2000 HALF-YEAR REPORT Very solid half-year result: In a competi- tive market environment “Holderbank” has achieved excellent performance. Based on in- ternal growth and the full use of fundamental strengths the Group made great progress in key operating figures. HOLDERBANK The entrance hall of the School of Architecture in Marne-la-Vallée (France). 1 KEY FIGURES “Holderbank” Group First half 2000 1999 ±% Sales of cement and clinker million t 38.6 35.3 +9.3 Sales of aggregates million t 41.0 40.0 +2.5 Sales of ready-mixed concrete million m 3 11.6 10.4 +11.5 Personnel number 45,089 40,932 +10.2 Net sales million CHF 6,621 5,660 +17.0 Operating profit million CHF 933 749 +24.6 Cash flow from operating activities million CHF 864 483 +78.9 Group net income before minority interests million CHF 436 391 +11.5 Group net income after minority interests million CHF 352 311 +13.2 Earnings per dividend-bearing bearer share CHF 47.85 43.95 +8.9 Fully diluted earnings per bearer share CHF 47.17 43.50 +8.4 Fully diluted earnings per registered share CHF 9.43 8.70 +8.4 The current half-year figures confirm “Holderbank’s” leading position in the cement business. A flexible mar- ket presence underpinned by continuing Group growth once again translated into an excellent performance. Substantially higher margins and a solid cash flow from operating activities reflect improved results in Europe and Latin America as well as North America’s consis- tently strong contribution to profit and higher earnings in Asia Pacific. 2 CHAIRMAN’S LETTER Dear shareholders and employees, Ladies and gentlemen, Healthy Growth The Group’s performance for the first six months of 2000 is very satisfactory and reflects “Holderbank’s” funda- mental strengths. One of these is our presence in more than 70 countries on five continents – unique in our indus- try – and our balanced global network that includes Group companies in most of the important industrialized nations and emerging markets. This solid platform provided the basis for another period of considerable growth. Compared with the semi-an- nual results of twelve months ago, Group region Latin America in particu- lar was a crucial factor in the marked improvement in operating results. Other Group regions also boosted their performance yet again. Group re- gion Asia Pacific produced the largest percentage increase in sales and oper- ating profit – due to the first time pro- portional consolidation of Siam City Cement in Thailand. Excellent progress was made in expanding sales and in- creasing efficiency in Europe. North America’s performance continued to be sound. On balance, operating profit rose 25 percent to CHF 933 million, and Group net income after minority interests increased by 13 percent to CHF 352 million. With improvements in revenue and a more efficient manage- ment of net working capital, cash flow from operating activities soared by 79 percent to CHF 864 million. Stronger Europe The overall increase in investment in public works, the upturn in residential construction and extremely favourable building weather at the beginning of the year all combined to boost demand in the construction sector. Whereas the volume of construction in Belgium, France and Spain continued a pattern of growth from the two six-month peri- ods of the previous year, the recovery in the construction sector in Italy and Switzerland picked up strength. Posi- tive developments also gained the up- per hand in “Holderbank’s” operations in central and eastern Europe. The out- look for the second half of 2000 is one of further solid sales. Prosperous North America The economy in North America contin- ues to expand. In the US construction industry in particular, excess demand 3 4 and postponed infrastructure projects continue at a very high level. To meet market needs, Group companies had to increase imports of cement and clinker. Thus, on account of higher distribution costs, EBIT weakened slightly. This sit- uation underscores the importance of capacity replacement and enhance- ment projects that are in the planning or construction stages at several loca- tions. Group region North America will remain economically strong in the sec- ond half of the year. Attractive Latin America Among the emerging markets, Latin America again plays a leading eco- nomic role. Mexico is a prime example of how the construction industry, in particular, is benefiting from a solid business climate. Brazil and Chile have also made great progress. Even Ecuador, which was recently shaken by severe crises, has returned to a growth path. The economic situation in Ar- gentina still gives cause for concern. All Group companies in the region were able to maintain or expand market share and in most cases obtain better prices for their products. Operating re- sults also reflect the commissioning of state-of-the-art production plants, the successful efforts to improve efficiency and the increased use of alternative fuels. Assuming that general condi- tions remain stable, Group region Latin America should report a sharp im- provement in earnings for the full 2000 financial year. Sluggish Development in Africa Middle East On the whole, the demand for building materials in this heterogeneous region was disappointing. As a result of polit- ical decisions, demand for cement in Lebanon fell sharply, and the market in West Africa was flat, as was the eco- nomic environment in South Africa. By contrast, the markets for building ma- terials in Morocco and La Réunion posted a solid performance. As a re- sult of stagnant sales and particularly lower prices in some markets, consoli- dated operating profit fell. On the other hand, mention must be made of the enormous progress achieved by Alpha in South Africa in its efforts to focus operations on core busi- ness. Higher demand has helped to strengthen the financial situation of CIOR in Morocco. Despite measures in- troduced to improve the position of our Group companies in Lebanon, the 5 financial situation of this Group region will not improve until further economic stimuli translate into higher demand. The Group expects that results in the second half of the year will be some- what better. Southeast Asia on the Verge of a New Start The construction sector in most coun- tries of Southeast Asia has bottomed out. Yet there were also examples, such as Vietnam, where demand for building materials continued to rise. Australia and New Zealand witnessed little change in construction volume. The 2000 half-year report mirrors “Holder- bank’s” increased involvement in this region in particular. This led to a steep rise in sales and a substantial increase in EBIT. We expect that the slow eco- nomic recovery in the Asian region will be sustained through the coming months. Most Group companies should report improved financial results for the year. 1999 Results will Be Surpassed In the absence of fundamental changes in the macroeconomic environment in the second half of 2000, the “Holder- bank” Group will continue to operate successfully in the market over the coming months and, assuming that ex- change rates remain stable, meet fi- nancial expectations. Dr. h.c. Thomas Schmidheiny Chairman and Managing Director 6 BUSINESS REVIEW Europe The European economies continued to improve in the first six months of 2000, and the construction sector reported gains across the board. Several Euro- pean markets enjoyed exceptionally mild weather conditions in the early months of the year, which had a posi- tive influence on sales of cement and other building materials. An important source of demand was spending on public works, in particular infrastruc- ture. Residential construction – both single-family and apartment houses – also contributed to the growth in de- mand. In Belgium, France and Spain, con- struction activity continued at a high level. As a result, Group companies Obourg-Origny and HISALBA were able to increase sales in all divisions. HCB in Switzerland and Merone in Italy both reported substantial growth rates in demand for cement, aggregates and concrete – unequivocal signs that in these economies the expansive forces gained the upper hand. Thanks to the final stage of construction for Expo 2000 in Hanover, Alsen in Germany op- erated at high capacity levels. In cen- tral and eastern Europe positive devel- opments prevailed. There was a sharp upturn in construction in Hungary, and, despite an increase in imports from Ukraine, our newly formed Pannoncem group – which consolidated results of the Hejöcsaba cement plant for the first time – reported strong sales growth. Prachovice in the Czech Repub- lic, Hirocem in Slovakia and Koroma˘cno in Croatia also posted increases in sales. In Romania, “Holderbank” ex- panded its presence by the acquisition of cement producer Cimus. Owing to market factors, Beloizvorski Cement in Bulgaria reported lower sales, the only company to do so. Consolidated sales in Europe First half 2000 ±% Cement and clinker in million t 12.056 +9.9 Aggregates in million t 23.466 +10.3 Ready-mixed concrete in million m 3 5.981 +12.0 The higher deliveries of cement im- proved plants’ capacity utilization, and in isolated cases facilities were run- ning at the limit of their capacity dur- ing periods of peak demand. With one exception, all companies operating in aggregates were able to boost sales. Most companies in the concrete sector experienced equally strong demand, 7 in particular in Switzerland, Italy and Spain. In Europe, consolidated net sales rose by 10 percent to CHF 2,656 million (first half 1999: 2,405), boosting oper- ating profit by 11 percent to CHF 266 million (first half 1999: 239), despite unremittingly fierce competition. It is gratifying to note the progress made by Group companies in Spain, Switzerland and Italy. In central and eastern Europe higher volumes of imports and lower sales prices affected the operating re- sults of several Group companies. Once again, there was very strong de- mand for the trading services of Span- ish-based Umar, our international ce- ment and raw materials trading organi- zation. We can reasonably assume that the economic environment in most Euro- pean markets will continue along its stable growth path in the second half of 2000. Although unseasonably mild weather in the first two months of the year inflated results in the period un- der review, “Holderbank” expects that this Group region will produce a further improvement in its financial perfor- mance. North America Although there was no denying the first signs of a modest downturn in the United States, the economic funda- mentals in North America are still re- markably sound. There is mounting ev- idence that the Fed’s series of interest rate hikes will engineer a soft landing, prolonging economic prosperity in the USA and, indirectly, Canada. The construction industry in the USA was running at full capacity and a se- ries of large projects were postponed due to bottlenecks in capacity. In Canada, too, the building industry was experiencing strong growth. To ensure that there was no interruption of sup- ply to customers, both Group compa- nies were forced to resort to higher im- ports of cement and clinker. Holnam (USA) reported growth of 6 percent in cement sales, and St. Lawrence (Canada) did even better, increasing sales by about 10 percent. Consolidated sales in North America First half 2000 ±% Cement and clinker in million t 8.717 +7.6 Aggregates in million t 4.523 +0.6 Ready-mixed concrete in million m 3 0.885 +7.4 8 St. Lawrence subsidiaries active in the field of aggregates and concrete also maintained market share. However, owing to the seven-week strike by dri- vers of concrete mixers in metropolitan Toronto in May and June, deliveries failed to meet targets. On consolidated sales of CHF 1,368 million (first half 1999: 1,186), the North American Group companies pro- duced an operating profit of CHF 163 million (first half 1999: 169). This re- sult is respectable, especially as the higher demand for cement could only be satisfied by low-margin imports. This also added to distribution costs, as in the USA in particular cement had to be transported large distances. While cement prices stagnated in most parts of the USA, St. Lawrence in Canada was able to report a slight im- provement in sales revenues. After St. Lawrence completed a granu- lator and grinding mill for blastfurnace slag in two different locations in record time, construction efforts in the first half of 2000 focused on the pro- ject for a new cement plant in Green- port (New York). This technologically and environmentally state-of-the-art plant, expected to come on stream in 2003, should lead to a sharp decline in cement imports. Holnam, too, plans to renovate and expand its production plants. In the period under review, a second kiln line was commissioned in Texas, and the construction of another production unit made rapid progress at the Portland plant in Colorado. The next expansion project is planned for South Carolina, where an old wet facil- ity is to be replaced by a new higher- capacity plant. These projects will ensure that “Holderbank” retains its cost and market leadership in strategi- cally important regions, but will also mean higher depreciation and interest costs. In the second half of 2000, North Amer- ica will remain an attractive Group re- gion for “Holderbank”. St. Lawrence expects to boost its sales volume and improve prices in some of its markets. Holnam forecasts that its results for 2000 will be similar to 1999. Latin America In some countries, improvements in the macroeconomic environment ex- ceeded expectations in the first half of 2000. Mexico demonstrated its politi- [...]... consolidated half- year report has S.A.R.L (Lebanon) as well as Naga been prepared in accordance with Cement Ltd (Cambodia) were decon- International solidated Accounting Standards Jamil Kahi & Companies (IAS) The principles for preparing these accounts are described in detail Foreign Currencies in the 1999 annual report The figures The increase in value of the USD and presented in this half- year report are... 1999: In the first half- year 2000 total invest- 92.7%) ments reached CHF 1,267 million (first half 1999: 963), an increase of CHF 304 Cash Flow from Operating Activities million or 31.6% These investments Cash flow from operating activities in- include net capital expenditures on creased by an encouraging CHF 381 property, plant and equipment of CHF million to CHF 864 million (first half 668 million,... management company with future supply guaranteed through contractual cooperation The figures contained in this interim statement are not audited This half- year report also appears in German  Holderbank Financière Glaris Ltd CH-8750 Glaris Phone +41 55 640 34 94 www .holderbank. com Investor Relations: Bernhard A Fuchs Phone +41 55 222 86 65 Fax +41 55 222 86 69 Corporate Communications: Roland Walker Phone... half- year report are other important foreign currencies of not audited up to 14% against the average CHF during the period had a significant impact Scope of Consolidation During the reporting period a number half- year 2000 However, the closing tion occurred The most significant exchange rate of the most important change is the first time consolidation of foreign currencies had, overall, no Siam City... mainly Operating profit per region First half 2000 1999 ±% Europe 266 239 +11.3 North America 163 169 –3.6 Latin America 395 254 +55.5 Africa Middle East 30 43 –30.2 Asia Pacific 79 44 +79.5 933 749 +24.6 2000 1999 ±% 851 709 +20.0 Aggregates / Concrete 72 54 +33.3 Other products / Services 10 (14) 933 749 Million CHF Total Operating profit per segment First half Million CHF 22 Cement / Clinker Total... CHF 79 million (first half 1999: 44) The operating results were also positively influenced by progress in production and rationalization at Group companies in Vietnam and the Philippines In Sri Lanka and to a lesser extent in Australia and New Zealand operating profit slipped slightly on account of market factors Consolidated statement of income Holderbank first half Million CHF 2000 1999 ±% Net sales... and Ecuador half- year sales volumes Venezuelan- Ready-mixed concrete sales increased based Caribe was hit particularly hard strongly at “Holdercim” Brasil and by high exchange rates, which consid- more moderately at our companies in field of aggregates reported 9 Ecuador, Mexico and Chile In Colom- able to record another sharp increase bia, by contrast, deliveries dipped in net income Holderbank ... New Zealand is unlikely to show any significant change Consolidated sales in Asia Pacific First half 2000 Cement and clinker in million t 5.986 +85.0 Aggregates in million t 1.986 ±% –0.5 Ready-mixed concrete in million m 0.643 +52.4 3 13 Net sales rose by an impressive 54 percent to CHF 606 million (first half 1999: 393) Overall, this expansion in sales mirrors the inclusion of Siam City Cement (CHF... First half 2000 1999 ±% 1 EUR 1.59 1.60 –0.6 1 USD 1.66 1.47 +12.9 1 CAD 1.13 0.99 +14.1 1 ZAR 0.25 0.24 +4.2 1 AUD 1.01 0.95 +6.3 1 NZD 0.80 0.79 +1.3 30.06.00 31.12.99 ±% 1 EUR 1.56 1.60 –2.5 1 USD 1.63 1.55 +5.2 1 CAD 1.10 1.05 +4.8 1 ZAR 0.24 0.26 –7.7 1 AUD 0.98 1.02 –3.9 1 NZD 0.77 0.82 –6.1 Closing exchange rate in CHF (balance sheet) 19 Production Capacity and Sales lion tonnes (first half 1999:... million mainly from (first half 1999: 749) due to more Group region Asia Pacific, where Siam favourable market conditions and a City Cement Public Company Limited reduction in excess capacities Price, (Thailand) was consolidated for the cost and volume changes contributed first time Exchange rate fluctuations CHF 83 million, currency fluctuations Net sales per region First half 2000 1999 ±% Europe 2,656 . 2000 HALF- YEAR REPORT Very solid half- year result: In a competi- tive market environment Holderbank has achieved excellent performance. Based. operating profit slipped slightly on account of market factors. 14 HALF- YEAR RESULTS Consolidated statement of income Holderbank first half Million CHF 2000 1999 ±% Net sales 6,621 5,660 +17.0 Cost of products. are described in detail in the 1999 annual report. The figures presented in this half- year report are not audited. Scope of Consolidation During the reporting period a number of changes in the