Aggregates - Short Profile

The Aggregates division unites the mineral raw materials and asphalt mix lines under the roof of Basalt-Actien-Gesellschaft. The company is one of Germany’s largest employers in this sector. The company’s activities include the extraction, processing, and sale of hard rock from its own quarries as well as the production and sale of bituminous mixtures. These products are used primarily in the construction of roads, buildings, civil engineering projects, rail, and waterways. The company also produces bitumen-based auxiliary building materials and transports inert construction waste to landfills.

The gradual recovery in European road projects and civil engineering works has continued over the past year, albeit slower than expected. Reasons for this included unfavorable climatic conditions with extended, harsh winter periods at the beginning and end of the year and extreme natural events such as the floods in Poland. Demand also fell as a result of continuing financing problems experienced by public contractors. In Germany, declining tax revenue and budget cuts on the part of public contractors had a negative impact on the number of road construction projects. The general economic improvement in the second half of the year was primarily export driven so had no effect on public construction works within Germany. Contrary to expectations, after removal of the additionality criterion, the stimulus packages of the previous year failed to produce further momentum in the business year. The unexpected removal of the ‘additionality criterion’ at the beginning of the year resulted in additional funds intended for reviving the economy being used to offset current state and municipal budget deficits.

According to data from the Central Association of the German Construction Industry, new orders across the entire construction industry fell by 1 %. Net sales in public construction works, the most important sales market for Aggregates, remained 3 % down on the previous year. Times have been particularly hard in the road construction sector with a 10 % drop in orders. The construction industry has clearly not benefited from the recovery in the domestic economy.

The low volume of public construction works combined with poor weather conditions led to underemployment in many road construction companies and, consequently, to increased competition. As a consequence, sales prices for products in this division came under pressure.

In the foreign markets of Poland, the Czech Republic, Hungary, Romania, Sweden, Russia, and Ukraine, where the division is active, the financial crisis left a greater mark than in Germany. Ongoing financing problems meant that there was little scope for investment by these governments. Particular political circumstances in Poland, Hungary, and the Czech Republic delayed tendering activities. Only Russia and Ukraine displayed any signs of recovery.

Adjusted for the effects of the initial consolidation and currency conversion, net sales in the Aggregates division fell by around 12 % compared with the high of the previous year to € 1 202 million. Adjusted for changes in consolidation, net domestic sales fell by 13 %, while abroad they remained at the level of the previous year, adjusted for currency changes. The effects of the currency conversion had a favorable effect on net sales amounting to around € 8 million. The change to the consolidation led to an increase in growth of € 1 million. Domestic sales in the mineral raw materials segment fell by 9 %. In contrast, export sales saw growth of around 6 %. This is due to the slight recovery in Russia and the first full year of operation for the company in the Ukraine. The asphalt mixes segment experienced a 19 % fall in sales in Germany. Due to decreases in sales, stronger competitive pressure, and unexpected cost increases for important raw materials, the operating result remained significantly lower than that of the previous year. Savings in personnel costs and other operating expenses enabled the division to limit the negative effect on earnings. The result also benefited from the correction of too high a depreciation from capital consolidation in previous years.

Given the cautious economic expectations in the construction industry, the division has taken timely action. It adjusted its investments to the business situation, limiting them to necessary replacement investments and a few major measures for the continual renewal of capacities.

Despite the economic recovery in Germany and other western countries, a reduced demand for construction aggregates such as mineral raw materials and asphalt mixes is also expected in 2011. As a consequence of heavy demands on their money, public budgets will continue to restrict their expenditure. Consequently, the Central Association of the German Construction Industry expects net sales of public construction works to fall by 4.5 % in 2011, with a further decline in demand for building materials. An improvement in the domestic economy and the associated increase in tax income could send out positive signals. The Aggregates division still sees potential for growth in central and eastern Europe, where there is a high level of catch-up demand in the infrastructure. The division expects positive stimulus from special events such as the European Football Championship taking place in Poland and Ukraine in 2012 and the 2014 Winter Olympics in Russia. Overall, it therefore expects a more positive development of net sales and results in the year ahead.