Interim results at March 31, 2010
Cement and ready-mix volumes down 19.6% and 14.1% respectively
Weak demand and adverse weather deeply affect results
Net sales at €459.6 million (€587.3 million in 2009); EBITDA at €13.9 million (€39.3 million in 2009)
Outlook of lower results confirmed for full year 2010
Near completion the investment plan to boost competiveness
| || |
|Cement sales||m ton||4.4||5.5||-19.6|
|Ready-mix sales||m m3||2.6||3.0||-14.1|
|Net profit (loss)||€m||(50.2)||(40.4)||-24.2|
|Consolitated net profit (loss)||€m||(52.9)||(43.0)||-23.0|
|Mar 10||Dec 09||Change|
The Board of Directors of Buzzi Unicem met on May 12, 2010 to examine the interim management report as of March 31, 2010.
In the first quarter of the year 2010, in the different countries where the group operates, construction investments failed to show any clear signs of recovery. Cement and ready-mix concrete demand remained weak as compared with the same period a year earlier, with the strongest contraction reported in Italy, the United States and Eastern Europe countries. Sales volumes were penalized by an exceptionally harsh winter not only in Continental Europe, but also in geographical areas which are usually less affected by seasonability, such as the state of Texas (USA). Within the quarter, March showed a remarkable improvement over the two previous months, thanks to better weather conditions and, perhaps, to a stabilization of the underlying demand. The deflationary context which has been going on since the second half of 2009 allowed for a reduction in production costs linked to fuel, mainly in Italy, the United States and Mexico and to a lesser extent in Central and Eastern Europe (apart from Russia where an increase was recorded). Conversely, electric power cost decreased in Italy, Central Europe and Ukraine, while in the other countries reported an unfavorable trend. After the strong devaluation suffered in 2009, the emerging countries’ currencies strengthened, with a positive effect on the translation of results into euro. The dollar instead was slightly negative, since it compares with the first quarter 2009 when foreign exchange was more favorable than the year average.
The general uncertainty on the timing and real possibility of the next economic recovery reflects on the investment choices of the operators, thus affecting private and industrial building. Moreover the troubles of several central Governments on the public debt front, besides restraining investment possibilities and demand stimulus, make the stabilization of the financial and credit world and consequently of the real economy more difficult.
In the first three months of the year, group’s cement volumes at 4.4 million tons were down 19.6% from the same period a year earlier. Volumes scenario showed a contraction in all countries of group’s operations and especially in the United States, Italy, Ukraine and the Czech Republic. Ready-mix concrete volumes totalled 2.6 million cubic meters, down 14.1% from 1Q-09. The downturn was especially remarkable in Eastern Europe while in the other countries sales decline was more contained; Mexico only closed the quarter positively, posting a 7% progress in the sector.
The further slowdown of demand caused some pressure on selling prices in various geographical areas. A negative trend was recorded in Italy, the United States, Russia, the Czech Republic and Poland. Conversely in Germany, Luxembourg, Ukraine and Mexico pricing situation remained stable or slightly improved. Also in the ready-mix concrete in general, selling prices trend was negative, due to a stronger and stronger competition among the producers on the few work orders available.
Consolidated net sales decreased by 21.7% from €587.3 million to €459.6 million; volumes and prices effects, both unfavorable, accounted for €98.8 million and €21.3 million respectively; Ebitda stood at €13.9 million, down €25.4 million from 1Q-09 (-64.6%). In the quarter, Ebitda to sales margin contracted from 6.7% to 3.0%. Changes in the scope of consolidation and foreign exchange fluctuation accounted for a decrease in net sales of €0.4 million and €0.6 million respectively. Ebitda instead was positively impacted by €0.9 million and €1.9 million respectively. Like-for-like net sales and Ebitda would have decreased by 21.6% and 70.0% respectively. The plans implemented to increase productivity and operating efficiency have started to show positive effects on cost structure, but such an effort has been temporarily frustrated by the negative trend in selling prices and the low capacity utilization, due to seasonability and contingent reasons. After amortization and depreciation for €54.2 million (€51.4 million in 1Q-09) Ebit was negative for €40.3 million (-€12.1 million in 2009). Net financial expenses at €33.5 million were slightly up from €32.5 million in 2009. The unfavorable change, due to the increase of net debt and the contextual decrease of available cash yields, was offset by a more favorable net effect of the more volatile components of the financial charges (foreign exchange differences, derivative valuation). As a result, the first quarter 2010 closed with a loss before tax of €74.4 million versus €45.3 million at March 2009. After income tax expense, net loss came in at €50.2 million (€52.9 million being the amount attributable to the owners of the company).
Cash flow was equal to €4.0 million (€11.0 million at March 2009). Net debt as of 31 March 2010 amounted to €1,319.7 million, up €110.5 million over year-end 2009. Investments accounted for a total of €90.3 million of the figure, €67.7 million thereof for the progress of the capacity expansion projects in Russia, Ukraine and Mexico. As of March 31, 2010, total equity, inclusive of minority interest, stood at €2,834.4 million versus €2,712.4 million as of December 31, 2009. Consequently debt/equity ratio was equal to 0.47 (0.45 at 2009 year-end).
In the first three months, the construction industry remained under pressure and group sales reported a decline of 21.0%. Deliveries contraction, worse than the national average, was further penalized by the comparison with a first quarter 2009 when our sales had been especially brilliant. Selling prices decreased by 9.9%, with a downward trend through the quarter, as a sign of a complex competitive environment featuring an excess production capacity which is putting profitability under strong pressure. Ready-mix concrete was less penalized, with sales volumes down 10.6% and slightly lower prices. Overall, net sales in Italy came in at €136.2 million, down 22.5% versus €175.8 million in 1Q-09. Ebitda stood at €6.5 million (€5.7 million in 2009, +14.1%). During the quarter the company realized other operating revenues equal to €7.6 million deriving from the sale of CO2 emission rights which, based on the output expected, were estimated to be surplus to requirements.
In Germany, the year 2010 began with a quite weak level of activities and with cement and ready-mix concrete volumes decreasing by 17.0% and 11.0% from the same period of 2009. Deliveries were strongly influenced by weather conditions in January and February, while in March they were virtually stable from an year earlier. Cement selling prices were slightly down (-1.1%). Overall net sales stood at €81.9 million versus €100.7 million in 1Q-09 and Ebitda decreased from-€1.4 million to -€1.8 million. During the quarter the company realized other operating revenues equal to €2.5 million deriving from the sale of CO2 emission rights which, based on the output expected, were estimated to be surplus to requirements.
In Luxembourg cement and clinker volumes reported a slight contraction (-2.1%), in a positive selling price environment (+3.9%). Thanks to the new cement grinding mill installed at the Esch-sur-Alzette plant, the improvement of the sales mix showed the first effects already in the first quarter, with net sales reaching €15.2 million, up 2.0% from €14.9 million in 2009. Ebitda conversely declined by €1.1 million, from -€2.2 million to -€3.4 million, mainly as a consequence of higher maintenance costs.
In the Netherlands, in the first three months, volumes sold dropped by 21.8%, with slightly higher prices. Consequently net sales declined by 22.2% and Ebitda was negative for €1.4 million (-€0.5 million in 2009).
The beginning of the year was negative for the cement industry, mainly due to bad weather conditions which strongly restrained building activities. Cement sales posted a sizeable contraction in Ukraine (-41,9%), the Czech Republic (-32.6%) and Poland (-22.7%). In Russia, deliveries, although lower by 7.5% than the previous year’s ones, recorded an improving trend through the quarter. Average selling prices in local currency decreased in Russia (-9.8%), Poland (-6.6%), the Czech Republic (-5.7%) and were up in Ukraine (+7.7%). Demand weakness had repercussions also on ready-mix concrete volumes and selling prices, which contracted in all countries where the group operates.
Overall net sales came in at €59.8 million from €79.8 million in 2009 (-25.1%). The Ebitda realized in the area shrank by €4.8 million from €7.3 million in 2009 to €2.5 million in 2010. The profitability deterioration was due to the low utilization of the production capacity, with a consequent higher product costs per unit. Conversely foreign exchange was favorable (Czech koruna +6.2%, zloty +11.3%, ruble +7.0%), except for the Ukrainian currency, which was 6.4% lower than in 1Q-09.
In Ukraine the investment project to switch from natural gas to coal at both production sites will be completed, as scheduled, in the second quarter of 2010 with immediate economic benefits. In Russia, the new dry-process production line at Suchoi-Log is going to open in the first ten days of August. The new capacity is expected to be straightaway utilized at a very high and consequently optimal rate, in partial replacement of the existing one.
United States of America
Group’s cement volumes sold were down 23.2% while average unit prices in local currency declined by 7.7%. Ready-mix concrete sales dropped by 12.8% with prices also in decline. Volumes trend was penalized vs. 1Q-09 by the lack of some major work orders.
Overall net sales totalled €105.4 million versus €149.9 million (-29.7%). Foreign exchange effect was unfavorable for €6.6 million. Volumes and selling prices contraction negatively impacted US operations’ profitability. Ebitda consequently was negative for €5.6 million vs. a positive value of €14.2 million in 2009 (-€19.8 million).
Mexico (50% consolidation)
In the first quarter of the year, Moctezuma’s cement volumes decreased by 11.0%, with average selling prices in local currency in slight improvement (+2.6%). Ready-mix concrete sales were up 7.0%, in a declining prices environment. Net sales in euro showed only a slight decrease (-2.1%) from €46.4 million to €45.4 million. Ebitda instead was up 4.7% to €17.0 million vs. €16.2 million in 2009. Mexican operations’ Ebitda to sales margin improved from 1Q-09 reaching 37.4%. The Mexican peso appreciation (+5.6%) positively impacted the translations of the results into euro. At constant exchange rate net sales and Ebitda would have decreased by 7.6% and 1.2% respectively.
The construction of the new cement plant of Apazapan, in the State of Veracruz, is progressing on schedule, with coming on stream slated for October next.
The first quarter of 2010 showed a decline in economic results, due to the contraction of sales volumes and the consequent weakening of prices in many countries where the group operates. The adverse weather conditions had surely a decisive impact on building activities. With the coming of spring and summer we might reasonably expect a quite neat recovery of demand at consolidated level. However, although, on the one end, volumes will probably improve, on the other end, a positive pricing development seems unlikely, mainly in countries such as Italy, the United States of America and Russia which feature intense competition and substantial excess production capacity.
The development of trading conditions in the forthcoming months will allow a better visibility on the 2010 likely scenario. Based on the first quarter unsatisfactory trend, for the current year we deem it advisable to confirm the expectations of operating results and net profit lower than the ones posted in the previous year.
The Board of Directors, approved the projects for the merger by incorporation of the 100% subsidiaries Parmacementi SpA and Escalcementi Srl. The merger transactions, which shall be submitted to the approval of a subsequent Board of Directors, are expected to be concluded in the second half 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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