LafargeHolcim makes good progress in 2017; Strategy 2022 to drive growth

Jan Jenisch, Group Chief Executive Officer said: "In 2017 we made good progress across all key metrics. The growth in sales and the over-proportional increase in EBITDA represent a good performance and give us a very good basis to build on. The fact that four of our five regions reported growing EBITDA is testimony to our global strength.

"Our new Strategy 2022 - 'Building for Growth' will allow us to more vigorously capture market opportunities, capitalizing on the best assets in a growing building materials market. We have already started to create a leaner more agile organization, moving considerably closer to our customers through the empowerment of the country management.

"The strategy is underpinned by a new set of targets that centers on growth, improving profitability, increasing cash generation and producing more attractive and sustainable returns for shareholders. Our vision is to be a global blue chip company in the attractive and growing building materials market."

GROUP PERFORMANCE

Net Sales grew 4.7 percent on a like-for-like basis for the full year, largely driven by higher cement volumes. Accounting for the effect of divestments (-6.5 percent) and FX (-1.1 percent), reported Net Sales decreased 2.9 percent to CHF 26,129 million.

Recurring EBITDA reached CHF 5,990 million for the full year. This figure includes the reclassification of the Group's profit share in the Chinese joint venture Huaxin - CHF 126 million for 2017 - pursuant to our IFRS 11 assessment, following the ongoing streamlining of our China operations. Like-for-like Recurring EBITDA, which is not impacted by the reclassification of Huaxin profits, grew by 6.1 percent over the full year, in line with guidance from last October.

A detailed review of the asset portfolio, and specifically the country risk, led to an impairment of CHF 3,829 million. The impairment mainly affected goodwill and assets revalued in the context of business combinations. This resulted in a Net loss Group share of CHF 1,675 million compared to a profit of CHF 1,791 million in 2016. Before impairment and divestments, Net income Group share stood at CHF 1,417 million compared to CHF 1,273 million in 2016, an increase of 11.3 percent.

Earnings Per Share before impairment and divestments was CHF 2.35 for the full year, up on the CHF 2.10 figure for 2016. Free Cash Flow grew by 1.5 percent for the full year.

Net debt stood at CHF 14,346 million as of December 31, 2017, a reduction of around CHF 400 million compared to the previous year.

STRATEGY 2022 - BUILDING FOR GROWTH

LafargeHolcim today launched its new Strategy 2022 - 'Building for Growth', aiming to drive profitable growth and simplify the business to deliver resilient returns and attractive value to stakeholders.

The new strategy will shift gears towards growth of the top and bottom line over the next five years. Over this period, the Group commits to the following targets[1]:

• Annual Net Sales growth of 3 to 5 percent
• Annual Recurring EBITDA growth of at least 5 percent
• Improvement in Free Cash Flow to over 40 percent of Recurring EBITDA
• Improvement in ROIC to more than 8 percent

The strategy is based on the four value drivers of Growth, Simplification & Performance, Financial Strength and Vision & People.

The building materials market is a CHF 2,500 billion fragmented global market which is forecast to grow 2 to 3 percent per annum, faster than GDP. Through the value driver Growth, the Group will aim to capitalize on this underlying growth, seeking to deliver above-market performance. LafargeHolcim will utilize its strong asset base to invest in markets where greater opportunities exist while being more selective in other markets. The Group will execute more aggressive strategies for Aggregates and Ready-mix Concrete alongside its existing strong Cement business. The Group will build a fourth business segment, Solutions & Products, to take advantage of products and applications that are closer to the customer. This segment, which currently includes precast, concrete products, asphalt, mortars and contracting and services, already generates annual Net Sales of CHF 2.1 billion. The agile, country-based growth strategies will target value-enhancing bolt-on acquisitions to leverage scale and margins.

The value driver Simplification & Performance will create a cost disciplined operating model and a corporate-light structure. There will be a greater focus on countries, with local markets empowered and fully profit and loss accountable. The 35 biggest markets will report directly to Group management and local profit and loss leaders will be assigned for all four business segments. The two Corporate business functions Performance & Cost and Growth & Innovation have been merged and the Group management is reduced to nine members. The simplification will allow LafargeHolcim to improve its cost efficiency considerably. This is expected to create an SG&A cost saving of CHF 400 million per annum with the related program expected to be completed by Q1 2019. As part of this program, the Corporate offices in Singapore and Miami will be closed by mid-year.

A strong performance culture will be created with simplified KPIs and new incentives that are fully aligned to the Group's goals. Profit and loss responsibility and accountability is implemented for countries and all four business segments. In Aggregates and Ready-mix Concrete, the Group intends to close the performance gap to the best-in-class performers.

Financial Strengthwill ensure disciplined value creation through maintaining an investment grade credit rating. Growth will be funded through divestment of selected assets during the course of 2019 worth at least CHF 2 billion. Capex investment will be kept below CHF 2 billion per annum and excess free cash flow will be used to pay an attractive dividend.

The value driver Vision & People further develops the values of trust and integrity, the commitment to Health & Safety and the desire to be at the forefront of sustainable construction solutions and innovation. The Group wants to foster an entrepreneurial leadership style and a focus on the long-term success of LafargeHolcim.

[1] All figures at constant exchange rates

OUTLOOK 2018

For 2018, LafargeHolcim targets Net Sales growth of 3 to 5 percent and an over-proportional increase in Recurring EBITDA of at least 5 percent on a like-for-like basis. While there is a focus on selected growth initiatives, Capex spending will remain below CHF 2 billion.

The Board of Directors will submit a proposal for shareholder approval at the AGM on May 8, 2018, for a dividend of CHF 2 per share, stable compared to the prior year. The share buyback program is discontinued with CHF 581 million completed.

KEY GROUP FIGURES 2017

1 Excluding restructuring, litigation, implementation and other non-recurring costs

2 Attributable to shareholders of LafargeHolcim Ltd

3 Cash flow from operating activities less net maintenance and expansion capex

4 Of which CHF 3,707 million included in Operating loss in Q4 2017

5 Of which CHF 3,707 million included in Operating loss in FY 2017

REGIONAL PERFORMANCE

Asia Pacific

In Asia Pacific, Recurring EBITDA was 4.3 percent down for the fourth quarter and 6.9 percent lower for the full year on a like-for-like basis, a contribution that reflects contrasting progression of markets in the region. These like-for-like results do not include the Group's share of Huaxin profits recorded in the Recurring EBITDA.

In India, the strong volume and Recurring EBITDA increase were supported by commercial initiatives in a favorable environment. In China, there was a solid operational and commercial performance in both consolidated operations and in Huaxin, supported by government initiatives on environmental protection. Good top line development in Australia was driven by robust demand in New South Wales.

These solid performances were offset by challenging market conditions in a cost inflationary environment in South East Asia. In Malaysia, the introduction of new capacity in the market and soft demand impacted price levels. In the Philippines, delays in infrastructure projects and an influx of imports affected price and volume. Continued pricing pressure in Indonesia outweighed the benefit of volume growth in the fourth quarter and for the year.

1 Excluding restructuring, litigation, implementation and other non-recurring costs

2 Including share of profits from Huaxin

Europe

A combination of recovering market conditions in the fourth quarter and a continuing focus on costs supported further margin expansion in the Europe region.

Recurring EBITDA on a like-for-like basis was up 3.7 percent for the full year and 8.2 percent for the final quarter with Eastern Europe making a particularly strong contribution to growth. Like-for-like, Net Sales increased by 2 percent over the full year and 4 percent in the quarter.

In the UK, LafargeHolcim posted good results in a resilient market while in France margins and contribution improved in the last quarter as revisions to the industrial network delivered progressive benefits and markets continued to improve. In Switzerland, the challenging market environment persisted.

1 Excluding restructuring, litigation, implementation and other non-recurring costs

Latin America

Latin America contributed another strong quarter of Net Sales and margin growth, delivering increases of more than 22 percent in like-for-like Recurring EBITDA for both the full year and the fourth quarter.

Argentina was again a standout performer in the region with commercial initiatives and operational execution underpinning record earnings for the year. Mexico's solid numbers, supported by good execution of the commercial strategy, were achieved in the face of less favorable macroeconomic factors. In Brazil, turnaround initiatives generated significant benefits in a persistently challenging environment.

The Group's retail strategy in the Latin America region passed a symbolic milestone in the fourth quarter with the opening of the 1,000th Disensa franchise store.

1 Excluding restructuring, litigation, implementation and other non-recurring costs

Middle East Africa

Performance in Middle East Africa reflected a tough prior year comparable base for the fourth quarter and worsening conditions in some key markets. On a like-for-like basis, Recurring EBITDA for the region was 3.5 percent up for the full year, though was 30.4 percent down in the final quarter.

The Group posted solid profits in Algeria in the year despite weaker cement demand in an increased competitive environment. In Egypt, there was a positive top line development despite challenging conditions and in Nigeria the strong margin progression was supported by pricing and cost initiatives in an improving economic environment.

1 Excluding restructuring, litigation, implementation and other non-recurring costs

North America

The North America region enjoyed another quarter of strong growth with like-for-like Recurring EBITDA up 7 percent in the fourth quarter compared with the same period in 2016 and 10.5 percent for the full year 2017.

There was a continued strong contribution from the US for the full year despite the decline in volumes. The early signs of recovery in the oil sector helped West Canada deliver improved results while East Canada increased its earnings contribution despite a challenging competitive environment.

1 Excluding restructuring, litigation, implementation and other non-recurring costs

OTHER FINANCIAL DETAILS

Impairments stood at CHF 3,829 million of which CHF 3,707 million related to operating assets. These impairments follow an assessment of the value of a wide range of markets and of specific business units. This analysis is based on a realistic reassessment of the portfolio including country political-economic risks and the evolution of market dynamics. Two thirds of the impairments were concentrated in Algeria, Malaysia, Iraq, Brazil, Indonesia and Egypt.

Restructuring, litigation, implementation and other non-recurring costs stood at CHF 461 million, compared to CHF 582 million in 2016. This, combined with the effect of impairments, resulted in an operating loss in 2017 of CHF 478 million compared to a profit of CHF 2,963 million in 2016.

Net financial expenses for 2017 totaled CHF 958 million versus CHF 917 million in the prior year. Within this, interest expenses were down 15 percent to CHF 760 million with a nominal average interest rate on the debt of 4.5 percent at the end of 2017. This improvement was more than offset by impairment on financial assets and non-recurring expenses in relation to ongoing legal cases.

Income tax expenses amounted to CHF 536 million. Excluding impairment and divestments, the effective tax rate was 30.5 percent, broadly stable compared to 2016.

Reflecting all the above, the Net loss was CHF 1,716 million versus a profit of CHF 2,090 million in 2016.

Excluding impairment and divestments, EPS was up 11.9 percent to CHF 2.35 for the full year. On a reported basis, EPS was CHF -2.78 for 2017.

Net capital expenditure for 2017 was CHF 1,355 million. Our Free Cash Flow stood at CHF 1,685 million, up 1.5 percent on prior year. This led to a ratio of cash conversion, defined as free cash flow relative to Recurring EBITDA, of 28 percent in 2017.

Net debt stood at CHF 14,346 million at year-end.

RECONCILIATION TO GROUP ACCOUNTS

1 Others includes litigation, implementation costs linked to the merger, and other non-recurring costs

NON-GAAP DEFINITIONS

Some non-GAAP measures are used in this release to help describe the performance of LafargeHolcim. A full set of these non-GAAP definitions can be found on our website.

ADDITIONAL INFORMATION

The analyst presentation of the results and our 2017 annual report are available on our website at www.lafargeholcim.com

The financial statements based on IFRS can be found on the LafargeHolcim Group website.