Financial year 2016 preliminary results
Cement volumes at 25.6 million tons (+0.3%); ready-mix concrete at 11.9 million cubic meters (as in 2015)
Consolidated net sales equal to €2,669 million (€2,662 million in 2015), up 0.3% (+1.7% like for like)
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Cement and clinker
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The Board of Directors of Buzzi Unicem SpA met on 9 February 2017 to examine the preliminary figures for the financial year just ended.
During 2016, deliveries of our products in the geographical areas of presence showed a favorable variance in Central Europe, thanks to the upturn in shipments from the spring season, and overall also in Eastern Europe, with improvements in Poland, the Czech Republic and Ukraine, which more than offset the marginal decline in Russia. Some weakness in demand during the second half of the year resulted, for the whole of 2016, in a moderate decrease in sales in the United States of America and in a more marked one in Italy, where no signs of awakening of consumption appeared.
Global growth has gradually consolidated since the summer months, but did not result in a solid recovery in world trade which, after the slight strengthening in the second quarter, continued to grow at a modest pace, driven by the trade of emerging economies, but with abrupt slowdown in the advanced countries that were affected by the weakening of investments, particularly the United States and Japan. The development of business activity, especially in the third quarter, exceeded expectations in the advanced economies: in the United States GDP accelerated to 3.5% on an annual basis, thanks to the contribution of net exports and to the increasingly robust expansion in domestic consumption, while growth dynamics in the fourth quarter are foreseen below expectations. In Europe, thanks to the drive coming from domestic demand, GDP growth continued with gradual consolidation, although at a moderate pace, with the contribution of household spending, public administration consumption and changes in inventory.
Growth in emerging countries carried on with different trends: it was relatively consistent in China and expanding at a fast pace in India. The recession phase remained severe in Brazil, while in Russia, thanks also to the recovery in oil prices, GDP decline attenuated and strengthened the prospect of a return to growth.
Inflation, mainly due to the rebound of energy prices, slightly increased in the advanced economies, while in the BRIC countries the trend was declining. From the end of November, oil prices rose following the agreement on a production cut signed by the OPEC countries and some non-OPEC such as Russia. In December the Federal Reserve, in the light of further progress in the labor market, increased by 25 basis points the target range for the federal funds rate and the expectations for rates rise in the United States widened, reflecting the prospect of a budgetary expansion by the new administration. The ECB Governing Council extended the duration of the bond purchase program to ensure adequate expansionary conditions to guarantee the rise in inflation; in the emerging countries as well the direction of monetary policy remained expansive.
In Italy, in the third quarter, GDP increased at the same rate which was achieved overall in the Eurozone (+0.3%), thanks to the support of capital expenditures and the expansion in household spending, while in the fourth one an almost irrelevant favorable variance is expected. This small recovery is due to all the main business sectors, except construction, where the positive change in the residential segment was accompanied by the persistent weakness in public works. In the United States construction investments, after the accelerations of the period 2014-2015, driven by the robust growth in the commercial and residential sectors, maintained an expansionary phase, but at a more regular pace. In Poland and the Czech Republic the trend of the building sector was lively. The recovery of construction activity in Germany was better than expected. In Russia, where the recession phase is attenuating, the building sector showed a low profile with investments still down, while in Ukraine, with the materialization of tangible signs of recovery from recession and of stabilization of the economy, the level of investments, after two years of strong reductions, returned to a growth phase, albeit modest.
Cement sales of the group stood at 25.6 million tons, +0.3% compared to 2015. Ready-mix concrete output, equal to 11.9 million cubic meters, were also in line with the previous year. Consolidated net sales increased by 0.3%, from €2,662 to €2,669 million. Due to the depreciation of the Russian ruble, the Ukrainian hryvnia and the Polish zloty and the essential stability of the dollar, foreign exchange fluctuations had an overall unfavorable impact of €27 million; no significant variance occurred in the scope of consolidation. Therefore like for like net sales would have increased by 1.7%.
Net debt as at 31 December 2016 amounted to € 942 million, down €88 million on €1,030 million at year-end 2015. The improvement of the net financial position was achieved thanks to cash flow from operations, after allocating €75 million for the renovation of the Maryneal cement plant, in Texas. Furthermore it should be pointed out that the liability side of net debt includes the fair value of the cash settlement option attached to the outstanding convertible bond for €105 million (€48 million at year-end 2015).
In the fourth quarter, GDP continued to grow at a moderate pace, after an acceleration achieved in the summer quarter, with recovery supported by the consumption expansion and the increase in investments. Industrial activity consolidated the pace of growth, with a strong performance in manufacturing and retail trade, while the added value slightly worsened in the construction sector. The business confidence, although steady, remains positioned on cyclically high levels. In the second half of the year exports stagnated, reflecting the weakness of international trade. GDP growth, on the whole of 2016, was confirmed at +0.9%. In the real estate sector some signs of stabilization strengthened, despite the more uncertain outlook in the non-residential sector, and construction investments showed, overall, a slight positive sign, more robust only in the renovation of residential properties. The cement domestic consumption, estimated at about 18.7 million tons, closed with a further negative variance (-4.7% over the previous year), this being the tenth consecutive year of lower domestic demand (-60% from the record high of 2006). Cement and clinker volumes were down 6.2%, penalized by a clear reduction in exports. Sales prices did not change significantly in the year-over-year comparison. In the ready-mix concrete operations, the sales trend was up (+8.2%), favored by the positive change in scope resulting from the business combination occurred in the Milan area, with prices in line with last year. Overall consolidated net sales in Italy amounted to €375 million, down 1.6% compared to 2015.
The development of the economy in Germany, stimulated by the good employment trend, by the improvement of disposable income and the increasing public spending, although in a more uncertain environment for exports, achieved in 2016 a slightly higher GDP growth rate (+1.7%) compared to the previous year. Inflation rose at the end of the year (+0.9%), mainly due to the effect induced by the prices of energy and some food products. The construction industry showed good overall growth, particularly in the residential sector, also supported by the demand due to the high net immigration. Our cement deliveries, thanks to the more robust pace of the second half-year, closed with an increase of 3.4% and were characterized by basically weak average prices. Demand for oil-well cement, down on the whole of the year, however, showed an encouraging recovery during the last quarter. Ready-mix concrete output recorded a fairly consistent development (+1.6%) with a marginal decline in prices. Overall net sales thus decreased from €574 million in 2015 to €572 million in 2016 (-0.2%). Like for like sales would have increased by 0.6%.
In Luxembourg and the Netherlands cement and clinker volumes sold, inclusive of internal sales, thanks to the good performance in the domestic market and the support of exports, achieved solid growth (+8.2%) with average selling prices slightly down. Ready-mix concrete output confirmed the good levels of the previous year, in a favorable price environment. Overall net sales came in at €176 million compared to €169 million in the previous year (+3.9%).
In Poland, the commercial and financial openness with Europe, where more than 75% of goods exported from the country is shipped, and the strong connection with the production chain with Germany, allowed an economic development among the most robust and solid ones within Europe, with an average annual growth of over 3% in the last decade. Also for 2016 GDP growth was consistent and is estimated at +3.1%. Construction investments maintained a positive trend and cement consumption in the country improved. Cement volumes sold, which have been accelerating in the second half of the year, marked a strong favorable variance (+11.9%), however with average prices in local currency lower compared with the previous year. Ready-mix concrete output also showed a positive trend, thus marking an increase by 6.6%, with improved prices. Net sales, penalized by the depreciation of the zloty, decreased from €97 million to €95 million (-1.8%). At constant exchange rate sales would have increased by 2.4%.
In the Czech Republic the favorable economic situation continued, supported by the good performance of domestic demand, investments and net exports. Household consumption, in particular, benefited from strong gains in disposable income and lower unemployment rate (slightly over 4%). GDP growth in 2016 is estimated at +2.5%, almost in line with that of last year (+4.5%), not considering the non-recurring effects of the European funds for infrastructure development and convergence. The level of construction investments remained buoyant, thanks to the strengthening of private investments. Our cement volumes sold exceeded by 4.4% the good figures achieved in the previous year, with average prices in local currency marginally down. The ready-mix concrete sector, which also includes Slovak operations, achieved lower production levels (-5.3%), but with higher average prices. Hence consolidated net sales still amounted to €136 million (+0.4%). The strengthening of the local currency favorably impacted on turnover; like for like net sales would have increased by +3.9%.
In Ukraine, more solid signs of stabilization and of the beginning of a growth path materialized. After the conflict has been quelled, the transformational project of the social and economic condition of the country, thanks to the institutional reforms which were started and the international financial support, allowed to leave the violent recessive economic situation of the previous two years. Disposable income, although among the lowest in Europe, showed some recovery, as well as the indicators of consumer and investor confidence. The inflation rate returned to more sustainable figures. In this environment, construction investments showed signs of growth, in discontinuity with the significant declines of the recent past. Cement volumes sold by our plants, under regular operations, progressed compared to last year (+4.0%), with prices in local currency strongly moving up. Also ready-mix concrete output grew, although not important, with average prices in local currency that followed inflation. Net sales amounted to €80 million versus €70 million achieved in 2015 (+14.3%). The translation of turnover into euro was penalized by the continuous depreciation of the local currency (unfavorable exchange rate effect of €13.2 million).
In Russia, the strong improvement in industrial production, the recovery in domestic demand and the favorable trend in exports, which benefited from the weakness of the ruble, reinforced the economic framework, which absorbed the effects caused by the restrictive measures adopted and the collapse in oil prices. The recent strengthening of oil prices favored the recovery path and the attenuation of the recessionary economic situation. Consumer price inflation, sharply decelerating, was brought back later this year to less than 6%. Investments in the construction industry continued to maintain a low profile in 2016, but the sharp slowdown in the decline foreshadows an improved outlook. Our sales volumes have been improving in the second half of the year and closed the period slightly down on the previous year (-1.0%). Average prices in local currency remained stable. The category of oil well cements, used in the extraction industry, thanks to the recovery of demand during the last quarter, posted an increase at the end of the period. Net sales stood at €154 million, down 7.4% from €167 million in the previous year. The depreciation of the ruble had a negative impact on sales of €13.8 million; at constant exchange rates net sales would have increased by 0.9%.
United States of America
In the third quarter of 2016 GDP accelerated to 3.5%, mainly due to the contribution of net exports, to changes in stocks and to the increasingly robust expansion of private consumption, while investments had a tendency to stagnate. For the full year, GDP growth is estimated at 1.6%, one point less than the previous year and the lowest since 2011. Consumer price inflation slightly increased at the end of the year, net of food and energy products. Consequently the expectations of a rate increase further accentuated. Construction investments slowed down to +2.7%, with more robust changes in the commercial and residential sector. Our cement sales, after the brilliant start to the year and the clear decline during the summer months, for the full year confirmed a slight decrease (-1.7%), with more pronounced weakness of demand in Texas, particularly in the Houston area, whose economy is strongly influenced by the trend in oil prices. The deliveries of special oil well products, albeit still declining over the 12 months, posted some signs of recovery at the beginning of winter. Ready-mix concrete output, mainly present in Texas, suffered from both the unfavorable weather conditions and, indirectly, the oil and gas crisis, closing down 9.8% on the previous year. Selling prices trend dynamics in local currency were favorable, thus causing in the cement sector a greater variance than in the ready-mix concrete one. Overall net sales increased from €1,109 to €1,118 million (+0.8%). The development of the dollar marginally favored the turnover; at constant exchange rates, net sales would have increased by 0.6%.
Mexico (valued by the equity method)
The development of domestic demand, favored by the improvements in the employment rate, the growth of the disposable income, and the solid flow of remittances from abroad, supported the country's economy, which continued to be committed to facing up to external phenomena such as slowdown in international trade and the fall in raw materials prices, using the exchange rate flexibility as an adjustment. The country, at year end, was affected by tighter financial conditions which caused capital outflows, recording a significant currency depreciation and a rise in interest rates. GDP growth for 2016 was revised downwards, and is estimated at +2.1%. Cement sales of the associate Corporación Moctezuma slightly exceeded the very high volumes achieved in the previous year, with strongly strengthened average prices in local currency. Ready-mix concrete output developed a clearly weaker profile, but with prices, always in local currency, noticeably up. With reference to 100% of the associate, net sales came in at €609 million (-2.7%). The depreciation of the Mexican peso penalized the translation of results into euro: at constant exchange rate net sales would have increased by 14.2%. In November the second line of the Apazapan (Veracruz) cement plant, which doubled its capacity from 1.3 to 2.6 million tons/year, came into operation.
From a meteorological point of view the last quarter of the year was characterized by weather conditions in line with the season, with no unusual phenomenon. Based on the preliminary information available, we expect that the consolidated financial statements for the year 2016 will close with a recurring Ebitda figure of approximately €550 million, therefore more favorable than the forecast already disclosed to the market on the occasion of the interim report for the first nine months.
The Board of Directors for the approval of the statutory and consolidated financial statements is scheduled to meet on 30 March 2017.
Alternative performance measures
Buzzi Unicem uses in its financial disclosure some alternative performance measures that, although widespread, are not defined or specified by the accounting standards applicable to the preparation of the annual financial statements or interim consolidated reports. Pursuant to Consob Communication no. 92543/2015 and the guidelines ESMA/2015/1415 set out below are the definitions of such measures.
Net debt: it’s a measure of the capital structure determined by the difference between financial liabilities and assets, both short and long term; under such items are included all interest-bearing liabilities or assets and those connected to them, such as derivatives and accruals.
The manager responsible for preparing the company’s financial reports, Silvio Picca, declares, pursuant to paragraph 2 of Article 154 bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting records.
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