LafargeHolcim reports continued earnings growth in Q2 Mittwoch, 26. Juli 2017 - 07:00

Beat Hess, Chairman and interim CEO said: “LafargeHolcim delivered positive earnings growth for the fifth consecutive quarter supported by favorable pricing, cost discipline and synergies.

“The unique strengths of our balanced portfolio are once again evident in our results with key countries such as the US, India, Nigeria and, notably this quarter, Mexico making significant contributions to earnings, more than offsetting headwinds in some of our markets. On that basis, and with our performance to date, we remain confident that we will achieve our full year guidance and our 2018 targets.

“In addition, our continued efforts to transform our commercial capability and improve our cost base put us in a strong position to fully capitalize on market growth.”

2017 Outlook

In 2017, we will deliver sustainable, profitable growth through continued strong focus on synergies, structural cost savings, commercial differentiation of our products and building solutions and Capex discipline. This will be particularly supported by the contribution of several markets such as the US, India, Nigeria and some countries in Europe. Based on the first half market development, we now forecast demand in our markets to increase by between 1 to 3 percent.

We expect to deliver strong growth in Operating EBITDA Adjusted and Recurring EPS in 2017:

• Double-digit like-for-like growth in Operating EBITDA Adjusted over 2016
• Recurring EPS growth of more than 20 percent
• Targeted net debt to Operating EBITDA Adjusted ratio of around two times

In 2017, the Group is returning cash to shareholders commensurate with a solid investment grade rating:

• Dividend of CHF 2.0 a share
• Share buyback program of up to CHF 1 billion over 2017-2018

Group CEO succession

Jan Jenisch, whose appointment as Group CEO of LafargeHolcim was announced in May, will take on the role on September 1, 2017.

Group performance

In Q2, the Group delivered the fifth consecutive quarter of like-for-like Operating EBITDA Adjusted growth. Our Middle East Africa, Latin America and North America regions all contributed to earnings momentum with the US, Nigeria and Mexico among the notable performers. Despite positive results in India – which continued its recovery post-demonetization – the Asia Pacific region was weighed down by persistent challenging market conditions in Indonesia, Malaysia and the Philippines. Earnings in Europe were marginally down for Q2, though underlying trends are positive.

Despite the effect of fewer working days in the period, like-for-like cement volumes were up slightly compared to the prior year. Globally, cement prices improved by 5.5 percent compared to the prior year on a like-for-like basis. Sequentially, prices were 2.3 percent higher than in Q1 2017.

Synergies of CHF 121 million were delivered in Q2. At quarter end, the Group was close to delivering CHF 1 billion of total synergies, well ahead of the accelerated target of year-end 2017.

Operating EBITDA Adjusted increased by 10.1 percent to CHF 1,735 million on a like-for-like basis. Pricing, cost discipline and synergies were drivers for higher margins, with Operating EBITDA Margin Adjusted up by 150 basis points like-for-like in Q2.

Recurring Net Income was up 22.7 percent to CHF 700 million for the quarter and Recurring Earnings Per Share were up 23.4 percent to CHF 1.16 compared with Q2 2016.

Operating Free Cash Flow – which declined in the first quarter on higher seasonal cash outflow – improved in Q2 to CHF 174 million.

Net debt was CHF 15.7 billion at quarter end, down approximately CHF 2.4 billion compared to Q2 2016.

Regional performance

Asia Pacific

Market conditions in Asia Pacific were mixed in Q2 with Operating EBITDA Adjusted down 5 percent on a like-for-like basis. While results in the region benefited from a significant recovery in India, a further positive contribution from China and robust performance in Australia, these were offset by weaker performance in markets such as Indonesia, Malaysia and the Philippines.

Volumes and prices were higher in India post-demonetization. Ongoing cost savings supported growth in Operating EBITDA Adjusted, while recently commissioned facilities in Jamul and Sindri are now contributing to increased market supply.

In Australia, earnings were up despite a difficult start to the quarter, with Cyclone Debbie affecting access to customer sites, which in turn limited the otherwise strong growth in volumes.

The Philippines market faced softening demand and sustained pressure from imports with volumes down on the prior year. Operating EBITDA Adjusted declined for the quarter compared to the prior year period when pre-election government spending boosted demand. Despite current delays in government infrastructure spending, the medium-term outlook remains positive.

Indonesia saw increased volumes during the quarter, though excess capacity continued to put downward pressure on prices. As a result, earnings declined compared to the prior year.

Overcapacity and strong competition continued to affect the market in Malaysia, translating into a decline in earnings for the quarter on lower volumes and prices. The timing of Ramadan impacted demand in Indonesia and Malaysia in Q2.

In these challenging markets, management continues to implement action plans that include measures such as cost reduction, asset optimization, logistics and commercial initiatives.

Europe

Earnings declined for the second quarter, in part due to fewer working days. Operating EBITDA Adjusted in Europe was down 2.1 percent on a like-for-like basis versus Q2 2016, while prices were broadly in line with the prior year.

Underlying trends for Europe are positive in terms of volumes and price dynamics. However, earnings performance in Q2 was impacted by an operational interruption in Belgium which constrained supplies of cement in the quarter. Some countries in the region additionally recorded lower volumes in aggregates and ready-mix.

Operating EBITDA Adjusted in the UK was up on the prior year period with savings helping to offset the impact of rising input costs caused by the weaker pound. While the underlying business remains solid, uncertainty is now growing in the market after 12 months of better than expected demand following the EU referendum.

While prospects for France remain positive, the market had a mixed quarter with the temporary effect of revisions to the industrial network impacting results during the first six months.

Russia continued its steady progress seen in the first quarter with strong pricing contributing to growth in earnings. In Spain, Operating EBITDA Adjusted grew as the country showed signs of recovery after a challenging period for the construction sector.

In Switzerland, earnings in Q2 declined on the back of lower volumes in aggregates and ready-mix as some large projects came to a close.

Latin America

Latin America delivered growth in Operating EBITDA Adjusted of 25.6 percent in the quarter supported by a strong overall regional performance, notably in Mexico and Argentina.

Mexico delivered strong earnings and solid margins as the business continues to deliver its commercial strategy and realize cost savings. Overall, the Mexican market remains resilient.

In Argentina, good results were boosted by commercial excellence initiatives in a stabilizing economy. While market challenges in Brazil remain acute as cement demand continues to fall year on year and industry over-capacity is high, the first benefits of the turnaround plan implemented by local management were visible in business performance for the quarter.

Operating EBITDA Adjusted for Ecuador was down compared to the prior year period affected by pre-election uncertainty as well as heavy rain. Colombia had another difficult quarter as market and competitive pressures in key areas of the country contributed to earnings decline.

Middle East Africa

Middle East Africa delivered strong earnings in the second quarter. Operating EBITDA Adjusted was 20.3 percent higher than in the prior-year period on a like-for-like basis.

Earnings in Nigeria grew significantly in the quarter. This was supported by favorable pricing and operational improvements following last year’s gas supply shortages and logistics challenges. Nigeria’s economy remains in recession, fueled by monetary adjustments and a subsequent shortage of local currency, which continues to have an impact on volumes.

Egypt recorded a fall in profits in challenging market conditions following the currency devaluation of November 2016. Margin pressure has been mitigated through the delivery of sustained cost savings with a particular focus on improved fuel mix. Exports also helped to lessen the effect on earnings in the quarter.

Algeria delivered volume improvements to contribute to higher Operating EBITDA Adjusted. The recently commissioned Biskra plant further strengthened the company’s strong presence in the market.

North America

North America made a strong contribution to Operating EBITDA Adjusted growth – up 16.5 percent on a like-for-like basis – despite the effect of heavy rain on volumes of cement and aggregates in parts of the US and Canada. In both markets cost savings in logistics and manufacturing contributed to positive results, while the US continued to benefit from favorable pricing.

Cement volumes in the US for Q2 were down on the prior year. Aggregates in the US were also impacted by unfavorable weather conditions which constrained deliveries for a period during the quarter. Operational enhancements undertaken in the second quarter should further benefit earnings going forward.

Despite lower volumes, performance in Canada remained stable in the second quarter thanks to cost efficiency measures, notably in the west of the country. Western Canada saw a modest recovery while volumes in Eastern Canada were negatively impacted by weather and operational challenges.

Merger, restructuring and other one-offs

One-off costs amounted to CHF 38 million in the first half and included CHF 175 million of merger-related and restructuring one-off costs. This figure was partly offset by one-offs of CHF 136 million resulting from the reversal of provisions.

Share of profits from joint ventures

The share of profits from joint ventures increased by CHF 22 million.

Share of profits from associates

The share of profits from associates increased by CHF 41 million reflecting a larger contribution from Huaxin Cement, China, as a result of higher prices in the market and the integration of the Lafarge assets sold to Huaxin on 1 January 2017.

Net financial expenses

Net financial expenses of CHF 282 million are CHF 142 million lower than the first half 2016 reflecting financial synergy benefits arising from the merger as well as reduced levels of net financial debt in 2017 and favorable positive impact of our cash position denominated in foreign currencies.

Tax

The effective tax rate for the first half 2017 is 26.8 percent deriving from a yearly projected tax rate of around 28 percent and the impact of the divestment of Vietnam in Q1 2017.

Net income

Net income Group share of CHF 1,013 million compares with a profit of CHF 293 million for the first half 2016. The improvement in net income includes the profit recognized on the disposal of Vietnam in Q1 2017 of CHF 257 million.

Viewed on a recurring basis, net income Group share for the first half 2017 was CHF 681 million, an improvement of CHF 191 million on the first half 2016.

Divestments and capital allocation

Net of tax, the proceeds of the transactions completed during the first half 2017 resulted in a net debt reduction of around CHF 0.9 billion following, notably, the completion of the Vietnam divestment and the remittance of cash proceeds from announced transactions in China. The balance of our outstanding China position of CHF 0.2 billion will be received when local restrictions in China are lifted.

Net capital expenditure for the first half was CHF 523 million of which CHF 174 million was expansion Capex. In 2017, we completed commissioning or upgrading capacity in some of our key markets such as Algeria, the US, Nigeria and India and we expect to see further benefits of this expansion as production ramps up.

With divestments closing, cash generation from synergies gaining momentum and Capex discipline, our credit ratios will significantly strengthen, consistent with our commitment to maintain a solid investment grade rating throughout the cycle. We will continue to return excess cash to shareholders through share buybacks or special dividends commensurate with a solid investment grade credit rating.

Share buyback

In November 2016, the Group announced a share buyback program of up to CHF 1 billion over 2017-2018. In the second quarter, 1.4 million shares were repurchased to the value of CHF 79 million, of which CHF 71 million was paid in Q2.

Cash flow & net financial debt

Operating Free Cash Flow stood at CHF -661 million for first half, compared with CHF -539 million for the same period in 2016, which equates to a 5.1 percent improvement on a like-for-like basis.

Net debt stands at CHF 15.7 billion (CHF 14.7 billion as per December 31, 2016). The increase in net debt reflects the dividend payment in May of CHF 2.0 per share approved at the Annual General Meeting. The total payout was CHF 1.2 billion.

Reconciling measures of profit and loss to LafargeHolcim Group consolidated statement of income

Reconciliation of Recurring Net Income with Net Income as disclosed in Financial Statements

Reconciliation of Operating Free Cash Flow to consolidated cash flows of LafargeHolcim Group

Reconciliation of Net Financial Debt to consolidated statement of LafargeHolcim Group

Some non-GAAP measures are used in this release to help describe the performance of LafargeHolcim. A set of these non-GAAP definitions can be found on our web site.