The first half of 2003 saw further increases in Holcim's operating margins, although in Swiss franc terms the company's performance was depressed by sharp falls in the value of major currencies compared with the first half of 2002. Productivity gains and cost savings within the Group nevertheless had a positive impact on earnings.
A challenge was posed by the overall instability of the global economy coupled with subdued investment activity in many markets. The leveling off of growth already noted in the first quarter of 2003 has indeed become more acute. In the United States in particular, the construction order books remained lackluster while economic conditions in Europe and parts of Asia were also stagnant.
Sales development and financial results
In a difficult environment, Holcim maintained its position well and consolidated sales of cement, aggregates and ready-mix concrete increased compared with the first half of 2002. North America was the only Group region to see a slight decline in cement sales.
Negative exchange rate movements impacted visibly on net sales, which decreased by 9.9% to CHF 5,804 million (first half 2002: 6,441). The US dollar alone devalued by 17.2% compared with the corresponding prior-year period. However, delivery cutbacks owing to the prolonged period of cold weather and tighter pricing also had a large impact. The operating result nevertheless cushioned the effect of a generally unfavorable environment. In the first half of the year, consolidated operating profit rose by 5.9% in local currency terms. Because of the strength of the Swiss franc this resulted in a 5.5% decline to CHF 884 million (first half 2002: 935). Meanwhile, operating profit margin continued to increase. This confirms that the restructuring and rationalization measures taken in previous years have strengthened Holcim's industrial base and that the programs to cut operating costs are feeding through. Despite the difficult starting position, net income after minority interests increased by 2.7% in local currency terms. In Swiss francs, this corresponds to a consolidated net income of CHF 273 million (first half 2002: 292). At CHF 602 million (first half 2002: 781), cash flow from operating activities failed to match the strong prior-year result owing to heavy fluctuations in net working capital caused by extreme weather conditions.
Continued pleasing construction activity in Southern Europe
In the first half of 2003, the European construction sector presented a variable picture in terms of individual regional performance, but was on the whole stable. Spain and Italy enjoyed brisk construction activity throughout the period under review. In northern parts of Europe, there were also growing signs of a rise in demand for construction materials after the hard winter and rather sluggish business in April and May. In Group region Europe deliveries were up on the corresponding prior-year period in all three segments.
In Spain and Italy, Holcim consistently increased sales, and production facilities were utilized to capacity. The acquisition of Cementos de Hispania S.A. with retrospective effect from January 1, 2003 has enabled Holcim Spain to strengthen its position long-term in the country's most dynamic regional market. By contrast, Holcim France Benelux experienced a fall in cement sales, but was able to increase deliveries of aggregates and ready-mix concrete. In Germany, the difficult economic environment persisted and competition remained extremely tight. Alsen AG, which was renamed Holcim (Deutschland) AG in May, succeeded in maintaining its market share - albeit at a very low price level. The decline in Switzerland mainly reflects a decrease in construction activity in the Greater Zurich region. Cement deliveries were largely stable in Central and Eastern Europe. In particular, Group companies in Croatia, Romania and Bulgaria made further progress.Consolidated operating profit in Group region Europe declined by 9% in local currency terms and 7.6% in Swiss francs to CHF 266 million (first half 2002: 288). The setback is almost entirely due to the difficult market situation in Germany, as most European Group companies posted better financial results thanks to restructuring measures and efficiency gains. In some cases, the improvement was even more pronounced.
Performance depressed by weak US construction sector and currency depreciation
The North American construction sector turned in a very subdued performance, in line with business in general in the region. Moreover, during the period under review, large parts of North America suffered from unfavorable climatic conditions - in contrast with the mild and dry first half of 2002. Against this background, cement deliveries in Group region North America declined slightly while overall market share was maintained.
In the US, low interest rate levels only provided stimuli for private residential construction activity, whereas investment in other segments of the construction market remained weak. Holcim US succeeded in holding delivery volumes at virtually the same level as the previous year. However, demand varied from region to region, with a particularly noticeable decline in the state of Colorado. Holcim US stepped up cement production thanks to capacity at the new Portland plant, which in turn led to a decrease in cement and clinker imports. What is more, June 30, 2003 saw the commissioning of the new state-of-the-art Holly Hill plant.
The Canadian building materials market is boasting solid order books and stable prices. However, cement sales in markets in the US North East, which are important for St. Lawrence Cement, suffered a cyclically induced decrease of 10%. On balance, this Group company saw its cement sales decline slightly. In the case of aggregates and ready-mix concrete, it has not yet been possible to compensate completely for deliveries cancelled because of bad weather at the beginning of the year, particularly in Ontario.
These negative factors, coupled with tougher competition in the South Eastern United States, depressed the operating result by 32.5% in local currency terms. Consolidated operating profit for North America decreased to CHF 45 million (first half 2002: 80).
Overall positive market environment and greater cost-effectiveness in Latin America
The Group's Latin American region once again performed well. Despite a mixed and generally complex construction market environment, Holcim Group companies succeeded in expanding cement sales year-on-year. This, coupled with a further increase in cost-effectiveness, also led to an improvement in first-half performance.
The Mexican Group company Apasco reported a sharp rise in cement sales. By contrast, cement deliveries declined slightly in Central America, and in Venezuela, Cementos Caribe suffered under the political instability dogging the country throughout the period under review. The Brazilian construction sector proved crisis-resistant despite a slacker economy and lower cement consumption. While market conditions translated into lower sales volumes in Holcim Brazil's core cement segment, the company was able to significantly increase sales of ready-mix concrete. Cemento Polpaico in Chile reported a sizeable increase in sales in both the cement and ready-mix concrete segments. Construction activity recovered faster than expected in Argentina, resulting in a sharp rise in Minetti's delivery volumes. In addition, Minetti has successfully concluded its debt rescheduling negotiations with creditors and is now ideally equipped to exploit the available market opportunities.
Latin America has made considerable progress in terms of consolidated operating profit, up by 12.5% in US dollars. However, in Swiss franc terms, negative exchange rate trends resulted in a decrease to CHF 385 million (first half 2002: 417).
Stable markets in Africa and the Middle East
Most of the building materials markets supplied by Holcim in Group region Africa Middle East showed a positive development. Exceptions were Lebanon and a number of countries in the West Africa group, where there was no easing of political and economic tensions. In South Africa, Group company Alpha once again exceeded the high prior-year level of deliveries of cement and ready-mix concrete, although sales of aggregates decreased slightly. Holcim Morocco lifted sales in all segments. There was also an increase in deliveries to the Indian Ocean, including Madagascar and La Réunion. In Egypt, where Egyptian Cement Company realized the strongest increase in volume thanks to rising cement exports, the market situation stabilized in the second quarter of 2003.
Consolidated operating profit of Group region Africa Middle East rose by 6.7% in local currency terms. The financial result was depressed by low price levels and the devaluation of the Egyptian pound. In Swiss franc terms, it remained virtually unchanged at CHF 121 million (first half 2002: 120). Holcim Lebanon also recorded poorer results. By contrast, the South African Group company reported a marked improvement in financial performance and made remarkable progress from an operating point of view. Holcim Morocco significantly increased its contribution to profits.
Marked growth of operating profit in Asia Pacific
Group region Asia Pacific's construction sector performed well by Group standards, although in some countries economic activity lost momentum under the influence of an unstable US economy. As a result, there was some leveling off of demand for construction materials in specific Holcim markets. Even so, there was a slight increase in sales volumes in the three main segments of this Group region. As a result of consolidation factors, the Philippine Group company Union Cement posted the biggest rise in volume following its merger with Alsons. Cement sales also increased in Vietnam and New Zealand. Siam City Cement in Thailand and PT Semen Cibinong in Indonesia recorded declining delivery volumes. Both Group companies reduced their cement exports while domestic sales remained practically unchanged. Queensland Cement was unable to match its high prior-year sales levels, but significantly improved financial results.
The consolidated operating profit of the Asia Pacific Group region rose by 36.3% in local currency terms. Despite the sharp devaluation of the Thai baht and the Philippine peso, operating profit increased by 20% in Swiss franc terms to CHF 96 million. This result also reflects the continued integration of the new Indonesian business unit into the Group network and the improvement in the profit situation in Thailand, Australia and New Zealand.
Sustained positive margin development
It is still generally difficult to predict business conditions in the second half of the year because of uncertainty over the US economy and exchange rate developments.
In Europe, Holcim expects to see a gradual improvement in the market situation in Germany and overall stabilization of this Group region. Construction order books will see an improvement in North America, particularly in Canada, while the economy remains sluggish and US cement prices fall slightly. Latin America will continue to benefit from solid demand for construction materials in Mexico and a further recovery in demand in Argentina and Chile. The African and Asian markets should also witness a continuation of the positive economic trend of the first six months into the next half.
Holcim is confident of a continued positive margin trend in the second half of 2003 and, adjusting for currency factors, expects to see the previous year's financial results bettered.
|Group Holcim first half||2003||2002||+/-%||+/-% local currency|
|Annual production capacity cement||million t||141.0||141.9 1||-0.6|
|Sales of cement and clinker||million t||44.8||43.5||+2.9|
|Sales of aggregates||million t||42.9||42.3||+1.3|
|Sales of ready-mix concrete||million m 3||12.6||12.2||+3.2|
|Net sales||million CHF||5,804||6,441||-9.9||-1.1|
|Operating EBITDA||million CHF||1,527||1,656||-7.8||+2.8|
|Operating EBITDA margin||%||26.3||25.7|
|Operating profit||million CHF||884||935||-5.5||+5.9|
|Operating profit margin||%||15.2||14.5|
|Net income before minority interests||million CHF||402||427||-5.9||+5.4|
|Net income after minority interests||million CHF||273||292||-6.5||+2.7|
|Net income margin||%||4.7||4.5|
|Cash flow from operating activities||million CHF||602||781||-22.9||-12.8|
|Cash flow margin||%||10.4||12.1|
|Net financial debt||million CHF||9,672||8,857 1||+9.2||+7.6|
|Shareholders' equity including interests of minority shareholders||million CHF||9,651||9,435 1||+2.3||+0.6|
|Gearing 2||100.2||93.9 1|
|Earnings per dividend-bearing share||CHF||1.40||1.50||-6.7|
|Earnings per share (full diluted)||CHF||1.40||1.49||-6.0|
|Cash earnings per share 3||CHF||2.15||2.24||-4.0|
|Principal Key figures in USD (illustrative) 4|
|Net sales||million USD||4,299||3,952||+8.8|
|Operating EBITDA||million USD||1,131||1,016||+11.3|
|Operating profit||million USD||655||574||+14.2|
|Net income after minority interests||million USD||202||179||+12.9|
|Cash flow from operating activities||million USD||446||479||-6.9|
|Net financial debt||million USD||7,112||6,372 1||+11.6|
|Shareholders' equity||million USD||7,096||6,788 1||+4.5|
|Earnings per dividend-bearing share||USD||1.04||0.92||+12.7|
|Principal key figures in EUR (illustrative) 4|
|Net sales||million EUR||3,869||4,382||-11.7|
|Operating EBITDA||million EUR||1,018||1,127||-9.6|
|Operating profit||million EUR||589||636||-7.3|
|Net income after minority interests||million EUR||182||199||-8.4|
|Cash flow from operating activities||million EUR||401||531||-24.5|
|Net financial dept||million EUR||6,240||6,108 1||+2.2|
|Shareholders' equity||million EUR||6,226||6,507 1||-4.3|
|Earning per dividend-bearing share||EUR||0.93||1.02||-8.5|
1 As of December 31, 2002.
2 Net financial debt divided by shareholders' equity including interests of minority shareholders.
3 Excluding the amortization of goodwill and other intangible assets.
4 Income statement figures translated at average rate; balance sheet figures at year-end rate.
You can download the complete first half-year report from www.holcim.com. There you will also find the consolidated statement of income, consolidated balance sheet, statement of changes in consolidated equity and the consolidated cash flow statement.Holcim is one of the world's leading suppliers of cement, as well as aggregates (gravel and sand), concrete and construction-related services. The Group has majority and minority interests in more than 70 countries on all continents.This media release is also available in German and French.Corporate Communications: phone +41 58 858 87 10
Investor Relations: phone +41 58 858 87 87