Operating Profit

The operating profit decreased in 2014 by CHF 40 million or 1.7 percent to CHF 2,317 million. The currency-related effect, which was particularly strong, pulled down operating profit by CHF 147 million or 6.2 percent, while effects from changes in the scope of consolidation of CHF 7 million or 0.3 percent contributed positively to the operating profit. On a like-for-like basis, the operating profit grew by CHF 100 million or 4.2 percent. Adjusted for the restructuring and merger costs booked in 2014 and amounting to CHF 149 million, the operating profit was up by CHF 249 million or 10.6 percent on a like-for-like basis, representing a clear improvement over 2013. At constant scope and exchange rates, North America’s operating profit improved by 65.1 percent, and Europe recorded an increase of 16.1 percent. These two Group regions contributed the most to the positive operating profit performance, offsetting the adverse development in Asia Pacific (-1.7 percent) and Latin America (-1.1 percent). Holcim sold more CO2 certificates in 2014, improving the operating EBITDA by CHF 20 million (2014: CHF 47 million, 2013: CHF 27 million).

The Holcim Leadership Journey contributed CHF 748 million to the improvements in the consolidated operating profit 2014. Out of this increase, CHF 248 million was generated by customer excellence initiatives, while CHF 500 million resulted from specific cost leadership programs related to energy, logistics, procurement and fixed costs.

Operating Profit by region

Million CHF

Jan–Dec
2014

Jan–Dec
2013

±%

±%
like-for-like

Asia Pacific

934

1,030

–9.4

–1.7

Latin America

663

722

–8.2

–1.1

Europe

510

436

+16.8

+16.1

North America

314

199

+58.3

+65.1

Africa Middle East

220

216

+1.6

+5.8

Corporate/Eliminations

(324)

(247)

 

 

Total

2,317

2,357

–1.7

+4.2

On a like-for-like basis, Asia Pacific experienced the largest reduction in operating profit among the Group’s regions with a drop of CHF 18 million or 1.7 percent. The three Group companies behind this decline were Holcim Indonesia, Holcim Australia and ACC in India. Indonesia in particular was faced with costs increases driven by inflation, the commissioning of additional capacities and increased electricity costs. At Holcim Australia, visible costs containment and lower depreciations could only mitigate the unfavorable effect from lower prices. Prices dropped in aggregate and ready-mix concrete due to product mix effects, the termination of projects with high-value products and the competitive environment in some markets. Furthermore the volume development was detrimental to the operating profit since the aggregate business was affected by fewer projects in the resources sector. ACC in India was faced with cost increases partly explained by delayed renewal of extraction permits which could not be passed on to customers. These drawbacks were however tempered by improvements in Ambuja Cements in India, where efficient price increases largely favored the operating profit growth, as well as in Holcim Philippines, thanks to a positive effect on operating profit from robust volumes hike.

In Latin America, the operating profit decreased on a like-for-like basis by CHF 8 million or 1.1 percent despite a stronger performance in Mexico. With the exception of Mexico, Costa Rica and Nicaragua, the region’s Group companies reported lower results. Brazil and Chile in particular impacted the regional performance. Brazil faced increases in input costs which could not be passed on to customers due to the difficult market environment; further, prices were impacted by the unfavorable product mix effect. As a result of a shrinking construction sector in Chile, volumes plummeted, putting a burden on the region’s operating profit.

In 2014, Europe was the second largest growth contributor and generated a like-for-like operating profit increase of CHF 70 million or 16.1 percent. This growth was the combined result of a good first quarter, supported by favorable climate conditions, while the restructuring initiatives implemented in prior years continued to bear fruits. Aggregate Industries UK benefited from high demand for building materials, driven by the residential sector. The Group company clearly led the operating profit improvement in the region thanks to a strong top line growth and a leaner cost structure. Despite the lack of impetus in the Italian economy, Holcim managed to increase its operating profit, mostly thanks to cost optimizations and the right-sizing of its operations. The situation in Eastern Europe was mixed, however the Group companies recorded improvements overall. As the volume growth remained favorable, the main performance lever in Eastern Europe was the cost optimizations following the restructuring initiatives implemented in the previous years. Nevertheless, the recovery of many European economies remained muted and below expectations. Some markets such as France, Spain and Belgium recorded lower than expected growth rates in the second half of 2014 due to stagnating economies. While volumes were under pressure, in most cases prices could not be raised. The largest negative impact on operating profit came however from volumes drop in Azerbaijan, which faced new entrants on the cement market and imports from Iran. Furthermore, restructuring costs of CHF 38 million have impacted the region’s performance but were partly offset by higher CO2 revenues of CHF 34 million.

In North America, the operating profit increased by CHF 129 million or 65.1 percent like-for-like. Strong volumes growth and pricing effects in the United States, but as well to a lesser extent in Canada, were the driving force of this solid progress. The United States economy continued on the path to recovery, fuelled by a dynamic residential sector, while Canada experienced growth driven by commercial and public investments.

Africa Middle East recorded an increase in operating profit of CHF 12 million or 5.8 percent on a like-for-like basis. Morocco, the major player with regard to growth in the region, experienced a drop of its national cement consumption, although the Group company compensated this drop via clinker exports to Socimat in Ivory Coast. Despite the lower domestic cement sales volumes, Holcim Morocco managed to improve its financial performance through general price increases as well as through various Customer Excellence initiatives. Thanks to lower depreciation, the operating profit improved as well in Guinea and compensated for significant losses from volumes drop. While most entities were on the positive side, Socimat in Ivory Coast and Holcim Lebanon reported lower operating profit.

The shift in the regional weighting of operating profit was most pronounced for North America, which accounted for 14 percent of operating profit (2013: 8), and Europe, which accounted for 22 percent of operating profit (2013: 19), while the relative weighting of Asia Pacific decreased to 40 percent (2013: 44). In 2014, the weighting of emerging markets in the Group’s operating profit amounted to 71 percent (2013: 74).