BASEL: 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% 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% 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.”
In the second quarter, a number of countries delivered good earnings growth, including the Philippines, Mexico, US, Algeria and Lebanon. In addition, China showed signs of recovery with cost control measures and targeted marketing strategies helping boost adjusted operating EBITDA in the quarter while, on the same measure, India made strong progress, through implementation of pricing and marketing strategies and delivery of synergies.
Challenging conditions in a few markets – most notably Nigeria where strikes and interruptions to gas supplies prevented us from serving a growing market – impacted Group results for the quarter. Nigeria alone accounted for a fall of CHF 96 million in adjusted operating EBITDA like-for-like in the quarter.
Cement prices increased by 2.2% quarter-on-quarter, demonstrating the effectiveness of our broad-based pricing strategy. This followed the 1.2% increase seen in the first three months of the year.
Globally, cement sales volumes were down 3% year-on-year on a like-for-like basis. In some markets this is due to a blend of geopolitical or macroeconomic reasons. As anticipated, price increases implemented during Q1 also had an effect on volumes in a few markets. Synergies contributed CHF 170 million in the quarter, adding CHF 273 million for the first half and keeping us on track to achieve at least CHF 450 million of incremental synergies. In the quarter, significant value has been delivered as a result of synergies in the US and Brazil from reductions in fixed costs; commercial best practices in Latin America, notably in Mexico; and improved energy mix in China and India.
Adjusted Operating EBITDA of CHF 1.7 billion was up 6% on a like-for-like basis on the quarter. Synergies, ongoing cost containment, lower energy costs and pricing drove Adjusted Operating EBITDA margin improvement to 23.4% in Q2, up from 21.3% in the prior year period.
Operating free cash flow improved by 26.4% year-on-year. It stands at CHF -539 million at the end of the first half, impacted by the traditional seasonality of our working capital. Net debt stood at CHF 18.1 billion, a CHF 5.8 billion reduction on the total combined net debt at July 2015 before the cash received from the CRH transaction.
