financial report 1999 holderbank the financial results posted in 1999 demonstrate that the group has further consolidated its position and created real added value

Management’s Discussion and Analysis of Financial Condition and Results of Operations MD & A Consolidated Financial Statements Holding Company Results Stock Market Data Stock Market Evo

“Holderbank” The financial re sults posted in 1999 demonstrate that the

Group has fur ther consolidated its position and created real added value.

Management’s Discussion and

Analysis of Financial Condition and

Results of Operations (MD & A)

Consolidated Financial Statements

Holding Company Results

Stock Market Data

Stock Market Evolution

Statement of IncomeBalance SheetStatement of Changes in EquityCash Flow Statement

Accounting PoliciesNotes to the Financial StatementsAuditors’ Report

Products and ServicesCompany DataStatement of IncomeBalance SheetNotes to the Financial StatementsAppropriation of Net EarningsAuditors’ Report

Please see the separate annual report for the business review by Group region.

“Holderbank”

Financière Glaris Ltd.

CH-8750 Glaris Phone: +41 55 640 34 94 http://www.holderbank.com Investor Relations:

Bernhard A Fuchs Phone: +41 55 222 86 60 Fax: +41 55 222 86 69 Corporate Communications: Roland Walker

Phone: +41 55 222 87 10

1

Management’s Discussion and Analysis of

Financial Condition and Results of Operations 1999

The following discussion and analysis of the Group’s

fi-nancial condition and results of operations should be read

in conjunction with the Group’s financial statements and

notes to the financial statements, which are presented on

pages 10 to 38 of this annual report

Overview

“Holderbank’s” financial results in 1999 were favorable at

all levels despite rapidly changing market conditions In

early 1999, the outlook remained subdued due to crises in

some Latin American and Asian countries Facing this

situ-ation, the Group’s strategy of geographical diversification

proved to be sound In fact, it was the strength of the Group

that led to further opportunities which arose as a

conse-quence of the crises in some emerging markets

Group net sales increased by CHF 926 million or 8.2% to

CHF 12,194 million (1998: 11,268) The internal growth in

net sales, excluding the impact of changes in foreign

cur-rencies and the consolidation structure, amounted to CHF 435 million or 3.9% These results reflect the Group’spositive development in rapidly changing global condi-tions in the construction sector and led to continuedgrowth of operating profit in most regions There wereimproved economic conditions in most of the Group’s Eu-ropean markets In Latin America, the Mexican economycompensated for the decline in the rest of the region As

a result, operating profit in this Group region increasedfurther The need to import cement to North America tocover the demand created by strong business activity re-duced margins in this Group region Asia Pacific region,which in certain countries showed some recovery, nowappears to be on the threshold of a positive development

in the years to come Group region Africa Middle Eastalso contributed to operational growth

An analysis of the geographical segments in which

“Holderbank” operates again highlights the progress infurther strengthening and more evenly balancing theGroup’s global portfolio 39.8% (1998: 40.2%) of the

Group’s net sales were derived from Europe, the largest

region Net sales in Latin America represented 23.0%

(1998: 23.5%) of the Group total, and the economic

con-ditions in North America increased this region’s share to

22.7% (1998: 22.2%) Group regions Africa Middle East

and Asia Pacific accounted for 7.9% (1998: 8.7%) and

6.6% (1998: 5.4%) of net sales respectively

The Group continues to focus on core activities and has

thus disposed of certain operations, such as its concrete

chemicals business

Goal was the further strengthening of core segments

60.2% (1998: 59.3%) of net sales derived from the segment

cement/clinker and 21.2% (1998: 21.6%) from aggregates /

concrete The percentage of net sales attributable to other

products / services was reduced to 18.6% (1998: 19.1%)

Further growth was the result of merging “Holderbank”

subsidiary Corcemar S.A (Argentina) with Juan Minetti S.A

(Argentina) and the first consolidation of the latter

Effect of Currencies and Inflation on Operations

The Group generates in excess of 92% of its net sales incurrencies other than CHF with transactions made in most

of the major currencies Statements of income and cashflow statements in foreign currencies are translated intoCHF at the average exchange rate of the year, whereas balance sheets in foreign currencies are consolidated atyear-end exchange rates

In 1999, the average valuation of the CHF weakenedslightly against all major currencies As a consequence,exchange rate movements had a minor impact on the con-solidated statement of income and the results of theGroup Due to exchange rate differences, net sales im-proved by CHF 173 million (1998: -331) and operatingprofit by CHF 31 million (1998: -35)

A major impact on the consolidated balance sheet

result-ed from the appreciation of the USD and some other rencies by more than 15% at year-end These movementsled to a CHF 493 million (1998: -261) increase in share-

holders’ equity The impact of inflation and devaluation in

some high-inflation countries is minimized by functional

currency accounting – usually USD accounting In 1999,

the devaluation of the Real in Brazil led to a temporary

margin decrease at “Holdercim” Brasil S.A., which was,

however, eliminated by year-end

Change in Group Structure

Total financial investments amounted to CHF 1,261 million

(1998: 2,372) due to major changes in the scope of

con-solidation by merging Corcemar S.A (Argentina) with

Juan Minetti S.A (Argentina) and the first consolidation of

Ruhunu Cement Company Ltd (Sri Lanka) and Tenggara

Cement Manufacturing Sdn Bhd (Malaysia)

Various initiatives were directed into strengthening the

Group’s participation in subsidiaries Minority buyouts

were undertaken at HISALBA – Hornos Ibéricos Alba S.A

(Spain), Société Suisse de Ciment Portland SA

land) and Portland-Cementwerk Thayngen AG

(Switzer-land) Group participation in Tvornica Cementa

Koro-ma ˘cno (Croatia), Apasco S.A de C.V (Mexico), Puttalam

Cement Company Ltd (Sri Lanka), Alsons Cement

Corpo-ration (Philippines), Milburn New Zealand Ltd (New

Zealand) and others was further increased In addition,

further minority stakes have been acquired at Egyptian

Cement Company S.A.E (Egypt), Huaxin Cement

Com-pany Ltd (China), Siam City Cement (Public) ComCom-pany

Limited (Thailand), and controlling positions were taken

in Cimus SA (Romania) and Garadagh Cement J.S.C

(Azerbaijan)

Divestments included operations falling outside the

Group’s core activities Focusing on the development of

products and expertise in the field of cement additives,

Group activities in the area of concrete chemicals were

sold, including Holderchem Euco AG (Switzerland), C.I.A

of Origny S.A (France), Holderchem Euco S.A (Spain),

Euclid Chemical Company (USA), Polchem S.A (Chile)

and others After commissioning the new plant on

Min-danao, Alsons Cement Corporation (Philippines) sold the

Iligan Cement Corporation (Kiwalan plant)

Although the change in Group structure increased netsales by CHF 318 million (1998: -38), there was no mater-ial effect on overall operating results The divestmentsmentioned above, together with amortization of goodwill

on the acquisitions, offset the impact of new investments

on the operating results

Results of Operations

In 1999, operations achieved a further increase in pacity utilization to reach 83% despite the fact that the newly commissioned plants in Vietnam, Australia and the Philippines operated for a full year for the firsttime

ca-The percentage of the Group’s net sales represented by statement of income items is detailed in the following table:

4

Operating Profit

The gross profit margin improved to 40.1% (1998: 39.5%)

primarily due to favorable market conditions – particularly

in Europe – and the closure of redundant capacity in

previ-ous years Production costs per tonne of cement

de-creased further as a result of improved capacity utilization

and the related higher absorption of fixed costs In

addi-tion, variable costs also reduced Fuel costs benefited

primarily from the Group’s initiative to increase its use

of alternative fuels A project to achieve excellence in

maintenance has been extended to all Group companies

and the first cost reductions were realized during the year

already

Distribution and selling expenses amounted to 17.1%

(1998: 16.5%) of net sales The opportunities presented

by a booming US cement market were supported by

addi-tional imports from various Group companies The higher

cost level was primarily due to the cost of distributing

these imports in the US

Administrative expenses amounted to 7.2% (1998: 7.4%) of

net sales Various initiatives have been launched to

stream-line administration and reduce costs The reduction in

ad-ministration expenses also reflects early results of efforts

to optimize the Group’s structure Furthermore, an initiative

was launched to harmonize the management accounting

system Group-wide This new management information

system and related activities will facilitate international

benchmarking, enable Group companies to share services,

and further strengthen the efficiency and effectiveness of

administration

Other depreciation and amortization expenses increased

to 1.8% (1998: 1.7%) of net sales This increase, which

contains amortization and depreciation on other operating

assets, was mainly due to the amortization of goodwill

arising from the Group’s recent investing activities

Operating profit amounted to 14.0% (1998: 13.9%) of net

sales The increase of CHF 139 million or 8.9% is primarily

driven by changes in the segment mix and partly offset by

increased distribution costs and amortization of goodwill

In addition, positive effects of exchange rate movementsand changes in the consolidation structure further im-proved operating profit The largest growth was achieved

in Group region Europe, which increased its operatingprofit by 24.5% and now accounts for 31.6% (1998:

27.6%) of Group operating profit Regions not showing anincrease in operating profit were North America (-2.1%),largely due to the proportional increase in imported ce-ment in this area, and Asia Pacific (-1.4%) Operating profit

in Latin America increased by 4.5%, despite the crises invarious countries noted earlier Declines in Venezuela,Ecuador, Colombia, Chile and Brazil were offset by strongresults from Apasco S.A de C.V (Mexico), the Group’s Central American companies as well as the first consolida-tion of Juan Minetti EBITDA margin of “Holdercim” BrazilS.A., which had previously suffered from the devaluation

of the Real, recovered by the end of the year Group regionLatin America accounts for 34.2% (1998: 35.6%) of Group operating profit and remains the highest regionalcontributor within the Group

Financial Expenses

Financial expenses amounted to 4.9% (1998: 4.4%) of netsales The increase resulted from higher levels of net financial debt arising from investing activities over thepast few years as well as higher interest rates of 5.9%(1998: 5.6%) on short and long-term financial liabilities

Income Taxes

The expected income tax rate for the Group remains at

33% In 1999, the effective tax rate was 29.8% (1998:

30.4%) Main reason for this lower than expected rate are deferred taxation credits arising from the benefits ofrestructuring certain operations in Africa Middle East

Cash Flow

The high level of cash flow achieved in the previous year

was maintained in 1999 Cash flow from operating

activi-ties amounted to CHF 1,902 million (1998: 1,887) Cash

generated from operations increased by 8.7% This

in-crease was able to cover higher interest and tax

pay-ments of CHF 217 million Interest paypay-ments in turn

increased due to higher borrowing levels which were

needed to finance the non-consolidated positions in the

emerging markets Tax payments were higher because

various Group companies had used up their

tax-de-ductible tax losses carried forward Analysis of cash flow

from operating activities by region show improvements

in Group regions Europe and North America

compensat-ing the decreases in all other Group regions

Balance Sheet

Consolidated shareholders’ equity grew by CHF 1,437

mil-lion to CHF 6,430 milmil-lion (1998: 4,993) Currency

trans-lation adjustments of CHF 493 million (1998: -261) and

a capital increase of CHF 375 million contributed, in

addition to net income, to the increase in shareholders’equity Interests of minority shareholders increased byCHF 379 million to CHF 1,802 million (1998: 1,423) main-

ly due to currency translation adjustments offsetting thebuyouts of minority interests

“Holderbank” strengthened the shareholders’ equitythrough the creation of additional share capital 25 of theexisting bearer shares entitled the holder to subscribe toone new bearer share at CHF 50.– par at an issue price ofCHF 1,350.– 25 existing registered shares entitled theholder to subscribe to one new registered share at CHF10.–par at an issue price of CHF 270.– The subsequentcapital increase through the issue of 209,371 bearer and

404,000 registered shares generated CHF 375 million net

in new equity capital for the company

In addition, the general assembly approved a tional share capital of 200,000 bearer shares to cover a future issuing of convertible bonds to finance investments

condi-in emergcondi-ing markets This transaction will permit to

build-up new positions in growth markets without diluting

earn-ings of present shares as conversions will be timed to

match profit expectations

The Group’s net financial debt of CHF 7,631 million (1998:

7,069) increased by 8.0% primarily due to currency

trans-lation adjustments and cash requirements for expansion

through property, plant and equipment and financial

in-vestments

From the proceeds of a called CHF 250 million convertible

bond issue, a new CHF 448 million zero coupon

convert-ible bond due 2014 was issued during the year Gearing

(net financial debt divided by shareholders’ equity

includ-ing minority interests) benefited from the capital increase

and improved from 110.2% to 92.7% As a result, the cash

position strengthened to support the Group’s acquisition

strategy

In 1996, the Group established a specific provision of

CHF 560 million necessary to restructure operations The

remaining provision of CHF 108 million covered the finalexpenses of this restructuring exercise during 1999mainly in Group region Europe

Sustainable Development

In 1999, the Group became a member of the World ness Council for Sustainable Development, further rein-forcing its commitment to the environment The use of alternative fuels and raw materials as well as the produc-tion of blended cements is being systematically pursued

Busi-in all regions to brBusi-ing environmental, economic and cial benefits to both the Group and the communities inwhich it operates with a long-term perspective Invest-ments in environmental protection are clearly a priority inacquired companies, especially in developing countries

so-CHF 73 million (1998: 70) was invested to further improvethe environmental sustainability of production facilities

Group companies provide for their environmental ties based on legal or contractual obligations A provision

of CHF 130 million (1998: 89) has been made for

reculti-vation and other environmental liabilities Beyond this

provision the Group does not anticipate any material

ad-verse effect of environmental liabilities on future results

of its operations

Derivative Financial Instruments

Derivative financial instruments are mainly used to fix

the interest rate of long-term variable-rate liabilities and

to hedge liabilities denominated in foreign currencies

against swings in currency exchange rates on specific

transactions

Corporate Governance

During 1999, the first phase of the rollout of the Group’s

comprehensive business risk management program was

completed This phase focused on an initial assessment of

risks for individual Group companies, including the

iden-tification of relevant risks In 2000, the rollout of the

busi-ness risk management program will continue with the

de-velopment of risk management strategies in Group

com-panies and procedures related to their implementation

and continuous improvement

Risks Associated with International Operations

The Group includes operations in the emerging markets of

Eastern Europe, Latin America, Africa and Asia It is these

areas which have produced the highest levels of growth

in cement demand over the past several years and have

provided “Holderbank” with strength and flexibility in a

rapidly growing market

In several Southeast Asian markets the economic

down-turn witnessed in previous years appears to have ended

and an initial recovery was in evidence during the year The

decision to boost the Group’s presence in this region

proved strategically sound and Group companies are

well positioned to take advantage of expected economic

growth in the future In some Latin American countries,

the effect of the Asian crisis and political uncertainty

im-pacted negatively on demand for construction However,

general business conditions are expected to improve

Accounting Policies

There were several changes in accounting policies adoptedduring the year under review, including some which were adopted prior to their effective date as encouraged

by the International Accounting Standards Committee ternational Accounting Standards introduced were IAS 16(revised) on property, plant and equipment, IAS 19(revised) on employee benefits, IAS 22 (revised) on busi-ness combinations, IAS 36 on impairment of assets and IAS 38 on intangible assets In addition, the Group adopt-

In-ed the findings of the Standard Interpretation Committee(SIC) 16 that treasury shares are to be offset against equi-

ty and not disclosed as an asset as was previously the case

When the Group introduced IAS 12 (revised) on incometaxes in 1996 for certain Group companies operating in ahyperinflationary economy and thus using a hard curren-

cy for reporting, the deferred tax provisions calculatedwere not fully adequate The accounting treatment hasnow been corrected

As a consequence of all these accounting changes, holders’ equity was reduced by CHF 284 million as at January 1, 1998

share-IAS 37 on provisions, contingent liabilities and contingentassets will be implemented in 2000 The introduction ofIAS 37 will not have a material effect on the financial re-sults of the Group, as the balance sheet at December 31,

1999 is already largely compliant with the principles ofthis standard

Year 2000 Compliance

The measures taken for a smooth transition at year-endwere successful The advent of year 2000 did not have a sig-nificant impact on the Group The important operating andadministrative systems were compliant and there was littledisruption arising from major suppliers and business part-ners Total spending on upgrades, replacements and con-sulting prior to year 2000 amounted to approximately CHF

30million These costs were expensed as incurred and didnot have a major impact on the Group’s financial position

Events after the Balance Sheet Date

After the balance sheet date, the Group invested in

Eastern Bulkcem Co Ltd (Nigeria) and Palestine Cement

Company (Palestine) Furthermore, the Group

strength-ened its export markets in the Caribbean Islands with the

acquisition of five import terminals After successfully

concluding the joint venture negotiations with our partner

in Siam City Cement (Public) Company Limited (Thailand),

the company will be consolidated as of January 1, 2000

using the proportionate method

Outlook

The Board of Directors and the Executive Committee are

optimistic about 2000 and expect a further increase in

Group operating profit, provided the CHF remains roughly

at its current level The past year has demonstrated that

the Group is stronger and more flexible now than at any

previous stage Thus, “Holderbank” is able to take

appro-priate and successful action in a rapidly changing

en-vironment and in an industry that is consolidating In

Europe, the economic upturn is visible and continued

positive results are expected In North America, cement

demand should remain favorable and new capacity in this

region will ensure that the high cost of importing cement,

necessary during 1999, can be gradually reduced The

process to renew and extend production facilities in the

NAFTA area has started with the permission phase for

three flagship plants at very low investment cost Latin

America will resume its growth path and make another

pleasing contribution to Group results this year In Africa

Middle East indications are that demand will increase

Signs of slow recovery are evident in Asian markets and

should accelerate during the coming year, with strategic

investments made in this area rendering significantly

improved results

Consolidated statement of income “Holderbank”

Consolidated balance sheet “Holderbank” as at December 31

11

Statement of changes in consolidated equity “Holderbank”

12

Consolidated cash flow statement “Holderbank”

13

The consolidated financial statements of “Holderbank”

are based on uniform, generally accepted accounting

principles for all Group companies Since 1991,

“Holder-bank’s” consolidated financial statements have been

pre-pared in accordance with the International Accounting

Standards (IAS) as published by the International

Ac-counting Standards Committee (IASC) The listing rules of

the Swiss Exchange SWX have also been complied with

The promulgated standards IAS 16 (revised 1998),

prop-erty, plant and equipment; IAS 22 (revised 1998),

busi-ness combinations; IAS 36, impairment of assets and IAS

38, intangible assets, have been adopted prior to their

effective date as encouraged by the IASC

Certain prior year balances have been restated according

to IAS 8 to comply with current year’s presentation

Consolidation Method

The consolidated financial statements include the

ac-counts of Swiss and foreign companies and their

sub-sidiaries (Group companies) of which “Holderbank”

Fi-nancière Glaris Ltd directly or indirectly controls more

than 50% of the voting rights, or where control is secured

by contractual agreements The interests of other

share-holders in equity and net income are shown separately in

the consolidated balance sheet and statement of income

In the case of joint ventures, where the partners

partici-pate at equal percentage rates, the proportionate

consol-idation method is applied Financial investments in

asso-ciated companies which “Holderbank” does not control

(usually 20% to 50%) are included in the consolidated

fi-nancial statements according to the equity method

Par-ticipations of less than 20% are valued at the acquisition

costs after adjustments on valuation Group companies

acquired or sold during the year are included in or

ex-cluded from the consolidated financial statements

effec-tive from the date of acquisition or sale Intercompany

transactions and balances are eliminated

Translation of Foreign Currencies

Balance sheets prepared in foreign currencies are

trans-lated into CHF at year-end exchange rates Certain Group

companies operating in high-inflation countries keep

their accounts in a functional currency, usually USD The

statement of income and cash flow statement are

trans-lated at the average exchange rates for the year lation differences resulting from the above method are directly credited or debited to shareholders’ equity Ex-change differences on monetary positions between thelocal currency and the functional currency are included

Trans-in the annual statement of Trans-income Exchange gaTrans-ins andlosses resulting from the translation of transactions areshown in the statement of income

Cash and Cash Equivalents

Cash comprises cash held at banks and on hand and short or medium-term investments maturing within thenext 12 months Marketable securities consist of securi-ties traded on a stock exchange and held for the purpose

of being realized at short notice Securities held over theshort term, including those of Group companies, are val-ued at market rates Valuation differences are included inthe statement of income Securities held as long-term in-vestments are included under financial investments andare valued at the lower of acquisition cost or market price

Inventories

Inventories are shown in the balance sheet at the lower ofhistorical acquisition or production costs or realizable mar-ket value Production costs comprise the acquisition costsfor raw materials and additives as well as variable and fixedproduction costs including production overheads Invento-ries are valued in accordance with the FIFO method (First In,First Out) or the average-cost method Unbilled servicesare valued according to the percentage of completionmethod As they are not material to the Group, interim prof-its on inventories and unbilled services between Groupcompanies are not eliminated

Property, Plant and Equipment

Property, plant and equipment are valued at the tion or construction cost less economic depreciation andimpairment loss A straight-line method of depreciation isapplied throughout the estimated useful life The followingaspects are taken into consideration when determining theuseful life of property, plant or equipment: the physical lifespan, the company’s replacement policy, market or tech-nological obsolescence, contractual and legal restrictions,and the remaining useful life of existing property, plant andequipment that have to be replaced as a single entity Theestimated useful life for depreciation purposes is:

Repairs and renovations are normally charged to the

statement of income Expenses are reported as assets

on-ly if the amounts involved are substantial and one or more

of the following conditions is satisfied: the original useful

life is prolonged, the original production capacity is

in-creased, the quality of the products is enhanced

materi-ally or production costs are reduced considerably If a

construction project is to last one year or longer and the

corresponding financing costs are significant relative to

the total financing costs of the reporting company, then

the relevant financing costs are capitalized and

depreci-ated for the estimdepreci-ated useful life of the property, plant or

equipment Government grants received for investments

are deducted from the relevant asset and reduce the

eco-nomic depreciation accordingly Lease contracts which

are tantamount to the purchase of assets (finance leases)

are shown as assets and reported at the net present

val-ue under property, plant and equipment Lease

commit-ments (excluding financing costs) are reported under

cur-rent or long-term financing liabilities In the case of sale

and lease-back transactions, there is no change in the

book value of the relevant property, plant or equipment

Gains from a sale are included in the liability, and the

fi-nancing costs are allocated over the term of the lease in

such a manner that the costs are reported over the

rele-vant periods

Intangible Assets

Goodwill on participating interests acquired after January

1, 1992: Goodwill resulting from the acquisition of Group

or associated companies corresponds to the difference

between the purchase price and the fair value of the

ac-quired net assets at the time of acquisition Goodwill is

amortized over the useful economic life, usually between

5and 10 years, and is charged to the statement of

in-come The maximum useful life may not exceed 20 years

All intangible assets are stated net of any impairment

loss If the purchase price is lower than the fair value of

the acquired net assets, the non-monetary assets are

re-duced proportionately, or the negative goodwill is

recog-nized as deferred income and systematically recorded as

income over the next few years as is the case with tive goodwill Goodwill on participations acquired prior

posi-to January 1, 1992: Goodwill on participations acquiredbefore January 1, 1992 has not been capitalized Other intangible assets: Patents, licenses and concessions arevalued at historical costs, corresponding either to thepurchase price or the development costs Developmentcosts represent all expenses incurred until the moment ofofficial registration Such costs are amortized over theshorter of the legal or economic life Capitalized expens-es: Organization, formation and start-up costs are amor-tized within 5 years

Impairment of Assets

Property, plant and equipment and intangible assets arereviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an as-set may not be recoverable Whenever the carryingamount of an asset exceeds its recoverable amount, animpairment loss is recognized in the statement of income

The recoverable amount is the higher of an asset’s netselling price and value in use The net selling price is theamount obtainable from the sale of an asset in an arm’slength transaction while value in use is the present value

of estimated future cash flows expected to arise from thecontinuing use of an asset and from its disposal at the end

of its useful life Recoverable amounts are estimated forindividual assets or, if it is not possible, for the cash-gen-erating unit

Reversal of impairment losses recognized in prior years isrecorded when there is an indication that the impairmentlosses recognized for the asset no longer exist or have de-creased The reversal is recorded in income

transfer of risks and rewards has been completed

Rev-enue from rendering services is recognized by reference

to the stage of completion when it can be measured

reli-ably The stage of completion is determined based on

sur-veys of work performed

Interest is recognized on a time proportion basis that

re-flects the effective yield on the asset Dividends are

rec-ognized when the shareholder’s right to receive payment

is established

Deferred Taxes

Provisions are made for deferred income tax liabilities

arising from differences between valuation methods used

in consolidation and those required by local tax rules as

applied to assets and liabilities The provisions are

ad-justed continually for any changes in local tax legislation

Provisions for deferred taxes are established in

accor-dance with the comprehensive liability method Under the

comprehensive liability method provisions are

estab-lished for all taxable temporary differences Tax loss

carry-forwards are only reported as deferred when it can be

rea-sonably assumed that future taxable income will be

suffi-cient to secure a tax advantage by offsetting losses

Provisions are not made for deferred taxes on the

undis-tributed earnings of Group companies since these

compa-nies can decide themselves when dividends are to be

dis-tributed

Employee Benefits – General

The Group adopted IAS 19 (revised 1998) in 1999 and

ac-counted for the transitional liability by adjusting the

retained earnings as at January 1, 1998

Employee Benefits – Defined Benefit Plans

Some Group companies provide defined benefit pension

plans for employees Professionally qualified

indepen-dent actuaries value the funds on a regular basis (1 to

3 years) The obligation and costs of pension benefits

are determined using a projected unit credit method The

projected unit credit method considers each period of

ser-vice as giving rise to an additional unit of benefit

entitle-ment and measures each unit separately to build up the

final obligation Past service costs are recognized on a

straight-line basis over the average period until the

amended benefits become vested Gains or losses on the

curtailment or settlement of pension benefits are

recog-nized when the curtailment or settlement occurs ial gains or losses are amortized based on the expectedaverage remaining working lives of the employees Thepension obligation is measured at the present value of es-timated future cash flows using a discount rate that issimilar to the interest rate on government bonds wherethe currency and terms of the government bonds are con-sistent with the currency and estimated terms of the de-fined benefit obligation The Group records an asset only

Actuar-if there is control over the asset

Employee Benefits – Defined Contribution Plans

In addition to the defined benefit plans described above,some Group companies sponsor defined contributionplans based on local practices and regulations The Group’scontributions relating to defined contribution plans arecharged to income in the year to which they relate

Employee Benefits – Other Post Employment Benefit Plans

Other post employee benefits include long-service leave

or sabbatical leave, medical aid, jubilee or other service benefits, long-term disability benefits and, if theyare not payable wholly within twelve months after the end of the period, profit sharing, bonuses and deferredcompensation

long-Derivative Financial Instruments

Through the use of various kinds of derivative financial struments, the Group hedges certain currency and inter-est rate risks Derivative financial instruments are usedprimarily to hedge specific transactions and only involvecounterparties of sufficient credit quality Interest rateswaps and interest rate options are used by the Group primarily to hedge debt positions The interest spread isused to offset interest expenditure during the period it

in-is incurred Gains and losses from derivative financial instruments are allocated to the period in which the underlying transaction is recorded in the statement of income

Provision for Recultivation

The Group provides for the cost of recultivating a quarrywhere a legal or contractual obligation exists The provi-sion is raised through operating costs over the life of thequarry and is based on estimated net present value of thecosts necessary for recultivation

16

1 Changes in the Scope of Consolidation

Acquisitions

Romania: Cimentul SA

Argentina: Juan Minetti S.A.

Sri Lanka: Ruhunu Cement Company Ltd.

Malaysia: Tenggara Cement Manufacturing Sdn Bhd

Singapore: Umar Pacific Pte Ltd.

Philippines: Alsons Cement Corporation (from proportionate to full consolidation)

Divestments

France: C.I.A (concrete chemicals operations)

Spain: Holderchem Euco S.A.

Switzerland: Holderchem Euco AG

USA: Euclid Chemical Company

Chile: Polchem S.A.

Philippines: Iligan Cement Corporation

1Major acquisitions / divestments

3 Segment Information

Statement of income, balance sheet

and cash flow statement

Million CHF

Depreciation and amortization

Capacity and sales

Million t

Statement of income, balance sheet

and cash flow statement

Million CHF

Personnel

18

Africa Middle East Asia Pacific Corporate / Eliminations Total Group

6 Cost of Products and Ser vices Sold

4 Production Capacity

Cement production capacity increased by a total of 6.8

million t (1998: 4.3) to 90.0 million t (1998: 83.2) This

increase is mainly due to further additions in the scope

of consolidation and the commissioning of new

capaci-ties that accounted for 6.8 million t (1998: 5.1), whilst

divested and shutdown capacity amounted to 0.6 lion t (1998: 2.6) The remaining increase of 0.6 million t(1998: 1.8)is the net result of technical improvements atvarious plants

mil-20

9 Operating Profit

Operating profit increased by CHF 139 million (1998:

132) or 8.9% (1998: 9.2%) This increase resulted from

improved market conditions and benefits due to previous

years’ restructuring The region of largest growth was

Europe, which increased its operating profit by 24.5%

(1998: 15.2%) accounting for 31.6% (1998: 27.6%) ofthe Group total

The increase in other ordinary income is primarily the

re-sult of income generated from disposals of operations

falling outside the framework of the Group’s core

activi-ties Additionally, the Iligan Cement Corporation (Kiwalan

plant) of Alsons Cement Corporation (Philippines) was

sold as part of its restructuring

10 Additional Ordinar y Income (E xpenses)

Financial expenses capitalized comprise interest

expen-ditures on larger-scale projects during the year In 1999,

such projects included construction of cement and

grind-ing plants at Holnam Inc (USA) and Juan Minetti S.A gentina) The average rate of interest for financial liabilities

(Ar-on hand at December 31 increased to 5.9% (1998: 5.6%)

Of which transactions with associates

14 Number of Personnel at Year-End

A total of 39,327 (1998: 40,520) people were employed

by the Group at year-end The decrease of 1,193 (1998:

259)employees was mainly due to restructuring and the

disposal of activities in Group regions Latin America andAfrica Middle East and was partly offset by various acquisitions made during the year

17 Earnings Per Share (EPS)

Earnings per share is calculated on the basis of Group net

income after minority interests and the weighted number

of dividend-bearing shares after deduction of treasury

shares Based on a weighted number of 5,163,063

(1998: 5,076,778) bearer shares and 10,304,744 (1998:

10,100,000) registered shares, earnings per bearer

share amount to CHF 110.06 (1998: 96.10) and per

reg-istered share CHF 22.01 (1998: 19.22) The fully diluted

EPS factors take into account the potential dilution

effects should the conversion options on the zero coupon

convertible bonds (1999 to 2014) and the 1% convertiblebonds (1998 to 2004) be exercised Fully diluted EPS

is based on a weighted average number of 5,437,844(1998: 5,337,190) bearer shares – the two bonds can po-tentially be converted into 274,781 (1998: 260,412)bearer shares – and 10,304,744 (1998: 10,100,000) reg-istered shares Fully diluted EPS thus amounts to CHF

108.50 (1998: 94.64) per bearer and CHF 21.70 (1998:

18.93) per registered share

16 Group Net Income After Minority Interests

The 16.6% increase was mainly due to stronger results in

Group regions Europe and Africa Middle East Group net

income after minority interests came to CHF 795 million

(1998: 682), representing 81.3% (1998: 81.5%) of Groupnet income before minority interests

15 Research and Development

Research and development expenses were again

con-fined to the existing product range and to investigating

production processes and environmental protection

Basic research costs of CHF 5 million (1998: 4) were

charged directly to the consolidated statement of come No significant costs were incurred for licenses ob-tained from third parties, nor was any major revenue gen-erated from licenses granted

in-18 Cash and Cash Equivalents

Cash and cash equivalents include securities as well as

money market paper and bonds earmarked for sale

23

20 Inventories

The increase in financial investments in associated

com-panies reflects the acquisition of non-consolidated

inter-ests at Cimus SA (Romania) and Garadagh Cement J.S.C

(Azerbaijan), Huaxin Cement Company Ltd (China), Siam

City Cement (Public) Company Limited (Thailand), and

the increase in participation at Egyptian Cement

Com-pany S.A.E (Egypt) The valuation of financial

invest-ments in associates is based on the equity accounted

carrying value that resulted in a CHF 9 million (1998: 1)

increase in investments in associates

24

22 Proper ty, Plant and Equipment

tools Million CHF

Purchase value of leased property,

tools Million CHF

Accumulated depreciation of leased

Net asset value of leased property,

The net book value of CHF 11,747 million (1998: 10,111)

represents 50.1% (1998: 50.9%) of the original cost of all

assets Pledged / restricted assets decreased to CHF 323

million (1998: 710) due to debt refinancing The fire

in-surance value at December 31 of property, plant and

equipment amounts to CHF 23,782 million (1998:

20,375)

25

23 Intangible and Other Assets

assets Million CHF

assets Million CHF

24 Trade Accounts Payable

26

26 Other Current Liabilities

Long-term financing liabilities, including those repayable

during 2000, comprise loans and advances of CHF 5,465

million (1998: 5,062), publicly listed bonds amounting

to CHF 2,286 million (1998: 1,862) and rental and lease

commitments totaling CHF 132 million (1998: 121) Allloans and advances were obtained from banks and finan-cial institutions Unutilized credit lines totaled CHF 1,964million (1998: 2,320) as at December 31

27

Maturity schedule of long-term financing

liabilities (including current portion)

Outstanding bonds and private placements as at December 31, 1999

1Issues are guaranteed by “Holderbank” Financière Glaris Ltd

2The bonds were converted into USD by currency swaps at the date of issue.

3Each bond with a par value of CHF 5,000.– may be converted into 2.32558

bearer shares of “Holderbank” Financière Glaris Ltd during the period

May 14, 1998 to May 14, 2004

4Zero coupon convertible bond The bonds were issued at par and have a

redemption price at maturity of 116.0969% One debenture of CHF 5,000.–

at par value may be converted into 2.08333 bearer shares of “Holderbank”

28

Of which rental and lease commitments

Maturity of rental / lease commitments

The remaining balance of specific provisions, which were

established in 1996, have been fully released This

re-lease of CHF 108 million was mainly due to restructuring

measures in Group region Europe

Deferred taxes

Calculation based on comprehensive liability method

Analysis of temporary differences

Utilization of tax loss carryforwards to reduce

Longest possible utilization period

Employee Benefits Obligations

Defined benefit plan: Some Group companies provide

pension plans which under IAS are considered as definedbenefit pension plans for their employees Provisions forpension obligations are established for benefits payable

in the form of retirement, disability and surviving dents’ pensions The benefits offered vary according tothe legal, fiscal and economic conditions of each country.Benefits are dependent on years of service and the re-spective employee’s compensation and contribution

depen-Upon adoption of IAS 19 (revised 1998) on January 1,

1999, the Group determined its transitional liability fordefined benefit plan as the present value of the obliga-tion at the date of adoption less the fair value of plan as-sets and past service cost As a result of the new valua-tion, the increase in liabilities was treated according toIAS 8 and recorded against beginning retained earnings

as at January 1, 1998 The Group records an asset only ifthere is control over the asset For Swiss plans “Holder-bank” does not consider the net asset to be under its fullcontrol and therefore no asset is recorded

The obligation resulting from defined benefit pensionplans is determined using the projected unit creditmethod Unrecognized gains and losses resulting fromchanges in actuarial assumptions are recognized as in-come (expense) over the expected remaining service life

of active employees There were no plan terminations,curtailments or settlements for the year ended December

31, 1999

The following table reconciles the funded status of defined benefit plans to the amounts recognized in thebalance sheet, including the movement in the balancesheet:

Million CHF

Benefits costs (included in personnel expenses)

Million CHF

Principal actuarial assumptions (weighted average of all

pension plans) used to determine pension obligations

as at December 31, 1999 were as follows:

Principle actuarial assumptions

Percentage

29 Interests of Minority Shareholders

Effects of changes in accounting policies

The decrease in purchase commitments reflects the

smaller demand for imported cement of US subsidiary

Holnam Inc during the last quarter of the year

Employee Share Participation Plans

“Holderbank” established an employee share ownership

plan for all employees of Swiss subsidiaries and some

ex-ecutives from Group companies This entitles employees

to acquire discounted “Holderbank” shares, however,

with disposal restrictions In addition, part of the

com-pensation of key executives is paid in “Holderbank”

shares valued at market price and with disposal tions All shares are purchased from the market and thecost is charged to the statement of income as personnel expenses Therefore, no dilution effect of “Holderbank”shares occurs

32 Derivative Financial Instruments

In 1999, the Group adopted IAS 16 (revised 1998),

prop-erty, plant and equipment; IAS 19 (revised 1998),

em-ployee benefits; IAS 22 (revised 1998), business

combi-nations; IAS 36, impairment of assets and IAS 38,

intan-gible assets, for the first time The effects of the changes

in accounting policies with regard to IAS 19 (revised

1998), employee benefits and IAS 38, intangible assets,

were reflected in the balance of retained earnings as at

January 1, 1998 in accordance with the transitional

provi-sions of the respective standard

In addition, the Group restated the balance of retainedearnings as at January 1, 1998 mainly to fully accrue forits deferred tax liability in accordance with the compre-hensive liability method imposed by IAS 12 (revised

1996), income taxes, and adjusted in accordance withIAS 8, paragraph 34 The respective effect on the 1998statement of income is not material The impact of theseadjustments and changes in accounting policies on the

1998opening balance of retained earnings is as follows:

Effects of changes in accounting policies

Million CHF

The nominal value reflects the contract volume By

com-bining various derivative instruments, individual hedging

transactions may be several times larger than the

under-lying transaction The market value is the price

differen-tial as at year-end marked against the market The book

value discloses that portion of a financial instrument thathas already been taken to the statement of income Theunderlying transaction disclosed in the financial state-ments reflects the nature of the derivative financial in-struments

Interest Rate Risks

The Group enters into various types of interest rate

de-rivative contracts to lower its funding costs, to diversify

sources of funding, or to alter interest rate exposures

arising from mismatches between assets and liabilities

Interest rate swaps, forwards and options allow the

Group to adjust the floating rate receivables and

borrow-ings into fixed rates or vice versa

Monetary net current assets by currency

The Group enters into various types of foreign exchange

contracts in managing its foreign exchange risk resulting

from cash flows from (anticipated) business activities

and financing arrangements denominated in foreign

cur-rencies Transaction risk is principally calculated in each

foreign currency and includes currency denominated

short-term assets and short-term liabilities and certain

off-balance sheet items such as firm and probable chase and sales commitments The currency risks of theGroup occur due to the fact that the Group’s productionand sales operations are in different countries world-wide Currency risks are hedged mostly based on net exposures The impact of these hedging transactions isshown as financial expenses in the statement of income

pur-Total financial liabilities by currency

33 Cash Flow from Operating Activities

The high level of cash flow from operating activities in

the previous year was maintained and increased to

CHF 1,902 million (1998: 1,887) Cash generated from

operations which increased by 8.7% was able to cover

higher interest and tax payments of CHF 217 million

In-terest payments increased due to higher borrowing

lev-els which were needed to finance the non-consolidated

positions in the emerging markets Tax payments were

higher because various Group companies have used up

their tax-deductible tax losses carried forward Group

re-gions Europe and North America showed improvements

in cash flow compensating the decreases in all other

Group regions

Liquidity Risks

Liquidity risks arise from the possibility that customers

may not be able to settle their obligations as agreed To

manage this risk the Group periodically assesses the

financial reliability of customers The Group maintains

an adequate cash position and credit lines

Credit Risks

Credit risks, or the risks of counterparties defaulting, are

constantly monitored Counterparties to financial

instru-ments consist of a large number of major financial

insti-tutions The Group does not expect any counterparties

to fail to meet their obligations, given their high credit

ratings The Group has no significant concentration of

credit risk with any single counterparty or group of

coun-terparties

34 Cash Flow from Investing Activities

Cash flow from investing activities by category

Capital expenditures on property, plant and equipment to