Quarterly report as of March 31, 2005 Buzzi Unicem SpA Registered Office: Casale Monferrato (AL) - Via Luigi Buzzi 6 Capital Stock 118,168,678.80 Chamber of Commerce of Alessandria no. 00930290044
CONTENTS - Review of operations page 3 - Consolidated financial statements page 7 - Notes to the consolidated financial statements page 10-2 -
REVIEW OF OPERATIONS Operating and financial results In the first quarter of the year the construction industry in Italy, Germany, the Czech Republic and Poland was penalized by a number of working days lower than in the previous year and by adverse weather conditions, which have caused a strong slow-down of sales compared with 1Q04. In Italy prices were at the same level as in 2004 first quarter but lower than in the last months of 2004. Compared with the first quarter, prices improved in Germany while in the other Central- Eastern Europe countries they were virtually unchanged. Profitability is affected by this unfavourable situation and is further negatively impacted by a high inflation rate of operating costs, especially fuels. The other markets of presence, i.e. United States of America, Mexico, Ukraine and Russia recorded a much more favourable trend, sustained by a very interesting volume growth. Prices in local currency were on the rise, except for Mexico where they showed a slight recovery only if compared with the last quarter of 2004. Also these countries experienced an enduring hike of costs (fuels, materials, services) but thanks to good volumes and better prices, operating results came in higher than in 2004, despite a further depreciation of US dollar and Mexican peso. In the first quarter of 2005, consolidated cement sales total 6.1 million tons, -1.9% over 6.2 million in 1Q04; ready-mix concrete volumes stand at 3.1 million m3 versus 3.2 million in 1Q04 (-4.2%). The various markets fared quite differently. In Italy, Germany and the other European countries, volumes showed a remarkable shrinkage, not representative of the actual market potential. On the contrary the trend was very positive in the United States and Mexico. Consolidated net sales come in at 541.3 million, in line with 1Q04 ( 544.8 million); the revenue decrease in European markets is offset by the growth in the United States and Mexico, despite a still negative fx effect for 7.3 million. Ebitda decreases from 95.5 million to 76.4 million (-20%); the 19.1 million decline is mainly due to Italy where lower revenues combine with an enduring pressure on fuel and materials costs. Profitability is on the rise in the United States (+30.0% in dollars) and Mexico (+24.8% in local currency). Depreciation of tangible assets ( 48.3 million) is in line with 2004 corresponding period. In view of the introduction of IAS/IFRS, no goodwill amortization has been recorded, consequently amortization of intangible assets decreases from 13.1 million to 1.8 million. Financial expenses and adjustments amount to 29.6 million and 3.2 million respectively, in line with March 2004 figures; the 10.1 million extraordinary income mainly stems from the gain on disposal of Glens Falls (50% share) announced in November 2004 and effected in January 2005. - 3 -
After income taxes for 9.5 million and positive minority interests for 2.7 million (referred to losses of non-100% subsidiaries), the first quarter of 2005 reports a net loss of 3.1 million versus a net income of 11.5 million in 1Q04. EBITDA breakdown by geographical area is as follows: (euro million) 1Q 05 1Q 04 Italy 36.5 53.6 Germany (3.7) 1.6 Luxembourg (0.4) 2.4 Poland (2.1) 0.1 Czech Republic 2.1 2.1 UKraine (0.2) (0.6) Russia 1.6 1.1 United States 26.1 21.0 Mexico 16.7 14.3 Total 76.4 95.5 Net of extraordinary income, cash flow amounts to 34.1 million ( 55.4 million at March 2004). In January, besides the sale of the 50% stake in Glens Falls, Buzzi Unicem completed the Dyckerhoff s acquisition, purchasing from Banca IMI 24.2% of voting capital of the German company, for a total amount of 418.5 million. Consequently, and after capex for 40.9 million, net debt as of March 31, 2005 stands at 1,217.2 million versus 842.3 million as of December 31, 2004. Adjusted net debt (inclusive of guarantees still existing at 2004 year end for the Dyckerhoff acquisition) decreases from 1,260.8 million to 1,217.2 million (-43.6 million). Stockholders equity, inclusive of minorities, is equal to 2,053.0, in line with 2004 year-end. Consequently debt/equity ratio is equal to 0.59. Italy The lower number of working days in March due to Easter holidays and the harsh weather conditions result in a volumes decrease (cement 8,5%, ready-mix concrete 10.7%). Average unit revenues, in line with 1Q04, have weakened during the quarter. The trend of the first three months of the year is not representative of the market potential, which is confirmed at a high level by the good volumes recorded in April and the first part of May. Overall net sales in Italy amount to 206.5 million, down 7.4%; Ebitda stands at 36.5 million, versus 53.6 million in 1Q04 (-32.0%). The profitability conspicuous reduction is attributable not only to lower sales volumes but also to the expected hike in production costs (fuel, materials). - 4 -
Germany and Luxembourg In Germany cement sales are down 10.7% over 1Q04; the decline is attributable mainly to fewer working days and very unfavourable weather, in a still weak construction market. Despite the negative volumes trend, cement average prices stick on the 2004 yearend level, i.e. much higher than in 1Q04. Also due to ready-mix concrete lower volumes, net sales in Germany decrease from 92.0 million to 79.6 million (- 13.5%); Ebitda is negative for 3.7 million ( 1.6 million positive in 1Q04). Changes in scope reduce net sales by 5.0 million and Ebitda by 1.0 million. In Luxembourg, a slight decline in volumes and prices causes net sales to decrease to 24.9 million from 27.7 million; Ebitda is negative for 0.4 million ( 2.4 million positive in 1Q04). Central-Eastern Europe Cement sales in these markets (Poland, Czech Republic, Russia and Ukraine) decrease by some percentage points. While performance has improved in Russia and Ukraine, a negative trend is recorded in the Czech Republic and Poland, the latter having being penalized by unusually adverse weather conditions. Moreover in Poland, in the first months of 2004 cement volumes had been exceptionally high to anticipate the increase of the value-added tax on building materials following the entrance in May into the European Union. Consequently, comparison is not significant. In Central-Eastern Europe markets, average selling prices in local currency show an overall positive trend, mainly in Russia and Ukraine. Net sales and Ebitda stand at 45.4 million ( 39.4 million in 1Q04) and 1.3 million ( 2.7 million in 1Q04) respectively. United States of America In a well-tuned market context, US cement sales increase by 6.8% (+11.1% l-f-l) while ready-mix concrete volumes grow by 9.7%. The strong cement demand and the imports low profitability result in a sizable improvement of unit prices which more than offsets the hike in production costs. Net sales thus increase from US$166.7 million to US$198.3 million (+19.0%) and Ebitda from US$26.3 million to US$34.2 million (+30.0%). Translated into euro, the two figures come in at 151.2 million (+13.5%) and 26.1 million (+24.0%) respectively. Mexico (50% consolidation) In the first quarter of the year cement sales increase by over 20%, thanks to the vigorous differential contribution of Cerritos plant, which in 1Q04 was still under construction. Ready-mix concrete sales are up 9.3%. In a pricing environment slightly unfavourable compared with 1Q04, net sales and Ebitda in local currency increase by 22.6% and 24.8% respectively. In euro net sales total 35.1 million (+14.9%) and Ebitda stands at 16.7 million (+17.0%). - 5 -
Outlook for operations In Italy sales volumes should make up for the ground lost in the first quarter; the strong competitive dynamics will hardly allow to recover costs increases through unit prices higher than the 2004 average; consequently operating results will be lower. On the contrary we expect a sizable improvement in the United States of America and a further growth of Mexico contribution. In Germany, despite the expected decrease in cement demand, the price rebound should continue, thus leading to better operating results. In all Central-Eastern Europe markets the outlook is positive for the building activities and cement consumption which should grow, mainly in Ukraine. Demand dynamism will bring to a general improvement of prices in local currency; consequently the area operating results are expected to be higher than in 2004. Overall, the mentioned improvements should offset the lower profitability of Italian operations; hence, if exchange rates keep stable, the group expects to attain operating results not lower than the 2004 ones. Transition to International Accounting Standards As of this date, we assume that the main items affected by the first and subsequent applications of Internation Accounting Standards will be: Intangible fixed assets: Goodwill and Differential arising from consolidation which will be no longer amortized but tested annually for impairment. Severance indemnities: using an independent actuary, the debt position towards each employee shall be recounted in compliance with IAS 19. Derivatives instruments: although of minor entity, for some of them, the hedge accounting method will be applied in compliance with IAS 39. Business combinations: combinations have been re-examined on the basis of IAS 22/IFRS 3 and the impact on stockholders equity at the date of transition is being assessed. The whole of the other areas affected show no major impacts on transition stockholders equity and economic results. In the next month of June, 2004 financial statements will be restated according to the new accounting principles.the transition process is expected to be completed in time for the presentation of the interim results as of June 30, 2005. Casale Monferrato, May 13, 2005 for the Board of Directors Alessandro Buzzi (Chairman and CEO) - 6 -
CONSOLIDATED BALANCE SHEET ASSETS A) RECEIVABLES FROM STOCKHOLDERS'S FOR SUBSCRIBED CAPITAL UNPAID (in thousands of euro) March 31, 2005 Dec. 31, 2004 Dec. 31, 2003 B) FIXED ASSETS I Intangible fixed assets 794.027 500.028 88.459 II Property, plant and equipment 2.885.484 2.791.529 780.889 III Financial fixed assets 210.256 207.633 959.399 TOTAL FIXED ASSETS (B) 3.889.767 3.499.190 1.828.747 C) CURRENT ASSETS I Inventories 276.511 264.718 119.033 II Receivables 684.211 693.354 393.665 III Financial assets not held as fixed assets 168.073 165.235 140.572 IV Cash and cash equivalents 371.437 734.477 205.460 TOTAL CURRENT ASSETS (C) 1.500.232 1.857.784 858.730 D) ACCRUED REVENUES AND PREPAID EXPENSES 18.070 11.903 4.204 TOTAL ASSETS 5.408.069 5.368.877 2.691.681 LIABILITIES A) STOCKHOLDERS' EQUITY I Capital stock 118.168 117.490 102.821 II Paid-in capital 375.717 365.081 173.017 III Revaluation reserves 85.520 85.520 85.520 IV Legal reserve 16.945 16.945 12.897 V Statutory reserves VI Reserve for treasury stock 17.140 17.140 15.833 VII Other reserves 147.766 100.086 166.624 VIII Retained earnings (losses) 1.011.127 765.445 640.533 IX Consolidated net income (loss) for the period (3.135) 238.708 159.283 Total Stockholders' equity of the group 1.769.248 1.706.415 1.356.528 X Minority interests 283.766 365.981 79.134 Total 2.053.014 2.072.396 1.435.662 B) PROVISIONS FOR RISKS AND CHARGES 1.015.309 975.807 223.245 C) PROVISION FOR EMPLOYEE SEVERANCE INDEMNITIES 39.785 40.306 39.913 D) PAYABLES 2.256.021 2.258.174 976.827 E) ACCRUED EXPENSES AND DEFERRED REVENUES 43.940 22.194 16.034 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5.408.069 5.368.877 2.691.681-7 -
CONSOLIDATED INCOME STATEMENT A) VALUE OF PRODUCTION (in thousands of euro) January - March January - March 2005 2004 1) Revenues from sales and services 541.300 544.812 2) Changes in inventories of work in progress, semi-finished and finished products (2.147) 6.616 3) Changes in contract work in progress 4) Additions to internally produced fixed assets 303 277 5) Other revenues and income 9.594 12.036 Total 549.050 563.741 B) COSTS OF PRODUCTION 6) Raw materials, supplies, consumables and goods for resale 229.260 229.006 7) Services 129.368 123.864 8) Use of third party assets 7.387 7.470 9) Labour costs 97.044 99.242 10) Amortization, depreciation and writedowns 53.758 62.992 11) Changes in inventories of raw materials, supplies, consumables and goods for resale (6.262) (6.374) 12) Provisions for risks 13) Other provisions 50 14) Other expenses 12.038 12.613 Total 522.643 528.813 DIFFERENCE BETWEEN VALUE AND COSTS OF PRODUCTION (A-B) 26.407 34.928 C) FINANCIAL INCOME AND EXPENSES 15) Income from equity investments 543 687 16) Other financial income 13.440 10.410 17) Interest and other financial expenses (38.762) (38.696) 17-bis) Foreign exchange gains and losses (4.846) (909) TOTAL (15 + 16-17) (29.625) (28.508) D) ADJUSTMENTS TO FINANCIAL ASSETS 18) Revaluations 499 691 19) Writedowns (3.692) (3.567) TOTAL ADJUSTMENTS (18-19) (3.193) (2.876) E) EXTRAORDINARY INCOME AND EXPENSES 20) Income 10.425 13.322 21) Expenses (282) (144) TOTAL EXTRAORDINARY ITEMS (20-21) 10.143 13.178 INCOME BEFORE TAXES (A-B+C+D+E) 3.732 16.722 22) Income taxes (9.539) (8.749) 23) COMBINED NET INCOME (5.807) 7.973 24) Minority interests 2.672 3.488 CONSOLIDATED NET INCOME (LOSS) FOR THE PERIOD (3.135) 11.461-8 -
CONSOLIDATED NET FINANCIAL POSITION (euro million) M a r c h 3 1, 2 0 0 5 D e c. 3 1, 2 0 0 4 Difference Cash, banks and marketable securities 526,2 885,7 (359,5) Short-term debt (288,6) (245,8) (42,8) Net short-term cash 237,6 639,9 (402,3) Long-term assets 4,8 4,8 0,0 Long-term debt (1.459,6) (1.487,0) 27,4 Net financial position (1.217,2) (842,3) (374,9) - 9 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The first quarter 2005 report has been prepared in accordance with article 82 bis of Consob s Resolution 11971 of May 14, 1999 as amended. It is consistent with the accounting policies and consolidation principles used in the 2004 consolidated financial statements, to which please refer for additional information. In view of the introduction of the International Accounting Standards ed in compliance with IFRS 3 provisions, the company recorded no goodwill amortization but replaced it with impairment testing which produced no impairment losses. The application of this income new standard has decreased amortization by 12.5 million, with no tax impact. Income statement figures are comparable with the January-March 2004 corresponding ones, except for amortization and depreciation due to the above reasons. No major changes have occurred in the group s scope of consolidation compared with March 31, 2004. At the end of January, Buzzi Unicem purchased #5,000,000 ordinary shares of Dyckerhoff AG, thus reaching a stake of 76.7% of the capital. The transaction resulted in cash and cash equivalent decreasing by 418.5 million and the booking to assets of a differential from consolidation equal to 294.1 million. Stockholders equity increases by 62.8 million compared with December 31, 2004, The increase is attributable for 11.3 million to the conversion into shares of part of the existing convertible bond and for 55.7 million to positive changes in translation differences. The breakdown of net sales by line of business and geographical area for the first three months of the year 2005 is the following: (thousands of euro) Cement Ready-mix Related & clinker & aggregates activities TOTAL Italy 89,528 116,147 733 206,408 Western Europe 60,831 42,231-103,062 Central-Eastern Europe 26,438 19,008-45,446 United States 125,168 23,277 2,791 151,236 Mexico 25,782 9,366-35,148 327,747 210,029 3,524 541,300-10 -