Heidelberg forecasts slow recovery

Published 11 February 2010

HeidelbergCement warned that low levels of new building work would hamper recovery prospects in the first half of 2010 as cold weather across Europe heaped more pressure on the recession-strained construction industry.

The world’s third-largest cement producer by market capitalisation has endured a tough 18 months in which it has sought to shed the stifling €15bn debt burden, amassed in part because of its £7.7bn ($11.2bn) acquisition of British rival Hanson.

Forecasting a “slow recovery for the construction industry in mature markets”, the group, which is heavily exposed to US and European building activity, said it would continue to drive down costs across the business. It achieved €550m of savings during 2009.

Demand for cement in Europe, home to four of the five global cement companies, has fallen by about 30 per cent between 2007 and 2010, with the US experiencing a similar lull in consumption.

While appetite is expected to return once the developed economies rebound, record levels of government debt in western countries create an underlying drawback for an industry which gets the bulk of its custom from infrastructure spending.

Revenue at Heidelberg was down 21.6 per cent at €11.1bn, while operating income fell 38.6 per cent to €1.3bn for the year ending December. Net debt stood at €8.5bn, helped lower by a capital raising of €2.25bn, followed by a series of bond issues worth €2.5bn.

In spite of the improved position, analysts suggested the group’s borrowing could still prevent it from expanding into the growth markets of China and India, as it would struggle to make acquisitions.

"At some point [Heidelberg] will have to bite the bullet and make some serious disposals if it wants to realign its geographic exposure," said Tobias Woerner, an analyst at MF Global Securities.
Cement sales slipped 11 per cent to €79.3m. However, the biggest falls came in the aggregates and ready mix concrete businesses, which were down 20 per cent and 21 per cent respectively over the year.
The last three months of the year were affected by severe weather across much of Europe, with freezing temperatures and heavy snow restricting building work and leading to a 50 per cent drop in operating income against the same period last year.

However, Heidelberg said that it was seeing signs of stabilisation across its Asian and Australian operations as markets recovered and growth accelerated. Shares in the company fell 3.25 per cent to €41.12 on the news.