Edited Transcript of LHN.VX earnings conference call or presentation 27-Feb-20 10:00am GMT

Also we said we're going ought empower and fetch no sole at cement, cabin too at the other segments, Aggregates, Ready-Mix concrete and Solutions & Products, and we delivered growth and especially growing profitability at total 4 affair segments.

Financial strength. I mentioned already, I'm same fortunate we own now such a new even of econmic might with this significantly lower debt level. And own at mind, we own no closed the Philippine bargain yet, which is a significant bargain because us, and we are at the persist stages of the local approval process, and this will fetch above peak of this.

On the nation side, too here, our new operating xerox with same tough advantage and loss leadership is fully established. We came from an organization where we sole had 100 advantage and loss leaders. Basically, the nation has and now we own a same clean one obligation because total the businesses, including Aggregates, Ready-Mix Concrete, Solutions & Products, and we own now more than 400 fully responsible leaders.

Here's the overview of the bolt-on acquisitions. You will notice that they are total at adult markets. This is the temper of these bolt-on acquisitions. They are event at markets which are established. They are no event at cement. They are event at Ready-Mix and Aggregates and Solutions & Products. And we own 8 deals we own done at 2019, and they are from Australia, Europe, ought North America.

We will last this. I -- we own a goal of increasing the amount of deals because 2020, and perhaps one bargain per month is a good run evaluate because our company.

Sustainability. I believe it's lovely ought speak that 2019 was the year of sustainability. There was nobody sole appointment where we didn't own articles. And it's -- I believe it's a shriek because total companies because code because this implore is broad based. It's no impartial FridaysForFuture or governments. It's from the investor side. It's from our own children. And perhaps no ought forget, it's from our own employees. Our employees, they exhibit ought exist a more sustainable company and own a authentic goal ought exist there too at the future and exist isolate of the solution and no isolate of the riddle while it comes ought sustainability, no bargain if it's global warming or if it's stand pollution, or if it's other aspects of the environment.

We -- I believe we were always a same hard engineering-driven, sustainable company, improving our footprint year-on-year. However, I believe we realized final year this is no good enough, we own ought accelerate our efforts.

And you can shriek on above the charts that we really, I think, accelerated from mid-2019, no sole with creating the place of a foremost Sustainability Officer, cabin engaging at carbon capture projects and launching the first carbon-reduced or carbon-neutral products at cement and concrete. same exciting, the opportunities we own ought exist here, isolate of the solution because habitation products and habitation solutions at the future going forward.

I'm proud that we could mind the Science-Based Targets initiative. That's, because me, one of the key initiatives, no sole ought certify that your goals own a lane spin after and actions behind. It's really a good affair ought do because a company alike ours, and I'm same fortunate that we could mind here, the team too at 2019.

A fate more will fetch here. I believe we own too the lane spin at the presentation. First, we own the results. final year, you shriek on we own these 4 pillars because isolate of our goal framework. We own the CO2 per tonne of cement. We own the debris reuse at our factories, at our products or because energy. You shriek on this is up more than 4% final year. Water saving, too something we expect ought accelerate at our plants. We made already fairly a step final year with more than 5% less water use compared ought the year before. And then we operate a fate of community projects, where we attempt ought exist closer ought the communities. especially at emerging markets, we do a fate of education. We are habitation nurses at India. We are operating some of the hospitals or clinics at India ought assist the nation we are basically alive with.

So we made fairly some progress. cabin I believe you can wish much more from us at the future. This is illustrated above the next chart, where we appear a tiny bit the lane map. One isolate is getting our factories more efficient. You shriek on this here, we cabin own a fate of projects ought do because debris fever recovery, automation, cabin too because less clinker at the cement. And then we proceed into much more aggressive things alike carbon capture or new products, carbon-neutral products, cabin too more excellent fuel at our factories. consequently same exciting. That's isolate of our Science-Based Targets initiative, and you will -- can wish from us that you will shriek on much more code and much more proceed at this year and the years ought come.

We own above health and safety, that's a bit concern because us, and we own here made big improvements. You shriek on here that one of the peak KPIs because us is lost time incidence frequency rate, and you shriek on how much we proceed here year-on-year because safety is key because us, because our employees and their families. And here, we're too improving here year-on-year.

Brings me above my final slide, I think, we made 2 years ago. I was parliament with most of you while we launched tactic 2022. And that was a new tactic because us, perhaps a bit of a new tactic because the industry, and we had a fate of discussions since then. And I believe we can shriek on now we progressed at the precise directions. You shriek on that we are already achieving or are total ought the targets we lay because 2022.

So above net sales, we are at the window because the growth. same above the EBITDA. above the coin flow, I used to speak we are clearly above, and we own now the confidence ought speak this is no the one time we own now created a new performance level, and you can wish coin run generation within the targets already because 2020 and because the years ought come.

Return above invested capital, you were always same concerned. We don't benefit the price of capital. while we do this now because the first year, we did it at 2019. You shriek on too the proceed we make. And you can too wish here that we will no linger cabin at 7.6%, cabin we expect ought go, of course, ahead of 8%, because we promised 2 years ago.

I believe with this introduction, I'm same fortunate ought fetch above ought Géraldine, and she will grant you more details above the results.

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Géraldine J. M. Picaud, LafargeHolcim Ltd - CFO [2]

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Thank you, Jan. Good morning, everyone. We will now proceed into more details above these excellent results that the people has achieved because 2019.

So our net sales growth reached 3.1% above a like-for-like basis, primarily driven by the good concentrate above prices. at queue with our commitment, our recurring EBITDA was overproportionate at 6.5% like-for-like, reflecting here the overachievement of our SG&A cost-saving project and too the good monitoring of our operating costs.

Bottom line, we are same proud ought explain a total growth of 29% of our earning per shares ago impairment, divestment and IFRS 16, which amounts ought CHF 3.4 per share.

Let me memorize you that we use this adjusted KPI at order ought assure complete comparability and ought improve reason the economic performance. consequently the tough arise has been achieved, no sole because of the recurring EBITDA growth, cabin too because of the tough improvement above our restructuring econmic and impose expenses.

On a complete IFRS reported basis, our earnings per segment is higher at CHF 3.69 per share, and that is coming primarily from the major benefit above the divestments that we've made.

In condition of free coin run generation, you can shriek on here total the same definite effects of the actions that we've implemented at condition of monitoring the working capital, cabin too reducing the econmic and the impose expenses. And total these actions own allowed us ought overachieve the 2022 coin conversion goal of 40%, because we are now total ought 50% or generated more than CHF 3 billion of free coin flow, up 79% compared ought final year.

Let's now encounter above ought our global footprint and ought the volume performance per affair line. consequently at cement, our volume grew 0.5% above a like-for-like basis. Europe recorded a tough volume growth, notably fueled by Eastern Europe just trend. North America recorded an excellent volume growth of 5.3%, driven by the same favorable trend at the U.S. Latin America recorded a repel by minus 1.5% at the volume cements due ought the mild just at Ecuador and Mexico that was partially offset by tough implore at Brazil.

APAC delivered even volume, with a good contribution of India that was offset by the difficult surroundings at Malaysia and at the Philippines. at center East Africa, we recorded a lean repel at volume cements at minus 0.8%. cabin this is a contrasted status among countries where we are at an oversupply status and countries where we recorded tough implore conversely alike at [Iraq].

Aggregates affair segments recorded indeed even volumes at minus 0.3%, with a same good trend at the U.S. and Canada East and too at countries such because Brazil or China. India offset the shortfalls of Australia at Aggregates. And at the end, EMEA too had a mild surroundings at some countries because the aggregates. Our Ready-Mix concrete affair queue recorded a repel of minus 2%. This is primarily attributable ought Mexico's mild environment. cabin we had a same good trend at North America, which continued ought grow, while Europe remained flat.

Let's now fetch above ought our net sales. Our net sales stood at CHF 26.7 billion. The organic growth of 3.1% represent CHF 832 million of extra revenues that are primarily attributable ought the good concentrate above prices.

The scope, the negative scope result that you shriek on here is primarily driven by the divestment of Indonesia and Malaysia that we completed at H1 2019. And the negative ForEx collision that you shriek on here is coming from the Argentinian peso the Indian rupee, the euro and the British pound that total depreciated against the Swiss francs at 2019.

Let's now encounter above ought our recurring EBITDA. And at total, our recurring EBITDA has increased by 2.3%. This is composed by a negative scope result of minus 1.4%, a definite organic growth of 6.5% and a negative translation result of minus 2.8%. consequently the negative scope collision of minus CHF 84 million is primarily attributable ought Indonesia that we sold at January 2019. The negative ForEx collision of minus CHF 165 million is too attributable ought the Argentinian peso the Indian rupee, the euro and the British pound. The organic growth of 6.5% represents at impose CHF 386 million, and this is approximately attributable ought price above price because CHF 398 million.

And it's stemming from few factors. The first one is our SG&A cost-saving plan. We achieved CHF 217 million of SG&A price saving at 2019. hire me memorize you that at 2018, we already achieved CHF 186 million of price savings. And of course, total these amounts are net of inflation.

So total at all, we generated CHF 421 million of SG&A price savings compared ought 2017 at successive scope and successive rate. Secondly, in spite of inflation, our medium price increase of 2.8% and the good monitoring of operating costs leaves us with a definite CHF 116 million of price above price at our majority-owned businesses. The JVs are adding above peak CHF 65 million.

Let's now encounter above ought the performance per affair line, and let's begin with cement. cement recorded net sales up 4% above a like-for-like basis, driven by the volume growth of 0.5% and price increases of approximately 3.2%. The Aggregates affair queue recorded net sales up 3.5%, with volumes that were flat, cabin with price increases up ought 2.7% and other revenues of 1% up.

On Ready-Mix concrete affair line, we had even sales with the repel at volumes of minus 2% and price increase of 1%, plus a geographical favorable mingle of 0.7%.

Solutions & Products record a stronger operating -- because you can see, a tough recurring EBITDA growth here at plus 20%, and this is primarily stemming from the turnaround of our precast affair at Australia.

Let's now proceed direct ought the regions, and I used to begin with North America that delivered a tough lay of results because 2019. You can shriek on here, net sales were up 4.9% and recurring EBITDA up 4.4% with volume that grew at total segments, especially at the U.S. The macro surroundings indeed was fairly favorable at the U.S. and at Canada East, while Canada West was softer above the back of the economic slowdown at the prairies.

I believe same good ought letter is the Q4, because we are here, a retort -- showing a retort ought overproportional growth of our recurring EBITDA above net sales.

Let's now fetch above ought Latin America that delivered a resilient performance at a context of mild markets at Ecuador and Mexico, which you know are our key markets because Latin America. consequently here, we are showing sales growth of 2.6% (sic) [3.6%] because the year and a recurring EBITDA repel of 1.7%. consequently because I said, the markets were softer at Mexico and Ecuador, cabin that was partially offset by a same good performance at Colombia and at Salvador. And we constantly did an effective price and price management at total the markets of the regions.

Let's now encounter above ought Europe, and Europe has an excellent lay of results with a same tough growth of the recurring EBITDA of the region at plus 10.2%, approximately more than double the growth of the net sales. consequently the growth at the tough activity of the region has been fueled too by Eastern Europe and central Europe that has fairly a fate of infrastructure spending. We had too big projects at France and higher prices at Germany, while the U.K. proved ought exist resilient. consequently tough rim improvement driven by operational efficiency conducted ought that big performance because Europe.

Let's encounter ought center East Africa, where the markets were more challenging. because I said, there are some markets that are oversupply because Algeria, because Egypt. cabin nonetheless, we noted some quite tough implore at countries such because Iraq and Eastern African countries. total the good progresses we made at turning approximately own indeed partially offset total these challenging just conditions. And I used to alike you ought letter that we are ending the year because center East Africa with a hard recurring EBITDA.

Asia Pacific, a same good and tough improvement here at our profitability. because you can see, net sales up 2.5% and like-for-like growth of recurring EBITDA is up 14.2%. A big contribution of India and the increase of profitability of the region ought exist noted. too total the turnaround actions that we initiated at Australia paid off and partially mitigated the economic slowdown of the country. And we last ought benefit from a hard contribution from China.

Let's now proceed ought our complete P&L here. And because usual, we gift our P&L ago IFRS 16, excluding impairment and excluding the major benefit above the divestments. because IFRS 16, we own elected ought adopt the modified retrospective approach, which fashion that 2018 numbers are no although ought the 2019 published reported numbers. This is why at total the documents, you shriek on the 2019 numbers pre-IFRS 16.

So if we watch at our net income, pre-IFRS 16 ago impairment and divestment, it is up CHF 569 million, and this is coming from few factors. First one is, of course, the increase at recurring EBITDA by CHF 137 million that we've already commented. Second one is the diminish at depreciation and amortization of CHF 139 million that primarily stems from the scope result or the divestments that we've done. Then you can shriek on too the same tough proceed above the restructuring, litigation and others. Actually, restructuring costs own decreased by CHF 200 million because our SG&A cost-saving project is now over.

Then the net econmic price has too reduced by CHF 240 million. And this is coming, because of the deleveraging, cabin too because of the refinancing transactions that we own made because the final 2 years.

Tax or effective impose evaluate is down 26%. This is primarily attributable ought the diminish at the earnings impose evaluate of India by 10 percentage points.

Let's now proceed ought our record free coin flow. free coin run has a record ratio of being half the recurring EBITDA. And this record performance has too been achieved, because of improve working major and improve inventory management. Compared ought 2018, because instance, above the inventories, we own managed ought reduce our inventories by more than 6 days of sales, down ought 36 days of sales. This is our new standard, and you know this was too one of our priorities.

Now let's watch at our earnings impose paid. They've too reduced by CHF 76 million, and this in spite of the fact that the underlying arise is higher. And actually, some exceptional reforms and too use of impose losses own allowed us ought gift here a coin impose evaluate that is lower than the effective impose evaluate at the P&L.

If we now watch because -- ought our net econmic expenses, you can shriek on too that they are down CHF 375 million. That is even higher than at the P&L, primarily because of some exceptional reforms.

So total at all, we generated more than CHF 3 billion of free coin flow. That is 79% up compared ought final year or CHF 1.3 billion higher.

Let's now watch at our net debt. Our net debt amounted ought CHF 8.8 billion because at goal of 2019. That corresponds ought a leverage of 1.4x, which is much lower than and improve than 2x.

So this is too a reduction of CHF 4.7 billion. And it's stemming from, firstly, the free coin run that we've already commented because more than CHF 3 billion. And let's obtain it that our free coin run is with everything, total CapEx, impartial ought memorize you, ought exist clear.

And then we had benefited from some of the divestment we made because approximately CHF 1.8 billion debt reduction. Then you can shriek on above the dividends, we own paid out CHF 444 million, that's approximately CHF 900 million lower than the years before, because of the enormous success of the scrip dividend. And we own done another hybrid transaction at 2019 because EUR 500 million. That puts our hybrid debt up ought CHF 755 million, which is recorded because equity under IFRS.

Let's now encounter above ought our leverage. We own reached a new even of leverage. We own fully executed under the econmic might pillar of the tactic 2022 and restored our firepower. This has been achieved at a record time. because you can see, that at 2017, we were 1x higher.

Let's now encounter above ought our retort above invested capital. You can shriek on here too the tough proceed because we are now at 7.6%, above our weighted medium price of capital. This has been achieved, because of higher retort above our assets, driven by higher profitability, lower impose rate. And too because of the CapEx usage we having instilled -- we own instilled at our group.

So this leads me ought exist same fortunate ought propose ought the AGM dividend of CHF 2 per share. That's a coin dividend. And interest letter that it will exist fully paid out of the foreign major contribution reserve, and that fashion it's no question ought Swiss withholding impose total equivalent.

Before handing above ought Jan because the outlook, hire me introduce you ought our new profitability metric. consequently you know that recurring EBITDA was historically our profitability KPI. cabin this KPI was no including total the efforts we made ought optimize our CapEx, which because us is an question and moreover, under IFRS, does no explain the operating rent cost. They're no at EBITDA. And we count that we absence ought govern our nation leaders or P&L leaders with total the costs that are relevant ought their activities. This is why we own decided ought switch from recurring EBITDA ought recurring EBIT, and that is ought explain our performance, cabin it is too ought incentivize our management going forward.

We, of course, own the guidance of our tactic 2022, which was at least 5% recurring EBITDA growth per annum. We add ought this a goal of having an increase of depreciation and amortization limited ought sole 1%. That fashion that it's distant under the sales growth and distant under the recurring EBITDA growth. And this is match ought do because recurring EBIT growth goal of at least 7% like-for-like base per annum. Thank you. Jan?

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Jan Jenisch, LafargeHolcim Ltd - ceO [3]

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Yes. Thank you, Géraldine. Then I'd alike ought end with the expectation and the targets because this year. We wish hard markets because 2020. And I'll state approximately the coronavirus at a moment. consequently we shriek on at the minute at Europe, we own same good implore at Europe. We own started the year strong and own same good order books. We too own no slowdown yet. We own ought shriek on if the corona becomes more serious or will age at although with the status at China. cabin at the moment, we are running at complete accelerate at Europe, own started same well.