Canada, U.S. steady markets for LafargeHolcim
By Andrew Macklin
March 17, 2016 – Despite a drop in activity in western Canada due to drops in the oil, gas and mining sectors, LafargeHolcim saw steady growth in both the Canadian and U.S. market in 2015.
LafargeHolcim posted solid results in North America as a result of both the continuing recovery in the United States as well as successful price management and cost optimization.
Cement and aggregate volumes increased as a whole across the U.S. and in Eastern States of Canada, offset partially by reduced demand in some regions (such as Western Canada and Texas) where oil and commodity investments were under pressure, and as a result of divestments in some states.
Financial performance increased markedly thanks mainly to the United States as well as an overachievement on synergy realization, with the U.S. posting a double-digit increase in operating EBITDA, mainly due to active cost, price and margin management.
Overall, like-for-like net sales grew for the fourth quarter (up 3.1 per cent) and the full year (5.4 per cent) versus 2014 while operating EBITDA adjusted for merger, restructuring and other one-offs rose 12 per cent for the full year.
Eric Olsen, CEO of LafargeHolcim, said: “In a challenging environment in selected markets, we have exceeded all our 2015 commitments in terms of capex, synergies, and net debt reduction. Our focus on cash flow delivered solid results in the fourth quarter. We have also made significant progress on our divestment plan, while accelerating the pace of integration across the group and cost management actions.
Many of the key elements of the merger are now behind us. Our organization is in place; synergies will continue to gain momentum in 2016 with notably more than CHF 450 million of incremental EBITDA synergies expected for this year; and we have taken decisive actions to further adjust and streamline our costs, notably in the most difficult markets.
“Overall, we see demand in our markets growing two-to-four per cent during 2016. Emerging markets will continue to grow overall, supported by their strong long-term fundamentals and despite the challenging evolution in some of these markets. Given our footprint, we are well placed to benefit from the dynamic conditions in many of our key markets.”
“We expect to see the combined effect of synergies, additional cost reductions and a strengthening pricing environment driving solid progress towards our 2018 objectives. Free cash flow generation is the key measure of our value creation strategy. With strict capital allocation discipline and the maximization of our cash flow, we are committed to maintaining solid investment grade rating and returning cash to shareholders.”
2015 Fourth Quarter Highlights
Fourth quarter results were impacted by challenges in selected markets, most notably Brazil, Switzerland, China, Indonesia, Zambia, Nigeria and Azerbaijan. Lower CO2 revenues and adverse foreign exchange movements also affected results. However, we were encouraged by positive developments in markets including the United States, Mexico, Argentina, the Philippines, Australia and the United Kingdom.
Significant progress made in integration:
• Merger synergies ahead of plan with CHF 130 million on operating EBITDA versus CHF 100 million target in H2, of which CHF 94 million in Q4.
• Portfolio review completed; CHF 3.5 billion program of divestments is underway with confirmed deals in South Korea and Saudi Arabia. In Morocco we have signed an agreement with our partner SNI to enlarge our joint-venture by merging Lafarge Ciments Maroc and Holcim Maroc to create LafargeHolcim Maroc.
Commitments have been exceeded:
• Capex spending in H2 in line with stated target of less than CHF 1.4 billion, representing a CHF 200 million reduction compared with previous plan of CHF 1.6 billion through more effective capex management.
• Net debt was reduced to CHF 17.3 billion, below the CHF 17.5 billion target, notably supported by capex control, solid operating cash flows and focus on working capital.
Decisive actions taken to address most challenging environments:
• Cost management initiatives launched throughout the business, with a particular focus on countries including Brazil, China, Russia, France, Italy, Spain, and Belgium to make these markets more sustainable and competitive.
2016 will be a year of progress towards our 2018 targets. Demand in our markets is expected to grow between two-to-four per cent taking into account the challenging economic headwinds in selected emerging markets that will continue. This further illustrates that our merger was an essential first step in building a new business, ready to exploit opportunities in the coming years.
This year our strategic plan will gain further momentum and in 2016 we expect:
• Capex to remain below CHF 2 billion
• Incremental synergies of more than CHF 450 million of operating EBITDA
• Our pricing recovery actions and commercial excellence initiatives will demonstrate tangible results in 2016
• Net debt expected to decrease to around CHF 13.0 billion at year end, including the effect of our planned divestment program
• CHF 3.5 billion divestment program to be completed with more than one third already secured
• We are committed to maintaining a solid investment grade rating and commensurate to this rating, returning excess cash to shareholders, notably with a progressive dividend policy We reconfirm our commitment to the 2018 targets announced in November 2015.