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Heidelberg Q2 Sales Boosted By Stimulus Spending

While HeidelbergCement's development in the first quarter of 2010 was characterized by economic factors and the long period of wintry weather, demand for its building materials recovered significantly in the second quarter

While HeidelbergCement's development in the first quarter of 2010 was constrained by economic factors and the long period of wintry weather, demand for its building materials recovered significantly in the second quarter.

Thanks to sustained growth in Asia-Pacific and Africa, as well as recovering markets in North America, the sales volumes for cement, aggregates and ready-mixed concrete in the second quarter were above the figures for the same quarter of the previous year. In North America, the company is seeing the effects of infrastructure projects, while demand is recovering in Western and Northern Europe, exceeding last year's level for aggregates and ready-mixed concrete. In the Eastern Europe-Central Asia Group area, sales volumes further decreased in the second quarter, although the declines were noticeably smaller. The growth in the other areas clearly outweighed these losses.

During the second quarter, the groupís cement and clinker sales volumes rose by 1.2% to 21.9 million tons. The Asia-Pacific group made the largest contribution, followed by North America and Africa-Mediterranean Basin. In Asia, HeidelbergCement benefited from its position in Indonesia; activities in North America were driven primarily by demand in Canada and the northern part of the United States. While volumes in Eastern Europe-Central Asia experienced a significant decline once again, figures in Western and Northern Europe almost reached last year's level.

Deliveries of aggregates reached 68 million tons (the previous year was 63.7 tons), a rise of 6.7%; adjusted for consolidation effects, the increase amounted to 2.8%. This growth was largely due to stronger demand related to ongoing infrastructure projects in North America and Western and Northern Europe .

Deliveries of ready-mixed concrete rose by 3.6% to 9.5 million cubic meters. Adjusted for consolidation effects, asphalt sales volumes declined by 6.6% to 2.4 million tons.

In the first half-year, cement and clinker sales volumes decreased by 1.6% to 37.1 million tons. Deliveries of aggregates remained stable at 108.3 million tons. Deliveries of ready-mixed concrete decreased by 2% to 16.4 million tons. Asphalt sales volumes fell by 15.4% to 3.7 million tons.

"As a result of the improved development in our core markets and the successful continuation of our cost-saving programs, we were able to increase our turnover and operating income in the second quarter in comparison with last year," said Chairman of the Managing Board Bernd Scheifele. "In addition, we further strengthened our liquidity and maturity profile. Our 'FitnessPlus 2010' continues to be on track and generated savings of EUR 124 million ($163 million) in the first half of the year."

Financial results in the second quarter were adversely affected by the refinancing measures and decreased by EUR 61.2 million ($80.5 million) to EUR -220.5 million (-$290.2 million). This is essentially attributable to one-off effects of EUR 57.8 million ($76 million) in connection with the refinancing of the syndicated loan from June 2009.

The additional ordinary result decreased by EUR 81 million ($106.6 million) to EUR -36.5 million (-$48 million). Restructuring expenses of around EUR 43 million ($56.6 million) were responsible for the decline. Furthermore, the figure for the same quarter of last year included income from the sale of shares in the Indonesian joint venture Indocement.

The profit before tax from continuing operations amounted to EUR 240.9 million ($317.2 million). Income of EUR 10.2 million ($13.4 million) was recorded in the same period last year. This change is primarily the result of a provision for tax risks in Australia and the United Kingdom that was reversed in the previous year. Profit after tax from continuing operations amounted to EUR 173.9 million ($228.9 million).

Overall, the group profit for the second quarter decreased by 54%. Adjusted for special effects in both periods, an increase of 7% is resulting. In the first half of the year, group turnover rose by 2%. Excluding exchange rate and consolidation effects, turnover decreased by 3.8%. Operating income before depreciation (OIBD) improved by 3.4% and operating income by 3.7%.

At the end of the second quarter of 2010, the number of employees at HeidelbergCement was 53,572 compared with 56,811 in 2009. The decrease by 3,239 employees results essentially from the optimization of locations and capacity adjustments, particularly in North America and the United Kingdom, which were linked with job cuts.

The appreciation of the U.S. dollar against the euro also led to an increase in shareholdersí equity and an improvement of the equity ratio from 43.5% at the end of March to 44.6% at the end of June. This led to an improvement in the gearing from 77.7% at the end of March to 71% at the end of June.

The OECD and IMF have raised the forecasts for global economic growth for the whole year as a result of the positive development in the first half of the year. Development dynamics still clearly differ from region to region. In Asia, continued growth is anticipated, although growth rates in China are expected to weaken slightly in the second half of the year. Economic activity in Western Europe and North America has undergone a significant recovery following the long, hard winter, while Eastern Europe is still grappling with the crisis. Overall, uncertainties remain regarding the strength and timescale of the economic recovery because of the high level of unemployment and national debt in individual countries.

HeidelbergCement continues to expect a noticeable positive business development in the Asia-Pacific and Africa-Mediterranean Basin Group areas. In North America, on the basis of the considerable increase in expenditure on road construction, the recovery is expected to continue in the second half of the year. The extent and rate will depend on the spending behavior in the U.S. states. Decrease in the unemployment rate remains a decisive factor for the upswing in private residential construction.

In Western Europe, HeidelbergCement continues to expect residential construction to stabilize during the remainder of 2010, along with a noticeable decline in commercial construction, and positive development in infrastructure. On a regional level, it expects a positive trend in construction in Northern Europe and the United Kingdom, and a slight volume decline in Germany and Belgium. The construction market in the Netherlands is weakening considerably.

The recovery in Eastern Europe and Central Asia has been somewhat delayed. While construction activities in Poland are further stabilizing, the Czech Republic and Romania show only a slow recovery. Further development in Hungary is expected to be weak. Rising cement consumption from a low level and a recovery of prices are expected in the countries of the eastern part of Eastern Europe and in Central Asia.

"Demand for our building materials improved significantly in the second quarter, particularly because of the successful implementation of the infrastructure projects in North America and Western and Northern Europe," said Scheifele. "However, uncertainties still remain over future developments because of the sustained high level of unemployment and the still unclear impact of budgetary consolidation on infrastructure expenditure in individual countries. So we will consistently continue with our 'FitnessPlus 2010' cost-saving program and keep working towards our savings goal of EUR 300 million ($395 million) for 2010. Debt reduction remains an important area of focus. At the same time we will continue with our targeted investments in future growth, particularly in cement activities, in the emerging countries of Asia, Africa, and Eastern Europe. With improved cost structures, our operational strength and leading market positions, we believe we are well-equipped to benefit to an above average degree from an economic upturn in the course of this year and the next."