LafargeHolcim hosted a Capital Markets Day (CMD) in London yesterday where management confirmed the group’s CHF8bn 2018 EBITDA target, its capital allocation strategy and FCF focus.
During the event, management – led by new CEO Eric Olsen – presented its strategic objectives and approach for unleashing potential to extract maximum value from its portfolio.
Top priority for the group is generating CHF10bn FCF in 2016-18. The key drivers for this are: improvement in EBITDA to CHF8bn by 2018, lower capex (total of CHF3.5bn over 2016-17 and <CHF2.0bn in 2018), and financing and tax synergies. Overall, expectations are for a run-rate FCF to 2018E of between CHF3.5-4bn.
Management further highlighted key elements of its 2018E EBITDA target. Synergies of CHF1.1bn form roughly half the improvement. The remaining half of the improvement is driven by prices and ongoing cost-reduction plans offsetting inflation, 13Mta new capacity and an average volume growth of two per cent.
It also reiterated that capex will be strictly controlled. The first priority is to maintain an investment grade credit rating and beyond that it will aim to return capital to shareholders via dividends and buybacks.
In addition to the cumulative capex target over the 2016-17 period, management provided further details on its capex plans. LafargeHolcim said it expects to limit maintenance capex at around CHF1.0bn starting next year with a further CHF1.5bn for ongoing projects. Going forward, there will be no big M&A activity at premium multiples and the group will pursue active portfolio management to increase returns. The group now aims to pursue an 'asset-light' model (eg, make greater use of cement terminals rather than building plants).
The group's total cement capacity stands at 386.4Mta, of which 162.5m (42 per cent) is in the Asia Pacific area, 78.8Mta (20.4 per cent) in Europe, 72.7Mta (18.8 per cent) in Africa/Middle East, 38.8Mta (10 per cent) in Latin America and 33.7Mta (8.7 per cent) in North America. There are 181 integrated cement works, 70 grinding centres, 621 aggregates operations and 1640 batching plants.
