07 February 2019

Financial year 2018 preliminary results

Cement volumes at 27.9 million tons (+4.3%); ready-mix concrete at 11.8 million cubic meters (-3.6%)
Consolidated net sales equal to €2,873 million (€2,806 million in 2017), up 2.4% (+3.2% like for like)


   Consolidated figures

  2018 2017 %18/17
Cement and clinker m ton 27.9 26.8 4.3%
Ready-mix concrete m m3 11.8 12.3 -3.6%
Net sales €m 2,873 2,806 2.4%
    Dec 2018 Dec 2017 Change
Net debt €m 891 863 28.0


The Board of Directors of Buzzi Unicem SpA met today to examine the preliminary figures for the financial year just ended.

During 2018, consolidated sales volumes exceeded the level achieved in the previous year, mainly thanks to changes in scope in Italy and Germany and to the progress made in the Czech Republic, Poland and Russia. However the year closed with a decline in cement deliveries in the United States of America, which was determined by much more intense rainfall than normal, mainly in September and October, and with a rather strong decrease of our business level in Ukraine.

The international economic activity continued to show good performance overall, but expansion, which was less homogeneous, moderated its dynamics, and there were signs of a cyclical deterioration in many advanced and emerging economies. International trade decelerated noticeably from the previous year and the prospects for international relations and trade continued to worsen. In the United States of America the economic development maintained robust growth also at year-end reflecting good resilience of the activity level, thanks to the solidity of the labor market, to the strength of internal demand and exports, to substantial corporate profits and to favorable financial conditions. In Europe, starting from the third quarter, particularly in Germany and Italy, activity has slowed down, both due to weaker foreign demand and a deterioration in business development forecasts. Despite this weaker evolution compared to expectations, the strength of domestic demand and the recovery in investments, which were also supported by the accommodating monetary policy direction, continue to sustain expansion, although with development prospects revised downwards. In Italy, since the summer quarter, there have been signs of growth interruption, weakness in production and indications of a rather stable underlying trend with possible further contractions. Among the main emerging economies, growth figures were more contrasting: slowdown in China, strengthening in Russia, a still fragile macroeconomic situation in Brazil, even if with acceleration prospects, due to the attenuation of the impact connected to political uncertainty and the interruptions caused by the transporters' strike. Oil prices, although very volatile, recorded a significant decline at the end of the year. The financial conditions of the advanced economies remain accommodating, while risks for international activity are still high, due to the uncertainties on the outcome of the negotiations for a loosening of the commercial tensions between the United States and China, to a possible tightening of global financial conditions, which is faster than expected, and to political and geopolitical scenarios, including the risks deriving from the Brexit terms.

In the United States of America, investments in the construction sector confirmed the prolongation of the moderate expansion phase, with developments in the residential and some recovery in the public sector. In Central Europe, growth was modest, somewhat stationary in Italy, while construction activity reaffirmed positive developments in the Czech Republic and Poland and a progressive recovery of investments in Russia. In Ukraine, on the other hand, a sharp decline in activity was recorded.

Group cement sales stood at 27.9 million tons, +4.3% compared to 2017. Ready-mix concrete output, amounting to 11.8 million cubic meters, was lower than the volumes of the previous year (-3.6%). Consolidated net sales increased by 2.4%, from €2,806 to €2,873 million. Variances in the exchange rates, mainly consisting of the depreciation of the dollar, the Russian ruble and the Ukrainian hryvnia and the appreciation of the Czech koruna, had an overall unfavorable impact of €74 million. The scope of consolidation increased in Italy (ex-Cementizillo) and in Germany, due to the inclusion of Seibel & Söhne since May. Therefore, like for like net sales would have been up 3.2%.

Net debt at the end of 2018 amounts to €891 million, up €28 million compared to €863 million at the end of 2017. The limited deterioration of the net financial position compared to the level of year-end 2017 is a result of the cash flows from operations, despite an impact of €44 million for the acquisition of Seibel & Söhne in Germany, of €161 million for the acquisition of 50% of the Brazilian company Brennand Cimentos, and another €31 million for expansion investments, mostly relating to the so-called phase 2 of the new production line in Maryneal (TX) and to the reconstruction of the dust collection system at Cape Girardeau (MO). Furthermore the completion of the treasury shares purchase plan, which started at the end of September and involved 4.23% of the ordinary share capital for €118 million, should be pointed out.

During the summer quarter GDP decreased by 0.1% over the previous period. The expansion of the economic activity, which has been going on for more than three years, was interrupted as a result of the decline in domestic demand and investments, particularly in capital goods. The export trend remained positive, even if the slowdown in international trade naturally influenced the companies' prospects on foreign orders. The economic indicators forecast a further contraction in industrial production and a decrease in business confidence indices in the last months of the year. GDP growth, for the entire 2018, is estimated at 1.0%, significantly down compared to the previous year. The recovery in the real estate market remains weak and there have been signs of less optimism in the construction sector regarding the development of demand and employment rate. We estimate that domestic cement consumption virtually maintained the level achieved in the previous year.
Our sales of hydraulic binders and clinker were up 13.3%, mainly thanks to the additional contribution of the shipments referred to the former Cementizillo plants (full consolidation starting from the second half of 2017), to the growth in volumes exported overseas and to clinker sales. Average prices, in a more stable market context, confirmed the upward adjustment expectations. The ready-mix concrete sector recorded a visibly lower production level versus the previous year, essentially due to the recent restructuring and production rationalization process that led, among other things, to a reduction in the number of batching plants being managed directly. On the other hand ready-mix selling prices improved. Overall consolidated net sales of Italian operations amounted to €460 million, up 7.5% compared to 2017. Like for like they would have been down 0.9%.

Central Europe
In Germany the economic development, which began its sixth consecutive year of expansion, was steadily supported by solid domestic demand, by a labor market close to full employment and by a large capacity for public spending, slowed down rather markedly and more than expected in the second half of the year. The weakness of foreign demand, in addition to partly temporary factors, related to a stagnation in the production and registration of motor vehicles, had a pronounced impact, causing a slowdown in industrial production from the third quarter. Inflation remains moderate (1.7% in December). GDP growth, which in the third quarter closed with a slight negative sign, is estimated at 1.9% for the whole year. The construction sector, after a rather dynamic start to the year, subsequently slowed down, however closing the period with a positive sign.
Our deliveries of hydraulic binders, thanks to the change in scope due to the acquisition of Seibel & Söhne, whose business has been consolidated since May, and favored by a demand for oil well cements which has been briskly strengthening, recorded positive growth, with average prices improving. Ready-mix concrete output, which was rather weak in the first half, thanks to some recovery in the second part of the year, closed the period marginally down, but with prices improving. Overall net sales thus increased from €588 million in 2017 to €633 million in 2018 (+7.6%). On a like-for-like basis, they would have been up 4.7%.

In Luxembourg and the Netherlands cement and clinker volumes sold, inclusive of internal sales and exports, maintained also in the second half a lower delivery trend compared to 2017, closing the year down, with a slight improvement in average unit revenues. On the other hand, the ready-mix concrete sector recorded clearly recovering volumes (+11.1%) and prices improved as well. Overall net sales amounted to €197 million, compared to €187 million in the previous year (+5.5%).

Eastern Europe
In Poland, GDP growth, after exceeding 5% in the first half, is estimated to close at +4.4% for the full year 2018, thus prolonging again the favorable economic cycle which continues to be among the fastest and most performing ones in Europe. The recovery consolidation continued to be sustained by domestic demand, driven by the growth of disposable income, the unemployment rate at an all-time low, an increasing social spending and an extensive use of European structural funds for investments. The sudden inflow of foreign workers, mostly temporary ones, helped to mitigate the problems related to the shortage of labor, without any significant impact on inflation, which stabilized at approximately 2%. The level of construction investments, in particular public ones, remained favorable.
Cement volumes sold by the group, thanks to the more buoyant development during the second half, posted a robust recovery (+6.5%), coupled with average prices, in local currency, on the rise. Ready-mix concrete production achieved even more considerable progress (+11.0%), with prices also improving. Net sales increased from €97 to €111 million (+14.8%). Like for like net sales variance would have been +15.0%.

In the Czech Republic, GDP growth is still expected at a very satisfactory level (+3.1%), although slowing down compared to the previous year. Domestic demand and the recovery of investments, mainly public ones being co-financed by the European Union, continue to support development, while the slowdown in foreign demand led to a negative contribution from net exports. The unemployment rate in the country (2.4% in December) was confirmed as the lowest one in Europe, while inflation stabilized at 2.3%. The level of construction investments remained favorable.
Our cement sales, after a less brilliant start to the year, subsequently accelerated, closing the year with robust growth (+9.6%), with average selling prices in local currency marginally improving. The ready-mix concrete sector, which also includes Slovak operations, achieved favorable production levels (+5.6%), with average prices moving upward. Consolidated net sales therefore came in at €165 million (+11.2%). The strengthening of the local currency had a positive impact on turnover. At constant exchange rates it would have increased by 9.0%.

In Ukraine, we estimate GDP growth to reach 3.5%, thus improving over the previous year albeit not yet enough to recover the losses of the previous crisis. The inflation rate, although slightly lower, remained high (+10.9%). Efforts to build a more dynamic, open and competitive economic environment, being strongly supported by the international community, continue to be conditioned by the delays and difficulties in applying reforms. The lack of strength of the economy discourages investments, and social distress in the country led, among other things, a substantial number of citizens to look for jobs in the neighboring countries. In this environment, investments in the construction sector weakened and cement consumption in the country decreased.
The cement volumes sold, despite the signs of reawakening during the summer months and some real recovery in winter, closed with a double-digit reduction (-11.8%) compared to the levels achieved in the last year, with prices in local currency which, again driven by inflation, considerably increased. On the other hand, ready-mix concrete output maintained a lively expansion, with average prices in local currency rising considerably. Net sales amounted to €88 million, compared to €95 million in 2017 (-6.6%). The translation of turnover into euro was penalized by the depreciation of the local currency (the exchange rate effect was unfavorable for €6.1 million).

In Russia, the moderate recovery, after the recessionary period of 2015-2016, continued in the current year, supported by the increase in available income and the growth in domestic demand. The improved conditions of credit access also favored investments. GDP growth for the whole of 2018, improving over the previous year, is expected to reach +1.7% and inflation, which is slowing down, at 2.8%. However, the intensity of the recovery continues to be held back by geopolitical uncertainties, by the still lacking structural reforms and by the impact of international sanctions. Exports remained robust while imports quickly decelerated due to the weakness of the ruble.
Our sales volumes, thanks to a stronger development in the second half of the year, despite a rather weak performance of special oil well cements, closed the entire period with a favorable change over the previous year (+5.4%) and average prices in local currency increasing. Net sales amounted to €186 million, compared to €184 million in the previous year (+0.6%). The weakening of the ruble had a negative impact on net sales of €22.8 million. At constant exchange rates, they would have increased by 13.0%.

United States of America
GDP growth, even at year-end, maintained a sizeable development, assisted by the steady expansion of consumption and by further progress on the labor market, in an economic environment that started to benefit from the tax cuts and the growing public spending. GDP growth for 2018 is expected at 2.9%, higher than the previous year, while inflation at year end stood at 1.9%. In its meeting of 19 December the FED raised the benchmark rates while, in the future, a more gradual monetary tightening is expected. Construction investments confirmed moderate growth (+1.4%), with positive changes in the residential and infrastructure sectors, and some contraction in the commercial one.
Our cement sales in the course of 2018 were significantly affected by particularly adverse weather conditions, i.e. during the first quarter by the extreme cold and during the third quarter, particularly in September, by record rainfall levels. Therefore, although last quarter deliveries showed some recovery, the entire year ended with volumes lower than the previous year and selling prices in local currency which achieved a favorable change of a few percentage points. Ready-mix concrete output, mainly present in Texas, closed marginally up (+0.3%) compared to the previous year, with prices recovering as well. Overall net sales stood at €1,070 million (-3.7%). The development of the dollar, especially in the first part of the year, had an unfavorable impact on the translation of results into euro. At constant exchange rates, net sales would have been up 0.7%.

Mexico (valued by the equity method)
The uncertainties relating to the elections and the prospects for relations with the United States of America influenced the progress of the country's economic activity, in particular private investments, but the economic situation continued to be overall favorable, thanks to stable growth in consumption and exports. The risks of substantial changes to trade relations with the United States were reduced through the signing of the new commercial treaty between the USA, Mexico and Canada. GDP growth for the full year is expected at 2.2%, slightly improving over the previous year, while inflation further decreased, stabilizing below 5%.
Cement sales of the associate Corporación Moctezuma, after a first half affected by the electoral environment, in the second part of the year basically recovered, thanks to a more serene economic and social context. The entire financial year closed with volumes lower than the previous year and selling prices, in local currency, increasing by a few percentage points. Ready-mix concrete output achieved visibly weaker levels, but with prices in local currency strongly progressing. With reference to 100% of the associate, net sales are estimated at slightly above €620 million and therefore down about 9% over the previous year. The depreciation of the Mexican peso penalized the translation of results into euro: at constant exchange rates net sales would have been approximately -3.0%.


Outlook 2018
The last quarter of the year, also thanks to fairly favorable weather conditions for the season, closed with higher shipments than the fourth quarter of 2017 in all geographical areas where the group operates. Based on the preliminary information available, we expect the consolidated financial statements for the year 2018 to close with a recurring Ebitda of approximately €570 million, basically consistent with the forecast that was disclosed to the market together with the trading update at 30 September.


The Board of Directors for the approval of the statutory and consolidated financial statements is scheduled to meet on 28 March 2019.


Alternative performance measures
Buzzi Unicem uses in its financial disclosure some alternative performance measures that, although widespread, are not defined or specified by the accounting standards applicable to the preparation of the annual financial statements or interim consolidated reports. Pursuant to Consob Communication no. 92543/2015 and the guidelines ESMA/2015/1415 set out below are the definitions of such measures.
Net debt: it’s a measure of the capital structure determined by the difference between financial liabilities and assets, both short and long term; under such items are included all interest-bearing liabilities or assets and those connected to them, such as derivatives and accruals.


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.


Casale Monferrato, February 7, 2019

Company contacts:
Investor Relations Assistant
Ileana Colla
Phone: +39 0142 416 404