Most emerging markets remained on track for growth
It was a mixed picture in the global construction markets during the first quarter of 2010. While most emerging markets continued to grow, heavy snowfall and a weak economy further restrained construction activity in Europe and North America.
(Details on Group regions after the outlook)
The Group shows organic growth at operating level
Holcim performed well and achieved organic growth. In March in particular, the Group produced significantly better results than in 2009 and also improved its margins. There are several reasons for this:
The Group benefited from its strong presence in growth markets and primarily from brisk demand for building materials in Asia. In India in particular the market is booming and it is here that Holcim is engaged in the largest number of projects to expand capacity.
A substantial contribution came from Australia. Holcim Australia is a wholly-owned subsidiary of the Group since October 1, and Cement Australia has been fully consolidated since this date as well. Holcim Australia is one of the continent's leading suppliers of aggregates, ready-mix concrete and concrete elements. In the first quarter, Australia contributed an additional operating EBITDA of CHF 37 million.
Higher sales volumes
Consolidated cement sales grew by 4.4 percent to 31 million tonnes. Deliveries of aggregates and ready-mix concrete increased substantially - by 17.5 percent to 29.5 million tonnes and 9.2 percent to 9.5 million cubic meters respectively. The increases in volumes are largely a consequence of the new consolidation of Holcim Australia. In the aggregates segment, several Group companies also contributed to the volume growth, including Aggregate Industries UK as well as Group companies in Switzerland, Canada and Brazil. There was a sharp decline in sales of aggregates in Eastern Europe. Nearly half of the Group companies managed to increase their sales of ready-mix concrete. However, Europe in particular saw a decline in the concrete business. Overall, price levels remained stable, with few exceptions.
Better operating results
Consolidated net sales increased by 4.8 percent to CHF 4.7 billion, mainly as a result of acquisitions, and operating EBITDA rose by 19.1 percent to CHF 909 million. The related margin increased by 2.3 percentage points to 19.2 percent. Holcim made improvements in the regions Europe, North America and Africa Middle East. As expected, in Group region Asia Pacific, average operating EBITDA margin decreased because Holcim Australia does not operate in the high-margin cement segment. Like-for-like operating EBITDA margin in this region improved. Internal operating EBITDA growth of the Group came to an impressive 12.7 percent. The ongoing cost-cutting program had a positive impact on the quarterly financial statement. As in the previous year's quarter, cash flow from operating activities was negative at CHF -257 million due to seasonal factors.
Net income declined 66.2 percent to CHF 66 million, and the share attributable to shareholders of Holcim Ltd decreased by 191.9 percent to CHF -68 million. The lower earnings primarily reflect the non-recurring cash-neutral tax charge of CHF 182 million which had already been announced in connection with the restructuring of the Group's interests in North America. Without this restructuring, net income would have increased by 27.2 percent.
The market trend in Group regions Europe and North America remains uncertain. Only over the coming months will it become clear whether the weak demand in the first quarter of 2010 was due more to the hard winter or to the general adverse economic conditions. However, in Latin America and Group region Africa Middle East, Holcim expects business to develop on a stable footing. Asia Pacific will remain on track for growth.
In Asia, Latin America and Russia, Holcim will commission cement and grinding plants with an annual capacity of around 8 million tonnes before the end of the year.
In 2010, the Group will benefit from the cost advantages gained last year and further strengthen the efficiency of its processes and competitiveness.
Detailed information on Group regions:
Hard winter and slack demand in Europe
Large parts of Europe were affected by cold temperatures and heavy snowfall until mid-March. This compromised construction activity in many markets, and particularly in the UK and Southern and Eastern Europe, including Russia, the impact was compounded by weak conditions in the construction sector.
Despite the sluggish start to the year, Aggregate Industries UK saw sales of aggregates increase in comparison with the previous year. However, sales of ready-mix concrete declined.
In France, Holcim sold more cement, while deliveries decreased in Belgium. Shipments of aggregates decreased and sales of ready-mix concrete remained stable. The acquisition of a terminal near Nantes enabled Holcim to strengthen its market presence in Western France. Holcim Germany saw a decrease in shipments across all segments. The shortage of new construction projects was a factor here. The trend of business was more positive for the sister company in Southern Germany, and in Switzerland, the order situation in the construction sector remained solid. Deliveries of cement, aggregates and ready-mix concrete increased.
The market in Southern Europe remained difficult. At least, major infrastructure projects in the Greater Milan area led to a rise in deliveries of ready-mix concrete. Holcim Spain continued to see declining volumes in all regions and product groups. Based on a new partnership, Corporación Turia's grinding station near Valencia will be supplied in the future with clinker by Holcim Spain.
In Eastern and Southeastern Europe, the winter months were marked by prolonged periods of frost and a pronounced mood of caution in the construction sector. Despite an improvement in demand toward the end of the quarter, this only compensated for the delivery cancellations to a limited extent. The pressure on prices persisted. Thanks to two major projects, Slovakia reported volume growth in the cement segment, but the other Group companies were unable to match the previous year's quarter, with Bulgaria, Romania, Serbia and Croatia seeing the highest percentage declines in volumes. Although major transport projects are underway, there was also a marked decline in volumes of aggregates and ready-mix concrete.
While construction activity was muted in Russia, cement sales of Alpha Cement gained some support from moderate construction activity in Moscow. Yet, the volumes shipped were down on the previous year's quarter. In Azerbaijan, demand for construction materials was significantly better. Despite import pressure, the cement deliveries of Garadagh Cement were up on the previous year.
On a consolidated basis, cement sales in Europe declined by 15.7 percent to 4.3 million tonnes. Deliveries of aggregates fell by 3.1 percent to 15.7 million tonnes, and sales of ready-mix concrete declined by 16.2 percent to 3.1 million cubic meters. Asphalt deliveries increased by 7.7 percent to 1.4 million tonnes.
Operating EBITDA of Group region Europe increased by 15.1 percent to CHF 137 million. The consolidated result includes CHF 65 million from the sale of CO 2 emission certificates. After factoring out this additional income, European Group companies fared worse overall than the previous year. The systematic continuation of cost-cutting programs had a positive impact. Internal operating EBITDA growth reached 14.3 percent.
North America - difficult market environment particularly in the US
While the US construction sector made no significant progress, the situation in Canada was better with positive weather impact. Here, cement consumption in the first quarter was up on the previous year almost everywhere - particularly in the provinces of Ontario and Quebec, which are especially important for Holcim.
Holcim US posted weak cement sales in all sales regions, with construction activity hampered by heavy snowfall in the north east of the country and prolonged rain in Texas.
Aggregate Industries US was also affected by the unfavorable weather conditions for construction. An additional factor was the general shortage of private construction projects, particularly in the commercial sector. This reduced sales of aggregates, ready-mix concrete and asphalt.
Holcim Canada sold significantly more cement, aggregates and ready-mix concrete. Due to the Canadian government's stimulus programs the construction industry shows increased signs of recovery.
Cement shipments in Group region North America fell by 5.6 percent to 1.7 million tonnes, and deliveries of aggregates also decreased by 2.2 percent to 4.4 million tonnes. Sales of ready-mix concrete rose by 12.5 percent to 0.9 million cubic meters.
The operating EBITDA of Group region North America remained negative at CHF -29 million; however, compared with the first quarter of 2009, all Group companies improved their result, especially as a result of better business conditions in March. Systematically implemented cost-cutting programs and lower production costs due to the new cement plant in Ste. Genevieve also contributed to the result. Internal operating EBITDA growth reached 40.7 percent.
Unequal demand development in Latin America
In Latin America, developments in the construction sector differed from region to region. Whereas Mexico and the Central American countries were under pressure, most South American countries benefited from a solid economy and high demand for building materials. Especially in Brazil, demand on the construction markets continued to rise.
Holcim Apasco in Mexico felt the impact of restrained investment in the private and public sectors. The start-up of many projects was delayed which resulted in a decline in domestic cement sales. Moreover, there were virtually no export opportunities. However, shipments of aggregates and ready-mix concrete increased. Work on the new cement plant in Hermosillo continued according to plan. The plant, which will have an annual capacity of 1.6 million tonnes, is due to start producing cement in the second half of the year.
El Salvador's construction sector was, on top of the crisis, depressed by an increasingly difficult access to credit which limited the cement sales of Holcim El Salvador. Clinker exports to neighboring countries came to a halt. Progress on the Pirris dam project enabled Holcim Costa Rica to increase its cement volumes. However, after February's presidential elections the construction sector lacked essential stimuli.
Holcim Colombia was able to increase its cement deliveries in a fiercely competitive market, but saw a decline in sales of aggregates and ready-mix concrete. Rapid progress was made on the expansion of cement grinding capacity at the Nobsa plant. Holcim Ecuador sold slightly less cement than the previous year. Delays in road building projects led to temporary declines in volumes of aggregates and ready-mix concrete.
In Brazil, Holcim significantly increased its sales of cement and aggregates, mainly because of higher demand for building materials in the infrastructure sector. Sales of ready-mix concrete were also higher. At Minetti in Argentina, the positive trend in deliveries of cement and ready-mix concrete continued, while in Chile, sales at Cemento Polpaico suffered a temporary setback in the wake of the major earthquake there with heavy damage to the country's transport infrastructure. The production facilities largely escaped without damage and the employees are all well. The Group company will do its utmost to provide its customers and markets with the best possible service as the reconstruction process gets underway.
Cement deliveries in Group region Latin America remained stable at 5.5 million tonnes. Sales of aggregates decreased 3.4 percent to 2.8 million tonnes. In ready-mix concrete, volumes equalized previous year's 2.4 million cubic meters.
Operating EBITDA of Group region Latin America decreased by 2 percent to CHF 248 million. The improved results from Brazil and Argentina virtually cancelled out the decline in Mexico and the Central American markets. Thanks to the efforts made on the cost front and a predominantly stable price level, internal operating EBITDA development was only slightly negative at -2.4 percent.
The arbitration proceedings in connection with the nationalization of Holcim Venezuela are still pending before the International Centre for Settlement of Investment Disputes (ICSID) in Washington D.C.
Group region Africa Middle East holding up well
The markets supplied by Holcim in this region have held up well. In Morocco and Lebanon in particular, the construction sector benefited from brisk investment activity.
Africa, Middle East
In Morocco, high demand for building materials for infrastructure projects and residential construction led to good capacity utilization levels in the construction sector. Holcim sold more cement and increased its sales of aggregates, despite a stagnating general market. Deliveries of ready-mix concrete declined.
In Lebanon, there was particularly brisk private house building activity, and Holcim Lebanon sold more cement and ready-mix concrete. The Group company largely discontinued exports of cement in response to strong domestic demand.
The West African group of countries, managed by Holcim Trading, maintained its position in a challenging economic and political environment. The market conditions for the Group companies in the Indian Ocean region were mixed, with sales in line with the previous year in Madagascar but declining in La Réunion due to weak investment activity.
In Group region Africa Middle East, both cement sales of 2.1 million tonnes and sales of ready-mix concrete of 0.2 million cubic meters were stable. Deliveries of aggregates increased by 25 percent to 0.5 million tonnes due to the additional production volumes in Morocco.
Group region Africa Middle East's operating EBITDA rose by 16.7 percent to CHF 91 million. Apart from Holcim Outre-Mer, all Group companies posted better results, reflecting a stable price situation and the successful commissioning of two grinding stations in the Gulf region. At 28.2 percent, internal operating EBITDA growth was also positive.
Dynamic construction sector in Asia Pacific
Group region Asia Pacific got off to a flying start at the beginning of the year, with virtually all Group companies increasing their deliveries. In India in particular, the drive to make progress on infrastructure projects and rural housing boosted demand for building materials. The construction sector also remained on track for growth in Vietnam, the Philippines and Indonesia.
In India, ACC saw a temporary dip in cement shipments owing to production bottlenecks, limited rail freight capacity and a shortage of granulated blast furnace slag. By contrast, Ambuja Cements increased its domestic sales significantly. In the first quarter of 2010, new cement and clinker grinding capacity was commissioned at three production sites and more new capacity will be added during the course of the year. This means that the Indian companies are ideally equipped for the predicted market growth.
The cement shipments of Holcim Lanka benefited from pre-election government investment and reached double-digit growth rates, as did the shipments of Holcim Bangladesh. Cement sales also increased in Malaysia and Thailand. Siam City Cement was able to export more cement to neighboring countries as well. Holcim Vietnam sold larger volumes of cement and ready-mix concrete despite the emergence of new competitors.
In Singapore, Holcim increased its stake in Jurong Cement, which operates in the city state's ready-mix concrete sector, to 88 percent.
The Group companies in the Philippines and Indonesia significantly increased their domestic sales and had to reduce exports of clinker and cement. Whereas in the Philippines government infrastructure investment ahead of elections was strong, in Indonesia an increase in demand for building materials was driven by the favorable regional economic climate.
Cement Australia's shipments of cement were adversely affected by heavy rains, particularly in Queensland, and sales volumes declined as a result. The volumes of aggregates and ready-mix concrete of Holcim Australia, which has been fully consolidated since October 2009, developed in line with expectations.
Cement shipments in Group region Asia Pacific climbed by 8.3 percent to 18.2 million tonnes. Almost all Group companies played a part in this increase in volumes. The sales of Cement Australia were also fully consolidated. In the first quarter of 2009 they had only been 50 percent consolidated. Sales of aggregates increased by 454.5 percent to 6.1 million tonnes, and ready-mix concrete sales rose by 81.3 percent to 2.9 million cubic meters. These marked rates of increase are explained by the acquisition of Holcim Australia as of October 1, 2009.
Operating EBITDA of Group region Asia Pacific increased by 21 percent to CHF 507 million. The internal operating EBITDA growth was at 8.4 percent.
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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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