LafargeHolcim’s Q1 results fail to allay concerns over CEO’s departure

LafargeHolcim got off to promising start in 2017 with sales and profits in the first three months beating forecasts, the Franco-Swiss cement giant said on Wednesday, but failed to allay market concerns over the company’s direction while it replaces its chief executive.

Eric Olsen announced last month he was quitting in July after the world’s largest cement maker admitted making payments to armed groups to keep its factory running in war-torn Syria.

Olsen, a French-U.S. dual citizen, has denied involvement in or knowledge of the affair and on Wednesday said there had been “some tensions” at the company unconnected to the Syrian inquiry and he thought it was in the best interests of everyone for him to move on.

“It is exactly two years after (my) start date and I am going to be leaving a group in great shape with clear targets in place,” Olsen told reporters after pointing to an improving performance in many of LafargeHolcim’s markets where the company has increased sales volumes and prices.

But the shares were down 1% at 56.80 Swiss francs by 0912 GMT.

Kepler Cheuvreux analyst Josep Pujal said the results were not the triumph they appeared to be, with core profit down 11% and noting a NEGATIVE free cash outflow of 836 million francs, compared with an OUTFLOW of 618 million francs in the same period last year, before merger-related costs were taken into account.

The biggest problem lay with Olsen’s sudden resignation and concerns for a resulting lack of focus on financial targets, Pujal said.

First-quarter underlying operating profits before interest, tax, depreciation and amortisation slipped 4.7% to 801 million Swiss francs ($808 million), beating the average of analysts’ forecasts of 783 million francs..

Sales fell 7.1% to 5.63 billion francs, partly reflecting the sale of businesses including operations in Chile and Vietnam during 2016 and ahead of the average of analysts’ forecasts of 5.52 billion francs.

“Our good Q1 performance has got us off to an excellent start for 2017 and marks our fourth consecutive quarter of earnings growth,” said Olsen, adding that the results were buoyed by strong trading in March as a pick-up in construction activity in Europe and North America gathered pace.

But the company now faces a leadership gap with his departure of Olsen, who had won over critics initially concerned by his lack of CEO experience, having previously been head of human resources and then operations at Lafarge.

The Zurich-based company, created by a merger of France’s Lafarge and Switzerland’s Holcim in 2015, has also changed its chairman and chief financial officer in the last 18 months, while several members of its executive committee are also relatively recent appointments.

“LafargeHolcim now faces a lost 12 months as it looks for a successor, who will need to get to know the business, build up a team, and agree on a new set of medium-term targets,” Bernstein analyst Phil Roseberg said.