First-quarter profits help LafargeHolcim rebuild its reputation

Cement maker beats expectations, but sales are down and search is on for new CEO

Eric Olsen,  chief executive of LafargeHolcim, is stepping down in July after the company acknowledged making payments to armed groups to keep its factory running in war-torn Syria. Photograph: Reuters

Eric Olsen, chief executive of LafargeHolcim, is stepping down in July after the company acknowledged making payments to armed groups to keep its factory running in war-torn Syria. Photograph: Reuters

 

LafargeHolcim beat expectations for sales and core profit in the first quarter, it said on Wednesday, a bittersweet performance for the cement and building materials company as it begins a search for a new chief executive.

The world’s largest cement maker is looking for a new CEO to replace Eric Olsen, who is quitting in July after the company acknowledged making payments to armed groups to keep its factory running in war-torn Syria.

LafargeHolcim posted adjusted operating profit before interest, tax and amortisation of 801 million Swiss francs (€740 million), beating forecasts of 783 million francs in a Reuters poll.

Sales fell 7.1 per cent to 5.63 billion francs, partly reflecting the sale of businesses including operations in Chile and Vietnam during 2016. The figure beat forecasts of 5.52 billion francs.

‘Excellent start’

“Our good Q1 performance has got us off to an excellent start for 2017 and marks our fourth consecutive quarter of earnings growth,” said Olsen in a statement.

Pricing strength, improving volumes and cost savings supported the company’s performance, he said.

“The group faces a number of near-term headwinds which we believe will weigh on stock performance,” said an analyst at Davy. “These include the CEO’s departure, the reputational damage from the Syria review and the spike in cost inflation, which will continue to weigh on margins. In this regard guidance has changed . . . We see greater continuity of management and end-markets elsewhere and continue to rate the stock ‘underperform’.”

The company said the results enabled it keep its guidance for 2017 and 2018. For this year it is aiming for double-digit like-for-like growth in adjusted operating earnings before interest, taxes, depreciation and amortisation (ebitda) over 2016, and recurring earnings per share growth of more than 20 per cent.

Cost savings

“In 2017, 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,” Olsen said.

This will be particularly supported by the contribution of several markets such as the US, India, Nigeria and some countries in Europe, the company said, forecasting overall demand to increase by between 2 and 4 per cent.

LafargeHolcim faces a leadership void with the departure of Olsen, who had won over critics initially concerned by his lack of CEO experience by improving the company’s performance through cutting costs and shedding fringe businesses.

The Zurich-based company, created by a merger of France’s Lafarge and Switzerland’s Holcim in 2015, has also seen a change in chairman and chief financial officer in the last 18 months, while several members of its executive committee are also relatively recent appointments.

– (Reuters)