LafargeHolcim revises its full-year global market forecasts

LafargeHolcim reported improved sales and operating EBITDA adjusted for the second quarter of 2017 on a like-for-like (LFL) basis but has revised down forecasts for growth in its global cement markets, notably due to weaknesses in southeast Asian countries and Nigeria. Nevertheless, the company said it remained on course to hit its 2017 profit targets.

Continued earnings growth in 2Q17 saw LFL net sales up by 3.6 per cent supported by sustained pricing momentum and a slight advance in cement volumes. Adjusted operating EBITDA rose by 10.1 per cent LFL driven by double-digit growth in Latin America, North America and Middle East/Africa.

The group said that on the earnings front, the US, Nigeria and Mexico were delivering strong results. Earnings in Europe were marginally down in the 2Q, though underlying trends are positive. Conversely, Malaysia, Philippines and Indonesia were weighed down by persistent market challenges while in Egypt margin pressures were seen following currency devaluation. 

Performance by region

Asia-Pacific
Mixed market conditions were reported in the Asia-Pacific group region during the quarter. Adjusted operating EBITDA was down five per cent LFL while cement volumes rose 2.2 per cent to 23.2Mt. A strong performance was posted in India post-demonetisation as operations there also benefitted from cost-cutting and the ramp-up of new capacity from new facilities in Jamul and Sindri.

However, growth in India was offset by competitive pressures in southeast Asia. In the Philippines the company faced softening demand and sustained pressure from imports, Indonesian volumes rose but there was downward pressure on prices, while overcapacity and strong competition continued to affect the Malaysian market. Ramadan also impacted consumption in Indonesia and Malaysia during the quarter.

Europe
In Europe earnings declined in the second quarter, in part due to fewer working days. Operating EBITDA adjusted fell 2.1 per cent LFL and prices were broadly in line with the prior year. While the group emphasised that underlying trends for Europe are positive in terms of volumes and price dynamics, 2Q earnings were impacted by an operational interruption in Belgium which constrained supplies of cement in the quarter. Consequently, total regional cement volumes slipped by 0.2 per cent LFL to 11.9Mt.

In the UK demand was more resilient than expected following last year's referendum to leave the EU, but the company warned that "uncertainty is now growing in the market." France had a mixed quarter and earnings declined in Switzerland as some large projects drew to a close. Russia continued the steady progress seen in the first quarter with strong pricing contributing to LafargeHolcim’s earnings growth. In Spain signs of recovery in the construction sector were also in evidence.

North America
North America made a strong contribution to adjusted operating EBITDA growth – up 16.5 per cent LFL despite the effect of heavy rain on volumes of cement (-2.6 per cent) and aggregates (-5.9 per cent) in parts of the US and Canada.

US improvements were driven by price dynamics and cost discipline across all product lines. Despite lower volumes, Canada's performance remained stable in the 2Q 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.

Latin America
Latin America delivered growth in adjusted operating EBITDA of 25.6 per cent in the quarter supported by a good overall regional performance, notably in Mexico and Argentina. Sales of cement were up 3.7 per cent LFL.

Mexico delivered strong earnings and solid margins as the business continues to deliver its commercial strategy and realise cost savings while overall the market remains resilient. In Brazil demand continues to fall as industry capacity is high, but the benefits of self-help measures are starting to be seen. 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 group region delivered adjusted operating EBITDA 20.3 per cent higher YoY like-for-like, but sales of cement were down 4.9 per cent YoY. Earnings in Nigeria grew significantly in the quarter, supported by favourable pricing and operational improvements, but the country’s economy remains in recession, which continues to have an impact on volumes.

Egypt recorded a fall in profits amidst challenging market conditions following the currency devaluation of November 2016. Margin pressure has been mitigated through sustained cost savings with a particular focus on improvements to the fuel mix, while exports also helped lessen the effect on earnings. Algeria continued to deliver good results, benefitting from capacity ramp up at the new Biskra plant.

Changes to full-year market forecasts

Based on the first-half market developments, the group has reset its full-year 2017 market growth expectations to a more cautious 1-3 per cent (excluding China) compared with the 2-4 per cent advance predicted in May.

On a regional basis, LafargeHolcim now expects its Asia-Pacific market (excl China) to expand by 1-3 per cent supported by India post-demonetisation. The forecast is a downward revision from the previous guidance of 3-5 per cent growth, with expectations for Indonesia, Malaysia and the Philippines all being scaled back. Market volumes are now foreseen declining in Malaysia (-7 to -5 per cent) and in the Philippines (-4 to -2 per cent) compared to previous expectations of single-digit growth in both countries.

The group has also lowered guidance for Middle East Africa from growth in the range of 0-2 per cent, to an adjusted forecast of -1 to 1 per cent. A slight increase is anticipated despite several countries being impacted by currency devaluations and low oil and commodity prices. Growth forecasts have been raised for Algeria and Iraq, but Kenya and Nigeria have been revised downward. Nigeria sees the most significant reduction, with previous guidance envisioning 0-2 per cent growth and new estimates forecasting a market contraction in the range of -14 to -12 per cent.

Forecasts for other group regions remain unchanged. Growth in Europe is estimated to be between 0-2 per cent with better expectations for Poland and Spain. Improvements in Latin America will mainly be driven by Argentina and Mexico, and a volume advance of 1-3 per cent has been maintained for the region. However, on a country-wide basis, expectations for Argentina, Brazil and Colombia have been adjusted downwards, while Mexico and Ecuador have been upwardly revised. In North America steady market growth of 1-3 per cent is expected in the region's relevant to the LafargeHolcim group, supported by positive trends in the US.

However, LafargeHolcim stressed that the lower global market outlook would not prevent the company from meeting its goal of increasing core operating profit at a double-digit rate in 2017, with profit and margins rising due to higher pricing and efficiencies.