HeidelbergCement seeks revival with cost cuts

HeidelbergCement seeks revival with cost cuts
Published: 22 June 2010

HeidelbergCement said it aims to revive profit with spending reductions and by adding plants in emerging markets such as India, Indonesia and Bangladesh.

The company remains focused on cutting borrowing costs while completing a four-year, 20Mt expansion of production capacity in countries such as Poland and Russia by 2012, Chief Executive Officer Bernd Scheifele said today in an e-mailed response to questions.

“We’re concentrating on further cost savings and lowering our debt,” Scheifele said. “At the same time, we want to lay the foundation for our future growth.”

Scheifele widened the company’s cost-cutting target for 2010 by 50 per cent to E300m (US$373m) in February after refinancing, reorganization costs and goodwill impairments caused profit to plunge by 98 percent last year. The cement producer remains committed to selling divisions that aren’t related to its main business, the CEO said.

HeidelbergCement joined Germany’s DAX Index today, occupying a slot vacated by steelmaker Salzgitter AG. The Heidelberg, Germany-based cement producer became eligible for the benchmark when the stake held by billionaire Ludwig Merckle and his family fell to 24.4 per cent from 72.4 per cent because of a share sale last year and after it met average trading-volume and market-value criteria.

Job Cuts

The company eliminated 7500 jobs last year, or 12 per cent of the workforce, and held the dividend at 12 cents a share after net income dropped to E42.6m. Net debt narrowed to E8.96bn as of March 31 from E12.1bn a year earlier.

HeidelbergCement said in December that it may dispose of operations such as bricks and building products that don’t fit company strategy. Any transaction will depend on how the recovery of residential construction markets in North America and Europe helps the divisions’ pricing, Scheifele said.

The company boosted borrowing in 2007 when it paid US$12bn to buy Hanson Ltd., a building-supply company. A construction-industry slowdown and wrong-way bets on Volkswagen AG shares by the Merckle family left the company struggling with repayments.

HeidelbergCement rose as much as E1.10, or 2.4 per cent, to E46.20 and was up 1.1 percent as of 11:24 a.m. in Frankfurt trading. That pared the stock’s decline this year to 5.5 percent, valuing the company at E8.55bn. The performance has trailed the 30-member DAX’s 5.7 per cent gain.