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LafargeHolcim reports Q1 2016 results

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World Cement,

Eric Olsen, CEO of LafargeHolcim commented: “In the first quarter, which is typically our smallest quarter, we saw solid demand for our products and a strengthening pricing environment with sequential quarter-on-quarter improvement of cement average selling prices.

“We know that we have more to do to increase momentum in 2016 and we are fully committed to delivering synergies, strengthening pricing, and maximising cash flow generation. We are also well advanced with our divestment program and the proceeds will reduce our net debt this year.

“The first quarter is not indicative of our full year performance. We are on track with our plan and we see favourable underlying trends. I am confident that 2016 will mark sound progress towards reaching our 2018 objectives and we expect to deliver at least a high single digit like-for-like increase in adjusted operating EBITDA for the year.”

2016 Outlook

2016 will be a year of progress towards our 2018 targets.

Demand in our markets is expected to grow between 2-4 percent taking into account the challenging economic headwinds in selected emerging markets that will continue.

In 2016 we expect:

  • Capex to be below CHF 2 billion.
  • Incremental synergies of more than CHF 450 million of operating EBITDA.
  • Our pricing recovery actions and commercial excellence initiatives will demonstrate tangible results.
  • Net debt expected to decrease to around CHF 13 billion at year end, including the effect of our planned divestment program.
  • CHF 3.5 billion divestment program to be completed with more than one third already secured.

We are committed to maintaining a solid investment grade rating and commensurate to this rating, returning excess cash to shareholders, notably with a progressive dividend policy

We reconfirm our commitment to the 2018 targets announced in November 2015.

Group performance

In the quarter, increases in like-for-like net sales compared with the prior year were reported in major markets including the United States, Mexico, Algeria and the Philippines in what is traditionally the lowest-volume quarter of the year.

Cement average selling prices increased from Q4 2015 to Q1 2016 by 2.1%, excluding India, although they remain lower than last year due to price declines in 2015. Price increases were implemented in two thirds of our markets during the first quarter, including in Nigeria and India. This will deliver the full effect in the remainder of the year.

The first quarter results were impacted by challenging conditions in a limited number of markets. Nigeria, Brazil, and India accounted for the majority (CHF -160 million) of the adjusted operating EBITDA declines in Q1 2016 versus Q1 2015. However, this was mitigated by timely implementation of synergy action plans and lower energy costs. China and Indonesia also stabilised as a result of cost management actions implemented in the quarter.

The year-on-year comparison was also impacted by lower prices in Nigeria, India and China (CHF -170 million vs Q1 2015), lower CO2 sales (CHF 17 million in Q1 2015 vs none in Q1 2016), adverse foreign exchange effects (CHF 43 million higher in Q1 2016 than in Q1 2015) and CHF 85 million of positive items in Q1 2015 mainly due to a sales tax credit of CHF 20 million in India and CHF 20 million in US pension credits, with the balance dispersed across the regions and countries.

Synergies reached CHF 104 million in the quarter ensuring that we are on track to exceed the target of CHF 450 million of incremental synergies for the full year with the biggest contributors being: cross-selling of branded products; the optimisation of clinker sourcing between group companies; and implementation of best practice in our energy mix.

Energy costs were down by over CHF 65 million (9%) in the quarter as a result of reduced prices for fossil fuels and procurement initiatives.

Adapted from press release by Joseph Green

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