Interim results at June 30, 2009
Cement and ready-mix sales down 21.2% and 18.9% respectively
Demand still weak in mature markets and Eastern Europe highly penalized by the international economic scenario
Net sales -22.6%; Ebitda at €249 million (-44.6%)
Previous outlook of full year 2009 results revised downward
| || |
|Cement sales||m ton||12.6||16.0||-21.2|
|Ready-mix sales||m m3||6.8||8.4||-18.9|
|Consolidated net profit||€m||40.6||168.7||-75.9|
|Jun 09||Dec 08||Change|
The Board of Directors of Buzzi Unicem met on August 11, 2009 to examine the interim report as of June 30, 2009.
The second quarter of 2009 continued to show dynamics similar to those of the first three months of the year. The recession of the world economy kept its intensity, consequently commodities and services demand in the different economic sectors, especially the cyclical ones, did not show clear signs of recovery. The ongoing negative trends caused a conspicuous decline of group’s results, with net sales down 22.6% to €1,346.0 million and Ebitda contracting by 44.6% to €249.0 million. Ebit decreased from €341.5 million to €136.8 million while net profit amounted to €55.6 million.
The sharp decline of results was due to the demand deterioration which affected virtually all geographical areas of operations, especially Ukraine and Russia, which in the same period of 2008 had largely contributed to the profitability improvement; moreover in the more mature markets (Italy, Germany and the United States) trading conditions developed more negatively than initially expected.
Operating and financial results
In the first six months of the year, group’s cement volumes at 12.6 million tons were down 21.2% from the same period a year earlier. Ready-mix concrete volumes totaled 6.8 million cubic meters, down 18.9% from 1H-08 (-23.8% at constant scope of consolidation).
Consolidated Ebitda contracted by 44.6% from €449.8 million to €249,0 million. Excluding a net non-recurring income of €31.6 million, Ebitda would have decreased by 50.8% from €442.3 million to €217.4 million. Foreign exchange fluctuations negatively impacted by €4.4 million while changes in the scope of consolidation accounted for a slight increase (€2.9 million). Like-for-like Ebitda would have decreased by 44.2%. Ebitda to sales margin, despite the sharp drop in volumes, remained at a satisfactory level in the United States, Russia, Poland and the Czech Republic.
After amortization and depreciation for €112.3 million (€108.3 million in 1H-08) Ebit came in at €136.8 million (€341.5 million at June 2008). Profit before tax stood at €80.3 million versus €317.5 million in 1H-08, influenced by higher net finance costs (€59.4 million versus €34.4 million) and by a lower contribution from the associates accounted for under the equity method. Net profit for the period benefited from a more favorable average tax rate and decreased from €211.0 to €55.6 million, €40.6 million thereof attributable to owners of the company (€168.7 million in 2008).
Cash flow declined to €167.9 million (€319.3 million at June 2008). Net debt as of 30 June 2009 amounted to €1,283.8 million, up €224.1 million versus €1,059.7 million at 31 December 2008. In the first six months, dividends for €92.2 million were paid out by the group, €74.9 million of which by the parent company. Investments totaled €201.7 million, of which €119.7 million in property, plant and equipment for capacity expansion projects and €4.5 million in equity.
In the first six months, cement and clinker volumes, exports included, shrank by 15.0% from 1H-08, posting a lower contraction than the market average thanks to the contribution of the Sorbolo (Parma) and Manfredonia (Foggia) grinding centers acquired at the end of 2008. Energy costs showed a downward trend in the six months, however while electric power reported an average cost lower than in 1H-08, fuel prices remained quite higher due to destocking of material purchased in the second half of 2008, when prices were in steep increase. Ready-mix concrete, as occurred in the first quarter, faced stronger trading difficulties, accruing a volumes slowdown of 16.2%. Overall net sales came in at €372.1 million, down 16.6% from €446.3 million in 1H-08. Also Ebitda at €33.6 million showed a remarkable decrease (€89.6 million in 2008, -62.5%).
In Germany, cement volumes sold contracted by 19.1% from the same period a year earlier, despite the increase of exports to the Netherlands. Better average selling prices, up 7.4%, could only partially curb the profitability decline due to the drop of volumes. Ready-mix concrete sector recorded an output decrease of 23.0%, with prices showing an upward trend (+15.8%). Overall net sales stood at €247.1 million versus €288.9 million (-14.5%) while Ebitda increased by 33.0%, from €47.0 million to €62.6 million. On 26 June 2009 the Düsseldorf Higher Regional Court ruled against the major cement producers in Germany, in relation to the alleged cartel practices carried out in the years 1991-2001 in the Country. However thanks to Dyckerhoff’s steady cooperation with the antitrust authority, the company which had decided not to file an appeal, obtained a sizeable reduction of the fine previously set at €95 million and will be due to pay €50 million. Ebitda was thus positively impacted for €37.4 million by the partial release of the provision for the antitrust suit, net of which Ebitda decreased by 45.9%, dropping to €25.2 million.
In Luxembourg the group’s operations showed a decline in line with the one posted by the other markets in the area. Cement and clinker volumes sold decreased by 17.0%, with average unit prices higher by 4.2%. Net sales decreased from €45.9 million to €39.7 million (-13.5%) and Ebitda declined from €7.7 million to €5.6 million (-26.6%) with a consequent deterioration of Ebitda to sales margin from 16.7% to 14.2% mainly due to the increase in production costs.
In the Netherlands, volumes sold dropped to 0.47 million cubic meters of ready-mix concrete, down 18.2% from the previous year, with net sales amounting to €54.9 million (€69.4 million in 1H-08). At constant scope of consolidation net sales would have decreased by 7.6%. Ebitda declined from €4.2 million to €0.9 million, with Ebitda to sales margin down to 1.7% (6.1% in 2008).
In the Czech Republic and Slovakia cement volumes decreased by 25.3% while prices in local currency improved by 2.6%. Ready-mix concrete sector was even more penalized, with volumes down 36.3% and slightly lower prices in local currency (-1.4%). Overall net sales declined 36.1%, from €125.5 million to €80.2 million, and Ebitda stood at €18.7 million versus €32.9 million in 1H-08 (-43.1%). Both figures were negatively affected by the koruna devaluation (-7.8%).
In Poland the sharp drop of cement consumption recorded in the first quarter was only partially countered by the positive growth posted in the second quarter. Sales volumes declined by 10.9% while prices in local currency improved by 2.6%. In the ready-mix concrete sector the contraction was stronger (-23.8%) with slightly lower prices (-3.7%). Net sales in euro decreased by 36.3% from €89.0 million to €56.7 million, and Ebitda was down 43.7% from €31.4 million to 17.7 million. Zloty devaluation impacted the two figures for €16.0 million and €5.0 million respectively. Operating profitability was still excellent, with Ebitda to sales margin at 31.3%.
In Ukraine cement volumes sold plunged 56.0%, with average selling prices in local currency slightly down (-1.7%). Ready-mix concrete sales were especially depressed, with a drop of 71.7% in a slightly brighter pricing environment (+5.5%). Net sales and Ebitda decreased from €108.5 million in 2008 to €33.5 million in 2009 (-69.1%) and from €35.8 million to -€9.2 million respectively. Foreign exchange penalized net sales by €13.0 million. The contraction of sales volumes and the increase in production costs had a very strong negative impact on Ebitda to sales margin.
In Russia the dire economic situation brought to a sizeable contraction of the cement volumes sold by Suchoi Log plant (-36.3%). The lack of market demand had a disruptive effect on average unit prices which plunged 29.8% from a year earlier although the comparison is quite penalizing due to the very positive trend recorded in 1H-08. Consequently net sales and Ebitda showed a sharp decline compared with the excellent results posted in 2008. Net sales were down 61.5%, from €128.8 million to €49.5 million and Ebitda stood at €21.1 million from €86.6 million in 2008 (-75.7%). Net of foreign exchange effect, the two figures would have decreased by 53.7% and 70.7% respectively. Despise the activities downsizing, Ebitda to sales margin remained at 42.5%, still at the top in the group.
United States of America
Cement volumes were down 22.9% while ready-mix concrete sales increased by 4.6% thanks to the wider scope of consolidation. Weather conditions in the areas of operations did not favor sales: after an unusually harsh winter, heavy raining in spring did not allow a good work continuity on building yards. Cement selling prices in local currency were slightly down (-3.5%) while production costs remained at about the same levels as in 2008. Foreign exchange positively impacted net sales for €42.4 million and Ebitda for €7.8 million. Translated into euro overall net sales decreased by 5.5% from €345.7 million to €326.7 million and Ebitda was down by €12.6 million from €73.0 million to €60.4 million (-17.3%). Net of non-recurring items (€5.8 million in 2009 for risk provisions), a 9.4% decrease would have been posted. Ebitda to sales margin was thus only marginally affected by the ongoing crisis and came in at 20.3% versus 21.1% in 1H-08 also thanks to the strong cost cutting measures introduced in the last 18 months.
Mexico (50% consolidation)
Cement volumes sold by our associate increased by 4.6%, while ready-mix concrete sales were down 5.0%. Cement and ready-mix pricing in local currency increased by 4.6% and 6.5% respectively. Net sales and Ebitda in local currency showed a progress of 8.1% and 2.8%. The weakening of the Mexican peso once again penalized the results translation into euro: net sales declined by 4.8% (from €100.9 million to €96.1 million) and Ebitda was down 9.5% (from €41.5 million to €37.6 million). Ebitda to sales margin decreased from 41.1% to 39.1%: the benefits deriving from improved selling prices were not such as to offset production costs still at a higher level than in 1H-08.
In the first half of 2009 the industry crisis was nearly everywhere more marked than expected. Exceptionally unfavorable was the scenario recorded especially in Ukraine and Russia, where the combined effect of volumes, prices and costs reduced the countries’ contribution to the group’s operating results to less than one tenth compared with the previous year.
Based on the information currently available, we expect the construction sector in the countries of group’s operations to continue being penalized; however sales development in the second half of the year, compared with the same period 2008, should show less negative variances than those reported up to the end of June. Moreover, the second half of the year should likely benefit in a more substantial way from a mitigation of production costs due to the containment measures adopted, the higher efficiency provided by the investment projects coming on stream and a fuel and energy deflation in some areas of presence. Emphasizing once again the high degree of uncertainty of all present forecasts, we think that at consolidated level the outcome of financial year 2009 will be more unfavorable than initially assumed and the group will close with a recurring Ebitda lower by around 40% over 2008.
Senior Notes and Bonds on maturity
During the first half 2009 no new senior notes and bonds were issued by the companies of the group. In the 18 months subsequent to June 30, 2009, the following repayments of bond principals shall be effected:
- on October 20, 2009, US$18.3 million and €15.0 million (for a total of €30.2 million) referred to the Senior Notes Series C issued by the subsidiary Alamo Cement Company in 2004.
- on May 29, 2010, US$58.3 million (equal to €48.3 million) referred to the Senior Notes Series A issued by the subsidiary Buzzi USA Inc. in 2002;
- on June 1, 2010, US$ 315.5 million (equal to €223.2 million) referred to the Bond issued by the subsidiary Lonestar Industries Inc. in 2000.
- on October 20, 2010, US$18.3 million (equal to €15.2 million) referred to the Senior Notes Series C issued by the subsidiary Alamo Cement Company in 2004.
The mezzanine loan issued by the subsidiary Dyckerhoff AG for a principal amount of €200.0 million will be due at the end of 2012. However, upon attainment of some balance sheet ratios based on the financial statements 2008, the lenders have the option to require the advance repayment as from December 15, 2009. In 2008 approx. €2.5 million were repaid. As of now, no repayment of significant amount is expected before the final maturity of the loan.
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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