Interim results at June 30, 2010
Recovery in the second quarter but at end of June volumes still lower than in 2009
Widespread selling prices weakness, especially in Italy and Russia
Net sales at €1,227 million (€1,346 million in 2009); Ebitda at €189 million (€249 million in 2009)
Coming on stream of the major investment projects to boost competitiveness in Eastern Europe
Signs of recovery in the second half but results still expected in decline
| || |
|Cement sales||m ton||12.1||12.6||-4.0|
|Ready-mix sales||m m3||6.5||6.8||-3.9|
|Consolidated net profit||€m||5.1||40.6||-87.4|
|Jun 10||Dec 09||Change|
The Board of Directors of Buzzi Unicem met on August 10, 2010 to examine the interim financial report as of June 30, 2010.
The international economic scenario showed early signs of improvement during the second quarter; trade exchanges intensified and various sectors of the economy benefited from rising investments, as an indication of greater confidence on a forthcoming new cycle of economic growth. In Europe, however, positive developments were strongly slowed down by the high indebtedness of central governments, which required the sudden implementation of deficit reduction measures and budget tightening policies to keep down financial markets tension. Also the construction sector showed a general more favorable trend than in the first quarter of the year, when demand had been strongly penalized by harsh weather. Group’s cement sales volumes increased by 8.0% from the second quarter a year earlier, thus allowing to considerably close the gap accrued at the beginning of the year. Net sales posted in the first six months were down 8.8% to €1,227.2 million from €1,346.0 million in 1H-09 while Ebitda amounted to €189.3 million versus €249.0 million (-24.0%).
The decline of revenues, and even more of margins, was mostly due to the negative trend of selling prices which affected all geographical areas of operations, except for Luxembourg and Mexico. The revaluation of the emerging countries’ currencies positively impacted the results translation into euro, while the dollar average exchange rate was similar to the first six months of 2009.
Operating and financial results
In the first six months of the year, group’s cement volumes at 12.1 million tons were down 4.0% from the same period a year earlier. Ready-mix concrete volumes totaled 6.5 million cubic meters, down 3.9% over 1H-09.
Consolidated Ebitda contracted by 24.0% to €189.3 million from €249,0 million in 2009, which however included a non-recurring income of €31.6 million. Net of this amount, Ebitda decreased by 28.1 million (-12.9%). Foreign exchange fluctuations positively impacted by €7.4 million while changes in the scope of consolidation accounted for a slight increase (€2.0 million). Like-for-like, Ebitda would have decreased by 27.6%. Ebitda to sales margin, despite the worsening of results, remained at a satisfactory level in Mexico, Russia, Poland and the Czech Republic. After amortization and depreciation for €116.2 million (€112.3 million in 1H-09), Ebit came in at €73.0 million (€136.8 million at June 2009). Profit before tax stood at €26.3 million versus €80.3 million in 1H-09 (-67.3%), after net finance costs of €49.9 million (€59.4 million in 2009) and a contribution from the associates accounted for under the equity method in line with the previous year. Net profit for the period, which was affected by a less favorable average tax rate, decreased from €55.6 million to €17.0 million (-69.5%), €5.1 million thereof attributable to owners of the company (€40.6 million in 2009).
Cash flow declined to €133.2 million versus €167.9 million at June 2009. Net debt as of 30 June 2010 amounted to €1,262.8 million, up €53.5 million versus €1,209.3 million at 31 December 2009. In the first six months, dividends for €28.6 million were paid out by the group, €20.8 million of which by the parent company. Capital expenditure totaled €167.7 million, of which €96.2 million for capacity expansion projects.
Cement and clinker volumes, exports included, shrank by 4.0% from 1H-09. Despite a 13.1% recovery in the second quarter, cement demand remained weak and quite lower than the country’s production capacity. Selling prices were the most penalized (-18.5%), with a further worsening of the downward trend which had begun in the second half of 2009. Ready-mix concrete reported a 7.0% decrease in sales volumes, with prices down 3.7%. Overall net sales came in at €308.1 million, down 17.2% from €372.1 million in 1H-09. Energy costs showed an upward trend in the six months, after a very favorable beginning of the year; however fuel and electric power still remained at a lower level than in 1H-09, thus partly sustaining profitability. During the period the company realized other operating revenues equal to €28.0 million deriving from the sale of CO2 emission rights which, based on the output expected, are deemed to be surplus. Gross of this income, Ebitda increased from €33.6 million to €40.9 million (+21.6%).
In Germany, cement volumes sold increased by 0.3% from the same period a year earlier, with prices slightly down (-2.4%). Despite a beginning of the year still very negative, mostly affected by adverse weather, the second quarter showed a good development of cement demand. Ready-mix concrete sector recorded an output increase of 7.5%, in a negative pricing environment (-6.0%). Overall net sales stood at €242.2 million versus €247.1 million (-2.0%). During the first half of the year, the company realized other operating revenues equal to €4.7 million deriving from the sale of CO2 emission rights which, based on the output expected, are deemed to be surplus. Ebitda decreased to €32.3 million from €62.6 million in 2009, which however included non-recurring income for €37.4 million, net of which Ebitda increased by 28.2%.
In Luxembourg, cement and clinker volumes sold, including internal sales, increased by 13.2%, with slightly higher average unit revenues. Net sales came in at €45.4 million, up 14.5% from €39.7 million in 1H-09. Due to an increase in maintenance costs, non-repeatable in the second half of the year, Ebitda remained stable at €5.6 million, with a consequent decrease of Ebitda to sales margin from 14.2% to 12.4%.
In the Netherlands, volumes sold totaled 0.42 million cubic meters of ready-mix concrete, down 10.7% from the previous year, with net sales amounting to €52.0 million (€54.9 million in 1H-09). Ebitda declined from €0.9 million to €0.6 million, with Ebitda to sales margin down to 1.2% (1.7% in 2009).
In the Czech Republic and Slovakia cement volumes decreased by 25.6% from the same period a year earlier, with a negative trend also in average selling prices in local currency (-6.8%). Ready-mix concrete sector was similarly penalized, with volumes down 20.5% and prices lower by 3.2%. Overall net sales, despite some benefit deriving from the stronger koruna, declined 20.4%, from €80.2 million to €63.8 million while Ebitda stood at €11.7 million versus €18.7 million in 1H-09 (-37.4%). Ebitda to sales margin, although falling from 23.4% to 18.4%, remained at a satisfactory level, thanks mainly to fuel lower cost (-42%).
In Poland cement sales volumes were slightly negative versus 2009 (-1.7%) and ready-mix concrete output declined by 3.5%. Volumes contraction negatively affected selling prices, which were down 8.1% and 13.3% respectively. Net sales in euro came in at €56.0, virtually unchanged from €56.7 million (-1.1%), mainly due to zloty revaluation (+10.6%). The drop in volumes and prices resulted in a deterioration of profitability from 31.3% to 22.7%, causing Ebitda to decrease by 28.2% to €12.7 million versus €17.7 million in 1H-09.
In Ukraine cement volumes sold increased by 4.4% from the same period a year earlier, in a weak pricing environment (-7.5% in local currency). Net sales and Ebitda decreased from €33.5 million to €32.4 million (-3.4%) and from -€9.2 million to -€7.2 million respectively. Margins were still jeopardized by production costs, especially energy factors, which remained extremely high throughout the six months. Operating losses, however, were lower than in 1H-09 thanks to the completion, towards the end of the period, of the project to switch from natural gas to coal, which will enable our operations to resume a positive profitability starting from the second half of the year.
In Russia volumes sold increased by 14.4% from 1H-09, but prices in local currency kept dropping (-15.9%). The decline was also due so some shifts in sales mix, with price of grey cement more under pressure than oil well cement’s one. Net sales were up 12.3% from €49.5 million to €55.7 million while Ebitda stood at €18.5 million from €21.1 million in 2009 (-12.4%). Ruble revaluation (+9.5%) had a sizeable effect on results translation into euro, net of which the two figures would have changed by +1.7% and -20.7% respectively. Russian operations’ Ebitda to sales margin remained at a good level (33.2%), although lower than in the previous year (42.5%) due to the drop in prices and the increase, at the same time, of production costs (fuel +27%).
United States of America
Cement volumes sold decreased by 10.8% while ready-mix concrete output was down 0.5%. Cement selling prices in local currency dropped by 8.6%, as a consequence of a still weak demand and a lengthy underutilization of capacity. Overall net sales came in at $373.9 million, down 14.1% from $435.2 million in 1H-09 and Ebitda decreased by 42.1%, from $80.5 million to $46.6 million. Foreign exchange had a little material effect, consequently, translated into euro, overall net sales decreased by 13.8% from €326.7 million to €281.4 million and Ebitda was down by €25.3 million from €60.4 million to €35.1 million (-41.9%). The decline of volumes and, even more, of prices had a major impact on recurring Ebitda margin, which plunged from 20.3% to 12.5%.
Mexico (50% consolidation)
Cement volumes sold decreased by 6.1%, while ready-mix concrete output grew by 10.1%, thanks to the favorable market trend in the capital (Distrito Federal). Cement prices in local currency remained stable (+0.9%) while ready-mix concrete ones were slightly lower than in 1H-09 (-1.7%). Net sales and Ebitda in local currency showed a decline of 3.4% and 5.2% respectively. The revaluation of the Mexican peso positively impacted the results translation into euro: net sales increased by 5.8%, from €96.1 million to €101.7 million and Ebitda was up 3.9%, from €37.6 million to €39.0 million. Consequently Ebitda to sales margin was equal to 38.4% versus 39.1% in 2009, due to higher fixed structural and maintenance costs.
In the first half of 2010 the scenario was still difficult, featuring continued weak demand, general decline in selling prices, low capacity utilization in the group’s key markets and unsettled weather through most of the period. During the second quarter however a fair turnabout was noticed, due both to the recovery of unsold volumes and to the signs of improvement in the economic context. We think that the gradual resumption of construction investments will continue in the second half of the year, with growing intensity especially in the geographical areas hardest hit, such as Russia, Ukraine and the United States of America. No sizeable improvement is expected on pricing level, whose rise can occur only against a higher capacity utilization extended to all players in each market. Also the trend in production costs causes some concern, especially the constant increase of fuels.
Finally, given the persistent high uncertainty on the scope and speed of the recovery, we believe that, at group’s level, the year 2010 will continue to be difficult and will close with a recurring Ebitda down around 15% from the previous year.
Senior Notes and Bonds on maturity
On April 1, 2010 the subsidiary RC Lonestar Inc. completed a new issue of $200 million of Senior Unsecured Notes. The Notes are structured in two tranches:
- a first tranche of $170 million, with 5-year average life and final maturity on April 1, 2016 at the fixed annual rate of 4.90% payable semi-annually;
- a second tranche of $30 million with bullet repayment on April 1, 2016, at a floating annual rate equal to 3-month Libor plus 245 basis points payable quarterly.
In the 18 months subsequent to June 30, 2010, the following repayments of bond principals shall be effected:
- on October 20, 2010, $18.3 million referred to the Senior Notes Series C issued by the subsidiary Alamo Cement Company in 2004.
- on May 29, 2011, $80.0 million referred to the Senior Notes Series B issued by the subsidiary RC Lonestar Inc. in 2002;
- on October 20, 2011, US$18.3 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 2009, the lenders have the right to receive, each year, in December, the total or partial advance repayment. In 2009 approx. €1 million was repaid. As of now, no repayment of significant amount is expected before the final maturity of the loan.
The Board of Directors, moreover, has approved the merging by incorporation of the 100% subsidiaries Parmacementi S.p.A. and Escalcementi S.r.l. Merging transactions are expected to be completed by the end of the current year.
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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