Interim results at June 30, 2011
Good trend of sales volumes in Central Europe and emerging countries; enduring difficulties of construction sector in Italy and USA
Price effect still unfavorable and high inflation of production costs penalize operating margins
Net sales at €1,339 million (€1,227 million in 2010); Ebitda at €183 million (€189 million in 2010)
Thanks to an expected more favorable trend in second half, outlook of better results than in the previous year confirmed for full year 2011
| || |
|Cement sales||m ton||13.4||12.1||+11.2|
|Ready-mix sales||m m3||7.4||6.5||+12.6|
|Consolidated net profit||€m||-0.3||5.1||n/a|
|Jun 11||Dec 10||Change|
The Board of Directors of Buzzi Unicem met on August 5, 2011 to examine the interim financial report as of June 30, 2011.
In the first six months of the year the world economy slowed down, mainly as a consequence of the weakening of the US growth and a strong contraction in Japan, where the earthquake impact was worse than expected; conversely in the emerging countries the economic activity continued to grow at a sustained rate. International trade data show weaker exchanges starting from April. The inflation tension, which in mature markets remained moderate, gives cause for concern in the emerging economies, pushed up by the hikes in the price of commodities. In Europe, GDP growth strengthened, especially in Germany, thanks to the rebound of construction investments and the acceleration of capital goods spending and it continued also in the second quarter, although at a slower pace. GDP growth estimates for mature countries remain at around 2%, in a scenario of continuous weakness of the employment and the real estate market in the United States and of high tension on sovereign debt in the euro area. In the emerging countries, growth is forecast to exceed 6%, in a rising inflationary environment. The uncertainties on the intensity of the global economic recovery and the crisis of the sovereign debt in Europe brought to a continuous volatility of the financial markets and to a need for urgent action to improve public accounts.
Net sales posted in the first six months were up 9.1% to €1,339.4 million from €1,227.2 million in H1-10 while Ebitda amounted to €183.1 million versus €189.3 million (-3.2%). The increase of revenues was mostly due to the volumes effect. Selling prices in the first half of 2011 were still lower than in the same period a year earlier in all geographical areas of operations, except for Mexico and Ukraine. The unfavorable price effect and the surging energy costs (especially fuel) continued to penalize operating profitability. The weaker dollar had a negative foreign exchange effect on net sales, whereas, thanks to the stability or the slight strengthening of the other currencies, the impact on EBITDA was virtually nil.
Operating and financial results
In the first six months of the year, group’s cement volumes at 13.4 million tons were up 11.2% from the same period a year earlier. Ready-mix concrete volumes totaled 7.4 million cubic meters, up 12.6% over H1-10.
Consolidated Ebitda contracted by 3.2% to €183.1 million from €189.3 million in 2010. The 2011 figure includes a non-recurring income of €7.1 million. Net of this amount, Ebitda decreased by 13.2 million (-7.0%). Foreign exchange fluctuations positively impacted by €0.3 million mainly thanks to the strengthening of the Czech koruna and the Mexican peso which offset the dollar weakness. Changes in the scope of consolidation accounted for a slight increase (€3.2 million). Like-for-like, Ebitda would have decreased by 5.1%. Ebitda to sales margin improved in Central and Eastern Europe, whereas it decreased by some percentage points in Mexico, although remaining at the top in the group. In Italy and the United States, where demand showed no positive signs, in the first half of the year the costs/prices gap penalized operating results which strongly declined. After amortization and depreciation for €120.7 million (€116.2 million in H1-10), Ebit came in at €62.5 million (€73.0 million at June 2010). Profit before tax stood at €16.1 million versus €26.3 million in H1-10 (-38.6%), after net finance costs of €46.0 million (€49.9 million in 2010) and a negative contribution of €0.9 million from the associates accounted for under the equity method. Net profit for the period, which was influenced by a more favorable average tax rate, decreased from €17.0 million to €11.9 million (-29.8%), €0.3 million thereof being the loss attributable to owners of the company (vs. a profit of €5.1 million in 2010).
Cash flow reached €132.6 million versus €133.2 million at June 2010. Net debt as of 30 June 2011 amounted to €1,265.3 million versus €1,266.9 million at 31 December 2010. In the first six months, dividends for €15.4 million were paid out by the group, €1.2 million of which by the parent company. Capital expenditures totaled €79.2 million, €25.7 million thereof for capacity expansion projects.
Cement and clinker volumes, exports included, shrank by 1.8% from H1-10. Despite an improvement from the beginning of the year, thanks to lower discounts and the price list increase applied in June, selling prices reported a 5.0% decline over 1H-2010. Ready-mix concrete reported a 5.7% decrease in sales volumes, with prices down 1.2%. Overall net sales came in at €290.2 million, down 5.8% from €308.1 million in H1-10. Energy costs showed an upward trend from the beginning of the year, further penalizing the period profitability, although in the last months fuel price hikes slowed down while the cost of electric power, which is usually delayed, sped up. During the period the company realized other operating revenues equal to €13.5 million (€28.0 million in H1-10) deriving from the sale of CO2 emission rights which, based on the output expected, were estimated to be surplus to requirements. Gross of this income, Ebitda decreased from €40.9 million to €6.9 million (-83.2%).
In Germany, cement volumes sold increased by 19.5% from the same period a year earlier, with prices slightly down (-1.6%). After a brilliant beginning of the year, favored by good weather conditions, the second quarter showed a development of cement demand slightly more positive than in H1-10. Ready-mix concrete sector recorded an output increase of 45.8%, definitely favored by the change in the scope of consolidation following the acquisition of SIBO group, in a virtually unchanged pricing environment. Overall net sales stood at €308.3 million versus €242.2 million (+27.3%). During the first half of the year, the company realized other operating revenues equal to €7.9 million deriving from the sale of CO2 emission rights which, based on the output expected, were estimated to be surplus to requirements. Ebitda increased to €44.5 million from €32.3 million in 2010.
In Luxembourg, after the excellent first three months of the year, the second quarter consolidated the progress achieved. Cement and clinker volumes sold, including internal sales, increased by 30.3%, with slightly lower average unit revenues. The capacity of the new finish mill at the Esch-sur-Alzette plant made it possible to improve exports to neighboring countries, optimizing the sales mix. Net sales came in at €60.4 million, up 33.0% from €45.4 million in H1-10. The Ebitda jump from €5.6 million in 2010 to €21.3 million was due to other operating revenues equal to €4.9 million deriving from the sale of CO2 emission rights which, based on the output expected, were estimated to be surplus to requirements, and for €7.1 million from non-recurring gains on disposal of an investment property.
In the Netherlands, volumes sold totaled 0.50 million cubic meters of ready-mix concrete, in good improvement from the previous year, with net sales amounting to €58.1 million (€52.0 million in H1-10). Ebitda increased from €0.6 million to €1.8 million, with Ebitda to sales margin recovering to 3.1% (1.2% in 2010).
In the Czech Republic and Slovakia, cement volumes, inclusive of exports to sustain our market in Poland, increased by 56.9% from the same period a year earlier, while average selling prices in local currency suffered from the competitive pressure of the products coming from neighboring Slovakia (-15.9%). Ready-mix concrete sector also confirmed a significant rise in volumes (+28.3%) with prices lower by 4.6%. Overall net sales, thanks to some benefit deriving from the stronger koruna, increased by 26.0%, from €63.8 million to €80.3 million, while Ebitda stood at €15.0 million versus €11.7 million in H1-10 (+27.5%). Ebitda to sales margin slightly improved from 18.4% to 18.6%.
In Poland cement sales volumes were positive versus 2010 (+6.7%) and ready-mix concrete output jumped by 32.5%. Cement prices were virtually unchanged while ready-mix concrete ones strengthened by 6.6%. Net sales in euro came in at €65.6 million, up 17.1% from €56.0 million. Ebitda increased by 18.3% to €15.0 million versus €12.7 million in H1-10 with Ebitda margin posting a slight improvement, from 22.7% to 22.9%. Fuel costs underwent a sizeable increase (+14%), while the rise in electricity price was less conspicuous (+2%).
In Ukraine cement volumes sold increased by 24.9% from the same period a year earlier, in a better pricing environment (+9.5% in local currency). Net sales and Ebitda increased from €32.4 million to €42.4 million (+30.9%) and from -€7.2 million to €1.0 million respectively. As expected, a positive profitability was resumed also thanks to lower production costs following the troubleshooting of the new equipment to switch from natural gas to coal.
In Russia volumes sold increased by 43.8% from H1-10, with prices in local currency tending upwards but still weak (-5.4% vs. H1-10). The unfavorable price effect was strongly influenced by some shifts in sales mix, having deliveries of traditional grey cement grown more than oil well cements’ ones. Net sales were up 35.0% from €55.7 million to €75.1 million while Ebitda stood at €20.5 million from €18.5 million in 2010 (+11.3%). The modest ruble devaluation (-0.5%) had no sizeable effect on results translation into euro. Russian operations’ Ebitda to sales margin remained at a good level (27.3%), albeit quite lower than in the previous year (33.2%). Actually the sizeable increases in the cost of electricity (+26%) and fuels (+14%) were only partially offset by the savings achieved thanks to the new dry-process production line at Suchoi Log.
United States of America
Cement volumes sold remained stable (+0.1%) and ready-mix concrete output was virtually unchanged (+0.2%). After a promising start in the first three months of the year, favored by good weather, in the second quarter the heavy rain which caused flooding in the Mississippi area and stopped river navigation, contributed to slowdown demand. Cement selling prices in local currency dropped by 6.7%; unfortunately the attempted increases effective from April had a modest practical impact, limited to some geographical areas. Overall net sales came in at $363.3 million, down 2.8% from $373.9 million in H1-10 and Ebitda decreased by 52.5%, from $46.6 million to $22.1 million. Foreign exchange effect further penalized the figures; consequently, translated into euro, overall net sales decreased by 8.0% from €281.4 million to €258.9 million and Ebitda was down by €19.3 million, from €35.1 million to €15.8 million (-55.1%). Volumes lack of growth, selling prices weakness and cost pressure in fuel and electricity had a major impact on recurring Ebitda to sales margin, which plunged from 12.5%.% to 6.1%.
Mexico (50% consolidation)
Cement volumes sold increased by 13.9%, while ready-mix concrete output declined by 3.0%. Cement prices in local currency improved by 3.2% and ready-mix concrete ones were up 5.1% from H1-10. Net sales and Ebitda in local currency showed a progress of 15.4% and 5.1% respectively. The revaluation of the Mexican peso positively impacted the results translation into euro: net sales increased by 16.4%, from €101.7million to €118.3 million and Ebitda was up 6.0%, from €39.0 million to €41.4 million. Ebitda to sales margin was equal to 35.0% versus 38.4% in 2010, due to the higher production costs consequent to the strong hikes in the price of fuels and, to a lesser extent, electricity.
The first half of 2011 featured a two-speed trend in the markets of group operations: a good rebound of sales volumes in Central Europe, Eastern Europe and Mexico and enduring difficulties of the construction sector in Italy and the United States of America. The positive volumes effect was not matched by an improvement in prices, although their level at the end of June was almost everywhere better than at 2010 year-end. The trend in production costs, especially fuels, raw materials and electricity was very penalizing and led to a further shrinkage of operating margins, since the increases could not be passed on to selling prices.
This two-speed trend in our sector is likely to continue in the second half of the year. On the price front, thanks to the more favorable comparison base and a lively demand, we believe that the average value at the end of the year will overall exceed the previous year’s one, barring few exceptions (the Czech Republic, the United States). The absolute level of energy costs remains quite high but volatility might decrease in the second part of the year. Overall we deem that conditions exist to achieve in the second half better results than in 2010 and thus confirm, for the full year 2011, the expectation of better recurring operating results compared with the previous year.
Senior Notes and Bonds on maturity
In the period from January 1 to June 30, 2011 no new bonds were issued.
In the 18 months subsequent to June 30, 2011, the following repayments of bond principals shall be effected:
- on October 20, 2011, $18.3 million referred to the Senior Notes Series C issued by the subsidiary Alamo Cement Company in 2004 (last tranche).
- on May 29, 2012, $80.0 million referred to the Senior Notes Series B issued by the subsidiary RC Lonestar Inc. in 2002;
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. Upon attainment of some balance sheet ratios based on the financial statements 2010, the lenders have the right to receive the advance repayment starting from December 15, 2011. However, 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.
Investor Relations Assistant
Phone. +39 0142 416 404
Buzzi Unicem 1H-11 results will be illustrated during a conference call to be held today, Friday August 5, at 4:00 pm CEST. To join the conference, dial +39 02 8020911.