financial report 2001 results provide a solid foundation for future prospects holcim

They are carried at fair value with all fair value changes recorded in equity until the financial asset is either impaired or disposed of at which time the cumulative gain or loss previo

2001 results provide

a solid foundation for future prospects.

The following discussion and analysis of the Group’s

financial condition and results of operations should be

read in conjunction with the Group’s financial

state-ments and notes to the financial statestate-ments, which are

presented on pages 56 to 89 of this annual report

Overview

Holcim again achieved good financial results in 2001

given the economic slowdown in several markets and

the strong CHF The Group’s well-balanced and wide

spread geographical positions contributed largely to

the maintenance of operating results, with regard to

the prior year, in the face of difficult conditions

Group net sales increased by CHF 113 million (2000:

1,823), or 0.8% (2000: 15.6%), to CHF 13,644 million

(2000: 13,531) The Group benefited from new

addi-tions to the consolidation structure, but unlike

previ-ous years did not enjoy the benefits of a strong USD,

which weakened during the last quarter of 2001 The

internal growth in net sales, which excludes the

impact of changes in foreign currencies and the

con-solidation structure, amounted to CHF 166 million

(2000: 523) or 1.2% (2000: 4.5%) The global economic

growth, which has been evident over the past few

years, did not continue in 2001 This was particularly

evident in the second half of the year where the US

economy lost some momentum This also had a ripple

effect in other regions, where especially the Mexican

as well as some Western European markets declined

In addition, the delayed commissioning of the

Port-land plant and the write-off of Fort Collins

produc-tion facility in the USA negatively impacted the

oper-ating results by CHF 112 million On the positive side,

there were improved economic environments in most

of the emerging markets of Africa Middle East, Asia

Pacific and Eastern Europe in which the Group

oper-ates Latin America continues to contribute greatly to

the Group’s performance, where especially the kets in Venezuela and Ecuador returned significantimprovements

mar-In 2001, the geographic diversification was furtherstrengthened and served to balance the Group’s port-folio Developing markets continue to increase theirshare of Group net sales at the expense of the moremature markets Europe, although still the largestregion in the Group, decreased its share to 32.3%(2000: 33.3%) of the Group’s net sales The Groupregions in the emerging markets of Africa Middle Eastand Asia Pacific increased during the year andaccounted for 8.7% (2000: 8.2%) and 9.4% (2000:8.4%) of net sales respectively Net sales in LatinAmerica stabilized and represent 27.2% (2000: 27.2%),while sales in North America declined and represent22.4% (2000: 22.9%) of the Group total

Effect of currencies and inflation on operations

The Group operates in more than 70 countries, fore most of the Group’s operations are accounted for

there-in currencies other than the CHF Income statements

in foreign currencies are translated into CHF at theaverage exchange rate of the year, whereas balancesheets in foreign currencies are consolidated at year-end exchange rates

During 2001, the CHF strengthened in averageagainst most of the major currencies in which theGroup operates Group results are sensitive to move-ments affecting the EUR, which was 3.2% weakerthan the CHF and the USD, which was similar to the CHF as a result of movements in the fourth quarter

Boosting performance

and cash flow

is the key objective.

In addition, most currencies in emerging markets

weakened during the year As a consequence,

exchange rate movements had a negative impact on

the consolidated income statement and the results of

the Group Due to the translation into CHF, net sales

decreased by CHF 412 million (2000: +779) and

oper-ating profit by CHF 57 million (2000: +133)

The impact on the Group balance sheet was more

mixed The EUR lost 2.6% compared to the previous

year closing This was offset by a strengthening of

the USD that gained 2.4% year-on-year This led to a

CHF 70 million (2000: 116) decrease in shareholders’

equity due to currency translation adjustments

The impact of inflation and devaluation in some

emerging market countries is minimized by

function-al currency accounting – usufunction-ally in USD or EUR

The Group experienced a smooth introduction of the

EUR on January 1, 2002, and will continue to benefit

from reduced currency exchange risks and new

opportunities in the European financial markets

Change in Group structure

Net financial investments amount to CHF 1,949

mil-lion (2000: 1,929) The most significant investments

were in PT Semen Cibinong Tbk (Indonesia), which

will be consolidated as of January 1, 2002, and

Corporación Incem S.A (Panama), which was

propor-tionately consolidated for the first time this year

St Lawrence Cement Inc (Canada) invested in

aggre-gate operations which were immediately included in

its consolidated results In addition, the Group

provid-ed financing to the Spanish investor, Cartera

Lusita-nia, who acquired a participation in Cimpor –

Cimen-tos de Portugal, SA (Portugal)

Holcim (Bangladesh) Ltd, Caricement Antilles N.V

(Curaçao) and Nicacem S.A (Nicaragua) were fully

consolidated and Union Cement Corporation

(Philip-pines) was proportionately consolidated for the first

time Egyptian Cement Company S.A.E (Egypt) was

now proportionately consolidated for a full year after

only 6 months in 2000

The Group continued to strengthen its participation

in subsidiaries The most significant additional

minority interests were acquired at BeloizvorskiCement JSCo (Bulgaria), Apasco S.A de C.V (Mexico),Minetti S.A (Argentina), Holcim (Brasil) S.A (Brazil)and St Lawrence Cement Inc (Canada)

In addition, new or further investments have beenmade in non-consolidated companies including CHF 50 million in Swiss International Air Lines Ltd.(Switzerland)

Divestments mainly include operations falling side of Group core activities and markets focusing onthe development of products and expertise in thefield of clinker and cement The most significant ofthese divestments occurred in Alsen AG (Germany)and Holcim (Belgique) S.A

out-The change in Group structure increased net sales

by CHF 359 million (2000: 521) and operating profit

by CHF 65 million (2000: 65)

Results of operations

During 2001, cement capacity grew by 7.1% (2000:21.2%) to 121.2 million tonnes (2000: 113.2) Thisreflects the investment activity during the year aswell as some internal adjustments necessary toensure that the capacity is measured identically in alloperations The increase would have been higherexcept for the difficulties encountered regarding acommissioning of new production facilities in theUSA The new capacity should commence operations

in the first half 2002 and is expected to reduce duction costs in the USA

pro-The percentage of the Group’s net sales represented

by income statement items is set out in the tablebelow During the past two years a Group-wide stan-dardized management accounting system was imple-mented The new management information systemand related initiatives will facilitate international,Group-wide benchmarking, enable Group companies

to share services and further strengthen the

efficien-cy and effectiveness of administration Since thebeginning of 2001, Group companies report in a uni-form manner As a consequence, certain comparativeinformation has been restated This mainly includedthe restatement of revenue where only the marginearned from trading activities forms part of net sales,

the transfer of ready-mix concrete transportation

costs from production costs to distribution costs and

the separation of administration overheads from

pro-duction costs

Net sales

The increase of net sales by CHF 113 million (2000:

1,823) to CHF 13,644 million (2000: 13,531) was

achieved through growth in the areas of the business

that the Group considers part of its core

competen-cies Net sales in the segment cementitious materials

increased by CHF 450 million (2000: 1,272) and now

account for CHF 9,994 million (2000: 9,544) or 68.4%

(2000: 64.4%) of total Group turnover In the

seg-ment aggregates and concrete, net sales increased by

CHF 137 million (2000: 540) to CHF 3,588 million

(2000: 3,451), representing a share of 24.5% (2000:

23.3%) of total net sales Due to continued

divest-ments of activities in the segment other products

and services, net sales decreased by CHF 786 million

(2000: +136) to CHF 1,043 million (2000: 1,829),

accounting now for 7.1% (2000: 12.3%) of total

turnover

Operating profit

The gross profit margin amounts to 47.6% (2000:

44.9%) The Group continues to focus on methods to

increase its use of alternative fuels and optimize the

use of mineral components These initiatives have

helped lower production costs The comparison of thegross profit margin with previous years is limited.Certain Group companies recorded some distributionactivities, mainly those involving the bagging andshipping of cement, as part of production costs inprevious years This has now been standardized for allGroup companies resulting in a decrease in produc-tion costs and an increase in distribution costs Theprior year income statement was not restated for thiseffect

Distribution and selling expenses amounted to 22.1%(2000: 20.1%) of net sales

Administration expenses amounted to 9.3% (2000:8.2%) of net sales Administration costs are high due

to the launch of the global Holcim brand, the duction of a procurement initiative as well as therelease of a standardized chart of accounts These ini-tiatives will increase operating results and competi-tiveness in the future In addition, various initiatives,including efforts to optimize the Group structurecontinue to be launched to streamline administrationand reduce costs

intro-Other depreciation and amortization amounted to1.9% (2000: 1.8%) of net sales The slight increase inthis item, which contains amortization and deprecia-tion on intangible and other operating assets, wasprimarily due to the amortization of goodwill arisingfrom recent investment activities

Operating profit decreased to 14.3% (2000: 14.8%) ofnet sales The decrease in operating profit of CHF 56million (2000: +295) or 2.8% (2000: +17.3%) was duepartly to negative effects from exchange rate move-ments of CHF 57 million (2000: +133) Ignoring theimpact of currency and changes in the consolidationstructure of CHF 65 million (2000: 65) operating profit decreased by CHF 64 million (2000: +97) Thisdecrease was impacted by the restructuring costs ofCHF 131 million Operating profit in North Americadecreased significantly by 27.7% (2000: 0.2%) Thelower economic growth levels were compounded bydifficulties commissioning a new production facility

as well as the write-off of the Fort Collins plant andthe related closure costs (CHF 48.5 million) Operatingprofit in Europe decreased by 5.0% (2000: +0.2%)

reflecting the weakening EUR and challenging

condi-tions in Western Europe where the restructuring

costs in Alsen AG (Germany) and Holcim (France

Benelux) S.A lowered operating profits This was

part-ly offset by encouraging results in Eastern Europe

where especially Holcim in Hungary returned good

results Although operating profit in Latin America

decreased by 1.8% (2000: +43.2%) the area accounts

for 41.1% (2000: 40.8%) of Group operating profit

making it the largest contributor to the Group’s

oper-ating results Most companies in this area returned

improved results – especially Cementos Caribe C.A

(Venezuela), La Cemento Nacional C.A (Ecuador) and

Minetti S.A (Argentina) Only Apasco S.A de C.V

(Mexico) and Holcim in Brazil, both on the back of

excellent 2000 results, returned lower operating

prof-its The areas of Africa Middle East and Asia Pacific

increased their operating profit by 31.6% (2000:

67.0%) and 60.8% (2000: 40.6%) respectively In the

area of Africa Middle East Egyptian Cement Company

S.A.E (Egypt) was proportionately consolidated

and contributed its first full year results after only

6 months in 2000 This, together with good market

conditions in Holcim (Maroc) S.A means that this

area now accounts for 10.0% (2000: 7.4%) of Group

operating profit Asia Pacific accounts for 7.8%

(2000: 4.7%) of Group operating profit due mainly

to the first time proportionate consolidation of Union

Cement Corporation (Philippines) and improved

results in Siam City Cement (Public) Company Limited

(Thailand) and most other companies in this region

The strong and resistant operating results are a

confirmation of the successful Group strategy of

geographical diversification

Financial expenses

Net financial expenses amounted to 5.1% (2000:

5.0%) of net sales The small increase resulted fromthe higher levels of net financial debt arising fromthe investment activity in the last years The averageinterest rate on the financial liabilities on hand atDecember 31 amounts to 5.2% (2000: 6.4%)

Income taxes

The expected income tax rate for the Group remains

at 33.0% During the year the effective tax rate was29.6% (2000: 30.2%) and was lower than the expect-

ed rate, primarily due to tax incentives received inrecently acquired companies and the future tax ratereductions announced in Mexico

Net income

Net income after minority interests decreased by8.4% (2000: +11.4%) As a result, earnings per dividend-bearing bearer share (EPS) decreased by12.1% (2000: +9.6%) to CHF 21.20 (2000: 24.12)

Cash flow

Cash generated from operating activities amounted

to CHF 2,402 million (2000: 2,557) a decrease of 6.1%(2000: +34.4%) during the year which reflects thecommunicated one-time effects in 2000 This reduc-tion is higher than the decrease in EBITDA and arisesmainly from higher working capital requirements.Inventory and trade receivables both increased whileoperating liabilities remained largely unchanged

The emerging markets of Africa Middle East and Asia Pacific returned the largest increases in cashflow of 38.0% (2000: 55.8%) and 51.8% (2000: 31.7%)respectively The strong cash flows in Latin Americaincreased further by 1.0% (2000: 64.4%) Theseincreases were offset by increased working capitalrequirements in Europe and North America decreas-ing cash flow in these regions by 6.6% (2000: +4.3%)and 18.9% (2000: +30.9%) respectively

Balance sheet

Consolidated shareholders’ equity grew by CHF 542million (2000: 670) to CHF 7,642 million (2000: 7,100),mainly due to the enhancement of equity throughnet income by CHF 812 million (2000: 886) and theCHF 650 million capital increase This was offset by

profit distribution of CHF -188 million (2000: -162),

increase in treasury shares of CHF -372 million (2000:

+238), effects of adopting IAS 39 on financial

instru-ments of CHF -269 million and currency translation

adjustments of CHF -70 million (2000: -116)

In July 2001, the Group increased its equity by CHF

650 million through the issue of subscription rights

for existing shareholders This was used to underlay

approximately half of the CHF 1,300 million

share-holdings acquired in new markets over the preceding

two years with equity

Interests of minority shareholders increased by CHF

841 million (2000: 98) to CHF 2,741 million (2000:

1,900) due mainly to the issue of preference shares

with a total subscription value of USD 450 million

The Group does not guarantee these preference

shares for redemption and dividend payments

Further increases arise from minority interests in the

new consolidations, partially offset by the buy-outs of

minority interests in already consolidated companies

The Group’s net financial debt amounts to CHF 9,768

million (2000: 9,060) an increase of 7.8% (2000:

18.7%) largely due to cash requirements for expansion

through property, plant and equipment and financial

investment Standard & Poor’s, London awarded the

Group a credit rating of “BBB+” (long-term; outlook

stable) and “A-2” (short-term) In August 2001, the

Group issued unsecured notes through a private

placement in the US of USD 825 million Gearing (net

financial debt divided by shareholders’ equity

includ-ing minority interests) benefited from the higher

equity levels and decreased to 94.1% from 100.7%

Although net financial debt increased, the portion

relating to cash and marketable securities remained

high and amounted to CHF 2,242 million (2000:

2,288)

Sustainable development

The Group is a founding member of the World Business

Council for Sustainable Development (WBCSD),

rein-forcing its commitment to the environment in a larger

sense The use of alternative fuels and raw materials

as well as the production of blended cements is being

systematically pursued in all regions to bring both an

environmental and economic benefit to the Groupbut also to contribute to societies’ future Invest-ments in environmental protection are clearly a prior-ity in acquired companies in developing countries

CHF 81 million (2000: 129) was invested to furtherimprove the environmental sustainability of the pro-duction facilities

Group companies provide for their environmental bilities based on constructive as well as legal andcontractual obligations CHF 279 million (2000: 273)has been set-aside as a provision for recultivation andother environmental liabilities The Group does notanticipate any material adverse effect of environmen-tal liabilities on future results of operations

lia-The section headed “Sustainable Development” onpage 8 contains details of activities and efforts in theareas of corporate social responsibility and environ-mental protection

New management structure and corporate governance

As a consequence of the strong growth witnessed bythe Group and to satisfy the capital markets new cor-porate governance requirements for publicly listedcompanies, Holcim has decided to spread manage-ment responsibilities more broadly The functions ofChairman of the Board of Directors and Chief Execu-tive Officer were split effective January 1, 2002.Markus Akermann has assumed overall executiveresponsibility as the new Holcim CEO Chairman

Dr h.c Thomas Schmidheiny will focus more onstrategic tasks He remains the Group’s largest share-holder The Board of Directors has named Urs BieriDeputy CEO Newly appointed to the Executive Com-mittee, Paul Hugentobler is now responsible for theNorthern ASEAN and South Asia regions

In order to bring the company’s organizational regulations into line with the changed circumstances,

an Audit Committee and a Nomination & sation Committee are to be established at Boardlevel

Compen-The business risk management concept has nowbeen fully implemented Group-wide

The internal audit function has been redefined It is

to establish guidelines for internal audits at operative

company level At the Group/finance company level,

the function of internal auditor has been transferred

to an independent firm of auditors These measures

create a basis for professional and efficient internal

auditing throughout the Group

Accounting policies

IAS 39 on financial instruments and IAS 40 on

invest-ment properties were impleinvest-mented in 2001 Whereas

investment properties had no impact on the Group,

IAS 39 had a substantial financial and administrative

impact The complexities and demanding disclosure

requirement of the standard resulted in considerable

training and system development In addition, the

Group took the opportunity to formalize the Group

treasury policy over the period

As a consequence of IAS 39 shareholders’ equity was

reduced by CHF 192 million as of January 1, 2001 The

standard does not require restatement of

compara-tive information

There are no International Accounting Standards that

affect the Group scheduled for implementation

during 2002, however management continues to

monitor developments and contribute towards future

standards

Events after the balance sheet date

During 2001, the Group increased the shareholding in

PT Semen Cibinong Tbk (Indonesia) to approximately

77% after successful negotiations to restructure the

company’s debt The company will be consolidated

from January 1, 2002 the date that management

con-trol became effective

On December 28, 2001 the Serbian government

accepted Holcim’s bid that amounts to about CHF 85

million for 70% of the voting shares of Novi Popovac

The final contract is scheduled to be signed in the

first half of 2002

During January 2002, the economic crisis in Argentina

resulted in the devaluation of the local currency and

in the default of its foreign debt It is too early to

esti-mate the effect of the crisis on the economy and

Group interests in that area Accordingly the carryingvalue of the assets and liabilities remain unchanged

at their December 31, 2001 values

On February 25, 2002 Siam City Cement (Public) pany Limited (Thailand), jointly controlled by HolcimLtd and the Ratanarak family, signed a subscriptionagreement with TPI Polene Public Co Ltd to acquire acontrolling participation through an investment innew equity of USD 375 million The proposed transac-tion is subject to the approval of the Scheme Credi-tors as the company is currently under rehabilitation

Com-in accordance to the Bankruptcy Law of Thailand

Outlook

Management feels confident about the financial formance 2002 thanks to the wide spread presenceand to the restructuring in several key markets

per-For further details please refer to the “Shareholders’Letter” on page 2

Consolidated Statement of Income of Group Holcim

Consolidated Balance Sheet of Group Holcim

Statement of Changes in Consolidated Equity of Group Holcim

Consolidated Cash Flow Statement of Group Holcim

Basis of preparation

The consolidated financial statements have been prepared in

accordance with International Accounting Standards (IAS)

under the historical cost convention, except as disclosed in the

accounting policies below

Adoption of new International Accounting Standards

On January 1, 2001 the Group adopted the following

Interna-tional Accounting Standards for the first time:

IAS 39 financial instruments: recognition and measurement;

and IAS 40 investment property

The effect of adopting IAS 39 is summarized in the “Statement

of Changes in Consolidated Equity of Group Holcim” and

fur-ther disclosed in note 3 to the accounts

The Group elected to account for investment property at cost

and as such no adjustment was required under IAS 40 at

Janu-ary 1, 2001

Comparative information has not been restated

Use of estimates

The preparation of financial statements in conformity with IAS

requires management to make estimates and assumptions

that affect the reported amounts of revenues, expenses,

assets, liabilities and related disclosures at the date of the

financial statements These estimates are based on

manage-ment’s best knowledge of current events and actions that the

Group may undertake in the future However, actual results

could differ from those estimates

Scope of consolidation

The consolidated accounts comprise those of Holcim Ltd and

of its affiliated companies, including joint ventures and

associ-ated companies The list of principal companies is given in the

section “Principal Companies”

Principles of consolidation

Subsidiary companies, which are those entities in which the

Group has an interest of more than one half of the voting

rights or otherwise has the power to exercise control over the

operations, are consolidated Subsidiaries are consolidated

from the date on which control is transferred to the Group

and are no longer consolidated from the date that control

ceases

All intercompany transactions and balances between Groupcompanies are eliminated

The Group’s interest in jointly controlled entities is

consolidat-ed using the proportionate method of consolidation Underthis method the Group combines its share of the joint ven-tures’ individual income and expenses, assets and liabilitiesand cash flows with the equivalent items in the consolidatedfinancial statements on a line-by-line basis All transactionsand balances are eliminated to the extent of the Group’s inter-est in joint ventures

Investment in associated companies are accounted for by theequity method of accounting These are companies over whichthe Group generally has between 20% and 50% of the votingrights and has significant influence but does not exercise con-trol Equity accounting is discontinued when the carryingamount of the investment in an associated company reacheszero, unless the Group has either incurred or guaranteed obli-gations in respect of the associated company

Foreign currency translation

Income statements of foreign entities are translated into theGroup’s reporting currency at average exchange rates for theyear and balance sheets are translated at exchange rates rul-ing on December 31

Goodwill arising on the acquisition of a foreign entity is

treat-ed as a local currency asset of the acquirer using the exchangerate at the date of the transaction

Foreign currency transactions are accounted for at theexchange rates prevailing at the date of the transactions;gains and losses resulting from the settlement of such trans-actions and from the translation of monetary assets and lia-bilities denominated in foreign currencies are recognized inthe income statement, except when deferred in equity as qual-ifying cash flow hedges

Certain subsidiaries in high inflation countries or companiesoperating in economies with unstable currency situations con-sider the USD or the EUR to be the more appropriate measure-ment currency as it more correctly reflects the economic sub-stance of the underlying events and circumstances relevant tothat particular enterprise As a consequence thereof, the USDand the EUR have been used as the measurement currency forthese specifically affected companies

Cash and cash equivalents

Cash and cash equivalents are readily convertible into a known

amount of cash with original maturities of three months or

less Cash and cash equivalents comprise cash at bank and on

hand, deposits held at call with banks, other short-term highly

liquid investments and bank overdrafts In the prior year,

how-ever, there was no three month limitation and a reclassification

was therefore made to closing cash and cash equivalents as at

December 31, 2000 to conform to the present accounting policy

Marketable securities

Marketable securities consist primarily of debt and equity

securities which are traded in liquid markets and are classified

as available-for-sale They are carried at fair value with all fair

value changes recorded in equity until the financial asset is

either impaired or disposed of at which time the cumulative

gain or loss previously recognized in equity is transferred to

net profit and loss for the period

Accounts receivable

Trade accounts receivable are carried at original invoice

amount less an estimate made for doubtful debts based on a

review of all outstanding amounts at the year end

Inventories

Inventories are stated at the lower of cost and net realizable

value Cost is determined by using the weighted average cost

method The cost of finished goods and work in progress

com-prises raw materials and additives, direct labor, other direct

costs and related production overheads Cost of inventories

includes transfers from equity of gains or losses on qualifying

cash flow hedges relating to inventory purchases

Financial investments

At January 1, 2001 the Group adopted IAS 39 and classified its

investments into the following categories: loans originated by

the Group, available-for-sale and held-to-maturity

invest-ments Loans created by providing money directly to a debtor

are classified as originated Investments intended to be held

for an indefinite period of time are classified as

available-for-sale Investments with fixed maturity that management has

the intent and ability to hold to maturity are classified as

held-to-maturity

All purchases and sales of investments are recognized on trade

date, which is the date that the Group commits to purchase or

sell the asset Cost of purchase includes transaction costs

Loans originated by the Group are measured at amortizedcost Available-for-sale investments are carried at fair value,while held-to-maturity investments are carried at amortizedcost using the effective interest method Gains and losses aris-ing from changes in the fair value of available-for-sale invest-ments are included in equity until the financial asset is eitherimpaired or disposed of, at which time the cumulative gain orloss previously recognized in equity is transferred to net profitand loss for the period

Property, plant and equipment

Property, plant and equipment is valued at acquisition or struction cost less depreciation and impairment loss Costincludes transfers from equity of any gains or losses on quali-fying cash flow hedges Depreciation is charged so as to writeoff the cost of property, plant and equipment over their esti-mated useful lives, using the straight-line method, on the fol-lowing bases:

with raw material reservesBuildings and installations 20 to 40 years

Costs incurred to gain access to mineral reserves are ized and depreciated over the life of the quarry

capital-Interest cost on borrowings to finance construction projectswhich last longer than one year are capitalized during theperiod of time that is required to complete and prepare theasset for its intended use All other borrowing costs areexpensed in the period in which they are incurred

Government grants received are deducted from property,

plant and equipment and reduce the depreciation charge

accordingly

Leases of property, plant and equipment where the Group has

substantially all the risks and rewards of ownership are

classi-fied as finance leases Property, plant and equipment acquired

through a finance lease is capitalized at the date of inception

of the lease at the present value of the minimum future lease

payments The corresponding lease obligations, excluding

finance charges, are included in current or long-term financing

liabilities

In the case of sale and lease-back transactions, the book

value of the related property, plant or equipment remains

unchanged Gains from a sale are included as a financing

lia-bility and the financing costs are allocated over the term of

the lease in such a manner that the costs are reported over

the relevant periods

Investment property

Investment property is property held to earn rentals and for

capital appreciation and is stated at cost

Goodwill

Goodwill represents the excess of the cost of an acquisition

over the Group’s interest in the fair value of the identifiable

assets and liabilities of a subsidiary, associate or joint venture

at the date of acquisition Goodwill is recognized as an

intan-gible asset and amortized on a straight-line basis over its

esti-mated useful life as follows:

Other products and services 10 years

Shorter useful lives may be used where appropriate but the

maximum estimated useful life may not exceed 20 years

On disposal of a subsidiary, associate or joint venture, the

attributable amount of unamortized goodwill is included in

the determination of profit or loss on disposal

Negative goodwill represents the excess of the fair value of

the Group’s share of identifiable assets and liabilities acquired

over the cost of acquisition Negative goodwill is presented in

the same balance sheet classification as goodwill To the

extent that negative goodwill relates to expectations of futurelosses and expenses that are identified in the Group’s plan forthe acquisition and can be measured reliably, but which donot represent identifiable liabilities, that portion of negativegoodwill is recognized in the income statement when thefuture losses and expenses occur The remaining negativegoodwill is recognized as income on a straight-line basis overthe remaining average useful life of the identifiable acquireddepreciable assets To the extent that such negative goodwillexceeds the aggregate fair value of the acquired identifiablenon-monetary assets, it is recognized in income immediately

Other intangible assets

Expenditure on acquired patents, trademarks and licenses iscapitalized and amortized using the straight-line method overtheir estimated useful lives, but not exceeding 20 years

Impairment of assets

At each balance sheet date, the Group assesses whether there

is any indication that an asset may be impaired If any suchindication exists, the recoverable amount of the asset is esti-mated in order to determine the extent of the impairmentloss, if any Where it is not possible to estimate the recoverableamount of an individual asset, the Group estimates the recov-erable amount of the cash generating unit (defined on thebasis of regional markets) to which the asset belongs

If the recoverable amount of an asset or cash generating unit

is estimated to be less than its carrying amount, the carryingamount of the asset or cash generating unit is reduced to itsrecoverable amount Impairment losses are recognized imme-diately in the income statement

Where an impairment loss subsequently reverses, the carryingamount of the asset or cash generating unit is increased to itsrevised estimate of its recoverable amount However, thisincreased amount cannot exceed the carrying amount thatwould have been determined had no impairment loss beenrecognized for that asset or cash generating unit in prioryears A reversal of an impairment loss is recognized immedi-ately in the income statement

Long-term financing liabilities

Bank loans acquired and non-convertible bonds issued are ognized initially at the proceeds received, net of transactioncosts incurred In subsequent periods, bank loans and non-con-vertible bonds are stated at amortized cost using the effectiveinterest method with any difference between proceeds (net of

rec-transaction costs) and the redemption value being recognized

in the income statement over the term of the borrowings

On the issue of convertible bonds, the fair value of the liability

portion is determined using a market interest rate for an

equivalent non-convertible bond; this amount is carried as a

long-term liability on the amortized cost basis using the

effec-tive interest method until extinguishment on conversion or

maturity of the bonds The remainder of the proceeds is

allo-cated to the conversion option which is recognized and

includ-ed in shareholders’ equity; the value of the conversion option

is not changed in subsequent periods

Deferred taxes

Deferred tax is provided in full, using the liability method, on

temporary differences arising between the tax bases of assets

and liabilities and their carrying amounts in the financial

statements Tax rates enacted or substantially enacted by the

balance sheet date are used to determine the deferred tax

expense

Deferred tax assets are recognized to the extent that it is

probable that future taxable profit will be available against

which the temporary differences can be utilized

Deferred tax liabilities are recognized for taxable temporary

differences arising from investments in subsidiaries,

associ-ates and joint ventures except where the Group is able to

con-trol the distribution of earnings from these respective entities

and where dividend payments are not expected to occur in the

foreseeable future

Deferred tax is charged or credited in the income statement,

except when it relates to items credited or charged directly to

equity, in which case the deferred tax is treated accordingly

Site restoration and other environmental provisions

The Group provides for the costs of restoring a quarry where a

legal or constructive obligation exists The cost of raising a

provision necessary before exploitation of the raw materials

has commenced is included in property, plant and equipment

and depreciated over the life of the quarry Thereafter, the

pro-vision is adjusted for through operating costs over the life of

the quarry and is based on the best estimate of the

expendi-ture required to settle the obligation at balance sheet date

Where the effect of the time value of money is material, the

amount of the provision is discounted based on the

enter-prise’s long-term borrowing rate

Other provisions

A provision is recognized when there exists a legal or structive obligation arising from past events and a reliableestimate can be made of the amount that will be required tosettle that obligation

con-Employee benefits – Defined benefit plans

Some Group companies provide defined benefit pension plansfor employees Professionally qualified independent actuariesvalue the funds on a regular basis (1 to 3 years) The obligationand costs of pension benefits are determined using the pro-jected unit credit method The projected unit credit methodconsiders each period of service as giving rise to an additionalunit of benefit entitlement and measures each unit separately

to build up the final obligation Past service costs are nized on a straight-line basis over the average period until theamended benefits become vested Gains or losses on the cur-tailment or settlement of pension benefits are recognizedwhen the curtailment or settlement occurs Actuarial gains orlosses are amortized based on the expected average remain-ing working lives of the participating employees The pensionobligation is measured at the present value of estimatedfuture cash flows using a discount rate that is similar to theinterest rate on government bonds where the currency andterms of the government bonds are consistent with the cur-rency and estimated terms of the defined benefit obligation.The Group records an asset only if there is control over theasset

recog-Employee benefits – Defined contribution plans

In addition to the defined benefit plans described above, someGroup companies sponsor defined contribution plans based

on local practices and regulations The Group’s contributions

to defined contribution plans are charged to the income ment in the period to which the contributions relate

state-Employee benefits – Other post employment benefit plans

Other post employee benefits include long-service leave

or sabbatical leave, medical aid, jubilee or other long-service benefits, long-term disability benefits and, if they are notpayable wholly within twelve months after the year end,profit sharing, bonuses and deferred compensation

Employee benefits – Equity compensation plans

Share options are granted to employees If the options aregranted at the market price of the shares on the date of grantand are exercisable at that price, no compensation cost is rec-ognized If the options are granted at a discount on the market

price, a compensation cost is recognized in the income ment based on that discount When the share options areexercised, the proceeds received net of any transaction costsare credited to share capital (nominal value) and share premi-

state-um respectively

Revenue recognition

Revenue is recognized when it is probable that the economicbenefits associated with the transaction will flow to theenterprise and the amount of the revenue can be measuredreliably Sales are recognized net of sales taxes and discountswhen delivery has taken place and the transfer of risks andrewards of ownership has been completed

Interest is recognized on a time proportion basis that reflectsthe effective yield on the asset Dividends are recognizedwhen the shareholder’s right to receive payment is estab-lished

Contingent liabilities

Contingent liabilities arise from conditions or situationswhere the outcome depends on future events They are dis-closed in the notes to the accounts

Financial instruments

For a discussion of the effects of IAS 39 on investments, refer

to the accounting policies section “Financial investments”.Information about accounting for derivative financial instru-ments and hedging activities is included in the section

“Financial Risk Management”

Financial risk factors – General risk management approach

The Group’s activities expose it to a variety of financial risks,

including the effect of changes in debt structure and equity

market prices, foreign currency exchange rates and interest

rates The Group’s overall risk management program focuses

on the unpredictability of financial markets and seeks to

mini-mize potential adverse effects on the financial performance of

the Group The Group uses derivative financial instruments

such as foreign exchange contracts and interest rate swaps to

hedge certain exposures Therefore, the Group does not enter

into derivative or other financial transactions which are

unre-lated to its operating business As such, a risk-averse approach

is pursued

Financial risk management within the Group is governed by

policies approved by Group management It provides

prin-ciples for overall risk management, as well as policies covering

specific areas such as interest rate risk, foreign exchange risk,

counterparty risk, use of derivative financial instruments and

investing excess liquidity

Financial risk factors – Market risk

Holcim is exposed to market risk, primarily relating to foreign

exchange and interest rate risk Management actively

moni-tors these exposures To manage the volatility relating to

these exposures, Holcim enters into a variety of derivative

financial instruments The Group’s objective is to reduce,

where appropriate, fluctuations in earnings and cash flows

associated with changes in foreign exchange and interest rate

risk In the case of liquid funds, it writes call options on assets

it has or it writes put options on positions it wants to acquire

and has the liquidity to acquire Holcim, therefore, expects

that any loss in value of those instruments generally would be

offset by increases in the value of the underlying transactions

Financial risk factors – Liquidity risk

Group companies need a sufficient availability of cash to meet

their obligations Individual companies are responsible for

their own cash surpluses and the raising of loans to cover cash

deficits, subject to guidance by the Group and, in certain

cases, for approval at Group level

The Group maintains sufficient reserves of cash, unused credit

lines and readily realizable marketable securities to meet its

liquidity requirements at all times In addition, the strong

international creditworthiness of the Group allows it to make

efficient use of international financial markets for financing

purposes

Financial risk factors – Interest rate risk

The Group is exposed to fluctuations in financing costs andmarket value movements of its debt portfolio related tochanges in market interest rates Given the Group’s substan-tial net borrowing position, interest rate exposure is mainlyaddressed through the steering of the fixed/floating ratio ofnet debt To manage this mix, Holcim may enter into interestrate swap agreements, in which it exchanges periodic pay-ments, based on notional amounts and agreed-upon fixed andvariable interest rates

Financial risk factors – Foreign exchange risk

The Group operates internationally and therefore is exposed

to foreign exchange risks arising from various currency sures primarily in US, European, Asian and Latin American cur-rencies

expo-Due to the local nature of the cement business transactionrisk is mitigated However, for many Group companies, incomewill be primarily in local currency whereas debt servicing and a significant amount of capital expenditures may be

in foreign currencies As a consequence thereof, subsidiaries may enter into derivative contracts which are designated

as either cash flow hedges or fair value hedges, as priate

appro-Financial risk factors – Equities and securities risk

In general, the Group does not hold or acquire any shares oroptions on shares or other equity products, which are notdirectly related to the business of the Group

Financial risk factors – Commodities risk

The Group’s industrial production process necessitates thepurchase of significant volumes of energy, such as electricitycoal and fuel To limit the impact of energy cost increases,certain operating companies enter into derivative commodi-ties contracts

As a principal, the Group does not build up risk positions anddoes not enter into commodity transactions unrelated to theoperating business The use of derivative commodity products,

if any, aims solely at reducing prevailing commodity risk sures and not generating a profit contribution through trad-ing activities

expo-Financial risk factors – Credit risk

Credit 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

Credit risks, or the risk of counterparties defaulting, are

con-stantly monitored Counterparties to financial instruments

consist of a large number of major financial institutions The

Group does not expect any counterparties to fail to meet their

obligations, given their high credit ratings In addition, Holcim

has no significant concentration of credit risk with any single

counterparty or group of counterparties

The maximum exposure to credit risk is represented by the

carrying amount of each financial asset, including derivative

financial instruments, in the balance sheet

Accounting for derivative financial instruments and

hedging activities

Derivative financial instruments are initially recognized in the

balance sheet at cost and subsequently remeasured to fair

value The method of recognizing the resulting gain or loss is

dependent on the nature of the item being hedged On the

date a derivative contract is entered into, the Group

desig-nates certain derivatives as either (a) a hedge of the fair value

of a recognized asset or liability (fair value hedge) or (b) a

hedge of a particular risk associated with a recognized asset

or liability, such as future interest payments on floating rate

debt (cash flow hedge) or (c) a hedge of a forecasted

transac-tion or firm commitment (cash flow hedge)

Changes in the fair value of derivatives that are designated

and qualify as fair value hedges and that are highly effective

are recorded in the income statement, along with any changes

in the fair value of the hedged asset or liability that is

attrib-utable to the hedged risk

Changes in the fair value of derivatives that are designated

and qualify as cash flow hedges and that are highly effective

are recognized in equity Where the forecasted transaction or

firm commitment results in the recognition of an asset, for

example, property, plant and equipment, or a liability, the

gains or losses previously deferred in equity are transferred

from equity and included in the initial measurement of the

asset or liability Otherwise, amounts deferred in equity are

transferred to the income statement and classified as revenue

or expense in the same periods during which the cash flows,

such as interest payments, or hedged firm commitments orforecasted transactions, such as when a forecasted sale actu-ally takes place, affect the income statement

Certain derivative transactions, while providing effective nomic hedges under the Group’s risk management policies,

eco-do not qualify for hedge accounting under the specific rules inIAS 39 Changes in the fair value of any derivative instrumentsthat do not qualify for hedge accounting under IAS 39 are recognized immediately in the income statement

When a hedging instrument is sold, or when a hedge nolonger meets the criteria for hedge accounting under IAS 39,any cumulative gain or loss existing in equity at that timeremains in equity and is recognized when the committed orforecasted transaction ultimately is recognized in the incomestatement However, if a committed or forecasted transaction

is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to theincome statement In the case of a fair value hedge, however,the adjustment to the carrying amount of the hedged item isamortized to net profit or loss from the moment it ceases to

be adjusted for in changes to fair value, with it being fullyamortized by maturity date

The Group documents at the inception of the transaction therelationship between hedging instruments and hedged items,

as well as its risk management objective and strategy forundertaking various hedge transactions This process includeslinking all derivatives designed as hedges to specific assetsand liabilities or to specific firm commitments or forecastedtransactions The Group also documents its assessment, both

at hedge inception and on an ongoing basis, of whether thederivatives that are used in hedging transactions are highlyeffective in offsetting changes in fair values or cash flows ofhedged items

The fair values of various derivative instruments used forhedging purposes are disclosed in note 3 Movements in thecash flow hedging reserve and available-for-sale equityreserve are shown in note 3

Fair value estimation

The fair value of publicly traded derivatives and

avail-able-for-sale assets is generally based on quoted

mar-ket prices at the balance sheet date The fair value of

interest rate swaps is calculated as the present value

of the estimated future cash flows The fair value of

forward foreign exchange contracts is determined

using forward exchange market rates at the balance

sheet date

In assessing the fair value of non-traded derivatives

and other financial instruments, the Group uses a

variety of methods and makes assumptions that are

based on market conditions existing at each balance

sheet date Other techniques, such as option pricing

models and estimated discounted value of future

cash flows, are used to determine fair values for the

remaining financial instruments

The amortized cost for financial assets and liabilities

with a maturity of less than one year are assumed to

approximate their fair values The fair values of

finan-cial assets and liabilities have not been separately

disclosed as they are not considered significantly

dif-ferent from their carrying amount

2 Foreign Currencies

2 Foreign currencies

Average exchange rate in CHF Year-end exchange rate in CHF

The following table summarizes the principal exchange rates

that have been used for translation purposes The net loss on

foreign currency translation included in the consolidated

statement of income was CHF 39 million for both the yearsended December 31, 2001 and 2000 respectively

3 Adoption of New International Accounting Standards

IAS 39 has introduced a comprehensive framework for

accounting for all financial instruments The Group’s

account-ing policies in respect of such instruments are detailed in the

“Accounting Policies” section as well as in the “Financial Risk

Management” section of this report The principal effects of

the adoption of IAS 39 have been that the majority of the

Group’s investments in equity securities are now carried at fair

value, and that derivative financial instruments have beenbrought on-balance sheet and measured at fair value Theeffects of the remeasurement of investments to fair value and bringing derivative financial instruments on-balancesheet at fair value have been recognized effective January 1,

2001 The effects can be summarized as follows:

Germany: Kieswerk Borsberg GmbH (proportionate consolidation) July 1, 2001

Panama: Corporación Incem S.A (proportionate consolidation) January 1, 2001

Philippines: Union Cement Corporation (proportionate consolidation) January 1, 2001

Disposals

The scope of consolidation has been affected by additions and

dis-posals made in 2001 The principal businesses are detailed below

1 Changes in the Scope of Consolidation

Retained Cash flow Available-for-sale Totalearnings hedging reserve equity reserve

Excess of cost over the fair value of

Net fair value of derivatives designated

Net fair value of derivatives not designated

The effects of adopting IAS 39 are also summarized in the

“Statement of Changes in Consolidated Equity of Group Holcim”

The fair value of derivatives designated as fair value hedges as

at December 31, 2001 was negative CHF 4.3 million The fair

value of derivatives designated as cash flow hedges as atDecember 31, 2001 was negative CHF 79.2 million There were

no significant impairment losses which were either nized or reversed during the year

recog-4 Restatement of Prior Year Figures

During the past two years, a Group-wide standardized

agement accounting system was implemented The new

man-agement information system and related initiatives will

facili-tate international Group-wide benchmarking, enable Group

companies to share services and further strengthen the

effi-ciency and effectiveness of administration Since the

begin-ning of 2001, Group companies report in a uniform manner

As a consequence, certain comparative information has beenrestated This mainly included the restatement of revenuewhere only the margin earned from trading activities formspart of net sales, the transfer of ready-mix concrete trans-portation costs from production costs to distribution costsand the separation of administration overheads from produc-tion costs

The cash flow hedging reserve comprises the cumulative net

change in the fair value of cash flow hedges where the

com-mitted or forecasted transaction has not yet occurred The

movement in the cash flow hedging reserve was as follows:

The available-for-sale equity reserve comprises the cumulative

net change in the fair value of financial assets classified as

available-for-sale The movement in the available-for-sale

equi-ty reserve was as follows:

5 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

Africa Middle East Asia Pacific Corporate / Eliminations Total Group

6 Change in Consolidated Net Sales

9 Summary of Depreciation and Amortization

10 Additional Ordinary Income (Expenses)

The depreciation charge by function has not been restated to

comply with current year presentation since the total

depreci-ation charge for property, plant and equipment has not been

impacted by the implementation of the Group-wide ized management accounting system

standard-The increase in dividends earned is mainly due to the

divi-dends received from Cimpor – Cimentos de Portugal, SA

(Portugal) and from investments in associated companies

The decrease in other ordinary income and depreciation and

amortization of non-operating assets is a result of a reduction

in disposals and, thereof, in income generated from disposals

of operations falling outside the framework of the Group’score activities

Of which transactions with associates

11 Financial Expenses

Financial expenses capitalized comprises interest expenditure

on large-scale projects during the year In 2001, such projects

included construction of cement plants at Holcim (US) Inc.,

USA and Egyptian Cement Company S.A.E., Egypt The averagerate of interest of financial liabilities on hand at December 31decreased to 5.2% (2000: 6.4%)

During the year, the effective tax rate was 29.6% (2000: 30.2%)

and the effective income tax charge was lower than expected

due primarily to tax incentives received in recently acquired

companies and the future tax rate reductions announced inMexico The expected income tax rate for the Group remains

at 33%

16 Accounts Receivable

13 Research and Development

Research and development expenses were again confined to

the existing product range and to investigating production

processes and environmental protection Basic research costs

of CHF 6 million (2000: 5) were charged directly to the

consoli-dated statement of income No significant costs were incurredfor licenses obtained from third parties, nor was any majorrevenue generated from licenses granted

14 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 27,428,205 (2000: 26,247,945)

bearer and 54,304,240 (2000: 52,519,810) registered shares,

earnings per bearer share amount to CHF 21.20 (2000: 24.12)

and per registered share CHF 4.24 (2000: 4.82) The fully

dilut-ed EPS factor takes into account the potential dilution effects

should the conversion options on the zero coupon convertible

bonds (1999 to 2014), the 1% convertible bonds (1998 to 2004)and the share option plan be exercised The fully diluted EPS isbased on a weighted average number of 29,336,537 (2000:28,161,560) bearer shares – the two bonds may be convertedinto 1,908,332 (2000: 1,908,332) bearer shares – and 54,304,240(2000: 52,519,810) registered shares It amounts to CHF 20.85(2000: 23.60) per bearer and CHF 4.17 (2000: 4.72) per regis-tered share The prior year figures were restated based on the5-for-1 share split which took place in May 2001

15 Cash and Cash Equivalents

Cash and cash equivalents are financial instruments that are

readily convertible into a known amount of cash with original

maturities of three months or less In prior years, there was

a twelve-month limitation and marketable securities were

included in cash and cash equivalents As a consequence, cashand cash equivalents reduced by CHF 752 million at December

31, 2000 and the necessary reclassification was made to ing cash and cash equivalents in the cash flow statement

clos-17 Inventories

The valuation of financial investments in associates is based

on the equity accounted carrying value that resulted in a CHF

10 million (2000: 33) increase in investments in associates

During 2001, the Group increased the shareholding in PT

Semen Cibinong Tbk (Indonesia) to approximately 77% after

successful negotiations to restructure the company’s debt

The company will be consolidated from January 1, 2002 the

date that management control became effective

19 Property, Plant and Equipment

At cost of acquisition Land Buildings, Machines Furniture, Construction Total Total

toolsMillion CHF

Purchase value of leased property,

Accumulated depreciation of leased

Net book value as at December 31 1,852 2,973 6,893 873 1,644 14,235 13,266

Net asset value of leased property,

Included in the above is investment property with a net book

value of CHF 141 million The net book value of CHF 14,235

mil-lion (2000: 13,266) represents 52.2% (2000: 50.3%) of the

origi-nal cost of all assets Pledged/restricted assets increased by

CHF 51 million to CHF 207 million (2000: –167) At December

31, the fire insurance value of property, plant and equipment

amounted to CHF 25,158 million (2000: 26,178)

20 Intangible and Other Assets

assetsMillion CHF

21 Trade Accounts Payable

24 Long-Term Financing Liabilities

The total amount recognized in the statement of income for

operating leases in 2001 was CHF 45 million (2000: 54)

Long-term financing liabilities, including those repayable

dur-ing 2001, comprise loans and advances of CHF 5,399 million

(2000: 5,502), publicly traded loans amounting to CHF 4,574

million (2000: 3,057) and rental and lease commitments

total-ing CHF 200 million (2000: 128) All loans and advances were

obtained from banks and financial institutions Unutilized

credit lines totaled CHF 2,572 million (2000: 1,790) as at

December 31

Outstanding bonds and private placements as at December 31, 2001

1 Issues are guaranteed by Holcim Ltd.

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

3 Each bond with a par value of CHF 5,000 may be converted into 11.6279

bearer shares of Holcim Ltd during the period May 14, 1998 to May 14, 2004.

4 Zero 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 10.41665 bearer shares of Holcim Ltd

during the period July 28, 1999 to July 21, 2014.

25 Deferred Taxes

Deferred taxes

Calculation based on comprehensive liability method

Analysis of temporary differences

Tax loss carryforwards

Million CHF

Loss applied during the period to reduce

26 Long-Term Provisions

mental liabilitiesMillion CHF

Defined benefit plan: Some Group companies provide pension

plans which under IAS are considered as defined benefit

pen-sion plans for their employees Provipen-sions for penpen-sion

obliga-tions are established for benefits payable in the form of

retire-ment, disability and surviving dependent’s pensions The

bene-fits offered vary according to the legal, fiscal and economic

conditions of each country Benefits are dependent on years of

service and the respective employee’s compensation and

con-tribution

The Group records an asset only if there is control over the

asset For Swiss plans Holcim does not consider the net asset

to be under its full control and therefore no asset is recorded

The obligation resulting from defined benefit pension plans isdetermined using the projected unit credit method Unrecog-nized gains and losses resulting from changes in actuarialassumptions are recognized as income (expense) over theexpected average remaining working lives of the participatingemployees There were no plan terminations, curtailments orsettlements for the years ended December 31, 2001 and 2000

The following table reconciles the funded status of definedbenefit plans to the amounts recognized in the balance sheetincluding the movement in the balance sheet

27 Employee Benefits Obligations