Rock to Road

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LafargeHolcim steady despite tough Canadian market


May 12, 2016
By Andrew Macklin

May 12, 2016 – LafargeHolcim has reported its Q1 2016 results, with a stronger price for cement helping provide a stable quarter despite challenges in some of its international markets, including Canada.

Highlights from Q1 2016
• Net sales CHF 6.1 billion (+0.1%) stable on a like-for-like basis year-on-year

• Adjusted operating EBITDA (like-for-like) impacted by seasonality, positive items in Q1 2015 and pricing in some markets

• Average cement price up 2.1% from Q4 2015 to Q1 2016, excluding India

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• Operating Free Cash flow improved 19% in Q1 2016 vs Q1 2015

• Net debt at CHF 18 billion (CHF 17.3 billion in Q4 2015) impacted by seasonality

• All 2016 targets on track – full year adjusted operating EBITDA of at least high single digit like for like growth expected

Eric Olsen, CEO of LafargeHolcim commented: “In the first quarter, which is typically our smallest quarter, we saw solid demand for our products and a strengthening pricing environment with sequential quarter-on-quarter improvement of cement average selling prices.

“We know that we have more to do to increase momentum in 2016 and we are fully committed to delivering synergies, strengthening pricing, and maximizing cash flow generation. We are also well advanced with our divestment program and the proceeds will reduce our net debt this year.

“The first quarter is not indicative of our full year performance. We are on track with our plan and we see favorable underlying trends. I am confident that 2016 will mark sound progress towards reaching our 2018 objectives and we expect to deliver at least a high single digit like-for-like increase in adjusted operating EBITDA for the year.”

2016 Outlook
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.

In 2016 we expect:

• Capex to be 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

• Net debt expected to decrease to around CHF 13 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

Group performance
In the quarter, increases in like-for-like net sales compared with the prior year were reported in major markets including the United States, Mexico, Algeria and the Philippines in what is traditionally the lowest-volume quarter of the year.

Cement average selling prices increased from Q4 2015 to Q1 2016 by 2.1%, excluding India, although they remain lower than last year due to price declines in 2015. Price increases were implemented in two thirds of our markets during the first quarter, including in Nigeria and India. This will deliver the full effect in the remainder of the year.

The first quarter results were impacted by challenging conditions in a limited number of markets. Nigeria, Brazil, and India accounted for the majority (CHF -160 million) of the adjusted operating EBITDA declines in Q1 2016 versus Q1 2015. However, this was mitigated by timely implementation of synergy action plans and lower energy costs. China and Indonesia also stabilized as a result of cost management actions implemented in the quarter.

The year-on-year comparison was also impacted by lower prices in Nigeria, India and China (CHF -170 million vs. Q1 2015), lower CO2 sales (CHF 17 million in Q1 2015 vs none in Q1 2016), adverse foreign exchange effects (CHF 43 million higher in Q1 2016 than in Q1 2015) and CHF 85 million of positive items in Q1 2015 mainly due to a sales tax credit of CHF 20 million in India and CHF 20 million in US pension credits, with the balance dispersed across the regions and countries.

Synergies reached CHF 104 million in the quarter ensuring that we are on track to exceed the target of CHF 450 million of incremental synergies for the full year with the biggest contributors being: cross-selling of branded products; the optimization of clinker sourcing between group companies; and implementation of best practice in our energy mix.

Energy costs were down by over CHF 65 million (9%) in the quarter as a result of reduced prices for fossil fuels and procurement initiatives.

North America
LafargeHolcim posted improved results in North America driven by ongoing high demand for building materials in the United States. Strong pricing and volume trends in the United States supported a significant increase in financial performance in the region. Residential construction and spending on infrastructure projects resulted in active construction markets in the United States despite some weather-related challenges in the North. Aggregates and ready-mix concrete volumes also showed significant growth mirroring the positive market trends. Eastern Canada reported flat performance. Western Canada was impacted by lower investments as a result of the oil-price driven economic downturn.

Divestments
The divestment plan is on track and we are in advanced discussions on a range of potential transactions, well in excess of our 2016 target, to ensure that we achieve full value for these assets.

We are committed to delivering the 2016 target of CHF 3.5 billion, one third of which has already been secured, as highlighted in the full year/Q4 results.

We continue to identify other opportunities as part of our active portfolio management and expect further divestments to crystallize beyond 2016.