El Rhazi: Ladies and gentlemen, good morning. Welcome to the LafargeHolcim Half-Year Results 2015 Conference Call. I?m Selena, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. After our presentation there will be a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it?s my pleasure to hand over to Mr. Eric Olsen, CEO of LafargeHolcim; accompanied by Mr. Thomas Aebischer, CFO of LafargeHolcim; Jean-Jacques Gauthier, CFO of Lafarge; and the whole investor relations and communications team. Please go ahead, gentlemen.
Good morning, everyone. I am very pleased to welcome you to this historical moment, our first investor call together as LafargeHolcim. Since we are reporting the Holcim and Lafarge results separately for the last time today, we will have a unique setup for this call Yassine along both Thomas Aebischer and Jean-Jacques Gauthier Yassine along us. They will walk you through the two sets of results for the legacy Holcim and Lafarge.
I will also take the possibility of having all of you here to share what we have already launched and what our objectives are for the remainder of the year. You know that this merger is about creating a world leader. It is also about synergies, portfolio optimization and, above all, El Rhazi is about cash generation, capital allocation discipline and maximizing cash returns to shareholders.
You will see that in all these areas, as promised, we are hitting the ground running with a lucid roadmap and particular targets. And at the same time, in view of the overall disappointing results in the first-half we have launched actions to address the more challenging markets.
I will now ask Jean-Jacques to present the legacy Lafarge results, then Thomas will present the legacy Holcim results and I will remark on the perspectives for LafargeHolcim. A general Q&A session covering Holcim, Lafarge, and LafargeHolcim is deliberate at the end of our presentation.
Thank you, Eric, and good morning, everyone. As you have seen after a strong start of the year in the first quarter, the group had a more contrasted Q2, with some timing effects and a challenging surroundings in a few markets. In the first-half EBITDA grew 6%, supported by the exchange rate that had a positive impact of 8% on our sales and 7% on EBITDA. Like-for-like, EBITDA was up 2% in the first-half, but declined 2% in the second quarter.
Overall, our innovation and cost discount initiatives contributed ?125 million in the quarter. This impact was mitigated by the effect of overall lower volumes, limited price increases, and ongoing cost inflation. When looking by region, in North America EBITDA was up 7% like-for-like, supported by solid Canadian volumes and price increases in the United States. In Western Europe, the impact of lower volume in France was mitigated by cost cutting measures, but EBITDA was down 11% like-for-like with declining margins.
Central and Eastern Europe showed good developments, benefiting from the dynamic Romanian market and the contribution of our new plant in Russia. Latin America which, as you know is now only Brazil for the Lafarge scope, was weak, suffering from a challenging surroundings in the country.
In Middle East and Africa, second-quarter EBITDA was up 2% like-for-like, a solid performance as positive trends in most markets more than offset a few headwinds, namely the ongoing limited ability to transport cement in Iraq, a difficult surroundings in South Africa and the adverse impact of the earlier Ramadan that slipped by 10 days into the second quarter. Amongst the most positive contributors I would highlight Nigeria, Algeria and Kenya.
Last, in Asia the soft pricing environment and continuing cost inflation overall has more than offset the positive effect of volume growth in the Philippines and the impact of our cost cutting actions.
Moving now further down, income statement. Net result group share in the second quarter was impacted by one-off items in connection with our merger. These one-off items include ?450 million of impairment on some of the assets to be divested to CRH in the third quarter. As disclosed in our full-year accounts, these losses chiefly relate to our UK assets and will be more than offset by gains on the other assets sold. These gains, as per the accounting rules, can only be recognized once the transaction is closed. It then results in an accounting impairment loss in Q2 that will be followed by a big gain in Q3 resulting overall in a net slight gain on the transaction.
Net income for the quarter was also impacted by a pre-tax merger cost of ?94 million. Excluding one-off items, net income group share amounts to ?210 million in the second quarter. Compared to last year, it reduced ?27 million as the effect of lower financial expenses was offset by higher provisions on tax. For the first-half, adjusted net income rose 57% to ?182 million.
Net debt stood at ?10.3 billion, being up a moderate ?149 million, despite merger-related cost, despite the payment in Q2 this year of the ?0.4 billion Lafarge SA dividend. As you may remember, this dividend was paid in Q3 in 2014.
Moving then to the outlook for the remainder of 2015, given the trend that we have experienced in the first-half we have reduced the outlook for volume growth in our markets from 2% to 5%, to 1% to 4%. We have notably seen softer trends than expected in countries such as Brazil and to a lesser extent France, and no real improvement yet in our ability to transport cement across the country in Iraq.
With that in mind, the last forecast exercise that was performed in July on the legacy Lafarge scope would have been about 4% under the low-end of our original guidance of an expected EBITDA between ?3 billion and ?3.2 billion, excluding any effect of our merger. As you can appreciate, following the successful completion of the Lafarge-Holcim merger the standalone guidance is anyway not relevant any more. I thank you for your attention and I will now hand over to Thomas, who will walk you through the Holcim H1 results.
Okay. Thank you very much, Jean-Jacques. Good morning, ladies and gentlemen. It?s a pleasure for me to provide you with a short brief review of Holcim?s performance during the first-half of this year. I?m sure that by now you have obtained our media release issued earlier today, the report and the supporting slide presentation from our website. Before I?m going to elaborate on the results in more detail, let me please summarize the highlights.
In the first-half of 2015, Holcim generated higher cash flow from operating activities and increased net income supported by the gains from the divestment of the group?s minority shareholding in Siam City Cement in March of 2015. However, the group faced an overall challenging development in the first-half of 2015, as lower than anticipated demand in some markets caused volume declines in cement and impacted therefore the financial performance.
Adjusted for merger-related costs, like-for-like operating EBITDA decreased by 1.1% despite the positive developments in the group regions North America and Latin America. Operating EBITDA margin adjusted for merger-related costs decreased from 18.1% slightly to 18%. Like-for-like operating profit adjusted declined by 5.5%. Operating profit margin adjusted for the merger-related costs went down from 10.8% to 10.6%.
Additionally, Holcim was confronted with the unfavorable Forex development against the Swiss francs in the second quarter of 2015. Negative impact to net sales of over CHF 260 million or minus 5.5%, CHF 48 million in operating EBITDA or minus 4.8%, and CHF 31 million on operating profit or a minus of 4.6% were recorded in the second quarter 2015. The operational result for the first-half of this year summarizes as follows.
Cement volumes declined in all regions with the exception of North America and Latin America, as mentioned earlier. More cement was sold in important markets, including the United States, Mexico, the Philippines, Romania and Vietnam. Consolidated cement volumes decreased 2.1% to 67.6 million tonnes, as the regions Asia Pacific, Europe and Africa Middle East reported declines.
Aggregates deliveries improved 3.4% to 72 million tonnes, building on the volume growth in group regions Europe and North America. Aggregate shipments were higher mainly as a result of the acquisition of CEMEX operations in western Germany, as well as the solid growth in the United Kingdom and the United States. Ready-mix concrete deliveries increased slightly by 0.6% and reached 18.2 million cubic meters as improvements in Europe and Asia Pacific could compensate for slight declines in North America and Latin America, as well as Africa Middle East.
Like-for-like net sales across the group were almost unchanged in the first-half of the year. Reported net sales were down 3.1% to CHF 8.646 billion as better performance in North America could not compensate for lower sales in other group regions, as well as the unfavorable Forex development, mainly out of Latin America. Operating EBITDA adjusted for merger-related costs of CHF 86 million was at CHF 1.557 billion and 3.7% lower year-on-year. The adjusted operating EBITDA margin decreased to 18%, reported operating EBITDA decreased 7.8% to CHF 1.471 billion, impacted by merger-related costs and lower financial performance in the group region Europe, Asia Pacific and Africa Middle East.
Operating profit adjusted for the merger-related costs of the before mentioned CHF 86 million was down 5.5% to CHF 912 million. The adjusted operating profit margin decreased slightly to 10.6%. Net income increased by 4.9% to CHF 690 million, mainly as a result of the divestments of Holcim?s minority shareholdings in Thailand. Net income attributable to shareholders of Holcim Limited was also up by 18% to CHF 573 million.
Cash flow from operating activities increased 13.6% to CHF 220 million in the first-half of the year. Net financial debt over the 12 months decreased substantially by CHF 1.4 billion and stood at the quarter end at CHF 9.057 billion. Return on invested capital after tax increased significantly to 7.8%, to a year ago it stood at 6.8%, so an increase of 100 basis points. This improvement was supported by the divestments of Holcim?s minority shareholdings in Siam City Cement. In the first-half of 2015, the contribution of the Holcim Leadership Journey to the group?s operating profit amounted to CHF 138 million, Customer Excellence stream contributed CHF 36 million and the cost initiatives CHF 102 million to this result.
Let?s turn to the outlook for the business for 2015. Holcim expects for 2015 that the global economy continues its gradual recovery. Key construction markets of Holcim in countries like the USA, India, Mexico, Colombia, the UK and the Philippines are expected to be the leading growth drivers. Europe overall should have a flat development. Latin America will continue to face uncertainties in Brazil, but should overall show slight growth in 2015. The Asia Pacific region is expected to grow, although at a still modest pace.
In this environment, cement volumes should increase in all group regions in 2015, with the exception of Europe and Africa Middle East. Aggregate and ready-mix concrete volumes are expected to increase. On a standalone basis and unconnected to the merger with Lafarge, it would have expected like-for-like operating profit adjusted for merger-related costs to be about 10% below the low end of the initial guidance of CHF 2.7 billion to CHF 2.9 billion in 2015.
Following the successful completion of the merger the standalone guidance is not relevant any more as LafargeHolcim results will be impacted by several items including required divestments and ramp up of the synergies. With this, thank you very much for your attention, and I would like to hand over to Eric.
Thank you, Thomas. And thank you, Jean-Jacques. So before turning to our roadmap for the second-half, let me summarize with a word about the environment. You?ve seen in the results posted by both legacy Holcim and legacy Lafarge, as well as from the comments of Thomas and Jean-Jacques, that we have continued to face a contrasted and overall rather soft environment in the first-half. We have seen very good developments in some countries, but also a handful number of markets facing a really challenging environment. Looking in more detail at the dynamics by region, I would highlight the following.
First, North America, there the recovery in the US is well underway, still driven by the housing segment. Canada continues to be resilient, with good dynamics in the east. In Western Canada, the impact of declining oil prices has still not been seen as we had a strong backlog already. However, I would expect to see some slowdown in the coming months, which is embedded in the outlook.
In Europe we see signs of recovery in some countries like the UK, Spain and Romania, but it is reasonable to say that the overall environment remains soft, with a difficult situation in Russia and Azerbaijan, while France has been softer than expected. Most recently, we are obviously watching the situation in Greece carefully, although the direct impact is limited given the current size of the home market.
And finally, in emerging markets, we see highly contrasted situations across the countries. Looking first at Asia and starting with India, projects are slow to materialize and although the potential is certainly still there, the situation is putting short-term pressure on the market. And looking at the rest of the region, growth in Indonesia has been slow, with challenges regarding price control measures taken by the government.
The Philippines continues to be the most dynamic spot in Southeast Asia. Turning to Latin America, Brazil is in a very challenging situation and is a clear headwind compared to our earlier expectations. As a mitigating factor for the region, Mexico and Colombia continued to be strong.
In Middle East Africa, while the situation in Iraq and Syria remains difficult, sub-Saharan Africa shows solid growth rates across the markets with the exception of South Africa. Algeria is resilient and Egypt continues to experience positive volume trends.
Overall, I would say that the environment is certainly less supportive than what people may have thought earlier this year. To address the most challenging situations, and disconnected from what we expect from the merger, we have launched targeted cost discount actions in Indonesia, India, Brazil and Egypt. The current short-term market challenges do not impair in any way the long-term growth potential in these countries and the perspectives of our markets.
Today, we have a fantastic global footprint, which is widely diversified and with strong positions in the most promising markets in the world. In this contrasted environment, what matters is to have the correct portfolio, strong cost controls and a rigorous capital allocation to maximize the value of existing assets. These are all key elements of the merger.
So where do we stand with the integration? For more than a year now, we have been preparing targeted action plans to make sure we would hit the ground running on day one and start delivering the value that is embedded in this merger right away, and that?s exactly what we?ve done. We closed the merger on July 10 and immediately launched our teams and action plans for operational improvements, purchasing and top-line growth.
On July 15, we launched LafargeHolcim officially everywhere in the world, using this as a burning platform to near our customers, our suppliers, mobilize local teams and reach out to all our stakeholders. As early as last week, we gathered the top 200 managers to align on priorities and actions for the coming months. The targets are clear, the key levers are identified and the top team knows on what basis it will be incentivized.
And following these two days together with the top 200 managers, I can clearly say that we have a great team on board, with all members pulling in the same direction to make LafargeHolcim the high performer in the industry. Several times over these past two days, I recalled discussions I had with numerous of you about cultural differences. You would have been as impressed as I was to see how naturally the two teams came together in a seamless fashion, with a real eagerness, want and pride to job together as LafargeHolcim.
The whole association is now fully aligned and at job to implement the roadmap of concrete actions that we have defined. I?d like to update you on four key areas: synergies, capital allocation, portfolio optimization and top-line.
Let me start with synergies. We have launched actions to tap into all the identified synergy opportunities and expect visible results in the very first months post-merger. This will be achieved by grabbing the low-hanging fruits such as, for example, the prompt optimization of logistics in overlapping countries or the leveraging of the review of the top 1,000 purchasing contracts that was done in the pre-integration phase to align on the most favorable conditions.
We now target to deliver at least CHF 100 million with synergies that will contribute to the 2015 earnings. This together with the actions launched on the association put us on track to deliver one-third of the synergies in the first 12 months post-merger. We have particular synergy targets in place now for each country in the group and we remain self-assured in our ability to deliver the CHF 1.5 billion in synergies.
The second core action area is around capital allocation discipline, where we are moving fast as well. Capital allocation discipline will be at the forefront of all our actions. For me, capital allocation discipline means first ensuring a solid investment grade rating as a foundation. We will receive over the coming months a total net proceeds of CHF 6 billion from divestments related to the merger. These proceeds will be used to pay down debt, anchoring a solid financial structure, with net debt below CHF 15 billion by year-end.
Second, reducing our CapEx spending and being very selective in the pursuit of growth opportunities. Looking at CapEx, there we have put all of the CapEx development projects we had in both groups under rigorous review. Second, leveraging our new footprint and asset base, our teams have been mobilized to reduce the already approved CapEx for the second-half of 2015 by at least CHF 200 million compared to what was deliberate to be spent by the two standalone groups.
And last the teams are building their 2016 CapEx budget with a CapEx frugal mindset. We will have a new DNA regarding CapEx to thrive in a low investment environment and we are starting with that already in the second-half of 2015.
Resulting from the above, this merger is undoubtedly about maximizing cash returns and returning excess cash to shareholders while maintaining a solid investment grade rating. The Exco has proposed and the board has accepted that this would start with a commitment to a progressive dividend policy, for which today we announced the starting point of at least CHF1.13 per share.
The third area of focus is portfolio optimization. We have launched a project to review our entire portfolio. I see opportunities to actively prune our portfolio through divestments and asset swaps. This will be a key area of focus for me that I will come back to regularly on, starting at our Capital Markets Day on December 1. And last but not least, let?s talk about pricing.
In times of intense competition, a core element of our commercial transformation will be to grow earnings through differentiation. We will address these challenges by leveraging our leading R&D capabilities and our highly skilled teams in marketing and sales. But more importantly and to address the disappointing results we had in the area of pricing in the second quarter, we have launched action plans in 16 priority countries.
You will appreciate that I cannot disclose what these countries are for regulatory reasons, as you can imagine that these are - but you can imagine these are markets where more recently we have been losing ground during the ultimate phase of the pre-integration. The action plans will make sure we are focused on getting the full value for our products, services and solutions reflected in our commercial offer. This is an absolute must and I will be uncompromising on this.
Cutting edge innovations supported by active price management will shape our commercial excellence in the future and contribute to sustainable ecocnomic growth that is less capital intensive.
In summary, we have been operating in a demanding global marketing environment in the first-half, and that has affected our first-half performance. We have initiated a set of measures to address the most challenging markets. At the same time, as a new company, we have hit the ground running. The cultural integration is off to a great start with a real sense of team and alignment with the new group. The synergies are on track, with first visible results already expected in 2015.
The focus on capital allocation has started from day one with reductions in CapEx spending and our first commitment on dividend policy. We have launched a portfolio review and will continue to prune and optimize. And last, we have launched a number of top-line growth initiatives. The coming months will be intense and we will have soon many matters to tell you about as a new group. This is why we will meet you for Investor Day on December 1 and share with you our strategy, our specific targets and our mid-term plan.
I thank you for your attention. And as we are now ready to take your questions, may I ask that you limit your questions to two at a time so that as many participants as possible can have an opportunity to participate.
We expect to finish the call at about 11:15 this morning. Please also keep in mind that our Investor Relations team is available after the call to answer the more detailed questions you may have. Thank you very much and let?s now take the first question.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Yassine Touahri from Exane BNP Paribas. Please go ahead.
Yes, so good morning, gentlemen, so one question on your guidance and one question on debt. On your guidance Holcim and Lafarge independent targets suggest limited organic EBITDA growth in 2015. Also you published a pro forma EBITDA of CHF 6.7 billion in 2014 for LafargeHolcim. Is it fair to assume that organic EBITDA growth is going to be limited in 2015 compared to this number?
Also, what extra scope effects can we expect this year compared to this number, is it only Australia? And the new foreign currency movements suggest that there could be about CHF 400 million of negative currency impact, is it correct? And last point, I understand correctly that you expect CHF 100 million of synergy, at least, this year?
And then the second question on debt is very simple. Does your net debt guidance of CHF 15 billion include the forthcoming disposals of India?
Okay. So thanks for the series of questions. I think, Thomas, maybe you are - why don?t you handle the pro forma and the debt question?
Okay. So on the pro forma, the reference you made to the pro forma operating EBITDA, which was disclosed in the accounts, obviously, that is an operating EBITDA on a full-year basis. So that includes Lafarge, the perimeter of Lafarge, as we have announced it and the perimeter of Holcim as announced taking into account the divestments and I?m not going to go through it, this is all in the pro forma accounts. But it?s on a full-year basis. Obviously, as you know, with LafargeHolcim for 2015, we will have the full-year basis of ex-legacy Holcim, and we will have the second-half of Lafarge, therefore, the CHF 6.4 billion EBITDA in the pro formas is obviously not comparable to the EBITDA for the full year of LafargeHolcim 2015. So I hope that answers this question.
With respect to - I?m not exact - with respect to the currency, this is what you were mentioning about, I think you mentioned a number of CHF 400 million. That?s in my view, I?m sure, based on your currency assumptions, pure speculation, with all the currency turmoils going on, very difficult to say where we are going to be at year-end. You have seen the impacts in detail, especially in the Holcim accounts due to the exchange rate difference, which started on January 15, so earlier this year was mainly the second quarter, the impact.
And with respect to the net debt guidance, clearly, we say in the LafargeHolcim announcement below CHF 15 billion. So there may be some more scope changes, which we cannot talk about now in detail. We are still finishing, as you know, China, we are doing a buyout of a minority of the majorities, including a mandatory bid offer. So that will obviously impact in the second-half positively revenues, since we then have to begin consolidating it, but will impact obviously also net debt. So - but I think the message here is below CHF 15 billion, prior to any fair value adjustments on the Lafarge debt, because that?s what we have to adjust, and obviously prior to any potential squeeze-out action on the Lafarge shares.
So on the CHF 6 billion of divestment that you expect at year-end, it doesn?t include a disposal - a potential disposal of India?
And on your EBITDA guidance - and on your independent EBITDA guidance, is it fair to understand that you?re expecting limited EBITDA - organic EBITDA growth at both Lafarge and Holcim in 2015?
Yes. We are expecting - for Holcim, we are expecting in the second-half EBITDA growth. But I think you are using the word limited. I don?t know exactly what you intend with limited. But clearly it?s - as we have adjusted the guidance, it?s less than what we have originally anticipated. Yes, you?re right.
Right. And keep in mind that the guidances given in the Holcim and Lafarge are for a perimeter that was the original guidance given earlier in the year. So, obviously, the ultimate number when we?ve come out with consolidated LafargeHolcim numbers will be somewhat different, because you?ve got scope adjustments and you?ve got many different accounting adjustments as well. Thank you.
At Lafarge - just to be complete, at Lafarge, we also expect in the second half EBITDA growth, overall limited plus.
Yes. Good morning. [indiscernible] bonjour. I have two questions, provided I might, first in Germany, secondly, in Egypt. In Egypt, could we have more flavor? Can you confirm that the EBITDA margin H2 - in H1 versus H1 2014 was down? And what are the expectations for the second-half year of 2015, given you will put on stream grinding stations for coal? That?s my first question.
Secondly, regarding Germany, I?m a bit surprised by the price effect, minus 10% for the first-half. Is that due to the first integration of CEMEX West? And could we also maybe know the perimeter effect of CEMEX West for the first-half in EBITDA and also in sales? Thank you so much.
Okay. Well, thanks for the two questions. I?ll start with - and I?ll give you some flavor on Egypt. And then maybe, Thomas, I?ll ask you to make a comment on Germany. So first of all, the situation in Egypt, so the first-half of the year, if you see at it compared to the year before, we?ve had volumes strongly up, reflecting a much stronger market, and overall more - a better environment from an energy standpoint, more energy available. Prices, however, have come down in the market compared to the year before, resulting overall in margins that are slightly improved versus last year, but not strongly improved.
Going forward, we?ve got a number of cost reduction initiatives underway to further optimize the fuel mix in the country. And we would expect to see good margin growth coming forward, driven principally through cost reductions, as well as strong volume would continue. The outlooks for Egypt is extremely favorable with the many strong, big projects in Egypt coming up. And then maybe, Thomas, maybe a word on Germany?
Okay. So, thanks for the question. So with respect to Germany, as you know, we don?t give absolute numbers on EBITDA by country, if they are not publicly quoted. So I cannot give you the split now between the prior legacy CEMEX business and the Holcim business. But what I can tell you, in the perimeter, if you compare like-for-like then on price in the ex - in the former Holcim perimeter Germany, so it?s mainly northern Germany, the pricing over the first two quarters is practically flat 0.5% negative.
But obviously the impact what you see, as we have disclosed it with 11.8% negative is the product mix with the new business, which has joined the perimeter in the first-half of 2015. With respect to volumes in Germany, obviously, volumes are significantly up due to the acquisition of assets. When you exclude the acquisition of assets in Germany, then we are on a like-for-like basis on volumes slightly negative in 5%, 6% negative in the first six months in Germany.
Okay. Can I just add a follow-up question? Is the margin of the purchased activities, CEMEX West, significantly different from that of historical Holcim Deutschland?
No. It?s a different product mix. It?s a different - we have, as you know, we have a different setup. In Northern Germany we have virtually divested our ready-mix operation. We have now acquired significant aggregates and ready-mix operation in Westphalia. And, therefore, it?s a very different product mix in Germany.
Yes. Good morning, everyone. My first question just on the merger itself, the process. Is there actually - I know the synergies timeline, but is there a timeline to complete the post-merger integration. And are there any steps that you might be able to share with us like systems integration or salesforce rationalization, when they might happen?
And then the second question is more about the Indian market. I just wanted to receive some color. I think you were pursuing a pricing over volume strategy. I just wanted to understand how that had gone versus the wider market. And then I presume from your guidance you are expecting some volume growth in the second-half. Just wondering what end markets you are expecting to drive out, what you were seeing on the ground there? Thanks.
Great. Thanks for the two questions. So first, let?s see at the overall timing of the integration. The way I look at the integration, I expect - my target is by the end of 2016 that we are substantially completed with the integration process. And that?s the target we?ve set and that?s what we expect to be able to deliver, which is systems, processes fully in place and we are fully operating as one company with really the integration phase completely finished.
Now, there will be some ongoing areas. You mentioned IT systems. We are not expecting to fully align all the IT systems in the next 18 months, but we are moving aggressively in that direction. That will certainly take a few more years than just receive to the end of 2016. So really if you take it out, we?ve looked at the timing and rollout of the synergies, which is CHF 1.4 billion to be in place by year three and one-third, one-third, one-third. And with a targeted completion of the integration process by the end of next year, we are self-assured that the integration - the synergies will be in place as per our target.
Maybe a comment on India. You were talking about the commercial strategy in India, where it?s true that there was a strong commercial strategy, increase pricing in the first quarter, and a more volume driven strategy that you can see in the results in the second quarter, resulting in overall results, as Thomas shared earlier, that are somewhat disappointing for the first-half of the year.
Looking forward, we do see some of the infrastructure work from the government starting to come through, and we are looking - anticipating growth in the second-half of the year. And even going into next year, we see the growth really starting to accelerate in India. India is a country that?s a fantastic opportunity. This is a long-term growth market with potential. And it?s just the first-half of this year growth did not materialize, as we were expecting.
Bob, if I may add just to give you a little bit more color to your question, we have - when you look at the first quarter of Holcim, obviously with ACC and Ambuja, two very big companies now in the portfolio of legacy Holcim, we had a 5.2 price increase across the two companies in the first quarter, price improvement, and missing 9.5% volumes. In the second quarter, we had a price decline of 5.7%, and volumes remained flat.
So clearly the change had a very significant impact on volume. And now with what Eric said with the growth expected in the second-half, we clearly expect a better operational and financial performance in the second-half in India.
Do you think your starting point, I mean, your starting point for pricing, I think you were trying to not let it fall too far ahead of recovery in sort of demand in that market. Do you think that?s worked? Do you think you?re sort of better positioned than some of your peers in that regard?
I think, the fact of the matter is the numbers talk for themselves. It works when you?re in an inflationary environment of 4%, 5%, 6%, 7% whatever you take, then it?s beautiful logic that you need to do something on the price as well. But this strategy did not work. And so we are not accepting further market share losses in India.
Thank you very much. Good morning, gentlemen. I have two questions, please. Firstly, on the CapEx side, you mentioned in the LafargeHolcim release that you want to reduce by CHF 200 million relative to initial expectations. Could you be a bit more specific on that regarding what you?re planning to reduce, is it development CapEx? And more generally, are there some projects, maybe some projects of development of Lafarge in Africa that you are reconsidering at this stage going forward?
The second question is around capital allocation. Clearly, you are quite eager to highlight the progressive dividend policy and that you are going to have - going to try to have a shareholder-friendly policy going forward. That being said, if your cash flows allow it, would you also consider spending a bit of money on the consolidation of some local markets? I think the situation in India at the moment is a good reflection that this is a market that needs a little bit of local consolidation, but there is clearly a few other markets like that. So would you consider going forward to work on local consolidation, especially in emerging markets?
Okay, great. Well, I?ll take those two. First of all, let?s start with CapEx. Yes, so we were - we?re clear that we?re going to reduce versus the originally anticipated CapEx for the year by CHF 200 million. And so your question, where is this coming from? Where it?s coming from is a big number of little and medium size projects that were in the works and plan. We already have between legacy Lafarge and legacy Holcim, for instance, six large expansion projects in process. So we?re certainly not going to be stopping plant - large plant expansion processes or projects in mid process.
So that?s not what we are talking about. What we are talking about is a lot of little and medium size projects, which are growth, and some are maintenance as well that were anticipated that when you look at the combined portfolio together you don?t need to do. This is one of the benefits of this merger is that we have a full asset portfolio and it?s going to give us a different range of options and flexibility. And you?re seeing it right from day one in this integration, with this CHF 200 million.
So in short, it?s a large range of tiny and medium size CapEx projects, where we expect to see the savings for the balance of the year. On capital allocation, the basis of - is a solid investment grade rating. So, yes, we are shareholder-friendly. We are generating returns for shareholders that absolutely are part of the strategy and objective of LafargeHolcim going forward, based on a strong investment grade rating. Your question was, in the uses of cash, is there prospects for consolidating local markets and such.
We?ve been very clear, and I?ll continue to be very clear that our strategy is not going to be acquisition driven. That?s not where - spending capital through acquisitions is not one of our priorities going forward. However, I did say that part of our next steps is a portfolio review. And in a portfolio review, we?ll look to - in some cases, we could do asset swaps, or we may do selective divestments as well, which could lead in some of the direction that you?re talking about. But I wouldn?t anticipate that, for us going forward, that one of our real priorities is going to be making acquisitions.
Yes, hello. Two questions from me. The first one is on guidance. Could you be a little bit more specific on the guidance, because on one hand you say that it?s not relevant anymore to look at the individual companies? guidance. On the other hand, I guess that you have already a lot of information about what will be the date of consolidation and so on. So can you give a guidance of EBITDA for the merged entity for 2015 or, if not, what is missing to give that guidance?
My second question is on the energy and the diesel, I would say, benefit from the lower oil prices. Can you quantify them for H1, and can you give your view on H2 about - if all matters remain what they are today, do you think that it will translate into a bigger improvement or not, given the usual phasing and hedging? Thank you.
Sure. Okay. Well, thanks for the question. It?s good to drill in and focus a little bit on your question on guidance and how things were announced today. So maybe the core of your question is why aren?t we giving a guidance for LafargeHolicm going forward. If I cut to the chase, the core of your question is that.
So why don?t I just address that directly? We?ve had the books fully opened together for - since July 10, right now. And to be able to give a guidance, a guidance has to be grounded with a management endorsement and with fully consolidated numbers, and even auditable for that. And we?re just certainly - it?s way too soon to be able to do something like that.
However, we wanted to be able to give an indication that some of the trends, as announced earlier in the year are somewhat different, as Jean-Jacques and Thomas had explained earlier due to a number of markets that are experiencing difficulty. We already had an announced guidance out and what we wanted - we just wanted to update that. But we have to do that versus the already - the scope of the already announced guidance going forward.
We will certainly, when we announce third quarter results and even more specifically on December 1, when we?re together give you very explicit targets going forward for the full company. But in the meantime, we need the time to be able to consolidate the numbers now that we have books fully open and we can share, and really put together numbers that are endorsed by management and very clear targets for you all to follow us going forward.
Secondly, Thomas, could I ask you to maybe comment on the energy evolution, first-half, and the outlook going forward in the second-half?
So the energy now, based on the footprint, obviously, of legacy Holcim, so in energy we were at - in the first-half of 2014, on energy expenses per tonne of cement produced of CHF 33.80. We are now after the first six months of 2015 at CHF 13.50, so a positive improvement. Some people may have expected a higher improvement, but we also have to take into account in certain countries you have fuel subsidies, which are phasing out. Indonesia may be one of the better examples to underlie this comment.
Looking forward towards the end of the year, also with inventories, obviously, which we have at hand, we would expect currently energy costs to remain at the levels I?ve just said or actually even improve a little bit further.
Yes. I think what Thomas mentioned is something you see across several countries. Even though the fuel cost has come down, subsidies have been removed at the same time. So for a consumer of energy, it doesn?t really flow through to the P&L in the way one would expect. The other little nuance in energy costs is that you would expect, going forward, that electricity costs are slightly higher, increasing a little bit more than fuel costs going forward.
Right. And I think you have specific three markets now where we experience significant electricity cost increases. That would be Brazil, Italy, and Indonesia.
Ex-Lafarge, we are giving you a yearly guidance of minus 1% for energy cost inflation. And when we look at the first-half, for the fuel side of things, if you exclude Egypt, it would be a ?20 cent reduction per tonne. And for power, on the other side, as indicated by Eric, we have an increase - a slight increase of ?0.2 per tonne on power linked to regulated markets, and in particular Brazil and Egypt.
Thank you very much. Just a follow-up to Josep?s question initially. Are you planning to give us the quarterly breakdown of the 2014 pro forma before Q3, so that we?ve got a basis to forecast? And then my two questions, please. Eric, cost cutting, you listed four countries, where you?re increasing the cost cutting. Do you have a number there that you could indicate what the total amount of cost cutting you?re planning?
And then just secondly, on pricing, it?s quite a big fall especially in Holcim from plus 4% in Q1 to only plus 1.2% in Q - sorry, first six months. Could you indicate the sequential price movements for both Holcim and Lafarge in Q2? Thank you.
Okay. Well, I?ll let Thomas answer the question on pricing going forward. In terms of the cost, Mike, your question on the difficult markets and the cost reduction initiatives, I don?t have a number, a specific number to give you, but I can describe some of what we?re working on in those areas. If you take a market like Indonesia, where you?ve got a slowdown in volumes and you have a difficult margin situation due to prices in the country, we have a very aggressive constant cost reduction program. It?s already been launched and underway right now, which we expect to redress the situation in Indonesia.
In India, we are focused on the ongoing cost reduction initiatives underway, where you have a significant piece around logistics costs going forward and plant optimization, as well as constant cost. And there?s a big fixed cost reduction program underway in Indonesia.
In Brazil, which is an interesting example where you?ve had strong cost inflation. And both the legacy Holcim and the legacy Lafarge have experienced the strong inflation over the last several years, you are in a different market environment right now. And now is the opportunity and the time to address the cost constitution in Brazil and that?s what we are doing, in part through the merger of our activities in Brazil. It?s an opportunity to really rethink the cost structure strongly in Brazil.
In Egypt, which is another one of the markets that I had mentioned, we are in the process of significantly restructuring our fuel mix overall, where we are still too dependent on heavy fuel oil in Egypt. And we expect to be substantially off heavy fuel oil and just be on alternative fuel and pet coke by the end of this year. But in terms of an overall number, I don?t have a number to give you on that, Mike, sorry.
Just pricing. So starting in Q1, it was an improvement of 0.5% overall in cement, and then in Q2, it was a negative of 1.5%. So I believe it?s also important to look at volumes, and the volumes tell you 9.3% negative in Q1 and 20% positive on volumes in Q2. I mean, you?re long enough in the industry. You know that there is a big change because of the hemisphere - of the changes in northern/southern hemisphere, but the increase of 20% is clearly more than normal.
And I think you were also asking the question about pro formas. So, on the pro formas, it?s really too early to give you any detail about how we are going to present the result I?m sure you appreciate that this is a major undertaking. From a purely accounting point of view, this is treated as an acquisition, so no restatement of information necessary. Obviously, in order to better understand results, we will have to somehow think about how can we present the results for outside community, but also internal to really understand what?s going on. But I cannot really comment and promise you something, which I cannot deliver, so we will come out with more details as long as we know a little bit more how that will look like.
And the last comment I?m making, you also appreciate that the perimeter is not yet finally fixed. So we are still working on certain divestments, as you know. And so starting then at really significant comparison is when we know what perimeter can we compare with what.
But, Mike, just to complement what Thomas is saying, we are absolutely driven by transparency, and we want and we will provide absolute transparent information to the community. And we?ll start with that when we have consolidated numbers to share following Q3, and then we?ll spend a lot of time together on December 1, going through our numbers in detail and targets going forward.
Sequential Q1 to Q2, it?s plus 0.5%. We have also to have in mind that looking forward we will have in the second half an easier comparison base, in particular for some countries like Iraq and Nigeria. And if you look at the quarter-on-quarter evolution year-on-year, Q1 was plus 0.6%, while Q2 was negative 0.5%, giving an overall year-on-year half-year price balance which is flat.
So my two questions. Firstly, maybe we can have another go at the extra cost reductions from these new measures. And I?m wondering if the run rate synergies that are described this morning in the merger company press release at CHF 1.5 billion, how those compare with the original guidance back in 2014 of CHF 1.2 billion. So is that CHF 300 million additional? Are these run rate synergies, CHF 1.5 billion, comparable with the operational? And then the second question. Thanks for those sequential price movements. Can both companies please compare those with underlying global cost inflation and maybe give some color on how that is differing between EM and developed markets? Thank you.
Yes. So thanks for the question. On the synergies, just to be clear on what we were talking about on the - addressing some of the difficult issues in the countries, those are not included in the synergies. Those are ongoing cost reduction business actions that are not related to the synergies and are not added to the overall synergies. And maybe the math between CHF 1.2 billion, CHF 1.4 billion, CHF 1.5 billion, I want to ask Thomas to walk you through that.
Okay. Let me try to give it a go, and if you don?t - if I?m not clear, then I?m sure you will have a follow-up question. So the synergy which we have communicated a year-ago or more than a year-ago on operating EBITDA was ?1 billion. On top of this ?1 billion, we have ?200 million announced on financial synergies and ?200 million announced on CapEx synergies. So ?1 billion on operating performance, ?200 million on financial, and ?200 million on CapEx. Adding this all up, it?s ?1.4 billion, and so that?s virtually what we are confirming, ?1.4 billion, translated in today?s - with today?s exchange rate into Swiss franc that?s the CHF 1.5 billion.
Exactly. That?s right. So, anyhow, the other question you had was with cost or inflation. So on cost inflation, we are talking about, in the Holcim world, when you look at country and you take the CPI and you?re using the weighing factor being net sales, then we experienced in the first six months on an annual run rate, a inflation of 2.8%. So how does that compare to the costs? On variable costs, the cost increase is in the first half 0.8%, so that?s 0.7% on distribution costs, that?s actually good news. We had a lot of inflationary pressure on distribution costs, India, even in the U.S. So that has come down significantly, and 0.9% on production costs.
And when you look at fixed costs and you see the operating profit bridge in our slides, when you look at fixed costs and you take out the costs on the merger cost, the CHF 86 million, we had a significant restructuring in Indonesia which you may have seen, a layoff of 400, 500 people which was an additional negative impact of CHF 40 million, so when you take the CHF 100 million out, then the fixed cost increase is close to 1%. So clearly all these initiatives are really helping us to reduce cost or to contain inflation and in certain parts of the world clearly reduce costs, and we are relentlessly continuing on reducing these costs.
On Lafarge, I would say that the cost inflation as we see it should be for the full-year slightly lower that what we had initially expected around 3% minus. For Q2, the level of the cost inflation is exactly the same as legacy Holcim at 2.8%.
Thank you. Could I just have a follow-up on cost savings? And appreciate its early days, but you?ve all got together with the 200 managers. And have you considered as part of this merger starting any radical closures in capacity in some of the markets where you?re oversupplied and you?re suffering significant issues?
Well, as a result of the merger, what we?ve said all along is that there are no industrial restructurings associated with the merger. Obviously, going forward, we look and we manage our costs market-by-market. So there?s no industrial restructuring right now to announce, but be assured that we?re extremely focused on our costs and we?re looking at the provision and the outlooks in each one of our markets going forward. But your question was in the context of the merger is there industrial restructurings associated with that, and I would say no, there is not.
Hi. Good morning. I wanted to explore one area that you mentioned, which is the fact that you?re losing market share in a couple of your countries. I think you - I?m not sure if I got that correctly, but I think you mentioned 16 countries where you?re sort of launching action plans. Can you just give us a color there as to why this has happened? Do you think this is disruption of the merger? Do you think - I guess India, for example, I guess is a function of you pursuing, initially at least, price-over volume strategy. So I guess could we have some more color there? And what do you think you need to rectify that? Is it effectively, therefore, you saying you will basically follow down pricing pressure in the market to move in line and recover your share?
The second question is on CapEx. I understand you?ve cut this year by CHF 200 million. I?m not entirely sure against what reference point there, but could you perhaps give us your best estimate at this point for 2016 CapEx, please, in Swiss franc million?
Okay. Well, let?s come back on - let?s start with your price question. You?re saying that we - in my messages earlier we were saying we were losing ground on market share. That wasn?t my message. My message was losing ground on price. And so you can understand that we can?t get specific on what our pricing outlook is in specific countries, but all we?ve said is that we?ve missing some ground in the recent period, both companies. And what we want to do going forward is focus, and we identified 16 markets, and we?re moving forward in those areas. I can?t get - unfortunately, for regulatory reasons, I can?t get any more specific on which geographies we?re talking about.
In terms of CapEx, what I would say is we?re not in a position today to give you a specific guidance for 2016. That?s what we?re going to see you in December 1 about, and we?re going to give clear guidance going forward and metrics, our strategy for the next couple of years. But today, we?re not in a position to give a specific number for 2016. But what I can tell you, and it?s what I had mentioned in my remarks earlier, and I?ve - we?ve already been very clear with the team when we were together last week, is that when you?re making your plan for LafargeHolcim for 2016, you?re making your plan with a CapEx frugal mindset in mind.
Now, we?re going to have a handful of large projects that we have to complete, and I mentioned that there are six large projects underway right now and there?ll be a piece of finishing those six projects that will still flow through in 2016. But our mindset in 2016 and our strategy, and this is what you?ll listen from us in December 1, is to generate cash and to limit CapEx spending. And beyond what that means exactly, I?m going to have to defer to 2016 to give a number.
So, Gregor, you mentioned about you don?t know what to compare the CHF 202 million [ph] for 2015. Let me maybe give you a little bit of flavor on the 2015 number. So the Holcim guidance was CHF 1.5 billion, as you remember. The Lafarge guidance was CHF 1.2 billion. So that adds up to CHF 2.7 billion. Then you have the scope change now the new group LafargeHolcim consolidates fully the Nigeria operation, Unicem. So, as you know, we are building an additional kiln or this joint venture is building a kiln. So this will contribute in the second half with the scope changes in total, give or take, CHF 150 million. So you are at CHF 2.7 billion, plus the scope change of CHF 150 million, gives you CHF 2.85 billion.
Now, you have to take out the CHF 550 million, which is disclosed in the Lafarge accounts because they will not show up, obviously, in the LafargeHolcim accounts, gives you about CHF 2.3 billion. You take the CHF 200 million off which we have announced this morning, at least CHF 200 million. We have some scope-out changes. And that?s then how you come below the - the CHF 2 billion or below, the CHF 1.4 billion for the second half.
Hi. Good morning, everyone. Maybe two questions remaining, the first one on tax rate. I don?t think we?ve talked about that yet. Could you give us an idea of what to use in terms of effective tax rate for this year, next year and going forward for the new company? And second, maybe a last try on guidance on operations this year. I know you won?t give a range or a pro forma number, but we saw that like-for-like performance on operation was slightly down in H1. You have some more bullish comments on the H2 operation. Could we expect or do you expect a like-for-like improvement for the year overall? Thanks.
Well, like we said, we really can?t give a guidance for LafargeHolcim, for all the reasons that I?ve mentioned previously. But listening to the comments, the two legacy operations are expecting improvement in the second half of the year. We have synergies and we have a number of actions to drive improvement. But I can?t give you a specific guidance overall for the year. Thomas, can I ask you to maybe make a comment on tax rates.
On tax rate, you know the guidance of Holcim 27%, the guidance of Lafarge is long-term between 30% and 31%. So I think to help you a little bit, a blend of the two I think would make a lot of sense. Why are we not giving you guidance at the moment for further outlooks? For the reasons Eric has mentioned. We are now working on the planning and also obviously an important piece of it will be what will happen with respect to Lafarge SA, whether a squeeze out can take place or not. So I think 27% and 31% and you take a blend and you?re going in the right direction.
Good morning, gentlemen. Just as a follow-on from that last question, can I just check, have you had any view from your auditors at this stage, Thomas, around the recognition of obviously the debt interest deductibility for Lafarge?s debt instruments, which obviously is part of that current tax rate guidance at 30% to 31%? Are you comfortable with that can continue with the auditors at LafargeHolcim?
And then two separate questions from me. Just on the 16 countries and the commercial strategy that you mentioned, Eric, I wondered, could you just give us a little bit more flavor? And obviously we?ve heard earlier on in the call, and it?s an extreme example in India between volume and price and that shift in strategy. But again, can you just give us a little bit more flavor? Is this more about how your salespeople operate? Is it actually an adjustment on getting prices back up? And do you not fear that that could ripple back in terms of volume weakness?
And then the ultimate question from me. You mentioned earlier that the management team - I think you had 200 CEOs last week. They?ve been given very clear targets, clearly. What are they being incentivized on probably this year, but thinking longer term? And the same for yourselves, can you confirm that it?s a combination of like-for-like, delivering the cost saving numbers, and will it also involve cash flow or the share price performance? Thank you.
All right. Well, why don?t I - I?ll ask Thomas. Why don?t you - do you want to start with answering the question on the debt?
So the short answer is on the deferred tax assets, if I understood you right, yes, that?s confirmed by the auditors that this is - that?s no issue. That?s pretty short.
Okay. Thank you. So on the 16 countries, once again, these are targeted actions focusing on segments on mix, and as well our overall commercial offer in these markets, and targeted in the areas where we believe we?ve lost too much ground and we want to capture back that ground. So it?s just - John, it?s one of those areas where I can?t go into specifics, for apparent regulatory reasons, but we?ve identified this. What I wanted to say to everyone is we?ve identified this as an area of priority for us going forward and we?ve mobilized ourselves in a number of specific countries going forward, looking at specific segments, looking at specific products overall, and even sub-regions within countries.
Now, your question - it was a great question on how are these country heads being incentivized. It?s one of the things I haven?t had a - we haven?t had a chance to talk about, but in the process of finalizing the synergies overall, the CHF 1.5 billion of synergies. What we have today is a bottom-up number that is identified person or country-by-country, operation-by-operation. And so each one of those country heads is incented on not only their share of that portion in 2015, H2 2015, but they know what they need to deliver in 2016 and they know what they need to deliver in 2017. And they have action plans and they?re working against it.
And they?re practical things, like one of the things in many different analyst meetings that I?ve talked about is logistic savings. And I?ve a good example for you on what that is in the U.S., where in the southeast of the U.S. there?s a legacy Holcim plant that had been traditionally shipping into the northeast. There?s a legacy Lafarge plant in Upstate New York near Albany. It doesn?t take a rocket scientist just to say that there?s a way to optimize that logistic. So that - just that movement right there is CHF 13 million of savings on a run rate annual basis. Now, because of the seasonality and everything, CHF 2 million of that will fall through in 2015. But we?ve got a tremendous number of examples like that.
The same thing that we have is things like purchasing, where we?ve identified - in the comparison the contracts, we?ve identified well over CHF 100 million of savings in just comparing the comparative prices that the two companies are paying. And given the timing of spend, there?s going to be a portion of that that flows through even in 2015. Now, each one of those examples is driven down, action-by-action, in each country overall worldwide. And I have a mechanism to follow and track and hold people accountable for driving these actions. And take my example from the southeast to the northeast in the U.S. That?s either going to be done or it?s not, and it?s going to be able to be measured and then bolster [ph], and it?s a synergy. And we have all of our CHF 1.5 billion of synergies right now structured and allocated with accountability being held.
And the other thing I wanted to say is it?s not just synergies. It?s also underlying business results, and we?re holding people accountable against their targets for their underlying business results as well. And that?s why we have things like ongoing cost initiatives from both legacy Holcim and legacy Lafarge. We hold them accountable for that. And even pricing actions, like I measured. And the country heads are incented and accountable for delivering the synergies and also delivering their ongoing business results.
Thanks, Eric. And just on yourselves, just to be clear in terms of how - because I know it was something discussed at the dinner. But are you going to be incentivized around both TSR and like-for-like plus what the cost saves come through as?
Yes. Well, we?re certainly going to be incented on the synergies and we?re going to be held accountable for delivering on the synergies and delivering on the general business result and our short-term objectives, which flows through into our EBITDA objectives. But our long-term incentive, just to come back to that, and we talked about this at the dinner, is earnings per share growth, total shareholder return and return on capital employed, and those are still absolutely the drivers for our long-term incentives.
Thank you. Thanks, John, for the questions. Why don?t we just have one or two final questions and then we?ll stop?
Yes. So good morning, gentlemen. So I had first one question on China, if you could give us a bit of color on the market given the recent trend, you had quite a bit of decreasing prices. So that will be my first question. And then if you - I?m sorry to make you repeat on the dividend. I was just trying to receive a sense if - in terms of the - actually in terms of the payout ratio, if you have something quite clear to give or if it?s just something that you will put in place after 2015. I?m not sure it is very clear for me. I?m sorry.
At this stage, no, because I understand your payout is in between 30% to 50%. And so I just was wondering, I intend if you have a decline in your - or let?s assume that given that 2015 might not be - it?s a disappointing year, what?s going to happen to the dividend? I mean, are you dedicated to at least do the dividend of this year or would you increase it to start with in 2015, or is the whole cash return to shareholders starting 2016?
Well, yes. Okay, I understand the question. So what we?re saying on the dividend is first of all we have an absolute commitment to a solid investment grade rating, and that?s the foundation off of which we will execute our strategy and that?s the way to kind of think of it. To me, it?s the foundation point. Off of that, we?re going to execute our strategy of driving synergies and reducing our CapEx spending and generating cash flow, and we will be returning excess cash off of that strategy to shareholders going forward.
When we look at the numbers and we look at our ability and we look at what we believe is the right amount of cash to return to shareholders as a part of it, we think - we?re making a commitment saying that we believe that that number will be at least CHF 1.3 per share, which happens to be nominally the same per share amount that was paid last year, before taking into account that there was a scrip dividend effect that went forward. So it?s really just us being able to give a commitment based on our cash generation potential, what we think is the right level starting point with a progressive dividend going forward.
If I switch to China, yes, you?re right. It is a more difficult environment in China, and we can all see that and we?ve seen it in recent months and even recent weeks. We?ve gone - from a legacy Lafarge standpoint, if you?ve seen the guidance, the guidance has moved from a growth of 1% to 4% in 2015 to minus 3% to zero is the range. For the balance of 2015, we expect flat demand, maybe some stimulus related growth overall, but we?re not in a strong growth environment going forward overall. We would expect to see limited growth going forward.
Yes. Good morning. Thank you. Just one final question from me. I was interested in your comment earlier about the possibility of I think what you termed portfolio optimization and the possibility to actually consider divesting some assets. Could you maybe talk a little bit through what?s the sort of criteria you would be considering for assets that might fall into that category over the next coming years? Thanks.
Well, the whole question of a portfolio review is something that we?ve - Thomas and I, as we?ve gone and met investors over the last couple of months, we?ve been very clear and consistent about that message. When you bring these two companies together, you have a very full asset portfolio. It?s a natural thing to look through the portfolio, and judge what is the right portfolio going forward that fits the strategy going forward. I?d rather not go into specific criteria. For me it all comes down to value creation and where we can create the highest value over time, I?m value driven, and I want to maximize the value for shareholders.
Now, in some cases, maybe the best way to maximize value is to do a swap, and maybe the best way to do value is to prune selectively in some cases. But the underlying premise going forward is not making large investment through greenfield expansions and acquisitions and being very prudent in how we manage our portfolio and actively manage that portfolio going forward. Don?t mistake that for saying that we?re announcing some big divestment program, because that?s not the message at all. The message is part of our active management going forward and our capital allocation is to carefully think through our overall asset portfolio.
And as I said in my comments earlier, when we come back to you on December 1, we?ll have some guidelines that we could give and share with you on how we would manage that going forward.
Thank you very much for all your participation on this call and for your questions. This is really, as I said in the beginning, a historic moment, where for the first time LafargeHolcim is speaking to our investment community, and we appreciate your participation. Thomas and I will be back in November with Q3 results on November 25, and we?ll see you all hopefully face to face together with us on December 1. Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Good-bye.
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