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LafargeHolcim reports strong momentum since Q4

Published by , Deputy Editor
World Cement,

Jan Jenisch, CEO: “2020 was an unprecedented year for everyone, challenging us to be more resilient, while stepping up to take care of those around us. I sincerely thank everyone within LafargeHolcim for their strong contributions, enabling us to navigate these difficult times. I’m extremely proud of how our teams mobilised to keep our people and operations safe, while going above and beyond to stand by our communities. Together, we touched the lives of over six million people around the world this year.”

“This crisis has really proven the resilience of our strategy and business model. By Q4 we were back to growth, with a 1.5% increase in net sales and over-proportional Recurring EBIT of 14.1%. We are emerging stronger from the crisis, reaching a new level of financial performance this year. We delivered a record free cash flow of CHF 3.2 billion and reduced our net debt by CHF 1.6 billion. Staying focused on our growth agenda, we completed eight bolt-ons in 2020 and signed an agreement to acquire Firestone Building Products, the iconic leader in flat-roofing systems in the US.”

“We accelerated our climate action, from our net zero pledge to the global launch of our ECOPact green concrete, all the way to making it into CDP’s A list for climate. Every ton of cement we produced in 2020 was more carbon-efficient and contained more recycled material than the year before.”

“We are going into 2021 with strong momentum. We expect further demand in H2 2021 from a broad range of stimulus programmes. We are firmly on track to become the global leader in innovative and sustainable building materials and solutions.”

Strong finish to the year

Net sales of CHF 23,142 million were -5.6% on a like-for-like basis (LFL) compared to the prior year and -13.4% on a reported basis. The like-for-like decline mainly results from the pandemic-related disruption, mostly in H1, before returning to prior-year levels in H2. In the context of the global crisis, all currencies depreciated against the Swiss Franc, which generated a negative translation effect of -7.4%.

Recurring EBIT reached CHF 3676 million, -10.4% in total and -1.9% LFL for the full year, with a largely ‘V-shaped’ recovery across all regions delivering a Q4 improvement of 14.1% LFL compared to the prior-year period.

Net Income was CHF 1900 million, 7.5% lower than in 2019 reflecting the above-mentioned Recurring EBIT decline, partly offset by the reduction of restructuring, litigation and other non-recurring costs, along with the continuous improvement of the financial expenses and income tax rate.

Earnings per share were down by 8.7% to reach CHF 3.07 for the full year 2020 versus CHF 3.37 for 2019.

Free Cash Flow after leases was at CHF 3249 million versus CHF 3019 million in 2019, up 7.6%, reflecting the success of the ‘HEALTH, COST & CASH’ action plan.

Net debt amounted to CHF 8.5 billion at year-end 2020, a reduction of CHF 1.6 billion compared to the prior year. The ratio of net debt to Recurring EBITDA now stands at 1.4, over-delivering on the 2022 target.

Return on Invested Capital was 7.4% in 2020, equivalent to the previous year, as the company remains on track to achieve its 2022 target of above 8.0%.

Fast execution of ‘Health, Cost & Cash’ action plan

Through agile and effective crisis management, the company’s action plan ‘HEALTH, COST & CASH,’ launched in March 2020, has successfully safeguarded the health and safety of its people, partners and communities, while mitigating the financial impact of the COVID-19 pandemic. Fixed costs were reduced by CHF 385 million on a like-for-like basis compared to 2019, far surpassing the initial target of CHF 300 million for the full year. In addition, the reduction in energy prices has led to savings of CHF 125 million on a like-for-like basis compared to 2019. CAPEX was CHF 370 million lower, at CHF 1.0 billion, while working capital was reduced by 11 days on sales. These efforts were pivotal in generating our record free cash flow after leases of CHF 3.2 billion and Recurring EBIT margin improvement across all regions for 2020.

Good progress on sustainability targets

LafargeHolcim accelerated its climate action this year with the launch of its net zero pledge, as a signatory of the “Business Ambition for 1.5°C.” The company set for itself the most ambitious climate targets of its industry, validated by the Science-Based Targets initiative (SBTi) to reach net carbon emissions of 475 kilograms of CO2 per ton of cementitious materials (kg net CO2/per ton) by 2030. Making progress on its net zero journey, LafargeHolcim delivered a record-low level of 555 kg net CO2/per ton this year. In addition, LafargeHolcim is partnering with SBTi to set the first net zero cement roadmap in its industry. At the forefront of sustainable building solutions, the company rolled-out its green concrete ECOPact globally, now in 14 countries, offering concrete with lower CO2 emissions and recycled content. This was followed by the global launch of the company’s EcoLabel to transparently disclose the environmental profile of its green products, applying to all cement and concrete with at least 30% lower CO2 footprint or 20% recycled content. The company issued the building materials industry’s first sustainability-linked bond, bringing its total ESG-linked funding agreements close to CHF 6 billion, and was recognised as a climate leader by CDP, entering its prestigious ‘A list’ for Climate.

Milestone acquisition of firestone building products

In January 2021, LafargeHolcim signed an agreement to acquire Firestone Building Products (FSBP). FSBP is a leader in commercial roofing and building envelope solutions based in the United States (US). Its 2020 net sales and EBITDA were even higher than the estimates provided in January (US$1.8 billion and US$270 million, respectively). The deal is now expected to close earlier than planned, with a very good outlook in 2021 based on encouraging January trends. In addition, this acquisition positions the company strongly to benefit from the expected US$2 trillion ‘Build Back Better’ plan. This transaction is valued at US$3.4 billion and will be financed with cash and debt while maintaining debt leverage below 2x. This acquisition is a milestone in LafargeHolcim’s transformation to become the global leader in innovative and sustainable building solutions.

Changes in the Executive Committee

Building on the Firestone transaction, the Board of Directors has decided to create a new position at the Group Executive Committee level to lead the Solutions & Products Global Business Unit. Jamie Gentoso, currently Chief Executive Officer of US Cement, has been appointed to lead this business effective 01 March 2021. Ms. Gentoso brings an outstanding track record in business development and driving growth.

The new role will align the vision to develop the fourth business segment Solutions & Products into a strong driver of growth and sustainability for the company. To further improve the company’s simplicity and efficiency, the Board of Directors has decided to integrate the regions Europe and Middle East Africa (MEA) into one new region: Europe, Middle East and Africa (EMEA).

Miljan Gutovic, the current Head of Region MEA is appointed to take over the responsibility of the broader Region EMEA, effective 01 March 2021. Marcel Cobuz has decided to leave LafargeHolcim to pursue new opportunities outside the company. He leaves a strong legacy of business growth throughout his 20-year career, taking on increasing responsibilities across Europe, the Middle East Africa and Asia and played an instrumental role in the merger of Lafarge and Holcim.

The company’s profit and loss responsibility is now assigned to the five leaders of Region EMEA, Region North America, Region Latin America, Region Asia Pacific and the Solutions & Products Global Business Unit.

Outlook 2021

LafargeHolcim expects good demand momentum in 2021, with positive trends in all regions. Extra demand is expected in H2 2021 from stimulus programmes, as governments announce measures to support the economic recovery with a focus on infrastructure. LafargeHolcim is ready to support these programs around the world, from the CHF 2 trillion ‘Build Back Better’ plan in the US, to the nearly CHF 2 trillion expected from India’s ‘National Infrastructure Pipeline’ plan, and the UK’s CHF 800 billion infrastructure plan.

The company aspires to globalise the Firestone Building Products business in 2021, to accelerate bolt-on acquisitions and to continue to progress on its 2030 sustainability targets. LafargeHolcim further expects:

  • Recurring EBIT growth of at least 7% LFL in line with Strategy 2022
  • Cash conversion of above 40% and debt leverage below 2x
  • Capex less than CHF 1.4 billion

For the 2020 financial year, the Board of Directors is proposing a dividend from the foreign capital contribution reserve in the amount of CHF 2.00 per registered share, subject to approval by the shareholders at the Annual General Meeting on 04 May 2021.

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