Article Tools

         More

advertisement

During the global economic crisis, HeidelbergCement program to reduce costs exceeded its original goals considerably and strengthened HeidelbergCement's resistance in the face of the crisis.

"The HeidelbergCement team demonstrated convincingly that it can act quickly, decisively, and successfully even in extremely difficult market conditions," said Dr. Bernd Scheifele, chairman of the Managing Board of HeidelbergCement. "Despite extraordinary charges, we achieved a respectable profit for the financial year. The strong dedication of our employees and management, as well as the strengthened balance sheet and cost structure, are a good starting point for future success."

In 2009, HeidelbergCement’s global business was characterized by the economic crisis. As expected, turnover and results were below the previous year's level. Group turnover fell by 21.6%. The decline in turnover reflects the significant slump in sales volumes in the core business areas of cement, aggregates, and ready-mixed concrete. In addition, group turnover was impaired by negative exchange rate.

Operating income before depreciation fell by 28.6% to; operating income declined by 38.6%. The adverse impact of exchange rate effects on these figures amounted to EUR126 million and EUR109 million, respectively. In addition, the decrease in working capital, especially in the business areas of aggregates and building products, had a negative effect on results. The United States and United Kingdom were particularly hard hit by the declining construction industry. Nevertheless, a positive operating income was recorded in both countries.

In the Europe group area, Spain, Russia, Ukraine, Georgia, and the Baltic region were particularly affected by a considerable decline in results. In contrast, a pleasing development was recorded in the Asia-Australia-Africa group area. The group area's OIBD reached a new record value, with EUR741 million and a margin of 25.8%. This was partly due to the recovery in demand, which started from the first quarter of 2009, particularly in China, India, Indonesia and Bangladesh.

HeidelbergCement responded at an early stage to the worldwide recession and, in July 2008, decided on its Fitness 2009 program with comprehensive cost reduction measures. The program focused on savings in the area of fixed costs and the consistent adjustment of production capacities to the declining markets. The original cost reduction goal of EUR250 million was exceeded by a considerable margin, with savings of EUR550 million being ultimately achieved. The strict but necessary measures led to a decrease of around 7,500 employees across the group in 2009. As at the end of the year, HeidelbergCement had 53,302 employees.

The success of the Fitness 2009 program is particularly evident in the operating income: the gross margin in the group rose by 1% to around 49%. Despite the heavy decline in sales volumes, the company exercised strict pricing discipline with slightly lower energy and raw material costs. Adjusted for one-time effects in connection with the reduction in stock, the operating margin before depreciation remained almost at the previous year’s level in the core business areas of cement and aggregates.

The profit for the financial year was significantly impaired by one-time effects totaling around EUR790 million, incurred in connection with the refinancing measures, restructuring costs, and non-cash goodwill impairment and depreciation on production facilities – on account of the low capacity utilization. Despite these negative effects and the adverse impact of exchange rate fluctuations, the company achieved a net profit for the financial year of EUR168 million, thanks to the successful cost reduction measures.

In 2009, the shareholders’ equity was strengthened by the capital increase of EUR2.23 billion, and the net debt fell by EUR 3.2 billion. At the end of 2009, the shareholders’ equity ratio stood at 43.2% and the gearing at 76.5%. The liquidity reserve amounted to around EUR3 billion at the end of 2009.

The cash is king initiative, which was started immediately following the Lehman Brothers collapse, played a crucial role in the reduction of the net debt: the cash flow was increased by around EUR1.5 billion as a result of a targeted reduction of inventories across the group, optimization of the cash payments cycle, strict investment discipline, and successful sales of non-strategic business units of the group. With the successful implementation of the cash is king initiative, we created a solid foundation for the subsequent reorganization of the capital and financing structure.

Despite the economic crisis and the considerable extraordinary charges in 2009, HeidelbergCement continued its strategy of targeted expansion of its market position in the cement business line in growth markets. At the Cirebon plant in Indonesia, two new cement mills were installed, which will increase the available capacities by around 1.5 million tons from 2010. In Tanzania, HeidelbergCement installed a new kiln line, expanding the capacity by around 1 million tons. In the Beremend cement plant in Hungary and the Mokra plant in the Czech Republic, completely renovated state-of-the-art kiln lines commenced operation.

Construction work on the new Tula cement plant in Russia, with a capacity of 2 million tons, proceeded as planned, and the start of production for delivery to the Moscow market is set to begin in early 2011. In Bangladesh, the cement capacities are to be expanded by around 1 million tons. In addition, a project was started to expand the capacities in central India by 2.9 million tons. The complete expansion program for growth markets, which started as early as 2008 with the expansion of the Chinese capacities by 4.5 million tons, involves capacity expansions of around 17 million tons by 2012.

HeidelbergCement expects the global economy to recover slowly, with differences in development between growth markets and industrialised countries. The group anticipates worldwide growth in cement, aggregates, and ready-mixed concrete in 2010, driven by continued positive development in Asia and Africa.

For the United States and Europe, HeidelbergCement expects further declines in volumes in the first half of the year, partly because of the long and hard winter. In the United States, a market recovery is anticipated in the second half of the year; the extent and speed of this will strongly depend on the further development in residential construction, the spending of the states, and the pending decision of Congress regarding the financing of the federal highway program.

In Europe, HeidelbergCement expects a stabilization of residential construction at a historically low level, a noticeable decline in commercial construction, and a positive development in infrastructure.

Based on its strategy of vertical integration and better capacity utilization as a result of substantial inventory reductions, the Group expects a stable price development in the core business areas of cement and aggregates.

"We are continuing our consistent cost management with the 'FitnessPlus 2010' cost-saving program," said Scheifele. "We are maintaining our focus on cash flow and stable margins in order to reduce our debt and further improve our key financial ratios. As the world market leader in aggregates and because of our strong global market position, we are in an ideal position to benefit to a relatively strong degree from a recovery of the global economy."