LafargeHolcim incurs major impairment charges, rolls out 5-year strategy

LafargeHolcim incurs major impairment charges, rolls out 5-year strategy
05 March 2018

LafargeHolcim's underlying turnover for 2017 amounted to CHF26,129m, a decline of 2.9 per cent, while in euro terms there was a 10.2 per cent decrease to EUR22,672m. The Asia-Pacific region generated 28.5 per cent of group turnover, while Europe represented 27.4 per cent and North America 21.7 per cent. Latin America contributed 11.3 per cent and Africa/Middle East 12.9 per cent. Margins improved from 22.1 per cent to 22.9 per cent and underlying operating EBITDA advanced by 0.7 per cent to CHF5990m in Swiss franc terms, while it declined by 4.6 per cent to EUR5198m, when measured in euros. At the trading level there was a 10.8 per cent improvement to a profit of CHF3351m (EUR2908m) and after a 4.5 per cent increase in the net financial charge to CHF958m (EUR831m) there was a pretax profit of CHF2393m (EUR2076m). After a CHF3829m impairment charge, of which CHF2724m represented goodwill and country book value, there was a net attributable loss of CHF1675m (EUR1453m) compared with a CHF1791m profit the year before.

Net debt at the end of December was 2.6 per cent lower at CHF14,346m (EUR12,448m), giving a gearing level of 51.6 per cent compared with 47.8 per cent. The increased gearing level reflects the impairment charge. Capital investment in the year declined by 17.1 per cent to CHF1355m (EUR1176m), and are forecast by the group to remain below CHF2000m in 2018.  

Cement shipments were 10.2 per cent lower at 209.5Mt. Shipments of aggregates eased by 1.4 per cent to 278.7Mt while ready-mixed concrete deliveries were down by eight per cent to 50.6Mm³. For 2018, the group expects turnover growth of 3-5 per cent and EBITDA to improve by at least five per cent.

Turnover in the Asia-Pacific region, which has been re-defined to include a proportional consolidation of Huaxin Cement, declined by 9.5 per cent to CHF7441m (EUR6457m). EBITDA came off by 11.1 per cent to CHF1418m (EUR1230m). Cement deliveries in Asia and Australasia were 197.3 per cent lower at 91.57Mt while on a comparative basis there was a 5.5 per cent increase. Deliveries of aggregates were 1.4 per cent lower at 31.8Mt and showed an underlying increase of 9.7 per cent. In ready-mixed concrete, actual deliveries fell by 16.7 per cent to 12.8Mm³, while there was a slight underlying improvement of 0.7 per cent. The two main Indian subsidiaries between the sold 49.16Mt of cement and clinker, an increase of 11.4 per cent, representing a 16.3 per cent increase in turnover and EBITDA increased by 21.3 per cent. Cement shipments in China improved, helped by the government’s environmental investments. In the Philippines volumes and prices suffered from increased competitive pressures and delays to infrastructure investments. Malaysian volumes and prices were lower as a result of increased capacities. Volumes increased in Australia, reflecting strong demand in New South Wales.

The European turnover recovered by 2.1 per cent to CHF7167m (EUR6219m). EBITDA improved by 3.8 per cent to CHF1385m (EUR1202m). Cement deliveries increased by 2.9 per cent to 42.8Mt, while shipments of aggregates were 0.8 per cent ahead at 125.2Mt, but ready-mixed concrete deliveries eased by 0.9 per cent to 18.2Mm³. Cement volumes grew notably in Romania, Poland and Russia but declined in Switzerland, as did aggregates and concrete. French volumes and margins advanced and the British results improved in spite of a more difficult market. With 569 batching plants 267 aggregates plants, Europe has the greatest downstream exposure within the LafargeHolcim operation.   

The North American turnover improved by 1.4 per cent to CHF5664m (EUR4915m), thanks to acquisitions and EBITDA advanced by 11.1 per cent to CHF1483m (EUR1287m). Cement shipments were off by 1.7 per cent to 19.2Mt. Cement and clinker volumes in the USA were helped by the coming on-stream of additional production capacity at the Ste Genevieve and Ravena works. Adverse weather conditions limited construction activity in the first and third quarters. In Canada volumes were strong in the West, thanks to renewed investment by the oil industry, while in the East profits showed growth in spite of increased competitive pressure.  Aggregates deliveries declined by one per cent to 107.1Mt, while ready-mixed concrete volumes improved by 4.9 per cent to 9.1Mm³.     

Turnover in Africa and the Middle East declined by 13.5 per cent to CHF3374m (EUR2928m) and EBITDA was down by 13 per cent to CHF1085m (EUR941m). Cement deliveries were down by 11.4 per cent to 35.7Mt and aggregates shipments by 15 per cent to 10.4Mt while ready-mixed concrete deliveries fell by 21.4 per cent to 4.7Mm³.  Algerian profitability suffered as increased production capacity let to weaker prices. In Egypt cement prices were under pressure from increased capacity and a falling currency. The Nigerian margins saw good improvement thanks to lower costs and improved prices.

In Latin America the turnover advanced by 6.1 per cent to CHF2944m (EUR2555m) and EBITDA rose by 19.3 per cent to CHF1055m (EUR915m). Cement shipments recovered by 3.4 per cent to 24.9Mt, while aggregates deliveries dropped by 29.4 per cent to 4.2Mt, having already fallen by 24.4 per cent in the previous year. Ready-mixed concrete volumes declined by 11.4 per cent to 5.8Mm³. Holcim Apasco in Mexico saw cement volumes recover on the back of increased infrastructure investment. In Argentina volumes rose notably and record results were achieved in the year. The Brazilian market remains depressed and the focus is on containing costs.

CEO rolls out 2022 strategic plan
With eyes firmly set on the future, LafargeHolcim’s new CEO, Jan Jenisch, laid out his plan to revamp the cement group.

The new five-year strategy not only targets annual sales growth of 3-5 per cent and a recurring EBITDA expansion of at least five per cent, but also improvements in free cash flow of over 40 per cent of EBITDA and of return on invested capital to more than eight per cent.

"The merger is now behind us. It was quite an exercise and not an easy one. Building materials is a market that is growing above GDP globally, so would we would expect building materials to grow 2-3 per cent," Mr Jenisch said. "With our strong market positions we have to grow above the market," he added.

To achieve targets, the company would focus on fewer markets with a focus on the USA, Latin America, India and Africa. This would also include the selling of around US$2bn of assets and the possible exit of the company in two or three countries. Two-thirds of CHF3.8bn impairment charge were concentrated in Algeria, Malaysia, Iraq, Brazil, Indonesia and Egypt. The company said they followed an assessment of the value of a wide range of markets and of specific business units.

In addition the company launched a CHF400m cost savings drive from its administration costs, saying it would close corporate office in the Singapore and Miami. The company also stopped its share buyback programme and kept its dividend steady while saying it would look at bolt-on acquisitions.

Published under Cement News