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How synergies, pricing, disciplined cost management drove LafargeHolcim Q4 earnings

The released fourth quarter result of leading global cement solutions conglomerate, LafargeHolcim has shown gross positive performance in all segments of the company’s activities.

Whereas cash flow growth improved margins underpin achievement of adjusted operating EBITDA full year target to 8.7% like-for-like, it also moved up 30.5% in Q4 making recurring earnings per Share for 2016 to double prior year synergies of CHF 638m delivered in 2016, well ahead of target.

Reviewing the results, Eric Olsen, Chief Executive Officer of LafargeHolcim said “2016 was a year of accelerating earnings momentum. We delivered significant improvements in EBITDA, cash flow and earnings per share with outperformance on synergies and excellent progress on cost and pricing”.

“Our strong execution was visible across our five regions which all grew earnings for the quarter and for the year. This performance underlines the strength of our diversified portfolio, which has a good balance of mature and developing markets. I am also pleased with the positive trajectory of markets such as the US, Nigeria, India and key countries in Europe which we have singled out as important drivers for growth in 2017 and beyond.

“We have demonstrated our earnings potential in 2016. Looking ahead, we expect to deliver top line improvement and strong growth in Adjusted Operating EBITDA, cash flow and earnings per share in 2017 and we are on track to reach our 2018 targets.

“This will support our commitments to a solid investment grade rating, an attractive dividend policy and returning excess cash to shareholders.”

On the 2017 Outlook, Olsen said “we will deliver sustainable, profitable growth through continued strong focus on lower Capex, structural cost savings, synergies and commercial differentiation of our products and building solutions”.

“This will be particularly supported by the contribution of several markets such as the US, India, Nigeria and some countries in Europe while we forecast demand in our markets to increase by between 2 to 4 percent.

He added that “We expect to deliver strong growth in Adjusted Operating EBITDA and recurring EPS in 2017 including “Double-digit like-for-like growth in Adjusted Operating EBITDA over 2016 Recurring EPS growth of more than 20 percent, targeting net debt to Adjusted Operating EBITDA ratio of around two times.

This year also, the Group will be returning cash to shareholders commensurate with a solid investment grade rating.

On Annual General Meeting 2017, Bruno Lafont, Co-Chairman of the Board of Directors, said he will not stand for re-election at the next AGM.

Accordingly, the Board of Directors expressed its warmest appreciation to Bruno Lafont for the many years of service and his invaluable contribution to the successful merger of Lafarge and Holcim in 2015.

Explaining more on the growth performance, Olsen said “The strong growth came from across the Group’s portfolio with all regions delivering increased Adjusted Operating EBITDA on a like-for-like basis for the quarter and full year. Continuing the trend seen over 2016, and highlighting the balanced nature of the portfolio, positive contributions were made by both mature and developing markets as the focus on pricing, synergies and cost discipline had a positive effect on earnings”.

“Notably, Europe performed well in the face of difficult economic conditions helped by cost management and restructuring. The UK, which continued to grow strongly despite uncertainty of the Brexit process, and France and Switzerland, resilient performers in soft markets, were among the highlights. A significant positive contribution from the US again underlined the importance of this market to LafargeHolcim. Among other countries to finish the year in positive territory were Egypt, Argentina, Algeria and Mexico.

“India grew in 2016 despite the impact of the government’s withdrawal of high denomination bank notes from circulation. In Nigeria, measures to improve fuel flexibility following interruption to gas supplies earlier in the year, allied to improved pricing, helped the country return to earnings growth in Q4.

“LafargeHolcim was also faced with some challenging markets in 2016. Brazil’s economic crisis further depressed the construction sector and decisive measures have been taken to reduce costs. In the Asia Pacific region, Indonesia and Malaysia continued to feel the effects of market overcapacity and tough competition through Q4.  In response, we have implemented additional cost reduction measures to mitigate the earnings impact in both countries.

Cement volumes were down by 2.5 percent like-for-like over the full year. In the fourth quarter, volumes declined 5.8 percent on a like-for-like basis, due in part to demonetisation in India, tough trading conditions in Indonesia and unusually favourable weather conditions in the US during the same period in 2015.

“Sequentially, cement prices improved by 1.1 percent on Q3 2016, due largely to Nigeria and China, and were 5 percent above Q4 2015 at constant exchange rates. The steady improvement in pricing over the year means that overall price levels are now higher than before the marked decline seen over the course of 2015.

“Synergies contributed a total of CHF 638 million over the full year, well ahead of the 12-month target of CHF 550 million, which in November was increased from the initial objective of CHF 450 million,” LafargeHolcim said.

In his further submission, Olsen called on countries where Lafarge corporate activities are taking place to avail themselves the golden opportunities to enter for the LafargeHolcim Awards which closes Tuesday.

The company had set aside, about $2m for the winners who will emerge in three categories and several consolation prizes.

Business Hilights recalls that Lafarge Africa Plc., has continued to encourage Nigerian construction professionals and students majoring in construction studies to enter for the awards.

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