Xella International S.A. Group Quarterly Report Q1-2/2015...Xella International S.A. Group Q1-2/2015...

Xella International S.A. Group

Quarterly Report Q1-2/2015

Xella International S.A. Group Q1-2/2015

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Table of Contents

1. Summary ...................................................................................................................................................3

2. Business ....................................................................................................................................................5

2.1. Overview............................................................................................................................................5 2.2. Our Strengths ....................................................................................................................................7 2.3. Our Strategy ......................................................................................................................................9 2.4. ‘X-Celerate’ Cost Savings Program ................................................................................................11

3. Management’s Discussion and Analysis .................................................................................................12

3.1. Recent Developments .....................................................................................................................12 3.2. Condensed Consolidated Statement of Income..............................................................................14 3.3. Liquidity and Capital Resources......................................................................................................20 3.4. Factors Affecting Our Results of Operations...................................................................................25

(Unaudited) IFRS Consolidated Interim Financial Statements....................................................................30

Disclaimer....................................................................................................................................................49


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1. Summary

Group Key Figures

€ million (if not stated otherw ise) Q2/2014 Q2/2015 Change Q1-2/2014 Q1-2/2015 Change

Sales 338.3 344.8 1.9% 629.1 638.1 1.4%

EBITDA 61.6 57.6 (6.5%) 101.9 62.1 (39.1%)

Total normalizations (1), (2) 0.0 16.4 >100% (5.0 ) 48.2 >100%

Other adjustments (2) 3.1 3.2 2.6% 7.2 5.6 (22.7%)

Adjusted EBITDA (2) 64.7 77.2 19.4% 104.1 115.9 11.3%

Adjusted EBITDA margin (2) 19.1% 22.4% 16.5% 18.2%

Net income/loss (20.5 ) (23.0 ) (12.3%) (46.8 ) (55.3 ) (18.1%)

Cash flow from operating acitivities 4.7 3.1 (34.0%)

Adjusted free cash flow (1) (5.0 ) 1.7 >100%

Capex (1) 22.0 27.2 23.4%

€ million (if not stated otherw ise) June 30,

2014June 30,

2015Change

Trade working capital (1) 195.5 200.7 2.7%

Cash and cash equivalents 57.2 102.7 79.5%

Net financial debt (1) 616.5 762.5 23.7%

Own staff (FTE) 6,861 6,288 (8.4%)

Temporary staff (FTE) 361 324 (10.2%)

Total number of employees (FTE) 7,222 6,612 (8.4%)

(1) The sum of EBITDA and total normalizations equals Normalized EBITDA as reported in the segment reporting of our financial statements.

(2) For definitions please refer to section 3.2 of this report.

Sales (in € million)

+2%

+1%

Q1-2/2014

629.1

Q2/2015

344.8

Q2/2014

338.3

Q1-2/2015

638.1


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Business Highlights Q1-2/2015

Higher sales Q1 2015 vs. Q1 2014 despite already strong performance in Q1 2014 (benefitting

from mild winter), based on good topline performance in Building Materials (especially Poland and The Netherlands) and Dry Lining

Positive trend continued in Q2 2015, with strong Adjusted EBITDA increase compared to Q2 2014 driven by significant cost savings, including effects from X-Celerate program

H1 2015 shows positive sales development above strong H1 2014 and even stronger Adjusted EBITDA increase based on topline as well as on implementation of X-Celerate cost savings program

Building Materials

Sales in H1 2015 above H1 2014, benefitting from continuing recovery in Eastern European countries, such as Poland and Czech Republic. Further growth from market recovery in The Netherlands as well as good development in Scandinavia and Americas

German sales remained stable whereas France and China experienced significant sales decreases, resulting primarily. from difficult market environment

Sales as well as Normalized EBITDA growth in both of the first two quarters of 2015. Normalized EBITDA increased disproportionally compared to sales increase due to additional impact from cost savings, including effects from the X-Celerate program

Dry Lining

Sales growth in H1 2015 vs. H1 2014 especially in Q2 mainly driven by favourable gypsum fiber boards volume and net average revenue development particularly in Denmark, Germany and the Czech Republic

Overall, higher sales in H1 2015 vs. H1 2014 combined with strict cost management lead to a strong Normalized EBITDA growth

Lime

Sales volume of lime in H1 2015 above previous period, supported by positive development in the Czech Republic and Russia. German lime and limestone volumes slightly decreased compared to previous period

Overall sales of H1 2015 are below previous period mainly due to negative impacts of volume and price development in Germany (as a result of lower energy prices due to price adjustment clauses)

Normalized EBITDA in H1 2015 is below previous period as a result of lower sales and higher lime purchase cost from third party in the Czech Republic to compensate lower own production due to maintenance at one kiln in Q1. Own cost saving measures could not fully compensate this negative effect

With effect from June 1, 2015 the segment Ecoloop has been reintegrated into BU Lime

Xella Group


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2. Business

2.1. Overview

We are a leading European multi-brand manufacturer of wall-building materials and premium dry lining products as well as a leading European lime producer. With our Ytong, Hebel, Multipor and Silka brands, we are the largest producer in Europe of autoclaved aerated concrete (“AAC”) by capacity and calcium silicate units (“CSU”) by number of production plants. We offer a broad range of wall-building material and dry lining products for use in residential, industrial and commercial construction, as well as lime and limestone for a variety of applications. We are strongly represented in established markets such as Germany, The Netherlands, Belgium and France as well as in other markets, including many Eastern European countries that displayed considerable growth in the past and are expected to return to growth in the mid- to long-term, and in selected regions in Russia and China. As of June 30, 2015, we operated 97 production plants in 20 different countries, sold our products in more than 30 countries with a sales presence on three continents and had 6,288 employees (full-time equivalents). In the first half of 2015, we generated total sales of €638.1 million (with Western Europe, Central and Eastern Europe and Asia/Americas accounting for 76.1%, 20.4% and 3.4% of our total external sales, respectively) and Normalized EBITDA of €110.3 million. By end-customer utilization, more than three quarters of our Building Materials sales in the financial year 2014 were attributable to residential construction as compared to non-residential, and almost 90% were attributable to new build rather than RMI. With respect to our Dry Lining segment, approximately one quarter of our sales in the financial year 2014 categorized by end-customer utilization were attributable to residential new build, approximately one third to non-residential new build and the remainder to RMI. By utilization, in the financial year 2014, approximately one quarter of our lime production was used for each of building materials and environmental purposes, with more than one third for various industrial purposes and the remainder of less than one tenth for other purposes (calculated by metric tons).

In the first half of 2015, our Building Materials business unit generated sales of €413.1 million (or 61.9% of our total sales) and Normalized EBITDA of € 61.9 million (or 56.1% of our total Normalized EBITDA), while our Dry Lining business unit generated sales of €120.5 million (or 18.0% of our total sales) and Normalized EBITDA of €16.3 million (or 14.7% of our total Normalized EBITDA) and our Lime business unit generated sales of €133.9 million (or 20.1% of our total sales) and Normalized EBITDA of €32.2 million (or 29.1% of our total Normalized EBITDA). As of June 1, 2015, Ecoloop has been re-integrated into, and is reported under, our Lime segment. Financial information presented as of and for the six-month periods 2015 and 2014 for our Lime segment therefore include our Ecoloop business.

We consider research and development to be among the key factors for the further development of our product offerings and brands. Our research and development activities primarily aim at adding innovative functions and applications to our products and optimizing the quality and complementary nature of our product portfolio and application services, particularly by developing energy-efficient building solutions and by facilitating installation processes. We have centralized our research and development activities at our technology and research center near Potsdam in Germany, which steers and coordinates research and product development across our business units.


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Corporate Structure

The following diagram depicts in simplified form our corporate and financing structure as at June 30, 2015.

Our Shareholders

The shares in Xella International S.A. are mainly held by Xella International Holdings S.à r.l. which is held by funds advised by Goldman Sachs Capital Partners and PAI Partners.

Goldman Sachs Capital Partners is managed by MBD of Goldman Sachs and its subsidiaries. Since 1986, MBD and its predecessor business areas have raised over $140 billion in capital (including leverage) to invest across a number of geographies, industries and transaction types. MBD is the primary center for Goldman Sachs’ long-term principal investing activity, and Goldman Sachs has operated this business as an integral part of the firm for more than 25 years. With nine offices in seven countries around the world, MBD is one of the largest managers of private capital globally, offering deep expertise and long-standing relationships with companies, investors, entrepreneurs and financial intermediaries around the globe.

PAI Partners is a leading European private equity firm with offices in Paris, London, Luxembourg, Madrid, Milan, Munich and Stockholm. PAI manages and advises dedicated private equity funds with total assets under management of €7.9 billion. Since 1994, PAI has led 56 buyout investments in ten countries, for a value of €39 billion, including a significant number of investments in the construction industry, and has successfully contributed to the growth of a large number of leading players in this sector. Recent examples of leveraged buyouts in the construction industry include Spie, Gerflor and Frans Bonhomme. PAI has also been a long term investor in Eiffage and Poliet, a group active in the manufacturing and distribution of building materials that controlled Weber Broutin, Terreal, Point P and Lapeyre. PAI is characterised by its industrial approach to ownership combined with strong sector expertise. PAI provides portfolio companies with the financial and strategic support required to pursue their development and enhance their strategic value.

A minority stake of Xella International S.A. shares is held by certain managers and employees of Xella and their close family members through a management participation vehicle.

Xella International S.A. (1)

Non-Guarantors

Xella InternationalHoldings S.à r.l.

Xefin Lux S.C. A. (2)

PAI Partners Goldman Sachs

Capital Partners

„Converted Loan“ (former Haniel Vendor Loan)

Senior Facilities Agreement (3)

Consolidation Group

€325 million Senior Secured Floating

Rate Notes due 2019

Xella HoldCo Finance S.A.

Senior Facility

Facility D2

Senior FacilityGuarantors


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2.2. Our Strengths

We believe that the following strengths and, in particular, their combination, differentiate us from our competitors and provide us with competitive advantages in the markets in which we operate:

Leading Provider of Premium Branded Building Solutions and Lime Products

We believe that we are Europe’s largest producer of AAC and CSU products (for AAC by capacity in cubic meters, and for CSU by number of production plants). We also believe that we have an attractive product offering based on the excellent material properties of our products, such as thermal efficiency, fire-resistance and low inflammability, sound insulation, load-bearing capacity, ecological properties such as recyclable product characteristics and environmentally-friendly raw materials, and other properties, including ease of handling, strong heat storage, moisture and impact resistance, as well as being light weight.

Ytong benefits from excellent brand recognition as the leading brand in wall-building materials in several core markets across Continental Europe. Similarly, Silka and Hebel enjoy high brand recognition in many of the countries where those products are being marketed. We also believe that we are a leading differentiated provider of premium dry lining solutions with Fermacell’s high-performance gypsum fiber and cement-bonded boards, as well as Fermacell Aestuver’s fire-protection boards. Moreover, we are a producer of high-quality lime and limestone – products for which there are currently only limited substitution alternatives with respect to certain applications. We have a strong market position, according to our own estimates, and our extractable high-quality limestone reserves, depending on the quarry and calculated as an average across all quarries, are expected to last for more than 100 years.

Balanced and Complementary Business Profile

Our balanced product portfolio leads to a diversified business cycle exposure, spanning our Building Materials segment’s residential (mainly Ytong and Silka) and non-residential (mainly Hebel and Silka) new build focus, our Dry Lining segment’s renovation, maintenance and improvement exposure and our Lime segment’s predominantly industrial and environmental applications.

Furthermore, we benefit from a broad and diverse customer base with a mix of different customer and end-market segments. We offer integrated solutions that address building needs across single- and multi-family housing as well as industrial, commercial and public buildings. In addition, our complementary range of products and value-added application services, such as logistics, consulting and construction planning services, enable us to offer customers a one-stop shop approach. We further benefit from what we consider to be excellent access to distribution channels and key decision-makers, such as architects and developers.

Furthermore, our complementary business profile allows us to benefit from numerous synergies and interdependencies of our business segments. Most importantly, lime and gypsum from our Lime segment constitutes an important raw material for our Building Materials and Dry Lining segments. Further synergies include, for example, the use of certain production scrap products from our AAC production in our Dry Lining segment and for the production of mortar in our Lime segment.

Well-Invested, Highly Flexible and Efficient Manufacturing Base, Ready for Growth

We operate a dense network of 97 production plants in 20 different countries, providing us with a competitive advantage in local markets. We have a well-invested, state-of-the-art manufacturing base benefitting from cumulative capital expenditures of approximately EUR 650 million during the period from the beginning of 2008 through the first half of 2015. In particular, in recent years, we have made significant investments in our Dry Lining segment to support the steady sales growth. To assure that we have the necessary capacity to continue our international expansion with our Dry Lining products, we acquired a gypsum fiber board plant in Orejo, Spain, and built a new cement-bonded board production line in our plant in Calbe, Germany in 2013. These investments give us the required capacity to continue our international market penetration with our Dry Lining products. Furthermore, in 2014, we invested in the capacity expansion of our AAC plant in Mozhasik, Russia, to strengthen our Russian business which has proven to be highly profitable in recent years. We have also selectively taken part in the consolidation of our markets in Europe, for example by acquiring AAC plants in Italy and the Czech Republic and we are currently in the process of acquiring Grupa Silikaty, which operates seven CSU plants in Poland, for which we are awaiting the approval of the Polish antitrust authority.

We believe that our superior production and manufacturing know-how drive our efficient and high-quality operations. Our capacity utilization rates for the financial year 2014 provide us with sufficient headroom to


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realize strong volume growth potential with limited incremental investments for capacity expansion. Furthermore, our production processes benefit from a lean de-centralized structure supported by strong, value-adding headquarter functions, such as centralized purchasing, energy management and engineering.

Moreover, our business is characterized by high production flexibility and a low share of fixed costs. For example, the autoclaving technology we use in the production of our AAC and CSU products does not require continuous operation but, unlike kilns used to burn clay bricks, allows for batch production in line with demand. With respect to our Dry Lining business, the larger number of gypsum fiber board plants provides us with added flexibility to adjust and geographically shift production. Our lime kilns also allow for flexibility in production and just-in time delivery to our customers. Furthermore, our lime kilns can partly operate with different energy sources allowing for energy cost optimizations. Also work-time accounts buffering peaks production, use of temporary workers (on average 240 FTEs in financial year 2014, 276 FTEs in the financial year 2013 and 308 FTEs in the financial year 2012) and a shift system with up- and downward flexibility help limit the share of fixed costs in our overall production costs.

Growth Platform Driven by Exposure to Major Trends, Market Recovery and Company-Driven Initiatives

In our Building Materials segment, we believe we have an attractive portfolio of high-performance mineral and environmentally-friendly building solutions and are thus well-positioned to capitalize on major trends in many countries which represent structural growth drivers. These include energy efficiency, environmental awareness, urbanization, an increasing number of households and increasing average living space per capita. We believe these current fundamental market trends and positive momentum in our residential end-markets in many countries, together with clear signs of a recovery of certain markets can lead to a positive development of our business.

In addition, we have clearly-defined top-line initiatives in place, including (i) enhanced market penetration with innovative products, such as Multipor and Ytong Energy+; (ii) the beneficial impact of our R&D pipeline delivering value-added products; (iii) the increased project focus of our sales force targeting key decision-makers in our markets; (iv) footprint expansion in adjacent “white spots”; and (v) the ability to reach peripheral geographies through licensing. We also benefit from what we consider to be a proven track-record of growth from increased market penetration and entry in new markets with our brands through direct sales and licensing as well as a successful M&A track record of capturing consolidation opportunities in existing markets and entering new geographic markets.

Our Dry Lining segment benefits from trends relating to increasing regulatory requirements for building solutions, the increasing demand for high-end dry lining solutions as well as the trend towards stricter fire-protection. Specific growth initiatives comprise (i) the continuous international market penetration with gypsum fiber board and cement-bonded board solutions in existing geographies (e.g., France and the United Kingdom), (ii) a global focus on fire-protection solutions with our cement-bonded fire-protection boards and (iii) the introduction of new products such as our new tunnel fire-protection board Aestuver Tx and the new Aestuver Lx fire-protection board for ventilated air ducts.

The Lime segment is less cyclical in nature and furthermore benefiting from increasing importance of environmentally friendly applications such as wastewater treatment as well as the general trend in the agricultural sector towards the substitution of chemical or pharmaceutical with mineral solutions on a lime basis. Beside these major trends, we benefit from new products that we introduced to the market (often customer- and application-specific) as well as our wide spread product and application portfolio.

Experienced Senior Management Team

Our experienced and professional management team, including Jan Buck-Emden (CEO), Hans-Jürgen Wiecha (CFO) and Dr. Joachim Fabritius (COO), has a successful track record of adapting our operations to the market environment throughout the economic cycle. Our CEO has successfully participated in and partially implemented our comprehensive restructuring and integration program following the major acquisitions of Fels-Werke GmbH and Ytong Holding AG, thereby creating a leaner cost base and enhancing our growth opportunities and operational efficiency. Key results achieved by our management team include a high degree of flexibility to adjust to market demand and use of different sources of energy and raw materials, improvements in the management of capital expenditures and trade working capital, our international expansion, improvements to our network of production plants, the successful development and introduction of new products to our markets, and further professionalization of our sales force using state-of-the-art tools for effective market penetration and customer retention. These achievements have translated into enhanced brand recognition, increased quality of product innovation and reduced time to market for new products, accelerated penetration of markets and significant cost


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savings. We see our management team as well-equipped to execute our growth strategy, among other measures, through organic growth initiatives in identified product development areas, regional expansion and industry consolidation by way of selected value-accretive acquisitions.

2.3. Our Strategy

In order to continue achieving sustainable and profitable growth, we follow a clear strategy for the future. We distinguish between group-wide strategic aspects and initiatives, as well as segment specific strategies tailored to the specific requirements of our three operating segments. We intend to further strengthen our business platform by focusing on the following key strategic objectives:

Take Advantage of the Major Industry Trends with Existing and New Solutions Developed by our R&D Center

We believe that major trends such as increasing energy efficiency regulation, environmental awareness, urbanization and the trend to higher-quality solutions are significantly influencing our business and the markets in which we are active. In order to continue to benefit from those trends and to ensure that we have the right solutions available as demanded by our customers, we have invested and plan to further invest into our R&D capabilities and processes. We have centralized our R&D activities with our central R&D center close to Berlin for our Building Materials segment, which also ensures a close coordination and cooperation with R&D activities in our Dry Lining and Lime segments. Our R&D center is capable of performing all relevant steps from innovating to developing marketable products.

We have several products in our R&D pipeline, showing our continued focus on product innovation with the aim of maintaining and further strengthening our premium product offering. A recent example is Ytong Energy+, a new solution for residential building with high thermal requirements which was launched in 2012 in Denmark and has been introduced to the German market in 2015.

Strive for Continued Excellence in our Sales Approach Targeting Direct and Indirect Customers

We believe that the basis for being the preferred partner for our direct and indirect customers is our offering of premium products and additional services. Thus, we strive to maintain and further expand the attractiveness of our product offering, particularly through continued innovation, and to maintain and enlarge the recognition and reputation of our premium brands.

Supporting our close partnership with the builder merchants and do-it-yourself retailers, we intend to focus our sales approach primarily on target groups which influence the building materials or dry lining product selection process. Our sales strategy aims at increasing the share of business that we acquire directly and then distributing it through builder merchants. In this respect, we aim at directly approaching the relevant decision-makers of construction projects and providing customer-specific solutions in order to directly acquire additional business. Moreover, we actively measure and control our sales force activities with our customer relationship management systems in order to achieve and maintain high customer satisfaction.

A key element in this strategy is that we also strive to have an industry-leading sales and product management team that is a competent counterpart and valued consultant for our customers. We therefore aim to continuously invest into the training of our sales teams and ensure that we have suitable sales teams to cater to the regional markets that we are active in. We believe that our strong brands, comprehensive product portfolio and service offering, combined with value-added advisory services help mitigating the general price pressure and enable us to maintain and further expand our ability to charge premium prices. We have a complementary regional footprint with leading positions in our core German market as well as other key markets across Western, Central and Eastern Europe and a growing presence in other growth markets.

Strive for Continued Operational Excellence beyond the X-Celerate Cost Savings Program

Based on a well-invested manufacturing asset base as well as particular know-how for our production and manufacturing processes and lead by our experienced management team, we intend to continue to strengthen our operational excellence. To further improve our operational excellence, we plan to further strengthen best practice sharing across all countries and among segments. We strive to constantly optimize our operations by making significant investments into our organization, supply and logistics as well as into our IT platforms and our employees. We believe this will further improve our operations and cost ratios in sourcing and logistics as well as our product development process.


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Moreover, we intend to further focus on our ongoing profitability improvement and to achieve a leading cost position in the industry. In August 2014, with the support of external advisors, we started our “X-Celerate” cost savings program aimed at achieving significant gross cost savings and substantially improving our profitability. Gross cost savings measures have been identified for the modules “Procurement”, “Manufacturing” and “Sales, General & Administrative” (“SG&A”). Cost saving measures include both headcount reductions in manufacturing and SG&A and non-headcount-related savings related to procurement and efficiency improvements. The implementation of the program, which, as of June 30, 2015, included over 1,400 individual measures being tracked and managed, began in October 2014 and is expected to continue until the end of 2016. Also after 2016, we aim to continuously improve our processes in all functional areas, thereby further optimizing our cost base, efficiency and production. To this end, we have established a centralized sales performance management (SPM) and lean production management (LPM) for the continuous monitoring and further optimizing of our sales and production processes.

Additionally, we also intend to focus on the exploitation of economics of scale through plant expansions and shared services as well as supply chain management and other measures. We also plan to focus on our cash flows, especially with respect to cost optimization and working capital and capital expenditure management.

With this focus, we strive to further strengthen our resilient business profile with upside potential for both sales and profitability.

Value Creation through Growth Investments

Our geographical diversification is an important strategic factor for our business. In line with our historic strategy, we intend to selectively participate in the consolidation of the markets we are active in, in particular in Europe, and to continue our international expansion in all our segments. To further improve our geographical diversification, we analyze and monitor potential opportunities in the markets which are not yet covered on a continuous basis. Furthermore, we intend to benefit from additional potential in markets where we currently only offer selected products by introducing and establishing further products and brands.

In particular, we believe that our extensive know-how and experience with regard to optimizing of production and sales processes can act as a lever to realize profitable growth through growth investments. Through the realization of synergies, implementation of efficiency measures and by benefiting from economies of scale, we think that we can maintain profitability when expanding our footprint through select acquisitions. Also, we plan to utilize our premium brands as a strategic lever to achieve higher prices when entering new market through greenfield investment or select acquisitions.

In addition, as part of our expansion strategy, we also plan to grant licenses to selected local partners to establish a presence in non-core regions globally. Currently, we have active licensees in Australia, Israel, Thailand and Turkey. Furthermore, we have signed several license agreements with licensees in Georgia, India and South Africa which are currently in their plant construction preparation phase.

In addition to our further geographical expansion, we also aim to expand and broaden our product offering by selected new applications or product types.

In our Building Materials segment, we intend to further leverage our existing business platform with sufficient available spare production capacities to participate in the expected market recovery in key markets in Europe. We also aim to so-called “white-spots” by entering new markets like the United Kingdom, Turkey and potentially certain countries in South-East Asia. To penetrate second tier markets, we aim to expand our licensing business.

In our Dry Lining segment, we aim to increase market penetration in existing markets, expand our market position in select large mature dry lining markets and continue our global growth with cement-bonded boards. This strategy also aims at gradually further reducing our dependence on new residential construction stemming from our Building Materials segment.

In our Lime segment, we intend to continue to develop new products and applications with a special focus on the environmental and agricultural sectors, such as our innovative lake liming business. Furthermore we actively monitor, in particular, the adjacent Central and Eastern European lime markets for potential M&A possibilities to expand our regional foot-print and participate in possible market consolidation.


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2.4. ‘X-Celerate’ Cost Savings Program

In August 2014, we initiated our “X-Celerate” cost savings program with the support of two international tier 1 consultancy firms, aimed at achieving significant gross cost savings and substantially improving our profitability. Gross cost savings measures have been identified for the modules “Procurement”, “Manufacturing” and SG&A. Cost saving measures include both headcount reductions in manufacturing and SG&A and non-headcount-related savings related to procurement and efficiency improvements. The implementation of the program, which, as of June 30, 2015, included over 1,400 individual measures being tracked and managed, began in October 2014 and is expected to continue until the end of 2016. We are currently targeting annual aggregate gross cost savings of approximately EUR 70 million, compared to the actual cost incurred in the financial year 2014 and aim at realizing the full effect of such annual aggregate gross cost savings from the financial year ending December 31, 2017 onwards. We are targeting a reduction in the number of our employees of approximately 825 (on an FTE basis, including temporary employees) compared to the number as of December 31, 2013. As of June 30, 2015, we had achieved an FTE reduction of approximately 470 (of which an FTE reduction of approximately 156 related to measures outside of the X-Celerate program’s scope as already realized in the financial year 2014) as compared to December 31, 2013 and approximately 314 as compared to December 31, 2014 which was primarily attributable to the implementation of our X-Celerate program. As of June 30, 2015, additional 80 FTEs were confirmed to leave our Group by the end of 2015.

Also, through efforts in addition to our X-Celerate cost savings program, we have secured electricity and natural gas prices for approximately 50% of our German operations’ requirements during the 2016-2017 period that we believe will result in additional annual gross cost savings of approximately EUR 7 million. Such costs savings will not be effective before the financial year 2016 and will be limited to financial years 2016 and 2017. Electricity price savings are based on constant volumes of 230,000 MWh per year. Approximately 10% of the assumed gas price savings are based on forecasts.

The presentation of targeted gross cost savings, operating improvements and related non-recurring costs and capital expenditures set forth above contains forward-looking statements which are based on estimates and assumptions made by us that are inherently uncertain. While management considers such estimates and assumptions to be reasonable, they are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and may partly be beyond our control. As a result, there can be no assurances that we will be able to achieve such gross cost savings and operating improvements. These forward-looking statements are also no guarantees of future financial or operational performance and the gross cost savings expected to be generated, and the costs incurred to realize such targeted gross cost savings could differ materially from those expressed or implied by these forward-looking statements as a result of many factors. The targeted gross cost savings are based on our cost basis in the financial year 2013 and reflect the cost structure and the specific product mix during the financial year 2013 and may not translate into corresponding EBITDA improvements for any future financial years.


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3. Management’s Discussion and Analysis

3.1. Recent Developments

Implementation of a group wide cost savings program

In August 2014, we launched “X-Celerate”, a comprehensive cost savings program, the complete implementation of which is envisaged by the end of 2016. The program has been developed and is being implemented with the external support of two international tier 1 consultancy firms. “X celerate” comprises three modules: “General and Administrative Expenses”, “Procurement”, and “Manufacturing”. We have currently identified more than 1,400 measures across all of the modules (in addition to the approximately 300 measures that were already implemented in 2014). As of June 30, 2015 we had achieved gross cost savings, primarily through reduction in our workforce and the implementation of certain measures in the ‘Procurement’ module that we expect to translate into annualized gross cost savings (so-called “run rate”, i.e., based on the annualization of all effects implemented, including effects from inflation, taking into consideration the next twelve-month period) of approximately €32 million, of which approximately €14 million were reflected in our consolidated statement of income for the first half of 2015). The implementation of measures leading to the targeted savings potential is expected to occur by the end of 2016, with full effect from the financial year ending December 31, 2017.

Change in Management Board of Xella International S.A.

With effect from June 20, 2015 Mr Boudewijn van den Brink has resigned from his posts as Chief Operating Officer of Xella International S.A., Xella International GmbH and Xella Baustoffe GmbH [by amicable, mutual agreement]. He will continue to hold his current positions in the China-based Xella companies.

Amendment and extension of existing SFA including refinancing of €200 million PIK Toggle Notes

On June 2, 2015 the amendment and restatement deed to the existing SFA became effective. The amendment and restatement comprised - inter alia – the extension of all term loans (except for term loan D2) into an all-bullet structure with a new maturity date of December 31, 2018, the resetting of the leverage covenant with 20% headroom as well as the refinancing of the €200 million PIK Toggle Notes issued by Xella HoldCo Finance S.A. in 2013 through a new term loan under the existing SFA. Through the implementation of this partial refinancing we have achieved additional flexibility to implement the ‘X-Celerate’ cost savings program based on a sound capital structure.

Targeted SFA amendment

On July 10, 2015 we have communicated in form of a press release that we are continually reviewing our strategic options on how to position and finance the company including by way of a potential IPO. In order to maintain the full flexibility on all potential strategic options we requested the existing lender under our SFA on August 27, 2015 to consent to an amendment of the existing SFA targeting at the adjustment of certain SFA paragraphs in order to provide for the flexibility to pursue such strategic options.

Litigation in Mexico

In connection with the supply and installation of building materials for the construction of a Mexican hotel in the years 2007 and 2008, two Mexican customers have filed a claim against Xella Mexicana S.A. de C.V. and other third parties. In the first instance, the court ruled in September 2014 that Xella Mexicana and the other parties must indemnify the claimants in an amount equivalent to approximately EUR 18.8 million (exchange rate as of December 31, 2014) for consequential damages and losses. Xella Mexicana filed an appeal on October 16, 2014. In the appellate court’s judgment in April 2015, the Mexican Appeal Court unanimously ruled in favor of Xella Mexicana and the other defendants and denied the relief sought by plaintiffs in its entirety, holding that Xella Mexicana had complied with its contractual obligations. The plaintiffs have appealed this ruling before the Civil Collegiate Circuit Court in Mexico City.

For more details please refer to the section ‘Contingent Liabilities’ of the accompanying notes of the consolidated interim financial statements included in this report.

Antitrust investigation

The German Federal Cartel Office (Bundeskartellamt) commenced investigations in April 2015 against several CSU producers in Germany, including our subsidiaries Xella Deutschland GmbH, Xella Baustoffe GmbH and Xella International GmbH. The subject matter of these investigations, which included an


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official search of company premises, is the initial suspicion of an involvement in a market information system suitable for implementing and monitoring illegal quota agreements as well as, related thereto, the potential non-compliance with an order previously released by the German Federal Cartel Office concerning the establishment and structure of a specific market information system. The investigations are still ongoing. In relation to these investigations Xella Deutschland GmbH has started its own internal investigations with the support of an external law firm. Neither the duration nor the result of the investigations of the German antitrust authorities could be predicted reliably.

Impairments on property. plant & equipment in China

In the first half of 2015, we recorded impairment losses related to our Chinese subsidiaries in the amount of €34.8 million. €18.2 million of this impairment related to land & buildings and €16.6 million related to plant and machinery. The impairment losses are the result of the downturn in our Chinese construction markets due to the partly overheated real-estate sector.

Planned acquisition of a Polish competitor

Grupa Silikaty sp.z o.o, Olszewo-Borki / Poland is an important competitor in Poland. We are currently in the process of acquiring Grupa Silikaty sp.z o.o, which operates seven calcium silicate unit plants in Poland. A decision by the Polish antitrust authorities regarding merger clearance is currently expected by the end of 2015. If the Polish antitrust authorities approve the acquisition, a purchase price in the low double-digit Euro-million range will be paid. The preliminary share purchase agreement was signed in the second quarter of 2015.

Ecoloop re-integrated into Lime segment

Between January 1, 2013 and May 31, 2015, our Ecoloop business was reported as a separate segment. As of June 1, 2015, Ecoloop has been re-integrated into, and is reported under, our Lime segment.


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3.2. Condensed Consolidated Statement of Income

Please note that as of June 1, 2015, Ecoloop has been re-integrated into, and is reported under, our Lime segment. Financial information presented as of and for the six-month periods 2015 and 2014 for our Lime segment therefore include our Ecoloop business.

The following table sets out certain information with respect to our condensed consolidated income statement for first half of 2015 compared to the corresponding period in 2014.

Condensed Consolidated Statement of Income

€ million Q2/2014 Q2/2015 Change Q1-2/2014 Q1-2/2015 Change

Sales 338.3 344.8 1.9% 629.1 638.1 1.4% Changes in finished goods and work in progress 0.8 0.4 (53.7%) 6.4 0.8 (88.1%)

Own work capitalized 0.4 0.6 48.4% 0.9 1.4 50.0%

Total Output 339.5 345.7 1.9% 636.5 640.3 0.6% Materials expenses (158.6 ) (156.8 ) 1.1% (298.1 ) (296.5 ) 0.5%

Gross profit 180.9 189.0 4.5% 338.3 343.7 1.6% Other income 4.1 4.4 8.3% 8.4 8.3 (1.7%)

Total income 184.9 193.4 4.6% 346.7 352.0 1.5% Staff expenses (79.5 ) (82.7 ) (4.0%) (161.2 ) (166.6 ) (3.4%)

Other expenses (43.9 ) (53.1 ) (21.1%) (83.6 ) (123.3 ) (47.4%)

EBITDA 61.6 57.6 (6.5%) 101.9 62.1 (39.1%)

Total Normalizations 0.0 16.4 >100% (5.0 ) 48.2 >100%

Other Adjustments 3.1 3.2 2.6% 7.2 5.6 (22.7%)

Adjusted EBITDA 64.7 77.2 19.4% 104.1 115.9 11.3%

Depreciation and amortization expenses (27.4 ) (64.4 ) <(100%) (54.8 ) (91.9 ) (67.8%)

EBIT 34.2 (6.9 ) <(100%) 47.2 (29.8 ) <(100%)

Financial result (52.3 ) (16.4 ) 68.6% (85.8 ) (25.7 ) 70.0%

Profit/loss before tax (18.2 ) (23.3 ) (28.1%) (38.7 ) (55.5 ) (43.6%)

Income taxes (2.3 ) 0.3 >100% (8.2 ) 0.2 >100%

Net income/loss (20.5 ) (23.0 ) (12.3%) (46.8 ) (55.3 ) (18.1%)

Total Normalizations

Total normalizations include (i) restructuring and severance costs, (ii) real estate transfer taxes, (iii) M&A costs, (iv) unusual litigation expenses, (v) unusual gains and losses relating warranty claims and (vi) other items.

The sum of EBITDA and total normalizations equals Normalized EBITDA as reported in the segment reporting of our financial statements.

Our Normalized EBITDA increased by €13.4 million, or 13.8%, from €96.9 million in the first half of 2014 to €110.3 million in the corresponding period of 2015. This positive development was mainly related to the strong performance in Q2 2015.

We present EBITDA and Normalized EBITDA as further supplemental measures of our performance. Normalized EBITDA represents EBITDA as adjusted for items that considered by management to be non-recurring or unusual due to their nature. Other companies may calculate Normalized EBITDA differently than we do. EBITDA and Normalized EBITDA are not measures of financial performance under IFRS and should not be considered as measures of liquidity or alternatives to profit or any other performance measure derived in accordance with IFRS.


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Adjusted EBITDA

In addition to Normalized EBITDA, through which we assess the performance of our operating segments, we have introduced Adjusted EBITDA as a supplemental measure. We believe it is a useful indicator for stakeholders to assess the sustainable development of the profitability of our Group. Historically, we have not reported Adjusted EBITDA. Going forward, we plan to report both Adjusted EBITDA and Normalized EBITDA as we plan to continue to assess the performance of our operating segments on the basis of the latter.

Adjusted EBITDA is defined as EBITDA adjusted for total normalizations and further adjusted for certain other items (together equalling other adjustments), including (i) start-up losses and (ii) monitoring fees and related expenses to PAI Partners and GS International (both (i) and (ii) considered to be non-sustainable), and (iii) the result from associates (at-equity) which is accounted for under financial result in our consolidated statement of income in accordance with IAS 28 “Investments in Associates and Joint Ventures” and, thus, is not reflected in EBITDA.

The reconciliation between EBITDA and Adjusted EBITDA is as follows:

€ million Q1-2/2014 Q1-2/2015

EBITDA 101.9 62.1 Total NormalizationsDivestments and unusual asset disposals (0.5 ) (0.3 )

Gains and losses resulting from real estate transfer taxes (1) (5.4 ) -

Gains and losses due to restructuring and severance (2) 0.1 46.5

Costs related to M&A activities(3) 0.1 0.5

Costs related to unusual litigation (4) 0.1 0.6 Warranty claims relating to prior years 0.1 0.0

Other(5) 0.6 0.9

Other Adjustments

start-up losses(6) 5.6 4.1

monitoring fees and related expenses(7) 0.4 0.3

result from associates(8) 1.2 1.1

Adjusted EBITDA 104.1 115.9

Reconciliation EBITDA to Adjusted EBITDA

(1) Mainly refers to gains resulting from the release of liabilities for real estate transfer taxes in the first quarter of 2014, which were

recorded in connection with the Acquisition of the Xella Group in 2008.

(2) Losses from restructuring and severance mainly relate to the ‘X-Celerate’ program.

(3) Costs related to M&A projects mainly include expenses for consultants in connection with actual or intended acquisition projects.

(4) Costs related to litigation include expenses for law suits which are unusual and non-recurring in nature.

(5) Refers to several other unusual or non-recurring transactions. (6) Start-up losses comprise non-sustainable expenses, including ramp-up and relocation expenses, materials expenses, staff

expenses and other start-up-related expenses, net of sales and other income of the respective entity, for the establishment of new plants or production lines

(7) Monitoring fees and related expenses included costs for monitoring and other related services provided by PAI Partners and GS International

(8) Result from associates (at-equity) which was accounted for under financial result in our consolidated statement of income in accordance with IAS 28 and thus not reflected in EBITDA


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Sales

The following table sets out our sales (including inter-segment sales), Normalized EBITDA and Adjusted EBITDA by segment for the periods indicated:

€ million Q1-2/2014 Q1-2/2015 Change

Building MaterialsSales 404.2 413.1 2.2% Normalized EBITDA 49.2 61.9 25.8% Adjusted EBITDA 52.1 64.6 24.0%

Dry Lining Sales 115.7 120.5 4.2% Normalized EBITDA 14.4 16.3 13.2% Adjusted EBITDA 15.7 16.5 4.9%

Lime (2) Sales 138.2 133.9 (3.1%)Normalized EBITDA 33.5 32.2 (3.8%)Adjusted EBITDA 36.4 34.9 (4.2%)

Consolidated Segment Income Statement Information (1)

(1) Prior to inter-segment consolidation

(2) Figures have been adjusted retrospectively due to the re-integration of the Ecoloop business into the Lime segment.

Our sales by geographic regions are as follows:

Sales by geographic region (1)

m€ Q1-2/2014Share Q1-

2/2014Share Q1-

2/2015Germany 297.5 295.5 (0.7%) 47.3% 46.3%

The Netherlands 46.9 53.8 14.8% 7.5% 8.4%

France 35.3 30.1 (14.6%) 5.6% 4.7%

Czech Republic 31.5 35.1 11.3% 5.0% 5.5%

Belgium 40.8 37.3 (8.6%) 6.5% 5.8%

Poland 28.4 32.1 13.3% 4.5% 5.0%

Switzerland 23.1 22.2 (3.7%) 3.7% 3.5%

Other 88.5 94.3 6.6% 14.1% 14.8%

Europe 591.9 600.5 1.4% 94.1% 94.1%

Asia 14.8 13.5 (9.0%) 2.4% 2.1%

Russia 15.5 15.7 1.4% 2.5% 2.5%

Other 6.8 8.4 22.8% 1.1% 1.3%

Non-Europe/Emerging markets

37.2 37.6 1.2% 5.9% 5.9%

Xella Group 629.1 638.1 1.4% 100.0% 100.0%

Q1-2/2015 Change

(1) Allocation of sales according to domicile of invoicing units in BU Building Materials and BU Lime.

In BU Dry Lining the allocation has been made according to the country in which sales have been generated.


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The following comments refer to the IFRS figures set out in the consolidated statement of income.

Q2/2015 compared to Q2/2014

Sales

In the second quarter of 2015, we recorded sales of €344.8 million and were by €6.5 million or 1.9% above the corresponding period in 2014. This is mainly attributable to higher volumes in our business units Building Materials and Dry Lining. In particular, business activities in our Building Materials business unit benefitted from positive development especially in Germany, Scandinavia and Czech Republic overcompensating lower sales in Asia due to the challenging economic environment. As a result, sales in our Building Materials business unit in the second quarter of 2015 increased by €6.5 million, or 2.0%, compared to the corresponding period in 2014. In our Dry Lining business unit sales increased in the second quarter of 2015 by €3.7 million, or 6.7%, compared to the corresponding period in 2014. This positive sales development was mainly driven by the ongoing implementation of the growth strategy leading to increased sales volumes for gypsum fiber boards particularly in Denmark, Germany and Czech Republic. Sales in our Lime business unit in the second quarter of 2015 decreased by €0.9 million, or 1.2%, compared to the corresponding period in 2014, mainly linked with lower Limestone volumes in Germany. In addition sales were negatively affected by price adjustment clauses for supply contracts in Germany as a result of lower energy prices. Furthermore, sales were affected by a negative exchange rate development in Russia. Materials Expenses

Materials expenses decreased by €1.8 million from €158.6 million in the second quarter of 2014 to €156.8 million in the second quarter of 2015 mainly driven by lower energy expenses. Gross Profit Margin

The gross profit margin improved in the second quarter of 2015 compared to the corresponding period in 2014, mainly as a result of partly higher net average revenues and lower specific production costs. Other Income

Other income increased by €0.3 million from €4.1 million in the second quarter of 2014 to €4.4 million in the corresponding period in 2015 mainly caused by higher profit from the disposal of tangible assets in Q2 2015 and higher other operating income partly compensated by lower neutral income from previous years. Staff Expenses

Staff expenses increased by €3.1 million, or 4.0%, from €79.5 million in the second quarter of 2014 to €82.7 million in the second quarter of 2015. The increase is primarily driven by one-off staff expenses related to the X-Celerate program. The number of full-time equivalents has been reduced significantly from 6,861 as of June 30, 2014 to 6,288 as of June 30, 2015 mainly as a result of the X-Celerate program. Other Expenses

Other expenses increased by €9.3 million from €43.9 million in the second quarter of 2014 to €53.1 million in the corresponding period in 2015. This increase was mainly related to higher restructuring expenses and higher legal and consulting fees in connection with the X-Celerate program. Additionally, the second quarter of 2014 was positively affected by a release of warranty provisions. EBITDA and EBITDA Margin

EBITDA declined from €61.6 million in the second quarter of 2014 to €57.6 million in the corresponding period in 2015. EBITDA margin decreased accordingly from 18.2% to 16.7%. This negative development was mainly attributable to higher one-off expenses related to the X-Celerate program.


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Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by €37.0 million from €27.4 million in the second quarter of 2014 compared to €64.4 million in the corresponding period in 2015 mainly driven by impairment losses on property, plant & equipment predominantly relating to Xella’s Chinese plants due to the downturn in the Chinese construction markets. Financial Result

The financial result increased by €35.9 million from negative €52.3 million in the second quarter of 2014 to negative €16.4 million in the second quarter of 2015. This positive development was mainly based on negative one-off effects (redemption premium as well as the release of financing fees) in the second quarter of 2014 as well as lower interest expenses in the second quarter of 2015 both related to the refinancing of €300 million Senior Secured Notes in the second quarter of 2014. Additionally, we refined our extrapolation approach to calculate the discount for certain other non-current provisions which had a positive impact on financial result. Income Taxes

Income taxes changed from tax expenses of €2.3 million in the second quarter of 2014 to tax income of €0.3 million in the second quarter of 2015 mainly attributable to a decrease in current taxes and to an increase in deferred tax assets.

Q1-2/2015 compared to Q1-2/2014

Sales

In the first half of 2015, we recorded sales of €638.1 million and were by €9.0 million or 1.4% above the corresponding period in 2014. This is mainly attributable to higher volumes in our business units Building Materials and Dry Lining. In particular, business activities in our Building Materials business unit benefitted from higher volumes in the Netherlands based on a recovery of the home market and additional project volumes as well as a positive development especially in Poland, Czech Republic and Scandinavia. This overcompensate lower sales especially in France and China. As a result, sales in our Building Materials business unit in the first half of 2015 increased by €9.0 million, or 2.2%, compared to the corresponding period in 2014. Our Dry Lining business unit sales increased in the first half of 2015 by €4.8 million, or 4.2%, compared to the corresponding period in 2014. This positive sales development was mainly driven by the ongoing implementation of the growth strategy leading to increased sales volumes for gypsum-fiber boards particularly in Denmark, Germany and Czech Republic. Sales in our Lime business unit in the first half of 2015 decreased by €4.3 million, or 3.1%, compared to the corresponding period in 2014, mainly linked with lower volumes in Germany. Additionally, sales were negatively affected by price adjustment clauses for supply contracts in Germany a result of lower energy prices. Furthermore, sales were affected by a negative exchange rate development in Russia. Materials Expenses

Materials expenses decreased with €296.5 million in the first half of 2015 compared to €298.1 million in the first quarter of 2014 mainly driven by lower specific production cost especially for energy. Gross Profit Margin

The gross profit margin slightly increased in the first half of 2015 compared to the corresponding period in 2014, mainly as a result of lower specific production costs. Other Income

Other income decreased by €0.1 million from €8.4 million in the first half of 2014 to €8.3 million in the corresponding period in 2015 mainly caused by higher profit from the disposal of tangible assets in Q1 2014.


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Staff Expenses

Staff expenses increased by €5.5 million, or 3.4%, from €161.2 million in the first half of 2014 to €166.6 million in the first half of 2015. The increase is mainly driven by one-off staff expenses related to the X-Celerate program. The number of full-time equivalents has been reduced significantly from 6,861 as of June 30, 2014 to 6,288 as of June 30, 2015 mainly as a result of the X-Celerate program. Other Expenses

Other expenses increased by €39.7 million from €83.6 million in the first half of 2014 to €123.3 million in the corresponding period in 2015. This increase was mainly related to higher restructuring expenses and higher legal and consulting fees in connection with the X-Celerate program. Additionally, other expenses increased due to a release of warranty provisions in the first half of 2014 which not occurred in the first six months of 2015 to that extent. EBITDA and EBITDA Margin

EBITDA declined from €101.9 million in the first half of 2014 to €62.1 million in the corresponding period in 2015. EBITDA margin decreased accordingly from 16.2% to 9.7%. This negative development was mainly attributable to higher other one-off expenses related to the X-Celerate program. Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by €37.1 million to €91.9 million in the first half of 2015 compared to €54.8 million in the corresponding period in 2014. The increase was mainly driven by impairment losses on property, plant & equipment, predominantly in Xella’s Chinese plants due to the downturn in the Chinese construction markets. Financial Result

The financial result increased by €60.1 million from negative €85.8 million in the first half of 2014 to negative €25.7 million in the first half of 2015. This positive development was mainly based on negative one-off effects (redemption premium as well as the release of financing fees) in the second quarter of 2014 as well as lower interest expenses in the first half of 2015 both related to the refinancing of €300 million Senior Secured Notes. Additionally, we benefitted from a positive result from foreign exchange transactions as well as from a profit resulting from the sale of our 24.13% participation in Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Germany. Furthermore, we refined our extrapolation approach to calculate the discount for certain other non-current provisions which had a positive impact on financial result. Income Taxes

Income taxes changed from tax expense of €8.2 million in the second half of 2014 to tax income of €0.2 million in the second half of 2015. The change was due to both a decrease of current taxes as well as an increase mainly in deferred tax assets.


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3.3. Liquidity and Capital Resources

Our principal sources of funds have been cash generated from our operating activities and borrowings under the Senior Facilities Agreement. Our principal uses of cash are to fund capital expenditures, working capital and debt service obligations.

€ million

Cash and cash equivalents at the beginning of the period 107.2 122.8

Cash flows from operating activities 4.7 3.1

Cash flows from investing activities (15.9 ) 1.3

Cash flows from financing activities (38.6 ) (25.6 )

Change in cash and cash equivalents (49.8 ) (21.2 )Foreign exchange differences in cash and cash equivalents (0.2 ) 1.1

Cash and cash equivalents at the end of the period 57.2 102.7

Condensed Statement of Cash Flows

Q1-2/2014 Q1-2/2015

Cash Flows from Operating Activities

Cash generated by operating activities in the first half of 2015 decreased by €1.6 million to cash generated of €3.1 million which mainly resulted from a decrease in EBITDA of €39.8 million and an increase of trade working capital of €6.7 million partly offset by an increase in other working capital of €41.9 million. Income taxes paid decreased from €6.3 million in the first half of 2014 to €2.0 million in the first half of 2015.

Cash Flows from Investing Activities

As compared to the first half of 2014, the cash flow from investing activities increased by €17.2 million from negative €15.9 million to a positive cash flow of €1.3 million in the first half of 2015 mainly due to the sale of a minority investment.

Cash Flows from Financing Activities

Negative cash flow from financing activities decreased by €13.0 million to €25.6 million in the reporting period mainly due to a decrease in interest paid by €2.6 million, a decrease in net repayments (including prepayment cost) by €16.7 million partly offset by the increase of amounts paid for the acquisition of shares in subsidiaries without change of control by €4.7 million.

For reporting purposes we are using free cash flow derived from the statement of cash flows according to IAS 7. We define and calculate free cash flow as follows:

€ million Q1-2/2014 Q1-2/2015

EBITDA 101.9 62.1 Profits and losses from the disposal of non-current assets (0.5 ) (0.3 )

Non-cash income and expenses 1.1 (0.3 )

Change in trade working capital (75.6 ) (82.3 )Change in other working capital (16.0 ) 25.9

Operating Free Cash Flow 10.9 5.1 Cash flows from investing activities (15.9 ) 1.3

Free Cash Flow (5.0 ) 6.4 Acquisition of shares in subsidiaries without change of control (0.0 ) (4.7 )

Adjusted Free cash flow (5.0 ) 1.7

Adjusted Free Cash Flow based on IAS 7

The significant deviation in ‘change of other working capital’ is mainly related to restructuring provisions.


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Major Financing Arrangements / Net Financial Debt

In June 2014, Xefin Lux S.C.A., the issuer of the €300 million Senior Secured Notes due 2018, issued new Senior Secured Floating Rate Notes in the amount of €325 million. The proceeds of this new issuance were on-lent as Facility D2 Loan under the Senior Facilities Agreement and were used to fully redeem Facility D1 Loan as well as the underlying €300 million Senior Secured Notes issued in 2011.

In June 2015, the SFA was amended and restated in relation to the refinancing of €200 million PIK Toggle Notes issued by Xella HoldCo Finance S.A., a special purpose vehicle established on the level of our shareholders. In this context the existing term loans have been rolled into a new term loan F with an extended maturity December 2018 and a new term loan G with a maturity date of March 2019 has been implemented.

As of June 30, 2015 we have the following financing arrangements outstanding: the Senior Facilities Agreement (including Facility D2) and subordinated shareholder loans in the form of PECs extended to Xella International Holdings S.à r.l.

As of June 30, 2015, we had €44.9 million of available capacity under our €75 million Revolving Facility and an additional €9.0 million of undrawn ancillary facilities.

The following table shows net financial debt as at June 30, 2014 and 2015, respectively:

Net Financial Debt (1)

€ millionJune 30,

2014June 30,

2015Change

abs.

Facility A term loans (2) 48.7 - (48.7 )

Facility B term loans (2) 124.4 - (124.4 )

Facility C term loans (2) 89.4 - (89.4 )Combined Facility loan 70.0 - (70.0 )

Facility F term loans (2) - 299.8 299.8

Facility G term loans (2) - 235.0 235.0

Facility D2 loan (2) 325.0 325.0 - Capex/Acquisition Facility loan 9.3 - (9.3 )Revolving Credit Facility loans - - - Total liabilities under Senior Facilities Agreement 666.8 859.8 193.0Finance lease liabilities 6.9 5.4 (1.5 )Total financial debt 673.7 865.2 191.5Cash and cash equivalents (57.2 ) (102.7 ) (45.5 )Net financial debt 616.5 762.5 146.0

(1) Financial Debt does not include subordinated shareholder loans and certain other financial liabilities. (2) Amounts refer to principal amounts (in case of Facility D2 without accrued interest). Net financial debt increased from €616.5 million as at June 30, 2014 to €762.5 million as at June 30, 2015. The increase is mainly based on the increase of the financial indebtedness under the SFA in connection with the refinancing of €200 million PIK Toggle Notes partly offset by free cash flow generated since July 2014. Working Capital

Our working capital generally mirrors developments in our operating business and certain seasonal patterns may therefore cause material fluctuations in our working capital.

We monitor and optimize the level of working capital and have completed several improvement projects since 2008. For example, trade payables are monitored through a group-wide reporting system. As a key performance indicator, we have introduced a weighted ratio that takes into account payment days and payment discounts at the same time.

The level of our inventories is primarily affected by the level we deem necessary to cover expected sales and ensure prompt delivery to our customers. In managing inventory levels we also take into


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consideration certain production processes, such as efficiency optimizations and plant standstills during vacation periods or for scheduled maintenance work. Strategic purchases of larger quantities of raw materials, such as before previously announced price increases by our suppliers become effective, may increase inventory levels. Inventories are also affected by carbon dioxide emission certificates resulting from realized carbon dioxide emission certificate transactions. For these reasons, the development of inventory levels does not necessarily mirror sales development to the same degree as trade payables and, particularly, trade receivables.

Trade receivables generally develop in line with the development of sales. During the recent financial and economic crisis, in many markets we experienced a trend towards longer payment days. We monitor on group-wide basis the terms of trade with our customers, with the main focus on generating sales at acceptable payment conditions.

The following information is a summary of our trade working capital as derived from the condensed statement of financial position as at June 30, 2014 and 2015, respectively.

Trade Working Capital (1)

€ millionJune 30,

2014June 30,

2015

Inventories (without CO2 emission certificates) 153.4 147.5

Trade accounts receivable (2) 157.2 171.6

Trade liabilities (3) (115.1 ) (118.4 )

Trade working capital 195.5 200.7

(1) Trade working capital as shown in the table above does not correspond to the definition of trade working capital in the consolidated statement of cash flows pursuant to IAS 7.

(2) Trade accounts receivable include customers’ credit balances offset against trade receivables and short-term portions of non-current trade receivables.

(3) Trade liabilities comprise trade payables, short-term portions of non-current trade liabilities, suppliers’ debit balances offset against trade payables, accrued management fees and invoices not yet received.

Compared to June 30, 2014, inventories decreased by €5.9 million as at June 30, 2015. Lower inventories particularly result from the partial plant closure of our AAC plant in Montererau, France and the lower level of finished goods in Germany. Trade accounts receivable increased by €14.4 million driven by higher sales in Germany, particularly at the end of the second quarter in 2015. Trade liabilities increased by €3.3 million also based on the higher level of business activities compared to June 30, 2014. Contrary, trade liabilities in the first half of 2014 included additional invoices for fees incurred in relation to the new notes issuances in June 2014. Capital Expenditures

In general, we finance our capital expenditures in property, plant and equipment primarily from cash flow from operating activities.

The following table is a summary of our capital expenditures for the first half of 2014 and 2015, respectively:

Capital Expenditures (1)

€ million Q1-2/2014 Q1-2/2015

Replacement and Others(2) 16.8 15.3

Optimization(3) 4.5 5.4

Expansion(4) 0.7 6.4

Total Capital Expenditures 22.0 27.2


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(1) Capital expenditures shown in this table are not identical with cash flows from investing activities as shown under this chapter. The main differences are the following: on the one hand, (i) capital expenditures as shown does not include cash received from disposals and from interest and investment income; (ii) loans and financial receivables are not taken into account; (iii) cash received from government grants is not offset against cash paid for corresponding investing activities; and (iv) timing differences from purchase price payables are not reflected. On the other hand, (i) capital expenditures as shown include payments made for the acquisition of shares in subsidiaries without effecting a change of control, which pursuant to IAS 7 are presented in cash flow from financing activities.

(2) Replacement and others includes replacement investments necessary to maintain production (except for optimization investments) and other investments required by health, safety or environmental laws and regulations as well as investments in information technology, administration and distribution.

(3) Optimization includes optimization investments made in existing plants for purposes of capacity increases, rationalization and production capability for new products or quality improvements.

(4) Expansion includes construction of new facilities and new product lines, material modernizations of plants, acquisitions and post-acquisition capital expenditures.

In the first half of 2015, capital expenditures were by €5.2 million higher than in the first six months of 2014.

Replacement capital expenditures in the first half of 2015 are on a lower level than in the corresponding period of 2014 which included the purchase of wheel loader for €1.1 million at our business unit Lime.

Capital expenditures spent for optimisation slightly increased compared to previous period. Key investments in the first half of 2015 were certain rationalisation projects in connection with the X-Celerate program accounting for €1.5 million.

Expansion projects in the first half of 2015 reflect capital expenditures for the Ecoloop reactor (€1.7 million) in our Lime segment and the purchase of the residual shares of Xella Kalksandsteinwerk Griedel GmbH & Co. KG, Germany (€4.7 million).

Investment of Surplus Cash

Due to the decentralized nature of our business, cash within our Group is generally kept and invested by each local entity. Cash requirements of our subsidiaries in various jurisdictions may thus be met mostly at a local level. Our subsidiaries are, however, required to transfer excess amounts of cash to their respective parent company and ultimately to Xella International GmbH where it will be invested in over-night funds or fixed-term deposits at our lender banks under the Senior Facilities Agreement.

Group Cash Management

To manage liquidity within our Group, Xella International GmbH maintains intra-Group clearing accounts for most of our subsidiaries. These intra-Group clearing accounts facilitate the settlement of intra-Group receivables and liabilities without utilizing banks. In addition, we have implemented a cash pooling system in the form of zero balancing with several banks in Germany for most of our German subsidiaries and in France. We have introduced our cash management systems, including our cash pooling system, to provide our management with key information on our liquidity, to optimize our Group’s surplus liquidity and to realize interest benefits by pooling liquidity and subsequently allocating to those entities requiring cash. Cash pooling accounts of our subsidiaries are consolidated on a daily basis and automatically transferred to the master account.

Cash requirements at our subsidiaries not participating in the cash pooling system are generally met through inter-company loans with the holding company of the respective subsidiary. In addition, Xella International GmbH and Xella Finance GmbH may act as lenders in such inter-company financings.


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Contractual Obligations

Financing Arrangements

As at June 30, 2015, the maturity profile of our third-party financing arrangements was as follows:

Third-Party Financing Arrangements

€ million 0-1 years 1-5 years over 5 years Total

Revolving Credit Facility - - - -

Senior Facilities Agreement (Facilities F and G) - 534.8 - 534.8

Facility D2 Loan(1) - 325.0 - 325.0

Finance lease liabilities 1.7 3.7 - 5.4

Total 1.7 863.5 - 865.2

Payments due by Period

(1) Amounts refer to principal amounts.

Other Contractual Obligations

In addition, we have other contractual obligations incurred in the ordinary course of business, such as purchase commitments for production and non-production materials, including supplies, services, hedging contracts and capital expenditures. As at June 30, 2015, the maturity profile of our other contractual obligations was as follows:

Other Contractual Obligations

€ million 0-1 years 1-5 years over 5 years Total

Purchase obligations for property, plant and equipment 11.3 11.3Operating leases 9.2 15.9 22.6 47.7

Total 20.5 15.9 22.6 59.0

Payments due by Period

The purchase obligations shown above do not include the potential purchase price for the acquisition of Grupa Silikaty sp.z o.o., Poland (for details please refer to the Recent Development section). Pension Obligations

In addition to the obligations shown in the table above, we have significant pension obligations. We operate both funded and unfunded defined-benefit pension schemes for beneficiaries under arrangements that have been established in the various countries in which we offer employee pension benefits. As of December 31, 2014, we had total pension obligations of €338.2 million, of which €195.7 million (57.9%) were unfunded. Our defined benefit obligations are based on certain actuarial assumptions that can vary by country, including discount rates, life expectancies and rates of increase in compensation levels. To the extent that the funded plans are not fully funded, the difference has been provided for.

IAS 19, Employee benefits, was amended in June 2011 and endorsed in June 2012. It eliminates the so-called corridor approach and mandates recognition of all remeasurements directly in Other Comprehensive Income (OCI) as they occur. Furthermore, all past service costs are to be recognized immediately. Besides, the “net interest approach” is mandatory which implies the use of a uniform, market-based discount rate to discount the defined benefit obligation as well as to determine the interest income on plan assets. The revised IAS 19 is applied since January 1, 2013, with corresponding retrospective application of 2012.

If actual results, especially discount rates or life expectancies were to differ from our assumptions, our pension obligations could be higher than expected and we could incur remeasurements (gains or losses). Changes in all assumptions or under-performance of plan assets could also adversely affect our financial condition and results of operations. Differences between the discount rate and actual returns on plan assets can require us to record additional remeasurements. Future declines in the value of plan assets or


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lower-than-expected returns may require us to make additional current cash payments to pension plans or non-cash charges to OCI.

Environmental Obligations

As of June 30, 2015, we had provisions related to environmental obligations of €27.1 million. These provisions primarily relate to recultivation obligations to cover the cost of recultivating lime quarries and sand pits to environmentally acceptable conditions once exploitation has been finished. The provision is created in instalments over the prospective operating life of the respective quarry or pit in keeping with the scope of the quarry’s or pit’s annual output. The provision is measured on the basis of the estimated cost for recultivating the sites on the basis of the actual output to date in relation to the total estimated resources at the site.

3.4. Factors Affecting Our Results of Operations

We believe that the factors discussed below have significantly affected our results of operations and financial position in the periods for which financial information is presented in this Prospectus, and that these factors will continue to have a material influence on our results of operations and financial position in the future.

General economic conditions, construction activities and market trends

We have been affected and continue to be affected by fluctuations in the economic conditions of the markets in which we manufacture and sell our products. The construction industry is cyclical in nature and dependent on the level of construction-related expenditures in the residential, industrial and commercial sectors, public investments and public and private spending on infrastructure projects. Challenging economic conditions resulting from the global financial and economic crisis since 2008 and the subsequent sovereign debt and Euro crisis continued to impact our markets. Due to this difficult economic situation, for example, our sales in The Netherlands decreased from EUR 138.6 million in the financial year 2012 to EUR 94.2 million in the financial year 2013. Furthermore our sales in France decreased from EUR 74.4 million in the financial year 2012 to EUR 69.7 million and EUR 64.8 million in the financial year 2013 and 2014, respectively. In addition, the building materials market is, to a considerable degree, impacted by regulations and other key trends, for example regarding energy efficiency, urbanization and the growing importance of emerging markets.

For many countries, Euroconstruct estimated that 2013 and 2014 marked the bottom of activity in the construction market following a sustained decline of construction activities since 2007. According to Euroconstruct, the European construction market entered a new phase of growth in 2014, with a moderate recovery in construction output of 1.2% compared to 2013 in terms of total construction output (depending on the methodology used for each of the different countries may or may not include areas such as do-it-yourself, black economy and exports). Total construction output for 2014 is estimated to amount to EUR 1,340.8 billion for the 19 Euroconstruct countries (Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, The Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland and the United Kingdom) (source: Euroconstruct Report).

Our Building Materials segment, particularly with respect to sales volumes for AAC and CSU, and the building materials sector in general are to a large extent dependent on developments in new residential construction activities, with new housing starts and building permits showing a strong correlation with demand for our AAC and CSU products, and to a lesser degree, also on developments in new non-residential construction. Similar to the market for wall-building materials, the development of the market for dry lining products is closely linked to the level of construction activities but has historically been less cyclical due to its significant exposure to the more stable residential and non-residential RMI activities Due to its diversified customer base with customers in various industries, long-term supply contracts and limited exposure to the cyclical construction industry, our Lime segment has historically been the least cyclical of our three segments.

To reduce our business’ exposure to the cyclicality of new residential construction activities, we have invested significantly in the expansion of our dry lining production capacity, in particular in an additional production line for cement-bonded boards at our German plant in Calbe as well as the acquisition and commissioning of our Spanish gypsum fiber board production plant in Orejo. With respect to our Building Materials segment, we have identified the Multipor business, which has a significantly higher exposure to RMI activities than our standard AAC and CSU products, as a potential growth driver and means of further diversification. The expansion of our lime business, with the commissioning of a plant in Russia in 2009, constitutes another example of our efforts to reduce our business’ cyclicality. In addition, regional


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diversification, for example through the 2011 acquisition of our Italian AAC plant in Pontenure, also helps to balance our exposure to the cyclicality of the construction industry.

Seasonality and weather conditions

The construction industry, and therefore demand for building materials, is seasonal in nature. The level of construction activities is typically linked to local weather conditions, with periods of cold weather, frost, snow or heavy rain negatively affecting construction activities. Reduced levels of construction activities and the resulting lower demand for building materials may be aggravated by particularly harsh weather conditions such as those experienced in large parts of Europe in the winter of 2012/2013. In contrast, the unusually mild winter in the first quarter of 2014 led to an early start of the building season in Europe. Moreover, the autumn of 2014 and the winter of 2014/2015 were comparably mild, with a limited number of frost days in many European regions. These seasonal changes and variable weather conditions frequently lead to volatility in our quarterly financial results. In addition, public holidays and vacation periods also contribute to the seasonality affecting our business.

Historically, sales in the second and third quarters have been significantly higher than in the other quarters of the year, particularly the first quarter. Results of a financial year’s single quarter might therefore not be a reliable basis for the expectations of a full financial year and may not be comparable with the results in the other quarters in the same financial year or previous financial years. Our working capital generally mirrors developments in our operating business, with a build-up of working capital typically occurring in the first and second quarters and a lower level of working capital in the fourth quarter of the financial year.

Although all of our segments are affected by seasonality to some degree, our Building Materials segment, particularly with respect to sales volumes for AAC and CSU, is most affected due to its significant dependency on the development in new residential construction activities.

Ability to Increase Prices and Pass on Increased Costs

The primary factor affecting our gross profit margin, in addition to the structure of our cost base, the absolute level of costs and our ability to manage our operating costs, are the prices that we can charge our customers for our products. Historically, we have generally been able to pass on price increases of raw materials, energy and other input factors to our customers in a timely manner. For example, in 2012, we successfully implemented price increases in our core markets in order to pass on increased costs in raw materials, energy and other input factors to our customers. In 2013, we increased prices in only several of our markets, in light of the difficult economic environment and competitive situation and in favor of defending or expanding our market share. In 2014, further price increases were realized primarily in certain Eastern European countries.

Due to our high-quality portfolio of technologically advanced products and customer-specific application services, and the strength of our brands, we believe that we have in the past been able to achieve premium prices. Furthermore, we believe that our sales approach of focusing on construction projects and customer-specific solutions, particularly in The Netherlands and Poland, as well as directly approaching the relevant decision-makers with our strong sales force help to mitigate the general price pressure in the markets in which we operate. However, our ability to increase prices to pass on increased production costs may be limited by the level of competition in the relevant market. Our competitors’ pricing policies may be influenced by, among other things, general economic conditions and more specifically the conditions of the building industry, the number of competitors and their production capacities, our competitors’ cost base and general business strategy. For example, in the course of the global financial and economic crisis, the level of pricing pressure in the building materials industry increased in many countries due to a decline in demand and temporary excess capacity.

We match our pricing policy to the respective market situation and specific strategic targets. For example, we may choose to temporarily focus on increasing our market share in a particular market, as we did most prominently in Germany in 2010 and, most recently, in Croatia in 2015. In this context, we also benefit from our broad brand portfolio, which enables us to introduce a second brand to a certain market at lower prices in order to gain market shares without compromising the premium reputation of our other brand. Furthermore, we have successfully implemented measures other than price increases to maintain our profitability and react to increased competition, including charging for supplemental services which were previously offered free of charge to generate additional sales.

Prices of Raw Materials and Energy Costs

Our most important products, AAC, CSU, mineral insulation board, gypsum fiber board, cement-bonded board (including fire-protection board), lime and limestone are, to a certain extent, commodity products. Therefore, our profitability significantly depends on our ability to manage our operating costs. In addition


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to operational efficiency, prices for input factors are the most important factors determining variable operating cost. Our operating costs include the cost of raw materials and other input factors, staff, energy, repair and maintenance of our production facilities, and other fixed and variable costs. Total expenses for the procurement of these raw materials, together with other input factors (excluding energy costs), amounted to EUR 222.0 million in the financial year 2014, or 17.4% of our sales. Our energy costs amounted to a total of EUR 150.5 million in the financial year 2014, or 11.8% of our total sales.

Prices for lime, cement, sand, gypsum and anhydrite, aluminum, paper and steel, which are the most important raw materials for building materials and dry lining products, have fluctuated significantly in the past. For example, prices for raw aluminum increased by more than 20% between February 2014 and August 2014 (based on prices in USD per metric, source: Bloomberg standard reference prices for aluminum). In order to manage risks from fluctuations in raw material prices, we enter into supply agreements covering significant portions of our expected requirements for certain raw materials, such as cement, lime and, to a lesser degree, sand. The terms of these supply agreements typically run for periods of between 12 and 36 months.

Similarly, our energy costs are affected by various factors, including the availability of supplies of particular forms of energy, energy prices and regulatory trends and decisions. In particular, prices for oil and gas have been extremely volatile in recent years with prices for crude oil ranging from USD 44 per barrel in January 2015 to more than USD 145 per barrel in July 2014 (source: Bloomberg standard reference prices for crude oil on the New York Mercantile Exchange). In addition, due to the allocation mechanism for carbon dioxide emission allowances provided to us free of charge which is tightening year by year we expect to be required to acquire additional emission certificates for carbon dioxide to maintain our production at current levels or to meet additional demand from 2015 onwards.

Based on this, we expect our energy costs and cost for the purchase of emission allowances to increase considerably in the future. We attempt to mitigate the risks posed by fluctuating energy prices by entering into supply agreements for significant portions of our expected energy requirements for periods typically between 24 and 36 months. As of June 30, 2015, we had contracted for 91.8% of our expected requirements for lime (subject to certain price adjustments) and 84.7% of our expected energy requirements for the financial year 2015 by entering into supply agreements (subject to certain price adjustments). In addition, we have entered into electricity supply agreements for the period from 2016 to 2017 for approximately 50% of our German operations and that we believe will result in an average electricity price per MW/h across all of our German plants that is approximately 30% lower than the average price per MW/h we paid in 2014. In addition, we have already entered into agreements to fix natural gas prices for the majority significant of the expected volumes for 2016 and 2017 for our German operations in the Building Materials and Dry Lining segments. We believe that this may result in an average net natural gas price (excluding regulatory grid fees and governmental taxes) for all of our German plants being approximately 20% lower than the average net natural gas price paid by us in the financial year 2014.

Because we enter into new supply agreements on a rolling basis, the average price that we pay under those contracts generally reflects market trends on a trailing basis. In addition to physical supply agreements, we have entered into derivative transactions meant to hedge fluctuations in the price of diesel, which is used in our lime quarries. As of June 30, 2015, we had diesel derivative transactions outstanding with a total volume of 1,890 metric tons of ultra-low sulphur diesel 10ppm with a maturity date December 31, 2015. With regard to carbon dioxide emissions we have entered into forward purchase agreements for EU allowances in order to cover required carbon allowances for future carbon emissions. As of June 30, 2015, we had forward purchase agreements outstanding with a notional volume of 1,267,000 EU allowances targeted to partially cover carbon emissions in the years 2015 to 2017 and expect to continuously increase the notional volume of EU allowances for this period.

Acquisitions, Divestments and Capital Expenditures

Between January 1, 2012 and June 30, 2015, we incurred capital expenditures in an aggregate amount of EUR 274.9 million (excluding certain public subsidies received), with our most significant investment projects relating to (i) our gypsum fiber board production plant in Orejo, Spain, (ii) the acquisition of a Czech AAC plant and (iii) an additional production line for cement-bonded fire-protection boards at our plant in Calbe, Germany. During the same period, we acquired the remaining outstanding shares in a CSU plant in Blatzheim, Germany, the outstanding shareholding in a Dutch CSU plant and, most recently, the outstanding minority shareholding in a CSU plant in Griedel, Germany. In connection with the acquisitions of the outstanding shareholding in the Dutch CSU and the Griedel CSU plants we disposed of a minority shareholdings in another Dutch CSU plant and in Baustoffwerke Münster-Osnabrück GmbH & Co. KG. We are currently awaiting approval from the Polish antitrust authorities to acquire Grupa Silikaty, which operates seven CSU plants in Poland, for an envisaged purchase price in the low double-


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digit Euro-million range. Since 2012, we have also disposed of certain minority shareholdings, including a minority stake in another.

Going forward, we expect that capital expenditures for replacement and maintenance will remain at least at current levels and may increase in connection with specific projects or events. As a provider of premium solutions and products, we expect to continue to invest in our facilities to produce new or enhanced products, as well as to improve productivity and efficiency in our plants, sales and administration processes. In particular, we expect increased capital expenditures in connection with the implementation of our cost savings program X-Celerate in 2015 and 2016. In line with our historic strategy, we intend to selectively participate in the consolidation of the building materials industry and to continue our international expansion across our segments, with a particular focus on our core Building Materials segment. In implementing this strategy, we may pursue both organic growth and evaluate the market for potential acquisitions of building materials production facilities and other companies.

Furthermore, in connection with new business operations, including greenfield operations, acquired plants or other investments, we frequently incur start-up losses for several years before such operations or investments become profitable. In addition, the duration of a ramp-up phase often depends on developments in the relevant markets. Start-up losses for the financial years 2014, 2013 and 2012 amounted to EUR 9.7 million, EUR 13.9 million and EUR 6.6 million, respectively. Start-up losses in connection with our Ecoloop project, part of which were accounted for in our Lime segment while another part was accounted for in the Ecoloop segment (a separate segment from January 1, 2013 to May 31, 2015), which is currently in the trial and ramp-up phase (including costs related to the Ecoloop installation at our Lime plant “Kaltes Tal” in Germany) amounted to EUR 5.9 million and EUR 6.2 million in the financial years 2014 and 2013, respectively.

In the period under review, our consolidated statement of income was also affected by amortization & depreciation expenses resulting from step-ups relating to the purchase price allocation mainly in connection with the acquisition of our business by the Selling Shareholder in 2008. In the financial years 2014, 2013 and 2012, scheduled amortization & depreciation expenses from the step-ups on non-current assets, in particular property, plant and equipment, relating to purchase price allocation amounted to EUR 18.5 million, EUR 22.8 million and EUR 24.6 million, respectively most of which related to the acquisition of our business by the Selling Shareholder in 2008. The major part of these scheduled amortization charges is expected to expire during 2017. Amortization & depreciation expenses relating to purchase price allocation in step-ups connection with the acquisition of our Group by the Selling Shareholder in 2008 are not tax deductible. In addition, we recorded goodwill with a carrying amount of EUR 333.4 million as of December 31, 2014, mostly resulting from the acquisition of our Group by the Selling Shareholder in 2008 and subsequent currency translation effects. Goodwill is subject to an annual impairment test.

Currency Fluctuations

We conduct our business in more than 15 currencies and prepare our consolidated financial statements in Euro. In the financial year ended December 31, 2014, we generated 27.0% of our sales in currencies other than the Euro, mainly Czech Koruna (5.1% of our total sales), Polish Zloty (4.7% of our total sales), Swiss Franc (3.6% of our total sales) and Russian Ruble (2.8% of our total sales), and we expect the percentage of our sales generated in currencies other than the Euro to increase in the future. As most of our purchases are conducted in the same currency as we invoice our sales to customers, we face only a limited transactional currency risk in our core operations. Changes in foreign currency exchange rates can affect the value of our foreign assets, liabilities, sales and costs when reported in Euro and, therefore, our financial condition and results of operations.

Risks arising mainly from inter-company transactions, such as financing, dividend distributions and inter-company charges or purchases as well as third-party foreign currency transactions, are to a certain extent managed by forward foreign exchange contracts. In order to help manage our exchange rate risk, we enter into forward foreign exchange contracts that generally cover parts of our expected net foreign currency exposure for the current budget year. As of June 30, 2015, we also had financial liabilities denominated in Polish Zloty in an amount of PLN 306.3 million (PLN 306.3 million as of December 31, 2014), which provides an additional hedge against a depreciation of the Polish Zloty against the Euro.

We manage the remaining net exchange rate risk by partly hedging current receivables and future sales as well as sourcing in currencies other than the functional currency of our foreign subsidiaries, and by partly hedging current receivables and future sales with forward foreign exchange contracts. This policy has been established to enable our management to plan future cash flows in functional currencies from anticipated foreign currency sales and related accounts receivable more effectively. The hedge period for expected sales is generally up to one year. We may, however, extend or shorten the hedge period at any


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time depending on expectations regarding foreign currency exchange rates and our assessment of the aggregate foreign exchange risk. While our hedging strategy enables us to partly mitigate the effects on our cash flows of an appreciation of the value of the Euro compared to the respective functional currencies of our foreign subsidiaries over a period of up to one year, it does not enable us to mitigate the risk of a long-term appreciation of the Euro compared to the respective functional currencies of our foreign subsidiaries.

X-Celerate Program and Other Cost Saving Measures

In August 2014, we initiated the X-Celerate program (“X-Celerate”) in order to reinforce the business in the mid to long-term. Management is currently targeting aggregate gross cost savings of approximately EUR 70 million, compared to the actual costs incurred in the financial year ended December 31, 2014, considering costs accounted for under “materials expenses”, “staff expenses” and “other expenses”, and intends to realize the full effect of these aggregate gross cost savings in the financial year ending December 31, 2017 and beyond. The targeted gross cost savings are equivalent to approximately 6.5% of our total cost base in the financial year ended December 31, 2014.

While we expect X-Celerate to contribute to an improvement in both the operating results of our Group and our competitiveness over the long-term, we will incur restructuring expenses in the course of this program, which will have a negative impact on our operating result before normalization. In connection with the development and implementation of X-Celerate, we expect to incur non-recurring cash expenses, in particular for capital expenditures, staff-related expenses (mainly severance payments) and consulting fees of approximately EUR 80 million in the aggregate for the financial year 2015 and the financial year ending December 31, 2016. In the six-month period 2015, we recorded non-recurring expenses relating to X-Celerate in an aggregate amount of EUR 42.9 million. Of these, EUR 30.7 million were related to FTE reductions.

Furthermore, we had aimed at improving our costs even before the commencement of X-Celerate. For example, in 2012 as well as the following year, due to the renewed deterioration of the market environment in certain countries, we implemented various measures to reduce costs, including the partial, temporary and permanent plant closures in the Czech Republic, in Slovakia, in The Netherlands and most recently in France. Also, as described above, through efforts in addition to X-Celerate, we have secured electricity prices for approximately 50% of our German operations’ requirements during the 2016-2018 period that we believe will result in additional cost savings. Moreover, cost efficiency measures are expected to remain a focus of our management’s attention even after X-Celerate is expected to expire at the end of 2016.

.

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Xella International S.A.

Condensed Consolidated Interim Financial

Statements as of June 30, 2015


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Table of contents

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Statement of Financial Position ........................................................................ 32

Condensed Consolidated Statement of Income – by nature of expense................................................... 33

Condensed Consolidated Statement of Comprehensive Income .............................................................. 34

Condensed Consolidated Statement of Changes in Equity ....................................................................... 35

Condensed Consolidated Statement of Cash Flows.................................................................................. 36

Selected Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

Basis of Preparation ....................................................................................................................................37

Scope of Consolidation, Business Combinations and Divestments............................................................38

Seasonality ..................................................................................................................................................38

Notes to the Condensed Consolidated Statement of Financial Position.....................................................38

Notes to the Condensed Consolidated Statement of Income .....................................................................40

Notes to the Condensed Consolidated Statements of Comprehensive Income and of Changes in Equity...........................................................................................................................................................41

Notes to the Condensed Consolidated Statement of Cash Flows ..............................................................41

Notes to Segment Reporting .......................................................................................................................41

Disclosures on Financial Instruments..........................................................................................................44

Related Party Relationships ........................................................................................................................46

Contingent Liabilities ...................................................................................................................................47

Significant Events After the Balance Sheet Date ........................................................................................48


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Condensed Consolidated Statement of Financial Position

June 30, 2015 Dec. 31, 2014k€ k€

Property, plant & equipment 960,213 1,019,296Intangible assets 584,306 580,965Investments in associates (at equity) 18,987 18,823Financial assets 47,221 55,019Trade and other receivables 2,102 2,206Tax assets 690 690Deferred tax assets 19,637 15,019Non-current assets 1,633,156 1,692,018Inventories 147,768 145,739Trade and other receivables 195,773 136,862Tax assets 8,257 13,751Financial assets 12,232 18,893Cash and cash equivalents 102,664 122,765Deferred expenses 5,018 2,673Current assets 471,712 440,683Total assets 2,104,868 2,132,701

June 30, 2015 Dec. 31, 2014k€ k€

Shareholders' equity (331,327) (286,907)Non-controlling interests 19,969 22,162Total equity (311,358) (264,745)Financial liabilities 1,715,880 1,652,745Deferred tax liabilities 106,823 105,971Pension provisions 191,188 204,340Other provisions 77,118 81,267Trade and other accounts payable 150 162Deferred income 5,963 6,387Non-current liabilities 2,097,122 2,050,872Financial liabilities 5,914 37,881Tax liabilities 7,810 8,373Other provisions 77,851 67,820Trade and other accounts payable 227,267 232,358Deferred income 262 142Current liabilities 319,104 346,574Total equity and liabilities 2,104,868 2,132,701

Equity and Liabilities

Assets

The accompanying selected notes are an integral part of these condensed consolidated interim

financial statements.


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Condensed Consolidated Statement of Income – by nature of expense

April 1st - June 30, 2015


Jan. 1st - June 30, 2015

Jan. 1st - June 30, 2014

k€* k€* k€* k€*Sales 344,780 338,256 638,112 629,097Change in finished goods & work in progress 368 795 763 6,425Own work capitalised 601 405 1,399 933Total output 345,749 339,456 640,274 636,455Materials expenses (156,788) (158,585) (296,528) (298,145)Gross profit 188,960 180,871 343,746 338,310Other income 4,394 4,057 8,292 8,432Total income 193,354 184,928 352,038 346,742Staff expenses (82,667) (79,518) (166,630) (161,178)Other expenses (53,104) (43,851) (123,319) (83,643)EBITDA 57,583 61,559 62,089 101,921Depreciation & amortisation expenses (64,434) (27,405) (91,878) (54,759)EBIT (6,851) 34,154 (29,789) 47,162Result from associates (at equity) 991 764 1,087 1,174Result from other investments 9 250 7,763 245Finance costs (23,134) (55,559) (53,960) (86,804)Other financial result 5,701 2,218 19,369 (442)Financial result (16,433) (52,327) (25,741) (85,827)Profit/ loss before tax (23,284) (18,173) (55,530) (38,665)Income taxes 299 (2,297) 246 (8,155)Net income/ loss (22,986) (20,471) (55,284) (46,820)Net income/ loss attributable to shareholders (22,222) (21,565) (55,001) (47,230)Net income/ loss attributable to non-controlling interests (764) 1,094 (283) 410

Weighted average number of shares (in thousands) 3,100 3,100 3,100 3,100Net income/ loss attributable to shareholders per share (basic and diluted - in €)

(7.17) (6.96) (17.74) (15.24)

*) unless indicated otherwise

Consolidated Statement of Income




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Condensed Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income April 1st - June 30, 2015


Jan 1st - June 30, 2015

Jan 1st - June 30, 2014

k€ k€ k€ k€

Net income / loss (22,986) (20,471) (55,284) (46,820)

Other comprehensive income with potential subsequent reclassification to the income statement

Currency adjustment (179) 65 3,046 (1,724)

Share of other comprehensive income of investments in associates (at equity)

(722) 197 (648) 181

Other comprehensive income without potential subsequent reclassification to the income statement

Remeasurements from defined benefit liability 41,454 (6,297) 11,991 (17,933)

Income taxes on items in other comprehensive income (11,621) 1,959 (3,390) 5,358

Other comprehensive income 28,932 (4,076) 10,999 (14,118)

Total comprehensive income 5,946 (24,547) (44,285) (60,938)

Total comprehensive income attributable to shareholders 6,487 (25,608) (44,419) (61,200)

Total comprehensive income attributable to non-controlling interests (541) 1,061 134 262




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Condensed Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity for the period Jan 1st - June 30, 2015

Other comprehensive income

Available-for-sale

investments and

investments in associates

Hedge of net investment in

foreign operations

Remeasure-ment defined

benefit liability

Translation reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€ k€As of January 1st, 2015 31 98,382 (1,089) 2,688 (55,833) 956 (53,278) (332,042) (286,907) 22,162 (264,745)Dividends (2,293) (2,293)Subsequent Acquisition with existing control (1) (1) (34) (35)Capital increase/ decrease

Currency adjustment (648) 2,696 2,048 2,048 350 2,398Addition to/ release of OCI(not affecting consolidated income statement) 8,534 8,534 8,534 67 8,601Net income/ loss (55,001) (55,001) (283) (55,284)

Total comprehensive income (648) 8,534 2,696 10,582 (55,001) (44,419) 134 (44,285)

Book value as at June 30, 2015 31 98,382 (1,737) 2,688 (47,299) 3,652 (42,696) (387,044) (331,327) 19,969 (311,358)

Consolidated Statement of Changes in Equity for the period Jan 1st - June 30, 2014

Other comprehensive income

Available-for-sale

investments and

investments in associates

Hedge of net investment in

foreign operations

Remeasure-ment defined

benefit liability

Translation reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€ k€As of January 1st, 2014 31 98,382 (1,583) 2,688 (24,735) (920) (24,550) (226,846) (152,983) 19,353 (133,630)Dividends (578) (578)Subsequent Acquisition with existing control (4) (4) 2 (2)Capital increase/ decrease 375 375

Currency adjustment 181 (1,668) (1,487) (1,487) (56) (1,543)Addition to/ release of OCI(not affecting consolidated income statement) (12,483) (12,483) (12,483) (92) (12,575)Net income/ loss (47,230) (47,230) 410 (46,820)

Total comprehensive income 181 (12,483) (1,668) (13,970) (47,230) (61,200) 262 (60,938)

Book value as at June 30, 2014 31 98,382 (1,402) 2,688 (37,218) (2,588) (38,520) (274,080) (214,187) 19,414 (194,773)

Retained earnings

Shareholders' equity

Non-controlling

interests

Total equitySubscribed capital

Capital reserves

Revaluation reserves

Retained earnings

Non-controlling

interests

Total equityShareholders' equity

Subscribed capital

Capital reserves

Revaluation reserves

The accompanying selected notes are an integral part of these condensed consolidated interim financial statements.


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Condensed Consolidated Statement of Cash Flows

Jan. 1st - June 30,

2015

Jan. 1st -June 30,

2014k€ k€

Net loss for the period including non-controlling interests (55,284) (46,820)Depreciation, amortization and impairment of property, plant and equipment as well as of intangible assets

91,878 54,759

Income and expenses from changes in deferred taxes (7,022) 915Expenses from income taxes 6,776 7,240Financial result 25,741 85,827EBITDA 62,089 101,921Changes in inventories (864) (9,158)Changes in trade receivables (56,133) (38,677)Changes in trade payables (25,344) (27,715)Change of trade working capital (82,341) (75,550)Changes in pension provisions (4,485) (4,729)Changes in other non-current provisions and liabilities 4,662 714Changes in other current assets (3,982) (1,413)Changes in current provisions 10,390 (12,779)Changes in other current liabilities 19,294 2,244Change in other working capital 25,879 (15,963)Income taxes (1,954) (6,278)Other non-cash income and expenses (297) 1,098Expenses from the disposal of non-current assets (254) (541)Cash flow from operating activities 3,122 4,687Cash paid for investments in property, plant and equipment and intangible assets (22,465) (21,980)Cash received from the disposal of property, plant and equipment and intangible assets

769 539

Cash received from the disposal of consolidated entities and other business units 1,552Cash paid for additions to investments in associated entities at equity and other financial assets

(258) (418)

Cash received from disposals of investments in associated entities at equity and other financial assets

22,823 3,504

Cash received from interest and investment income 427 870Cash flow from investing activities 1,296 (15,933)Payments made to non-controlling interests (2,293) (578)Payments made for the acquisition of shares in subsidiaries without change of control

(4,654) (3)

Cash received from the issue of non-current financial liabilities 235,000 325,000Cash received from the issue of current financial liabilities 1,448 7Cash paid for the scheduled repayment of financial liabilities (841) (757)Cash paid for interest expenses and fees (21,122) (23,757)Cash paid for the unscheduled repayment of financial liabilities including prepayment costs

(233,124) (338,488)

Cash received for derivative financial instruments 1Cash flow from financing activities (25,586) (38,575)Cash and cash equivalents at the beginning of the period 122,765 107,200Net change in cash and cash equivalents (21,168) (49,821)Net foreign exchange difference 1,067 (217)Cash and cash equivalents at the end of the period 102,664 57,162

Consolidated Statement of Cash Flows




37 of 50

Selected Notes to the Condensed Consolidated Interim Financial Statements as

of June 30, 2015

Basis of Preparation

The condensed consolidated interim financial statements of Xella International S.A.,

Luxembourg, as of June 30, 2015 were prepared in accordance with the International Financial

Reporting Standards (IFRSs) applicable to interim financial reporting as adopted by the EU.

Except the changes described below, the accounting and valuation principles applied in

preparing the condensed consolidated interim financial statements correspond to those applied

to the annual consolidated financial statements as of December 31, 2014, paying due regard to

IAS 34 (Interim Financial Reporting). In line with IAS 34 condensed consolidated interim

financial statements generally requires a greater use of estimates than annual consolidated

financial statements. For further information on the individual applied accounting and valuation

principles, we refer to the consolidated financial statements of Xella International S.A. as of

December 31, 2014.

The following standards and interpretations (in some cases revised or amended) issued by the

International Accounting Standards Board (IASB) and the International Financial Reporting

IFRS Interpretations Committee (IFRS IC) were mandatory for the first time as of the financial

year 2015:

Amendment to IFRS 1, First-time adoption of international financial reporting standards

Amendment to IFRS 3, Business combinations

Amendment to IFRS 13, Fair Value Measurement

Amendment to IAS 40, Investment Property

IFRIC 21, Levies

The first-time application of the revised or new standards adopted by the Commission of the

European Union does not have any material impact on the presentation of our net assets,

financial position and results of operations in the reporting period.

Criteria for the extrapolation of data to determine the discount rates for certain non-current

provisions were refined as of June 30, 2015 to better reflect current market assessments of the

time value of money and the risks specific to the liabilities considering the existing long lasting


38 of 50

period of very low interest rates. This change in accounting estimate mainly relates to

recultivation provisions and results in a provision as at June 30, 2015 which is 6,727 k€ lower

compared to the previous extrapolation approach.

The condensed consolidated interim financial statements have been prepared in Euro (€) and

the figures are generally stated in thousand Euros (k€). For calculatory reasons, some of the

tables may include rounding differences of up to one unit.

Scope of Consolidation, Business Combinations and Divestments

No business combinations occurred in the first half of 2015. A Polish Building Materials

subsidiary, Xella VdB Zebrzydowa Sp. z o.o., was liquidated in the first quarter of 2015. In this

period, the company did not report sales and the stand-alone loss after taxes amounted to 0 k€.

Liquidation loss was 33 k€.

Shares in Xella Kalksandsteinwerk Griedel GmbH & Co KG, Butzbach-Griedel /Germany and

Kalksandsteinwerk Griedel Verwaltungsgesellschaft mbH, Butzbach-Griedel /Germany, two

Building Materials subsidiaries, were acquired without change of control for a cash

compensation of 4,654 k€ increasing interest held from 51% to 100%. Interest in the building

Materials subsidiary Siporex dd, Tuzla /Bosnia-Herzegovina was increased from 94.45% to

94.49% without change of control for a cash compensation of 1 k€. All 24.13% of the minority

shares in Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück / Germany were sold

for a cash compensation of 15,900 k€ in the first quarter in 2015. A profit amounting to 7,748 k€

is shown as result from other investments.

Seasonality

The sales volumes recorded by Xella during the first and last months of the calendar year are

lower than at mid-year due to the negative impact of the weather on construction activities. As

an effect the results of the first and the fourth quarters of the year generally lie below the results

of the second and third quarters.

Notes to the Condensed Consolidated Statement of Financial Position

Compared to December 31, 2014 total Group assets decreased by 27,833 k€ to 2,104,868 k€ at

the end of June 2015. Non-current assets decreased by 58,862 k€. Of this decrease, property,

plant & equipment accounted for 59,083 k€, mainly resulted from depreciation and impairments

(please refer to the Notes to the Condensed Consolidated Statement of Income) exceeding


39 of 50

additions and positive currency adjustments. In addition, non-current financial assets decreased

by 7,798 k€, mainly due to the disposal of all 24.13% of the minority shares in Baustoffwerke

Münster-Osnabrück GmbH & Co. KG, Osnabrück / Germany previously shown under this line

item.

Current assets increased by 31,029 k€ predominantly due to higher trade and other receivables

(by 58,911 k€) partly compensated by lower cash and cash equivalents (by 20,101 k€). The

decrease of cash and cash equivalents as well as the increase of trade receivables is based on

the normal seasonal development with a higher level of business activities compared to year-

end.

Total equity decreased by 46,613 k€ to a negative amount of 311,358 k€ as of June 30, 2015.

The reduction is primarily a result of the net loss exceeding remeasurements on defined benefit

liabilities which had a positive effect on equity in the first half of 2015.

Non-current and current financial liabilities increased by 31,168 k€. This increase mainly

resulted from cumulated interest on shareholder loans not yet paid.

In June 2015 we have executed an amendment to the existing senior facilities agreement (SFA)

comprising - inter alia - the extension of all term loans into an all-bullet structure with the new

maturity date December 2018 and the resetting of the leverage covenant. Another element of

the SFA amendment was the refinancing of the €200 million PIK Toggle Notes issued by Xella

HoldCo Finance S.A., an issuing vehicle established by our shareholders outside the Xella

Group, in 2013 by introducing a new term loan under the existing SFA with a maturity date

March 2019. With the SFA amendment we increased the senior secured financial indebtedness

by 215,000 k€ and harmonized the margin level of all term loans under the SFA to 375 basis

points. Through the realization of this SFA amendment we prepared a basis to implement our X-

Celerate cost savings program based on a sound capital structure. This partial refinancing led to

an increase of interest risk based on the variable interest rate attached to the additional senior

secured financial indebtedness. On the other hand, the liquidity risk was reduced as no

scheduled repayment obligation under the amended SFA exists prior to December 2018.

End of June 2015, financial liabilities contain bank liabilities of 525,924 k€ including financing

fees which are offset against the respective liabilities and measured at amortized cost using the

effective interest rate method.

Bond debt amounting to 319,893 k€ including financing fees which are offset against the

respective liabilities and excluding accrued interest is also part of the financial liabilities.

Pension provisions decreased by 13,152 k€ to 191,188 k€ mainly due to remeasurements

resulting from higher discount rates.


40 of 50

Notes to the Condensed Consolidated Statement of Income

Sales increased by 9,015 k€ to 638,112 k€ in comparison to the first half of 2014 resulting from

higher sales in the building materials and dry lining segments.

Other expenses increased by 39,676 k€ from 83,643 k€ in the first half of 2014 to 123,319 k€ in

the first six months of fiscal year 2015. Higher other expenses mainly refer to restructuring

expenses, mainly in Germany, in connection with our X-Celerate cost savings program. We

refer to the notes to segment reporting.

In the first half of 2015 EBITDA totaled 62,089 k€, which is 39,832 k€ lower than the 101,921 k€

recorded in the first six months of 2014.

Depreciation & amortization expenses increased by 37,119 k€ to 91,878 k€ due to impairments

on property, plant & equipment (in total 36,843 k€ in the first six months of 2015) which mainly

refer to land and buildings as well as plant and machinery (BU Building Materials). In the first

half of 2015 impairment losses mainly related to our Chinese subsidiaries. Land & buildings

resp. plant & machinery were impaired by 18,152 k€ resp. by 16,600 k€ down to recoverable

amounts of 6,358 k€ resp. 9,907 k€. Reason for these impairment losses was the downturn in

our Chinese construction markets. In addition, due to a lower fair value for a closed plant in the

Czech Republic an impairment of 1,783 k€ down to a recoverable amount of 2,676 k€ was

necessary. Remaining impairments for property, plant & equipment of 308 k€ are allocated to

several other companies within BU Building Materials. All impairment charges are shown as

depreciation & amortization expenses in the Condensed Consolidated Statement of Income. All

impairments were based on fair values less costs of disposal with the exemption of the

impairment on two Chinese production facilities based on value-in-use. Fair values less costs of

disposal were calculated based on inputs that were derived from observable data of other

markets. The discount rate used for the valuation of two Chinese plants was 6.5% after tax.

The financial result improved by 60,086 k€ including the profit resulting from the sale of the

minority shares in Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück / Germany.

In addition, one-off finance costs related to the redemption of the 2011 Senior Secured Notes

(17,100 k€) and the release of financing costs which had been amortized since 2011 had a

negative effect on the financial result in the first half 2014 not repeated in the first six months of

fiscal year 2015. Further, result from foreign exchange transactions related to financing

increased by 11,453 k€ and positive interest effects from the discounting of other non-current

provisions also improved financial result in the first six months of 2015.

The net loss amounted to 55,284 k€, compared to a loss of 46,820 k€ in the first half of 2014.


41 of 50

Net income/ loss per share are calculated by dividing the net income by the weighted average

number of shares issued. Net income comprises the total earnings for the period considered

less non-controlling interests. So-called potential shares (mainly stock options and convertible

bonds), which could dilute the earnings per share, were not issued. The basic and the diluted

net loss per share are therefore identical.

Notes to the Condensed Consolidated Statements of Comprehensive Income and

of Changes in Equity

Subscribed capital amounts to 31,000 € and was paid in cash.

The translation reserve reports the differences arising from translating assets and liabilities

respectively income and expenses at different exchange rates carried by Group companies

whose functional currency is not Euro. In the first half of 2015 positive currency adjustments on

equity included changes in China (3,285 k€), Czech Republic (1,998 k€) as well as others (338

k€). Negative currency changes related to Poland (1,048 k€) and USA (1,053 k€) and others

(474 k€). The at-equity book value of Türk Ytong, Sanayi A.S., Istanbul/Turkey, decreased by

648 k€ due to negative foreign exchange effects which has been posted to Other

Comprehensive Income (OCI).

Dividends to non-controlling interests related to payments to minority interests of Vapenka-

Vitosov s.r.o., Zabreh, Czech Republic, Xella Baustoffwerke Rhein-Ruhr GmbH, Duisburg,

Germany, and Fels Recycling GmbH, Wolfsburg, Germany.

Notes to the Condensed Consolidated Statement of Cash Flows

In accordance with IAS 7, the statement of cash flows shows the movements in the Xella

Group’s cash and cash equivalents in the course of the reporting period in the form of cash

inflows and outflows. The cash flows are classified according to their source and application,

namely operating, investing and financing activities.

The cash flows from operating activities are determined indirectly on the basis of the net loss for

the reporting period corrected for all material non-cash income and expenditure plus other cash

components.

In the first half year of 2015 cash flow from operating activities decreased by 1,565 k€ to a cash

flow from operating activities of 3,122 k€ which mainly resulted from a decrease in EBITDA of

39,832 k€ and a negative change of trade working capital of 6,791 k€ partly offset by a positive

change in other working capital of 41,842 k€. The decrease of EBITDA and the change in other

working capital is mainly related to the X-celerate program. We refer to the notes to segment


42 of 50

reporting. Net payments out of income taxes decreased by 4,324 k€ to net payments of

1,954 k€ in the first half year of 2015. As compared to the first six months of fiscal year 2014,

the negative cash flow from investing activities changed by 17,229 k€ to a positive cash flow of

1,296 k€ in the half year of 2015 mainly due to the sale of the minority investment in

Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück / Germany for a cash

compensation of 15,900 k€. Disposals of other non-current and current financial assets

(6,659 k€, PY: 2,984 k€) mainly related to the repayment of various loans and other financial

receivables as well as dividends received from associated companies in the amount of 264 k€

(PY: 520 k€).

The cash flow from financing activities overall increased by 12,989 k€ from negative 38,575 k€

to negative 25,586 k€ in the reporting period. This was mainly attributable to a one-off

redemption premium of 17,100 k€ in the first half of 2014 partly offset by payments made for the

acquisition of the residual shares of Xella Kalksandsteinwerk Griedel GmbH & Co. KG,

Butzbach-Griedel / Germany (4,651 k€; without change of control) in the first quarter of 2015.

Notes to Segment Reporting

IFRS 8 requires the management approach for segment reporting. Accordingly, the operating

segment information is reported based on the internal organization and management structure,

which is the internal financial reporting to the chief operating decision makers, and is

represented by the Management Board of Xella.

In the consolidated financial statements of Xella International S.A. as of December 31, 2014,

Xella identified four reportable segments (Building Materials, Lime, Dry Lining, Ecoloop), which

are mainly separately organized and managed according to the products sold and services

provided, the trademarks, the production processes, the sales channels and the customer

profiles. In June 2015 we decided to re-integrate the Ecoloop business (which was reported as

a separate segment from January 1, 2013 until May 31, 2015) into the Lime segment.

Xella assesses the performance of the operating segments based on a measure of normalized

earnings before interest, income taxes, depreciation, amortization and impairment losses

(Normalized EBITDA). This measurement basis excludes the effects of unusual or non-recurring

income and expenses.


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The segment information for the reportable segments is as follows:

BU Building Materials

BU Lime** BU Dry Lining Holding Total

k€ k€ k€ k€ k€ k€Sales from external customers and associates 405,973 111,664 120,475 638,112Inter-segment sales 7,173 22,284 5 (29,462)Segment sales 413,146 133,948 120,480 (29,462) 638,112Material income / expense items from

Inventory write-down (270) (270)Impairment of property, plant & equipment (36,841) (36,841)

Profit / loss (-) from disposal of property, plant & equipment* 173 83 256

Reversals of provisions* 2,309 376 470 3,155

Normalized EBITDA 61,945 32,192 16,288 (115) 110,310*) after normalization**) Figures have been adjusted retrospectively due to the re-integration of the Ecoloop business into the Lime segment.

BU Building Materials

BU Lime** BU Dry Lining Holding Total

k€ k€ k€ k€ k€ k€Sales from external customers and associates 396,975 116,451 115,671 629,097Inter-segment sales 7,220 21,770 4 (28,994)Segment sales 404,195 138,221 115,675 (28,994) 629,097Material income / expense items from

Inventory write-down (142) (142)Impairment of property, plant & equipment (226) (226)Profit / loss (-) from disposal of property, plant & equipment* 366 (46) (3) 317Reversals of provisions* 2,037 148 1,023 3,208

Normalized EBITDA 49,233 33,452 14,395 (152) 96,928*) after normalization**) Figures have been adjusted retrospectively due to the re-integration of the Ecoloop business into the Lime segment.

Segment information - Jan. 1st - June 30, 2014 Consoli-dation**

Segment information - Jan. 1st - June 30, 2015 Consoli-dation**

Under IFRS 8.29 segment information was adjusted to reflect the comparability to the new

segment structure.

In the first six months of 2015 total segment sales increased by 9,015 k€ to 638,112 k€ and

Normalized EBITDA increased by 13,382 k€ to 110,310 k€ compared to prior year. The Group

developed very well in the second quarter of fiscal year 2015 by achieving a Normalized

EBITDA of 74,016 k€ (PY: 61,576 k€) after 36,294 k€ in the first quarter of 2015 (PY: 35,352

k€). The positive development of sales and Normalized EBITDA is mainly related to the Building

Materials and Dry Lining segments.

Loss before tax for the reporting period was derived as follows:

Jan. 1st - June 30,

2015

Jan. 1st - June 30,

2014k€ k€

Normalized EBITDA 110,310 96,928Normalizations (48,221) 4,993EBITDA Group 62,089 101,921Depreciation & amortisation expenses (91,878) (54,759)Financial result (25,741) (85,827)Profit / loss before tax (55,530) (38,665)

Reconciliation from Normalized EBITDAto profit / loss before tax

Normalizations mainly refer to X-Celerate, our comprehensive cost savings program that we

launched in 2014. The first phase of our program consisted of an in-depth analysis of our cost

structure and the development of cost saving targets. During this phase, we compared our

general and administrative functions against external benchmarks, reviewed selected

procurement categories and operations at selected production plants in order to identify


44 of 50

potential for operating improvements and extrapolated our findings to define Group-wide gross

cost savings targets. In a second phase we are currently developing appropriate concepts and

specific measures to achieve the targeted gross cost savings and have started the actual

implementation of such measures to realize initial gross cost savings. X-Celerate includes the

modules “Procurement”, “Manufacturing” and “SG&A”.

In the first half of 2015, the program led to expenses of 42,935 k€. X-Celerate was initiated in

August 2014, therefore no expenses were recorded in the comparative period in regard to the

program.

Expenses of 28,200 k€ are attributable to the Building Materials segment, 4,961 k€ stems from

the Dry Lining segment. The Lime business unit accounts for expenses of 9,774 k€.

The expenses in connection with the X-Celerate program break down into staff related

expenses of 30,684 k€, consulting fees of 11,747 k€ and other expenses of 504 k€. In the first

half of 2015 significant staff related expenses relate to certain German subsidiaries within the

three segments (in total: 28,392 k€).

Disclosures on Financial Instruments

The following table shows the carrying amounts and fair values of the Group`s financial

instruments.

Book value as at June 30,

2015

Financial assets at fair value

through profit and loss

Financial assets held for

trading

Loans and receivables

Available-for-sale

investments

No IAS 39 category/

Outside the scope of IFRS 7

Fair value IFRS 13 fair-value

hierarchy level

k€ k€ k€ k€ k€ k€ k€

Loans 4,257 4,257 4,257 level 2Other investments 4,704 9 4,695 4,704 level 1+2Other financial assets (non-current) 38,259 38,259 38,259 level 2Financial assets (non-current) 47,220 9 4,257 4,695 38,259 47,220Trade and other receivables (non-current) 2,102 2,102 2,102Trade receivables (current) 173,972 173,972 173,972 level 2Receivables from construction contracts 1,505 1,505 1,505 level 2Other receivables (current) 20,296 9,107 11,189 20,296 level 2Trade and other receivables (current) 195,773 184,584 11,189 195,773Derivatives 187 187 187 level 2Receivables from associates (at equity) (current) 388 388 388 level 2Receivables from other investments (current) 3 3 3 level 2Receivables from shareholders and non-controlling interests (current) 1,517 1,517 1,517 level 2Other financial assets (current) 10,137 1,080 9,057 10,137 level 2Financial assets (current) 12,232 187 2,988 9,057 12,232Cash and cash equivalents 102,664 102,664 102,664 level 2

Reconciliation of financial assets to IAS 39 categories / IFRS 13 Valuation Levels

Book value as at Dec. 31,

2014

Financial assets at fair value

through profit and loss

Financial assets held for

trading

Loans and receivables

Available-for-sale

investments

No IAS 39 category/



hierarchy level

k€ k€ k€ k€ k€ k€ k€

Loans 4,321 4,321 4,321 level 2Other investments 12,101 9 12,092 12,101 level 1+2Other financial assets (non-current) 38,597 38,597 38,597 level 2Financial assets (non-current) 55,019 9 4,321 12,092 38,597 55,019Trade and other receivables (non-current) 2,206 2,206 2,206Trade receivables (current) 117,123 117,123 117,123 level 2Receivables from construction contracts 1,225 1,225 1,225 level 2Other receivables (current) 18,514 5,900 12,614 18,514 level 2Trade and other receivables (current) 136,862 124,248 12,614 136,862Derivatives 780 780 780 level 2Receivables from associates (at equity) (current) 488 488 488 level 2Receivables from other investments (current) 8 8 8 level 2Receivables from shareholders and non-controlling interests (current) 1,418 1,418 1,418 level 2Other financial assets (current) 16,199 772 15,427 16,199 level 2Financial assets (current) 18,893 780 2,686 15,427 18,893Cash and cash equivalents 122,765 122,765 122,765 level 2

Reconciliation of financial assets to IAS 39 categories / IFRS 13 Valuation Levels


45 of 50

The fair value of financial instruments traded on an active market is based on the market price

on balance sheet date. As at June 30, 2015 other investments include investments valued at

stock market prices of 1,247 k€ (IFRS 13 fair-value-hierarchy level 1; December 31, 2014:

1,247 k€). Moreover, other investments include shares in partnerships and corporations for

which no active market exists. As future cash flows cannot be estimated reliably no market

value can be calculated using valuation models. The interest in such companies is therefore

recognized at cost. There is currently no intention to dispose these shares.

The derivatives are valued on the basis of observable market data such as interest rates and

foreign exchange rates (IFRS 13 fair-value-hierarchy 2).

Financial Assets that are measured at fair value on a recurring basis are only available for sale

investments of 1,247 k€ (December 31, 2014: 1,247 k€) on fair-value-hierarchy level 1 and the

derivates (financial assets held for trading) of 187 k€ (December 31, 2014: 780 k€) on fair-

value-hierarchy level 2. The remaining financial assets are valued at cost. No transfers between

hierarchy levels took place in the first half of 2015.

Due to their short terms, the fair value of current trade and other receivables and current

financial assets correspond to their carrying amounts.

Book value as at June 30,

2015

Financial liabilties held

for trading

Other financial liabilities

No IAS 39 category/



hierarchy level

k€ k€ k€ k€ k€

Bank liabilities (non-current) 525,738 525,738 535,448 level 2Bond liabilities (non-current) 319,893 319,893 333,938 level 2Finance lease liabilities (non-current) 3,656 3,656 3,874 level 2Liabilities to shareholders and non-controlling interests (non-current) 862,737 862,737 899,115 level 2Other financial liabilities (non-current) 3,856 3,856 4,471 level 2Financial liabilities (non-current) 1,715,880 1,712,224 3,656 1,776,846Trade and other liabilities (non-current) 150 150 150 level 2Trade liabilities (current) 79,314 79,314 79,314 level 2Advance payments by customers 3,633 3,633 3,633 level 2Liabilities from construction contracts 2,372 2,372 2,372 level 2Other liabilities (current) 36,123 9,832 26,291 36,123 level 2Trade and other liabilities (current) 121,442 89,146 32,296 121,442Bank liabilities (current) 186 186 186 level 2Finance lease liabilities (current) 1,710 1,710 1,812 level 2Liabilities to shareholders and non-controlling interests (current) 1,465 1,465 1,465 level 2Derivatives 549 549 549 level 2Other financial liabilities (current) 2,004 2,004 2,004 level 2Financial liabilities (current) 5,914 549 3,655 1,710 6,016

Reconciliation of financial liabilities to IAS 39 categories / IFRS 13 Valuation Levels


46 of 50

Book value as at Dec 31, 2014

Financial liabilties held

for trading

Other financial liabilities

No IAS 39 category/



hierarchy level

k€ k€ k€ k€ k€

Bank liabilities (non-current) 279,294 279,294 279,294 level 2Bond liabilities (non-current) 319,313 319,313 331,962 level 2Finance lease liabilities (non-current) 4,434 4,434 4,449 level 2Liabilities to shareholders and non-controlling interests (non-current) 1,045,855 1,045,855 1,112,595 level 2Other financial liabilities (non-current) 3,849 3,849 4,399 level 2Financial liabilities (non-current) 1,652,745 1,648,311 4,434 1,732,698Trade and other liabilities (non-current) 162 162 162 level 2Trade liabilities (current) 103,840 103,840 103,840 level 2Advance payments by customers 4,366 4,366 4,366 level 2Liabilities from construction contracts 1,425 1,425 1,425 level 2Other liabilities (current) 25,306 8,841 16,466 25,306 level 2Trade and other liabilities (current) 134,937 112,681 22,257 134,937Bank liabilities (current) 33,111 33,111 33,111 level 2Finance lease liabilities (current) 1,770 1,770 1,770 level 2Liabilities to shareholders and non-controlling interests (current) 180 180 180 level 2Derivatives 818 818 818 level 2Other financial liabilities (current) 2,002 2,002 2,002 level 2Financial liabilities (current) 37,881 818 35,293 1,770 37,881

Reconciliation of financial liabilities to IAS 39 categories / IFRS 13 Valuation Levels

The fair values of the non-current financial liabilities are generally determined by discounting

future contractually agreed cash flows at the current market rate. The fair value for non-current

liabilities to shareholders has been calculated based on the assumption that full repayment will

occur on December 31, 2016 (i.e. diverging from the contractually agreed maturity date which is

December 31, 2058). The fair value based on contractually agreed maturity date would be

1,429,183 k€ (December 31, 2014: 2,500,428 k€) instead of 899,115 k€ (December 31, 2014:

1,112,595 k€).

Bond liabilities and liabilities to shareholders are accounted for at amortized cost. For both

financial instruments the deviation between book value and fair value is based on the

contractually agreed interest rate which is fixed on a higher level than the corresponding actual

market interest rate as per June 2015.

Due to their short terms, the fair value of current trade and other liabilities and current financial

liabilities correspond to their carrying amounts.

Derivatives are valued on the basis of observable market data such as interest rates and foreign

exchange rates. These financial liabilities held for trading of 549 k€ (December 31, 2014:

818 k€) are measured at fair value on a recurring basis (fair-value-hierarchy level 2).

Related Party Relationships

Compared to December 31, 2014 liabilities to Xella International Holdings S.à r.l., Luxembourg,

increased by 32,507 k€ mainly due to interest and decreased by repayments of the existing

shareholder loans in the amount of 213,079 k€ to 852,642 k€ at the end of June 2015. Through

the realization of the partial refinancing we were able to repay shareholder loans. We refer to

our Notes to the condensed consolidated statement of financial position.


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There were no other significant changes at June 30, 2015 to the related party disclosures

reported in the consolidated financial statements as of December 31, 2014.

Contingent Liabilities

In connection with the supply and installation of building materials for the construction of a

Mexican hotel in the years 2007 and 2008 the two Mexican customers have filed a claim against

our 100%-owned subsidiary Xella Mexicana S.A. de C.V. and other involved parties which do

not belong to the Xella Group. At first instance, Xella Mexicana and the other parties were

ordered to indemnify the claimants in an amount of approx. €19 million mainly for consequential

damages and losses. The judgement was issued and released for publication on September 30

/ October 2, 2014. Xella Mexicana has filed an appeal on October 16, 2014. The claim asserted

against Xella Mexicana appears unfounded. Compliance of work performed by Xella Mexicana

according to the supply and installation agreement was confirmed by the claimants themselves

in written form in the second quarter of 2008 as well as by the release of a performance bond in

June 2009.

In the appellate judgment notified on April 30, 2015, the Mexican Appeal Court unanimously

rendered a judgment in favor of Xella Mexicana S.A. de C.V. and the other defendants and

acquitted them of all relief sought by plaintiffs. In conclusion, the Court confirmed that Xella

Mexicana S.A. de C.V. complied with all of its contractual obligations. The plaintiffs appealed

this decision.

Compared to December 31, 2014, other contingent liabilities in the Group have not changed

materially.


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Significant Events After the Balance Sheet Date

Grupa Silikaty sp.z o.o, Olszewo-Borki / Poland is an important competitor in Poland. Currently,

we are in the process of acquiring Grupa Silikaty sp.z o.o, which operates seven calcium silicate

unit plants in Poland. A decision by the Polish antitrust authorities regarding merger clearance is

currently expected in the course of 2015. If the Polish authorities accept the acquisition, a

purchase price in the low double-digit million Euros will be paid. The preliminary share purchase

agreement was signed in the second quarter of 2015.

Mr. Boudewijn van den Brink has resigned as managing director of Xella International S.A. with

effect as of July 20, 2015. He will continue to hold his current positions in the China-based Xella

companies.

There are no other events subsequent to balance sheet date that would have had a significant

impact on the net assets, financial position and results of operations of the Group.

Luxembourg, August 26, 2015

Board of Directors

Peter Steiner Jan Buck-Emden

Hans-Jürgen Wiecha Dr. Joachim Fabritius

Marielle Stijger David Richy


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DISCLAIMER The consolidated interim financial statements included in this report have been prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union (“IFRS”). The interim consolidated financial statements and the selected explanatory notes thereto of Xella International S.A. as of June 30, 2015, are unaudited and all information contained in this report with respect to this period is also unaudited. The unaudited consolidated interim financial statements and the selected explanatory notes thereto of Xella International S.A. as of June 30, 2015 eliminates effects of certain inter-segment sales, primarily in connection with lime supplied by the Lime business unit to the Building Materials business unit and certain building materials supplied by the Building Materials business unit to the Dry Lining business unit. In this report, percentages relating to the portion of total sales and total Adjusted EBITDA attributable to each of our segments include effects from such inter-segment sales and do not include any necessary eliminations. As a result, percentages for sales and Adjusted EBITDA by segment may add up to more than 100%. In this report, amounts of external sales for each of our business units eliminate effects from certain inter-segment sales. Certain numerical figures set out in this report, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this report may vary slightly from the actual arithmetic totals of such information.

This report contains non-IFRS measures and ratios, including EBITDA, EBIT, Adjusted EBITDA, Adjusted EBITDA margin, Normalized EBIDTA, Operating Free Cash Flow, Adjusted Free Cash Flow, working capital, net debt, that are not required by, or presented in accordance with, IFRS. We present non-IFRS measures because we believe that they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-IFRS measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. Some of the limitations of these non-IFRS measures are: (i) they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) they do not reflect changes in, or cash requirements for, our working capital needs; (iii) they do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt; (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and EBITDA does not reflect any cash requirements that would be required for such replacements; and (v) some of the exceptional items that we eliminate in calculating Adjusted EBITDA reflect cash payments that were made, or will in the future be made. The non-IFRS measures we present may also be defined differently than the corresponding terms under the Indenture.

We operate in an industry for which it is difficult to obtain precise industry and market information. Market data and certain economic and industry data and forecasts used, and statements regarding our position in the industry made, in this report were estimated or derived based upon assumptions we deem reasonable, from internal estimates and surveys, market research, government and other publicly available information, reports prepared by consultants and independent industry publications. While we believe these statements to be reliable, they have not been independently verified, and we do not make any representation or warranty as to the accuracy or completeness of such information set forth in this report. Additionally, industry publications and such reports generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed and in some instances state that they do not assume liability for such information. We cannot therefore assure you of the accuracy and completeness of such information as we have not independently verified such information.

This report includes forward-looking statements within the meaning of the securities laws of applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this report. The forward-looking statements herein speak only as of the date on which the statements were made. We undertake no obligation, and do not intend, to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.The report is provided to you on the basis that you are a person into whose possession the report may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the report to any other person.


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