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Increase in Holcim’s 3Q14 profit, despite restructuring and merger costs

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World Cement,

Swiss cement giant Holcim Ltd has released its financial results for the quarter ended 30 September 2014. “Holcim posted a solid like-for-like performance in the first nine months of 2014, building on the good traction earlier in the year and despite the ongoing challenging market environment,” said Bernard Fontana, CEO. “The Group increased like-for-like operating profit on the back of the solid financial performance in North America, Europe, and Africa Middle East. However, weak emerging market currencies continued to negatively impact consolidated financial performance, in particular in Asia Pacific and Latin America.”

Sales volumes

Group-wide cement volumes increased by 1.6% to 105.9 million t in the first nine months of 2014, mainly driven by positive volume developments in the US, India, and the Philippines, which offset lower volumes in Azerbaijan, Italy, and Argentina. Aggregates volumes were down 1% to 113.7 million t, primarily as a result of the segment’s restructuring in Latin America, where a number of underperforming sites were closed or divested in 2013, and lower volumes in France. Ready-mix concrete volumes reached 27.8 million m3 and were 5.7% lower than 2013, mainly due to last year’s restructurings and divestments as well as market contraction in Latin America. Asphalt volumes increased 16.3% to 7.4 million t.

Financial highlights

On a like-for-like basis, consolidated net sales were up 3.4% as a result of higher volumes and better pricing in many markets. Consolidated net sales for the group decreased by 4.7% to CHF14.24 billion. Negative currency effects (mainly in Asia Pacific and Latin America) were the main contributor to this development, weighing on consolidated net sales by CHF1.05 billion.

Like-for-like operating EBITDA increased by 0.7%. Consolidated operating EBITDA decreased by 7.1% to CHF2.74 billion, mainly due to currency effects. Adjusted for restructuring and merger costs, operating EBITDA was CHF2.82 billion. North America and Europe, the two regions less affected by the significant currency effects, recorded an increase in operating EBITDA.

Operating profit reached CHF1.72 billion, an increase of 2.8% on a like-for-like basis. Like-for-like and adjusted for merger and restructuring costs, operating profit increased by CHF141 million, representing an increase of 7.8%.

Net income fell 9% to CHF1.16 billion, partly because Holcim has not yet received the final compensation installment of US$97.5 million for the nationalisation of Holcim Venezuela, which was due on 10 September 2014. In addition, the group benefited from the one-time gain from the sale of 25% in Cement Australia in 2013. Net income attributable to shareholders of Holcim Ltd declined by 10.3% to CHF933 million.

Cash flow from operating activities decreased by 10.6% to CHF1.05 billion compared to the same period in 2013, due to foreign exchange impacts and lower dividends received. Over the last twelve months net financial debt was CHF10.41 billion, CHF130 million up from CHF10.28 billion. Revenue from the sale of CO2 emission certificates decreased by CHF6 million to CHF4 million.

Holcim Leadership Journey

With total realized benefits of CHF1.69 billion by the end of 3Q14, Holcim already exceeded its operating profit objective of the Holcim Leadership Journey. The company had committed to the target of a contribution to operating profit of CHF1.5 billion by the end of 2014, compared to the base year 2011 and under similar market conditions. In the first nine months of 2014, the contribution of the Holcim Leadership Journey to overall operating performance amounted to CHF591 million. The Customer Excellence stream contributed CHF214 million to this result, while the cost initiatives contributed CHF377 million.

European operations

On 30 October 2014, Holcim and Cemex announced that they have agreed on adapted parameters to their series of transactions in Europe. In Germany and the Czech Republic, the scope of the transaction remains unchanged, meaning that Holcim will acquire Cemex’s operations in Western Germany while Cemex will take over Holcim’s business in the Czech Republic, as previously announced.

In Spain the two companies will no longer form a joint organisation as initially planned and communicated. Instead, Cemex will purchase Holcim’s Gador plant and Yeles grinding station, with a total of 1.75 million t of cement capacity, while Holcim will keep its remaining operations in Spain, representing 2.2 million t of cement capacity, as well as its aggregates and ready-mix positions. Due to the changed transaction, Cemex will pay Holcim €45 million in cash. As a result of these changes, Holcim expects sustainable additional operating EBITDA of at least €10 million on a yearly basis after the closing of the deal. These transactions are expected to close during 1Q15.

Lafarge-Holcim merger

On 27 October 2014, Holcim and Lafarge formally notified the European Commission of their proposed merger in order to obtain regulatory approval. With this notification, Holcim and Lafarge have completed all necessary notifications with regulatory authorities worldwide. During the constructive pre-notification discussions, which Holcim and Lafarge have had with the European Commission, the list of proposed assets for divestment was amended. In parallel to the regulatory process, Holcim and Lafarge have started the sales process and are in negotiations with potential buyers.


Holcim expects the global economies to show another year of uneven performance. Construction markets in Europe are expected to have reached the bottom with slow recovery in sight. At the same time, North American markets are expected to continue to benefit from a further recovery, especially in the US. Latin America, however, could continue to face uncertainties in Argentina but overall should show slight growth in 2014. The Asia Pacific region is expected to grow, although at a comparatively slower pace than experienced in recent years, and Africa Middle East is expected to gradually improve.

Cement volumes are forecast to increase in all regions in 2014, with the exception of Europe. Despite positive development in North America, aggregates volumes are expected to decline. In ready-mix concrete volumes are expected to decline in all regions driven by restructuring and divestments.

The Board of Directors and Executive Committee expect that organic growth in operating profit can be achieved in 2014. The ongoing focus on the cost base coupled with all the benefits expected from the Holcim Leadership Journey is expected to lead to a further expansion in operating margins in 2014.

Adapted from press release by Rosalie Starling

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