LafargeHolcim Pledges More Asset Sales After Profit Rises

Updated on
  • CEO Olsen reshuffles executive committee with regional heads
  • Cement maker keeps 2016 targets, lowers demand growth outlook

LafargeHolcim Ltd., under pressure to deliver on targets a year after the merger that created the world’s largest cement company, reshuffled executives and pledged more asset sales after second-quarter earnings improved on pricing.

Adjusted operating earnings before interest, taxes, depreciation and amortization rose 2.6 percent to 1.71 billion Swiss francs ($1.76 billion), the Jona, Switzerland-based company said in a statement. That compared with the 1.65 billion-franc average estimate of analysts surveyed by Bloomberg. The company extended a plan to sell assets through to the end of 2017.

The shares rose 5.4 percent to 48.17 francs at 11:23 a.m. in Zurich, valuing the company at 29 billion francs.

Chief Executive Officer Eric Olsen named new members to the company’s executive committee and modified regional responsibilities. Alain Bourguignon, committee member for North America, and Ian Thackwray, the member for Asia Pacific and trading, are leaving the company, LafargeHolcim said.

Just over a year after the cement maker forged from France’s Lafarge and Switzerland’s Holcim began trading, Olsen is still trying to deliver on profitability that was the underlying rationale for the merger. High-profile executive departures in past months further eroded investor confidence at a time when competitors such as HeidelbergCement AG are benefiting from improved demand in North America and Europe.

Cement Prices

“It’s an evolutionary phase in our development to get the right team in place,” Olsen said during a media call on Friday. The latest nominations also reflect changes in the portfolio of the new company, for which integration is complete and transformation has begun, he said.

On the recovery of cement prices, “we are at levels equivalent to the levels in 2015,” Olsen said during a media call. “We expect further increases over the course of the second half.”

In the latest three-month period, the price of cement rose 2.2 percent quarter-on-quarter after having increased by 1.2 percent in the first quarter, according to the statement. Globally, volumes were down 3 percent.

Cost Savings

In the first half of the year, LafargeHolcim recorded 273 million francs in synergies as part of the 450 million-franc target for the year. In the future, they will come from savings in areas such as selling, general and administrative expenses and procurement, Chief Financial Officer Ron Wirahadiraksa said during the call.

The company kept 2016 targets, which include at least high single-digit growth in adjusted operating EBITDA. It lowered the outlook for demand growth in its markets to between 1 percent and 3 percent from between 2 percent and 4 percent and it extended a plan to sell assets to 5 billion francs by the end of 2017.

Olsen was aiming to sell 3.5 billion francs in assets this year to reduce debt, a target the company said Friday it already exceeded. In rapid-fire succession, the company in the past weeks announced agreements to sell listed and non-listed Chinese cement assets as well as to holdings in Vietnam and Sri Lanka.

Adjusted operating Ebitda could have increased by 13 percent in the quarter if it wasn’t for gas supply problems in Nigeria, the company said in the statement. LafargeHolcim will work on a remedy, a process that will continue into the fourth quarter, Olsen said during the call.

U.K. Slows

Elsewhere, Olsen said the cement company has noted a slowdown in growth in the U.K. in the past few months around the country’s June 23 vote to leave the European Union. Earnings growth in North America came as “increased confidence continued to fuel demand in the construction market,” LafargeHolcim said. Earnings declined in Azerbaijan and Russia due to tough economic conditions from the crude slump.

Shares in LafargeHolcim have tumbled 33 percent since they began trading on Zurich’s SIX Swiss Exchange on July 14, 2015. HeidelbergCement has risen 1.6 percent during the period. The German company last week reported profit that beat estimates and said it expected a “moderate to significant” increase in operating income this year.

(Updates with comment from CEO in sixth paragraph. An earlier version of this story was corrected to show share currency in francs.)
Before it's here, it's on the Bloomberg Terminal. LEARN MORE