HeidelbergCement successfully concluded the business year 2018

2018 consolidated financial statements

• Revenue rises by 5% to €18.1 billion
• Profit for the financial year improves to €1,286 million (+22%)
• Earnings per share up by 25% to €5.76
• HeidelbergCement earns significant premium on cost of capital
• Dividend proposal: 9th consecutive increase to record value of €2.10 (+11%)

Outlook for 2019

• Positive macroeconomic development continues despite slight weakening of economic growth
• Growth in sales volumes of cement, aggregates, and ready-mixed concrete expected
• Moderate increase in revenue, result from current operations as well as profit for the financial year¹⁾
• Focus on action plan: accelerated portfolio optimisation, efficiency programme, and commercial excellence initiative as well as increase in cash flow

1) Revenue and result from current operations before currency and consolidation effects; profit for the financial year before non-recurring effects.

2018: new record figures achieved in a demanding environment

HeidelbergCement has brought the 2018 financial year to a successful close despite a challenging environment. Sales volumes and revenue reached record highs due to strong demand and price increases; profit for the financial year could be significantly increased as planned.

“In 2018, HeidelbergCement achieved most of its goals in an operationally challenging environment,” states Dr. Bernd Scheifele, Chairman of the Managing Board of HeidelbergCement. “In its 145-year history, our Group has never sold more cement, concrete, sand, and gravel than in 2018. With more than €18 billion, a new record figure was also achieved in revenue. The decrease in result from current operations could be more than offset by increased proceeds from portfolio optimisation as well as lower restructuring and financing costs. All things considered, we were able to raise earnings per share disproportionately by 25%. Therefore, we propose a significantly increased dividend of €2.10.”

Profit improved significantly – premium earned on cost of capital

Total sales volumes of cement, aggregates, and ready-mixed concrete reached new record figures as a result of strong demand. In cement and aggregates, HeidelbergCement benefited from solid demand in North America, Europe, and Australia, as well as the positive development of some emerging countries, such as Indonesia, Ghana, or Tanzania.

Revenue rose by 5% to €18.1 billion (previous year: 17.3), even though it was impaired by negative currency effects of €592 million. Adjusted for currency and consolidation effects, revenue increased by 8%.

In contrast, result from current operations decreased slightly by 2% to €2.2 billion on a comparable basis, which is in line with the outlook revised in October 2018. Adverse weather conditions, especially in the core markets of North America, a stronger than expected rise in energy and electricity costs, and lower than planned proceeds from the sale of depleted quarries could not be completely offset by price and sales volumes increases as well as efficiency improvements.

The additional ordinary result increased considerably by €241 million to €108 million (previous year: -133). This primarily reflects increased proceeds from the portfolio optimisation and lower restructuring costs following the successful integration of Italcementi.

The financial result improved significantly by €52 million to €-367 million (previous year: €-418), this was particularly due to lower interest expenses thanks to the more favourable refinancing of maturities.

Income taxes decreased to €464 million (previous year: 579). Reason for this decline was a special effect in the previous year from the revaluation of the deferred tax item resulting from the US tax reform.

Overall, this resulted in a significantly increased profit for the financial year of €1,286 million (previous year: 1,058). The Group share of profit rose to €1,143 million (previous year: 918). Earnings per share improved by 25% to €5.76. HeidelbergCement earned a significant premium on the cost of capital also in 2018. Although the return on invested capital (ROIC) decreased slightly from 7.2% in 2017 to 6.9%, it was still well above the weighted average cost of capital (WACC) of 6.3%.

Portfolio optimised and net debt further reduced

The cash flow developed positively also in 2018. HeidelbergCement generated sufficient cash to pay a full dividend, reduce liabilities by €328 million, and strengthen market positions by means of substantial investments in growth. With the purchase of Cementir Italia, Italcementi has continued to strengthen its market leadership in Italy and has laid the foundation for additional synergies. In Australia, HeidelbergCement acquired the Alex Fraser Group, a leading producer of recycled building materials and asphalt, and thus strengthened its market position in the metropolitan regions of Melbourne and Brisbane. At the same time, disposals of activities that were not part of our core business or did not meet our return requirements generated proceeds of almost €600 million. We were able to reduce net debt from almost €8.7 million to below €8.4 million at the end of 2018. Gearing reduced to 49.7% (previous year: 54.4%) at the end of the year. Due to the lower result from current operations before depreciation and amortisation, the dynamic gearing ratio increased slightly to 2.7x (previous year: 2.6x)

Dividend proposal: ninth consecutive increase to record value of €2.10 per share

In view of the positive business development, the Managing Board and Supervisory Board will propose to the Annual General Meeting on 9 May 2019 a significant increase of 11% in the dividend to €2.10 (previous year: 1.90) per share. This dividend proposal is in line with the progressive dividend policy announced previously and reflects our strategic priority of value creation for shareholders and our focus on a solid investment grade rating. This is the ninth consecutive increase in dividends, and the proposed dividend represents a new record figure in the history of HeidelbergCement.

Sustainability and innovation

Sustainable business is an integral part of HeidelbergCement’s business strategy. In 2018, the focus was on the key topics of the Sustainability Commitments 2030. The company decreased the accident frequency rate across the Group by 12%. HeidelbergCement is working continuously to minimise the risks for employees, contractors, and third parties and to achieve the goal of zero harm.

In 2018, the fourth edition of the biodiversity competition, the Quarry Life Award, took place. By running this competition, HeidelbergCement supports innovative approaches to the exploration and promotion of biodiversity in quarries and aggregate pits. More than 300 project proposals were submitted from 25 countries.

In the area of climate protection, HeidelbergCement further increased the proportion of alternative fuels and reduced specific net CO₂ emissions. In addition to the modernisation of its plants, the company further develops technologies to capture and recycle CO₂ (CCS/CCU) and, in doing so, holds a leading position in the industry. Innovations at product and technology level play an important role in achieving this. In 2018, CDP (formerly the Carbon Disclosure Project) named HeidelbergCement the best company in its sector on account of its transparency and pioneering role. HeidelbergCement’s vision is to offer a CO₂-neutral concrete by 2050.

Outlook for 2019

In its forecast from January 2019, the International Monetary Fund (IMF) expects a continuation of global economic growth on a broad scale. The growth rate is expected to weaken slightly, from 3.7% in 2018 to 3.5% in 2019. This is due to trade disputes between the USA and China as well as the recent drop in momentum in Europe. The risks that could continue to jeopardise growth include a further escalation of the trade disputes, high public and private debt, a disorderly Brexit, and a stronger than expected economic slowdown in China.

In view of the overall positive economic development, HeidelbergCement expects increasing sales volumes for the core products cement, aggregates, and ready-mixed concrete for 2019. Price increases will be prioritised in order to regain the margins lost in 2018. The company will also consistently pursue its global programmes to optimise costs and processes as well as increase margins, and focus on the implementation of the action plan announced in November 2018. Furthermore, tailwinds from energy cost inflation, a clear result improvement in Indonesia as well as solid developments in Europe and North America, among others driven by new state infrastructure projects, should result in a solid result improvement.

On the basis of these assumptions, the Managing Board has set the goal for 2019 of increasing revenue and result from current operations moderately before currency and consolidation effects as well as moderately improving the profit for the financial year before non-recurring effects.

„Considering the overall positive outlook for the global economy, we are confident about the future,” says Dr. Bernd Scheifele. “In 2019, we will focus on our action plan in order to accelerate our portfolio optimisation and increase cash flow and margins. In addition, we will press ahead with the digitalisation of our entire value chain in order to further improve our operational excellence. In view of our strong positioning in raw material reserves and production sites in attractive locations, the unique vertical integration, our excellent product portfolio, and our industry-leading margin management, we believe we are well equipped for the opportunities and challenges of 2019.”

Overview of the HeidelbergCement Group

1) Adjusted for currency and consolidation effects
2) Attributable to the shareholders of HeidelbergfCement AG
3) Recommendation to the Annual General Meeting on 9 May 2019

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