments fell by 0.9 percent to 11.1 million tonnes. Sales of aggregates remained stable at 5.9 million tonnes, and sales volumes of ready-mix concrete reached, as in the previous year, 4.9 million cubic meters.
Operating EBITDA decreased by 3.7 percent to CHF 523 million. The positive performance by the Group companies in Brazil and Argentina was not sufficient to offset the decline in Mexico and other markets of this Group region. The internal operating EBITDA development was -6.4 percent.
Sales situation stable in Group region Africa Middle East
The markets supplied by Holcim in Group region Africa Middle East benefited from predominantly solid demand for construction materials. In the Mediterranean countries Morocco and Lebanon, investment activity remained high due to brisk levels of construction activity on housing and infrastructure projects. The markets of West Africa, the Gulf region and the Indian Ocean were stable.
Africa, Middle East
After a temporary dip in the first quarter, cement consumption in Morocco picked up again. Due to the high availability of the new Settat plant, the Group company benefited above average from the recovery in demand. Sales of aggregates showed a remarkable increase, whereas deliveries of ready-mix concrete declined. In Lebanon, construction activity remained robust. Holcim Lebanon reported significantly higher sales volumes for both cement and ready-mix concrete. Exports were minor, apart from clinker deliveries to the company's own grinding station in Northern Cyprus.
The operations managed by Holcim Trading in West Africa held up well despite political and economic instability. In Qatar, expansion projects in the liquefied gas industry ensured that local grinding capacity was well utilized. The cement sales of the Group companies in the Indian Ocean showed little change. In Madagascar, construction activity remained at a respectable level, and in La Réunion, cement sales picked up again after a sluggish start to the year. Deliveries of aggregates and ready-mix concrete suffered from a lack of follow-up orders after the completion of important infrastructure projects.
The consolidated cement sales of Group region Africa Middle East were up by 4.4 percent to 4.7 million tonnes. Aggregates sales increased by 8.3 percent to 1.3 million tonnes, while sales of ready-mix concrete declined by 16.7 percent to 0.5 million cubic meters.
The operating EBITDA of Group region Africa Middle East rose by 12.4 percent to CHF 209 million. With the exception of the positions in the Indian Ocean, all Group companies improved their performance. Internal operating EBITDA growth reached 20.4 percent.
Growth in Asia Pacific
Group region Asia Pacific continued to expand, with strong demand for construction materials in key markets such as India, Indonesia and the Philippines. Sales volumes also developed well in Sri Lanka, Bangladesh and Vietnam. Even Thailand recovered, despite suffering from unrest.
In India, a push in infrastructure construction and the rural house building increased demand. However, the strong markets of the north and west of the country experienced a fall-off in demand toward the end of the first half of the year as the monsoon season set in earlier than in 2009. Cement sales by ACC were not quite able to match the previous year's high level. This was due to a combination of shortages of granulated slag for the production of composite cements, limited availability of rail and road haulage services and delays in commissioning new capacity. The Group company significantly increased sales volumes of ready-mix concrete. At Ambuja Cements, domestic cement sales benefited from the additional clinker capacity at the Rauri and Bhatapara plants, as well as from the new grinding stations in Dadri and Nalagarh. Holcim experienced double-digit growth rates in cement deliveries in Sri Lanka and Bangladesh.
In Thailand, Siam City Cement increased its sales in all segments despite intense competition. Larger quantities of building materials were exported through the regional sales network. Holcim Vietnam increased sales in spite of mounting pressure from imports; however, the sharp rise in steel prices subdued construction activity. After getting off to a weak start this year, Holcim Malaysia sold significantly more cement and ready-mix concrete. The Group company benefited from the strong revival in the domestic and export sectors. As a consequence of price pressure in the market, Holcim Singapore concentrated on technologically sophisticated products and accepted a decline in the volume of ready-mix concrete deliveries.
In the Philippines, the large number of private and public building projects positively influenced the construction sector. Holcim Philippines posted a significant increase in deliveries of cement. In Indonesia, the economic climate also remained friendly and shipments of cement and ready-mix concrete increased significantly, shored up by major infrastructure projects. In response to robust domestic demand, both Group companies reduced their exports of clinker and cement.
After the unfavorable weather conditions at the beginning of the year, Cement Australia saw cement sales recover in the second quarter. Stimuli came from growing demand for environmentally friendly composite cements. Due to project delays in Western Australia, Holcim Australia's deliveries of aggregates were below 2009 levels. Despite intense competitive pressure in the country's major urban centers, ready-mix concrete volumes reached the previous year's scale. In New Zealand, the construction sector showed few signs of recovery, but the Group company increased its sales of aggregates after taking over management responsibility for an additional quarry. Development of sales volumes for cement and ready-mix concrete continued to be weak.
Cement deliveries in Group region Asia Pacific grew by 7 percent to 36.5 million tonnes. Holcim increased its cement sales in all regional Group markets except New Zealand. The first-time full consolidation of Cement Australia contributed to the volume growth. Sales of aggregates came to 13 million tonnes - an increase of 519 percent. Deliveries of ready-mix concrete also rose by a substantial 93.8 percent to 6.2 million cubic meters. These high rates of increase mainly reflect the acquisition of Holcim Australia, which was fully consolidated in the first half of this year.
The operating EBITDA of Group region Asia Pacific increased by 22.8 percent to CHF 1.1 billion. The Group companies in India, Indonesia, Australia and the Philippines made substantial contributions to results. Internal operating EBITDA growth was 4.2 percent.
In light of the forecast market growth in Indonesia, the Board of Directors and the Executive Committee decided to build a new cement plant in Tuban on the main island of Java. The plant, which is expected to come on stream in the first half 2013, will have an annual capacity of 1.6 million tonnes of cement. The new location will supplement the existing production and distribution network and help reduce logistics costs.
Half year results 2010 Key Figures
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Holcim is one of the world's leading suppliers of cement and aggregates (crushed stone, gravel and sand) as well as further activities such as ready-mix concrete and asphalt including services. The Group holds majority and minority interests in around 70 countries on all continents.
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