Recessionary environment in Europe and North America
The construction industry suffered a significant slump, particularly in Europe and North America. The situation was especially acute in the US, the UK and Spain, but the construction sector also underwent a severe recession in Eastern and Southeastern Europe, as well as Russia.
Better position in the growth markets
Asia started out in a better position, as did much of Latin America and Africa. Led by India and China, many of the countries remained on a growth trajectory. This proved beneficial for Holcim, as the Group has an emerging markets presence like no other international producer of building materials.
(Details on Group regions after the outlook)
Robust cost management makes up for falling volumes
Volumes fell once again across all segments. In some cases, prices too came under greater pressure. Holcim nevertheless generated operating EBITDA of CHF 4.6 billion on consolidated net sales of CHF 21.1 billion.
The goal of streamlining processes and structures as well as lowering fixed costs by at least CHF 600 million was significantly exceeded, reaching like-for-like CHF 857 million. The increasing impact of the cost-cutting measures is reflected in the organic growth in operating EBITDA: still strongly negative in the first half of 2009, it improved significantly in the second part of the year.
The steepest fall in the Group's operating EBITDA occurred in Europe, followed by North America. Latin America held up well. Factoring out the deconsolidations in Venezuela due to nationalization, the region continued to grow. Group region Africa Middle East also performed slightly better in year-on-year terms. In Asia Pacific, operating EBITDA showed a considerable increase. This positive result was due in particular to a strong performance by ACC and Ambuja Cements in India, but also to the performance in the Philippines and Indonesia, as well as the new consolidations in Australia.
Strong liquidity, lower net debt, balance sheet further strengthened
A series of capital market transactions and a capital increase raised a combined CHF 7.8 billion, thus covering all financing needs. Encouragingly, cash flow from operating activities showed an above-average increase. Net financial debt was reduced by CHF 1.2 billion despite ongoing capacity expansion and equity-financed acquisition, thus further strengthening liquidity and the balance sheet. This was only possible thanks to the rigorous cost and cash management.
Plant closures in all product segments
Holcim reacted swiftly in the second half of 2008, when a fall in demand became apparent in a series of markets. Far-reaching measures were taken in the cement sector. Plants in Europe and North America in particular were shut down permanently or mothballed. All in all, 23 kiln lines with a production capacity of more than 10 million tonnes were closed. More than 100 aggregates and ready-mix concrete plants were also closed temporarily. This was accompanied by substantial job losses of 6 percent per the end of 2009; these were conducted in such a way as to minimize social impact.
Capacity expansion and acquisition create new potential
The Group's solid financial position enabled the 2009-2012 capacity expansion program targeted at strategically important areas to be continued, apart from some exceptions. The plant expansions and new facilities in the cement sector were concentrated on growth markets, in particular the Indian subcontinent.
The new Ste. Genevieve cement plant in the US state of Missouri deserves a particular mention. The plant was commissioned in July, as planned. Situated right on the Mississippi and equipped with its own port facility, the plant - which has a capacity of 4 million tonnes - is the largest and most modern in the US. It improves energy efficiency by around 40 percent compared with the US sites that have been closed. The plant boosts Holcim's market presence throughout the river system of the Midwest, right down to the Gulf of Mexico.
The successful acquisition of Cemex Australia - now Holcim Australia - is a significant achievement. The transaction also included the increase in the shareholding in Cement Australia from 50 to 75 percent. Both Group companies have been fully consolidated since October 2009. This means Holcim can now offer not only cement but also aggregates, ready-mix concrete and concrete elements in a strategically important, mature market.
As in previous years, the Board of Directors will propose at the Annual General Meeting that one-third of the net income attributable to shareholders of Holcim Ltd of CHF 1.5 billion be distributed to the company's shareholders. This will give a cash dividend of CHF 1.50 per registered share.
Non-binding advisory vote on the compensation report
At the Annual General Meeting of May 6, 2010, the shareholders will be consulted for the first time on the Board of Directors' compensation report. Holcim firmly believes that its compensation system is competitive and its managers are motivated by a proper set of objectives, but also that the system stands up to public scrutiny.
Changes in the Board of Directors and the Executive Committee
H. Onno Ruding, member of the Board of Directors of Holcim Ltd since 2004, will be stepping down from this office at the forthcoming Annual General Meeting for reasons of age. The Board of Directors proposes to the Annual General Meeting of May 6, 2010 that Beat Hess, since 2003 Legal Director and member of the Executive Committee of Royal Dutch Shell Group, Den Haag, Netherlands, be elected to the Board. Beat Hess, 61, Swiss national, holds a doctorate in law and is admitted to the bar. From 1977 to 2003, he was initially Legal Counsel and subsequently General Counsel for the ABB Group. He is also member of the Board of Directors of Nestlé S.A., Vevey, Switzerland.
The Board of Directors of Holcim Ltd has appointed Roland Köhler, since 2005 member of the senior management and responsible for Corporate Strategy & Risk Management, a member of the Executive Committee, effective March 15, 2010. In his new role, he will lead the central service and support functions of the Group. Roland Köhler, 56, Swiss national, is a graduate in business administration from the University of Zurich. In 1988, he was appointed Head of Finance and Administration of a Swiss construction materials group. In 1994, he joined Holcim, and from 1995 to 1998, he was Head of Corporate Controlling. Between 1999 and 2002, Roland Köhler developed a concept for an integrated and Group-wide business risk management. Since 2005, he was engaged in shaping the Holcim strategy on Group and country level as member of the senior management. He has also been a member of the leadership teams for major acquisitions, such as Aggregate Industries and Cemex Australia.
Group outlook 2010
It is unclear how the building materials markets will perform in the current financial year. Uncertainty is at a high level, especially with regard to developments in Europe and North America. Much depends on whether the stimulus programs designed to expand infrastructure will indeed be implemented as proposed. Any revival in construction activity across a broad front will also be contingent upon stimuli from residential and commercial construction.
Many emerging markets start off from a better position. In particular, Holcim's Group region Asia Pacific - also thanks to the acquisition in Australia - is likely to continue growing. Group regions Latin America and Africa Middle East are also likely to experience a stable business performance.
Despite their confidence in the Group's strength and solid positions in important markets, the Board of Directors and Executive Committee refrain from communicating any detailed forecasts. The cost advantages gained in 2009 will be retained, and in 2010 the Group will continue to do whatever is required to strengthen the efficiency of its processes and competitiveness. Holcim will therefore start the next upturn from a stronger position, and will be able to get back on track toward achieving its long-term growth targets.
Detailed information on Group regions:
Challenging economic situation in Europe
Key figures Europe
Aggregate Industries UK reported volume declines in all segments. However, deliveries of aggregates and ready-mix concrete for large construction projects related to the 2012 London Olympics and to infrastructure projects in Scotland cushioned to some degree the market-induced drop in volumes. Sales of asphalt were supported by government stimulus packages in the road building sector.
In Northern France, Holcim France Benelux sold less cement for housing and commercial buildings. In the east of the country, sales were depressed by an increase in imports. Sales of aggregates also declined following the completion of the TGV Est high-speed rail line. As a result of acquisitions, ready-mix concrete volumes developed better than the market as a whole. While major projects softened the declining demand for construction materials in Belgium, ready-mix concrete prices continued to come under increasing pressure. The Group company in the Netherlands benefited from projects to expand the road network and coastal defenses.
Due to a rise in exports, Holcim Germany saw a slight increase in cement sales. Shipments were positively impacted by the start of construction work on the Nord Stream gas pipeline and the widening of the Bremen-Hamburg motorway to six lanes. Cement sales in Southern Germany were virtually stable due to road and infrastructure construction. The increase in sales of aggregates posted by Holcim Southern Germany was due to acquisitions. The purchase of additional ready-mix concrete facilities by the two German Group companies served to counter the negative market trend.
Holcim Switzerland's cement deliveries virtually matched the high level of the previous year and volumes of gravel, sand and ready-mix concrete were even higher. The Group company benefited from a continued solid level of orders for the residential construction sector, and various large commercial and motorway expansion projects. Despite delivering sizable orders of construction materials for the expansion of the Milan metro and inner-city housing projects, Holcim Italy suffered from the generally weak state of construction activity in the north of the country. Holcim Spain was only partly able to compensate for the precipitous decline in residential construction through increased deliveries in the infrastructure sector. Through the successful integration of Tarmac Iberia's aggregates and ready-mix concrete business, the Group company has strengthened its market position.
In Eastern and Southeastern Europe, the cement sales of all Group companies were severely impacted by the economic crisis. Domestic sales of Holcim Bulgaria and Holcim Slovakia suffered greatly, in part because of massive cement imports. Volumes decreased significantly in Hungary, the Czech Republic and Romania. Holcim Croatia and Holcim Serbia fared slightly better. The continuation of transport related infrastructure projects, some of which benefited from EU financial support, led to a certain degree of stabilization in certain places. For instance, progress on the construction of Prague's orbital motorway dampened the impact of the decline in volumes experienced by Holcim Czech Republic, while bridge building works on the River Sava boosted deliveries by Holcim Serbia.
After the massive decline in the first half of the year, sales at Russian-based Alpha Cement stabilized near the end of the year in and around Moscow. Export shipments to Western Kazakhstan also picked up. However, in comparison with 2008, the Group company posted a significant decline in cement sales and sales prices. In Azerbaijan, Garadagh Cement saw volumes and prices depressed by a combination of market factors and a rise in cement imports.
Consolidated delivery volumes in Group region Europe declined in 2009, albeit less sharply in the second half of the year. Cement shipments fell by 20.2 percent to 26.9 million tonnes. Sales of aggregates declined by 19.7 percent to 78.4 million tonnes, and ready-mix concrete sales contracted by 19 percent to 17 million cubic meters.
Operating EBITDA for Group region Europe decreased by 38.5 percent to CHF 1.2 billion as a result of market conditions and currency factors. The systematic broad-based implementation of cost-cutting measures increasingly eased the pressure on the income statement during the course of the year. Holcim Switzerland was the only Group company to post an improved result. All other companies reported a much weaker performance compared with the previous year. This was particularly true of Holcim Spain, the companies in Eastern and Southeastern Europe, and Alpha Cement. At -33.3 percent, internal operating EBITDA development was negative.
Within Europe, the construction sector is unlikely to make significant progress in the UK, Spain or Italy. The situation will also remain challenging in most of the countries of Eastern and Southeastern Europe, including Russia. In the other markets supplied by Holcim, a more stable recovery is emerging. At present it is difficult to assess the speed with which it will impact demand for construction materials and whether it is sustainable. The programs to cut costs and adjust capacity will be systematically pursued.
North America hit by the crisis
Key figures North America
Holcim US saw a significant decline in cement deliveries. Demand was hit not only by the economic situation but also by a severe winter, unfavorable weather conditions in the spring, and fresh flooding along the Mississippi and Missouri Rivers. Sales remained significantly down on the previous year, particularly in Texas, the east of the country, and in the Great Lakes region.
Holcim Canada experienced a slump in cement exports to the US from its Mississauga plant. In the Ontario region, weak private construction activity and project cancellations in the commercial and industrial sectors also affected the Group company's sales volumes. As it is home to fewer recession-prone industries, Quebec experienced a slightly milder fall in cement volumes. Added to that, the provincial government was early in initiating stimulation programs designed to counter the economic crisis. Projects in the energy sector, as well as construction of dams and dikes, supported sales of construction materials. Holcim Canada's ability to deliver efficient logistics in remote regions was one of the key factors behind its success in tendering for the supply of these major construction sites.
Aggregate Industries US recorded a decline in deliveries across all segments. Sales of aggregates and ready-mix concrete were adversely affected not only by weak construction activity but also by the fact that weather conditions proved difficult for construction. However, government road building programs supported sales of asphalt in the east of the country during the second half of the year. As a supplier of integrated multi-product solutions, the Group company was in a position to deliver significant quantities of aggregates and ready-mix concrete for the construction of highways.
Sales of aggregates and ready-mix concrete also fell at Holcim Canada, due to lower demand for construction materials for house building in Ontario and in the west of the country. Government support measures positively impacted the volumes of asphalt sold.
On balance, cement deliveries in Group region North America fell by 25.7 percent to 10.7 million tonnes. Consolidated shipments of aggregates fell 18.5 percent to 40.2 million tonnes. Sales of ready-mix concrete were down 24.7 percent at 5.5 million cubic meters. Asphalt saw a decline of 20.6 percent.
Operating EBITDA for Group region North America fell by 17.7 percent to CHF 400 million. Internal operating EBITDA development was negative at -15.6 percent. The difficult market environment adversely impacted the results of Holcim US in particular. Despite cost savings, the Group company was only able to offset a limited amount of the decline in volumes through efficiency improvements. In contrast, Aggregate Industries US achieved a remarkable improvement in its results, also in Swiss franc terms, and Holcim Canada likewise raised its operating EBITDA in local currency. Overall, Holcim achieved slightly higher operating margins in this Group region.
Despite the brighter economic situation, the North American construction industry is not expected to enjoy a rapid recovery. In light of the economic uncertainties and high real estate vacancy rates, private construction activity in the US is likely to remain subdued. The Obama administration's stimulus program promises to provide some help for infrastructure construction in the second half of the year. In Canada, a rather positive trend is expected for the economy as a whole. Similarly to the US, a modest growth in nationwide construction spending is expected.
Resilient building materials markets in Latin America
Key figures Latin America
At Holcim Apasco in Mexico, domestic cement sales fell less sharply than the market average. Cement exports experienced a more significant decline and the downstream segments also saw volumes drop. Competitive pressures increased appreciably. The continuation of government programs to boost house building, expansion of transportation networks and a multi-year investment program in the energy sector supported the Group company's sales of building materials.
The devastation caused by Hurricane Ida coupled with general market weakness depressed cement sales at Cemento de El Salvador in the final four months of the year. The Group company also supplied fewer building materials to neighboring countries. Holcim Nicaragua sold less cement and ready-mix concrete. By contrast, significant cement deliveries for the major Pirris dam project resulted in a positive volume trend at its sister company in Costa Rica. Concrete road building supported sales of ready-mix concrete.
Thanks to transportation projects such as the construction of a new bus station in Quito and refurbishment of the highway infrastructure in the northwest of the country, Holcim Ecuador lifted sales across its entire product range. Cement deliveries at Holcim Colombia fell slightly, consistent with overall domestic demand. Volumes of aggregates and ready-mix concrete increased thanks to commercial and industrial building projects and expansion of the local public transportation network in Bogotá. The Brazilian Group company concentrated on high-margin sales segments and so sold less cement. Volumes of ready-mix concrete more or less matched the previous year despite administrative construction delays and unfavorable weather.
Cemento Polpaico in Chile saw lower volumes across all product categories. Aside from the market factors, the arrival of new competitors also weighed on sales. The Group company nevertheless succeeded in establishing a foothold in the ready-mix concrete market for large-scale projects, thus limiting the sales decline. Though cement shipments fell short of the previous year's level, Minetti in Argentina succeeded in generating strong growth in aggregates and ready-mix concrete. The commissioning of an additional quarry in 2008 ensured that it was prepared to meet the demand for high-quality materials.
Consolidated cement sales in Group region Latin America fell 16.2 percent to 22.8 million tonnes. Shipments of aggregates fell by 11.9 percent to 11.8 million tonnes, while deliveries of ready-mix concrete were down 13.7 percent at 10.1 million cubic meters. Much of the decline in volumes was attributable to substantial changes in the scope of consolidation in all three segments.
Operating EBITDA for Group region Latin America fell by 9.9 percent to CHF 1.1 billion. This was exclusively due to the strength of the Swiss currency and to changes in the scope of consolidation. On a like-for-like basis, however, operating EBITDA increased by 10.9 percent. The improvement in the results was due in particular to a strong performance by Holcim Ecuador, Holcim Brazil and Minetti in Argentina.
Building activity will remain largely solid in Latin America in 2010. Overall, a moderately positive economic trend is expected. Further growth is possible in Brazil thanks to the robust state of the domestic economy. In Ecuador, Colombia and Argentina too, Holcim expects the market situation to be stable. However, in the Chilean construction sector, a recovery is not expected in the immediate future.
Business activity in Africa Middle East remains solid
Key figures Africa Middle East
Holcim Morocco achieved higher sales in all segments. There was a marked increase in aggregates, in part due to the commissioning of a new quarry. Given the ongoing work on reconstruction, Holcim Lebanon sold nearly all the production volume of its Chekka plant on the domestic market. Sales of ready-mix concrete also increased. Despite the political and economic turbulence, the West African group of countries managed by Holcim Trading was able to maintain its position. The Abu Dhabi affiliate National Cement achieved sales growth following an increase in grinding capacity. The expansion of production facilities in Qatar also impacted positively. In the Indian Ocean region, the political crisis in Madagascar and a lack of orders in the house building and infrastructure sectors in La Réunion resulted in a marked fall in deliveries. The start of major transportation and healthcare building projects in Mauritius took up some of the slack.
Cement deliveries in Africa Middle East declined by 9.3 percent to 8.8 million tonnes. Sales of aggregates fell 3.7 percent to 2.6 million tonnes, while volumes of ready-mix concrete declined by 8.3 percent to 1.1 million cubic meters.
Operating EBITDA rose not only in local currencies but also in Swiss francs, an increase of 1.4 percent to CHF 373 million. The operating profit margin also developed positively. Morocco and Lebanon in particular increased their contribution to results, while the companies managed by Holcim Trading also improved their performance. The Group region posted internal operating EBITDA growth of 8.2 percent.
A stable economic environment and volume of sales are expected in Group region Africa Middle East, particularly in Lebanon and Morocco. In West Africa and the Indian Ocean, developments in the construction market will hinge primarily on political conditions. In overall terms, this Group region is once again expected to deliver sound operating results.
Growing demand for building materials in Asia Pacific
Key figures Asia Pacific
The two Indian Group companies ACC and Ambuja Cements enjoyed good capacitiy utilization and sold more cement than in the previous year. As part of its strategic expansion program, ACC commissioned additional production and grinding capacity in the states of Orissa and Karnakata. The new capacity will enable it to keep pace with the projected market growth in the east and southwest of India. The Group company was able to maintain volumes of ready-mix concrete in a declining overall market, thanks in part to significant deliveries to the expansion of Calcutta airport and the construction of a new steel plant in Bihar.
Holcim Bangladesh delivered substantially more cement. Holcim Lanka positioned itself successfully as a supplier of building materials to important key projects. They include the construction of a water purification plant for improving supplies of drinking water on the south of the island. Holcim Vietnam recorded significantly higher deliveries of cement and ready-mix concrete. Siam City Cement in Thailand matched the previous year's cement delivery volumes in the domestic market and increased its clinker and cement exports amid full utilization of its four large kiln lines at the Saraburi plant. Shipments of aggregates likewise increased. However, deliveries of ready-mix concrete declined. In Singapore, the intense price competition in infrastructure projects continued. The two local Group companies therefore held back from supplying major construction sites, focusing instead on increasing sales in the residential sector. At Holcim Malaysia, cement sales were supported by industrial construction and road building on the Johor peninsula.
In the Philippines, where two Holcim cement plants were selected to supply major road building projects on Mindanao, volumes showed a particularly strong increase. At the Lugait site, a kiln that had previously been shut down was brought back into production and exports were limited in favor of domestic demand. Holcim Indonesia recorded stable domestic shipments. The favorable investment climate in the region ensured rising cement exports. Given a less dynamic market and adverse climatic conditions, Cement Australia - which has been fully consolidated since the fourth quarter of 2009 - sold less cement on the east coast in particular. Sales of aggregates by Holcim New Zealand increased due to taking over the management of an additional quarry, though in overall terms volumes remained under pressure.
Cement sales in Group region Asia Pacific rose by 2.6 percent to 67.3 million tonnes. Shipments of aggregates grew by 121.3 percent to 10.4 million tonnes, and sales of ready-mix concrete rose by 11 percent to 8.1 million cubic meters. It includes the first-time consolidation of the newly acquired aggregates and ready-mix concrete activities in Australia.
Operating EBITDA increased by 17.7 percent to CHF 1.8 billion. The first-time inclusion of the acquisitions in Australia had a positive impact. With few exceptions, all Group companies beat their results for the previous year. The improved performance of the two Indian Group companies, as well as Holcim Philippines and Holcim Indonesia, were remarkable achievements. A majority of the Group companies have also significantly improved their cost efficiency and played their part in increasing the Group region's operating profit margin. The Group recorded internal operating EBITDA growth of 21.5 percent.
Population growth, major infrastructure needs and increasing urbanization will remain key growth drivers in Group region Asia Pacific. In a majority of markets served by Holcim, further strong demand for building materials can therefore be expected. In India, expanded capacity will lay the basis for extracting the full benefits of growing demand. The Australian acquisition will also make a solid contribution to the Group's performance in 2010. In overall terms, a further increase in volumes of building materials can be expected in this Group region.
Key figures Group Holcim 2009
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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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