Financial year 2017 preliminary results
Cement volumes at 26.8 million tons (+4.4%); ready-mix concrete at 12.3 million cubic meters (+3.1%)
Consolidated net sales equal to €2,806 million (€2,669 million in 2016), up 5.1% (+3.7% like for like)
Cement and clinker
|Dec 17||Dec 16||Change|
The Board of Directors of Buzzi Unicem SpA met today to examine the preliminary figures for the financial year just ended.
During 2017, consolidated sales volumes achieved favorable trend in Italy, thanks to the change in scope following the full consolidation of the Zillo group starting from the second half of the year, a clear recovery in Central Europe and, on the whole, a suitable improvement in Eastern Europe, with good expansion in the Czech Republic and positive developments in Russia and Poland, which more than offset a marginal decline in Ukraine. At the end of the year, cement deliveries in the United States of America were strongly affected by the spell of bad weather and low temperatures; the impact of adverse climate led to the loss of the progressively accumulated benefit and our volumes stabilized at the same level as in 2016.
The expansion of business activity in both the main advanced and emerging economies remained solid and widespread and the economic situation, also with regard to short-term prospects, is still positive and favorable. Overall growth strengthened in the third quarter and continued to be lively in the last months of the year, while a general underlying inflation weakness remains. In the United States of America, after a temporary slowdown in the first quarter, expansionary development, still driven by domestic demand, continued to grow solidly, and could, in the future, be further stimulated by the effects of the recently approved tax reform. In Europe, growth continued at a stronger and sustained pace, driven by consumption and, starting from the third quarter, by the recovery of net foreign demand. Although the economies of the advanced countries contributed more to the overall growth during the last two years, recovery continued also in the emerging countries: growth in China stabilized, after having exceeded expectations in the previous quarters and, starting from the summer months, in India and Brazil GDP accelerated. International trade, which in the summer grew at a rate of 3.5% with a more sustained dynamic of imports of the euro zone and the emerging Asian countries other than China, is expected to expand to 5.4% for the whole year, thus confirming a higher growth than that of business activity. Inflationary pressure accentuated in the United States of America (above 2%), while in Europe it stood at 1.4% in December and it remained moderate in the main emerging economies. The increase of oil prices has continued since the end of September, driven by the buoyant dynamics of demand and the agreement on supply control among the main oil producing countries, which is still in force. The Federal Reserve raised the rates, while the ECB Governing Council recalibrated the monetary policy instruments, while preserving, even in perspective, very expansive monetary conditions, while in China the central bank gradually tightened monetary conditions, favoring a further increase in rates.
In Italy, economic activity accelerated during the third quarter, confirming the favorable trend, although still below the European average; domestic demand, which was stimulated particularly by investments in capital goods, as well as international trade, with a more marked increase in exports compared to imports, contributed equally to GDP expansion. Recovery in the construction sector, which was modest and weaker than expected, was more evident in the renovation of buildings, while investments in new structures continued to be weak, sharpened by the persisting difficulty in capital spending capacity by the public administration. In the United States, construction investment maintained a phase of moderate expansion, still driven by the residential sector, but with contractions in the public segment. In Germany, developments in the construction industry showed a significant strengthening, particularly in the residential and the public infrastructure segments. In the Czech Republic and Poland, building activity confirmed its positive trend. In Russia, in the context of a general consolidation of the economic recovery, also the construction sector improved progressively and showed some upswing in investments; Ukraine showed a modest growth, too.
Cement sales of the group stood at 26.8 million tons, +4.4% compared to 2016. Also ready-mix concrete output, equal to 12.3 million cubic meters, was up on the volumes achieved last year (3.1%). Consolidated net sales increased from €2,669 to € 2,806 million (+5.1%). Changes in exchange rates, due to the depreciation of the dollar and the Ukrainian hryvnia and the appreciation of the Russian ruble, the Polish zloty and the Czech koruna, had an overall unfavorable impact of €3 million. The scope of consolidation has increased since 3 July 2017, following the first time consolidation of the Zillo group; therefore like for like net sales would have increased by 3.7%.
Net debt as at 31 December 2017 amounted to €863 million, down €79 million on €942 million at year-end 2016. The improvement of the net financial position was achieved thanks to cash flow from operations, considering an impact for the acquisition of the Zillo group equal to €113 million and further €29 million for expansion investments, largely related to the so-called “phase 2” of the new production line in Maryneal (TX). Furthermore it should be pointed out that the liability side of net debt includes an amount of €93 million representing the fair value of the cash settlement option attached to the outstanding convertible bond (€105 million at year-end 2016).
During the summer months, GDP increased by 0.4%, slightly accelerating compared to the previous period, and maintained the same trend also in the fourth quarter. Domestic demand, driven in particular by investments in capital goods, and foreign trade contributed equally to the economic expansion. GDP growth for the whole of 2017 is estimated at 1.5%, significantly up on the previous year, even if constantly lower than the European average. Manufacturing activity maintained its positive trend even after the strong increase which was recorded in the summer. Employment continued to rise and the unemployment rate stood at 11% in November. Wage trends remained moderate and inflation was low (1% in December). Starting from the summer quarter, exports recorded a marked increase, particularly towards EU countries outside the euro and territories outside the EU. The construction scenario maintained signs of recovery, although weaker than expected, with investments slightly increasing overall but mainly thanks to the renovation of existing properties, while the new buildings continued to decline slightly. Domestic cement consumption closed with a marginal positive change over the previous year (+0.3%), thus finally interrupting the continuous and structural decline in demand which has occurred for 10 consecutive years (from 2006 to 2016). Cement and clinker volumes were up 19.5%, mainly thanks to the first full consolidation of the Zillo group starting from the second semester, to the growth in volumes exported overseas and to clinker sales, with average selling prices which in the year-over-year comparison decreased slightly. Also the ready-mix concrete sector benefited from the change in scope following the Zillo acquisition, in addition to the one occurred in the Milan area in 2016, and achieved a significant increase in production (+11.7%), although with fairly weak selling prices. Overall consolidated net sales in Italy amounted to €428 million, up 14.0% compared to 2016. Like for like net sales would have increased by 2.7%.
In Germany, GDP growth, supported by domestic demand and the recovery in exports, strengthened. The favorable economic situation was characterized by a high utilization of production capacity and a labor market close to full employment, with accelerating public spending and investments stimulated by advantageous financing conditions and high business confidence. GDP growth, which accelerated to 0.8% in the third quarter, is estimated at 2% for the whole year. Inflation, rather moderate, was 1.6% at the end of the year. The construction sector confirmed overall good growth, which was particularly robust in the residential segment, due to the increasing demand for new homes, and in the civil engineering projects. Our deliveries of hydraulic binders during the year maintained a rather constant and appropriate development (+4.5%), also favored by the lively demand for the so-called “oil well” cements. Selling prices showed a fairly linear trend, closing the year marginally up. Output volumes in the ready-mix concrete sector closed the period down (-5.0%), but with prices recovering. Thus overall net sales increased from €572 million in 2016 to €588 million in 2017 (+2.7%).
In Luxembourg and the Netherlands, cement and clinker volumes sold, inclusive of internal shipping, thanks to the strengthening in the second half of the year both in the domestic market and in exports, closed the year up (+4.5%) with a slight improvement in average unit revenues. The ready-mix concrete sector was characterized by clearly excellent volumes (+15.8%) and prices slightly down. Overall net sales amounted to €187 million, compared to €176 million in the previous year (+6.4%).
In Poland, during 2017, the pace of economic growth accelerated to +3.8%, consolidating a favorable economic cycle which was among the best performing in Europe. The recovery was supported by domestic demand, driven by the growing level of disposable income in a context that confirmed the use of production capacity at the highest levels and unemployment rate at an all-time low, and maintained high consumer confidence indicators. Exports continued to expand, but were more than offset by increased imports due to accelerated investments and consumption. The recovery in investments starting from the second half of the year, in particular the public ones, was supported by the re-launch of the use of European structural funds for infrastructures, while private investments maintained a more gradual development. Cement volumes sold by the group marked a slight positive change (+0.7%), with average prices in local currency improving. On the other hand, ready-mix concrete output recorded a decline (-7.9%), with stable prices. Net sales, favored by the appreciation of the zloty, increased from €95 to €97 million (+2.1%); at constant exchange rates, net sales would have been slightly down (-0.4%).
In the Czech Republic, thanks to the solid growth of domestic demand and the recovery in investments and exports, a more robust phase of economic development was reactivated. The unemployment rate in the country, which was confirmed as the lowest in the European Union, declined to 3% and household disposable income significantly strengthened. Net exports, driven by the recovery in international trade and in both private and public investments, boosted GDP growth during the year. The increase in GDP for the current year is estimated at +3.5%, significantly improving over the previous year, while inflation, which is increasing, is estimated at 2.3% in December. The level of investments in construction remained favorable, thanks to the good performance of private works and the recovery of public ones for infrastructures, co-financed by the European Union. Our cement sales posted a strong growth trend (+8.2%), with average selling prices in local currency marginally down. The ready-mix concrete sector, which also includes Slovakia operations, achieved similar production levels (+10.5%) with an improved average price. Consolidated net sales revenue therefore amounted to €148 million (+8.6%). The strengthening of the local currency had a positive impact on net sales; at constant exchange rates the turnover would have increased by 6.4%.
In Ukraine, the path of stabilization and promotion of economic growth which has been underway since 2016 continued, but the pace of recovery confirmed to be rather modest and not suitable for the real needs and potential of the country. It was conditioned by the effects of the structural reforms launched, (but not completed), and by the developments of the conflict in the eastern border regions, which implied contractions in the industrial sectors of steel, coal and electricity. Significant improvements were achieved in the manufacturing segment and a positive development took place in the construction sector, in the export of goods and in investments. GDP growth in 2017, although improving on the previous year, stopped at 2%, while the inflation rate, which also slightly decreased, remained at high levels (+12.8%). Cement volumes sold by our plants closed the year marginally down compared to the levels reached in the previous period (-1.5%), with prices in local currency that, driven by inflation, were considerably up. Ready-mix concrete output expanded clearly, with a double-digit increase in average prices in local currency. Net sales amounted to €95 million, compared to €80 million in 2016 (+18.5%). The translation of turnover into euro was penalized by the persistent depreciation of the local currency (unfavorable foreign exchange effect of €5.8 million).
In Russia, after the recession of the previous two years, the economic development during 2017 resulted in a moderate recovery. Domestic demand strengthened, driven by the upswing in industrial production, by progress in disposable income, by the slowdown in inflation (2.5% in December), by the strengthening of the ruble and by the improvement in the climate of business confidence. The contribution from net exports, after a period of slight recovery, returned to be negative due to the acceleration of imports, while the level of investments continued to be positive, despite limitations in the lending activity. GDP growth for the whole of 2017 is expected at 1.8%. Our sales volumes, which improved in the second half of the year, closed the entire period with a favorable change over the previous year of +1.7%, partly thanks to the positive performance of special oil well cements, with average prices in local currency marginally up. Net sales stood at €184 million, compared to €154 million in the previous year (+19.4%). The strengthening of the ruble had a positive impact on turnover of €20.4 million; at constant exchange rates, net sales would have increased by 6.2%.
United States of America
GDP growth in the central quarters of the year posted a sustained development of more than 3%, accompanied by the solid expansion of consumption and progress in the labor market, which is now close to full employment. The estimated GDP growth at 2.2% in 2017, recently revised upwards, would imply a significant improvement compared to the previous year, while inflation was slightly above 2%. The Federal Reserve raised rates and the gradual downsizing of the central bank's balance sheet began in October. Investments in construction slowed down to +1.1%, with still positive changes in the residential and commercial sectors but a contraction in infrastructures. Cement sales of the group, which in the third quarter had more than redressed the slight disadvantage accumulated during the first six months, in December were much affected by the cold spell that hit the country, with particularly low temperatures. The trend in deliveries was quite uneven in the different regions of presence: consistent recovery of the oil well cements, versus an easy comparison basis, gradual development in the Midwest regions, no shipping for some weeks in Houston and surroundings, caused by the devastating passage of the hurricane Harvey and, in December, an early winter with snowfalls and particularly low temperatures, even at low latitudes. The whole year closed with volumes in line with the ones of 2016, with selling prices in local currency that confirmed a favorable change of a few percentage points. Ready-mix concrete output, mainly present in Texas, was penalized both by the passage of the hurricane and by the weather conditions at the end of the year and closed down -3.5% compared to the previous year, with prices decreasing. Overall net sales increased from €1,118 to €1,120 million (+0.2%). The trend of the dollar, particularly in the second half of the year, had an unfavorable impact on the translation of results into euro; at constant exchange rates, net sales would have increased by 2.2%.
Mexico (valued by the equity method)
The economic activity of the country showed strong resilience with regard to the tensions and increasing uncertainties which were generated at the beginning of the year by the positions taken by the new US administration concerning the renegotiation of the NAFTA, the immigration reform and border barriers. Despite the insecurity on the prospects for economic relations with the United States of America, the business climate of the country remained favorable. GDP growth, standing at 2.5% in the first half, is expected at 2.1% for the whole year, supported by robust increase in private consumption, by good employment rate trend and by still considerable manufacturing exports. Inflation, that had accelerated in the first half, returned later to more manageable levels, closing below 6% in December. Cement volumes of the associate Corporación Moctezuma, thanks to the gradual and sustainable introduction of the new production capacity installed at the Apazapan (Veracruz) cement plant, achieved an adequate growth, with average prices in local currency clearly improving. Ready-mix concrete output developed a visibly weaker profile, but with prices, in local currency, following the increase of cement as raw material. With reference to 100% of the associate, net sales amounted to €686 million (+12.7%). The depreciation of the Mexican peso penalized the translation of results into euro: at constant exchange rate net sales would have increased by +16.3%.
From a meteorological point of view, the last quarter of the year was characterized, above all in the United States of America, by adverse weather conditions, which slowed down deliveries. Based on the preliminary information available, we expect the consolidated financial statements for 2017 to close with a recurring Ebitda of nearly €580 million, that is better than 2016 but at the lower end of the range which was disclosed to the market together with the trading update at 30 September, mainly due to the rapid depreciation of the dollar in the last quarter.
On 22 December, the President of the United States of America signed the "Tax Cuts and Jobs Act", which significantly changes US income tax law and includes, among other things, a reduction of the corporate income tax rate from 35% to 21%, effective 1 January 2018. Buzzi Unicem will realize a one-time, non-cash, positive effect of about €165 million ($187 million) on its consolidated net profit for the year 2017 due to the enactment of the tax reform. The 14 percentage points cut in the rate reduced the group’s deferred tax liability, which generated a positive outcome on the balance sheet. From 2018 onwards, the lower tax rate will have a favorable effect on Buzzi Unicem’s net profit and cashflow.
The Board of Directors of Buzzi Unicem SpA has also appointed by cooptation, on the proposal of the Asset Management Committee (body made up of representatives of Italian and foreign institutional investors), as an independent director, Luca Dal Fabbro, in place of Oliviero Maria Brega, who passed away last December 2017.
Luca Dal Fabbro is CEO of GRT Group SA, a leading Swiss company in the sector of circular economy and green technology, as well as director of Terna SpA.
The Board of Directors has assessed the existence, as for the new director, of the independence requirements pursuant to Legislative Decree no. 58/1998 as well as the independence requirements set forth in the Corporate Governance Code of Borsa Italiana.
The new director, pursuant to art. 2386 of the Civil Code, will remain in office until the next shareholders’ meeting.
The Board of Directors has also approved the merger by incorporation of the wholly owned subsidiaries Cementizillo SpA and Cementeria di Monselice SpA. The merger operation is aimed at simplifying the corporate structure of the Italian operations, at achieving further efficiencies as well as at reducing costs, particularly general administrative and overhead.
The transaction will be carried out by implementing the simplifications required by law on the merger of wholly owned companies and, therefore, will not entail either issues of new shares, or any assignment of Buzzi Unicem shares, or any changes to the by-laws.
Once the deadlines set by the law have expired, the merger contract will be executed.
The minutes of the Board of Directors will be disclosed to the public within the terms and with the procedures set out in current legislation. For any details on the transaction, please refer to the merger proposal and additional documentation already available on the company's website.
The Board of Directors for the approval of the statutory and consolidated financial statements
is scheduled to meet on 28 March 2018.
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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