LafargeHolcim Reports Second Quarter Results

LafargeHolcim reported a gain in net profit for the first half of 2016, increasing from CHF 318 million ($326 million) to CHF 452 million ($463 million), despite a decline in second-quarter net sales. For the second quarter, net sales were CHF 7.28 billion ($7.46 billion), 2 percent lower on a like-for-like basis.

Cement prices increased by 2.2 percent quarter-on-quarter, demonstrating the effectiveness of the company’s broad-based pricing strategy. This followed the 1.2 percent increase seen in the first three months of the year. Globally, cement sales volumes were down 3 percent year-on-year on a like-for-like basis.

Earnings in Latin America (adjusted operating EBITDA, up 16.6 percent on a like-for-like basis) were boosted in Q2 by a mix of more favorable pricing and cost reductions, despite lower volumes. Performance was strong in Mexico driven by price increases and customer strategy.

Improvements in financial performance were seen across most markets including Argentina, El Salvador, Chile and Costa Rica. In Argentina, a decline in volumes due to structural adjustments and bad weather in April, was more than offset by cost savings and favorable pricing. Earnings in Ecuador advanced in the quarter despite a drop in volumes caused by the impact of low oil prices, national liquidity problems and heavy rains. The economy of Ecuador also continues to be impacted by the effects of April’s earthquake. In response to the natural disaster, the local LafargeHolcim business developed affordable housing solutions for people whose homes were destroyed or damaged by the earthquake.

Regional performance was negatively impacted by difficult market conditions in Brazil. Falling cement volumes and downward pricing pressure contributed to a decline in earnings in Brazil during Q2. Brazil will remain a challenging market in 2016 and the company noted taht it has taken a number of management measures to adapt to the rapidly changing landscape.

The company posted earnings growth in North America in the second quarter driven by pricing combined with synergy benefits. Adjusted operating EBITDA on a like-for-like basis for Q2 was up 6.6 percent. The quarter saw a normalization of demand patterns after strong growth in Q1 helped by favorable weather conditions when compared to the prior year. This is reflected in the year-to-date performance for North America, which delivered a 14.8 percent increase in adjusted operating EBITDA on a like-for-like basis.

In the U.S., increased confidence continued to fuel demand in the construction market, particularly in the residential and non-residential sectors. Aggregate and cement volumes for LafargeHolcim increased during the quarter though ready-mix concrete volumes declined. Eastern Canada was slightly ahead for the quarter on adjusted operating EBITDA. Despite demand growth in British Columbia, Western Canada continued to feel the effects of lower investments as a result of the oil-price driven economic downturn in Alberta and Saskatchewan, and the North Dakota export market. The massive wildfire in Fort McMurray, which is home to many oil sand companies, also had an impact on demand.

Eric Olsen, CEO of LafargeHolcim, said: “Our focus on pricing and synergies is delivering visible earnings momentum, driving a 210 basis points year-on-year improvement in operating margins and a 6 percent increase in like for like adjusted operating EBITDA in Q2.

“Without the effect of Nigeria, where our plants were affected by gas shortages, adjusted operating EBITDA would have increased by 13 percent in the quarter. Nigeria is a high growth market and we are adapting our plants to reduce our dependency on gas to restore supply and capture growth. We expect these measures to take effect by the end of the year.

“With the recent divestments announced in India, Sri Lanka, China and Vietnam, we have exceeded our CHF 3.5 billion commitment for the whole of 2016 in a little over seven months. These transactions, all secured at good conditions, also help us to streamline and simplify our operations and allow us to maximize synergies in countries like Morocco, China and India. Following the successful execution of our divestment program to date, we are extending the program to CHF 5 billion. We expect to complete the remainder of this by the end of 2017.

“Macroeconomic risks continue to affect some of our markets, however, we are delivering on our commitments and we remain on track to achieve our 2016 targets,” Olsen concluded.

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