Create Shareholder Value
We will maintain a relentless focus on creating value for our shareholders, concentrating on free cash flow and strict capital allocation.
- At LafargeHolcim, our focus and commitment is to return value to shareholders.
- We will do this by using free cash flow as our key performance indicator and practicing strict capital allocation.
- We are confident that we are uniquely positioned to deliver on our targets.
- We will generate a cumulative free cash flow (FCF) over the next three years of at least CHF 10 billion, which will translate into a run rate of at least CHF 6 per share in 2018.
- We will reduce cumulative 2016 and 2017 capital expenditures to a maximum of CHF 3.5 billion.
- We will generate at least CHF 8 billion in operating EBITDA in 2018.
- We will increase our return on invested capital by at least 300 basis points through synergies and operating leverage.
- We are committed to maintaining a solid investment grade rating and, commensurate with this goal, returning excess cash to shareholders through dividends or share buybacks.
1 At constant scope and exchange rates
A major merger, such as the one which created LafargeHolcim, is not just an opportunity to build something new. It can also be an opportunity to strike out in completely new directions.
When we announced the merger on April 7, 2014, we announced our intention to create not only the world’s most advanced building materials company, but also to create a company relentlessly focused on delivering value for its shareholders.
This pledge has several components. First of all, our key performance indicator (KPI) will be free cash flow (FCF) available for shareholders, meaning cash after all capital expenditure investments. Secondly, we will practice strict capital allocation. Thirdly, after ensuring that our financial ratios are comfortably within a solid investment grade level, we will seek to maximize value return to shareholders through dividends or share buybacks.
We have clearly communicated our goals. We will reduce our 2016 and 2017 cumulative capital expenditures to a maximum of CHF 3.5 billion and generate a cumulative free cash flow over the next three years of at least CHF 10 billion, which translates into a run rate of at least CHF 6 per share in 2018. At the same time we will increase our return on invested capital by at least 300 basis points, through synergies and operating leverage.
Finally, commensurate with our desire to maintain a solid investment grade rating, we will return excess cash to shareholders. We have already made a dividend recommendation of CHF 1.50 per share for 2015, reflecting our confidence in this strategy. We intend to progressively grow this dividend to attain a 50 percent payout over the cycle.
We strongly believe that we are uniquely positioned to deliver on our promise of value creation. We have a best-in-class portfolio of businesses, we do not need to employ significant new capital to grow (and indeed will be reducing capital expenditure significantly), we can benefit from large economies of scale, and we have the talent and expertise needed to execute on our strategy in all the markets where we do business.