In the 2013 reporting year, goods and services with a total value of €8,171 million were procured at HeidelbergCement. This corresponds to 64.0% of the total operating costs (including depreciation).
Procurement management
Our lead buyer organisation facilitates cost-effective procurement of important commodity groups at Group level. This means that we bundle process-critical goods and services, usually with high volumes, into commodity groups in order to obtain better terms and conditions from our suppliers. The tasks of our lead buyers within the Group include conducting price negotiations, concluding framework agreements, and observing current market and price developments. Thanks to their detailed market knowledge, they make an important contribution to increasing efficiency and to risk management in our Group.
Another important part of procurement management is the local purchasing at our production sites, which strengthens our negotiating position with local suppliers. The local purchasing departments can also obtain goods and services directly via the Group framework agreements. In this way, we combine the advantages of central and local procurement.
Increasing efficiency
At the start of 2011, HeidelbergCement commenced the three-year “FOX 2013” programme to in- crease the Group’s financial and operational performance. One of the aims of this programme, which was successfully completed at the end of 2013, was to make savings in the area of purchasing in order to counteract the rise in costs. In the reporting year and within the whole programme period, we succeeded in achieving considerable cost savings in comparison with general market trends. Another aim of “FOX 2013” was to improve payment periods, because our terms of payment represented a competitive disadvantage. Thanks to continuous process optimisations and an improvement of our Group-wide terms of payment, we were able to reduce the gap on our main competitors and achieve a correspondingly high liquidity effect by the end of 2013.
Procurement of energy
Overall, HeidelbergCement’s purchasing policy for the procurement of fuels and electricity focuses primarily on the short term. This means that in 2013, we only concluded agreements with fixed prices and quantities in a few cases. In liquid electricity markets, in particular, such as Northern Europe, Germany, Belgium, Poland, the Czech Republic, and North America, we relied on low day- ahead prices. Our procurement strategy proved successful thanks to in part significantly reduced spot prices in these markets. Since we further increasingly used index-based contracts for coal, we were able to benefit from reduced spot prices during the year. By adopting these measures, we were able to slightly reduce the energy costs in the cement business in 2013.
Outlook
The expected future development of the HeidelbergCement Group, HeidelbergCement AG, and the business environment in 2014 is described in the following. In this context, please note that this Annual Report contains forward-looking statements based on the information presently available and the current assumptions and forecasts of the Group management of HeidelbergCement. Such statements are naturally subject to risks and uncertainties and may therefore deviate significantly from the actual development. HeidelbergCement undertakes no obligation and furthermore has no intention to update the forward-looking statements made in this Annual Report.
Economic environment
General economic development
After economic growth continued to weaken in 2013, we anticipate an acceleration of global economic expansion once again in 2014. The International Monetary Fund (IMF) forecasts global economic growth of 3.7 % for 2014, compared with 3.0 % in 2013. The IMF perceives the recovery in the industrialised countries of North America and Europe to be the main driver behind this positive development. The emerging countries will benefit from the resulting increase in export demand, but will also have to cope with the challenges of higher interest rates, necessary structural reforms, and a rise in the outflow of capital.
In Asia, China will continue to be the driving force of industrial development. The IMF forecasts a slight decline in growth for China, from 7.7 % in 2013 to 7.5 % in 2014. For Indonesia, a growth of 5.3 % is anticipated. Positive developments are also forecast for Africa. This relates primarily to the countries south of the Sahara, where growth rates are expected to rise again from 5.1 % in 2013 to 6.1 % in 2014.
In the mature markets, economic growth is estimated to accelerate substantially from 1.3 % in 2013 to 2.2 % in 2014. Individual countries are expected to undergo a very different development. According to IMF forecasts, the important markets for HeidelbergCement in the United States, the United Kingdom, Germany, and Canada will accelerate their economic growth considerably in 2014. Out of these countries, the United States are expected to achieve the highest economic growth with a rate of 2.8 %, followed by the United Kingdom with 2.4 %, Canada with 2.2 %, and Germany with 1.6 %. Further economic growth of 2.6 % is anticipated for Australia, where increasing residential construction is expected to offset the decline in mining activities.
Further expansion is also expected in Eastern Europe and Central Asia in 2014. As in the mature markets, development of individual countries is said to vary. In the markets of Eastern and South- eastern Europe, economic development is estimated to accelerate again from the low level of 2013 in 2014, achieving growth rates between 1.3 % and 2.4 %. Expansion rates between 2 % and 6 % are anticipated in our markets rich in raw materials – Russia and Kazakhstan.
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With regard to consumer goods prices, the IMF expects an increase in mature markets and a decline in emerging countries. Prices for oil and raw materials are likely to fall in 2014.
Exchange rate movements against the euro are an important factor in determining business figures over the coming years. We anticipate the continued weakening of a large number of currencies against the euro for the whole of 2014. However, compared with the levels at the beginning of 2014, we rather expect exchange rates to stabilise and slightly improve. For further assessments of exchange rate trends, please refer to the Risks and opportunities report on page 114 f.
Industry development
The acceleration of economic growth is also reflected in the demand estimates for building materials. The forecast of the US cement association PCA from August 2013 estimates an increase of 4.0 % in global cement sales volumes for 2014, compared with 3.6 % in 2013. While the development in demand in 2013 was still driven primarily by the emerging countries with a growth rate of 3.8 %, the recovery in North America will be essential for an acceleration in growth in 2014. According to the PCA, China is still the largest cement market with a share of around 58 % of global cement production and consumption.
Cement demand in North America is expected to rise significantly by 8.1 % in 2014, compared with 4.5 % in 2013. This increase is mainly driven by the sustained recovery of private residential construction and commercial construction. In 2014, the PCA expects an increase in the number of starts of construction of single-family houses by 20 % and of multi-family residential units by around 22 %. The current federal programme for road construction (MAP-21) will expire at the end of September 2014. Details of a possible follow-up programme are not yet known. Overall, a considerable backlog in demand exists due to the low infrastructure investments in recent years. The American cement association estimates a moderate increase in infrastructural construction in the coming years based on rising tax revenues and the financing support from the TIFIA programme (Transportation Infrastructure Finance and Innovation Act).
In Europe, trends in the demand for building materials are expected to vary greatly by region. For the countries particularly affected by the property and financial crisis, such as Spain, Italy, and Portugal, Euroconstruct in its forecast from November 2013 anticipates a further decline in cement consumption in 2014. A drop in demand for cement is also expected in France, Finland, and the Czech Republic. For the remaining countries of Western Europe, as well as Hungary, Poland, and Slovakia, an increase in cement consumption is expected as a result of the positive economic development. The recovery in the United Kingdom should continue and lead to a slight growth of 3.5 % in 2014. After a halt was brought to Poland’s decline in demand in 2013, an increase of 2.0 % is expected in 2014. In its medium-term forecast, the Federal Association of the German Cement Industry (BDZ) predicts slight growth for the cement market in Germany in 2014, based on the positive economic development. Almost all sectors are contributing to this trend, particularly the continuing dynamic development in private residential construction. Orders in Germany rose by 4.2 % in 2013.
Just as the general economic forecasts, the development of demand for building materials during 2014 is also associated with uncertainties. With efforts being made to consolidate budgets in some mature markets, the demand for building materials is still dependent on the trend in private residential construction as well as commercial construction. Rising demand for building materials can only be achieved in line with positive economic development, reduced unemployment figures,
and affordable property financing. In the growth markets of the emerging countries, the continu- ation of solid economic growth also plays an important role, as does income available for private residential construction, which in turn depends on the development of local food prices and thus inflation. Political conflicts, such as the one in the Ukraine, can also influence the development of sales volumes.
Due to the ongoing high demand, we expect the level of competition to continue to increase in 2014, especially in the emerging countries of Asia and Africa. The devaluation of some currencies in these regions, however, should slow down the investment activities of local producers.
The European Union has adopted a plan to reduce CO2 pollution rights in the short term. The so-
called “backloading” plan envisages the reduction of 900 million emission rights over the next three years, 400 million of which in 2014 alone. The price of emission rights has already risen since the beginning of the year in anticipation of this new arrangement, but is still well below the level of previous years. HeidelbergCement has more than sufficient emission rights for 2014. In Europe, the beginning of 2014 saw some very mild weather in January and February, which led to significantly stronger construction activity compared with the previous year. In contrast, construction was impaired by several severe snowstorms in the central, southern, and northeastern areas of the United States. Nevertheless, we expect to make up leeway in the course of the year thanks to the positive trend in demand.
Changes in international accounting standards
The International Accounting Standards Board (IASB) has brought into force changes to the international accounting standards (International Financial Reporting Standards, IFRS) with ef- fect from 1 January 2014. The changes in IFRS 10, 11, and 12 will have an impact on the future reporting of HeidelbergCement’s key financial ratios. The ratios listed in this 2013 Annual Report are still based on the old standards. In order to improve comparability, the qualified comparative forecasts in this Outlook chapter refers to the key financial ratios for 2013 in accordance with the new accounting standards. The impact of these changes in the international accounting standards on the key financial ratios for 2013 is described in the Notes on page 176 f.