Professional Documents
Culture Documents
Read the online summary at LafargeHolcim is listed on the SIX Swiss Exchange
Paris, France www.lafargeholcim.com and on Euronext Paris, and is a member of
Employees at one of our worksites for the Dow Jones Sustainability Indices (DJSI)
the Grand Paris Express, the largest infrastructure The Sustainability Report complements this report. European Index.
project in Europe (see page 36). It presents more detail on our sustainability
achievements as well as progress against our
sustainability strategy.
Contents In this report Page
Market 20
Cement 30
Aggregates 34
Ready-Mix Concrete 38
People 58
analysis
5-year-review 280
02
Our momentum accelerated
in the second half of 2018
during which we exceeded
our sales targets, while
profitability increased
over-proportionally.
04
We are well-positioned and we
expect further acceleration
of our momentum in 2019.
08
Guayaquil, Ecuador
With our customer at the Santana Lofts site.
Previous page: New York, USA
Loading operations.
5.9 7.6
3.1 7.4
2.7
Notes. Recurring EBITDA excludes restructuring, litigation, implementation and other adding the Invested Capital at the beginning of the period to that at the end of the period
non-recurring costs. Free Cash Flow is defined as cash flow from operating activities less net and dividing the sum by 2 (based on a rolling 12-month calculation). The non-GAAP
maintenance and expansion Capex. Return On Invested Capital is defined as Net Operating measures used in this report are defined on page 282. Key figures are presented before IFRS 16.
Profit After Tax (NOPAT) divided by the average Invested Capital. The average is calculated by
10
Ada, Oklahoma, USA
Job done at the cement plant.
Previous page: Zurich, Switzerland
At our customer's building site.
Nairobi, Kenya
Safety walk at the grinding plant.
12
Chairman statement 14
CEO letter to shareholders 16
Meet the leadership team 18
Market 20
Strategy 2022 –
“Building for Growth” 22
Dear shareholders, – as our colleagues at the Holcim Mexico I would like to conclude my letter with a
The 2018 fiscal year was marked by Foundation have done for instance in remark on an issue that is personally very
significant progress in Strategy 2022 – Puebla, Mexico, by building 120 houses for important to me. We must be aware of the
“Building for Growth”. families affected by the 2017 earthquake. bigger environment for our success and
In India, we are the industry leader in not only consider our immediate business
We grew faster than the market and reducing CO2 emissions and are known for context. As a Swiss-based company with
improved the Recurring EBITDA of the extensive community services in the deep commitments to the EU and indeed
company through greater efficiency and villages where we operate. It is our vision to countries around the world, we are
cost discipline. After several years of to be at the forefront of sustainable perhaps especially aware of the
transition and adjustments to the construction solutions and innovation, and interdependencies upon which everyone’s
organizational structure, our company is for our stakeholders to see us as a well-being depends – not just
now well-positioned to thrive in a growing responsible and ethical company. LafargeHolcim’s. We live up to the
global building materials market. We have responsibilities that come with our
the best assets in the industry and highly Respect and responsibility towards the presence around the world. We aim
motivated teams all around the world to needs of all our stakeholders is part of our to be second-to-none as a steward of
further capture opportunities. culture. In this context, upholding Health global prosperity.
& Safety as a core value is highly
While our financial results attest to a important to us. I am happy to report that My sincere thanks go of course also to our
successful strategy, this only tells part of we have made a major step forward in employees around the world. They
the story. Your company aims to create reaching our goal of a zero-harm culture. embody our spirit of responsibility towards
value not only for its shareholders but also all stakeholders and their pride in our
for society as a whole, as we have been Last year, we have also further company will be the best guarantee of
doing for more than one-hundred years. strengthened our corporate governance, business success.
From the Grand Paris Express in France, for instance through the creation of the
currently the largest infrastructure project Ethics, Integrity & Risk Committee (EIRC), I also wish to thank our colleague Dr.
in Europe, to transformative projects in which is now fully part of our governance Thomas Schmidheiny, who decided not to
Ecuador and India, our products and structure. We strongly believe that with stand for re-election to the Board. In
services help to improve people’s lives and our reviewed and strengthened recognition of his many years of service to
spur economic growth. governance and compliance organization LafargeHolcim, my colleagues and I have
we have taken all necessary measures to
As a global leader in building materials, ensure that LafargeHolcim meets today’s
we also contribute our expertise to best corporate governance practices.
sheltering families in our communities
14
Beat Hess
Chairman
Corporate governance
Good governance underlies our approach to
creating long-term value.
Read more on P90–113
Beat Hess
Chairman
Dear shareholders, Zurich and Paris. The associated CHF 400 scheme has been implemented in all
In the business year 2018, we made million SG&A savings program was countries. All initiatives are supported by
excellent progress in executing our executed successfully and is delivering the launch of the new LafargeHolcim
Strategy 2022 – “Building for Growth” and results ahead of target. Business School.
made significant improvements to our
performance. Our momentum We made strong progress towards Our progress and performance in 2018 is
accelerated in the second half of 2018, closing the gap to best-in-class based on the commitment of our 75,000
during which we exceeded our sales performance in the Aggregates and employees. I thank all LafargeHolcim
targets while profitability increased Ready-Mix Concrete business segments. leaders and employees for their
over-proportionally. Both businesses developed positively in contributions, agility and entrepreneurial
terms of volumes, pricing and spirit in driving Strategy 2022 – “Building
Switching gears to Growth is the most profitability. These two business for Growth”.
fundamental principle of Strategy 2022. segments will play an important role in
First results have been achieved and the reaching the next level of performance For 2019, we expect solid global market
growth momentum accelerated of LafargeHolcim. demand for our products and we aim to
throughout the year, with a strong Net grow our business profitably. The
Sales increase of 5.1% on a like-for-like The strategy driver Financial Strength execution of our new strategy has
basis. All four business segments has led to improvements across all key successfully started and I am confident
contributed to this growth. Four bolt-on performance indicators. More than CHF that we will see a further acceleration of
acquisitions were completed in 2018 in 1.5 billion was refinanced at attractive our momentum.
Europe and North America which drove terms, thereby improving our company’s
growth and added to the company’s debt maturity profile and reducing On behalf of all LafargeHolcim
presence in ready-mix concrete and financing costs. The sale of the employees, I thank you for your trust and
aggregates. These acquisitions had Indonesian business contributes to the support.
immediate impact on profitability and strengthening of our balance sheet.
brought our company closer to our All measures taken in 2018 have already Best regards,
end-customers. Four more bolt-on led to a successful de-leveraging,
acquisitions have been signed in 2019 in with the Net Financial Debt/Recurring
Europe, Australia and North America. EBITDA ratio improving to 2.2x
(from 2.4x in 2017).
In terms of Simplification &
Jan Jenisch
Performance, we have successfully With regard to Vision & People, the new Chief Executive Officer
established a new operating model with operating model and leadership team
more P&L accountability for the countries have been established effectively.
and leaner corporate support functions. Globally our leaders are empowered and
Consequently, we have closed four the simplified performance management
corporate offices in Singapore, Miami, system and corresponding incentive
16
Jan Jenisch
Chief Executive Officer
5.1%
Net Sales growth (2018, like-for-like)
3.6%
Recurring EBITDA growth (2018, like-for-like)
Nationality: Austrian Nationality: Spanish Nationality: Canadian Nationality: Romanian Nationality: British
Born: 1961 Born: 1963 Born: 1966 and French Born: 1966
Born: 1971
18
Denver, Colorado, USA
The Executive Committee
at the Morrison quarry.
Five megatrends
driving market growth
of 2% – 3% per annum
20
A fragmented market – Opportunities for growth and acquisitions
Cement
LH market share of ~ 8% CHF 200 billion
Aggregates
LH market share of ~ 2% CHF 220 billion
Ready-Mix Concrete
LH market share of ~ 3% CHF 200 billion
Rest of Other building
China
World materials CHF 1,130 billion
Increased demand for better living Increased demand for sustainable Digitalization opens new avenues
standards and more efficient construction solutions and for growth & innovation
infrastructure increasing resource scarcity
2022 Targets
2018 Performance
22
Mumbai, India
With our customer at the Park by Lodha.
LafargeHolcim Annual Report 2018 Overview — Strategy 2022 – Building for Growth 23
Cologne, Germany
Pouring concrete to renovate the cathedral
metro station.
24
Good progress on Strategy 2022 –
“Building for Growth”
continued
The global rollout of the new Strategy Strong progress was made by the Outlook 2019
2022 – “Building for Growth” has been Aggregates and Ready-Mix Concrete Solid global market demand is expected
successfully started. Strong progress was segments towards closing the gap with to continue in 2019 with the following
made in all four drivers of the strategy, best-in-class performers. Both businesses market trends:
delivering results ahead of plan. developed positively in terms of volumes, • Continued market growth in
pricing and profitability. These two North America
Switching gears to Growth is the most business segments will play an important • Softer but stabilizing cement demand in
fundamental principle of Strategy 2022. role in reaching the next level of Latin America
First results have been achieved and the performance of LafargeHolcim. • Continued demand growth in Europe
growth momentum accelerated • Challenging but stabilizing market
throughout the year, with a strong Net The strategy driver Financial Strength conditions in Middle East Africa
Sales increase of 5.1% on a like-for-like has improved all key performance • Continued strong demand growth
basis. All four business segments indicators. More than CHF 1.5 billion was in Asia Pacific
contributed to this growth. Four bolt-on refinanced at attractive terms, thereby
acquisitions were completed in 2018 in improving the company’s debt maturity Based on the above trends and the
Europe and North America which drove profile and reducing financing costs. The successful execution of Strategy 2022, we
growth and added to the company’s sale of the Indonesian business has confirm our previously communicated
presence in ready-mix concrete and contributed to the strengthening of the targets for 2019:
aggregates. These acquisitions had balance sheet. All measures taken in 2018 • Net Sales growth of 3 to 5 percent on a
immediate impact on profitability and have already led to a successful de- like-for-like basis
brought the company closer to its leveraging, with the Net Financial Debt/ • Recurring EBITDA growth of at least 5
end-customers. Four more bolt-on Recurring EBITDA ratio improving to 2.2x percent on a like-for-like basis
acquisitions have been signed in 2019 in (from 2.4x in 2017). • Ratio of Net Debt to Recurring EBITDA 2
Europe, Australia and North America. times or less by the end of 2019
In terms of Vision & People, the new
In terms of Simplification & operating model and leadership team has
Performance, the company has been successfully established. The
successfully established a new operating company’s global leaders are empowered
model with more P&L accountability for and fully accountable for their P&L. The
the countries and leaner corporate simplified performance management
support functions. Consequently, we have system and the corresponding incentive
closed four corporate offices in Singapore, scheme have been implemented in all
Miami, Zurich and Paris. The associated countries. All initiatives are supported by
CHF 400 million SG&A savings program the launch of the new LafargeHolcim
was executed successfully and is business school.
delivering results ahead of target.
LafargeHolcim Annual Report 2018 Overview — Strategy 2022 – Building for Growth 25
Business
review Barcelona, Spain
In the warehouse of the Montcada cement plant.
26
Largest footprint in
the industry 28
Business segments
Cement 30
Aggregates 34
Ready-Mix Concrete 38
Solutions & Products 42
Delivering sustainable value 46
Innovating for success 54
People 58
Health & Safety 62
Risk and control 66
Capital market information 84
Grinding plant
Cement plant
North
America
CHFm
5,875
Net Sales
Latin
America
CHFm
2,731
Net Sales
28
Our plants
270
cement and grinding plants
663
aggregates plants
1,448
ready-mix concrete plants
Europe
CHFm
7,554
Net Sales
Asia
Pacific
CHFm
7,446
Net Sales
Middle East
Africa
CHFm
3,080
Net Sales
For centuries, cement has been essential Our cement customers include
to building long-lasting homes, modern
offices and public infrastructure. It is
manufactured through a large-scale,
construction and public works
organizations, manufacturers (producers
of ready-mix concrete and prefabricated
221.9
capital- and energy-intensive process. products), and, via retailers, the general Sales
Production begins in a rotary kiln, in which public. At a basic level, the market can be (million tonnes)
limestone and clay are heated to broadly segmented into bag and bulk
2017: 220.2
approximately 1,450 degrees Celsius. cement, with emerging markets generally
Under these extreme temperatures it the largest consumers of bagged cement.
2018 in review
coalesces into the semi-finished product Industrialized countries are mainly bulk
Solid volume growth of 4.4% on a
called clinker. markets, as cement is mainly consumed
like-for-like basis compared to 2017
by larger business-to-business customers
was driven by favorable conditions
To make traditional Portland cement, such as construction companies or
in most regions. In Asia Pacific, solid
gypsum is added to clinker in a cement building products manufacturers.
demand was driven by infrastructure
mill and the mixture is ground to a fine
and rural housing. In Europe,
powder. Other high-grade materials such Cement is costly to transport over land.
growth was supported by higher
as fly ash, pozzolan and limestone can be Consequently, the radius within which a
construction and residential activity
added to modify the cement for special typical cement plant is competitive
as well as incremental infrastructure
uses. extends no more than 300 kilometers for
spending. In Latin America, demand
the most common types of cement.
recovered in Brazil and Columbia
Our cements range from Portland However, cement can be shipped more
while the North American market
cements and classic masonry cements to economically by sea and inland
grew strongly in 2018 despite
specialized products for different waterways. Most LafargeHolcim plants are
unfavorable weather. In Middle East
environments, including those exposed to located close to customers in highly
Africa, sales stabilized at prior-year
seawater, sulfates and other harsh natural populated areas, benefiting from the
levels. Net Sales grew 6.0% on a
conditions. These products go hand in ongoing global trend in urbanization.
like-for-like basis, with Recurring
hand with complementary services such
EBITDA growth on a like-for-like
as technical support, order and delivery
basis of 1.7%, impacted by sharply
logistics, documentation, demonstrations
higher energy prices.
and training.
* Like-for-like.
30
Guayaquil, Ecuador
In the control room of the
cement plant.
Chandrapur, India
Ready to start cement delivery.
32
Connecting communities in the Himalayas
Some unique logistical challenges are involved The project advanced through agile,
when building a tunnel through the Himalayas. opportunistic activity when conditions allowed
for safe delivery.
“Working conditions are surely not easy,”
observes Sunil Tyagi, Project Manager for The tunnel is expected to open at the end of
STRABAG AG – Afcons JV, lead contractor on 2019. It will substantially improve living
the Rohtang Tunnel project. conditions for people who had previously been
isolated from the rest of the country whenever
The tunnel, which is nine kilometers long and snowfall blocked access. The Rohtang Tunnel
situated at 3,000 meters above sea level, will be will promote economic progress for the region.
the longest in the world at this altitude. Our
Indian affiliate ACC has delivered 138,000
tonnes of cement to help complete it.
* Like-for-like.
34
Untervaz, Switzerland
Quarry operations.
Paris, France
The Grand Paris project includes
circa 200 km of metro lines and 70
stations.
36
Helping keep Paris grand
For more than one-hundred years we have tonnes of cement to produce 650,000m³ of
supplied aggregates and concrete to the ready-mix concrete through 2022, with the
French market. When planning began for the goal of working on the GPE over the next
Grand Paris Express (GPE) – France’s largest 15 years.
construction project of the century – we were
eager to share our expertise and solutions. Aggregates come from our nearby quarries in
the Seine valley. These are delivered by barge,
The GPE is the largest transport infrastructure which is a more environmentally friendly
project in Europe. It represents an investment method than by road (two barges can handle
of about EUR 38.5 billion. Our building the load of 220 trucks). Most of the earth
materials and sustainable solutions are helping excavated from the GPE tunnels and stations
to make sure the GPE is environmentally will be removed the same way – in total the
friendly and in line with the Universal Climate GPE is expected to produce up to 40 million
Agreement signed at COP21. tonnes – travelling as far as Le Havre to
re-landscape some of our quarries along
To help realize the GPE’s anticipated 200 the Seine.
kilometers of new railway and 68 new rail
stations, we have already agreed to deliver
600,000 tonnes of aggregates and 260,000
* Like-for-like.
38
Marseille, France
Day's end at our ready-mix
concrete plant.
Guayaquil, Ecuador
Pouring ready-mix concrete.
40
Building a new gateway for global trade
As a leader in the global building materials And in the capital city of Quito, we have
industry, we take pride in helping our clients poured another 512,000 cubic meters of
find sustainable, positive solutions to concrete to create the city’s first metro
megatrends like population growth and system. This World Bank-sponsored project
urbanization. Good building – especially of envisions a 22-kilometer rapid transit artery
infrastructure – is key to helping societies that will connect the city’s 1.6 million people
absorb these trends and to ensure that the – a number that has grown steadily and will
benefits are widely shared. continue to do so into the future.
42
Zeeland, The Netherlands
Our durable Basalton creates a
concrete dyke for long-lasting
protection against storm surge.
In the summer of 2018 Aggregate Industries The project will make the roads a safer
won the bid to improve 28 miles of and more sustainable feature in the
State Route 160, a contract worth nearly community’s life. State Route 160 will be
USD 60 million, as well as a contract for two widened to create more travel lanes and
other roads northwest of Las Vegas. a raised median barrier will be added.
The side slopes will be flattened to make
“We needed a partner we could trust to work it safer for motorists to pull over. Plans
in mountainous terrain and in a confined also include a wildlife undercrossing.
space,” says Don Christiansen, Resident
Engineer with the Nevada Department of
Transportation (NDOT). “And at the same
time, they had to do all this while minimizing
disruption for nearby homeowners.”
44
Las Vegas, Nevada, USA
Widening State Route 160, commonly
known as the Blue Diamond Road.
We focus on four fields of action: Climate, We continuously review this ambition We will continue to monitor developments
Circular Economy, Environment and based on scenarios that take into account and to update our scenario planning in
Communities. the most recent internal and external line with the recommendations of the Task
input factors, such as the Carbon Force on Climate-related Financial
Climate Technology Roadmap of the International Disclosures (TCFD, see also page 68).
Since 1990 we have reduced our net Energy Agency & Cement Sustainability
carbon emissions per tonne of cement by Initiative and the nationally determined Circular Economy
25 percent. We lead the international contributions of the countries in which we Our cement plants provide an excellent
cement companies with the highest operate. As a consequence of our latest opportunity to address society’s waste
reduction against the 1990 baseline. review we revised our target value to 520 problem. Waste products can be used
LafargeHolcim cement is one of the most kg CO2/tonne by 2030. as a substitute for fossil fuels and other
carbon-efficient in the world. raw materials. This process – called
With this, we remain the most ambitious co-processing – helps lower greenhouse
We achieved this mainly through reducing company in our sector and retain our gas emissions by reducing the quantity
the clinker-to-cement ratio and consuming commitment to reduce emission levels in of fossil fuels in cement manufacturing.
less fossil energy per tonne of cement, line with a 2 degree scenario. This also means less waste in landfills
mostly by using alternative fuels. or incinerators (see “Focus on waste,”
page 50).
We measure our climate achievement in
terms of reduction in net CO2 emissions
(measured in kilograms of CO2 per tonne
of cementitious material, or kg CO2/
tonne). Our current 2030 emissions
reduction target of 40% vs. 1990,
translating to net CO2 emissions of around
460 kg CO2/tonne, exceeds the standard
for a 2 degree scenario.
46
Mombasa, Kenya
Haller Park, a former quarry that is
now a UN award winning nature park.
48
Cartago, Costa Rica
Collecting waste as an alternative fuel.
Environment
Over the last four years we have reduced
water withdrawal in our cement plants by
around 19% (or 73 liters per tonne of
cement). Over this period the initiative has
created water awareness in our plants and
we have refined our measurement
methodologies. Today we are shifting our
focus to consider our total impact on
water resources in the communities where
we operate, particularly in water-scarce
areas. In consequence we will revise our
ambitions to reflect water impact, which
we intend to reduce by focusing on the
most vulnerable areas of operation. In
some communities we already have a net
positive water impact, such as those
served by Ambuja Cement, which we have
calculated as being 6x water positive.
Focus on waste
We are one of the world’s largest waste In 2018 we promoted these waste
processing companies. In 2018 we treated management solutions in Egypt,
over 51 million tonnes of waste, an increase Mexico, Morocco and the Philippines –
of 4 percent versus 2017. More than 11 countries where marine plastic
millon tonnes was used as fuel and littering is a major concern.
alternative raw materials that we fed into
our kilns. Waste and plastics represent a threat to
marine ecosystems, the tourism and fishing
We co-process all types of waste, including industries as well as human livelihoods and
solid shredded waste from industrial and potentially human health. Marine litter finds
municipal origin, spent solvents, used tires, its way from human settlements to the
waste oils, contaminated soils, industrial and sea via illegal dumpsites close to waterways,
sewage sludges and demolition waste. leakage from waste transports, unsanitary
Depending on the waste regulation in a landfills as well as littering directly at the
country and the development of its waste coast.
market we can reach a fossil fuel
replacement rate of more than 90%. Besides The most effective way to prevent marine
using waste as a fuel substitute, we also use litter is to implement sustainable solid
waste streams from the power and steel waste management practices. We are
industries to replacing clinker in our cement, supporting selected municipalities in our
thus saving primary raw material and four target countries to improve their solid
reducing CO2 emissions. In some of our waste management systems. We follow
markets replacement rates reach 50%. an integrated approach, respecting the waste
management hierarchy: preventing before
Increasingly we are processing plastic. reducing, recycling materials and recovering
We are making a conscious effort to reduce waste. Once the waste is recovered, we use
plastic leakage into the ocean. While plastic it as an alternative to fossil fuels as described.
waste in our oceans has become a global
problem that needs to be addressed by
governments, we are part of the solution.
50
Bulacan, Philippines
Material ready for co-processing
in cement kiln.
Communities The LafargeHolcim Foundation The top prizes of the competition were
In many countries we enlarge the positive The purpose of the LafargeHolcim handed over in Mexico City to coincide
impacts of our operations – such as direct Foundation for Sustainable Construction is with the LafargeHolcim Next Generation
employment, tax revenues, infrastructure to raise awareness for sustainability in Awards Lab. Young professionals
development and local procurement – architecture, engineering, urban planning representing 25 countries developed ideas
beyond the factory gate. In Ecuador, for and the building industry as a whole. on the future of sustainable construction
example, we initiated a vocational training in workshops that were led by Global
program in which participants are not only Its flagship activity is the global Awards winners and experts from the
trained in skills such as masonry and LafargeHolcim Awards, the world’s best global network of the Foundation.
building, but also administration and recognized competition for sustainable The next competition for projects and
workplace safety. Graduates from the design in building and infrastructure. concepts in sustainable construction
program enjoy increased employment In 2018, winners from Mexico, Niger and opens for entries in June 2019.
possibilities in the construction industry. the USA were awarded from more than
Over the last four years over 15 million 5,000 submissions in 131 countries. Their
people have benefitted from our sustainable projects excel in social,
community programs worldwide. environmental and economic performance.
52
Bulacan, Philippines
CSR school contest to promote vegetable gardens.
Quito, Ecuador
We add social value by building affordable housing.
materials industry.
54
LH Accelerator: building innovation together
56
Holly Hill, South Carolina, USA
Lab technician preparing a sample.
Millau, France
The tallest bridge in the world, which
we helped to build.
Our people strategy focuses foremost on managers to observe and develop their Diversity & Inclusion
developing a stronger performance teams. Open, timely and constant LafargeHolcim believes in and values
culture. feedback is key to a strong performance diversity and promotes a workplace that is
culture. inclusive, fair and which fosters respect for
Leadership development all employees. In 2018, we:
We invest in developing current and future In terms of employee rewards, we • Monitored the actions plans in place to
leaders. In 2018 we focused our leadership simplified our global bonus scheme and achieve the 2020 targets at country and
development through the LafargeHolcim focused objectives on the results which fit regional levels covering gender balance
Business School that uses a case study our Group goals. Our aim is to drive and inclusion
method based on our actual business performance by assuring people are • Pushed countries and regions to identify
challenges. The program supports our rewarded based on the performance of and nominate female employees to the
Strategy 2022 – ‘Building for Growth’ and their own P&L. Our long-term incentive talent pool through the Talent Review
will take place every year. In 2018 200 of scheme aims at executives. Its & Succession Planning process
our top leaders have been trained. performance metrics have also been • Continued our global, multi-functional
redesigned to better reflect the desired task force to support Diversity &
Our training offer encompasses a range of sustained performance of our business. Inclusion programs
training programs for our employees to See also the Compensation • Continued to roll out programs to raise
build skills in areas including business, section on pages 114 –139. awareness of unconscious bias
financial, Health & Safety, sales, products
and solutions, operations and compliance. In 2018 we completed our global Talent People in our new operating model
Review & Succession Planning process. Now that we have implemented a
Performance and talent This process allowed us to identify talents country-focused, corporate-light operating
management in our organization and to better plan the model, we have put the bulk of our people
The performance objectives of our succession of key roles. It also helped us to strategy at local level. Countries are
employees are fully aligned with business make the right development decisions and empowered and accountable to
goals. We all have clear areas of identify where we need to improve our implement local best practices to achieve
accountability and understand how our talent pipeline to ensure we have the right results.
job impacts business results. Regular people for the business. Over 2018 we
checks take place between employees and doubled our bench strength.
their line managers during the year in
order to align execution and to allow
58
Houston, Texas, USA
Crew at barge terminal.
Almería, Spain
Employees at the Carboneras cement plant.
Davao, Philippines
Meeting held on plant premises.
60
Group employees
by region (thousands)
North America Latin America Europe Middle East Asia Pacific Service and trading
& Africa companies
13
20
12 22
1
9
1,216 252 45 13
Male Female Cement Ready-Mix Concrete
2017: 1,175 2017: 271
10 8
Aggregates Solutions &
Products
Male 83%
Female 17%
In 2018 our global lost time injury we operate. In 2018, we launched 17 behaviors. A new driver qualification
frequency rate (LTIFR) for Employees & revamped H&S Standards and conducted program is being delivered and includes
Contractors onsite reached 0.79, an an organizational transformation called robust in-cab training with a pass/fail
improvement of 13% compared to 2017 ‘One Team, One Program’ to establish a assessment.
(0.91). We are very pleased to see that the leaner and more horizontal H&S structure,
new strategy, combined with years of focused on implementation at country Regions that have implemented the
dedication and hard work are starting to level. program showed significant
have an impact on our H&S performance. improvements (the Middle East Africa
H&S is promoted through engagement region, for example, qualified over 50% of
One employee and 18 contractors lost and communication campaigns. In 2018 drivers in 2018 and reduced fatalities by
their lives in 2018. These deaths are the theme of our Global H&S Days was “I 47% compared to 2017). In-vehicle
unacceptable. Statistically speaking, improve H&S every day at my workplace.” monitoring systems (IVMS) are mandatory
compared to 2017 this represents a 39% Employees were asked to look at incidents and being installed in all our trucks. IVMS
overall improvement and 90% that could happen or had already is our proactive tool to monitor safe
improvement in employee fatalities (10 in occurred at their workplace and describe driving performance and now monitors
2017). Seventeen third parties died how to ensure they do not reoccur. The over 50% of the kilometers driven. In India
compared to 33 in 2017. Everyone in our purpose was to cascade our ”Key Lessons”, our Transport Analytic Centre (TAC) played
organization, beginning with our Board which have been published for most an instrumental role in providing well-
and Executive Committee, has taken on-site fatalities since 2017, reaching all structured and systematic analytics for
responsibility to ensure that we live and members of the workforce. Three best drivers’ and transporters’ performance. As
practice a culture of zero harm. practice challenges were successfully a result, India reduced the number of road
rolled out in 2018 throughout the fatalities by 79% from 2017 to 2018. In
Our core value company (with almost 2,000 entries, 2018, more countries are now connected
Health & Safety (H&S) is our core value. 140,000 votes and more than 15,000 to the TAC (e.g., Zambia, Lebanon and
We aim to achieve a zero harm culture participants), demonstrating a great Philippines), representing 30% of global
and zero fatalities. Our Ambition “0” commitment from employees at all levels kilometers driven in 2018. The journey
strategy focuses on six areas: Safety of the organization. continues in 2019.
On-site, Zero Harm Culture, Systems &
Processes, Road Safety, Health and Road safety program
Contractor Partnership. As part of this We continued driving progress in our road
strategy we implement standardized safety program. In 2018, we maintained
global programs in every country where the focus on transforming driver skills and
62
Ewekoro, Nigeria
Safety check.
Alcobendas, Spain
Employee at a ready-mix concrete plant.
Monitoring our worksites occupational hygiene programs. A health employees – more than half of them
Through the continued application of our program addressing malaria risks is now coming from operations – participated as
Design Safety and Construction Quality fully embedded in the Health Travel auditors, further contributing to
Program (DSCQP), we seek to mitigate process. This includes both training and an knowledge-sharing across facilities,
H&S risks linked to the design and induction program upon arrival to work in product lines and borders.
construction of our structures, quarries a malarial area.
and slopes. In 2018 we invested CHF 75.6 Sixty-six audits were conducted in 2018
million based on DSCQP Auditing our H&S performance across 34 countries. In 2018 we also began
recommendations. The H&S audit program measures our revisiting the sites with a significant
ability to implement H&S Standards and number of findings for an action-plan
Supporting the health of our ensure effective H&S Management follow-up.
workforce Systems (HSMS) across our company. Over
As a continuation of the health program 150 audits were conducted since the
started in January 2017, we remained program started in 2016, providing an
focused in 2018 on medical emergency independent governance process that
response planning and workplace aligns with Group Internal Audit. Over 900
64
Fatalities Fatalities Lost time injury
by personnel category by location frequency rate (LTIFR) 1
0.90
0.94
0.69
0.89
0.79
0.91
17
16
14
10
18
21
3
1
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
2017 and 2018 indicators refer to units/companies part of the Group as by IFRS reporting standards
2017 indicators reported according to Cement Sustainability Initiative guidelines
2018 indicators reported according to Global Cement and Concrete Association guidelines
See 2018 Sustainability Report for more details
1
Lost time injury frequency rate: number of lost time injuries per million hours worked
Risks The top-down assessment is generated is provided in Legal & Compliance risk
LafargeHolcim operates in a constantly through interviews with Heads of (page 72) and Internal Control (page 79).
evolving environment, which exposes the functions, Board and Executive Committee • Monitor & Reporting: regular progress
Group to different external, operational members and External Auditors. The on the actions/controls are followed up
and financial risks. In order to ensure the bottom-up assessment includes several by risk leads and reported to Group
sustainability of our business development stages: through the LafargeHolcim Risk
and to meet our targets, we make • Risk identification and analysis: Management tool. At least twice a year,
continuous efforts to prevent and control management assesses and evaluates the progress on mitigating actions, controls
the risks which we are exposed to. potential impact and likelihood of the and overall risk exposure is reported to
key risks which could have a material the Audit Committee and other executive
A comprehensive risk management and adverse effect on the current or future committees. Additional reports of the
Internal Control framework is deployed operation of the business. The risk effectiveness of the mandatory controls
throughout the Group, with appropriate horizon includes long-term strategic risks standards are submitted to the Group on
governance and tools. Through this and also short- to medium-term business a regular basis. Further information is
process we identify, assess, mitigate and risks. provided in the Internal Control section
monitor the Group’s overall risk exposure. on page 79.
Our goal is to incorporate risk thinking The impact and likelihood are assessed • Verification & Remediation: Group
into all strategic decision-making, for the current level (i.e., prior to Internal Audit performs independent
reducing the likelihood and impact of implementation of mitigation actions/ assessments of the effectiveness of
potential adverse events, ensuring controls) and for the target level (i.e., mitigating actions and controls and on
compliance with laws & regulations and residual significance and likelihood after the effectiveness of Internal Control and
ensuring the deployment of our Internal implementing mitigation actions/ on the risk assessment process. The
Control system in every country where we controls). annual audit plan drawn up by Group
operate. Further information is provided in • Risk mitigation: actions and/or controls Internal Audit and approved by the Audit
the Internal Control section on page 79. are defined by the management to Committee takes into account the
Our analyses consider environmental, mitigate the key risks identified. Risk various analyses described above.
sustainability, climate change, market, transfer through insurance solutions and Implementation of this plan and the
industrial, operational, financial, legal, the Internal Control system form an summary of work presented to the
compliance and reputational risks, integral part of risk management to Group Executive Committee and Audit
whether under our control or not. mitigate the identified risks. Additionally, Committee lead to more in-depth
LafargeHolcim has a robust fraud analyses in certain areas and contribute
Risk management process prevention program in place to prevent, to the continuous risk identification
The risk management process is deter, and detect fraud. It includes the process.
structured around several coordinated LafargeHolcim Integrity line, which
approaches conducted within the Group enables employees anywhere in the
and it is subjected to continuous world to anonymously exercise their
improvement. It includes a bottom-up and whistleblowing rights and report any
top-down risk assessments. These breach of the rules laid down in our Code
assessments are used as a basis for the of Business Conduct. Further information
Group risk matrix, which is updated every
year and submitted to and analyzed by
the Executive Committee and the Audit
Committee.
66
Roles & responsibilities management processes and Internal The HSSC mandate is to support and
LafargeHolcim established a clear controls by operational management. advise the Board of Directors on the
organization structure to ensure the The objective is to ensure the first line of development and promotion of a healthy
implementation of the risk management defense is properly designed and and safe environment for employees and
and internal control system, following the operating as intended. The second line of contractors, as well as on sustainable
governance, policies and framework defense also assists in the development of development and social responsibility.
defined by the Group. This organization is policies, processes and controls to More details of the Audit Committee and
built on the concept of three lines of mitigate risks and issues. HSSC are disclosed in the Corporate
defense. Governance section on pages 94 and 96.
The third line of defense is formed by
Under the first line of defense, operational Group Internal Audit (GIA). As an The risks on pages 70 to 78 are considered
management has ownership, independent function, GIA provides material and fundamental to our strategy
responsibility and accountability for assurance to the Board of Directors and for value creation. This list is not
identifying, assessing, managing and Executive Committee on the effectiveness exhaustive and represents the principal
mitigating risks. They are equally of the first and second lines of defense risks and uncertainties faced by
responsible and accountable for the and on governance, risk management and LafargeHolcim at the time of 2018 annual
deployment of the mandatory controls internal controls. report preparation. Other risks may
standards defined by the Group. Further emerge in the future and/or the ones
information is provided in the Internal Through the Audit Committee and the stated here may become less relevant.
Control section on page 79. A risk lead is Health, Safety and Sustainability
appointed in every country where we Committee (HSSC), the Board of Directors Further information is provided in the
operate to support local management oversees LafargeHolcim risk management, Corporate Governance section (pages 90
with the yearly risk assessment process, to Internal Control and climate change- to 113), Management Discussion &
coordinate activities with other assurance related risks. The Audit Committee Analysis (pages 142 to 157) and note 14.5
functions, especially the local Internal mandate includes the review of of the consolidated Financial Statements
Control and Compliance teams, and to compliance and risk management (“Group risk management,” page 227).
monitor mitigation actions. Country risk processes and review of management’s
assessment reports are signed off by the and internal audit reports on the
Country CEOs and progress on mitigation effectiveness of internal control systems
actions is regularly reported to the Group. and on the performance of the annual risk
assessment process.
The second line of defense consists of
Group corporate functions such as Legal,
Compliance, Sustainable Development,
Internal Control, Risk Management,
Security and Health & Safety. These
functions monitor and facilitate the
implementation of effective risk
68
Experts at work in Switzerland.
Political risks Economic, social and/or political As with market demand, the best defense against political risk is diversification.
LafargeHolcim instability (e.g. changes of LafargeHolcim’s broad geographic portfolio helps to limit our exposure to any
operates in many government or increased political particular localized risk. When necessary, mitigation measures are taken to adapt the
countries around the pressure) can impact our Group’s activities and organization, and to protect our people and assets in case
globe and is exposed, business. That impact may be political tensions are heightened.
directly or indirectly, direct (e.g. reduce infrastructure
to the effects of spending) or indirect (e.g. The impact of United Kingdom’s withdrawal from the European Union (“BREXIT”) has
economic, political economy uncertainty). been assessed and preventive measures have been taken. Relevant currency
and social instability exposures and counterparty risks were reduced before the BREXIT vote.
such as turmoil,
terrorism, civil war
and unrest situations,
particularly in
developing markets.
70
Key operational risks
Group Legal manages all competition investigations, information requests and enforcement
cases through a central team of legal specialists. Group Legal also tracks all Group-relevant
commercial litigation cases, and provides support to the relevant operating companies in
defense and dispute resolution. In addition, root cause analysis of disputes and
enforcement cases is taken into account in our continuous improvement cycle.
72
Key operational risks continued
Raw materials Much of our business depends on In countries where the supply of raw materials is at risk, we apply a range of tactics
(including mineral the reliable supply of mineral including strategic sourcing, changing input mixtures and maintaining minimum
components) resources, e.g. sand and long-term reserve levels. When required, we manage international seaborne
The risk that raw limestone. Failure to obtain the sourcing, which is an import alternative to offset local risks in countries. In addition,
materials cannot be raw materials (including mineral our research and development is devoted to finding ways to mitigate this risk while
supplied at components) at expected cost lowering our environmental footprint, e.g. by using waste-derived materials.
economical cost or and / or quality may adversely
suitable quality. impact variable costs and
financial performance.
Country CEOs are ultimately responsible and accountable for the implementation
and compliance of the country with Policies and Directives. Group Internal Audit
provides assurance to the Board of Directors and Executive Committee on the
countries’ compliance with the LafargeHolcim policy landscape.
Innovation Innovation is a key factor for Innovation is a key factor for long-term success in a competitve environment. Our
The risk that long-term success of the approach is to meet customer needs along the whole construction value chain by
innovation does not company and crucial to maintain developing and delivering products, solutions and technologies and by partnering
secure the our license to operate, with customers, suppliers and start-ups. The company embraces new developments
competitive particularly when it comes to in the digital environment, anticipates the impact of trends and new processes on the
advantage of the challenges of our CO2 intensive construction industry. A stronger focus on open innovation not only offers
company by industry and the need to mitigate opportunities but risks that collaboration with third parties does not provide
delivering new our impact on climate change. expected outcomes is to be considered. This risk is mitigated through appropriate
products, solutions legal frameworks including comprehensive project management. Non-protected and
and technologies on protected Intellectual Property (IP) is secured by knowledge management and filing
a continuous basis. patents and trademarks. Regular market and IP intelligence is done to avoid
infringement of third party IP rights.
74
Key operational risks continued
Information An information or cybersecurity To prevent major risks related to critical IT infrastructure or applications either
technology and cyber event could lead to financial loss, operated by the Group or its service providers, LafargeHolcim has established policies
risk reputational damage, safety or and procedures for IT security and governance as well as internal control standards
The risk that arise from environmental impact. that are followed Group wide for all applicable systems. These for example include
the unavailibility of redundantly designed data centers per region, redundant layout of critical IT
critical IT systems and systems, backup recovery procedures, virus and access protection as well as the
the loss or manipulation operation on a Security Operations Center (SOC) that was recently implemented.
of data resulting from
computer viruses, cyber Due to the fact that the risk landscape is constantly evolving, the Group’s IT risk
attacks, network register is regularly assessed and updated. Additionally, the measures to prevent
outages, natural from new risks or from impacts occurred (e.g. a downtime of a critical IT System in
disasters or human Latin America due to a human mistake in December 2018) are permanently improved
mistakes. and updated as well as regularly audited and controlled by the Internal Audit and
Internal Control departments.
Joint ventures and These limitations could impair In subsidiaries where we have joint control we seek to govern our relationships with
associates the Group’s ability to manage formal agreements to implement LafargeHolcim controls and programs. In these
The Group does not joint ventures and associates joint venture arrangements, the Group has traditionally appointed LafargeHolcim
have a controlling effectively and/or realize the personnel to facilitate integration, best practice transfer and drive performance. In
interest in certain strategic goals for these addition, Group Legal & Compliance function performed a comprehensive risk
business entities (i.e. businesses. In addition this might assessment during 2018 covering all joint ventures and associates in which
joint ventures and impede the ability of LafargeHolcim does not have a controlling interest in order to identify any potential
associates) in which it LafargeHolcim to implement deviations from the Group’s compliance program. Mitigation actions were identified
has invested. The organization efficiencies and its and implementation commenced. This will continue during 2019.
absence of a controlling controls framework, including its
interest increases the full compliance program. It can
governance complexity. also impede the ability to transfer
This may restrict the cash and assets between
Group’s ability to subsidiaries in order to allocate
generate adequate assets in the most effective way.
returns and to
implement the
operating standards
and compliance
program.
Talent management Without the right people, We have a global talent review and succession planning process to evaluate current
The risk that the LafargeHolcim will be unable to and future talent. We invest significantly in developing both functional and
company does not have deliver its growth ambition. management skills. Core human resources processes, like strategic people planning,
a sufficiently robust performance evaluations, reward strategies and talent management are
talent pipeline given its implemented in all LafargeHolcim countries and corporate functions. Group HR
growth ambition. oversees the quality of deployment of these processes to ensure we have the right
people in the right places (see page 58).
Liquidity risk Lack of liquidity could impact our Individual companies are responsible for their own cash balances and the raising of
The risk that the ability to meet our operational internal and external funding to cover the liquidity needs, subject to guidance by the
company will not and/or financial obligations. Group.
generate sufficient
cash flow or will not The Group monitors its liquidity risk by using a recurring liquidity planning tool and
have access to maintains cash, readily realizable marketable securities and unused committed credit
external funding to lines to meet its liquidity requirements. In addition, the strong creditworthiness of the
meet its obligations. Group allows it to access international financial markets for financing purposes.
Please refer to Note 14.5 of the Consolidated Financial Statements (page 227) for
details on the contractual maturity analysis and LafargeHolcim maturity profile.
76
Key financial risks continued
Foreign exchange The translation of foreign The Group may hedge certain net investments in foreign entities with derivatives or
risk operations into the Group other instruments. To the extent that the net investment hedge is effective, all
The Group’s global reporting currency leads to foreign exchange gains or losses are recognized in equity and included in currency
footprint exposes it currency translation effects. translation adjustments.
to foreign exchange
risks. Due to the local nature of the construction materials business, foreign exchange risk
is limited. However, for many Group companies, income will be primarily in local
currency, whereas debt servicing and a significant amount of capital expenditures
may be in foreign currencies. As a consequence thereof, the Group may enter into
derivative contracts which are designated as either cash flow hedges or fair value
hedges, as appropriate and also include the hedging of forecasted transactions.
Please refer to Note 14.5 of the Consolidated Financial Statements (“Financial risks
associated with operating activities”, pages 227–237) for additional details.
Credit risk The failure of counterparties to To manage this risk, the Group periodically assesses the financial reliability of
The risk that our comply with their commitments customers.
customers default on could adversely impact the
payment, resulting in Group's financial performance. Credit risks, or the risk of counterparties defaulting, are constantly monitored.
collection costs and
write-offs. Counterparties to financial instruments consist of a large number of established
financial institutions. The Group does not expect any counterparty to be unable to
fulfill its obligations under its respective financing agreements. At year-end,
LafargeHolcim had no significant concentration of credit risk with any single
counterparty or group of counterparties.
The maximum exposure to credit risk is represented by the carrying amount of each
financial asset, including derivative financial instruments, in the consolidated
statement of financial position. Please refer to Note 14.5 of the Consolidated
Financial Statements (“Financial risks associated with operating activities”, pages
227–237) for additional details.
Insurance The Group could be impacted by We place insurance with international insurers of high repute, together with our
Our sector is subject to losses where recovery from internal captive insurance companies. We continuously monitor our risk environment
a wide range of risks, insurance is either not available to determine whether additional insurances will need to be obtained.
not all of which can be or non-reflective of the incurred
adequately insured. The loss.
Group obtains coverage
as far as possible,
commensurate with the
relevant risks.
Multi-employer There exists material risk that The Group has undertaken a review of all these plans with the goal being to fully
pension plans (MEPP) substantial cash contributions understand the plans’ financial circumstances, as well as all options available to
The Group participates could be required in the future to mitigate risks and reduce the Group’s actual and potential financial obligations. As
in a number of satisfy any outstanding the Group’s participation in these plans is subject to negotiations with bargaining
union-sponsored obligations under these plans. unions, the Group’s ability to take action is limited.
multiemployer pension Moreover, satisfying the Group’s
plans in the US. These obligations might have a material
plans are subject to impact on the Group’s reported
substantial deficits due financial results. The financial
to market conditions condition of these plans is not
and business actions, currently reported in the Group’s
plan trustee decisions, financial reports.
plan failure, as well as
actions and decisions of
other contributing
employers. The Group
has essentially no
control on how these
plans are managed.
Goodwill and asset A write-down of goodwill or Indicators of goodwill or asset impairment are monitored closely through our
impairment assets could have a substantial reporting process to ensure that potential impairment issues are addressed on a
Significant impact on the Group’s net income timely basis.
underperformance in and equity.
any of the Group’s Detailed impairment testing for each cash-generating unit within the Group is
major cash generating performed prior to year-end or at an earlier stage when a triggering event
units or the divestment materializes. The Audit Committee regularly reviews the goodwill impairment
of businesses in the process.
future may give rise to
a material write-down
of goodwill or assets.
Tax Changes in applicable regulations Risks are reviewed and assessed on a regular basis in light of ongoing developments
LafargeHolcim is and increased scrutiny by with respect to tax audits and tax cases, as well as ongoing changes in the legislation
exposed to tax risks due governments and tax authorities and tax laws.
to potential changes in in the countries we operate could
applicable regulations in impact our effective tax rate and Intercompany charges within the Group follow Organisation for Economic Co-
certain countries and trigger additional tax liabilities. operation and Development (OECD) and local arm’s length standards.
increased scrutiny by
governments and tax Due to the uncertainty associated The LafargeHolcim Group Tax policy and Transfer pricing directive provide the
authorities in pursuit of with tax matters, it is possible binding rules for all countries where we operate.
perceived aggressive tax that at some future date,
structure by liabilities resulting from audits or Group Tax continuously works with Internal Control on aligning, improving and
multinational litigations could vary significantly implementing processes and controls within Group Tax and countries. It is also
corporations. In addition, from the Group’s provisions. continuously developing the right skilled people through training, while insourcing
assumptions have been part of the job currently performed by external tax firms and consultants.
made for calculation of
tax provisions and
overall tax charges.
78
Internal Control The set of Minimum Control Standards that every country and business in our organization must follow.
In 2018, the Internal Control framework
was enhanced by introducing mandatory
Govern
a
‘Minimum Control Standards’ to clarify and IT C omp n ce a
l i an nd
reinforce the responsibility of the ce
cc so
on
ur n
ou l id
s
so a
ce
Re um
Every country and business in our
nt atio
in
H
organization must follow these standards
g&n
with clear guidance and consequence
management should these standards not
be 100% compliant.
Minimum
Expenditure
Control
Tax
These standards encompass controls from
accounting and financial reporting to Standards
Compliance, Health & Safety, security, HR
and IT. They are managed and checked by
our Internal Control team with control
ry
Re
su
ve
ea
nu
Tr
e
Risk identification and analysis Tax: Tax risk assessment and reporting, HR: Employee management (on-boarding,
The approach implemented by the Group, tax filings & payments, deferred and transfers, offboarding), payroll,
relating to the identification and analysis income tax calculations, transfer pricing compliance with local labor laws and
of risks, is described on page 66. and non-income (indirect) taxes employee pension & benefit plans
Mandatory Minimum Control Treasury: Bank relations, secure handling IT: Information security management and
Standards of payments, financial instruments, IT service management
Our mandatory minimum control borrowings & commitments and forex,
standards cover the following core interest rate commodities risks monitoring Internal Control monitoring
business processes, going beyond and hedging throughout the Group
accounting and finance: The Group is committed to maintaining
Fixed Assets: Management of titles, high standards of internal control. It
Governance & Compliance: Compliance licenses and permits, rehabilitation and implements detailed work related to
with laws, regulations and Code of restoration provisions, classification and documentation and testing of mandatory
Business Conduct, BOD secretarial, Health depreciation of property plant & “minimum internal control” to support its
& Safety, Risk Assessment and mitigation, equipment and physical verification assessment. All documentation is kept in a
Segregation of duties, delegation of dedicated internal control tool which is
authorities, review of litigation, disputes, Inventory: Physical stock take (spare parts maintained by the Group Internal Control
and Personal data protection. and materials) and inventory provision department. This work is implemented at
and write-offs country and at Group level and
Accounting & consolidation: Compliance encompasses:
with accounting principles including best Revenue: Master data, price • a description of key processes affecting
practices from the reconciliation of management, customer credit limits, the reliability of the Group’s financial
accounts to consolidation of financial accounts receivable reporting, and that of the parent
statements and submission of Group company;
reporting package and statutory financial Expenditure: Master data, supplier • a detailed description of mandatory
statements qualification, 3 way match and direct controls defined in the Group's Minimum
vendor invoices, supplier payments and Control Standards;
accruals for expenditures • tests of controls to check the operational
effectiveness of such control. The scope
of such tests being defined based on
materiality and risk level of each entity;
80
• an annual internal certification process Executive Committee Countries
to review the principal action plans in The Executive Committee steers the In application of the Minimum Control
progress and to confirm management effective implementation of the Group’s Standards, internal control is under the
responsibility at country and Group level internal control policy, through: direct responsibility of the Executive
for the quality of both internal control • the monitoring and follow-up of internal Committee of each country. In each of the
and financial reporting; control procedures performed Group’s countries, Internal Control
• a formal reporting, analysis and control throughout the Group, and in particular Managers are appointed. Their role consists
process for other published information the follow-up of identified action plans. mainly in supporting the identification of
included in the Group’s Annual Report. Periodic presentations on internal risks by the management, the
control are submitted to the Executive implementation of the Minimum Control
This work is part of the process of Committee; Standards and ensuring procedures related
continuous improvement in internal • the review of the country mandatory to internal control over financial reporting in
control and includes the preparation of Minimum Control Standards and their country are implemented. Their
specific action plans, identified through certification twice a year. Countries activities are coordinated by the Group
the activities described above, as well as confirm their assessments through the Internal Control department presented
through internal and external audits. The internal control scorecards and signed below.
implementation of action plans is followed certification letters;
up by relevant Senior Management. The • the review of the annual summary of the Countries report their internal control
outcome of such procedures is presented Group’s internal audit reports. assessments to the Group twice a year
to the Audit Committee. through the internal control scorecards
Group functions and signed certification letters. Any
Internal control is monitored at all levels of Group function leaders, including in exception to the mandatory minimum
the Group. The roles of key stakeholders particular managers of the Group Finance control standards need to be documented,
are described below: function, have been designated at Group mitigated and approved by the Group.
level as “business process owners”, with
Board of Directors and Board the responsibility of: Group Internal Control department
Committees • documenting their processes at Group The Group Internal Control department is
The Board of Directors through the Audit level including product line specifics and in charge of overseeing internal control
Committee ensures the existence and verifying that the “Internal Control and monitoring all procedures related to
assesses the design and the effectiveness Standards” for such processes are internal control over financial reporting.
of the Internal Control System and risk effectively implemented;
management, and forms an impression of • defining and updating the standards of
the state of compliance within the Group. internal control applicable to countries.
82
Canton St. Gallen, Switzerland
The Tamina bridge is one of the
tallest in Europe.
2018 has been a challenging year for Against this backdrop, LafargeHolcim’s
equity markets, marked by a return of share price closed at CHF 40.5, a decrease
volatility. Investors have reduced their risk of 26.3 percent from the 2017 year-end
appetite, notably in the face of slower closing price on the Swiss market. The
than expected growth, a tightening in US share price contracted by 23.8 percent on
monetary policy, and the trade dispute the Paris stock exchange. In comparison,
between the US and China. the SMI decreased by 10.2 percent while
the CAC 40 declined by 11.0 percent.
Performance in the building and
construction sector has been influenced
by rising cost inflation and surging
commodity prices. Emerging markets
have lagged in 2018 in a context of tighter
liquidity, signs of moderating economic
growth and political and currency
turbulence.
90
80
70
60
50
40
30
20
2014 2015 2016 2017 2018
SMI rebased to LafargeHolcim SW share price at January 2, 2013; CAC40 and LafargeHolcim FP rebased to LafargeHolcim
1
84
The average trading volume in 2018 and SLI). As the velocity of the stock has Distribution of
amounted to approximately 2.3 million fallen under the required threshold, LafargeHolcim shares
shares per day on the SIX Swiss Exchange LafargeHolcim has been excluded from and breakdown of shareholders
and 0.2 million shares per day on the the CAC 40 Index in June 2018 and from The majority of shares held outside
Euronext Paris. the CAC Next 20 Index in September 2018 Switzerland and France are owned by
on the Euronext Paris. Each LafargeHolcim shareholders in the United States and the
Listings share carries one voting right. At year-end United Kingdom.
LafargeHolcim is listed on the SIX Swiss 2018, the company’s market capitalization
Exchange and on Euronext Paris. The stood at CHF 24.6 billion.
Group is a member of the main large
indices on the SIX Swiss Exchange (SMI
Index Weighting in %
Additional Data
Free float or a combination of cash and shares (scrip disposes of shares, for his own account, in
Free float as defined by the SIX Swiss dividend). The new shares will be issued at a company incorporated in Switzerland
Exchange and the Euronext stands at a discount to the market price. whose equity securities are listed, in whole
79 percent. or in part, in Switzerland and thereby
Significant shareholders attains, falls below, or exceeds the
Dividend policy Information on significant shareholders threshold of 3, 5, 10, 15, 20, 25, 331/3,
Dividends are distributed annually. For the can be found on page 276 of this report. 50, or 662/3 percent of the voting rights,
2018 financial year, the Board is proposing whether or not such rights may be
a payout from the capital contribution Disclosure of shareholdings exercised, shall notify the company and
reserves in the amount of CHF 2.00 per Under the Federal Act on Financial Market the stock exchanges on which the equity
registered share. Subject to approval by Infrastructures and Market Conduct in securities in question are listed.
the annual shareholders’ meeting, Securities and Derivatives Trading
shareholders will be given the choice of (Financial Market Infrastructure Act, FMIA),
having the dividend paid out in cash, in whosoever, directly, indirectly, or acting in
the form of new LafargeHolcim Ltd shares concert with third parties, acquires or
High 60 60 57 73 83
Low 39 51 34 48 62
Average 50 56 47 63 73
Market capitalization (billion CHF) 24.6 33.3 32.6 30.5 23.3
Trading volumes (million shares) 625.3 574.6 615.0 449.1 266.8
Earnings per share (EPS) in CHF 2.52 (2.78) 2.96 (3.11) 3.633
EPS before impairment and divestments in CHF 2.63 2.35 2.10 – –
Cash earnings per share in CHF 4 5.01 5.04 5.44 5.22 7.01
Consolidated shareholders’ equity per share in CHF 5 50.41 51.87 50.88 51.79 53.49
Dividend per share in CHF 2.006 2.00 2.00 1.50 1.30
1
Restated due to changes in accounting policies.
2
Shares reserved for convertible bonds.
3
EPS for 2014 was restated due to the distribution of a scrip dividend.
4
Cash EPS calculated based on cash flow from operating activities divided by the weighted-average number of shares outstanding.
5
Based on shareholders’ equity — attributable to shareholders of LafargeHolcim Ltd — and the number of dividend-bearing shares (less treasury shares) as per December 31.
6
Proposed by the Board of Directors for a payout from capital contribution reserves.
86
Registration in the share register company concerning their status and are
Information on LafargeHolcim
and restrictions on voting rights subject to recognized banking or financial registered shares
On request, purchasers of registered market supervision. The Board of Directors Further information on LafargeHolcim
has issued the applicable Registration registered shares can be found at:
shares are entered in the share register as
lafargeholcim.com/investor-relations
voting shareholders provided that they Regulations which can be found on the
expressly declare that they acquired the LafargeHolcim website.
shares in their own name and for their
own account. The Board of Directors will
enter individuals whose requests for
registration do not include an express
declaration that they hold the shares for
their own account (nominees) in the share
register as shareholders with voting rights,
provided that such nominees have
concluded an agreement with the
Nairobi, Kenya
Safety checks at the grinding plant.
88
Corporate governance 90
Compensation report 114
90
Capital structure the new shares. The acquisition of shares
Topic
Articles of incorporation of LafargeHolcim Ltd LafargeHolcim has one uniform type of through the exercise of conversion rights
lafargeholcim.com/articles-association registered share in order to comply with and/or warrants and each subsequent
international capital market requirements transfer of the shares will be subject to the
Code of business conduct in terms of an open, transparent, and restrictions set out in the Articles of
lafargeholcim.com/corporate-governance Incorporation. As per December 31, 2018,
modern capital structure and to enhance
attractiveness, particularly for institutional no bonds or similar debt instruments of
Changes in equity of LafargeHolcim the company or one of its Group
investors.
(information for the year 2016 is included in
the Annual Report 2017, 126 – 127) companies were outstanding that would
166 – 167 Share capital give rise to conversion rights or warrants
The share capital is divided into related to the conditional capital;
Detailed information on conditional capital 606,909,080 registered shares of CHF 2.00 therefore, in the year under review, no
lafargeholcim.com/articles-association conversion rights or warrants have been
nominal value each. As of December 31,
Articles of incorporation: Art. 3bis exercised. Further information on
2018, the nominal, fully paid-in share
capital of LafargeHolcim Ltd amounted to conversion rights and/or warrants and
Key data per share applicable conditions may be found in the
CHF 1,213,818,160.
84 – 87, 256, 276
Articles of Incorporation of
92
Board and Committee attendance at scheduled ordinary meetings
Nomination,
Compensation & Health, Safety &
Audit Governance Sustainability
Name Position Board Committee Committee Committee
1
Member of the Board and of the AC until Shareholders General Meeting 2018
2
Chairman and member of the AC as of Shareholders General Meeting 2018
3
Member of the Board and of the HSSC until Shareholders General Meeting 2018
4
Member of the HSSC as of Shareholders General Meeting 2018
Audit
Committee
The Audit Committee assists and advises In 2018, the committee reviewed in
Composition of the Audit Committee
the Board of Directors in conducting its particular the financial reporting of the
Patrick Kron supervisory duties with respect to the Group, the releases of the quarterly results
Chairman 1 internal control systems. It examines the and the findings of the external auditors.
reporting for the attention of the Board of The committee took note of the status of
Gérard Lamarche
Directors and evaluates the Group’s the Internal Control System (ICS),
Member
external and internal audit procedures, discussed the findings of Group Internal
Bertrand Collomb reviews the risk management systems of Audit, dealt with compliance and internal
Member 2 the Group, and assesses financing issues. directives, and evaluated financing issues.
The committee also evaluated the
Jürg Oleas
All members are independent in order to performance of the external auditors and
Member
ensure the necessary degree of objectivity their fees. The Chairman of the Audit
Dieter Spälti required for an Audit Committee. Committee performed significant work in
Member preparing and following up the
In 2018, six regular meetings of the Audit committee’s meetings given the wide
Committee were held. The external range of its duties.
auditors, the Head of Group Internal Audit
and the Group General Counsel were The charter of the Audit Committee is
present at all meetings for certain agenda available at:
topics. Furthermore, the Chairman of the www.lafargeholcim.com/articles-association
Board, the CEO and the CFO attended the
meetings of the Audit Committee as
guests. The average duration of the
regular meetings was three hours and
thirty minutes.
1
Chairman and member as of Shareholders General
Meeting 2018
2
Member until Shareholders General Meeting 2018
94
Nomination, Compensation
& Governance Committee
The Nomination, Compensation & The charter of the Nomination,
Composition of the Nomination,
Compensation & Governance Committee Governance Committee supports the Compensation & Governance Committee
Board of Directors in planning and is available at:
Nassef Sawiris preparing succession at the Board of www.lafargeholcim.com/articles-association
Member Directors and senior management level. It
Paul Desmarais, Jr monitors developments with regard to More details on the activities of the
Member corporate governance and compensation Nomination, Compensation & Governance
for the Board of Directors and Executive Committee, in particular with regard to
Oscar Fanjul Committee, and briefs the Board of the process of determination of
Chairman Directors accordingly. The committee compensation, can be found in the
Adrian Loader advises the Board of Directors on the Compensation Report, starting on page
Member compensation policy for the Board of 114.
Directors and for the Executive Committee
Hanne B. Sørensen
and on the motion by the Board of
Member
Directors to the Shareholders General
Meeting for the total compensation of the
Board of Directors and of the Executive
Committee.
Dieter Spälti
Member 2
1
Member until Shareholders General Meeting 2018
2
Member as of Shareholders General Meeting 2018
96
Organizational rules/Areas of As part of its non-transferable statutory The CEO assesses the performance of the
responsibility responsibilities, the Board of Directors members of the Executive Committee and,
The division of responsibilities between defines the corporate strategy, approves after advice and assessment by the
the Board of Directors, the CEO, and the the consolidated Group mid-term plan, Nomination, Compensation & Governance
Executive Committee is set out in detail in including the budget, and the Annual Committee, determines their respective
the company’s Organizational Rules. Report for submission to the Shareholders individual objectives.
General Meeting.
The Organizational Rules entered into The Executive Committee oversees risk
force on May 24, 2002, and are reviewed The CEO is responsible for operational management following appraisal by the
at least every two years and amended as management, preparing a large part of Audit Committee. The Board of Directors is
required. They were last reviewed and the business of the Board of Directors – informed annually about the risk situation.
amended in July 2018 and may be found including corporate strategy proposals
at: www.lafargeholcim.com/articles- – and executing the latter’s resolutions. In case of a direct conflict of interest, the
association. The CEO issues directives and Organizational Rules require each
recommendations with Group-wide member of the corporate body concerned
The Organizational Rules are issued by the significance in the CEO's own authority to stand aside voluntarily prior to any
Board of Directors in accordance with the and is also responsible for electing and discussion of the matter in question.
terms of Art. 716b of the Swiss Code of dismissing Function Heads and CEOs of Members of the corporate bodies are
Obligations and Art. 18 of the company’s Group companies, as well as for the required to treat all information and
Articles of Incorporation. They stipulate nomination of the members of the Board documentation which they may obtain or
the organizational structure of the Board of Directors and supervisory bodies of the view in the context of their activities in
of Directors and the Executive Committee Group companies. these bodies as confidential and not to
and govern the tasks and powers make such information available to third
conferred on the company’s executive Within the framework of mid-term plan parties.
bodies. They regulate the convocation, approval, the Board of Directors defines
execution, and number of meetings to be limits for investments and financing. All individuals vested with the powers to
held by the Board of Directors and the Within these limits, the Executive represent the company have joint
Executive Committee. In the event that the Committee decides on financing signatory power at two.
Chairman of the Board of Directors is not transactions and on one-off investments
independent, the Organizational Rules and divestments for amounts up to Information and control
provide for the election of an Independent CHF 400 million. Amounts exceeding this instruments of the Board of
Lead Director. are subject to approval by the Board of Directors
Directors. The Board of Directors is The Board of Directors determines the
The Board of Directors also has the power regularly informed about important manner in which it is to be informed about
to establish expert committees and, if transactions under the authority of the the course of business. Any member of
required, ad-hoc committees for special Executive Committee. the Board of Directors may demand
tasks. The Board of Directors can delegate information on all issues relating to the
special tasks or tasks related to specific The Board of Directors determines the Group and the company. All members of
functions to a Vice-Chairman on a CEO’s objectives upon motion by the the Board of Directors may request
temporary or permanent basis. Chairman of the Board and the Executive information from the CEO after informing
Committee members’ Group objectives the Chairman of the Board of Directors. At
upon motion by the Nomination, meetings of the Board of Directors, any
Compensation & Governance Committee, attending member of the Executive
both after advice and assessment with the Committee has a duty to provide
CEO. information. All members of the Board of
Directors have a right to inspect books and sustainability, to external risk factors on the quality of both internal control and
and files to the extent necessary for the of the business environment is reviewed, financial reporting. The outcome is
performance of their tasks. including compliance and reputational presented to the Executive Committee and
risks. Key risks are analyzed more deeply the Audit Committee.
Financial reporting regarding their causes, and risk mitigating
The Board of Directors is informed on a actions are defined. Risk transfer through Group Internal Audit
monthly basis about the current course of insurance solutions and the Internal The core mission of Group Internal Audit
business, adopts the quarterly reports, Control system forms an integral part of (GIA) is to provide to the Board of Directors
and releases them for publication. The the risk management process. Risks are and the Executive Committee with an
Board of Directors discusses the Annual monitored and their status reported to independent, risk-based, and objective
Report, takes note of the Auditors’ the Audit Committee and the Executive assurance on the effectiveness and
Reports, and submits the Annual Report to Committee regularly. Independent efficiency of the governance, risk
the Shareholders General Meeting for assessments of the effectiveness of management and internal control system
approval. mitigating actions and controls are of LafargeHolcim Group. GIA reports to
performed by Group Internal Audit. the CFO with an additional reporting line
With regard to Group strategy Please see pages 66 to 82 for more details to the Chairman of the Audit Committee.
development, a strategy plan, a mid-term about the Group’s risk management. The members of the Board of Directors
plan covering three years and including have access to GIA at all times. Each year,
the budget are submitted to the Board of Internal Control the Internal Audit plan, which defines the
Directors. LafargeHolcim aims to have an effective audit focal areas to be addressed by GIA, is
Internal Control system and culture reviewed and approved by the Audit
Risk Management supported by the commitment of the Committee. Main observations and
LafargeHolcim benefits from many years Board of Directors and the Executive findings observed during the audit
of experience with a risk management Committee. Group Internal Control (GIC) assignments are reported periodically to
process which is structured around several primarily aims to provide the Board of the Audit Committee and the Executive
coordinated approaches and subject to Directors and the Executive Committee Committee.
continuous improvement. A detailed reasonable assurance on the reliability of
update and analysis of the Group Risk the financial reporting and statements, The Group Internal Audit activity is
map was carried out in 2018 and compliance with laws and regulations and governed by adherence to the mandatory
submitted to and analyzed by the Audit the protection of assets. guidance issued by the Institute of Internal
Committee and Executive Committee. Auditors (“IIA”) including the Definition of
GIC has designed a continuous reporting Internal Auditing, the Code of Ethics, and
Responsibilities concerning risks are system to receive country and function the International Professional Practices
clearly defined at country and corporate assessments of the controls and status of Framework (IPPF). GIA activities are
level. The underlying principle is that risk any action plans. Discussions regularly certified by IFACI (French Institute of
management is a line management occur with local management to ensure Audit and Internal Control), which is
responsibility. Line managers are controls are properly assessed and issues affiliated to IIA.
supported by the Group Risk Management are swiftly addressed.
function.
GIC designs and coordinates the annual
Risks are identified and assessed assurance process to review the main
according to significance and likelihood. action plans in progress and to confirm
The full risk spectrum from market, management responsibility at each
operations, finance, legal, environmental relevant level of the Group organization
98
Executive Committee Effective July 1, 2018, Miljan Gutovic, During the year under review, the
Members of the Executive Committee previously Head of Marketing & Executive Committee of LafargeHolcim
(including the CEO) are appointed by the Innovation, has been appointed member was comprised of the eight members
Board of Directors and are responsible for of the Executive Committee as Region reported in the table below.
the management of the Group. Head of Middle East Africa, succeeding
Saâd Sebbar, who has decided to pursue a Please refer to pages 112 – 113 for
The tasks of the Executive Committee are career outside the company. biographical information on the members
divided into different areas of of the Executive Committee. None of the
responsibility in terms of country and Effective January 1, 2019, Feliciano members of the Executive Committee has
function, each of these areas being González Muñoz, Head of Group Human important functions outside the
ultimately supervised and managed by a Resources, and Keith Carr, Group General LafargeHolcim Group or any other
member of the Executive Committee. Counsel, have been appointed members significant commitments of interest, with
of the Executive Committee. the exception of Jan Jenisch who is a
Further to the situation effective January 1, non-executive Director of the stock-listed
2018 reported in the Annual Report 2017 Also effective January 1, 2019, Urs Bleisch Schweiter Technologies AG as well as of
on pages 66 – 67, the following changes has decided to step down from his the privately held Glas Troesch and
within the Executive Committee during Executive Committee position. The Géraldine Picaud who is a non-executive
the year under review have occurred: Corporate Growth & Performance function Director of the stock-listed Infineon
which was led by Urs Bleisch has been Technologies AG.
Effective May 1, 2018, Caroline Luscombe, organized into three centers of excellence
Head of Group Human Resources, has which directly report to the Region Heads.
decided to pursue opportunities outside
the company.
100
Convocation of the Shareholders Entries in the share register This information comprises excerpts from
General Meeting and agenda rules The company maintains a share register or references to the content of the Articles
The Shareholders General Meeting takes for registered shares in which the names of Incorporation of LafargeHolcim Ltd. The
place each year, at the latest six months and addresses of owners and beneficiaries full version of the Articles of Incorporation
following the conclusion of the financial are entered. According to the applicable in force as at the date of publication of
year. It is convened by the Board of rules and regulations, only those included this Annual Report can be accessed at:
Directors, whereby invitations are in the share register are deemed www.lafargeholcim.com/articles-association
published at least twenty days prior to the shareholders or beneficial owners of the
meeting and in which details are given of registered shares of the company. Upon Changes of control and defense
the agenda and items submitted. request, purchasers of registered shares measures
Shareholders representing shares with a shall be included in the share register as The Articles of Incorporation contain no
par value of at least one million Swiss shareholders with voting rights if they waiver of the duty to make a public offer
Francs may request the addition of a expressly declare that they have acquired under the terms of Art. 135 and 163 of the
particular item for discussion and the shares in their own name and for their Financial Market Infrastructure Act
resolution. A corresponding application own account. Exceptions to this rule apply (“opting out”). The result is that a
must be submitted in writing to the Board for nominees who have signed a nominee shareholder who directly, indirectly, or
of Directors at least forty days prior to the agreement with the company regarding acting in concert with third parties
Shareholders General Meeting. Such this position and are subject to a acquires shares in the company and,
application should indicate the items to be recognized financial markets supervisory together with the shares he already
submitted. The invitations as well as the authority. possesses, thereby exceeds the 33¹/3
minutes of the Shareholders General percent threshold of voting rights in the
Meetings are published on: The share register is closed approximately company must make an offer for all listed
www.lafargeholcim.com one week prior to the date of the shares of the company.
Shareholders General Meeting (the exact
date is communicated in the invitation to There are no clauses relating to changes
the Shareholders General Meeting). of control.
Shareholders’ participation and rights of
protection are furthermore governed by
the Swiss Code of Obligations.
LafargeHolcim Annual Report 2018 Governance and Compensation — Corporate governance 101
Corporate governance
continued
1
This amount includes the fees for the individual audits of Group companies carried out by Deloitte as well as their fees for auditing the Group financial statements.
2
Audit-related services comprise, among other things, amounts for comfort letters, accounting advice, information systems reviews and reviews on internal controls.
3
Other services include, among other things, amounts for due diligences and translation services.
102
Information policy The most important information tools are Corporate Communications
LafargeHolcim Ltd reports to the annual and half-year reports, Phone: +41 58 858 83 06
shareholders, the capital market, the website (www.lafargeholcim.com), Fax: +41 58 858 87 19
employees, and the public at large in a media releases, press conferences, E-Mail: communications@lafargeholcim.com
transparent and timely manner meetings for financial analysts and
concerning its corporate performance, investors, and the Annual General
including achievement of its sustainability Meeting.
Investor Relations
targets. Open dialog is nurtured with the Phone: +41 58 858 87 87
most important stakeholders, based on Current information relating to Fax: +41 58 858 80 09
mutual respect and trust. This promotes sustainable development is available at: E-Mail: investor.relations@lafargeholcim.com
knowledge of the company and www.lafargeholcim.com
understanding of objectives, strategy, and
business activities of the company. A full sustainability report is published
every year.
As a listed company, LafargeHolcim Ltd is
under an obligation to disclose facts that The financial reporting calendar is shown
may materially affect the share price on pages 87 and 281 of this Annual
(ad-hoc disclosure, Art. 53 and 54 of the Report.
SIX listing rules as well as Art. 17 and 223-2
of the AMF General Regulations). Should there be any specific queries
LafargeHolcim Ltd is subject to the SIX and regarding LafargeHolcim, please contact:
AMF rules on the disclosure of
management transactions made by the
members of the Board of Directors and
senior management. These can be
accessed on the SIX and AMF websites:
https://www.six-exchange-regulation.com/
en/home/issuer/obligations/management-
transactions.html and
http://www.amf-france.org/en_US/Acteurs-et-
produits/Societes-cotees-et-operations-
financieres/Information-financiere-et-
comptable/Obligations-d-information.
html?#title_paragraph_1
LafargeHolcim Annual Report 2018 Governance and Compensation — Corporate governance 103
Corporate governance
continued
104
Jürg Oleas Nassef Sawiris
• Member of the Board of Directors • Member of the Board of Directors
• Member of the Audit Committee • Member of the Nomination,
Compensation & Governance Committee
LafargeHolcim Annual Report 2018 Governance and Compensation — Board of Directors 105
Corporate governance
continued
Beat Hess Paul Desmarais, Jr. • Member of the Board of Directors of IGM
Financial Inc., Winnipeg, Canada (including
Chairman of the Board Member those of its major subsidiaries)
• Chairman of the Board of Directors of Pargesa
Professional background Professional background Holding SA, Geneva, Switzerland
Swiss national born in 1949, Beat Hess was Canadian national born in 1954, Paul • Member of the Board of Directors of SGS SA,
elected to the Board of Directors of Desmarais, Jr. was elected to the Board of Geneva, Switzerland
LafargeHolcim Ltd (then “Holcim Ltd”) in 2010. Directors of LafargeHolcim in 2015. He holds a
He holds a doctorate in law and is admitted to Bachelor of Commerce from McGill University,
the bar in Switzerland. From 1977 to 2003, he Montréal, Canada, and an MBA from the
was initially Legal Counsel and subsequently European Institute of Business Administration Patrick Kron
General Counsel for the ABB Group. From 2004 (INSEAD), Paris, France. He was a Member of the Member
until the end of 2010, he was Legal Director and Board of Directors of Lafarge S.A. from 2008 to
a Member of the Executive Committee of the 2015 and was also a Member of its Strategy,
Royal Dutch Shell Group, London and The Investment and Sustainable Development Professional background
Hague. Committee until 2015. Paul Desmarais, Jr. is French national born in 1953, Patrick Kron was
Chairman and Co-Chief Executive Officer of elected to the Board of Directors of
Other activities and functions Power Corporation of Canada and Executive LafargeHolcim Ltd in 2017. Patrick Kron is a
• Member of the Board, Member of the Co-Chairman of Power Financial Corporation, graduate of the Ecole Polytechnique and the
Chairman’s and Corporate Governance both located in Montréal, Canada. He joined Paris Ecole des Mines, France. He began his
Committee, and Chairman of the Power Corporation in 1981 and assumed the career at the French Industry Ministry in 1979
Compensation Committee of Nestlé S.A., position of Vice-President the following year. In before joining the Pechiney group in 1984,
Vevey, Switzerland 1984, he led the creation of Power Financial to where he held senior operational responsibilities
• Vice-Chairman of the Board of Directors and consolidate Power Corporation’s major financial in one of the group’s largest factories in Greece
Member of the Nomination and Compensation holdings, as well as Pargesa Holding SA, before becoming manager of Pechiney’s Greek
Committee of Sonova Holding AG, Stäfa, Geneva, Switzerland, under a single corporate subsidiary in 1988. Between 1988 and 1993,
Switzerland entity. Paul Desmarais, Jr. served as Vice- Patrick Kron held various operational and
• Member of the Curatorium of The Hague President of Power Financial from 1984 to 1986, financial positions, first managing a group of
Academy of International Law as President and Chief Operating Officer from activities in aluminium processing, before being
1986 to 1989, as Executive Vice-Chairman from appointed Chairman and CEO of Pechiney
1989 to 1990, as Executive Chairman from 1990 Électrométallurgie. In 1993, he became member
to 2005, as Chairman of the Executive of the executive committee of the Pechiney
Oscar Fanjul Committee from 2006 to 2008 and as Executive group and was Chairman and CEO of Carbone
Co-Chairman from 2008 until today. He also Lorraine from 1993 to 1997. From 1995 to 1997,
Vice-Chairman he ran Pechiney’s Food and Health Care
served as Vice-Chairman of Power Corporation
from 1991 to 1996. He was named Chairman Packaging Sector and held the position of COO
Professional background of the American National Can Company in
and Co-CEO of Power Corporation in 1996.
Dual Spanish and Chilean national born in 1949, Chicago (United States). From 1998 to 2002,
From 1982 to 1990, he was a member of the
Oscar Fanjul was elected to the Board of Patrick Kron was Chairman of the Executive
Management Committee of Pargesa Holding SA
Directors of LafargeHolcim Ltd in 2015. Oscar Board of Imerys. A director of Alstom since July
and in 1991, Executive Vice Chairman and then
Fanjul holds a PhD in Economics. He was 2001, he was appointed CEO of Alstom in
Executive Chairman of the Management
Vice-Chairman of the Board of Directors of January 2003, and then Chairman and CEO in
Committee. In 2003, he was appointed Co-Chief
Lafarge S.A. He began his career working for the March 2003, a position he held until January
Executive Officer and in 2013 named Chairman
industrial holding INI, Madrid, Spain. He was 2016.
of the Board of Directors.
Chairman founder and CEO of Repsol, S.A.,
Madrid, Spain. He has been Chairman of Other activities and functions
Other activities and functions
Hidroeléctrica del Cantábrico, S.A., Oviedo, • Founder of PKC&I (Patrick Kron - Conseils &
• Member of the Board of Directors of Power
Spain and of Deoleo S.A., Madrid, Spain. He has Investissements)
Corporation of Canada, Montréal, Canada
also been a board member of the London Stock • Chairman of the Board of Directors of Truffle
• Member of the Board of Directors of Power
Exchange, Unilever, London/Rotterdam, UK/ Capital, Paris, France
Financial Corporation, Montréal, Canada
Netherlands, Areva, France, and BBVA, Spain. • Member of the Board of Directors of Sanofi
• Vice-Chairman of the Board of Directors of
Groupe Bruxelles Lambert, Brussels, Belgium S.A., Paris, France
Other activities and functions • Member of the Board of Directors of Bouygues
• Member of the Board of Directors of Great-
• Vice Chairman of Omega Capital, Madrid, S.A., Paris, France
West Lifeco Inc., Winnipeg, Canada (including
Spain • Member of the Board of Directors of Halcor
those of its major subsidiaries)
• Member of the Board of Directors of Marsh & Metal Works S. A., Athens, Greece
McLennan Companies, New York NY, USA • Member of the Board of Directors of Segula
• Member of the Board of Directors of Ferrovial Technologies S.A., Nanterre, France
S.A., Madrid, Spain
106
Gérard Lamarche Adrian Loader Jürg Oleas
Member Member Member
LafargeHolcim Annual Report 2018 Governance and Compensation — Board of Directors 107
Corporate governance
continued
108
LafargeHolcim Annual Report 2018 Governance and Compensation — Board of Directors 109
Corporate governance
continued
Executive Committee1
1
As of 7 March 2019
110
Oliver Osswald Géraldine Picaud René Thibault
Member Member Member
Nationality: Swiss Nationality: French Nationality: Canadian
Born: 1971 Born: 1970 Born: 1966
LafargeHolcim Annual Report 2018 Governance and Compensation — Executive Committee 111
Corporate governance
continued
Executive Committee1
continued
112
International, where she was Group CFO. Prior
The following Executive Committee
to that she was CFO of Volcafe Holdings, the
Switzerland-based coffee business of ED&F Man. members joined after the end
Géraldine initially joined ED&F Man in London in of 2018
2007 as Head of Corporate Finance in charge of
M&A. This followed 13 years as CFO at Keith Carr
international specialty chemicals group, Safic Member
Alcan as Head of Business Analysis and then as
CFO. Géraldine Picaud started her career with
Keith Carr became a member of the Executive
audit firm Arthur Andersen.
Committee of LafargeHolcim as of January 2019
and is Head of Legal and Compliance. Keith Carr
joined LafargeHolcim in 2017 as Group General
Counsel. In addition to the Legal and
René Thibault
Compliance function, he became responsible for
Member the Security function during 2018. Prior to
LafargeHolcim Keith Carr was General Counsel
René Thibault has been a member of the of GE’s Power Division. Before that he held
Executive Committee of LafargeHolcim since various roles in Alstom SA, ABB and Rolls Royce,
January 2018 and is responsible for the North including Group General Counsel and member
America region. He is a graduate of Queen’s of the Executive Committee of Alstom and
University in civil egineering and has completed General Counsel of its Power Division. A UK
the Advanced Management Program at Harvard national, he gained his LLB degree from
Business School. René Thibault joined the Northumbria University, is a qualified solicitor in
company in 1989 and has built a strong England and Wales and is a Chartered Company
commercial track record, with a particular Secretary.
expertise in downstream offerings to customers.
After progressing through leadership roles in
Canada, in 2007 René served as Vice President,
Strategy for Europe, Middle East and Africa Feliciano González Muñoz
based in France. Returning to Canada in 2009,
Member
he led the Western Canada, aggregates and
concrete businesses. In 2012, adding the
cement business to his control, he was Feliciano González Muñoz became a member of
appointed CEO Western Canada. the Executive Committee of LafargeHolcim as of
January 2019 and is Head of Human Resources.
He has worked for more than eleven years in
senior human resources (HR) roles with
LafargeHolcim. Before becoming Head HR in
2018, Feliciano González Muñoz was HR Director
for Europe and interim CEO of Spain from
2013-2015. Feliciano González Muñoz has a PhD
in Law from Universidad Complutense de
Madrid and holds an Executive MBA from
Instituto de Empresas, Madrid. Before joining
LafargeHolcim Feliciano developed his career at
Fujitsu Ltd, BPB Plc and Almirall.
LafargeHolcim Annual Report 2018 Governance and Compensation — Executive Committee 113
Compensation report
114
Dear shareholders, NCGC concluded that while no
I am pleased to share with you the fundamental change was necessary to the
LafargeHolcim Compensation report for design of the compensation plans, certain
the financial year 2018, which was governance aspects should be reinforced
prepared in accordance with applicable from 2019 onwards:
laws, rules and regulations. • Revised termination rules in the annual
As the leading global construction incentive plan;
materials and solutions company, we aim • Introduction of clawback and malus
to be an employer of choice for our provisions in the annual incentive plan;
employees. This is supported by our • Strengthening of the existing share
compensation framework that is designed ownership guideline.
Oscar Fanjul
to attract, motivate and retain the Chairman of the Nomination, Compensation and
qualified talent needed to succeed Furthermore, the overall design of the Governance Committee (NCGC)
globally while providing excellent returns incentive plans has been confirmed as
to our shareholders. communicated in last year’s
Compensation report:
In 2018 our momentum accelerated in the • Annual incentive: based on financial this report. This Compensation report will
second half of the year, during which we performance (85%) including relative be submitted to a consultative
exceeded our sales targets. Profitability performance of LafargeHolcim shareholder vote at the Annual General
increased over-proportionally as we compared to peer companies, as well as Meeting 2019.
completed a very successful year. There Health & Safety (15%). The Annual
were also several personnel changes Incentive is paid out half in cash and half Looking ahead, we will continue to assess
within the Executive Committee in 2018. in blocked shares. and review our compensation system to
Effective January 2018, Géraldine Picaud • Long-term incentives: combination of ensure that it is still fulfilling its purpose in
started as the new Chief Financial Officer. performance shares subject to a three- the evolving context in which the
The positions of Head of Performance & year vesting based on earnings per share company operates and is well aligned with
Cost and Head of Growth & Innovation (EPS) before impaiment and divestments our shareholders’ interests. We will also
were combined into one role. Marcel and return on invested capital (ROIC) maintain an open dialog with our
Cobuz was nominated Head of Europe performance, and performance options shareholders and their representatives.
and René Thibault was nominated Head of subject to a five-year vesting based on We would like to thank you for sharing
North America. In May 2018, Caroline total shareholder return (TSR) results. your perspectives on executive
Luscombe left the Group and was not compensation with us and trust that you
immediately replaced in the Executive Otherwise, the NCGC performed its will find this report informative.
Committee. Finally, in July 2018, Miljan regular activities throughout the year such
Gutovic was promoted to the position of as the succession planning for the
Head of Middle East & Africa. positions on the Board of Directors and
the Executive Committee, the
In 2018, the Nomination, Compensation performance goal setting at the beginning
and Governance Committee (NCGC) of the year and the performance
appointed a new independent assessment at year end, the determination
compensation advisor, engaged with a of the compensation of the members of Oscar Fanjul
Chairman of the Nomination, Compensation and
number of our large shareholders and the Board of Directors and the Executive Governance Committee (NCGC)
conducted a strategic review of the Committee, as well as the preparation of
compensation programs applicable to the the Compensation report and of the
Executive Committee in order to ensure say-on-pay vote at the Annual General
their continuous alignment to the Meeting. You will find further details about
business strategy and to shareholders’ the NCGC's activities during the reporting
interests. As a result of this review, the year and the compensation programs in
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 115
Compensation report
continued
Compensation
at a glance
1
Not eligible for committee fees
2
Includes secretarial allowance of CHF 60,000 p.a.
3
The CHF 125,000 payable to the NCGC chair is not paid because the position is held by the Board vice-chair, who is not eligible for committee fees.
Summary of compensation of the financial performance indicators and by ambitious and stretched targets. It
Executive Committee in 2018 delivering compensation through a mix of consists of short-term and long-term
Executive compensation is designed to cash and equity. elements as illustrated below.
reinforce the LafargeHolcim strategy by
helping the company attract, motivate The compensation of the Executive Share ownership guideline: the CEO must
and retain talent, while aligning their Committee consists of fixed and variable hold at least 300% of his annual base
interests with those of shareholders. The elements. Base salary and benefits form salary in shares, other Executive
compensation structure is well-balanced the fixed compensation and are based on Committee members 150%.
by rewarding short-term and long-term prevalent market practice. Variable
performance, by combining absolute and compensation drives and rewards Group Clawback and malus provisions apply to
relative as well as financial and non- and regional performance based on the long-term incentive plan (LTI).
116
Compensation of the Board of Approved amount Effective amount
Compensation period (CHF) (CHF)
Directors in 2018
AGM 2017 – AGM 2018 5,400,000 5,085,662
The compensation awarded to the Board
AGM 2018 – AGM 2019 4,800,000 To be determined 1
of Directors in financial year 2018 is within
the limits approved by the shareholders at 1
The compensation period is not yet completed; a definitive assessment will be provided in the Compensation report 2019
the Annual General Meeting. The
compensation period is not yet
completed, a definitive assessment will be Approved amount Effective amount
Compensation period (CHF) (CHF)
provided in the 2019 Annual Report.
Financial year 2018 40,500,000 30,413,194
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 117
Compensation report
continued
Compensation system:
Board of Directors
To guarantee their independence in paid in cash. Additionally, a lump sum
exercising their supervisory duties, the expense allowance is paid in cash and the
members of the Board of Directors receive Board chair receives a secretarial
fixed compensation only and do not allowance. The members of the Board of
participate in LafargeHolcim’s employee Directors receive no additional
benefits plan. Part of the compensation is reimbursements of business expenses
paid in shares which are blocked from sale beyond travel costs from abroad.
and pledging for a period of five years in
order to strengthen the alignment with Cash compensation is paid quarterly for
shareholders’ interests. the Board members and monthly for the
Board chair. The shares are transferred in
The Board compensation consists of an March for the current term (year) of office.
annual retainer as Board chair, Board
vice-chair or Board member and In exceptional circumstances, additional
additional fees for assignments to the fees are payable to Board members when
committees of the Board either as chair or an exceptional workload beyond the
member. The Board chair and vice-chair regular function of the Board is required.
are not eligible for committee fees. The In the reporting year, no such exceptional
annual retainer is paid partially in cash fees were paid.
and partially in shares subject to a
five-year restriction period (prohibition of
sale or pledging). The committee fees are
Share-based
Cash compensation Compensation 2 Expense allowance Secretarial allowance
Annual retainer (gross) in CHF in CHF in CHF in CHF
Cash compensation
Committee fees (gross) in CHF
118
Compensation system:
Executive Committee
Principle Description
Pay-for-performance Rewards for short-term performance and long-term success, by a balanced combination of absolute and relative performance
criteria, as well as of financial and non-financial performance metrics.
Alignment with Part of compensation is delivered in equity of the company, thus strengthening the alignment with shareholders’ interests.
shareholders Further, executives are expected to build a minimum level of LafargeHolcim share ownership over time.
Market Compensation is competitive with other companies against which LafargeHolcim competes for talent.
competitiveness
Internal equity Compensation decisions are taken with consideration to internal equity and consistency.
Transparency Compensation programs are simple and transparent.
Base salary Attract and retain Fixed amount paid monthly – Role & responsibilities
in cash – Market value
– E xperience
Pensions Protect against risks Pension contributions and – Market practice
and insurances benefits, insurances – Role
Benefits Attract and retain – Perquisites – Market practice
– Car or allowance – Role
– Relocation benefits
Annual Incentive Reward for short-term Variable amount paid half in Annual financial and – Relative sales growth
performance cash and half in shares non-financial performance – Relative EBITDA growth
blocked for 3 years – Recurring EBITDA
– Free cash flow
– Health & safety
Long-Term – Reward long-term – Performance shares subject Long-term financial – EPS
Incentive (LTI) performance to a three-year vesting performance – ROIC
– A lign with shareholders – Performance options subject – T SR
– Retain to a five-year vesting
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 119
Compensation report
continued
Base salaries Executive Committee under foreign capped at 166.7% of target, i.e. 250% of
Annual base salaries are established on employment contracts are insured base salary for the CEO and 125% of the
the basis of the following factors: commensurately with market conditions base salary for the other Executive
• Scope, size, and responsibilities of the and with their position. Each plan varies in Committee members.
role; skills required to perform the role; line with the local competitive and legal
• External market value of the role; environment and is, as a minimum, in The financial performance is measured
• Skills, experience and performance of accordance with the legal requirements of both in absolute terms (against own-set
the individual in the role. the respective country. targets) and in relative terms compared to
a peer group of companies that are
To ensure market competitiveness, base Benefits and perquisites exposed to similar market cycles.
salaries of the Executive Committee are Members of the Executive Committee may • The absolute financial performance
reviewed annually taking into receive certain executive perquisites such includes Recurring EBITDA as a measure
consideration the company’s affordability, as a company car or allowances and other of Group and regional operational
benchmark information, internal benefits in kind, in line with competitive profitability, as well as Free Cash Flow as
consistency and individual performance. market practice in their country of a measure of the company’s ability to
The objective is to provide salaries broadly contract. Executives who are relocating generate cash. For those objectives, the
in line with the competitive market may also be provided with expatriate NCGC determines a target level of
practice of selected comparable SMI benefits such as housing, schooling and expected performance (corresponding to
companies (refer to section travel benefits, in line with the a 100% payout), as well as a threshold
“Compensation Governance” for further LafargeHolcim International Mobility level of performance below which there
details on the benchmarking peer group). policy. These other elements of is no payout, and a maximum level of
compensation are evaluated at fair value performance above which the payout is
Pension and included in the compensation tables. capped.
The members of the Executive Committee • The relative financial performance
participate in the benefits plans available Annual incentive includes Group revenue growth and
in the country of their employment The annual incentive rewards the financial Group Recurring EBITDA growth
contract. Benefits consist mainly of results as well as the achievement of compared to peer companies. The
retirement, insurance and healthcare health & safety targets at Group and intention is to reward the relative
plans that are designed to provide a regional level (depending on the function) performance of the company to
reasonable level of protection for the over a time horizon of one year. neutralize factors outside of
employees and their dependents with management control. The objective is to
regards to health, retirement, death and The annual incentive target (i.e. incentive reach at least median performance
disability. The members of the Executive amount at 100% target achievement) is within the peer group, which
Committee with a Swiss employment expressed as percentage of base salary corresponds to a 100% payout factor.
contract participate in LafargeHolcim’s and amounts to 150% for the CEO and The peer group includes companies that
defined benefit pension scheme 75% for the other members of the were chosen for their comparable
applicable to Swiss-based senior Executive Committee. The payout is products, technologies, customers,
management, which is set up to achieve,
for executives retiring from LafargeHolcim
at age 62 and assuming 10 years of
service in senior management and 20
years of service with the Group, an Cement producers Building materials Construction
amount of 40% of the average of the last 3 Boral Carlisle Acciona
years’ base salaries, inclusive of all other Buzzi Unicem James Hardie ACS
Cemex RPM Bouygues
pension incomes participants may benefit
CRH Saint-Gobain Vinci
from. Early or deferred retirement Heidelberg Cement Sika
pensions are adjusted based on actuarial Vicat
calculations. The members of the
120
suppliers or investors and are thus The achievement of the health & safety The annual incentive is paid half in cash
exposed to similar market cycles. target is measured as a score reflecting and half in shares subject to a three-year
The companies of the peer group are improvements in the lost-time injury blocking period.
listed on page 120. frequency rate (LTIFR). The NCGC will also
consider the overall related outcomes The annual incentive design applicable to
The measurement of the relative during the year when determining the the Executive Committee is summarized
performance is provided by Obermatt, an achievement level of this objective. below:
independent Swiss financial research firm
focused on indexing company
performance.
Purpose Measures Group’s Measures Group or regional Measures the company’s Measure the accident rate
performance compared to operational profitability ability to generate cash to ensure a safe workplace
peer companies exposed to
similar market cycles
Definition Relative Group revenue Operating profit before Cash flow from operating Lost-time injury frequency
growth (50%) and relative depreciation, amortization activities, adjusted for net rate (LTIFR) and overall
Group recurring (EBITDA) and impairment of maintenance and health & safety outcomes
growth (50%) expressed as operating assets and before expansion capital as per assessment by the
percentile ranking in the restructuring, litigation, expenditures NCGC
peer group of companies implementation and other
non-recurring costs, at
budget FX rate, adjusted for
changes in scope
0% 0% 0% 0%
25th Target 75th 90% Target 110% 90% Target 110% 2017 95% of 90% of
percentile percentile of target of target of target of target LTIFR 2017 LTIFR 2017 LTIFR
*
Group level for corporate Executive Committee roles, regional level for regional Executive Committee roles
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 121
Compensation report
continued
122
The annual grant value is expressed as
percentage of base salary and amounts to
177% for the CEO and 96% for the other
members of the Executive Committee.
177% of salary (125% in performance shares, 96% of salary (70% in performance shares,
Grant value in 2018 52.5% in performance options) 26% in performance options)
Metrics EPS before impairment and divestments ROIC (Performance Shares) TSR (Performance Options)
Purpose Measures the company’s Measures the company’s ability to Measures the company’s ability to
profitability to investors generate returns from invested capital provide investors with strong returns
Definition Underlying, fully-diluted EPS adjusted ROIC improvement at year end 2020, LafargeHolcim’s Annual 3-month
for after tax gains and losses on adjusted for changes in scope between average TSR of 50% at the end of 2022
disposals of Group companies and 2018 and 2020 (or earlier but not before three years
impairments of goodwill and assets from the grant date)
Weighting 60% of Performance Share grant 40% of Performance Share grant 100% of Performance Option grant
150% 150%
50% 50%
0% 0% 0%
Target Target Target Target Target Target TSR TSR TSR
–5.3% +11.3% –100bps +100bps 35% 40% 50%
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 123
Compensation report
continued
The LTI awards are subject to clawback Executive share ownership Employment contracts for the
and malus provisions for a period of guidelines Executive Committee
three-year after vesting, in case of To reflect the importance the NCGC places The contracts of employment of the
material financial restatement. on aligning their interests with Executive Committee members are
shareholders, Executive Committee concluded for an indefinite period of time
Rules in case of termination: the unvested members are required to own at least a and may be terminated with one year’s
LTI awards forfeit upon termination of minimum multiple of their annual base notice. Contracts of employment do not
employment, except in case of retirement, salary in LafargeHolcim shares as set out include severance compensation or
ill-health, disability, termination due to a below: change of control clauses except the
change of control, or at the discretion of • CEO: 300% of annual base salary vesting provisions of the LTI awards as
the Nomination, Compensation and • Executive Committee members: 150% of described above.
Governance Committee. In such annual base salary
circumstances, unvested LTI awards are
subject to a pro-rata vesting (for the
number of full months between grant Changes for 2019
date and termination date) at regular Following the strategic review of
vesting date. In the event of death, vesting compensation conducted by the NCGC
is immediate and performance conditions in the reporting year, the decision was
are considered met. For the avoidance of made to strengthen the share
doubt, LTI awards always lapse when ownership guideline as follows,
termination is due to voluntary effective on 1 January 2019:
resignation or gross misconduct. • CEO: 500% of annual base salary
• Executive Committee members: 200%
of annual base salary
Changes for 2019
The vesting of performance options will Members of the Executive Committee
be based on relative TSR instead of will be expected to meet the minimum
absolute TSR. The peer group of shareholding requirements within four
companies will be the same as the peer years of their appointment to the
group used for relative performance Executive Committee (or within four
measurement in the annual incentive. years of the implementation of the new
guideline for existing Executive
Committee members). In case of
non-compliance to the minimum
requirements at the required date,
Executive Committee members will be
prohibited to sell any shares held.
Further, their annual incentive (net of
statutory deductions) will be paid
entirely in shares. The compliance to
the share ownership guidelines will be
monitored on an annual basis.
124
Compensation for
the financial year 2018
Board of Directors
Cash Social
compensation Value Other 2 Subtotal Security 3 2018 Total 2017 Total
Name AC NCGC HSSC CHF Number CHF CHF CHF CHF CHF CHF
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 125
Compensation report
continued
126
Executive Committee
Performance Performance Replacement
shares 2 options 3 award 6
Base Other Annual Fair value Fair value Fair value Pension
salary fixed pay 1 bonus at grant at grant at grant contributions 4 Total 2018 Total 2017 5
Executive CHF CHF CHF CHF CHF CHF CHF CHF CHF
Jan Jenisch
01.01.2018
to 31.12.2018 1,600,000 26,000 2,542,219 1,976,618 921,752 0 344,954 7,411,543 8,772,977
other members
01.01.2018 to
31.12.2018 5,574,312 3,572,254 3,340,898 4,293,108 1,335,308 2,001,332 2,884,439 23,001,651 19,367,058
Total 7,174,312 3,598,254 5,883,117 6,269,726 2,257,060 2,001,332 3,229,393 30,413,194 28,140,035
1
Includes the value of benefits in kind: car allowance and benefits for internationally mobile members (expatriates) such as housing, schooling and tax consulting
2
Performance shares granted under the long-term incentive plan, subject to a three-year performance-based vesting period
3
Performance options granted under the long-term incentive plan, subject to a five-year performance-based vesting period
4
Includes payments to the governmental social security system. For Swiss members, includes the mandatory employer contributions of CHF 30,352 under the Swiss governmental
social security system (AHV). This amount is out of total employer contributions of CHF 479,530 paid of all members, and provides a right to the maximum future insured government
pension benefit.
5
In the period from 1.1.2017 to 15.7.2017, compensation amounting to CHF 4,125,563 was paid to the former CEO (Eric Olsen)
6
The replacement award granted to a new Executive Committee member is a combination of performance shares and restricted shares, matching the equity plans forfeited from her
previous employer on a strict like-for-like basis.
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 127
Compensation report
continued
Performance in 2018
The company made good progress on all four value
drivers of Strategy 2022 – “Building for Growth”. Those
results impacted the annual incentive as follows:
Total Overall payout of 106% for the CEO and of 78% on average for the other Executive
Committee members
128
Consequently, the annual incentive for the The first LafargeHolcim LTI plan, granted subject a vesting conditional upon
CEO was 105.9% of target (158.9% of in 2015, vested in 2018. The grant synergies achieved from the merger and
salary) and 78.0% on average for other included performance shares subject to a cumulative Free Cash Flow. The vesting
members of the Executive Committee vesting conditional upon EPS before of those grants applies to five current
(58.5% of salary on average). impairment and divestments, ROIC and Executive Committee members and is
relative TSR as well as stock options as follows:
2015 EPS (30%) Underlying, fully-diluted earnings per share adjusted for after EPS of CHF 2.35 lead to 30% * 0%
Performance tax impairment and gains and losses on divestments in 2017 a 0% payout
shares
ROIC (40%) Improvement in adjusted ROIC (measured in bps) measured on ROIC improvement of 110 40% * 0%
a like-for-like basis between financial year ends 2015 and 2017 basis points lead to
(excluding impairments) a 0% payout
Relative Percentile-ranking of LafargeHolcim’s TSR vs TSR of a peer Relative TSR at 12th 30% * 0%
TSR (30%) group of 17 similar sector companies from around the world: percentile lead to
ACS, Bouygues, Buzzi Unicem, Cemex, CRH, a 0% payout
HeidelbergCement, James Hardie Industries, Kingspan, Martin
Marietta Materials, Mitsubishi Materials, NCC, Saint-Gobain,
Sika, Skanska, Vicat, Vinci and Vulcan Materials
2015 Synergies Cumulative EBITDA impact of commercial, procurement, Target fully achieved, 70% * 100% = 70%
Performance (70%) operational efficiency and synergies initiatives and financing payout of 100%
options costs, plus CAPEX optimization synergies, on a like-for-like
perimeter and foreign exchange basis
Cumulative Sum of cash generated and available for debt repayment, Target missed, 30% * 0% = 0%
cash flow dividend and share buy-backs over the years 2016 to 2018. payout of 0%
(30%) Excluding the impact of proceeds received as a result of the
Group’s CHF 3.5 billion disposal program. Cash flows measured
on a like-for-like perimeter and foreign exchange basis
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 129
Compensation report
continued
Share ownership
information
Board of Directors market-relevant information or projects
On December 31, 2018, members of the (“Blackout periods”), the Board of
Board of Directors held a total of Directors, the Executive Committee and
9,658,399 registered shares in any employees involved are prohibited
LafargeHolcim Ltd. This number from effecting transactions with equity
comprises privately acquired shares and securities or other financial instruments of
those allotted under participation and LafargeHolcim Ltd, exchange-listed Group
compensation schemes. As of the end of companies or potential target companies
2018, one non-executive member of the (trade restriction period).
Board of Directors held privately acquired
LafargeHolcim share purchase (call)
options. Until the announcement of
Ownership of shares and options: performance shares; these arose as a Together with previous grants and
Executive Committee result of the participation and purchases, his current shareholding
As of December 31, 2018, members of the compensation schemes of various years. amounts to 432% of his base salary and
Executive Committee held a total of Options are issued solely on registered meets the requirements of the CEO Share
229,143 registered shares in shares in LafargeHolcim Ltd. One option Ownership Guideline of 300% of salary.
LafargeHolcim Ltd. This figure includes entitles the holder to buy one registered
both privately acquired shares and those share in LafargeHolcim Ltd.
allocated under the Group’s compensation
schemes. Furthermore, at the end of 2018, During 2018, Jan Jenisch purchased 16,891
the Executive Committee held a total of LafargeHolcim shares, for a total value of
465,011 stock options and 442,085 CHF 0.7 million as at December 31 2018.
130
Number of shares and options held by
Executive Committee members as of December 31, 2018
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 131
Compensation report
continued
Liquidity mechanism for remaining Lafarge performance shares plans. Five initial parity of the public exchange offer
rights under the Lafarge long-term members of the LafargeHolcim Executive (at the end of December 2018, the
incentive plans Committee, including the former Chief exchange ratio is 0.884 LafargeHolcim
Following the success of the public Executive Officer, have accepted this share for 1 Lafarge share). The following
exchange offer on Lafarge S.A. and the mechanism which will translate into an table presents the rights of the Executive
completion of the subsequent squeeze- exchange or a purchase (according to Committee members that are still under
out of Lafarge shares, LafargeHolcim has their country of residence) of their Lafarge vesting period or holding period under the
proposed a liquidity mechanism for (i) shares for LafargeHolcim shares. The Lafarge performance shares plans and the
Lafarge shares that may be issued exchange or purchase will take place at non-exercised Lafarge stock options as of
following the exercise on or after October the end of the holding period (i.e. up to December 31, 2018.
23, 2015, of stock options that have been March 2019) for performance shares or
allocated pursuant to the Lafarge stock following the exercise of stock options (all
option plans; or (ii) Lafarge shares that non-exercised options will lapse at the end
may be definitively allotted on or after of 2020 at the latest), applying the
October 23, 2015, in accordance with the relevant exchange ratio to maintain the
Lafarge Lafarge
Beneficiaries (Performance shares) (Stock options)
132
The share options outstanding held by the
Executive Committee (including former
members) at year-end 2018 have the
following expiry dates and exercise prices:
Number 1 Number 1
Option grant date Issuing Company Expiry date Exercise price 1 2018 2017
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 133
Compensation report
continued
Compensation
governance
Rules relating to compensation in approved the compensation of the and design of compensation programs
the LafargeHolcim Articles of Executive Committee if the compensation including incentive plans; planning and
Incorporation already approved is not sufficient to cover preparation of the targets and
The Articles of Incorporation contain this compensation. The supplementary performance assessment of the CEO and
provisions regarding the approval of amount per compensation period shall other members of the Executive
compensation of the Board of Directors not exceed 40 percent of the aggregate Committee;
and the Executive Management (Art. 23), amount of compensation last approved by • Governance: Dealing with all corporate
the supplementary amount for new the Annual General Meeting in total and governance related matters; reviewing
members of the Executive Committee (Art. does not require further shareholders’ proposals to be made to the Board for
24), the general compensation principles approval. the amendment of the Articles of
(Art. 25) as well as provisions regarding Incorporation, the organizational rules,
the agreements with members of the Nomination, Compensation & the committees charter; the code of
Board of Directors and the Executive Governance Committee conduct, the overall policy landscape and
Committee (Art. 26). Moreover, the Articles In accordance with Article 21 of the the policies and directives approved by
of Incorporation contain provisions Articles of Incorporation, the NCGC the Board; review of the criteria for the
regarding the roles of the Board of supports the Board of Directors in determination of the independence of
Directors and the Nomination, establishing and reviewing directors; approval of external mandates
Compensation & Governance Committee LafargeHolcim’s nomination, for the CEO and other Executive
(Art. 16 to 21). The Articles of compensation and governance strategy Committee members; review of the
Incorporation are approved by the and guidelines as well as in preparing the annual assessment of the functioning
shareholders and are available at www. motions to the Annual General Meeting and effectiveness of the Board; review of
lafargeholcim.com/articles-association regarding the nomination and the corporate governance section of the
compensation of the members of the Annual Report.
Annual General Meeting – Board of Directors and of the Executive
Shareholder involvement Committee. In particular, the NCGC The following table summarizes the
According to Art. 23 of the Articles of performs the following duties: decision authorities between the NCGC,
Incorporation, the Annual General • Nomination: Review of the nomination the Board of Directors, and the Annual
Meeting approves annually the maximum and size of the Board of Directors to General Meeting on compensation
aggregate compensation of the Board of ensure appropriate expertise, diversity matters.
Directors for the period from the Annual and independence of the Board;
General Meeting to the next Annual succession planning for the Board of
General Meeting as well as the maximum Directors and its committee; preparation
aggregate compensation of the Executive of the motions to the Annual General
Committee for the following financial year. Meeting for (re-) election of candidates
In addition, the Compensation report is for positions on the Board of Directors
submitted to the Annual General Meeting and in the NCGC; succession planning for
for an advisory vote on a yearly basis. positions on the Executive Committee;
• Compensation: Planning and preparation
Art. 24 of the Articles of Incorporation of the compensation of the Board of
provides for a supplementary amount for Directors and the Executive Committee;
Executive Committee members who preparation of the motions to the Annual
become members of, or who are General Meeting regarding
promoted to the Executive Committee compensation of the Board of Directors
during a compensation period for which and of the Executive Committee;
the Annual General Meeting has already determination of compensation strategy
134
Decision authorities
Compensation strategy
Proposes Approves
and design
Compensation
report Proposes Approves Advisory vote
Maximum aggregate
compensation amount of Proposes Reviews Approves (binding vote)
the Board of Directors
Individual compensation
Approves (within the budget
of members of the Board Proposes
approved by the AGM)
of Directors
Maximum aggregate
compensation amount of Proposes Reviews Approves (binding vote)
the Executive Committee
Individual compensation of
Approves (within the budget
members of the Executive Is informed
approved by the AGM)
Committee
Performance objectives
setting for the purpose of Approves Is informed
the incentive plans
The NCGC is composed of five members of The NCGC holds ordinary meetings at least
the Board of Directors that are elected three times a year. In 2018, the NCGC held
individually by the Annual General four ordinary meetings according to the
Meeting for a period of one year. Since the annual schedule below, as well as three
Annual General Meeting 2018, Mr. Oscar extraordinary meetings.
Fanjul (Chair), Mrs. Hanne Birgitte
Breinbjerg Sørensen, Mr. Paul Desmarais,
Jr, Mr. Adrian Loader and Mr. Nassef
Sawiris, are re-elected members of the
NCGC.
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 135
Compensation report
continued
• Proposal of Board elections • Selection criteria and • Update succession planning • Update succession planning
• Proposal of Board constitution succession planning Board Board and Executive Board and Executive
Nomination for coming terms (committees) • Selection criteria and Committee Committee
succession planning Executive
Committee
• Board compensation current • Review of compensation • Incentives plan design for • Proposal Board compensation
term strategy and programs coming year coming term
• Proposal AGM motions • Review of disclosure approach • Benchmarking of Board (every • Target compensation coming
(amounts to be submitted to (feedback from shareholders) 2 – 3 years) and ExCo year Executive Committee
Compensation vote) compensation (annual) • Performance targets coming
• Performance assessment and year Executive Committee
incentive payouts previous year (annual incentive, LTI)
for Executive Committee
• LTI vesting previous year
• Board assessment • AGM retrospective: • Review of board composition • Review of governance
• NCGC self-assessment shareholders feedback • Review of independence Board documents: Articles of
• Governance report • Governance update members Incorporation, Organizational
• Compensation report (final) • Review of NCGC members’ rules, committees charters,
Governance • Governance update independence Code of Conduct
• Review of corporate • Review of external mandates
governance in general Executive Committee
• Compensation report (draft)
• Governance update
136
Method for determining The benchmarking analysis served as
compensation: benchmarking basis for the NCGC to analyze the
The compensation of the Board of compensation of the CEO and the
Directors is regularly reviewed against Executive Committee and to set their
prevalent market practice of other target compensation levels for the
multinational industrial companies of the financial year 2019. The policy of
SMI (excluding financial services). No LafargeHolcim is to target market median
benchmarking analysis was conducted in compensation for on-target performance,
2018 considering that no changes are with significant upside for above target
planned for the next term of office. performance.
Regarding the compensation of the For the compensation strategy and the
Executive Committee, a benchmarking design of compensation programs for the
analysis of the compensation levels was Executive Committee, the Swiss peer
conducted in 2018 with the support of group described above is considered, as
Willis Towers Watson. For this purpose, for well as a secondary international peer
Executive Committee members who are group (same peer group as the one used
on a Swiss employment contract, a peer for the relative performance measurement
group of selected SMI companies was under the annual incentive).
determined on the basis of their sector
(exclusion of financial services), market
capitalization, revenue and headcount so
that LafargeHolcim is positioned around
the middle of the peer group: ABB,
Givaudan, Lonza, Nestlé, Novartis,
Richemont, Roche, SGS, Sika and Swatch
Group. For Executive Committee members
who are on a foreign employment
contract, an industrial cut was made to
the general industry data included in the
database of Willis Towers Watson of the
respective countries of employment.
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 137
Compensation report
continued
138
To the General Meeting of LafargeHolcim Ltd,
Rapperswil-Jona
Zug, March 6, 2019
Report of the statutory auditor on perform the audit to obtain reasonable Opinion
the Compensation report assurance about whether the In our opinion, the Compensation report
We have audited the accompanying Compensation report complies with Swiss for the year ended December 31, 2018 of
Compensation report of LafargeHolcim Ltd law and articles 14 – 16 of the Ordinance. LafargeHolcim Ltd. complies with Swiss
for the year ended December 31, 2018. law and articles 14 – 16 of the Ordinance.
The audit was limited to the information An audit involves performing procedures
according to articles 14 – 16 of the to obtain audit evidence on the disclosures
Ordinance against Excessive made in the Compensation report with Deloitte AG
Compensation in Listed Stock regard to compensation, loans and credits
Corporations (Ordinance) contained on in accordance with articles 14 – 16 of the
pages 125 and 127 of the Compensation Ordinance. The procedures selected
report. depend on the auditor’s judgment,
including the assessment of the risks of
Responsibility of the Board of material misstatements in the
Directors Compensation report, whether due to David Quinlin
Licensed Audit Expert
The Board of Directors is responsible for fraud or error. This audit also includes
Auditor in charge
the preparation and overall fair evaluating the reasonableness of the
presentation of the Compensation report methods applied to value components of
in accordance with Swiss law and the compensation, as well as assessing the
Ordinance. The Board of Directors is also overall presentation of the Compensation
responsible for designing the report.
compensation system and defining Alexandre Dubi
individual compensation packages. We believe that the audit evidence we Licensed Audit Expert
have obtained is sufficient and
Auditor’s responsibility appropriate to provide a basis for our
Our responsibility is to express an opinion opinion.
on the accompanying Compensation
report. We conducted our audit in
accordance with Swiss Auditing Standards.
These standards require that we comply
with ethical requirements and plan and
LafargeHolcim Annual Report 2018 Governance and Compensation — Compensation report 139
MD&A 2018
Disensa store
Our retail network includes 1’500 stores
in Latin America.
140
Management
discussion & analysis 2018 120
Group performance 142
Region performance 148
LafargeHolcim Annual Report 2018 Management discussion & analysis — Content 141
Management
discussion & analysis 2018
–6.9%
SG&A cost savings ahead of target:
(266)
of 4 corporate offices
2,701
Inflation
– All countries undergoing restructuring with visible
progess to date
(74)
2,515
CIS/FX
savings
– Optimization of third party spend
2017 2018 2018 The non-GAAP measures used in this report are defined on page 282.
Like-for-like
142
Good progress on Strategy 2022 - pricing and profitability. These two Net Income attributable to shareholders
“Building for Growth” business segments will play an important of LafargeHolcim Ltd before impairment
The global rollout of the new Strategy role in reaching the next level of and divestments was 10.8% higher than
2022 – “Building for Growth” has been performance of LafargeHolcim; in 2017.
successfully started. Strong progress was • The strategy driver Financial Strength
made in all four drivers of the strategy, has improved all key performance Earnings per Share before impairment and
delivering results ahead of plan. indicators. More than CHF 1.5 billion was divestments was CHF 2.63 for the full year
refinanced at attractive terms, thereby compared to CHF 2.35 for 2017.
• Switching gears to growth is the most improving the company’s debt maturity
fundamental principle of Strategy 2022. profile and reducing financing costs. The Free cash flow stood at CHF 1,703 million
First results have been achieved and the sale of the Indonesian business has versus CHF 1,685 million in the previous
growth momentum accelerated contributed to the strengthening of the year, benefiting from lower cash payments
throughout the year, with a strong Net balance sheet. All measures taken in for income taxes, tight control of capex
Sales increase of 5.1% on a like-for-like 2018 have already led to a successful offset by unfavorable timing difference of
basis. All four business segments de-leveraging, with the Net Financial cash conversion of our joint ventures'
contributed to this growth. Four bolt-on Debt/Recurring EBITDA ratio improving results.
acquisitions were completed in 2018 in to 2.2x (from 2.4x in 2017); and
Europe and North America which drove • In terms of Vision & People, the new Net debt amounted to CHF 13,518 million
growth and added to the company’s operating model and leadership team at year-end, an improvement of CHF 828
presence in ready-mix concrete and has been successfully established. The million over the prior year, reflecting a
aggregates. These acquisitions had company’s global leaders are cash conversion of 28.3% and the positive
immediate impact on profitability and empowered and fully accountable for impact following the classification of
brought the company closer to its their P&L. The simplified performance Indonesia local external net debt as
end-customers. Four more bolt-on management system and the held-for-sale. The Indonesia divestment
acquisitions have been signed in 2019 in corresponding incentive scheme have closed successfully at the end of January
Europe, Australia and North America; been implemented in all countries. All 2019, full effect will be reflected in 2019.
• In terms of Simplification & Performance, initiatives are supported by the launch of
the company has successfully the new LafargeHolcim business school. Return on Invested Capital was 6.5%,
established a new operating model with compared to 5.8% in 2017, thanks to
more P&L accountability for the Year of strong growth, over- continuous improvement in capital
countries and leaner corporate support proportional increase of Net allocation.
functions. Consequently, we have closed Income and EPS before impairment
four corporate offices in Singapore, and divestments The company’s record in Health & Safety
Miami, Zurich and Paris. The associated Net Sales grew 5.1 % on a like-for-like improved significantly as on-site fatalities
CHF 400 million SG&A savings program basis for the full year, largely driven by were 82% lower than in 2017.
was executed successfully and is higher cement volumes. Net Sales reached
delivering results ahead of target; CHF 27,466 million.
• Strong progress was made by the
Aggregates and Ready-Mix Concrete Recurring EBITDA reached CHF 6,016
segments towards closing the gap with million, up 3.6% on a like-for-like basis for
best-in-class performers. Both businesses the full year, with Cement, Aggregates and
developed positively in terms of volumes, Ready-Mix Concrete segments all
contributing to the solid outcome.
LafargeHolcim Annual Report 2018 Management discussion & analysis — Group performance 143
Management
discussion & analysis 2018
continued
144
Liquidity Foreign exchange sensitivity
To secure liquidity, the Group held cash The Group has a global footprint,
and cash equivalents of CHF 2,515 million generating the majority of its results in
at December 31, 2018. This cash is mainly currencies other than the Swiss Franc.
invested in term deposits held with a large Only about 2 percent of Net Sales are
number of banks on a broadly diversified generated in Swiss Francs.
basis. The counterparty risk is constantly
monitored on the basis of clearly defined Foreign currency volatility has little effect
principles as part of the risk management on the Group’s operating profitability. As
process. As of December 31, 2018, the Group produces a very high
LafargeHolcim had unused committed proportion of its products locally, most
credit lines of CHF 6,239 million (see also sales and costs are incurred in the
note 14). respective local currencies. The effects of
foreign exchange movements are
Current financial liabilities as at therefore largely restricted to the
December 31, 2018, of CHF 3,063 million translation of local financial statements
are comfortably covered by existing cash, for the consolidated statement of income.
cash equivalents and unused committed As a large part of the foreign capital is
credit lines. LafargeHolcim has USD, EUR financed with matching transactions in
and NGN commercial paper programs. local currency, the effects of foreign
The aim of these programs is to fund currency translation on local balance
short-term liquidity needs at attractive sheets for the consolidated statement of
terms. As per December 31, 2018, financial position have not, in general,
commercial papers of CHF 96 million were resulted in significant distortions in the
outstanding. consolidated statement of financial
position.
Maturity profile
Million CHF
6000
5000
4000
3000
2000
1000
0
19 20 21 22 23 24 25 25 27 28 >28
LafargeHolcim Annual Report 2018 Management discussion & analysis — Group performance 145
Management
discussion & analysis 2018
continued
The following sensitivity analysis presents The following table shows the effects of a
the effect of the main currencies on hypothetical 5 percent depreciation of the
selected key figures of the consolidated respective foreign currencies against the
financial statements. The sensitivity Swiss Franc.
analysis only factors in effects that result
from the conversion of local financial
statements into Swiss Francs (translation
effect). Currency effects from transactions
conducted locally in foreign currencies are
not included in the analysis.
Sensitivity analysis
Latin Ameri- Asian bas- Middle East
can basket ket (AUD, African bas-
(MXN, BRL, CNY, IDR, ket (NGN,
Million CHF 2018 EUR GBP USD CAD ARS, COP) INR PHP) DZD, EGP)
Actual
figures Assuming a 5% strengthening of the Swiss franc the impact would be as follows:
Net sales 27,466 (191) (89) (274) (105) (93) (185) (148) (75)
Recurring EBITDA 6,016 (46) (16) (79) (21) (27) (31) (31) (24)
Cash flow from operating activities 2,988 (25) (8) (35) (10) (1) (13) (19) (11)
Net financial debt 13,518 (295) (16) (236) 7 (10) 37 (41) (18)
146
Reconciliation of non-GAAP measures
LafargeHolcim Annual Report 2018 Management discussion & analysis — Group performance 147
Management
discussion & analysis 2018
continued
Asia Pacific
2018
The Asia Pacific region benefited from and China. Net Sales of Ready-Mix
117*
favorable market conditions in most Concrete stood slightly above the prior
countries, leading to strong Net Sales and year on a like-for-like basis, with large
continued Recurring EBITDA growth. markets like Australia and India Cement & grinding plants
China was a key driver of higher developing well.
69*
profitability, supported by price
momentum and the vertically-integrated Recurring EBITDA for the Asia Pacific
waste recycling business. India’s solid region showed very strong growth of
Aggregates plants
demand was driven by infrastructure and 22.5% on a like-for-like basis. Strict cost
347*
rural housing, whereas demand in the management and price discipline more
Philippines was mainly supported by the than compensated for the impact of
public sector. In Indonesia, pricing and increasing energy costs across the region.
Ready-mix concrete plants
market demand improved while the The share of Huaxin joint-venture profits
Malaysian market continued to remain in China was recognized in the region’s
challenging. 2018 result, accounting for CHF 334
*
including joint ventures
148
Total consolidated cement grinding
Grinding plant
capacity (million tonnes per year)
Cement plant
111.4
(211.6 including joint ventures)
Country
China (joint venture) 94.3
India 64.4
Indonesia 15.1
Malaysia 10.9
Philippines 9.4
China 7.7
Australia (joint venture) 5.9
Bangladesh 3.9
LafargeHolcim Annual Report 2018 Management discussion & analysis — Region performance 149
Management
discussion & analysis 2018
continued
Europe
2018
2018 was a strong year for the Europe The favorable market environment, good
54
region. Increased public infrastructure volumes and price management,
spending in Eastern and Central Europe, combined with improved Ready-Mix
big projects in the UK (high speed 2), Concrete results and the contribution of
Cement & grinding plants
France (Grand Paris), Russia (Great Geocycle with more than 4 million tonnes
273
Moscow), together with the rebound of of waste treated allowed a year-over-year
the construction and residential segment Recurring EBITDA increase of 5.0% on
across the region paved the way for solid a like-for-like basis. A bolt-on acquisition
Aggregates plants
revenue growth in most countries. finalized in the UK will contribute to
growth in the future.
Net sales grew 5.0% on a like-for-like basis
as sales volume gains in all segments
combined with price improvements in the
578
Ready-mix concrete plants
150
Total consolidated cement grinding
Grinding plant
capacity (million tonnes per year)
Cement plant
73.6
Untervaz, Switzerland Consolidated cement grinding
Employees at the cement plant. capacity (million tonnes per year)
Country
France 9.7
Russia 9.6
Spain 7.6
Germany 7.1
Poland 7.0
Romania 5.7
Greece 4.8
Switzerland 3.3
Italy 2.4
Austria 2.1
Belgium 2.1
Azerbaijan 1.9
United Kingdom 1.9
Hungary 1.8
Moldova 1.6
Serbia 1.5
Bulgaria 1.4
Czech Republic 1.2
Croatia 0.9
LafargeHolcim Annual Report 2018 Management discussion & analysis — Region performance 151
Management
discussion & analysis 2018
continued
Latin America
2018
After a strong first half of 2018, the Latin 3.5% on a like-for-like basis. Over-
29
America region suffered an overall proportional Net Sales growth of 9.4% like
softening of cement demand in the last six for like reflects price increases to
months. The pressure on margins compensate high cost inflation.
Cement & grinding plants
intensified in a context of high cost
11
inflation, leading to an annual Recurring Recurring EBITDA in 2018 is slightly below
EBITDA slightly below the prior year on a the prior year, impacted by a sharp
like-for-like basis. increase in raw material and energy costs
Aggregates plants
balanced by price increases and strict cost
In the first part of the year, the Cement control. Inflation in Argentina increased
and Ready-Mix Concrete segments
delivered double-digit like-for-like growth
in volumes and Net Sales. This strong
significantly since early 2018 and the
three-year cumulative inflation rate now
exceeds 100%. Based on consensus
103
Ready-mix concrete plants
performance was boosted by large opinion, Argentina is considered to be
infrastructure projects in Mexico, solid hyperinflationary from July 1, 2018.
demand in Argentina and economic Accordingly, LafargeHolcim has applied
acceleration in Brazil. The Disensa network the accounting standard IAS 29 Financial
of construction materials stores reporting in Hyperinflationary economies for
established its 1,500th location in the its 2018 accounts, with effect from January
region as part of the commercial strategy 1, 2018, as if the Argentine economy had
to combine Group know-how with the always been hyperinflationary.
entrepreneurial spirit of the store owner.
These positive trends reversed in the
second half of the year with decline in
volumes due to the post-election
slowdown in Mexico, Argentina's economic
collapse and generally weaker demand in
Ecuador and Central America. On annual
basis, total cement volumes sold grew by
152
Total consolidated cement grinding
Grinding plant
capacity (million tonnes per year)
Cement plant
39.1
Guayaquil, Ecuador Consolidated cement grinding
Employees at the cement plant. capacity (million tonnes per year)
Country
Mexico 12.2
Brazil 10.5
Ecuador 5.5
Argentina 4.8
Colombia 2.1
El Salvador 1.8
Costa Rica 1.1
West Indies 0.7
Nicaragua 0.4
LafargeHolcim Annual Report 2018 Management discussion & analysis — Region performance 153
Management
discussion & analysis 2018
continued
Market conditions in the Middle East Africa These overall headwinds, combined with
44*
remained challenging driven by a rising distribution and energy costs,
changing competitive profile, shifts in resulted in a decrease in Recurring EBITDA
supply and demand, sluggish economies of 28.2% on a like-for-like basis.
Cement & grinding plants
in the region, and a rise in energy and
23*
distribution costs.
154
Total consolidated cement grinding
Grinding plant
capacity (million tonnes per year)
Cement plant
56.8
(72.8 including joint ventures)
Country
Algeria 12.4
Morocco ( Joint venture) 11.8
Nigeria 10.5
Egypt 8.9
Iraq 5.7
Jordan 3.9
South Africa 3.2
Kenya 3.2
Lebanon 2.5
Ivory Coast ( Joint venture) 2.2
Uganda 1.9
Zambia 1.5
Tanzania 1.1
Cameroon ( Joint venture) 1.0
Benin ( Joint venture) 0.7
Qatar 0.6
Reunion 0.5
Zimbabwe 0.4
Guinea ( Joint venture) 0.3
Malawi 0.3
Madagascar 0.2
LafargeHolcim Annual Report 2018 Management discussion & analysis — Region performance 155
Management
discussion & analysis 2018
continued
North America
2018
26
capitalized on strong market Concrete fell slightly short on lower sales
fundamentals but were negatively volumes. Canada showed its highest
impacted by harsh weather in the first growth rates in the west, particularly in
Cement & grinding plants
quarter and an early winter in the fourth the Solutions & Products downstream
287
quarter. Our growth strategy coupled with activities of construction, paving and
strong price management and rigorous concrete products, while the US reported
cost control laid the basis for solid 2018 higher Net Sales mainly due to higher
Aggregates plants
results compared to the prior year despite Cement sales volumes. Aggregates and
the challenging conditions. The growth Ready-Mix Concrete in the US benefited
strategy was further supported by the two
bolt-on acquisitions completed in 2018:
Tarrant Concrete in Texas and Metro Mix in
from stronger pricing.
156
Total consolidated cement grinding
Grinding plant
capacity (million tonnes per year)
Cement plant
32.0
Bladensburg, Maryland, USA Consolidated cement grinding
Rail transport of aggregates. capacity (million tonnes per year)
Country
United States 23.6
Canada 8.4
LafargeHolcim Annual Report 2018 Management discussion & analysis — Region performance 157
Responsibility statement
We certify that, to the best of our knowledge and having made reasonable inquiries to
that end, the financial statements have been prepared in accordance with applicable
accounting standards and give a true and fair view of the assets and liabilities, and of
the financial position and results of the Company and of its consolidated subsidiaries,
and that this annual report provides a true and fair view of the evolution of the business,
results and financial condition of the Company and of its consolidated subsidiaries, and
a description of the main risks and uncertainties the Company and its consolidated
subsidiaries are subject to.
158
LafargeHolcim Annual Report 2018 Management discussion & analysis — Responsibility statement 159
Financial
information
Almeria, Spain
Cement blocks used to protect our jetty.
160
Financial
information
2017
Million CHF Notes 2018 Restated 1
The non-GAAP measures used in this report are defined on page 282.
162
Consolidated statement of
comprehensive earnings of LafargeHolcim
Items that will not be reclassified to the statement of income in future periods
Defined benefit plans
– Remeasurements 16.2 75 216
– Tax effect (50) (70)
Strategic equity investments at fair value through other comprehensive earnings
– Transfer of gain/loss on disposal of strategic equity investments at fair value through other
comprehensive earnings to retained earnings 4 n/a
– Change in fair value 3 n/a
– Tax effect 0 n/a
Subtotal 27 146
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 163
Consolidated statement of
financial position of LafargeHolcim
164
Million CHF Notes 31.12.2018 31.12.2017
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 165
Consolidated statement of
Changes in Equity of LafargeHolcim
166
Total equity
Currency attributable to Total
translation Retained shareholders Non-controlling shareholders’
adjustments Other reserves earnings of LafargeHolcim Ltd interest equity
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 167
Consolidated statement of
Cash Flows of LafargeHolcim
Cash and cash equivalents as at the beginning of the period (net) 3,954 4,795
Decrease in cash and cash equivalents (1,561) (718)
Currency translation effects (129) (122)
Cash and cash equivalents as at the end of the period (net) 14.2 2,264 3,954
1
Includes restructuring, litigation costs and other non-cash items.
168
Principal exchange rates
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 169
Notes to the consolidated
financial statements
As used herein, the terms “LafargeHolcim” or “Group” refer to
LafargeHolcim Ltd together with the companies included in the scope of consolidation.
1. Accounting policies The following details the judgments, apart by management with the assistance of
1.1 Basis of preparation from those involving estimations, that the legal department and in certain
The consolidated financial statements management has made in the process of cases with the support of external
have been prepared in accordance with applying the Group’s accounting policies specialized lawyers (note 17.2).
International Financial Reporting and that have the most significant effect Disclosures related to such provisions, as
Standards (IFRS). on the amounts recognized in the well as contingent liabilities, also require
financial statements: significant judgment (note 17.3);
Due to rounding, numbers presented • The classification of a subsidiary or a • The recognition of deferred tax assets
throughout this report may not add up disposal group as held for sale especially requires assessment of whether it is
precisely to the totals provided. All ratios as to whether the sale is expected to be probable that sufficient future taxable
and variances are calculated using the completed within one year from the date profit will be available against which
underlying amount rather than the of classification as held for sale, and the unused tax losses can be utilized
presented rounded amount. whether the proceeds expected to be (note 8).
received will exceed the carrying amount
Use of estimates (note 13). 1.2 Adoption of new and revised
The preparation of financial statements International Financial Reporting
in conformity with IFRS requires The following details the assumptions the Standards and interpretations
management to make estimates and Group makes about the future, and other In 2018, LafargeHolcim adopted the
assumptions that affect the reported major sources of estimation uncertainty at following new standards, interpretation
amounts of revenues, expenses, assets, year end, that could have a significant risk and amended standard relevant to the
liabilities and related disclosures at the of resulting in a material adjustment to Group:
date of the financial statements. These the carrying amounts of assets and
liabilities within the next financial year: IFRS 15 Revenue from
estimates are based on management’s
Contracts with
best knowledge of current events and • Assumptions underlying the estimation Customers
actions that the Group may undertake in of value in use in respect of cash-
IFRS 9 Financial Instruments
the future. However, actual results could generating units for impairment testing
Amendments to IFRS 2 Classification and
differ from those estimates. Management purposes require the use of estimates measurement of share-
also uses judgment in applying the such as long-term discount rates and based payment
Group’s accounting policies. growth rates (note 11.3); transactions
170
Based on IFRS 15, management concluded In 2019, LafargeHolcim will adopt the IFRIC 23 – Uncertainty over Income
it would be more appropriate to reflect following new standard, interpretation Tax Treatments
trading activities as principal rather than and amended standards relevant to the As detailed in the 2017 Annual Report, the
agent. This accounting policy change has Group: IFRIC issued IFRIC 23 Uncertainty over
been applied fully retrospectively and its Income Tax Treatments in June 2017 which
effect on the comparative information IFRS 16 Leases
clarifies that an entity will be required to
(restated amounts) presented for each IFRIC 23 Uncertainty over reflect the effect of uncertainty in
Income Tax Treatments
financial statement line item. Based on accounting for income taxes. The current
2017 figures, this change in presentation Amendments to IAS 28 Long-term Interests in
assessment is that the application of IFRIC
Associates and Joint
increased net sales and production cost of Ventures 23 will not materially impact the Group
goods sold by CHF 893 million with no financial statements.
Amendment to IAS 19 Plan Amendment,
impact on the net income. For further Curtailment or
details, see note 3 in the Half-Year 2018 Settlement IAS 28 – Long-term Interests in
Report. Improvements to IFRS Clarifications of Associates and Joint Ventures
existing IFRSs (issued
In October 2017, the IASB issued
in December 2017)
The impacts of applying IFRS 15 are amendments to IAS 28 Long-term Interests
presented in the note 4.2. in Associates and Joint Ventures, which
IFRS 16 – Leases
clarifies that an entity first applies IFRS 9
In January 2016, the IASB issued IFRS 16
IFRS 9 – Financial Instruments Financial Instruments to other financial
Leases, which replaces IAS 17 Leases and
IFRS 9, which replaces IAS 39 Financial instruments before taking into account its
related interpretations. The new standard
instruments: Recognition and measurement, share of profit or loss of an associate or
will require lessees to adopt a uniform
was adopted for the period starting joint venture under IAS 28. Consequently,
approach to the presentation of leases.
January 1, 2018. Comparative figures have in applying IFRS 9, an entity does not take
Correspondingly, assets must be
not been restated. The accounting policies account of any adjustments to the
recognised for the right of use received
were changed to comply with IFRS 9 as carrying amount of long-term interests
and liabilities must be recognised for
issued by the IASB in July 2014. that arise from applying IAS 28. The
payment obligations entered into for all
adoption of the amendment to IAS 28 will
leases.
The impacts of applying IFRS 9 are not materially impact the Group financial
presented in the note 14.5. statements.
The Group will transition to IFRS 16 in
accordance with the modified
Amendments to IFRS 2 – Share-based
retrospective approach. For leases that
payment
have to date been classified as operating
As detailed in the 2017 Annual Report
leases in accordance with IAS 17, the lease
(note 2), the adoption of the amendments
liability will be carried at the present value
to IFRS 2 does not impact the Group
of the remaining lease payments,
financial statements.
discounted using the lessee’s incremental
borrowing rate at the time the standard
IFRIC 22 – Foreign Currency Transactions
first applied. The right-of-use asset will
and Advance Consideration
generally be measured at the amount of
As detailed in the 2017 Annual Report
the lease liability.
(note 2), the adoption of IFRIC 22 does not
materially impact the Group financial
The impacts of applying IFRS 16 are
statements.
presented in the note 15.1.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 171
Notes to the consolidated
financial statements
continued
172
Any contingent consideration to be combination, the present value of the Goodwill arising from the acquisition of a
transferred by the Group is recognized at redemption amount of the put option is foreign operation is expressed in the
fair value at the acquisition date. recognized as a financial liability with any functional currency of the foreign
Subsequent changes to the fair value of excess over the carrying amount of the operation and is translated at the closing
the contingent consideration are non-controlling interest recognized as rate of the reporting period.
recognized in the statement of income. goodwill. In such a case, the non-
controlling interest is deemed to have Foreign currency transactions translated
Contingent liabilities assumed in a been acquired at the acquisition date and into the functional currency are accounted
business combination are recognized at therefore any excess arising should follow for at the exchange rate prevailing at the
fair value and subsequently measured at the accounting treatment as in a business date of the transactions; gains and losses
the higher of the amount that would be combination. All subsequent fair value resulting from the settlement of such
recognized as a provision and the amount changes of the financial liability are transactions and from the translation of
initially recognized. recognized in the statement of income monetary assets and liabilities
and no earnings are attributed to the denominated in foreign currencies are
Subsidiaries are consolidated from the non-controlling interest. However, where recognized in the statement of income,
date on which control is transferred to the the Group has not acquired a present except when deferred outside the
Group and are no longer consolidated ownership interest as part of a business statement of income as qualifying cash
from the date that control ceases. combination, the non-controlling interest flow hedges or net investment hedges.
continues to receive an allocation of profit
All intercompany transactions and or loss and is reclassified as a financial Exchange differences arising on monetary
balances between Group companies are liability at each reporting date as if the items that form part of a company’s net
eliminated in full. acquisition took place at that date. Any investment in a foreign operation are
excess over the reclassified carrying recognized in other comprehensive
Changes in the ownership interest of a amount of the non-controlling interest earnings (currency translation adjustment)
subsidiary that does not result in loss of and all subsequent fair value changes of and are fully reclassified to the statement
control are accounted for as an equity the financial liability are recognized of income should the Group lose control
transaction. Consequently, if directly in retained earnings. of a subsidiary, lose joint control over an
LafargeHolcim acquires or partially interest in a joint arrangement or lose
disposes of a non-controlling interest in a Foreign currency translation significant influence in an associate. When
subsidiary, without losing control, any The assets and liabilities of each of the a foreign operation is partially disposed of
difference between the amount by which Group’s companies are measured using or sold, exchange differences that were
the non-controlling interest is adjusted the currency of the primary economic recorded in equity are recognized in the
and the fair value of the consideration environment in which the entity operates statement of income as part of the net
paid or received is recognized directly in (“the functional currency”). Statements of gain or loss on sale, except for a partial
retained earnings. income of foreign entities are translated disposal of a subsidiary without loss of
into the Group’s reporting currency at control, where a proportionate share of
It is common practice for the Group to average exchange rates for the year and the cumulative currency translation
write put options and acquire call options statements of financial position are adjustments are re-attributed to non-
in connection with the remaining shares translated at the exchange rates prevailing controlling interest and not recognized in
held by the non-controlling shareholders, on December 31. the statement of income.
mainly as part of a business combination.
If the Group has acquired a present
ownership interest as part of a business
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 173
Notes to the consolidated
financial statements
continued
Hyperinflation in Argentina For transactions occurring from January Divestments in the current reporting
In the second quarter of 2018, the 2017 onwards, the IPC national consumer period
inflation indices of Argentina reflected a price index was used. In the second quarter of 2018, the Group
three-year cumulative inflation rate disposed of an operation of Lafarge China
exceeding 100 percent. The Group applied 2.3 Change in the scope of Cement Limited to the Group’s joint
IAS 29 Financial Reporting in consolidation venture Huaxin Cement Co. Ltd for a total
Hyperinflationary Economies for Argentina Acquisitions in the current reporting consideration of CHF 38 million.
as of December 31, 2018. In accordance period
with IAS 29, the financial statements of During 2017 and 2018, there were no Also in the second quarter 2018, the
Argentina are expressed in terms of the individually material business Group has received as planned the
measuring unit current as of December combinations. Aggregated information of remaining proceeds of CHF 117 million in
31, 2018, which means that the financial the acquisitions conducted is disclosed in connection with the disposal of 73.5
statements are restated in terms of the note 20. The acquisitions made during percent of the listed shares in Sichuan
measuring unit current at the end of that 2018 are as listed below: Shuangma Cement Co. Ltd., presented in
reporting period. Monetary assets and • on February 23, 2018, the Group the cash flow from investing activities. In
liabilities are not restated as they are acquired the Kendall Group, a leading the first quarter 2018, the Group
already expressed in the measuring unit aggregates and ready-mix concrete completed the repurchase of the two
current at the end of the reporting period, manufacturer operating in South cement companies from Shuangma under
whereas all non-monetary items such as England; a put and call option for an amount of CHF
inventory, property, plant and equipment • on July 3, 2018, the Group acquired 214 million presented in the cash flow
and equity recorded at historical rates are Tarrant Concrete, a leading provider of from financing activities (see note 13.2).
restated in terms of the measuring unit ready-mix concrete in the Dallas/Fort
current at the end of December 31, 2018. Worth area in Texas; On November 12, 2018, the Group signed
The resulting gain of CHF 26 million on the • on July 4, 2018, the Group acquired an agreement with Semen Indonesia for
net liability monetary position was Sablière de Vritz in the area of Loire the disposal of its entire shareholding
recorded as part of production cost of Atlantique in France; and of 80.6 percent in Holcim Indonesia and
goods sold in the income statement. The • on August 2, 2018, the Group acquired consequently classified the assets
restatement of equity by CHF 183 million Metro Mix, LLC, a leading provider of and related liabilities as held for sale
was reflected as an increase in retained ready-mix concrete in the Denver (see note 13.2).
earnings, of which CHF 32 million was metropolitan area in Colorado.
attributable to the non-controlling Divestments in the previous comparative
interest. The restated financial statements periods
of Argentina are translated into CHF at the The streamlining of the Group’s operations
exchange rate applicable as of December in China started in 2016 and was
31, 2018. Since the amounts are translated completed with final payments in 2018.
into the currency of a non- The transactions entered included:
hyperinflationary economy (i.e. the CHF), • the disposal of the non-listed cement
comparative amounts have not been assets in China to the Group’s joint
restated. venture Huaxin for a total consideration
of CHF 257 million received in the first
quarter 2017; and
174
• the disposal of 73.5 percent of the listed On February 28, 2017, the Group disposed
shares in Sichuan Shuangma together of its 65 percent shareholding in
with a put and call option agreement to LafargeHolcim Vietnam for a total
repurchase the underlying Shuangma consideration of CHF 546 million before
cement companies. taxes which resulted in a net gain before
taxes of CHF 339 million.
From the disposal of 73.5 percent of the
listed shares in Sichuan Shuangma On August 14, 2017, the Group disposed
Cement Co. Ltd. in 2016, CHF 352 million of its 54 percent shareholding in Cemento
was received on an escrow account in Polpaico S.A. (Chile) for a total
December 2016 and released in 2017 of consideration of CHF 114 million before
which CHF 181 million reflecting the value taxes which resulted in a net loss before
of the put option was presented as cash taxes of CHF 40 million.
flow from financing activities in the line
“Net movement in current financial
liabilities” and the remainder presented in
the cash flow from investing activities in
the line “Disposal of participation in Group
companies”.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 175
Notes to the consolidated
financial statements
continued
176
Effective
participation
Ready-Mix (percentage Listed
Region Company Country Municipality Cement Aggregates Concrete of interest) company
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 177
Notes to the consolidated
financial statements
continued
Effective
participation
Ready-Mix (percentage Listed
Region Company Country Munipality Cement Aggregates Concrete of interest) company
178
Principal finance and holding companies
Effective
participation
(percentage
Company Country Municipality of interest)
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 179
Notes to the consolidated
financial statements
continued
Chittagong,
Asia Pacific LafargeHolcim Bangladesh Limited Bangladesh Dhaka Dhaka BDT 50,520 million BD0643LSCL09
ACC Limited India Mumbai Mumbai INR 283,202 million INE012A01025
Ambuja Cements Ltd. India Mumbai Mumbai INR 446,969 million INE079A01024
PT Holcim Indonesia Tbk. Indonesia Jakarta Jakarta IDR 14,444,567 million ID1000072309
Lafarge Malaysia Berhad Malaysia Petaling Jaya Kuala Lumpur MYR 1,538 million MYL3794OO004
Holcim Philippines Inc. Philippines Taguig City Manila PHP 37,422 million PHY3232G1014
Latin America Holcim (Argentina) S.A. Argentina Cordoba Buenos Aires ARS 20,595 million ARP6806N1051
Holcim (Costa Rica) S.A. Costa Rica San José San José CRC 137,238 million CRINC00A0010
Quito,
Holcim (Ecuador) S.A. Ecuador El Caimán Guayaquil USD 1,475 million ECP516721068
Middle East Jordan Cement Factories
Africa Company P.S.C. Jordan Amman Amman JOD 37 million JO4104211019
Bamburi Cement Limited Kenya Nairobi Nairobi KES 48,092 million KE0000000059
Holcim (Liban) S.A.L. Lebanon Beirut Beirut USD 302 million LB0000012833
Lafarge Africa Plc. Nigeria Ikoyi Lagos NGN 107,984 million NGWAPCO00002
Lafarge Zambia Plc Zambia Lusaka Lusaka ZMW 974 million ZM0000000011
Lafarge Cement Zimbabwe Limited Zimbabwe Harare Harare USD 106 million ZW0009012056
180
2.5 Non-controlling interests
LafargeHolcim has two Group companies
with material non-controlling interests.
Information regarding these subsidiaries
is as follows:
Million CHF 2018 2017 2018 2017 2018 2017 2018 2017
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 181
Notes to the consolidated
financial statements
continued
Statement of income
Million CHF 2018 2017 2018 2017
182
3. Segment reporting Each of the above reportable segments Transfer prices between segments are set
3.1 Accounting principles derives its revenues largely from the sale on at arm’s-length basis in a manner
The Group is organized by countries. of cement, aggregates and ready-mix similar to transactions with third parties.
Countries or regional clusters are the concrete. Segment revenues and segment results
Group’s o
perating segments. For purposes include transfers between segments.
of presentation to the Chief Operating As part of the “Strategy 2022”, the Group Those transfers are eliminated on
Decision Maker (i.e. the Group CEO), five has disclosed a fourth product line, consolidation.
regions corresponding to the aggregation Solutions & Products as detailed below:
of countries or regional clusters are
reported: – Cement, which comprises clinker, cement and
other cementitious materials
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 183
Notes to the consolidated
financial statements
continued
3.2 Operating segments
Information by reportable segment
Asia Pacific Europe
Personnel (unaudited)
Number of personnel 21,979 24,153 20,222 21,317
184
Latin America Middle East Africa North America Corporate/Eliminations Total Group
2018 2017 1 2018 2017 1 2018 2017 1 2018 2017 1 2018 2017 1
2,731 2,943 3,080 3,353 5,875 5,664 779 652 27,466 27,021
11 1 43 21 1 (248) (220)
2,743 2,944 3,123 3,374 5,877 5,664 532 431 27,466 27,021
959 1,055 734 1,085 1,523 1,483 (307) (436) 6,016 5,990
35.0 35.9 23.5 32.2 25.9 26.2 21.9 22.2
721 568 313 (1,215) 882 552 (591) (649) 3,312 (478)
26.3 19.3 10.0 (36.0) 15.0 9.7 12.1 (1.8)
2,957 2,598 6,897 7,265 10,898 11,054 965 1,605 41,595 43,556
36 4 1,364 1,421 57 56 64 105 3,133 3,120
4,563 4,527 7,763 8,720 15,195 15,311 2,427 3,075 59,695 63,679
2,047 2,879 3,571 3,889 6,853 5,878 4,177 6,105 29,642 32,703
266 483 176 420 656 851 503 (238) 2,988 3,040
120 80 175 254 268 370 4 10 1,285 1,355
8,956 9,305 11,856 12,901 12,892 12,697 1,150 1,588 77,055 81,960
959 1,055 734 1,085 1,523 1,483 (307) (436) 6,016 5,990
(33) (58) (76) (162) (73) 38 (155) (98) (476) (461)
(205) (429) (345) (2,138) (568) (969) (129) (116) (2,229) (6,007)
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 185
Notes to the consolidated
financial statements
continued
186
Solution
Ready-mix concrete & Products 3 Corporate/Eliminations Total Group
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 187
Notes to the consolidated
financial statements
continued
188
4. Operating profit The core products are often sold with A trade receivable is recognized when the
4.1 Accounting principles volume discounts. Revenue from these products are delivered to a customer as
Operating profit excludes items that are sales is recognized based on the price this is the point in time that the
not directly related to the Group’s normal specified on the invoice, net of estimated consideration becomes unconditional
operating activities. These primarily relate discounts. Accumulated experience is because only a passage of time is required
to gains or losses on the disposal of used to estimate and provide for the before the payment is due.
property, plant and equipment, gains or discounts, using the most likely amount. A
losses on the sale of Group companies, liability is recognized for expected volume Contract assets, which is a Group
associates and joint ventures, revaluation discounts in relation to sales made until company’s right to consideration that is
gains or losses on previously held equity the end of the reporting period. No conditional on something other than the
interests, disputes with minority element of financing is deemed present as passage of time, relate mainly to
shareholders, other major lawsuits, share the sales are made with credit terms construction and paving activities and
of profit or loss of associates and financial largely ranging between 30 days and 60 remain immaterial on Group level at
income and expenses. days depending on the specific terms this stage.
agreed to with the Group company
4.2 Revenue recognition concerned, which is consistent with The Group is also involved in providing
The Group is applying IFRS 15 on a market practice. Generally, cement, services in conjunction with the sale of its
retrospective basis from January 1, 2017. aggregates and ready-mix concrete are core products and is developing retail
Revenue from the sale of the Group’s core not returned as a customer will only activities in certain markets. However,
products cement, aggregates and accept these products once they have both these activities remain immaterial on
ready-mix concrete is recognized when passed a stringent quality check at Group level at this stage.
delivery has taken place and control of the delivery point.
goods has been transferred to the Interest is recognized on a time proportion
customer. The customer obtains control of Contract liabilities, which is a Group basis that reflects the effective yield on the
the goods when the significant risks and company’s obligation to transfer goods or asset.
rewards of products sold are transferred services to a customer for which the entity
according to the specific delivery terms has already received consideration, relate Dividends are recognized when the
that have been formally agreed with the mainly to advance payments from shareholder’s right to receive payment is
customer, generally upon delivery when customers which are disclosed in note established.
the bill of lading is signed by the customer 10.5 and to volume incentive programs. As
as evidence that they have obtained at December 31, 2018, contract liabilities
physical possession and accepted the amounted to CHF 555 million (2017: CHF
products delivered to them. 531 million).
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 189
Notes to the consolidated
financial statements
continued
190
5. Profit and loss on disposals and non-operating items that are not directly
other non-operating items related to the Group’s normal operating
5.1 Accounting principles activities such as revaluation gains or
Profit and loss on disposals and other losses on previously held equity interests,
non-operating items comprise gains or disputes with non-controlling interests
losses on the sale of Group companies and and other major lawsuits.
property, plant and equiment and other
Dividends earned 6 6
Net gain on disposals before taxes 69 441
Other 18 0
Total 93 447
In 2018, the position “Net gain on Vietnam of CHF 339 million and gains
disposals before taxes” mainly includes on property, plant and equipment of
several gains on disposal of property, CHF 82 million.
plant and equipment of CHF 62 million.
Further information is disclosed in
In 2017, the position “Net gain on note 2.3.
disposals before taxes” mainly included a
gain on the disposal of LafargeHolcim
In 2018, the position “Net loss on disposals abandoned or not part of the operating In 2017, the position “Other” included
before taxes” notably includes the loss on business cycle. expenses in relation to ongoing legal
disposal of one subsidiary in Europe for cases (see note 17.3) and expenses
CHF 31 million. In 2017, the position “Net loss on disposal incurred in connection with assets, that
before taxes” related mainly to the loss of are not operating anymore, abandoned or
In 2018, the position “Other” includes CHF 40 million on the disposal of Cemento not part of the operating business cycle.
expenses incurred in connection with Polpaico S.A. (Chile) and CHF 40 million
assets, which are not operating anymore, from the transactions entered in China
(see note 2.3).
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 191
Notes to the consolidated
financial statements
continued
6. Investments in associates and The Group’s share of profit of joint 6.2 Main changes during the period
joint ventures ventures is classified within operating In June 2018, the Group’s long-term
6.1 Accounting principles profit as these operations form an integral investment in Cuba was reclassified from
The Group, in the course of its business, part of the Group’s financial performance, an investment in an associate to an
may enter into arrangements where it will reflecting its core business activities. The investment in a joint venture following a
exercise joint control over entities Group’s share of profit of associates is change in the Board composition and the
resulting in classifying these operations as classified below operating profit. appointment of the CEO nominated by the
joint ventures or joint operations Goodwill arising from an acquisition is Group. All key decisions (capital
depending on the right and obligation included in the carrying amount of the expenditures, budget) are taken jointly
arising from the contractual arrangement. investments in joint ventures and with the partner. There is no link to the
Alternatively, it may enter into associated companies. Group's US operations or managerial staff.
arrangements where it holds 20 to 50
percent of the voting rights and exercises Equity accounting is discontinued when In addition, an investment in an associate
significant influence resulting in these the carrying amount of the investment in Europe was reclassified to “Financial
companies being classified as associate together with any long-term interest in a investments – third parties” in 2018
companies. joint venture or in an associate reaches following the change in the relationship
zero, unless the Group has either incurred and involvement with the main
Such investments are accounted for using or guaranteed additional obligations in shareholder.
the equity method of accounting. respect of the joint venture or associate.
192
In 2018, the position “Reclassifications” In 2017, the position “Impairments” mainly In 2017, as a result of the streamlining of
mainly relates to the reclassification of the related to the impairment of the Group’s the Chinese operations, the Group had
Group’s investment in Cuba from an interest in certain joint ventures in Middle joint control in Huaxin Cement Co.Ltd.
investment in an associate to an East and Africa. which was reclassified from an investment
investment in a joint venture. in an associate to an investment in a joint
venture.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 193
Notes to the consolidated
financial statements
continued
6.5 Huaxin Cement Co. Ltd (China) Set out below is the summarized financial
As of December 31, 2018, the Group holds information for the material joint venture
41.8 percent (2017: 41.8 percent) of the company Huaxin Cement Co. Ltd., which is
voting rights in the joint venture company accounted for using the equity method.
Huaxin Cement Co. Ltd. The summarized financial information
presented below are the amounts
The fair value of the investment in included in the IFRS financial statements
Huaxin Cement Co. Ltd. based on a quoted of Huaxin Cement Co. Ltd. as at
market price on December 31, 2018 December 31, 2018 and as at
amounted to CHF 1,342 million (2017: December 31, 2017. As of December 31,
CHF 1,123 million). 2018, dividends of CHF 31 million
(December 31, 2017: CHF 4 million) were
received from Huaxin Cement Co. Ltd.
194
A reconciliation of the summarized
financial information to the carrying
amount of the investment in Huaxin
Cement Co. Ltd. is as follows:
6.6 Lafarge Maroc S.A.S. (Morocco) Since Lafarge Maroc S.A.S. is the parent The summarized financial information
As of December 31, 2018, the Group holds company of LafargeHolcim Maroc S.A., a presented below are the amounts
50 percent (2017: 50 percent) of the voting publicly listed company in Morocco which included in the IFRS financial statements
rights in the joint venture company has not yet published its financial of Lafarge Maroc S.A.S. as at June 30, 2018
Lafarge Maroc S.A.S. Set out below is the statements for the year 2018, the and as at December 31, 2017. As of
summarized financial information for the disclosed amounts for the investment in June 30, 2018, dividends of CHF 54 million
material joint venture Lafarge Maroc the joint venture Lafarge Maroc are as of (December 31, 2017: CHF 149 million)
S.A.S., which is accounted for using the June 30, 2018. were received from Lafarge Maroc S.A.
equity method.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 195
Notes to the consolidated
financial statements
continued
Lafarge Maroc
Million CHF 30.6.2018 31.12.2017
196
The following table summarizes, in
aggregate, the financial information of all
individually immaterial joint ventures that
are accounted for using the equity
method:
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 197
Notes to the consolidated
financial statements
continued
The position “Interest expenses” relates The position “Impairment of long-term 8. Income taxes
primarily to financial liabilities measured financial assets” includes write-offs of third 8.1 Accounting principles
at amortized cost and includes parties financial investments and long- Income taxes
amortization on bonds and private term financial receivables. The Group is subject to income taxes in
placements of CHF 70 million (2017: CHF numerous jurisdictions and the calculation
99 million). The remaining balance related The position “Other financial expenses” of the Group’s tax charge involves a
to the purchase price allocation on bonds notably includes accruals for interest degree of estimation and judgement in
and private placements amounts to CHF related to ongoing legal and tax cases (see respect of certain items. There are many
136 million as at end of December 2018. notes 17.3 and 8 respectively) and bank transactions and calculations where the
The decrease of the interest expenses in charge fees. ultimate tax determination is uncertain
2018 is the result of the continuation of during the ordinary course of business.
the financial liabilities reduction especially The position “Financial expenses The Group recognises liabilities for
due to bonds repayment and the decrease capitalized” comprises interest potential tax audit issues and uncertain
in the average interest rate (see note 14.3). expenditures on large-scale projects. tax positions based on management’s
estimate of whether additional taxes will
be due. Where the final tax outcome of
these matters is different from the
198
amounts that were initially recorded, Deferred tax assets are recognized to the relates to items credited or charged
these differences impact the current and extent that it is probable that future outside the statement of income, in which
deferred tax provisions in the period in taxable profit will be available against case the deferred tax is treated
which such determination is made. which deductible temporary differences or accordingly.
unused tax losses can be utilized. Deferred
Deferred taxes tax liabilities are recognized for taxable Long-term income tax liabilities
Deferred tax is provided, using the temporary differences arising from In the event the Group expects to settle
balance sheet liability method, on investments in subsidiaries, associates and income taxes payable beyond the next 12
temporary differences arising between the interests in joint arrangements except months, they are classified as long-term
tax bases of assets and liabilities and their where the Group is able to control the income taxes liabilities and are recognized
carrying amounts in the financial distribution of earnings from these at the discounted amount.
statements. Tax rates enacted or respective entities and where the earnings
substantively enacted by the end of the are considered permanently reinvested.
reporting period are used to determine Deferred tax is charged or credited in the
the deferred tax expense. statement of income, except when it
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 199
Notes to the consolidated
financial statements
continued
The expected tax expense at the The difference between the Group’s In 2018, total income taxes paid amounts
applicable tax rate is the result from effective tax rate in 2017 and 2018, mainly to CHF 807 million (2017: CHF 1,043
applying the domestic statutory tax rates relates to impairments of assets without million), of which CHF 9 million (2017: CHF
to net income (loss) before taxes and recognition of related deferred taxes. 163 million) related to the divestment of
non-recoverable withholding tax on Excluding impairment and divestments, Group companies and included in the
remitted income of each entity in the the Group’s effective tax rate amounts to position “Disposal of participation in
country it operates. For the Group, the 28 percent (2017: 31 percent). Group companies” in the consolidated
applicable tax rate varies from one year to In 2018, the Group’s Effective Tax Rate statement of cash flows and CHF 11
the other depending on the relative includes the recurring positive impacts of million (2017: CHF 9 million) included in
weight of net income (loss) of each US tax reform, lower effect of non- the position “Dividends paid to non-
individual entity in the Group's profit as recoverable withholding tax on income controlling interest”.
well as the changes in statutory and remitted from subsidiaries, net increase in
withholding tax rates. provisions for transfer pricing and other
risks largely offset by the reassessment of
the risk in relation to the tax treatment of
excise duty incentives in India (see note
17.3 for additional information).
The Group’s recognition of deferred tax future periods, although uncertainties could result in material adjustments to the
assets amounting to CHF 651 million regarding the future realisation of deferred tax assets recognised in future
reflects that the Group believes that recorded tax benefits on temporary periods.
sufficient taxable income will be differences and tax loss carryforwards
generated to recover these assets in from operations in various jurisdictions
200
Change in deferred tax asset and liabilities
Intangible
Property, and other
plant and long-term Tax losses
Million CHF equipment assets Provisions Other carryforward Total
2018
2018 Deferred tax liabilities net as at January 1, 2018 3,497 48 (616) (264) (1,078) 1,587
Charged (credited)
– to the statement of income (122) (20) 99 83 (44) (4)
– to other comprehensive income 0 (3) 50 5 0 52
Change in structure (58) 0 11 3 27 (17)
Hyperinflation 1 50 0 0 4 0 54
Currency translation effects (150) (5) 20 9 61 (66)
Deferred tax liabilities net as at December 31, 2018 3,216 20 (436) (160) (1,034) 1,607
2017
2017 Deferred tax liabilities net as at January 1, 2017 4,035 21 (732) 68 (1,064) 2,327
Charged (credited)
– to the statement of income (566) (4) 116 (155) (157) (766)
– to other comprehensive income 0 0 70 0 0 70
Divestments (72) 7 10 (3) 58 0
Reclassification 63 16 (80) (120) 121 0
Currency translation effects 37 9 (1) (54) (36) (43)
Deferred tax liabilities net as at December 31, 2017 3,497 48 (616) (264) (1,078) 1,587
1
See more information in note 2.2.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 201
Notes to the consolidated
financial statements
continued
202
9. Earnings per share
2018 2017
In conformity with the decision taken at 296,752 stock options, which would have Expected credit losses are a probability-
the Annual General Meeting on May 8, an anti-dilutive impact on the calculation weighted estimate of the present value of
2018, a payout related to 2017 of CHF 2.00 of the diluted earnings per share, are credit losses. These are measured as the
per registered share was paid out of excluded from the calculation for the difference between the cash flows due to
capital contribution reserves. This resulted year 2017. the Group in accordance with the contract
in a total payment of CHF 1,192 million. and the cash flows that the Group expects
10. Working capital to receive arising from the weighting of
For the 2018 financial year, the Board is 10.1 Accounting principles multiple future economic scenarios,
proposing a payout from the capital Accounts receivable consist of (a) prepaid discounted at the asset’s effective interest
contribution reserves in the amount of expenses and other current assets and (b) rate.
CHF 2.00 per registered share. Subject to trade accounts receivable.
approval by the annual shareholders’ The carrying amount of accounts
meeting on May 15, 2019, shareholders Impairment of financial assets receivable is reduced through use of an
will be given the choice of having the The Group assesses on a forward looking allowance account. Impaired accounts
dividend paid out in cash, in the form of basis the expected credit losses associated receivable are derecognized when they
new LafargeHolcim Ltd shares or a with its financial assets carried at are assessed as uncollectable.
combination of cash and shares (scrip amortized cost. The impairment
dividend). The new shares will be issued at methodology applied for long-term loans Inventories are stated at the lower of cost
a discount to the market price. The cash and receivables considers whether there and net realizable value. Cost is
payment out of the capital contribution has been a significant increase in credit determined by using the weighted
reserves in respect of the financial year risk (see note 14.5). average cost method. The cost of finished
2018 will amount to a maximum payment goods and work in progress comprises
of CHF 1,193 million but is not reflected in For accounts receivable, the Group applies raw materials and additives, direct labor,
the consolidated financial statements the simplified approach with expected other direct costs and related production
since it will only be effective in 2019. lifetime losses recognized from initial overheads. Cost of inventories includes
recognition of the receivables in the transfers from equity of gains or losses on
statement of income. qualifying cash flow hedges relating to
inventory purchases.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 203
Notes to the consolidated
financial statements
continued
Due to the local nature of the business, In some cases, trade accounts receivable
specific terms and conditions for trade are factored to third parties but the total
accounts receivable exist for local Group amount is not considered material for the
companies. Group.
Loss allowances for expected credit loss allowance in the table above relates to
for financial assets measured at amortized accounts receivable for which a lifetime
cost are presented as a deduction from expected credit loss is recognized. See
the gross carrying amount of the assets in note 14.5 for further details.
the statement of financial position. The
204
10.3 Inventories
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 205
Notes to the consolidated
financial statements
continued
11. Property, plant and equipment, Mineral reserves are valued at cost and are equal to the fair value of the leased asset
goodwill and intangible assets depreciated based on the unit-of- as determined at the inception of the
11.1 Accounting principles production method over their estimated lease. The corresponding lease
Property, plant and equipment commercial lives. obligations, excluding finance charges, are
Property, plant and equipment is valued at included in either current or long-term
acquisition or construction cost less Costs incurred to gain access to mineral financial liabilities.
depreciation and impairment losses. Cost reserves (typically stripping costs) are
includes transfers from equity of any gains capitalized and depreciated over the life of For sale-and-lease-back transactions, the
or losses on qualifying cash flow hedges. the quarry, which is based on the book value of the related property, plant
Depreciation is charged to amortize the estimated tonnes of raw material to be or equipment remains unchanged.
cost of property, plant and equipment extracted from the reserves. Proceeds from a sale are included as a
over their estimated useful lives, using the financing liability and the financing costs
straight-line method, on the following Interest costs on borrowings to finance are allocated over the term of the lease in
bases: construction projects, which necessarily such a manner that the costs are reported
take a substantial period of time to get over the relevant periods.
No depreciation except ready for their intended use, are
Land and mineral on land with raw
reserves material reserves capitalized during the period of time that Gains and losses on disposals are
is required to complete and prepare the determined by comparing proceeds with
Buildings and
installations 20 to 40 years asset for its intended use. All other carrying amounts, and are recognized in
Machinery and borrowing costs are expensed in the the statement of income in “Profit (Loss)
equipment 3 to 30 years period in which they are incurred. on disposals and other non-operating
income (expenses)”.
Costs are only included in the asset’s Government grants received are deducted
carrying amount when it is probable that from property, plant and equipment and Goodwill
economic benefits associated with the reduce the depreciation charge Goodwill represents the excess of the
item will flow to the Group in future accordingly. aggregate of the consideration transferred
periods and the cost of the item can be and the amount recognized for the
measured reliably. Costs include the initial Leases of property, plant and equipment non-controlling interest over the fair value
estimate of the costs for dismantling and where the Group has substantially all the of the net identifiable assets acquired and
removing the item and for restoring the risks and rewards of ownership are liabilities assumed. Such goodwill is tested
site on which it is located. All other repairs classified as finance leases. Property, plant annually for impairment or whenever
and maintenance expenses are charged to and equipment acquired through a there are impairment indicators, and is
the statement of income during the finance lease are capitalized at the date of carried at cost less accumulated
period in which they are incurred. the commencement of the lease term at impairment losses. Goodwill on
the present value of the minimum future acquisitions of associates and joint
lease payments or, if lower, at an amount ventures is included in the carrying
206
amount of the respective investments. If Intangible assets disposal and its value in use. If the
the consideration transferred is less than Expenditure on acquired trademarks, recoverable amount of a non-financial
the fair value of the net identifiable assets mining rights, software, patented and asset or cash generating unit is estimated
of the subsidiary acquired, the d ifference unpatented technology and other to be less than its carrying amount, the
is recognized directly in the statement of intangible assets are capitalized and carrying amount of the non-financial asset
income. amortized using the straight-line method or cash generating unit is reduced to its
over their estimated useful lives, but not recoverable amount. Impairment losses
On disposal of a subsidiary or joint exceeding 20 years, except for mining are recognized immediately in the
operation, the related goodwill is included rights which are depleted on a volume statement of income.
in the determination of profit or loss on basis.
disposal. Where an impairment loss subsequently
Impairment of non-financial assets reverses, the carrying amount of the
For the purpose of impairment testing, At each reporting date, the Group assesses non-financial asset or cash generating unit
goodwill arising from acquisitions of whether there is any indication that a is increased to the revised estimate of its
subsidiaries is allocated to cash non-financial asset may be impaired. If recoverable amount. However, this
generating units expected to benefit from any such indication exists, the recoverable increased amount cannot exceed the
the synergies of the business combination. amount of the non-financial asset is carrying amount that would have been
Impairment losses relating to goodwill estimated in order to determine the determined if no impairment loss had
cannot be reversed in future periods. extent of the impairment loss, if any. been recognized for that non-financial
Where it is not possible to estimate the asset or cash generating unit in prior
For further information, refer to note 11.3. recoverable amount of an individual periods. A reversal of an impairment loss
non-financial asset, the Group estimates is recognized immediately in the
the recoverable amount of the smallest statement of income.
cash generating unit to which the non-
financial asset belongs. The recoverable
amount is the higher of an asset’s or cash
generating unit’s fair value less costs of
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 207
Notes to the consolidated
financial statements
continued
2018
At cost of acquisition 7,654 11,064 32,003 1,490 52,211
Accumulated depreciation/impairment (2,164) (4,748) (14,996) (152) (22,060)
Net book value as at January 1 5,489 6,317 17,007 1,339 30,152
Acquisitions 10 8 34 0 52
Divestments (28) (31) (40) (1) (100)
Additions 62 26 164 1,315 1,567
Disposals (31) (9) (25) (3) (68)
Reclassifications 245 227 771 (1,244) 0
Reclassification to assets classified
as held for sale (32) (151) (442) (37) (663)
Depreciation (186) (347) (1,501) 0 (2,033)
Hyperinflation 1 75 45 94 0 214
Impairment loss (reversed/charged
to statement of income) (3) 21 47 0 65
Currency translation effects (230) (279) (721) (65) (1,297)
Net book value as at December 31 5,372 5,827 15,387 1,305 27,890
At cost of acquisition 7,477 10,568 30,661 1,395 50,101
Accumulated depreciation/impairment (2,106) (4,741) (15,274) (90) (22,211)
Net book value as at December 31 5,372 5,827 15,387 1,305 27,890
2017
At cost of acquisition 7,576 10,726 30,741 1,794 50,837
Accumulated depreciation/impairment (1,621) (4,130) (13,001) (33) (18,784)
Net book value as at January 1 5,956 6,596 17,740 1,761 32,052
Acquisitions 63 12 152 126 352
Divestments (12) (14) (2) 0 (28)
Additions 10 2 13 1,492 1,517
Disposals (41) (16) (32) (1) (90)
Reclassifications 100 375 1,424 (1,900) 0
Depreciation (191) (362) (1,559) 0 (2,112)
Impairment loss (charged to statement of
income) (491) (290) (794) (115) (1,690)
Currency translation effects 95 14 65 (24) 151
Net book value as at December 31 5,489 6,317 17,007 1,339 30,152
At cost of acquisition 7,654 11,064 32,003 1,490 52,211
Accumulated depreciation/impairment (2,164) (4,748) (14,996) (152) (22,060)
Net book value as at December 31 5,489 6,317 17,007 1,339 30,152
1
See more information in note 2.2.
208
The net book value of leased property, In 2017, LafargeHolcim carried out an Apart from the assets mentioned above,
plant and equipment amounts to extensive portfolio review and assessed no asset impairment was deemed to be
CHF 172 million (2017: CHF 61 million) and asset impairment indicators which individually material in the other
mainly relates to buildings and resulted in an aggregate impairment reportable segments and pertained mostly
installations, machinery and equipment. charge relating to property, plant and to assets in Europe and Middle East and
equipment of CHF 1,690 million, of which Africa.
CHF 13 million of the total net book value CHF 904 million was impaired as
of property, plant and equipment are insufficient goodwill was available to The total impairment charge resulted
pledged or restricted (2017: absorb the full impairment charge (see primarily from the weaker than
CHF 209 million). note 11.3). anticipated outlook for the macro-
economic environment, especially in
Net gains on sale of property, plant and The remaining impairment charge of CHF terms of expected growth rates, cement
equipment amounted to CHF 62 million 786 million mainly consisted of CHF 371 demand and export opportunities for
(2017: CHF 82 million) reported in the line million relating to specific aggregates sites countries such as Malaysia, Spain and
“Profit on disposals and other non- in North America. Egypt (see note 11.3).
operating income” in the consolidated
statement of income (see note 5.2).
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 209
Notes to the consolidated
financial statements
continued
Intangible
Million CHF Goodwill assets
2018
At cost of acquisition 17,603 2,612
Accumulated amortization/impairment (3,034) (1,586)
Net book value as at January 1 14,569 1,026
Change in structure 125 15
Reclassification to assets classified as held for sale (55) 4
Reclassification 0 (16)
Additions 0 104
Disposals 0 (34)
Amortization 0 (210)
Impairment loss (charged to statement of income) (27) (32)
Hyperinflation 1 22 0
Currency translation effects (588) (47)
Net book value as at December 31 14,045 810
At cost of acquisition 16,783 2,283
Accumulated amortization/impairment (2,738) (1,473)
Net book value as at December 31 14,045 810
2017
At cost of acquisition 17,514 2,325
Accumulated amortization/impairment (1,267) (1,309)
Net book value as at January 1 16,247 1,017
Divestments (3) (2)
Reclassification (0) 62
Additions 27 135
Disposals 0 (4)
Amortization 0 (190)
Impairment loss (charged to statement of income) (1,821) (35)
Currency translation effects 119 44
Net book value as at December 31 14,569 1,026
At cost of acquisition 17,603 2,612
Accumulated amortization/impairment (3,034) (1,586)
Net book value as at December 31 14,569 1,026
1
See more information in note 2.2.
210
Intangible assets Impairment test of goodwill The WACC used for the impairment test is
Intangible assets have finite useful lives, For the purpose of impairment testing, a post-tax discount rate and is applied to
over which the assets are amortized. goodwill is allocated to a cash-generating post-tax cash flows. There is no material
The corresponding amortization expense unit or to a group of cash-generating units difference in the outcome of the
is recognized largely in administration that are expected to benefit, among impairment test using the discount rate
expenses and production cost of others, from the synergies of the business applied when compared to using a pre-tax
goods sold. combination. The Group’s cash-generating discount rate for pre-tax cash flows.
units are defined on the basis of the
Intangible assets mainly consist of mining geographical market, normally country- or The cash flow projections are based on a
rights, trademarks and brands. region-related. The carrying amount of three-year financial planning period using
goodwill allocated to the countries or business plans approved by management.
During the fourth quarter 2017, the Group regions stated below, is significant in Cash flows beyond the three-year budget
carried out an extensive portfolio review comparison with the total carrying period are extrapolated based on
and identified a number of brands being amount of goodwill, while the carrying increasing sustainable cash flows. In any
in local decline therefore resulting in an amount of goodwill allocated to the other event, the growth rate used to extrapolate
aggregate impairment charge of CHF 35 cash-generating units is individually not cash flow projections beyond the three-
million. No asset impairment was deemed significant. year budget period does not exceed the
to be individually material. long-term average growth rate for the
For the impairment test, the recoverable relevant market in which the cash-
Emission rights amount of a cash-generating unit, which generating unit operates.
The initial allocation of emission rights has been determined based on its value in
granted is recognized at nominal amount use or its fair value less costs to sell, is In respect of the goodwill allocated to
(nil value). Where a Group company has compared to its carrying amount. An “Others”, the same impairment model and
emissions in excess of the emission rights impairment loss is recognized if the parameters are used, as is the case with
granted, it will recognize a provision for carrying amount of the cash-generating individually significant goodwill positions,
the shortfall based on the market price at unit exceeds its recoverable amount. The except that different key assumptions are
that date. The emission rights are held for value in use is determined based on future used depending on the risks associated
compliance purposes only and therefore discounted cash flows using the weighted with the respective cash-generating units.
the Group does not intend to speculate average cost of capital (WACC).
with these in the open market.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 211
Notes to the consolidated
financial statements
continued
212
In 2018, management recognized a such as Algeria, Brazil, Indonesia, • CHF 371 million in North America
goodwill impairment charge of CHF 27 Zambia and Iraq; and relating to specific aggregates sites; and
million relating to the cash-generating • the weaker than anticipated outlook for • CHF 226 million in Latin America;
unit “Others” within the reportable the macro-economic environment,
segment Middle East and Africa. especially in terms of expected growth Additional details can be found in the
rates, cement demand and export 2017 Annual Report.
In 2017, management recognized a total opportunities for countries such as
impairment charge of CHF 3,566 million Malaysia, Spain and Egypt. The total recoverable amount of
relating to certain cash-generating units countries that were impaired amounted
(country- or region-related), of which CHF A total charge of CHF 3,566 million was to CHF 5,755 million.
1,821 million was allocated to goodwill. recognized in 2017, of which CHF 1,821
The total impairment charge resulted million was allocated to goodwill and to Sensitivity to changes in assumptions
primarily from: the following reportable segments: For 2018 it is estimated that if the post-tax
• higher WACC to consider risks and • CHF 1,724 million in Middle East and discount rate was approximately 7.5% for
uncertainties that may materialize in the Africa, of which CHF 1,236 million the entire portfolio, an increase of 1.75%
coming years and attributable to change allocated to goodwill; for all countries, this would cause the
in markets, national economic • CHF 872 million in Asia Pacific, of which recoverable amount to be CHF 130 million
circumstances, political complex CHF 545 million allocated to goodwill; below the carrying amount for a
situations and governments’ ability to • CHF 373 million in Europe, of which significant cash-generating unit.
fund infrastructure projects for countries CHF 40 million allocated to goodwill;
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 213
Notes to the consolidated
financial statements
continued
12. Long-term financial d) “Other long-term assets” are classified Financial assets measurement
investments and other long-term as receivables at amortized cost and At initial recognition, in the case of a
assets comprise notably of various deposits in financial asset not at fair value through
12.1 Accounting principles
connection with on-going legal cases. profit or loss, the Group measures a
Long-term financial investments and other financial asset at its fair value plus
long-term assets consist of (a) financial All purchases and sales of long-term transaction costs that are directly
investments – third parties, (b) long-term financial assets are recognized on trade attributable to the acquisition of the
receivables – associates and joint ventures, date, which is the date that the Group financial asset. Transaction costs of
(c) long-term receivables – third parties commits to purchase or sell the asset. The financial assets carried at fair value
and (d) other long-term assets: purchase cost includes transaction costs, through profit or loss are expensed in
a) “Financial investments – third parties” except for derivative instruments. profit or loss.
are strategic equity investments which Financial assets at amortized cost are
are classified at fair value through other measured using the effective interest Financial assets with embedded
comprehensive earnings. method. derivatives are considered in their entirety
b) “Long-term receivables – associates and when determining whether their cash
joint ventures” are classified as Investments in equity securities which are flows are solely payment of principal and
receivables at amortized cost as the considered strategic investments for the interest.
Group intends to hold the assets to Group are classified at fair value through
maturity to collect contractual cash other comprehensive earnings and are a) Debt instruments
flows. carried at fair value. Strategic equity Subsequent measurement of debt
c) “Long-term receivables – third parties” investments are investments where the instruments depends on the Group’s
are classified as receivables at Group owns less than 20% of the shares business model for managing the asset
amortized cost as the Group intends to and where the Group does not exercise and the cash flow characteristics of the
hold the assets to maturity to collect control, joint control or significant asset. There are two measurement
contractual cash flows. influence and which it intends to hold for categories into which the Group classifies
long-term strategic purposes. Gains and its debt instruments:
losses arising from changes in the fair • Loans and receivables at amortized cost:
value of strategic equity investments at assets that are held for collection of
fair value through other comprehensive contractual cash flows where those cash
earnings are included in other reserves flows represent solely payments of
until the asset is disposed of, at which principal and interest are measured at
time the cumulative gain or loss previously amortized cost. A gain or loss on a debt
recognized in other reserves is transferred investment that is subsequently
to retained earnings. measured at amortized cost and is not
part of a hedging relationship is
recognized in profit or loss when the
214
asset is derecognized or impaired. b) E
quity instruments at fair value
Interest income from these financial The Group subsequently measures all
assets is included in finance income equity investments at fair value. Where
using the effective interest rate method. the Group’s management has elected to
• Financial assets at fair value through present fair value gains and losses on
profit and loss: assets that do not meet strategic equity investments at fair value
the criteria for amortized cost and are through other reserves, there is no
held for trading are measured at fair subsequent reclassification of fair value
value through profit or loss. Gains and gains and losses to profit or loss.
losses on debt investments that are Dividends from such investments continue
subsequently measured at fair value to be recognized in profit or loss when the
through profit or loss and are not part of Group’s right to receive payments is
a hedging relationship are recognized in established.
profit or loss and presented net in the
profit or loss statement in the period in
which they arise. Interest income from
these financial assets is included in
financial income.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 215
Notes to the consolidated
financial statements
continued
Long-term receivables are primarily The increase in “Financial investments Other long-term assets include notably
denominated in USD, AUD and BRL. The – third parties” is mainly due to the various deposits in connection with
repayment dates vary between one and reclassification of an associate in Europe ongoing legal cases (see note 17.3).
21 years (2017: one and 22 years). to long-term financial investments (see
note 6.2).
Marketable securities 3 1
Current financial receivables - associates and joint ventures 36 25
Current financial receivables - third parties 141 236
Total 180 262
Of which pledged/restricted 107 45
The “Current financial receivables – 13. Assets and related liabilities Gains and losses on disposals of non-
third parties” decreased mainly following classified as held for sale and current assets (or disposal groups) are
the payment of the deferred part of discontinued operations determined by comparing proceeds with
the consideration in connection with 13.1 Accounting principles carrying amounts, and are recognized in
the transaction entered in China Non-current assets (or disposal groups) the statement of income in “Profit (Loss)
(see note 2.3). are classified as held for sale and stated at on disposals and other non-operating
the lower of carrying amount and fair income (expenses)”.
The increase in pledged/restricted current value less costs to sell if their carrying
financial receivables mainly relates to amount is to be recovered principally A discontinued operation is a component
restricted cash in connection with ongoing through a sale transaction rather than of an entity that either has been disposed
legal cases (see note 17.3). through continuing use. of or is classified as held for sale, and
represents a separate major line of
Non-current assets (including those that business or geographical area of
are part of a disposal group) are not operations, and is part of a single
depreciated or amortized while they are coordinated plan to dispose a separate
classified as held for sale. major line of business or geographical
area of operations or is a subsidiary
acquired exclusively with a view to resale.
216
13.2 Assets and related liabilities China classified as held for sale were reclassified
classified as held for sale In the fourth quarter 2018, the Group into their respective balance sheet
The net assets classified as held for sale as reached an agreement with the local accounts, measured on a historical cost
of December 31, 2018 amount to authorities of Chongqing for the transfer basis and adjusted for any depreciation
CHF 684 million (2017: CHF 390 million) of land on which a cement plant is and amortization that would have been
which mainly includes the assets and situated. The cement plant was forced to recognized had the asset and liabilities not
liabilities of Holcim Indonesia and its stop its operation due to its proximity to been classified as held for sale. A write
subsidiaries. an urban area. Consequently, property, down of CHF 58 million recorded under
plant and equipment of this cement plant the held for sale classification in 2017 was
Indonesia were classified as held for sale. The reversed during first half of 2018. All
In the fourth quarter, the Group signed an transfer of the assets is expected to be adjustments to the carrying amounts of
agreement with Semen Indonesia for the closed during 2019. The cement plant is the reclassified assets and liabilities were
disposal of its entire shareholding of 80.6 disclosed in the reportable segment Asia recorded in the statement of income of
percent in Holcim Indonesia and Pacific. the current year. The two cement
consequently classified the assets and the companies are disclosed in the reportable
related liabilities as held for sale. The In 2017, two former Shuangma cement segment Asia Pacific.
transaction was closed end of January companies in China were classified as held
2019. Holcim Indonesia and its for sale. The Group reassessed its strategy The assets and related liabilities classified
subsidiaries consist of 4 cement plants, 33 with regards to these two cement as held for sale are disclosed by major
ready-mix plants and 2 aggregated companies and consequently ceased to classes of assets and liabilities in the table
quarries and is presented in the reportable classify them as held for sale in 2018. The below.
segment Asia Pacific. assets and related liabilities previously
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 217
Notes to the consolidated
financial statements
continued
218
14. Net financial debt Derivatives are initially recognized at fair amounts deferred in equity are transferred
14.1 Accounting principles value on the date a derivative contract is to the statement of income and classified
Cash and cash equivalents entered into and are subsequently as income or expense in the same periods
Cash and cash equivalents are financial remeasured at their fair value. The during which the cash flows, such as
assets. Cash equivalents are readily method of recognizing the resulting gain hedged firm commitments or interest
convertible into a known amount of cash or loss is dependent on the nature of the payments, affect the statement of income.
with original maturities of three months or item being hedged. On the date a
less. For the purpose of the statement of derivative contract is entered into, the The Group documents at the inception of
cash flows, cash and cash equivalents Group designates certain derivatives as hedging transactions the economic
comprise cash at banks and on hand, either (a) a hedge of the fair value of a relationship between hedging instruments
deposits held on call with banks, monetary recognized asset or liability (fair value and hedged items, including whether the
mutual funds and other short-term highly hedge) or (b) a hedge of a particular risk hedging instrument is expected to offset
liquid investments that are readily associated with a recognized asset or changes in cash flows of hedged items,
convertible to a know amount of cash with liability, such as future interest payments and its risk management objective and
a maturity of three months or less from on floating rate debt (cash flow hedge) or strategy.
the date of acquisition, net of bank (c) a hedge of a foreign currency risk of a
overdrafts. firm commitment or highly probable Long-term financial liabilities
forecast (cash flow hedge) or (d) a hedge Bank loans acquired and bonds issued are
Derivative instruments and hedging of a net investment in a foreign entity recognized initially at fair value (i.e. the
The Group mainly uses derivative financial (accounted for similarly to a cash flow proceeds received), net of transaction
instruments in order to reduce its hedge). costs incurred. Subsequently, bank loans
exposure to changes in interest rates, and bonds are stated at amortized cost,
foreign currency exchange rates and Changes in the fair value of derivatives using the effective interest method, with
commodity prices. The Group enters into that are designated and qualify as fair any difference between proceeds (net of
foreign exchange contracts and interest value h
edges and that are highly effective transaction costs) and the redemption
rate swaps to hedge c ertain exposures are recorded in the statement of income, value being recognized in the statement
relating to debt, foreign exchange along with any changes in the fair value of of income over the term of the
contracts to hedge firm commitments for the hedged asset or liability that is borrowings.
the acquisition of certain property, plant attributable to the hedged risk.
and equipment and into swaps and Financial liabilities that are due within 12
options in order to manage its exposure to The effective portion of changes in the fair months after the end of the reporting
commodity risks. value of derivatives that are designated period are classified as current liabilities
and qualify as cash flow hedges is unless the Group has an unconditional
Derivatives are regarded as hedging recognized in the cash flow hedging right to defer settlement of the liability
instruments under hedge accounting reserve within equity, limited to the until more than 12 months after the
relationships unless they are not cumulative change in fair value of the reporting period. The repayment of the
designated as hedges in which case they hedged item on a present value basis from current portion of such liabilities is shown
will be classified as held for trading. the inception of the hedge. The gain or in the statement of cash flows in the line
Financial derivatives expected to be loss relating to the ineffective portion is “Repayment of long-term financial
settled within 12 months after the end of recognized immediately in profit or loss. liabilities”.
the reporting period are classified as
current liabilities or current assets. For Where the firm commitment results in the
cash flow hedges gains and losses are recognition of an asset, for example,
recorded in the cash flow hedging reserve, property, plant and equipment, or a
a separate component of equity, and liability, the gains or losses previously
recycled to profit or loss or as a basis deferred in the cash flow hedging reserve
adjustment to inventory or property, plant are transferred from equity and included
and equipment as the hedged transaction in the initial measurement of the non-
occurs. financial asset or liability. Otherwise,
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 219
Notes to the consolidated
financial statements
continued
220
14.3 Financial liabilities
“Loans from financial institutions” include As per the loans agreements, the Group is Unused committed credit lines totalled
amounts due to banks and other financial required to comply with certain provisions CHF 6,239 million at year-end 2018 (2017:
institutions. Repayment dates vary or covenants. As of December 31, 2018, CHF 6,794 million).
between one and 11 years (2017: one and the Group complied with its debt
11 years). covenants in all material respects.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 221
Notes to the consolidated
financial statements
continued
Interest Interest
Currency Million CHF In % rate 1 Million CHF In % rate 1
222
Bonds and private placements as at December 31
Net Net
Nominal Effective book book
Nominal interest interest value value
value rate rate Term Description 2 in CHF 1 in CHF 1
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 223
Notes to the consolidated
financial statements
continued
Net Net
Nominal Effective book book
Nominal interest interest value value
value rate rate Term Description 2 in CHF 1 in CHF 1
224
Net Net
Nominal Effective book book
Nominal interest interest value value
value rate rate Term Description 2 in CHF 1 in CHF 1
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 225
Notes to the consolidated
financial statements
continued
226
14.5 Financial risks associated with value through other reserves on adopting credit provision is determined based on
operating activities IFRS 9 was immaterial for LafargeHolcim’s the credit risk standing at each
Impacts of applying IFRS 9 Financial financial statements. reporting date.
Instruments
IFRS 9, which replaces IAS 39 Financial In connection with the reclassification of There was no material impact relating to
instruments: Recognition and measurements, available-for-sale financial assets to provisions on accounts receivable and
was adopted for the period starting financial assets at fair value through profit long-term loans and receivables on
January 1, 2018. Comparative figures have and loss, an amount of CHF 4 million has conversion to IFRS 9.
not been restated. The accounting policies been reclassified from the available-for-
were changed to comply with IFRS 9 as sale equity reserve to retained earnings. Group risk management
issued by the IASB in July 2014. Group Risk Management supports the
The change from IAS 39 to IFRS 9 had no Board of Directors, the Executive
a) Changes in classification and effect on the measurement of Committee and the management teams
measurement of financial instruments LafargeHolcim’s financial liabilities. of the countries in analyzing the overall
risk exposure. Group Risk Management
The total impact on the Group’s retained b) Derivatives and hedging activities aims to systematically identify, monitor
earnings due to changes in classification and manage major risks the Group
and measurement of financial instruments The Group designates the spot component encounters. All types of risks from
as at January 1, 2018 was not material. of foreign currency forward contracts as industry, operations, finance and legal, up
hedging instruments in cash flow hedge to the external business environment are
The Group’s management has assessed and net investment hedge relationships. considered including compliance,
which business models apply to the For cash flow hedges and net investment sustainable development and reputational
financial assets held by the Group at the hege, the Group has elected to recognize aspects. Risks are understood as the effect
date of initial application of IFRS 9 and has the fair value changes of the forward of uncertainty on business objectives
classified its financial instruments into the points in the foreign exchange contracts in which can be an opportunity or a threat.
appropriate IFRS 9 categories. profit and loss. The risk horizon includes long-term
strategic risks but also short- to medium-
Available-for-sale financial assets of CHF The foreign exchange forward contract term business risks. Potential risks are
86 million included in the opening balance hedges qualifying as cash flow hedges identified and evaluated at an early stage
have been reclassified to strategic equity under IAS 39 as at December 31, 2017 and monitored. Mitigating actions are
investments at fair value through other qualified as cash flow hedges under IFRS proposed and implemented at the
comprehensive earnings (CHF 85 million) 9. The Group’s risk management strategies appropriate level so that risk management
and financial assets at fair value through and hedge documentation are aligned remains a key responsibility of the line
profit and loss (CHF 1 million). with the requirements of IFRS 9 and are management. Risk transfer through
thus treated as continuing hedges. insurance solutions forms an integral part
Except for assets previously classified as of risk management.
available-for-sale, there have been no c) C
hange in impairment of financial
other impacts on financial instruments assets The Group’s risk map is established by
under IFRS 9. Loans and receivables strategic, operational and topical risk
remain to be measured at amortized cost The Group revised its impairment assessments which are combined into a
and derivative financial instruments at fair methodology under IFRS 9, defining two Group risk report. Besides the Countries,
value through profit and loss. types of financial assets subject to IFRS 9’s the Board of Directors, the Executive
expected credit loss model: Committee and Corporate Function Heads
The Group elected to present in other i) f or accounts receivable, the Group are involved in the risk assessment during
reserves the changes in the fair value of applies the simplified approach the Group’s management cycle. The
strategic equity investments which are not providing expected credit losses using
at fair value through profit and loss. The the lifetime expected loss provision; and
impact of reclassification from the ii) f or long-term loans and receivables
available-for-sale equity reserve to the fair already in place at January 1, 2018, the
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 227
Notes to the consolidated
financial statements
continued
results of the annual Group risk process Financial risk management such as interest rate risk, foreign exchange
are presented to the Executive Committee The Group’s activities expose it to a variety risk, credit risk, use of derivative financial
and the conclusions reported to the Board of financial risks, including liquidity, instruments and investing of cash.
of Directors and the Audit Committee. interest rate, foreign exchange,
commodity and credit risk. The Group’s Liquidity risk
Country risk overall risk management focuses on the Group companies need liquidity to meet
LafargeHolcim’s major presence in unpredictability of financial markets and their obligations. Individual companies are
developing markets exposes the Group to seeks to minimize potential adverse responsible for their own cash balances
risks such as political, financial and social effects on the financial performance of and the raising of internal and external
uncertainties and turmoil, terrorism, civil the Group. The Group uses derivative credit lines to cover the liquidity needs,
war and unrest. financial instruments such as foreign subject to guidance by the Group.
exchange contracts, commodity and
The impact of United Kingdom’s interest rate swaps to hedge certain The Group monitors its liquidity risk by
withdrawal from the European Union exposures. The Group does not enter into using a recurring liquidity planning tool
(“BREXIT”) has been assessed and derivative or other financial transactions and maintains cash, readily realizable
preventive measures have been taken. which are unrelated to its business needs marketable securities and unused
Relevant currency exposures and or for speculative purposes. committed credit lines to meet its liquidity
counterparty risks were reduced before requirements. In addition, the strong
the BREXIT vote. Financial risk management within the creditworthiness of the Group allows it to
Group is governed by policies approved by access international financial markets for
key management personnel. It provides financing purposes.
principles for overall risk management as
well as policies covering specific areas
228
Contractual maturity analysis
Contractual undiscounted cash flows
2018
Trade accounts payable and others 1 3,717 0 0 0 0 0 3,717 3,717
Loans from financial institutions 1,179 386 147 47 8 15 1,782 1,775
Bonds, private placements and
commercial paper notes 1,757 1,241 847 1,543 2,102 6,602 14,093 14,047
Interest payments 547 397 339 318 268 2,320 4,189 279
Finance leases 33 28 26 24 20 72 203 166
Derivative financial instruments net 2 37 49 (5) 0 0 0 80 45
Financial guarantees 0 0 0 0 0 25 25 0
Total 7,269 2,101 1,353 1,932 2,398 9,035 24,089
2017
Trade accounts payable and others 1 3,743 0 0 0 0 0 3,743 3,743
Loans from financial institutions 1,887 478 497 189 98 37 3,186 3,177
Bonds, private placements and
commercial paper notes 1,822 1,703 1,222 1,666 929 7,662 15,003 15,258
Interest payments 676 502 379 316 270 2,519 4,662 340
Finance leases 14 12 7 6 4 41 84 64
Derivative financial instruments net 2
(56) 15 108 0 0 0 67 64
Financial guarantees 0 0 0 0 0 11 11 0
Total 8,086 2,710 2,213 2,177 1,301 10,270 26,757
1
Trade accounts payable and others include trade accounts payable and payables related to purchase of property, plant and equipment included in other current liabilities.
2
The contractual cash flows include both cash in- and outflows. Additional information is disclosed in note 14.4.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 229
Notes to the consolidated
financial statements
continued
The maturity profile is based on The Group’s risk management policy for Foreign exchange risk
contractual undiscounted amounts interest rate risk is to maintain interest The Group’s global footprint exposes it to
including both interest and principal cash rate risk at an acceptable level, whilst foreign exchange risks.
flows and is based on the earliest date minimizing interest expense over the long
on which LafargeHolcim can be required term in accordance with the Group’s The translation of foreign operations into
to pay. funding strategy. As a consequence the Group reporting currency leads to
thereof, under the Group’s risk currency translation effects. The Group
Contractual interest cash flows relating management policy, the Group may enter may hedge certain net investments in
to a variable interest rate are calculated into derivative contracts which are foreign entities with foreign currency
based on the rates prevailing as of designated as either cash flow hedges or borrowings or other instruments. To the
December 31. fair value hedges, as appropriate and also extent that the net investment hedge is
include the hedging of forecasted effective, all foreign exchange gains or
Interest rate risk transactions. losses are recognized in equity and
Interest rate risk arises from movements included in currency translation
in interest rates which could affect the Interest rate sensitivity
The Group’s adjustments.
Group’s financial result and market values sensitivity analysis has been determined
of its financial instruments. The Group is based on the interest rate exposure Due to the local nature of the construction
primarily exposed to fluctuations in relating to the Group’s financial liabilities materials business, foreign exchange risk
interest rates on its financial liabilities at at a variable rate on a post hedge basis as is limited. However, for many Group
floating rates which may cause variations at December 31. companies, income will be primarily in
in the Group’s financial result. The local currency, whereas debt servicing and
exposure is mainly addressed through the A 1 percentage point change is used when a significant amount of capital
management of the fixed/floating ratio of the interest rate risk is reported internally expenditures may be in foreign currencies.
financial liabilities. To manage this mix, to key management personnel and As a consequence thereof, under the
the Group may enter into interest rate represents management’s assessment Group’s risk management policy, the
swap agreements, in which it exchanges of a reasonably possible change in Group may enter into derivative contracts
periodic payments based on notional interest rates. which are designated as either cash flow
amounts and agreed-upon fixed and hedges or fair value hedges, as
floating interest rates. The Group is also At December 31, 2018, a 1 percentage appropriate and also include the hedging
exposed to the evolution of interest rates point shift in interest rates, with all other of forecasted transactions.
and credit markets for its future assumptions held constant, would result
refinancing, which may result in a lower or in approximately CHF 22 million (2017: Foreign exchange sensitivity
higher cost of financing. The Group CHF 34 million) of annual additional/lower The Group’s sensitivity analysis has been
constantly monitors credit markets and financial expenses before tax on a post determined based on the Group’s net
the aim of its financing strategy is to hedge basis. transaction exposure that arises on
achieve a well-balanced maturity profile to monetary financial assets and liabilities at
reduce both the risk of refinancing and The Group’s sensitivity to interest rates is December 31 that are denominated in a
large fluctuations of its financing cost. lower than last year mainly due to the foreign currency other than the functional
decrease of current financial liabilities as currency in which they are measured. The
well as the decrease of the ratio of Group’s net foreign currency transaction
financial liabilities at variable rates to total risk mainly arises from CHF, USD and EUR
financial liabilities from 31 percent to against the respective currencies the
27 percent. Group operates in.
230
A 5 percent change is used when the net Ineffectiveness is recognized on hedges When a hedging instrument expires, or is
foreign currency transaction risk is where the cumulative change in the sold or terminated, or when a hedge no
reported internally to key management designated component value of the longer meets the criteria for hedge
personnel and represents management’s hedging instrument exceeds on an accounting, any cumulative deferred gain
assessment of a reasonably possible absolute basis the change in value of the or loss in equity at that time remains in
change in foreign exchange rates. hedged item attributable to the hedged equity until the forecast transaction
risk. Ineffectiveness may arise if there is a occurs, resulting in the recognition of a
A 5 percent change in CHF, USD and EUR difference in the principal terms of the non-financial asset such as property, plant
against the respective currencies the hedging instrument and designated and equipment and inventory against
Group operates in would have an hedged risk, from credit valuation of the which the cumulative gains and losses is
immaterial impact on foreign exchange hedging instrument or timing of the adjusted. When the forecast transaction is
(loss) gains net on a post hedge basis in transaction changes from what was no longer expected to occur, the
both the current and prior year. originally estimated. cumulative gain or loss that was reported
in equity is immediately reclassified to
Impacts on equity due to derivative The effects of applying hedge accounting profit or loss. No such case has occurred
instruments are considered as not on the Group’s financial position and in 2018.
material based on the shareholders’ equity performance are as follows for cash flow,
of the Group. fair value and net investment hedge b) F
air value hedge accounting
accounting relationships:
Commodity risk The change in fair value of hedging
The Group is subject to commodity risk a) Cash flow hedge accounting instruments under fair value hedge
with respect to price changes mainly in accounting in 2018 was CHF –5 million
the electricity, natural gas, petcoke, coal, The change in fair value of hedging (CHF –7 million in 2017). The change in
oil refined products and sea freight instruments under cash flow hedge related hedged items was CHF 5 million
markets. Under the Group’s risk accounting in 2018 was CHF –3 million (CHF 7 million in 2017) and no amount
management policy, the Group uses (2017: CHF –8 million). The change in was recorded as ineffectiveness directly to
derivative instruments to hedge part of its related hedged items was CHF 2 million the income statement in 2018 and 2017
exposure to these risks. Derivative (2017: CHF 9 million) and an amount of for fair value hedges.
instruments are generally limited to swaps CHF –1 million (2017: CHF 1 million) was
and standard options. recorded as ineffectiveness directly to the The maturities for hedging instruments as
income statement in 2018 for cash flow of December 31, 2018 are in 2020 for
Effects of hedge accounting hedges. cross-currency swaps (2020 in 2017).
Hedge effectiveness is determined at the
inception of the hedge relationship, and The maturities for hedging instruments as When a hedging instrument expires, or is
through periodic prospective effectiveness of December 31, 2018, ranged between sold or terminated, or when a hedge no
assessments to ensure that an economic 2019 and 2020 for FX forwards and 2019 longer meets the criteria for hedge
relationship exists between the hedged and 2021 for commodity swaps (2018 and accounting, the cumulative gain or loss
item and hedging instrument. 2020, 2018 and 2020 in 2017 respectively). recorded in the carrying value of the
hedged item is amortized over the life of
the hedged item using the effective
interest rate. When the hedged item is
sold or terminated, the cumulative gains
and losses recorded in the carrying value
are recognized in financial income
(expense). No such case has occurred
in 2018.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 231
Notes to the consolidated
financial statements
continued
The maturities for hedging instruments as credit risk on an ongoing basis throughout Performing Customers have a low
risk of default and a
of December 31, 2018 are in 2019 for each reporting period by considering
strong capacity to
foreign exchange forwards (2018 in 2017). available reasonable and supportable meet contractual cash
historical and forwarding-looking flows
When a hedging instrument expires, or is information. Non-performing Interest and/or
sold or terminated, or when a hedge no principal repayments
are past due and credit
longer meets the criteria for hedge The maximum exposure to credit risk is risk level shows an
accounting, any cumulative deferred gain represented by the carrying amount of increase
or loss in equity at that time remains in each financial asset, including derivative Write-off Based on observable
equity until the forecast transaction occurs financial instruments, in the consolidated data the payments will
not be collected
(i.e. disposal of a subsidiary). No such case statement of financial position.
has occurred in 2018.
As from January 1, 2018, the following Each exposure is allocated to a credit risk
Credit risk credit risk modelling applies for financial category at initial recognition based on
Credit risks arise, among others, from the assets: available information about the borrower.
possibility that customers may not be able Exposures are subject to ongoing
to settle their obligations as agreed. To a) Accounts receivable monitoring which may result in an
manage this risk, the Group periodically For accounts receivable, the Group applies exposure being moved to a different credit
assesses the financial reliability of the simplified approach with expected risk category.
customers. lifetime losses recognized from initial
recognition of the receivables in the Over the term of the loans, the Group
Credit risks, or the risk of counterparties statement of income. accounts for its credit risk by providing for
defaulting, are constantly monitored. expected credit losses on a timely basis. In
Counterparties to financial instruments calculating the expected credit loss rates,
consist of a large number of established the company considers historical loss rates
financial institutions. The Group does not for each category of customers, and
expect any counterparty to be unable to adjusts for forward looking
fulfill its obligations under its respective macroeconomic data. No significant
financing agreements. At year end, changes to estimation techniques or
LafargeHolcim has no significant assumptions were made during the
concentration of credit risk with any single reporting period.
counterparty or group of counterparties.
232
Capital structure Funds from operations are calculated as
The Group’s objectives when managing net income plus depreciation,
capital are to secure the Group’s financial amortization and impairment as shown in
needs as a going concern as well as to the notes to the consolidated statement of
cater for its growth targets, in order to income. Net financial debt is calculated as
provide returns to shareholders and financial liabilities less cash and cash
benefits for other stakeholders and to equivalents and derivative assets as shown
maintain a solid investment grade rating. in the consolidated statement of financial
position.
The Group manages the capital structure
and makes adjustments to it in light of
changes in economic conditions, business
activities, investment and expansion
programs and the risk characteristics of
the underlying assets. In order to maintain
or adjust the capital structure, the Group
may adjust the amount of dividends paid
to shareholders, return capital to
shareholders, issue new shares, increase
debt or sell assets to reduce debt.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 233
Notes to the consolidated
financial statements
continued
234
Fair value estimation For non-publicly traded financial The fair value of current financial assets
The fair value of publicly traded financial instruments, the fair value is determined and liabilities at amortized cost is assessed
instruments is generally based on quoted by using a variety of methods, such as the to approximate their carrying amounts
market prices at the end of the reporting discounted cash flow method and option due to the short-term nature of these
period. pricing models. The valuation methods financial instruments.
seek to maximize the use of observable
market data existing at the end of the
reporting period.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 235
Notes to the consolidated
financial statements
continued
236
The table above shows the carrying 15. Leases provision for onerous contracts relating to
amounts and fair values of financial assets 15.1 Impacts of applying IFRS 16 the lease recognized in the statement of
and liabilities. As part of its activities, the Group has financial position at the date of initial
entered into various lease agreements as application.
The levels of fair value hierarchy used are lessee, largely for trucks and heavy mobile
defined as follows: equipment, for land and buildings as well The Group will apply the practical
• Level 1 fair value measurements are as time charter agreements for vessels. expedients for short-term leases, which
those derived from quoted prices are leases with a lease term assessed to be
(unadjusted) in active markets for IFRS 16 Leases will be applied starting 12 months or less from the
identical assets or liabilities. The types of January 1, 2019. The new standard will not commencement date and leases of low
assets carried at level 1 fair value are require the distinction between finance value assets which are leases of assets
equity and debt securities listed in active and operating leases for lessees but will that fall below the capitalization threshold
markets; require lessees to recognize a lease for property, plant and equipment;
• Level 2 fair value measurements are liability for future lease payments and a consequently, these lease payments will
those derived from valuation techniques corresponding right-of-use asset. In the be recorded directly in operating profit
using inputs for the asset or liability that income statement, the expenses will and not be capitalized as a right-of-use
are observable market data, either comprise an amortization charge asset and a lease liability.
directly or indirectly. Such valuation reflecting the decrease in value of the
techniques include the discounted cash right-of-use asset and an interest expense The Group has also elected to separate
flow method and option pricing models. reflecting the unwinding of the lease lease from non-lease components in
For example, the fair value of interest liability which will be accounted for as a contracts containing a lease.
rate and currency swaps is determined finance cost.
by discounting estimated future cash In the cash flow statement, the portion of
flows, and the fair value of forward The Group will apply the new standard in the lease payments reflecting the
foreign exchange contracts is accordance with the modified repayment of the lease liability will be
determined using the forward exchange retrospective approach without presented within financing activities
market at the end of the reporting restatement of the comparative period. whereas the interest portion will be
period; and Leases that were accounted for as presented in cash flow from operating
• Level 3 fair value measurements are operating leases in accordance with IAS 17 activities. Lease payments for short term
those derived from valuation techniques Leases, will be recognized at the present leases and leases of low value assets will
using inputs for the asset or liability that value of the remaining lease payments remain classified as cash flow from
are not based on observable market starting January 1, 2019, and discounted operating activities.
data. In 2018 and 2017, there were no using the lessee’s incremental borrowing
financial assets and liabilities allocated to rate as at the date of initial application. In the event that the tax base of a right-of-
level 3. For all contracts existing as of January 1, use asset is not the same as its carrying
2019, the Group will apply the practical amount for IFRS purposes on initial
There have been no transfers between the expedient to grandfather the assessment recognition of a lease contract, the Group
different hierarchy levels in 2018 and made under IAS 17 Leases and IFRIC 4 will recognize the deferred tax impact
2017. Determining whether an Arrangement arising on the temporary difference
contains a Lease. Furthermore, the Group between the carrying amount of the
has chosen the option whereby the right-of-use asset and its tax base. The
right-of-use asset would equal the lease same treatment as above will also be
liability at the initial application of IFRS 16. applied to the initial recognition of the
The right-of-use asset will be adjusted for lease liability.
any prepaid and accrued leases and
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 237
Notes to the consolidated
financial statements
continued
As of December 31, 2018, the total value assets and service components. The net adjustment for prepaid and
undiscounted future minimum lease LafargeHolcim is currently finalizing the accrued leases as well as provisions for
payments for operating leases under IAS implementation of the IFRS 16 standard, onerous contracts is expected to be
17 amount to CHF 1,955 million as which is expected to translate as of immaterial.
disclosed in the table below, which January 1, 2019 into additional lease
includes approximately CHF 150 million liabilities and right-of-use assets in a range
relating to short-term leases, leases of low between CHF 1,400 and CHF 1,500 million.
15.2 Leases
The future minimum lease payments The liabilities from finance leases due
disclosed above are not discounted. The within one year are included in current
total expense for operating leases financial liabilities and liabilities due
recognized in the consolidated statement thereafter are included in long-term
of income in 2018 was CHF 480 million. financial liabilities (note 14.3).
238
16. Employee benefits and share A net pension asset is recorded only to the The measurement of these obligations
compensation plans extent that it does not exceed the present differs from defined benefit plans in that
16.1 Accounting principles value of any economic benefits available all remeasurements are recognized
Employee benefits - Defined benefit in the form of refunds from the plan immediately in the statement of income
plans or reductions in future contributions to and not in other comprehensive earnings.
Some Group companies provide defined the plan.
benefit pension or other post- Employee benefits – Equity
employments benefit plans for employees. The cost for defined benefit and other compensation plans
Professionally qualified independent post-employment benefits plans charged The Group operates various equity-settled
actuaries value the defined benefit to the statement of income consists of share-based compensation plans. The fair
obligations on a regular basis. The service cost (current service cost, past value of the employee services received in
obligation and costs of pension benefits service cost and curtailments as well as exchange for the grant of the options or
are determined using the projected unit gains or losses on settlements) and the shares is recognized as an expense. The
credit method. The projected unit credit net interest expense. The service costs are total amount to be expensed is
method considers each period of service recorded in “Cost of goods sold”, determined by reference to the fair value
as giving rise to an additional unit of “Distribution and selling expenses” or of the equity instruments granted. The
benefit entitlement and measures each “Administrative expenses” based on the amounts are charged to the statement of
unit separately to build up the final beneficiaries of the plan and the net income over the relevant vesting periods
obligation. Past service costs, which interest expense is recorded in “Financial and adjusted to reflect actual and
comprise plan amendments and expenses”. expected levels of vesting.
curtailments and gains or losses on the
settlement of pension benefits, are Employee benefits – Defined 16.2 Employee benefits
recognized immediately in the statement contribution plans Personnel expenses and number of
of income when they occur. In addition to the defined benefit plans personnel
described above, some Group companies The Group’s total personnel expenses,
Remeasurements, which comprise sponsor defined contribution plans based including social charges, are recognized in
actuarial gains and losses on the pension on local practices and regulations. The the relevant expenditure line by function
and other post-employment obligations, Group’s contributions to defined in the consolidated statement of income
the return on plan assets and changes in contribution plans are charged to the and amounted to CHF 4,810 million (2017:
the effect of the asset ceiling excluding statement of income in the period to CHF 4,932 million). As of December 31,
amounts in net interest, are recognized which the contributions relate. 2018, the Group employed 77,055 people
directly in other comprehensive earnings (2017: 81,960 people).
and are not reclassified to the statement Employee benefits – Other long-term
of income in a subsequent period. The employment benefits Defined benefit pension plans
pension and other post-employment Other long-term employment benefits The Group oversees the management of
obligations are measured at the present include long-service leave or sabbatical its pension plans through the Pension and
value of estimated future cash flows using leave, medical aid, jubilee or other Benefits Governance Team. This
a discount rate that is determined by long-service benefits, long-term disability interdisciplinary team including finance,
reference to the interest rate on high benefits and, if they are not expected to human resources and legal specialists acts
quality corporate bonds where the be settled wholly within twelve months as a center of expertise in all issues
currency and terms of the corporate after the year end, profit sharing, variable relating to pension and other post-
bonds are consistent with the currency and deferred compensation. employment benefits and makes
and estimated terms of the defined recommendations to the Group CEO and
benefit and other post-employment Group CFO. A documented directive is
obligations. used as a base for management actions
and decisions.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 239
Notes to the consolidated
financial statements
continued
The Group’s main defined benefit pension and length of service within the Group. In relation to risk management and asset
plans are located in the United Kingdom, These plans are registered schemes under allocation, the Boards of Trustees aim to
North America and Switzerland. They UK tax law and managed by independent ensure that they can meet their
respectively represent 52 percent (2017: Boards of Trustees. They are closed to new obligations to the beneficiaries of the
52 percent), 22 percent (2017: 22 percent) entrants. The vested rights of the Lafarge plans, both in the short and long terms.
and 18 percent (2017: 16 percent) of the UK pension plan were frozen in 2011, Subject to this primary objective, the
Group’s total defined benefit obligation for while those of the Ronez 2000 pension Boards of Trustees target to maximize the
pensions. These main plans are funded plan were frozen in 2016. In November long-term investment return whilst
through legally separate trustee managed 2018, Aggregate Industries Ltd. began minimizing the risk of non-compliance
funds. The cash funding of these plans, consulting with employees with the intent with any statutory funding requirements.
which may from time to time involve of closing the Aggregate Industries The Boards of Trustees are responsible for
special payments, is designed to ensure pension plan to future accruals and the plans’ long-term investment strategies
that past, present and future contributions changing the escalation formula. but usually delegates strategy design and
should be sufficient to meet future Consultation ended on January 29, 2019 monitoring to Investment Committees.
liabilities. and it has been confirmed that the closure
and changes will become effective as of The Lafarge UK Pension Plan entered a
The Group operates a number of defined March 31, 2019. longevity swap during 2018. The swap
benefit pension schemes and schemes with hedges the risk of changes in life
similar or contingent obligations in several These plans are funded by employer expectancy for covered members, which
of its countries. The assets and liabilities of contributions, which are negotiated every will reduce longevity related volatility in
those schemes may exhibit significant three years based on plan valuations the plan’s funding position, resulting in a
volatility. carried out by independent actuaries. more stable balance sheet position. The
For the Lafarge UK pension plan, no swap covers pensioners and dependent
Where possible, defined benefit pension contributions were paid in 2018 and 2017. members whose benefits came into
schemes have been closed and frozen. The June 30, 2018 funding valuation is payment on or before December 31, 2016
Significant actions continue to take place currently being conducted and is due to and who were alive on January 1, 2018,
to reduce and eliminate those schemes be completed in 2019. The last funding representing 60% of the plan’s IAS19
and related risks. Specifically, active valuation for the Aggregate Industries liabilities as of December 31, 2018.
management is in place to mitigate the pension plan was conducted as at April 5,
volatility and match investment returns 2015. A revised schedule of contributions The Lafarge UK pension plan and the
with benefit obligations. setting out the deficit repayment Aggregate Industries pension plan both
contributions payable by the sponsoring contain elements of pension called
Unfunded pension plans are mainly plans employer was put in place with the aim of Guaranteed Minimum Pension (“GMP”).
outside of tax regimes’ qualification limits, removing the funding deficit in the plan by GMPs were accrued by individuals who
retirement indemnity schemes, or end of April 5, 2027. The April 5, 2018 funding were contracted out of the State Second
service benefits where benefits are vested valuation is currently being conducted Pension prior to April 6, 1997. Historically,
only if the employee is still employed by and is due to be completed in 2019. For there was an inequality in the benefits
the Group company at the retirement the Ronez 2000 pension plan, there are no between male and female members who
date. The unfunded pension plans are contributions currently due to be paid by had GMP. A High Court case concluded on
located largely in the United States, the sponsoring employer. The Trustee October 26, 2018 confirmed that all UK
Canada and France. completed the December 31, 2015 pension plans must equalise GMPs
actuarial valuation during the period between men and women. In the light of
United Kingdom (UK) which revealed a small deficit as at these events, a net experience adjustment
The companies operate three defined December 31, 2015. The Trustee and of CHF 47 million was recognized in other
benefit pension plans in the UK: the Company agreed this shortfall would be comprehensive income.
Lafarge UK pension plan, the Aggregate met by asset returns above those assumed
Industries pension plan and the Ronez in the calculation of the liabilities by July
2000 pension plan. Pensions payable to 31, 2019.
employees depend on average final salary
240
North America (United States and In the United States, the companies intend
Canada) to pay the minimum required
The companies operate defined contributions as prescribed under Internal
contribution plans and a number of Revenue Service (IRS) regulations in
defined benefit pension plans. The addition to voluntary amounts in order to
majority of the defined benefit pension achieve and maintain an IRS funded status
plans are closed to new entrants and of at least 80 percent. In Canada, the
frozen to future accruals. For defined Group companies intend to pay at least
benefit pension plans, pensions payable to the minimum required contributions
employees depend on average final salary under the applicable pension legislation
and length of service within the Group. For for each plan
defined contributions, benefit depend on
accrued contributions with returns at The companies delegate various
retirement. responsibilities to Pension Committees.
These committees define and manage
The Group participates in a number of long-term investment strategies for
union-sponsored multi-employer pension reducing risks, including interest rate risks
plans in the United States. These plans are and longevity risks. The assets in the
subject to substantial deficits due to United States and Canada include a
market conditions and business actions, certain proportion which hedge the
plan trustee decisions, plan failure as well liability swings against interest rate
as actions and decisions of other movements, with those assets primarily
contributing employers. The Group has invested in fixed income investments,
essentially no control on how these plans particularly intermediate and longer term
are managed. instruments.
The Group has undertaken a review of all In 2017, a pension plan freeze was
these plans with the goal being to fully announced for all Canadian salaried
understand the plans’ financial employees participating in the defined
circumstances, as well as all options benefit plan. From January 1, 2020, active
available to mitigate risks and reduce the members will no longer acquire further
Group’s actual and potential financial rights in this defined benefit plan. Active
obligations. As the Group’s participation in members will then participate in a defined
these plans is subject to negotiations with contribution plan. In the United States,
bargaining unions, the Group’s ability to collective bargaining during 2018 resulted
take action is limited. in a freeze of pension benefits for
participants in several locations. These
The Group companies must contribute a changes resulted in a combined one-time
minimum amount to the defined benefit minor curtailment gain.
pension plans annually which is
determined actuarially and is comprised
of service costs as well as payments
toward any existing deficits. For plans that
are currently closed and frozen, there will
generally be no service component in the
future.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 241
Notes to the consolidated
financial statements
continued
Switzerland retirement benefit as a lump sum, an Status of the Group's defined benefit
The Swiss pension plans of Swiss annuity or part as a lump sum with the plans
companies contain a cash balance benefit balance converted to a fixed annuity at The status of the Group’s defined benefit
formula, accounted for as a defined the rates defined in the fund rules. The plans using actuarial assumptions
benefit plan. Employer and employee Board of Trustees, composed of half determined in accordance with IAS 19
contributions are defined in the pension employer and half employees’ Employee Benefits is summarized below.
fund rules in terms of an age related representatives, may increase the annuity The tables provide reconciliations of
sliding scale of percentages of salary. at their discretion subject to the plan’s defined benefit obligations, plan assets
Under Swiss law, the pension fund funded status including sufficient free and the funded status for the defined
guarantees the vested benefit amount as funds as determined according to Swiss benefit pension plans to the amounts
confirmed annually to members. Interest statutory valuation rules. The Swiss recognized in the statement of financial
above legal requirements may be added pension plans fulfill the requirements of position.
to member balances at the discretion of the regulatory framework which requires a
the Board of Trustees. At retirement date, minimum level of benefits.
members have the right to take their
Net liability arising from defined benefit pension plans 993 1,265
Net liability arising from other post-employment benefit plans 239 288
Net liability 1,232 1,553
242
Retirement benefit plans
Other post-employment
Defined benefit pension plans benefit plans
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 243
Notes to the consolidated
financial statements
continued
244
Retirement benefit plans
Defined benefit pension plans
Plan assets:
Equity instruments 21% 24%
Liability-driven investments 21% 22%
Debt instruments 15% 15%
Alternative investments 12% 12%
Insurance policies 9% 8%
Investment in real estate 6% 6%
Investment funds 6% 4%
Cash and cash equivalents 4% 2%
Structured debt 2% 2%
Others 4% 5%
Total plan assets 100% 100%
Plan assets based on non-quoted prices plan assets amount to CHF 78 million government bonds and swaps and
represent 17% (2017: 19%) of the total (2017: CHF 7 million). involves hedging the plan against liquidity
plan assets and mainly consist of risk and change in interest rates or
insurance policies for 9% (2017: 8%) and Liability-driven investment (LDI) is an inflation yields.
investment funds for 4% (2017: 3%). investment strategy that is defined
considering the risk profiles of the liability Alternative investments include among
The fair value of financial instruments of of the plan. The LDI investment strategy others hedge-funds, multi-asset values
LafargeHolcim Ltd or subsidiaries held as mainly consists of index-linked and reinsurance investments.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 245
Notes to the consolidated
financial statements
continued
Principal actuarial assumptions (weighted average) used at the end of the reporting period for defined benefit pension plans
Total Group United Kingdom North America Switzerland
Discount rate in % 2.8% 2.5% 3.0% 2.6% 4.0% 3.5% 0.8% 0.6%
Expected salary increases in % 2.2% 2.4% 3.2% +3.2% 2.5% 2.9% 0.9% 0.8%
Life expectancy in years
after the age of 65 21.9 22.3 22.7 23.8 23.2 22.8 23.3 22.5
Weighted average duration in years 15.4 15.3 17.5 17.4 13.3 13.3 13.5 13.7
Sensitivity analysis as per December 31, 2018 on defined benefit pension plans
Impact on the defined benefit obligation Total Group United Kingdom North America Switzerland
Million CHF Increase Decrease Increase Decrease Increase Decrease Increase Decrease
Discount rate (±0.5% change in assumption) (611) 685 (372) 401 (115) 136 (92) 113
Expected salary increases
(±0.5% change in assumption) 47 (46) 8 (8) 9 (8) 9 (8)
Life expectancy in years after the age of 65
(±1 year change in assumption) 343 (350) 231 (229) 51 (56) 50 (58)
Sensitivity analysis as per December 31, 2017 on defined benefit pension plans
Impact on the defined benefit obligation Total Group United Kingdom North America Switzerland
Million CHF Increase Decrease Increase Decrease Increase Decrease Increase Decrease
Discount rate (±0.5% change in assumption) (705) 766 (420) 459 (134) 144 (105) 113
Expected salary increases
(±0.5% change in assumption) 57 (56) 9 (9) 9 (8) 10 (10)
Life expectancy in years after the age of 65
(±1 year change in assumption) 378 (365) 258 (244) 52 (50) 52 (60)
The sensitivity analysis above may not be Expected contributions by the employer to
representative of the actual change in the be paid to the post-employment benefit
defined benefit pension plans as it is plans during the annual period beginning
unlikely that the change in assumptions after the end of the reporting period are
would occur in isolation of one another as CHF 82 million, of which CHF 25 million
some of the assumptions may be related to North America, CHF 31 million
correlated. related to Switzerland and CHF 11 million
related to United Kingdom.
246
16.3 Share compensation plans
The total personnel expense arising from
the LafargeHolcim share compensation
plans amounted to CHF 12.9 million in
2018 (2017: CHF 20.5 million) as presented
in the following table:
All shares granted under these plans are discounted LafargeHolcim Ltd shares management and other employees for
either purchased from the market or generally at 70 percent of the market their contribution to the continuing
derived from treasury shares. value based on the prior-month average success of the business. These shares and
share price. The shares cannot be sold for options will be delivered after a three-to-
Description of plans a period of two years from the date of five-year vesting period following the
Employee share purchase plan purchase. grant date and are subject to internal and
LafargeHolcim offers an employee external performance conditions.
share-ownership plan for all employees of LafargeHolcim Performance Share Plan
Swiss subsidiaries and some executives LafargeHolcim set up a performance share Information related to awards granted
from Group companies. This plan entitles plan in 2015. Performance shares and/or through the LafargeHolcim Performance
employees to acquire a limited amount of options are granted to executives, senior Share Plan is presented below:
2018 2017
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 247
Notes to the consolidated
financial statements
continued
The fair value of the plan was calculated (2017: 277,861) is subject to an external an external performance condition
by an independent consultant as follows: performance condition, based on the based on the Total Shareholder Return.
• 895,190 performance shares were Total Shareholder Return. In 2017, this The fair value per share option has been
granted in 2018 under the Performance external condition was included in the determined using the Black-Scholes
Share Plan (2017: 926,203). These shares fair value per share of CHF 26.27 using a model and amounted to CHF 9.16.
are subject to a three-year vesting Monte Carlo simulation;
period. 895,190 shares (2017: 648,342) • 283,506 share options were granted in Underlying assumptions for the fair value
are subject to internal performance 2018 under the Performance Share Plan of the share options granted in 2018 are
conditions and the fair value per share is (2017: nil). These share options are presented below (no grants in 2017):
CHF 55.00 (2017: CHF 57.45). No share subject to a five-year vesting period and
March 1,
Grant date 2018
Share price at grant date 55.00
Exercise price 55.65
Assumed/expected dividend yield 1 3.3%
Expected volatility of stock 2
22.4%
Risk-free interest rate –0.2%
Expected life of the options 8 years
1
Based on data market provider estimates.
2
Based on a 2 year at-the-money implied volatility.
248
LafargeHolcim Senior Management Plan The contractual term of the first type of Lafarge S.A. shares that may be issued
Part of the variable, performance-related option plan is eight years, with immediate following the exercise on or after the date
compensation for senior management is vesting but exercise restrictions for a of the squeeze-out of stock options that
paid in LafargeHolcim Ltd shares, which period of three years following the grant have been allocated pursuant to the
are granted based on the market price of date. The contractual term of the second Lafarge stock option plans; or
the share in the following year. The shares type of option plan is twelve years and the Lafarge S.A. shares that may be
cannot be sold by the employee for the options have a vesting period (service- definitively allotted on or after the
next three years. related only) of nine years from the date squeeze-out in accordance with the
of grant, with sale and pledge restrictions. Lafarge performance share plans.
Restricted share awards are also granted The Group has no legal or constructive
for Senior Management at hire, obligation to repurchase or settle the In 2018, the liquidity mechanism was
compensating for share awards forfeited options in cash. applied as follows:
from previous employer. The vesting of • 63,895 Lafarge S.A. shares have been
these restricted shares reflect the vesting Liquidity mechanism for remaining purchased;
dates of forfeited awards. rights under the Lafarge long-term • 283,414 Lafarge S.A. shares have been
incentive plans exchanged for 250,218 LafargeHolcim
Share option plans The Lafarge long-term incentive plans shares; and
Two types of share options were granted consisted of stock options (granted up to • 40,802 Lafarge S.A. options have been
to senior management of the Group: the 2012) and performance share (granted up exercised in 2018. One Lafarge S.A. stock
ones, which were granted as part of the to 2014) plans, all subject to performance options plan ended in June 2018 and
annual variable compensation and those, conditions. 584,013 unexercised Lafarge S.A. options
that were allotted to the Executive have lapsed.
Committee upon appointment. In both All Lafarge stock options are vested.
cases, each option represented the right Following a distribution of reserves of
to acquire one registered share of Performance conditions include internal Lafarge S.A. and in application of the
LafargeHolcim Ltd at the market price of conditions and a market condition related definition of “parity” in the liquidity
the shares at the date of grant. These to Total Shareholder Return. The market contract, the exchange ratio was changed
plans are closed. The last share options condition is included in the fair value of from 0.945 (1 Lafarge S.A. share for 0.945
under this plan were granted in 2015. each granted instrument. LafargeHolcim Ltd share) to 0.884 (1
Lafarge S.A. share for 0.884 LafargeHolcim
Following the success of its public Ltd share).
exchange offer on Lafarge S.A. and the
completion of the subsequent squeeze-
out of Lafarge S.A. shares on October 23,
2015, LafargeHolcim proposed a liquidity
mechanism for:
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 249
Notes to the consolidated
financial statements
continued
Number 1 Number 1
Weighted average
exercise price 1 2018 2017
250
The weighted average share price for the
options exercised in 2018 was CHF 50.44
(2017: CHF 54.08).
Share options
outstanding at the end of the year have
the following expiry dates and give the
right to acquire one registered share of
LafargeHolcim Ltd at the exercise p
rices as
listed below:
2018 2017
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 251
Notes to the consolidated
financial statements
continued
17. Provisions and contingencies measurement of a provision that result payments, early retirement costs, costs for
17.1 Accounting principles from changes in the estimated timing or notice periods not worked and other costs
Site restoration and other amount of cash outflows, or a change in directly linked largely with the closure of
environmental provisions the discount rate, are added to or the facilities.
The Group provides for the costs of deducted from the cost of the related
restoring a site where a legal or asset to the extent that they relate to the Other provisions
constructive obligation exists. The asset’s installation, construction or A provision is recognized when a legal or
estimated future costs for known acquisition. All provisions are discounted constructive obligation arising from past
restoration requirements are determined to their present value. events exists, it is probable that an outflow
on a site-by-site basis and are calculated of resources embodying economic
based on the present value of estimated Restructuring provisions benefits will be required to settle the
future costs. The cost of raising a provision A provision for restructuring costs is obligation and a reliable estimate can be
before exploitation of the raw materials recognized when the restructuring plans made of this amount.
has commenced is included in property, have been approved by the management,
plant and equipment and depreciated a detailed formal plan exists and when the Contingent liabilities
over the life of the site. The effect of any Group has raised a valid expectation with Contingent liabilities arise from past
adjustments to the provision due to those affected that it will carry out the events whose existence will be confirmed
further environmental damage as a result restructuring plan either by announcing only by the occurrence or non-occurence
of exploitation activities is recorded its main features to those affected by it or of one or more uncertain future events
through operating costs over the life of starts to implement that plan and not wholly within the control of
the site, in order to reflect the best recognize the associated restructuring LafargeHolcim. They are accordingly
estimate of the expenditure required to costs. The provision for restructuring only disclosed in the notes to the financial
settle the obligation at the end of the includes direct expenditures arising from statements.
reporting period. Changes in the the restructuring, notably severance
17.2 Provisions
Site
restoration
and other
environ- Specific
mental business Restructuring Other
Million CHF provisions risks provisions provisions Total 2018 Total 2017
252
Specific business risks 17.3 Contingencies, guarantees, reliably estimated. There are no further
The total provision for specific business commitments and contingent single matters pending that the Group
risks amounted to CHF 470 million as of assets expects to be material in relation to the
December 31, 2018 (2017: Contingencies Group’s business, financial result or results
CHF 633 million). Specific business risks In the ordinary course of its business, the of operations.
comprise litigation provisions and Group is involved in lawsuits, claims of
provisions for contractual risks recorded in various natures, investigations and The following is a description of the
connection with purchase price proceedings, including product liability, material legal and tax matters currently
allocations. Provisions for litigations commercial, environmental, health and ongoing.
mainly relate to antitrust and commercial safety matters, etc. The Group operates in
disputes, environmental claims and countries where political, economic, social Legal and tax matters with new
product liabilities and are set up to cover and legal developments could have an developments since last reporting
legal and administrative proceedings. impact on the Group’s operations. period
The Competition Commission of India
The timing of cash outflows of provisions In connection with disposals made in the (“CCI”) issued in June 2012 and, after a
for litigations is uncertain since it will past years, the Group provided customary successful appeal, again in August 2016
largely depend upon the outcome of warranties notably related to accounting, an order imposing a penalty on Ambuja
administrative and legal proceedings. tax, compliance with laws, litigation, labor Cements Ltd. (“ACL”), ACC Limited (“ACC”)
and environmental matters. and on the divested subsidiary Lafarge
The sensitivity associated with certain LafargeHolcim and its subsidiaries have India for which the Group provided an
provisions led management to limit the received or may receive in the future indemnification guarantee. The order
extent of the disclosure discussed above notices of claims arising from such found those companies together with
as it believes it could seriously prejudice warranties. other cement producers in India to have
the position of the Group. engaged in price coordination and
The Group is exposed to varying degrees imposed penalties on the cement
Restructuring provisions of uncertainty related to tax matters and companies and their trade association.
Provisions for restructuring costs relate to regulatory reviews and audits. The Group The total amount of penalties (including
various restructuring programs and accounts for its income taxes on the basis interests) relating to the three companies
amounted to CHF 300 million (2017: of its own internal analyses, supported by is approximately CHF 476 million as of
CHF 279 million) on December 31, 2018. external advice, if appropriate. The Group December 31, 2018. The companies
These provisions are expected to result in continually monitors its global tax appealed the order before the
future cash outflows mainly within the position, and whenever uncertainties Competition Appellate Tribunal
next one to three years. arise, the Group assesses the potential (“COMPAT”). As per the interim order
consequences and either accrues the passed by COMPAT in 2016, the companies
Other provisions liability or discloses a contingent liability in placed a deposit of 10 percent of the
Other provisions relate mainly to its financial statements, depending on the penalty amounts with a financial
provisions that have been set up to cover strength of the Group’s position and the institution with a lien in favor of COMPAT.
other contractual liabilities and amounted resulting risk of loss. In May 2017, all matters pending before
to CHF 356 million (2017: CHF 564 million). COMPAT were transferred to the National
The composition of these items is As of December 31, 2018, the Group’s Company Law Appellate Tribunal
manifold and c omprised, as of contingencies amounted to (“NCLAT”). In July 2018, the NCLAT
December 31, 2018, among other things: CHF 1,637 million (2017: dismissed the appeal of the companies
severance payments to employees, CHF 1,354 million). The increase is mainly against the CCI order and upheld the fines
provisions for health insurance and related to tax contingencies. Except for imposed. The companies filed an appeal
pension schemes, which do not qualify as what has been provided for as disclosed in with the Supreme Court which was
benefit obligations and provisions related note 17.2, the Group has concluded that admitted on October 5, 2018 and the
to sales and other taxes. The expected due to the uncertainty with some of the
timing of the future cash outflows is matters mentioned below, the potential
uncertain. losses from some of these cases cannot be
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 253
Notes to the consolidated
financial statements
continued
interim order passed by COMPAT was the alleged underlying facts under the In November and December 2016, the
directed to be continued. Hearings supervision of the Board of Directors. On Indonesian tax authorities issued the final
before the Supreme Court may take place April 24, 2017, the Group reported on the objection letter in respect of the 2010 PT
in 2019. main findings of the investigation and the Lafarge Cement Indonesia payment of
remediation measures decided on by the Corporate Income and Withholding Tax
On December 31, 2010, in an Board of Directors. On June 28, 2018, the including associated penalties of a total
extraordinary general meeting, the investigating judges decided to put amount of CHF 34 million (IDR 500 billion)
merger of Lafarge Brasil S.A. into LACIM Lafarge SA under judicial investigation and related to refinancing transactions. PT
was approved by the majority of the legal charges put forward against Lafarge Cement Indonesia appealed
shareholders of Lafarge Brasil S.A. Two individual wrongdoings have been against this decision at the tax court to
minority shareholders (Maringa and Ponte received. In addition, Lafarge SA was defend its initial statement. In case of a
Alta) holding a combined ownership of requested by the investigating judges to negative outcome for PT Lafarge Cement
8.93 percent, dissented from the merger deposit a bail guarantee of EUR 30 million. Indonesia, the total claim amounts to
decision and subsequently exercised their Bar the qualification of the charges, the CHF 68 million (IDR 1 trillion) as of
right to withdraw as provided for by the placement of Lafarge SA under judicial December 31, 2018 due to additional
Brazilian Corporation law. In application of investigation was expected given that penalties charged for the appeal. In
such law, an amount of CHF 22 million several of its former managers have November 2018, the Group entered into
(BRL 76 million) was paid by Lafarge Brasil previously been placed under judicial an agreement to sell its shareholding in PT
S.A. to the two dissenting shareholders. In investigation. Lafarge SA has appealed Holcim Indonesia Tbk, including its
March 2013, the two shareholders against those charges in December 2018 subsidiary PT Lafarge Cement Indonesia,
obtained a ruling from the Court of first which, in its view, do not fairly represent to Semen Indonesia. The Group will
instance ordering Lafarge Brasil S.A. to the responsibilities of Lafarge SA. As a continue to be liable for such claims due
pay Maringa and Ponte Alta the difference precaution, LafargeHolcim has decided to to an indemnification guarantee provided
between the amount paid for their shares record a provision of CHF 35 million. Based by the Group to PT Holcim Indonesia Tbk.
at the time of the exercise of the on the information available as of this
withdrawal rights by the plaintiffs (based date, there is no indication that the In July 2016, Lafarge Brasil S.A. received an
on book value) and the price per share judicial investigation is likely to result in assessment from the Brazilian Internal
calculated according to a fair market any other negative financial impact that is Revenue Service, claiming the reversal of a
value, this value approximates CHF 108 material to the Group. deducted Goodwill for the years 2011 and
million (BRL 366 million) as at the date of 2012. The amount in dispute is CHF 84
the order. Following a first unsuccessful There has been litigation in Hungary for a million (BRL 332 million) as of December
appeal by Lafarge Brasil S.A., in September number of years related to the ownership 31, 2018 and includes any penalty and
2017, the Superior Court of Justice denied of assets and damage compensation in interest. After challenging the assessment,
a further appeal filed by LafargeHolcim the context of the privatization of one of the company received a favorable decision
(Brasil) S.A. In February 2018, a settlement the former Holcim cement plants in from the Administrative Tax Appeals
agreement was signed with the claimants Hungary. The plant was closed a number Council in August 2018. The Brazilian
and all agreed settlement payments have of years ago and remains inactive and the Internal Revenue Service has appealed this
been made by June 30, 2018. The related Group believes the plant is illegally decision before the Superior
court cases have been closed. occupied by the counterparty in the Administrative Chamber. Additionally, in
litigation. The litigation is ongoing in a November 2018, LafargeHolcim (Brasil)
The criminal proceedings in France related number of different courts in Hungary but S.A. received a similar assessment from
to the alleged dealings of Lafarge Cement LafargeHolcim will continue to defend its the Brazilian Internal Revenue Service,
Syria with terrorist organizations in the legal position in all courts of competent again claiming reversal of deducted
years 2013 and 2014 are currently jurisdiction. Goodwill for the years 2013 and 2014
pending with the investigating judges in
Paris. The Group has completed its
internal independent investigation into
254
which the company is contesting in the projects, divestment of a ready-mix plant, 1,303 million) related to the purchase of
first instance. The amount in dispute for and M&A activities and fines against the various products, inventories and services
this second matter is CHF 65 million (BRL defendants. This order became and CHF 418 million (2017: CHF 274
258 million). enforceable on September 21, 2015 and million) related to the purchase of
applies to Holcim Brazil, which has been property, plant and equipment.
Both Ambuja Cements Ltd. (“ACL”) and fined CHF 150 million (BRL 508 million) as
ACC Limited (“ACC”) were entitled to at the date of the order. In Contingent assets
incentives in the form of excise duty September 2015, Holcim Brazil filed an A contingent asset is a possible asset that
benefit, in respect of Income Tax appeal against the order, offering a arises from past events, whose existence
Assessment Years 2006-07 to 2015-16. In cement plant as guarantee to support its will be confirmed only by the occurrence
their tax returns, the companies treated appeal. The fine and the behavioral or non-occurrence of one or more
the said incentives as capital in nature and remedies imposed by CADE were uncertain future events not wholly within
hence not liable to income tax. For the suspended by two decisions of the court the control of the Group. At December 31,
years 2006-07 to 2012-13, the Income Tax of first instance on September 29, 2016 2018, the total contingent assets for
Department had not accepted this and October 21, 2016. Unless successfully various claims in favor of the Group
position and appeals were filed by the appealed by CADE, the suspension will amounted to CHF 25 million (2017: CHF
companies against the orders of the remain in effect until the completion of 126 million) and are valued at the
Assessing officer, with the Commissioner the substantive proceedings against the maximum potential recoverable amount.
of Income Tax – Appeals (CIT-A). In prior CADE ruling. As of December 31, 2018, the
fiscal years, ACC and ACL had classified the total amount including interests and
risk as probable and provided for a total monetary adjustment is approximately
amount of CHF 122 million. During the CHF 190 million (BRL 750 million).
current year, the CIT-A ruled the issue in
favour of ACC and ACL for several Guarantees
assessment years. In view of this, the At December 31, 2018, the Group’s
companies have reassessed the risk and guarantees issued in the ordinary course
concluded that the risk of an ultimate of business amounted to CHF 888 million
outflow of funds for this matter is no (2017: CHF 873 million).
longer probable; accordingly the ACL and
ACC have reversed the existing provisions Commitments
of CHF 122 million. Pending final legal In the ordinary course of business, the
closure of this matter this amount has Group enters into purchase commitments
been disclosed as a contingent liability. for goods and services, buy and sell
investments, associated companies and
Previously disclosed legal matters with Group companies or portions thereof. It is
no developments since last reporting common practice for the Group to make
period offers or receive call or put options in
On May 28, 2014, the Administrative connection with such acquisitions and
Council for Economic Defense (“CADE”) divestitures.
ruled that Holcim Brazil along with other
cement producers had engaged in price At December 31, 2018, the Group’s
collusion and other anti- competitive commitments amounted to CHF 1,946
behavior. The ruling includes behavioral million (2017: CHF 1,577 million) and
remedies prohibiting certain greenfield included CHF 1,528 million (2017: CHF
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 255
Notes to the consolidated
financial statements
continued
18. Shareholders’ information given their characteristics, these options are recognized as a deduction
18.1 Equity instruments were accounted for in equity from equity, net of any tax effects.
LafargeHolcim Helvetia Finance Ltd issued in the Group's consolidated financial
CHF 200 million subordinated fixed rate statements for a total amount of CHF 200 Treasury shares (own equity instruments
resettable perpetual notes on November million in 2018 and guaranteed by held by the Group) are accounted for as a
28, 2018 with a coupon of 3.5% p.a. LafargeHolcim Ltd. reduction of equity at acquisition cost and
are not subsequently remeasured. When
In accordance with the provisions of IAS 32 Incremental costs directly attributable to shares are sold out of treasury shares, the
Financial Instruments – Presentation, and the issuance of ordinary shares and share resulting profit or loss is recognized in
equity, net of tax.
The par value per share is CHF 2.00. The In 2017, the Group announced the launch On March 2, 2018, the Group announced
share capital amounts to nominal CHF of its share buyback program for capital the discontinuation of its share buyback
1,214 million (2017: CHF 1,214 million) reduction purpose of up to CHF 1 billion program. The program was completed on
and the nominal value of the treasury over 2017 – 2018. The program was March 2, 2018 and the Group has
shares amounts to CHF 612 million (2017: conducted using a second trading line on repurchased 10,283,654 of its shares for a
CHF 554 million). the SIX Swiss Exchange. toal value of CHF 581 million at an average
price per share of CHF 56.54.
256
19. Related party transactions Executive Committee Other transactions
19.1 Transactions and relations Compensation for the members of the As part of the employee share purchase
with members of the Board of Executive Committee amounted to plan, LafargeHolcim manages employees’
Directors and Executive Committee CHF 30.4 million (2017: CHF 32.3 million, shares. It sells and purchases
including payments made to the former LafargeHolcim Ltd shares to and from
Key management compensation CEO). This amount comprises base employees and in the open market. In
Board of Directors salaries, other fixed pay and variable 2017 and 2018, the company did not
In 2018, twelve non-executive members of compensation of CHF 16.6 million purchase any LafargeHolcim Ltd share
the Board of Directors received in total a (2017: CHF 15.8 million), share-based from members of the Executive
remuneration of CHF 4.7 million including compensation of CHF 10.6 million Committee.
mandatory Social Security payments (2017: CHF 11.7 million) and employer
(2017: CHF 5.2 million) of which CHF 2.7 contributions to social security and As a result of the merger, LafargeHolcim
million (2017: CHF 3.2 million) was paid in pension plans of CHF 3.2 million has identified the following transactions
cash, CHF 0.02 million (2017: CHF 0.1 (2017: CHF 4.8 million). with other parties or companies related to
million) in the form of social security the Group:
contributions, and CHF 1.9 million (2017: Compensation for former members Lafarge S.A. has received indemnification
CHF 2.0 million) in shares. Other of governing bodies guarantees from, and entered into a
compensation paid totaled CHF 0.2 million During 2018, payments in the total cooperation agreement with, Orascom
(2017: CHF 0.2 million). amount of CHF 10.6 million were made to Construction Industries S.A.E (OCI) in
8 former members of the Executive relation to an acquisition in 2008. Mr.
The compensation of the Board of Committee (2017: CHF 7.8 million for four Nassef Sawiris is Chief Executive Officer
Directors was lower in 2018 than in 2017 former members). and Director of Orascom Construction
due to discontinuation of additional fees Industries N.V., parent company of OCI,
and time commitment to organize the Loans
granted to members of former director of Lafarge S.A. and current
CEO succession in 2017. governing bodies director of LafargeHolcim. LafargeHolcim
As at December 31, 2018, there was one has one indemnification claim under the
loan in the amount of CHF 0.1 million (no indemnification guarantee. The
loan in 2017) outstanding to a member of cooperation agreement dated December
the Executive Committee. There were no 9, 2007 aims to allow OCI to participate in
loans to members of the Board of tenders in respect of the construction of
Directors or to parties closely related to new plants in countries where OCI has the
members of governing bodies. capability to meet certain of
LafargeHolcim’s construction needs. There
are no outstanding balances under this
agreement as at December 31, 2018.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 257
Notes to the consolidated
financial statements
continued
Cash flow from operating activities – analysis of change in net working capital items
Million CHF 2018 2017
258
Cash flow from acquisitions and disposals of Group companies
Acquisitions Disposals
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 259
Notes to the consolidated
financial statements
continued
260
To the General Meeting of LafargeHolcim Ltd,
Rapperswil-Jona
Report on the Audit of the We believe that the audit evidence we the recoverable amounts of the CGUs,
Consolidated Financial Statements have obtained is sufficient and which are compared with the carrying
Opinion appropriate to provide a basis for our amount of the net assets of the CGUs,
We have audited the consolidated opinion. including goodwill. A deficit in recoverable
financial statements of LafargeHolcim Ltd amount compared with the carrying
and its subsidiaries (the Group), which A summary of our Audit Approach amount would result in an impairment.
comprise the consolidated statement of Audit scope
financial position as at 31 December 2018 • We scoped our audit of component The annual impairment testing of goodwill
and the consolidated statement of operations based on the significance of for impairment is considered a key audit
income, consolidated statement of account balances and significant risks; matter because the assumptions on which
comprehensive income, consolidated • We gained sufficient and appropriate the tests are based are highly judgemental
statement of changes in equity and coverage of the Group; and affected by future market conditions,
consolidated statement of cash flows for • Coverage details are provided on page which are inherently uncertain, and
the year then ended, and notes to the 264. because of the materiality of the balances
consolidated financial statements, taken as a whole. Refer to note 11.3 for
including a summary of significant Group materiality key assumptions used in goodwill
accounting policies. • CHF 123 million; impairment testing.
In our opinion, the consolidated financial • 5% of normalised 3-year average profit
statements (pages 162 to 260) give a true before tax In assessing the recoverable amount of
and fair view of the consolidated financial goodwill, management is required to
position of the Group as at 31 December Key audit matters estimate future cash flows. In determining
2018, and its consolidated financial • Goodwill; future cash flows management is required
performance and its consolidated cash • Property, plant and equipment; to make assumptions relating to future
flows for the year then ended in • Taxation; profitability, including revenue growth and
accordance with International Financial • Compliance operating margins, and the determination
Reporting Standards (IFRS) and comply of an appropriate discount rate, all of
with Swiss law. Key audit matters which are subject to management
Key audit matters are those matters that, override as the outcome of the
Basis for opinion in our professional judgment, were of impairment assessments could vary
We conducted our audit in accordance most significance in our audit of the significant if different judgements are
with Swiss law, International Standards on consolidated financial statements of the applied.Refer to note 11.3 for Impairment
Auditing (ISAs) and Swiss Auditing current period. These matters were tests of Goodwill.
Standards. Our responsibilities under addressed in the context of our audit of
those provisions and standards are further the consolidated financial statements as a In total, impairments amounting to CHF
described in the Auditor’s Responsibilities whole, and in forming our opinion 26 million were recognised against
for the Audit of the Consolidated Financial thereon, and we do not provide a separate goodwill – refer to note 11.3.
Statements section of our report. We are opinion on these matters.
independent of the Group in accordance How the scope of our audit responded
with the provisions of Swiss law and the Goodwill to the key audit matter
requirements of the Swiss audit Key audit matter We considered the controls implemented
profession, as well as the IESBA Code of The Group’s balance sheet includes CHF by management in testing for impairment
Ethics for Professional Accountants, and 14,045 million of goodwill, representing and the judgements in determining the
we have fulfilled our other ethical 23.5% of total Group assets. In accordance CGUs to which goodwill is allocated.
responsibilities in accordance with these with IFRS, these balances are allocated to
requirements. Cash Generating Units (CGUs) which are
tested annually for impairment using
discounted cash flow models to determine
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 261
Notes to the consolidated
financial statements
continued
We focused our audit effort based on Our procedures found the discounted We tested the key assumptions and inputs
assessing the risk of goodwill being cash flow models of the CGU’s supported in the discounted cash flow models similar
impaired, which was based on the level by appropriate inputs and assumptions. to those applied above for goodwill
of headroom of the recoverable amount We concluded that discount rate impairment testing.
over carrying amount of the CGUs. assumptions were in line with third party Our procedures found the discounted
evidence and our expert’s acceptable cash flow models of the CGUs were
We used Deloitte valuation specialists to ranges. We reviewed management’s supported by appropriate inputs and
develop independent discount rates and disclosures on key assumptions and assumptions.
compared these from external market sensitivities and found them to be
data to management estimates for the appropriate. We concluded that discount rate
discount rate and country risk premium. assumptions were in line with third party
Property, plant and equipment evidence and our expert’s acceptable
For all CGUs selected for detailed testing, Key audit matter ranges.
we benchmarked key operating Significant judgement is involved in
assumptions in the models to historical assessing property, plant and equipment We reviewed management’s disclosures
performance and benchmarked demand for impairment. Property plant and on key assumptions and sensitivities and
growth assumptions to external growth equipment is tested at a CGU level. The found them to be appropriate.
forecasts and supply growth to industry CGUs are tested when a trigger for
reports and recent historical trends, impairment is identified. Impairment Taxation
particularly with respect to export/import testing is undertaken using discounted Key audit matter
volumes; met with senior management at cash flow models to determine the There is significant judgement in
the CGU level. recoverable amount of the CGUs, which is accounting for income taxes, particularly
compared to the carry amount of the given the large number of jurisdictions in
We checked the mathematical accuracy of non-current assets of the CGUs. A deficit in which the Group operates and exposures
the discounted cash flow models and the recoverable amount compared with the to numerous different tax laws around the
extraction of inputs from source carrying amount would result in an world. This gives rise to complexity and
documents. impairment. uncertainty in respect of the calculation of
income taxes, deferred tax positions, as
We challenged management’s sensitivity As the impairment assessment could vary well as the assessment of provisions for
analyses and performed our own significantly due to different assumptions uncertain tax positions, including
sensitivity calculations, where the applied the impairment of property, plant estimates of interest and penalties where
headroom was limited, to assess the level and equipment is a key audit matter. Refer appropriate.
of excess of recoverable amount against to note 11.2.
the carrying amount of the CGU. In the year ended 31 December 2018, the
The key judgements and assumptions Group has recorded a tax expense of CHF
We considered the adequacy of made by management in developing the 656 million, and, at that date, CHF 1,608
management’s disclosures in respect to discounted cash flows are similar to those million Deferred tax liabilities net (refer to
impairment testing and whether the noted above for goodwill impairment note 8), CHF 634 million Current income
disclosures appropriately disclose the testing. tax liabilities and CHF 449 million Long-
underlying sensitivities. term income tax liabilities.
How the scope of our audit responded
to the key audit matter Due to their significance to the financial
We considered the controls implemented statements as a whole, combined with the
by management in testing for impairment judgement and estimation required to
and the judgements in assessing the determine their values, the evaluation of
recoverability of property, plant and current and deferred tax balances is
equipment. considered to be a key audit matter.
262
How the scope of our audit responded We validated the appropriateness and How the scope of our audit responded
to the key audit matter completeness of the related disclosures in to the key audit matter
We assessed the adequate implementation note 8 to the consolidated financial We discussed the status of significant
of Group policies and controls regarding statements. known actual and potential litigation with
current and deferred tax, as well as Based on the procedures performed the Chairman of the Board, Audit
the reporting of uncertain tax positions. above, we obtained sufficient audit Committee, Head of Legal and
evidence to corroborate management's Compliance, other management and
We evaluated the design and estimates regarding current and deferred directors who have knowledge of these
implementation of controls in respect of tax balances and provisions for uncertain matters.
provisions for current tax and the tax positions.
recognition and recoverability of deferred We challenged the decisions and rationale
tax assets. We examined the procedures in Compliance for provisions held or for decisions not to
place for the current and deferred tax Key audit matter record provisions or make disclosures. For
calculations for completeness and The Group operates in multiple the most significant of the matters, we
valuation and audited the related tax jurisdictions, exposing it to a variety of assessed relevant historical and recent
computations and estimates in the light of different laws, regulations and judgements passed by the court
our knowledge of the tax circumstances. interpretations thereof. In many authorities and considered legal opinion
Our work was conducted with the support jurisdictions, there are a comparatively obtained by management from external
of our tax specialists. small number of significant competitors lawyers to challenge the basis used for the
thereby increasing the Group’s exposure provisions recorded and the disclosures
We performed an assessment of the to anti-trust regulation. In this made by the Group.
material components impacting the environment, there is an inherent
Group's tax expense, balances and litigation risk. In the normal course of We reviewed internal reports and met with
exposures. We reviewed and challenged business, provisions and contingent Internal Audit to identify actual and
the information reported by components liabilities may arise from legal potential non-compliance with laws and
with the support of our own local tax proceedings, including anti-trust, regulations, both those specific to the
specialists, where appropriate. With the regulatory and other governmental Group’s business and those relating to the
support of our tax specialists at group proceedings, as well as investigations by conduct of business generally.
level, we verified the consolidation and authorities and commercial claims.
analysis of tax balances. For those matters where management
At 31 December 2018, the Group held concluded that no provisions should be
We considered management's assessment provisions of CHF 470 million in respect of recorded, we also considered the
of the validity and adequacy of provisions legal actions. Given the highly complex adequacy and completeness of the
for uncertain tax positions, evaluating the nature of regulatory and legal cases, Group’s disclosures made in relation to
basis of assessment and reviewing management applies significant contingent liabilities.
relevant correspondence and legal advice judgement when considering whether,
where available including any information and how much, to provide for the Based on the procedures performed
regarding similar cases with the relevant potential exposure of each matter. These above, we obtained sufficient audit
tax authorities. In respect of deferred tax estimates could change substantially over evidence to corroborate management's
assets and liabilities, we assessed the time as new facts emerge and each legal estimates for legal provisions and
appropriateness of management's case progresses. Refer to note 17.2. disclosures in note 17 relating to
assumptions and estimates, including the contingencies.
likelihood of generating sufficient future Given the complexity and magnitude of
taxable income to support deferred tax potential exposures across the Group, Our application of materiality
assets for tax losses carried forward as and the judgement necessary to We define materiality as the magnitude of
disclosed in note 8.5 of CHF 1,034 million. determine required disclosures this is misstatement in the financial statements
a key audit matter. that makes it probable that the economic
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 263
Notes to the consolidated
financial statements
continued
19% 19%
26%
17% 16%
7% 65%
67% 64%
decisions of a reasonably knowledgeable An overview of the scope risks of material misstatement of the
person would be changed or influenced. of our audit aggregated financial information of the
We use materiality both in planning the Our Group audit was scoped by obtaining remaining components not subject to
scope of our audit work and in evaluating an understanding of the Group and its audit or audit of specified account
the results of our work. environment, including group-wide balances.
controls, and assessing the risks of
Based on our professional judgement we material misstatement at the Group level. The Group audit team continued to follow
determined materiality for the Group as a Based on our continuing assessment, we a programme of planned visits that has
whole to be CHF 123 million, based on a focused our Group audit scope primarily been designed so that a senior member of
calculation of 5% of normalised three-year on the audit work at 26 components, the Group audit team visits each of the
average profit before tax for 2016, 2017 representing the Group’s most material locations where the Group audit scope
and 2018. country operations, and utilised 26 was focused. Where we have not visited a
component audit teams in 19 countries. significant component we included the
The materiality applied by the component There were 15 components subject to full component audit team in our team
auditors ranged from CHF 6.5 million to scope audits and 11 components subject briefing, discussed their risk assessment,
CHF 62.4 million depending on the scale to specified audit procedures, where the and reviewed documentation of the
of the component’s operations, the extent of our testing was based on our findings from their work.
component’s contribution to Group profit assessment of the risks of material
before tax and our assessment of risks misstatement and of the materiality of the Other Information in
specific to each location. Group’s operations at those locations. the Annual Report
The Board of Directors is responsible for
We agreed with the Audit Committee that These 26 components represent the the other information in the Annual
we would report to the Committee all principal business units and account for Report. The other information comprises
audit differences in excess of CHF 6.2 81% of the Group’s net assets, 74% of all information included in the Annual
million, as well as differences below that the Group’s net sales and 81% of the Report, but does not include the
threshold that, in our view, warranted Group’s EBITDA. consolidated financial statements, the
reporting on qualitative grounds. We also stand-alone financial statements of the
report to the Audit Committee on At the parent entity level we also tested Company upon which we issue a separate
disclosure matters that we identified when the consolidation process and carried out Statutory Auditor’s report, the
assessing the overall presentation of the analytical procedures to confirm our Compensation Report from pages 114 to
financial statements. conclusion that there were no significant 137 and our auditor’s reports thereon.
264
Our opinion on the consolidated financial In preparing the consolidated financial Report on other legal and
statements does not cover the other statements, the Board of Directors is regulatory requirements
information in the Annual Report and we responsible for assessing the Group’s In accordance with article 728a paragraph
do not express any form of assurance ability to continue as a going concern, 1 item 3 CO and Swiss Auditing Standard
conclusion thereon. disclosing, as applicable, matters related 890, we confirm that an internal control
to going concern and using the going system exists, which has been designed
In connection with our audit of the concern basis of accounting unless the for the preparation of consolidated
consolidated financial statements, our Board of Directors either intends to financial statements according to the
responsibility is to read the other liquidate the Group or to cease instructions of the Board of Directors.
information in the Annual Report and, in operations, or has no realistic alternative
doing so, consider whether the other but to do so. We recommend that the consolidated
information is materially inconsistent with financial statements submitted to you be
the consolidated financial statements or Auditor’s responsibilities for the approved.
our knowledge obtained in the audit, or Audit of the Consolidated Financial
otherwise appears to be materially Statements
misstated. If, based on the work we have Our objectives are to obtain reasonable
performed, we conclude that there is a assurance about whether the consolidated Deloitte AG
material misstatement of this other financial statements as a whole are free
information, we are required to report from material misstatement, whether due
that fact. We have nothing to report in to fraud or error, and to issue an auditor’s
this regard. report that includes our opinion.
Reasonable assurance is a high level of
Responsibility of the Board of assurance, but is not a guarantee that an
Directors for the Consolidated audit conducted in accordance with Swiss David Quinlin
Licensed Audit Expert
Financial Statements law, ISAs and Swiss Auditing Standards will
The Board of Directors is responsible for always detect a material misstatement Auditor in charge
the preparation of the consolidated when it exists. Misstatements can arise
financial statements that give a true and from fraud or error and are considered
fair view in accordance with IFRS and the material if, individually or in the
provisions of Swiss law, and for such aggregate, they could reasonably be
internal control as the Board of Directors expected to influence the economic Alexandre Dubi
Licensed Audit Expert
determines is necessary to enable the decisions of users taken on the basis of
preparation of consolidated financial these consolidated financial statements.
statements that are free from material
misstatement, whether due to fraud A further description of our responsibilities
or error. for the audit of the consolidated financial
statements is located at the website of
EXPERTsuisse: http://expertsuisse.ch/en/
audit-report-for-public-companies. This
description forms part of our auditor’s
report.
LafargeHolcim Annual Report 2018 Financial information — Consolidated financial statements 265
Holding
Company Results
266
Statement of financial position LafargeHolcim Ltd
Million CHF Notes 31.12.2018 31.12.2017
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 267
Notes to the financial statements of LafargeHolcim Ltd
LafargeHolcim Ltd, with registered office in Rapperswil-Jona, is the ultimate holding c
ompany of the
LafargeHolcim Group which comprises subsidiaries, associated companies and joint ventures around the
world. During the reporting period, LafargeHolcim Ltd employed fewer than ten employees (previous year:
fewer than ten employees).
31.12.2018 31.12.2017
268
3. Dividend income – Group companies
4. Other income
5. Other expenses
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 269
Holding Company Results
continued
Fernhoff Ltd 82 62
LafargeHolcim Continental Finance Ltd 1,352 0
Lafarge North America Inc. 256 0
Cemasco B.V. 7 10
Heracles General Cement Company S.A. 60 62
Lafarge Cement Polska S.A. 187 255
Holcim (US) Inc. 89 117
Holcim Participations (US) Inc. 44 132
Holcim (Schweiz) AG 636 855
LafargeHolcim International Finance Ltd 647 1,143
Holdertrade Ltd 96 96
Total 3,456 2,732
270
10. Interest bearing long-term financial liabilities – Group companies
On March 2, 2018, the Group announced In 2017, the Group announced the launch
the discontinuation of its share buyback of its share buyback program for capital
program. The program was completed on reduction purpose of up to CHF 1 billion
March 2, 2018 and the Group has over 2017 – 2018. The program was
repurchased 10,283,654 of its shares for a conducted using a second trading line on
toal value of CHF 581 million at an average the SIX Swiss Exchange.
price per share of CHF 56.54.
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 271
Holding Company Results
continued
272
Million CHF 31.12.2018 31.12.2017
Holcim US Finance S.à r.l. & Cie S.C.S. – Guarantees in respect of holders of
6.21% USD 200 million private placement due in 2018 0 195
6.00% USD 750 million bonds due in 2019 812 806
2.63% EUR 500 million bonds due in 2020 620 643
4.20% USD 50 million bonds due in 2033 54 54
5.15% USD 500 million bonds due in 2023 542 537
LafargeHolcim Continental Finance Ltd – Guarantees in respect of holders of
0.88%EUR 30 million Schuldschein loans due in 2022 37 0
0.39% EUR 60 million Schuldschein loans due in 2022 74 0
1.32% EUR 109 million Schuldschein loans due in 2024 135 0
1.68% EUR 5 million Schuldschein loans due in 2025 6 0
2.22% EUR 2 million Schuldschein loans due in 2028 2 0
LafargeHolcim International Finance Ltd – Guarantees in respect of holders of
3.01% USD 121 million Schuldschein loans due in 2021 0 130
2.80% USD 40 million Schuldschein loans due in 2021 43 43
3.21% USD 25 million Schuldschein loans due in 2023 0 27
3.20% USD 15 million Schuldschein loans due in 2023 16 16
3.46% USD 110 million Schuldschein loans due in 2022 119 0
4.38% USD 38 million Schuldschein loans due in 2024 41 0
3.71% USD 28 million Schuldschein loans due in 2024 30 0
4.59% USD 60 million Schuldschein loans due in 2025 65 0
3.91% USD 60 million Schuldschein loans due in 2025 65 0
LafargeHolcim Helvetia Finance Ltd – Perpetual Subordinated Notes (Hybrid Bond)
3.5% CHF 200 million Perpetual subordinated notes (Hybrid Bond) 220 0
LafargeHolcim Finance US LLC – Guarantees in respect of holders of
3.50% USD 400 million bonds due in 2026 433 430
4.75% USD 600 million bonds due in 2046 650 645
4.79% USD 180 million private placement due in 2025 213 0
4.92% USD 52 million private placement due in 2027 61 0
5.03% USD 106 million private placement due in 2030 125 0
LafargeHolcim Sterling Finance (Netherlands) B.VV – Guarantees in respect of holders of
3.00% GBP 300 million bonds due in 2032 414 435
Guarantees for committed credit lines, utilization CHF 0 million (2017: CHF 0 million) 5,838 6,229
Other guarantees 200 0
Total 18,168 17,830
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 273
Holding Company Results
continued
Shares and options owned by senior Furthermore, at the end of 2018, senior
management management held a total of 465,011 share
As of December 31, 2018, members of options (2017: 919,834 share options) and
senior management held a total of 442,085 performance shares (2017:
229,143 registered shares (2017: 209,225 605,372 performance shares); both of
registered shares) in LafargeHolcim Ltd. these arose as a result of the participation
This figure includes both privately and compensation schemes of various
acquired shares and those allocated under years. Options are issued solely on
the Group’s participation and registered shares in LafargeHolcim Ltd.
compensation schemes. One option entitles the holder to
subscribe to one registered share in
LafargeHolcim Ltd.
274
Number of shares and options held
by Executive Committee Members
as of December 31, 2018
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 275
Holding Company Results
continued
15. Significant shareholders • NNS Jersey Trust holds 9,455,606 shares declared holdings of 18,332,272 shares
According to the share register and or 1.6 percent and additionally or 3.02 percent on December 31, 2018;
disclosed through notifications filed with 16,993,600 options or 2.8 percent, total • Norges Bank (the Central Bank of
LafargeHolcim Ltd and the SIX Swiss of 4.4 percent as per December 31, Norway) declared holdings of 18,330,151
Exchange shareholders, owning 3 percent 2018 (2017: 25,180,203 shares or shares or 3.02 percent on November 8,
or more are as follows: 4.1 percent and additionally 10,000,000 2018;
• Thomas Schmidheiny directly and options or 1.7 percent, total of 5,8 • BlackRock Inc. declared holdings of
indirectly holds 69,074,277 shares or 11.4 percent) 1 ; 18,725,934 shares or 3.1 percent on May
percent as per December 31, 2018 (2017: • Harris Associates L.P. declared holdings 12, 2017.
69,072,527 shares or 11.4 percent); of 30,342,087 shares or 4.99 percent
1
Included in share interest of Board of Directors, ultimate
• Groupe Bruxelles Lambert holds (falling below threshold of 5 percent) on beneficial owner Nassef Sawiris.
57,238,551 shares or 9.4 percent as per December 10,2018 (October 25, 2017:
December 31, 2018 (2017: 57,238,551 30,446,532 shares or 4.99 percent).
shares or 9.4 percent); Harris Associates Investment Trust
Registered shares of CHF 2.00 par value 606,909,080 1,214 606,909,080 1,214
Total 606,909,080 1,214 606,909,080 1,214
276
Appropriation of retained earnings
2018 2017
1
There is no payout on treasury shares held by LafargeHolcim. On January 1, 2019 treasury shares holdings amounted to 10,736,847 registered share of which 10,283,654 shares have
been acquired within the share buyback program.
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 277
To the General Meeting of LafargeHolcim Ltd,
Rapperswil-Jona
Zug, March 6, 2019
Report on the Audit of the Financial Financial investments – Group How the scope of our audit responded
Statements companies to the key audit matter
Opinion Key audit matter We discussed with management the
We have audited the financial statements As described in Note 8 to the financial adequate implementation of accounting
of LafargeHolcim Ltd, which comprise the statements, LafargeHolcim Ltd holds policies and controls regarding the
income statement and the balance sheet investments in LafargeHolcim Group valuation of investments in group
as at 31 December 2018 and notes for the companies with a carrying value of companies.
year then ended, including a summary of CHF 35,609 million as of 31 December
significant accounting policies. 2018, representing 90.4% of the total We tested the design and implementation
assets of the company. of controls around the valuation of
In our opinion the financial statements as investments to determine whether
at 31 December 2018, presented on pages In accordance with Article 960 CO, each appropriate controls are in place. We have
266 to 277 comply with Swiss law and the investment held is usually valued found these controls to be designed and
company’s articles of incorporation. individually and reviewed annually for implemented appropriately.
impairment indicators. Each investment
Basis for opinion showing impairment indicators must be We challenged the assessment of
We conducted our audit in accordance tested for impairment and an impairment impairment indicators by management.
with Swiss law and Swiss Auditing would need to be recorded if the
Standards. Our responsibilities under recoverable amount is lower than the We tested the valuations by critically
those provisions and standards are further carrying amount. assessing the methodology applied and
described in the Auditor’s Responsibilities the reasonableness of the underlying
for the Audit of the Financial Statements The assessment of the carrying value of assumptions and judgements. We
section of our report. We are independent each investment is complex and requires assessed the impairment testing models
of the entity in accordance with the significant judgement. It is related to the and calculations by:
provisions of Swiss law and the value of the underlying assets held by • Checking the mechanical accuracy of the
requirements of the Swiss audit profession each investment which themselves can impairment models and the extraction of
and we have fulfilled our other ethical depend on the value of other underlying inputs from source documents; and
responsibilities in accordance with these investments. Management has developed • Challenging the significant inputs and
requirements. valuation models which are complex in assumptions used in impairment for
order to take into account the value of investments in LafargeHolcim Group
We believe that the audit evidence we assets held by the different layers of the companies.
have obtained is sufficient and organization. In addition, the value of
appropriate to provide a basis for our certain assets is highly judgmental and We concluded that the applied
opinion affected by future market conditions methodology and the underlying
which are inherently uncertain. assumptions were applied correctly.
Report on Key audit matters based Additionally we concluded that the data
on the circular 1/2015 of the Accordingly, for the purposes of our audit, inputs as well as the underlying
Federal Audit Oversight Authority we identified the impairment assessment calculations of the impairment model
Key audit matters are those matters that, and judgement applied by management were accurate.
in our professional judgment, were of on the valuation of these investments as
most significance in our audit of the representing a key audit matter. We validated the appropriateness and
financial statements of the current period. completeness of the related disclosures in
These matters were addressed in the Note 6 to the statutory financial
context of our audit of the financial statements and found them to be
statements as a whole, and in forming our appropriate.
opinion thereon, and we do not provide a
separate opinion on these matters.
278
Responsibility of the Board of A further description of our responsibilities
Directors for the Financial for the audit of the consolidated financial
Statements statements is located at the website of
The Board of Directors is responsible for EXPERTsuisse:
the preparation of the financial
statements in accordance with the http://expertsuisse.ch/en/audit-report-for-
provisions of Swiss law and the company’s public-companies.
articles of incorporation, and for such
internal control as the Board of Directors This description forms part of our auditor’s
determines is necessary to enable the report.
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error. Report on Other Legal and
Regulatory Requirements
In preparing the financial statements, the In accordance with article 728a paragraph
Board of Directors is responsible for 1 item 3 CO and Swiss Auditing Standard
assessing the entity’s ability to continue as 890, we confirm that an internal control
a going concern, disclosing, as applicable, system exists, which has been designed
matters related to going concern and for the preparation of financial statements
using the going concern basis of according to the instructions of the Board
accounting unless the Board of Directors of Directors.
either intends to liquidate the entity or to
cease operations, or has no realistic We further confirm that the proposed
alternative but to do so. appropriation of available earnings
complies with Swiss law and the
Auditor’s Responsibilities for the company’s articles of incorporation. We
Audit of the Financial Statements recommend that the financial statements
Our objectives are to obtain reasonable submitted to you be approved.
assurance about whether the financial
statements as a whole are free from Deloitte AG
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that an
David Quinlin
audit conducted in accordance with Swiss
Licensed Audit Expert
law and Swiss Auditing Standards will Auditor in charge
always detect a material misstatement
when it exists. Misstatements can arise
from fraud or error and are considered
material if, individually or in the
Alexandre Dubi
aggregate, they could reasonably be
Licensed Audit Expert
expected to influence the economic
decisions of users taken on the basis of
Zurich, 6 March 2019
these financial statements.
LafargeHolcim Annual Report 2018 Financial information — Holding Company Results 279
5-year-review LafargeHolcim Group
Statement of income
Net sales million CHF 27,466 27,021 26,904 23,584 18,825
Gross profit million CHF 11,548 7,781 11,272 7,093 8,365
Recurring EBITDA million CHF 6,016 5,990 5,950 n/a n/a
Recurring EBITDA margin % 21.9 22.2 22.1 n/a n/a
Operating profit (loss) million CHF 3,312 (478) 2,963 (739) 2,244
Operating profit (loss) margin % 12.1 (1.8) 11.0 (3.1) 11.9
Depreciation, amortization and impairment of operating assets million CHF 2,229 6,007 2,405 4,421 1,402
Income taxes million CHF 656 536 835 781 581
Tax rate % 28 (45) 29 (114) 26
Net income (loss) million CHF 1,719 (1,716) 2,090 (1,361) 1,619
Net income (loss) – shareholders of LafargeHolcim Ltd million CHF 1,502 (1,675) 1,791 (1,469) 1,287
Statement of cash flows
Cash flow from operating activities million CHF 2,988 3,040 3,295 2,465 2,484
Investments in property, plant and equipment for maintenance net million CHF (882) (881) (997) (981) (732)
Investments in property, plant and equipment for expansion million CHF (403) (474) (638) (1,007) (1,005)
(Purchase) Disposal of financial assets, intangible and other assets
and businesses net million CHF (100) 680 2,342 7,222 35
Statement of financial position
Current assets million CHF 11,658 12,618 14,435 13,331 7,231
Non-current assets million CHF 48,037 51,061 55,182 59,967 32,259
Total assets million CHF 59,695 63,679 69,617 73,298 39,490
Current liabilities million CHF 10,727 11,519 12,509 14,832 6,847
Non-current liabilities million CHF 18,914 21,185 22,361 22,744 12,531
Total shareholders’ equity million CHF 30,053 30,975 34,747 35,722 20,112
Shareholders’ equity as % of total assets % 50.3 48.6 49.9 48.7 50.9
Non-controlling interest million CHF 3,128 3,188 3,925 4,357 2,682
Net financial debt million CHF 13,518 14,346 14,724 17,266 9,520
Capacity, sales and personnel
Annual production capacity cement million t 312.9 318.4 353.3 374.0 208.8
Sales of cement million t 221.9 220.2 233.2 193.1 138.2
Sales of aggregates million t 273.8 278.7 282.7 231.5 153.1
Sales of ready-mix concrete million m 3 50.9 50.6 55.0 47.6 37.0
Personnel 77,055 81,960 90,903 100,956 67,137
1
Restated due to changes in presentation or in accounting policies.
280
Cautionary statement regarding this document. LafargeHolcim assumes no Financial reporting calendar
forward-looking statements obligation to update or alter forward-
This document may contain certain looking statements whether as a result of Date
forward-looking statements relating to the new information, future events or Results for the first
otherwise. quarter 2019 May 15, 2019
Group’s future business, development and
economic performance. Such statements Annual General Meeting
of shareholders May 15, 2019
may be subject to a number of risks, Disclaimer
uncertainties and other important factors, LafargeHolcim Ltd publishes Annual
such as but not limited to (1) competitive Reports in English and German. The
pressures; (2) legislative and regulatory English version is legally binding.
developments; (3) global, macroeconomic
and political trends; (4) fluctuations in
currency exchange rates and general
financial market conditions; (5) delay or
inability in obtaining approvals from
authorities; (6) technical developments; (7)
litigation; (8) adverse publicity and news
coverage, which could cause actual
development and results to differ
materially from the statements made in
LafargeHolcim Annual Report 2018 Financial information — 5-year-review Lafarge Holcim Group 281
Definition of Non-GAAP
measures used in this report
282
Net financial debt (“Net debt”) NOPAT (Net Operating Profit After Tax) Cash conversion
The Net financial debt (“Net debt”) is an The Net Operating Profit After Tax The cash conversion is an indicator that
indicator to measure the financial debt of (“NOPAT”) is an indicator that measures measures the Group’s ability to convert
the Group after deduction of the cash. It is the Group’s potential earnings if it had no profits into available cash. It is defined as
defined as: debt. It is defined as: Free Cash Flow divided by Recurring
+ Financial liabilities (long-term and +/– Net Operating Profit (being the EBITDA.
short-term) including derivative recurring EBITDA, adjusted for
liabilities; depreciation and amortization of This set of definitions can be found on our
– Cash and cash equivalents; and operating assets but excluding website:
– Derivative assets. impairment of operating assets); and www.lafargeholcim.com/non-gaap-measures
– Standard Taxes (being the taxes applying
Invested Capital the Group’s tax rate to the Net Operating
The Invested Capital is an indicator that Profit as defined above).
measures total funds invested by
shareholders, lenders and any other ROIC (Return On Invested Capital)
financing sources. It is defined as: The ROIC (Return On Invested Capital)
+ Total shareholders' equity; measures the Group’s ability to efficiently
+ Net financial debt; use invested capital. It is defined as Net
– Assets classified as held for sale; Operating Profit After Tax (NOPAT) divided
+ Liabilities classified as held for sale; by the average Invested Capital. The
– Current financial receivables; and average is calculated by adding the
– Long-term financial investments and Invested Capital at the beginning of the
other long-term assets. period to that at the end of the period and
dividing the sum by 2 (based on a rolling
12-month calculation).
LafargeHolcim Annual Report 2018 Financial information — Definition of Non-GAAP measures used in this report 283
284
Ruediger Nehmzow
Pages: Cover, 06, 08, 15, 17, 18, 21 left, 26, 36, 59, 60 top, 64,
157, 160
Henrik Spohler
Pages: 15, 17, 18, 44, 104-115
Amit Mehra
Pages: 32 and 149
Unsplash, Rawpixel
Page 65
Getty Images
Page 20 right
Anuja Rangnekar
Page 23
LafargeHolcim Ltd
Zürcherstrasse 156
CH-8645 Jona/Switzerland
Phone +41 58 858 58 58
communications@lafargeholcim.com
www.lafargeholcim.com