L A FA RGE HOLC I M A NNUAL R E POR T 2 016 C O N T E N T S S H A R E H O L D E R S ’ L E T T E R Page 1 I N B R I E F Page 9 O U R S T R A T E G Y Page 17 K E Y E N A B L E R S Innovation and Growth Page 54 Sustainable Development Page 60 People Page 70 C A P I T A L M A R K E T I N F O R M A T I O N Page 74 B U S I N E S S R E V I E W Group Region Asia Pacific Page 80 Group Region Europe Page 84 Group Region Latin America Page 88 Group Region Middle East Africa Page 92 Group Region North America Page 96 C O R P O R A T E G O V E R N A N C E Page 100 C O M P E N S A T I O N R E P O R T Page 128 M A N A G E M E N T D I S C U S S I O N & A N A L Y S I S Page 150 F I N A N C I A L I N F O R M A T I O N Consolidated Financial Statements Page 172 Holding Company Results Page 274 5-year-review Page 289 As used herein, the terms “LafargeHolcim” or the “Group” refer to LafargeHolcim Ltd together with the companies included in the scope of consolidation. From pages 1 to 170, 2015 figures correspond to pro forma financial information as defined on page 291. All product and company names are trademarks™ or registered® trademarks of LafargeHolcim Ltd, its subsidiaries or divisions in various and different countries/regions all over the world. Unauthorized use of trademarks or company names may violate laws of various jurisdictions. Nothing in this Annual Report should be con- strued as a permission, license or other right to use any trademark or company name of the LafargeHolcim Group without prior written permission. K E Y F IGUR E S GROUP 5,825 Adjusted operating EBITDA million CHF 1,660 Operating Free Cash Flow million CHF 26,904 Net sales million CHF 21.6 % Adjusted operating EBITDA margin Excluding merger, restructuring and other one-offs 638 Synergies million CHF 5,242 Operating EBITDA million CHF 2.67 Recurring Earnings per Share CHF 1,918 Recurring Net Income million CHF DE A R SH A R EHOLDER , 1 2016 was the year we hit our stride and delivered accelerating earnings momentum, demonstrating the potential of LafargeHolcim to create value. Our focus on synergies, costs and pricing drove higher margins and, as a result, significant improvements in EBITDA, cash flow and earnings per share. We have achieved a great deal since the creation of LafargeHolcim in July 2015 and have built a company equipped with the resources and capabilities to be successful over the medium to long term. The diverse talents and experience of our 90,000 employees around the world enable us to anticipate and meet our customers’ requirements, whether that is affordable housing, building a family home or construction of a large and complex infrastructure project. This is supported by LafargeHolcim’s industry-leading capability in research and develop- ment which allows us to provide innovative solutions to existing and evolving construction needs. Our global best-in-class portfolio has a good balance between mature and developing countries and we enjoy leadership positions in 80 per- cent of our markets. This positions us well to benefit from overall growth in the sector and, notably, from the positive trajectory of several markets 2 L A F A R G E H O L C I M Annual Report 2016 we have identified as important drivers of growth in 2017 and beyond. We also have to contend with increasing volatility, which can present opportunities as well as challenges. Thanks to the strength of our diversified portfolio and the hard work of our employees – who, for example, responded decisively to the economic crisis in Brazil and interruption of gas supplies in Nigeria – we were able to mitigate the effect on our earnings in 2016. We have built our strategy around four pillars: cost leadership, an asset light approach, commercial transformation and sustainability. Cost leadership means systematically and rigorously managing our costs, implementing best practice across the Group and taking advantage of our scale. By adopting an asset light approach we optimize and leverage our current asset base, spending less on capital and unlocking growth opportunities with lower capital outlay. Cost leadership and an asset light approach together enable the business to grow returns through disciplined management and allocation of capital. Commercial transformation and sustainability are focused on differen- tiating us from our competitors. We want to develop our commercial expertise to anticipate the needs of our customers, getting involved earlier in projects to co-develop solutions while promoting sustainability through our solutions and the way we run our business. Our strategy of adding value for our customers through differentiation will be an increasing contributor to earnings growth into the future. Our commitment to sustainable development also speaks to the kind of company we are and want to be. We see sustainability as both a responsibility and an opportunity. We are proud to lead the industry in reducing CO² per tonne of cement and, more widely, we continue to advocate mechanisms such as carbon pricing that can act as a lever S h a r e h o l d e r s ’ L e t t e r 3 to cut the causes of global warming. Equally, our leading research and development capability enables us to address the growing demand for sustainable construction solutions. One example is the 2016 launch of Airium, our fully recyclable, mineral foam insulation product that meets a growing need for more efficient buildings. Another is Geocycle, our worldwide waste management business, which utilizes alternative fuels to fire our kilns thereby reducing CO² and energy costs while providing a sustainable solution to waste that would otherwise be disposed of in landfill sites. These innovative approaches, and more, will help us achieve our 2030 ambition of generating one third of our turnover from solutions with enhanced sustainability performance. The Group’s unique capabilities, combined with our ability to execute – exemplified by our over-delivery of synergies in 2016 – put us in a strong position to create value for all our stakeholders including you, our shareholders. In line with our commitment to return cash to share- holders, we are proposing a recurring dividend of CHF 2.00 per share, an increase of CHF 0.50 on the previous year. This demonstrates our confidence in the momentum of our business and financial performance and our strict capital allocation discipline. Commensurate with maintain- ing a solid investment grade rating, we expect to grow our dividend from that level while achieving a 50 percent payout ratio through the cycle. In November 2016, we also announced a share buyback program of up to CHF 1 billion to be conducted in 2017 and 2018. Since the creation of LafargeHolcim, we have worked hard to build a distinctive culture based around a set of guiding values. This provides a framework for how we expect our employees to behave. Our overarching value is health and safety. It is embedded in everything we do. We are committed to ensure that the health and safety of our 4 L A F A R G E H O L C I M Annual Report 2016 employees, contractors and members of the public are not put at risk by our operations. It’s a cause of deep regret, therefore, that we recorded an increase in the number of fatalities and injuries in 2016, chiefly as a result of road traffic incidents. We have a concerted plan in place to improve this record and move us towards our ambition of zero harm. We would like to take this opportunity to thank you, our shareholders, for your continued support during 2016. We would also like to express our gratitude to our Board members for their continuing dedication and wise counsel and the members of the Executive Committee who have played a critical leadership role in driving the transformation of the Group. Finally, it is important that we recognize the commitment of our employees who continued to deliver for our customers across the world each and every day. The achievements we are able to report are made possible by their hard work, dedication and expertise. In 2016, LafargeHolcim demonstrated that it is on track and delivering. As we look forward, we are confident that all our stakeholders will benefit from the unique platform we have built to drive growth and value creation. Beat Hess Chairman of the Board of Directors Eric Olsen Chief Executive Officer S h a r e h o l d e r s ’ L e t t e r 5 Beat Hess Eric Olsen 6 L A F A R G E H O L C I M Annual Report 2016 Roland Köhler Saâd Sebbar Martin Kriegner Pascal Casanova Oliver Osswald E x e c u t i v e C o m m i t t e e 7 Caroline Luscombe Urs Bleisch Ron Wirahadiraksa Eric Olsen Gérard Kuperfarb 8 L A F A R G E H O L C I M Annual Report 2016 B O A R D O F D I R E C T O R S Beat Hess Chairman Members Bruno Lafont (Co-Chairman) Bertrand Collomb Philippe Dauman Paul Desmarais, Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne Birgitte Breinbjerg Sørensen Dieter Spälti IN BR IEF 9 K E Y F I G U R E S O F L A F A R G E H O L C I M Page 10 G L O B A L P R E S E N C E O F L A F A R G E H O L C I M Page 16 10 L A F A R G E H O L C I M Annual Report 2016 AT A GL ANCE 52% developing markets* 48% mature markets* Balanced global footprint * of net sales 2,300 operating sites 90,000 employees Lowest CO2 emissions per tonne of cement among international groups 2,000 granted patents or patent applications 14 million tonnes of waste used as alter- native fuel and raw material* * in 2015 I n B r i e f Key Figures of LafargeHolcim 11 CEMENT Profile Around the world, our customers can choose from a wide range of specialized LafargeHolcim cements, enabling them to turn their construction plans – large or small – into reality. Cement is manufactured through a large-scale, capital- and energy- intensive process. At the core of the production process is a rotary kiln, in which limestone and clay are heated to approximately 1,450 degrees Celsius. The semi-finished product, clinker, is created by sintering, or heating it until it coalesces into solid material. In the cement mill, gypsum is added to the clinker and the mixture is ground to a fine powder – traditional Portland cement. Other high-grade materials such as granulated blast furnace slag, fly ash, pozzolan, and limestone can be added in order to modify the properties of the cement for special uses. LafargeHolcim produces an extensive line of cements and hydraulic binders. These range from Portland cements and classic masonry cements to specialized products for differ- ent types of environments, including those exposed to seawater, sulfates and other harsh natural conditions, where cements with high slag or pozzolan content provide greater durability. The Group also develops solutions intended for specific applications, such as white cement, oil-well cements, and road surfacing binders. These products go hand in hand with certain complementary services, such as technical support, order and delivery logistics, documentation, demonstrations and training related to the characteristics and proper use of cement. Cement customers include construction and public works organizations, manufacturers (producers of ready-mix concrete and prefabricated products), and, via retailers, the general public. At a basic level, the market can be segmented into bag and bulk cement. Bag markets consist of highly fragmented customer groups. Emerging markets tend to be the largest consumers of bagged cement. Bulk markets are more industrialized, as they are mainly focused on larger business-to-business customers such as construction companies or building products manufacturers. Most mature markets in Europe and North America are predominantly bulk markets. Cement is a product that is costly to transport over land. Consequently, the radius within which a typical cement plant is competitive extends no more than 300 kilometers for the most common types of cement. However, cement can be shipped more economically by sea and inland waterways over great distances. Most LafargeHolcim plants are located close to customers in highly populated areas, benefiting from the ongoing global urbanization trend. Sales of cement in million t 300 200 100 0 255.7 233.2 2015 2016 Consolidated key figures for cement in 2016 Production capacity cement in million t Cement and grinding plants 2016 353.3 226 Sales of cement in million t 233.2 Net sales 1 in million CHF 17,952 Operating EBITDA 1 in million CHF Personnel 1 4,320 56,133 1 Includes all other cementitious materials Consolidated sales of cement 2016 per region 1 in million t Asia Pacific Europe Latin America Middle East Africa North America 1 Inter-regional sales –6.0 million t 2016 113.7 41.6 24.1 40.3 19.5 12 L A F A R G E H O L C I M Annual Report 2016 CONSOLIDATED CEMENT CAPACI T Y in million tonnes per year 353.3 LafargeHolcim 11.7 Algeria 10.8 Nigeria 8.9 Egypt 6.0 Iraq 3.9 Jordan 3.4 South Africa 67.7 India 37.8 China 15.1 Indonesia 2.5 Lebanon 2.3 Kenya 1.6 Zambia 1.2 Uganda 1.1 Tanzania 0.6 Qatar 10.5 Malaysia 9.3 Philippines 6.1 Vietnam 55.3 Middle East Africa 0.5 Reunion 0.4 Zimbabwe 0.3 Malawi 0.2 Madagascar 3.9 Bangladesh 150.5 Asia Pacific I n B r i e f Key Figures of LafargeHolcim 13 76.4 Europe 1.5 Bulgaria 1.4 Serbia 1.3 Moldova 1.2 Czech Republic 0.9 Croatia 0.7 West Indies 0.4 Nicaragua 41.9 Latin America 10.5 Russia 9.7 France 7.8 Spain 7.7 Poland 7.4 Germany 6.0 Romania 4.6 Greece 12.2 Mexico 11.1 Brazil 5.5 Ecuador 4.8 Argentina 22.6 United States 6.6 Canada 3.7 Italy 3.3 Switzerland 2.1 Austria 2.1 Belgium 1.9 Azerbaijan 1.7 Hungary 1.6 United Kingdom 2.3 Chile 2.1 Colombia 1.7 El Salvador 1.1 Costa Rica 29.2 North America 14 L A F A R G E H O L C I M Annual Report 2016 AGGREGATES Profile Aggregates include crushed stone, gravel, and sand. They can also be recycled from con- crete material. They are typically produced by blasting hard rock from quarries and then extracting and crushing it. Aggregate production also involves the extraction of sand and gravel from both land and marine locations, which generally requires less crushing. In both cases, the aggregates are then screened to obtain various sizes to meet different needs. Aggregates differ in terms of their physical characteristics such as hardness, geological nature (limestone, granite, etc), granularity (ranging from sand to riprap used in seawalls), shape, color, and granular distribution. These characteristics determine the applications for which the various types of aggregates are suited. Sales of aggregates in million t 292.2 282.7 300 200 100 0 2015 2016 Thanks to the work of the LafargeHolcim Research Center, the Group has been able to tailor its offer to products with greater added value. LafargeHolcim also markets high-quality recycled aggregates made from crushed concrete and asphalt resulting from deconstruction. Aggregates are used as raw materials for concrete, masonry and asphalt and as base materials for roads, landfills, and buildings. As such, they are a key component of construction projects worldwide. There is a very broad range of customers for aggregates. Major ones include concrete and asphalt producers, manufacturers of prefabricated products, and construction and public works contractors of all sizes. Because of the high weight of aggregates and cost of transporting them, aggregates markets are nearly always local. Consolidated key figures for aggregates in 2016 Aggregates plants Sales of aggregates in million t Net sales in million CHF Operating EBITDA in million CHF Personnel 2016 648 282.7 3,933 628 11,816 Consolidated sales of aggregates 2016 per region in million t Asia Pacific Europe Latin America Middle East Africa North America 2016 32.2 124.2 6.0 12.2 108.2 I n B r i e f Key Figures of LafargeHolcim 15 READY-MI X CONCRETE AND OTHERS Profile Concrete is the world’s second most consumed good by volume after water. One cubic meter consists of approximately 300 kilograms of cement, 150 liters of water and two tonnes of aggregates. Ready-mix concrete is one of the largest markets for the cement and aggregates industries. Buyers of ready-mix concrete are typically construction and public works contractors, ranging from major multinational corporations to small-scale customers. LafargeHolcim works to set itself apart based on the quality and consistency of its products, the breadth of its portfolio and, especially, the innovative solutions developed by its Research Center. These include ultra-high-performance fiber-reinforced concrete, self-filling and self- leveling concrete, architectural concrete, insulating concrete, and pervious concrete. The ready-mix concrete industry is less capital intensive than the cement industry. It is also highly decentralized, since concrete is a heavy product that must be delivered quickly, requiring that production facilities be near the place of use. Only very large integrated corporations such as LafargeHolcim that produce both cement and aggregates have succeeded in establishing an international presence in this market. The competition consists mainly of independent, local operators. Asphalt is a bituminous construction material used primarily for road paving. It consists of high quality aggregates mixed with a bitumen binder. Generally speaking, asphalt is sold directly by the asphalt producer to the customer with only very limited use of inter- mediate distributors or agents, since prompt and reliable delivery is essential. Sales of ready-mix concrete in million m³ 100 50 0 56.8 55.0 2015 2016 Consolidated key figures for ready-mix concrete in 2016 Ready-mix concrete plants 1,410 2016 Sales of ready-mix concrete in million m³ Net sales in million CHF Operating EBITDA in million CHF Personnel 1 55.0 5,424 98 21,257 1 Includes all other construction materials and services 16 L A F A R G E H O L C I M Annual Report 2016 GLOBAL PRESENCE OF L AFARGEHOLCIM 21,829 EUROPE NORTH AMERICA 12,257 LATIN AMERICA 10,536 MIDDLE EAST AFRICA 13,191 ASIA PACIFIC 31,274 NET SALES IN CHF MILLION 8,226 Asia Pacific 7,023 Europe 2,773 Latin America ADJUSTED OPERATING EBITDA IN CHF MILLION LEGEND 1,530 Asia Pacific 1,329 Europe 885 Latin America Presence of LafargeHolcim Employees per region 3,900 Middle East Africa 1,196 Middle East Africa 5,584 North America 1,329 North America OUR S TR ATEG Y L A F A R G E H O L C I M H A S E S TA B L I S H E D A S E T O F S T R AT E G I C P R I O R I T I E S T O G E N E R AT E G R O W T H , M A X I M I Z E R E T U R N S A N D C R E AT E S U S TA I N A B L E VA L U E F O R A L L O U R S TA K E H O L D E R S . I N 2 0 1 6 , W E M A D E S I G N I F I C A N T P R O G R E S S I N E A C H O F T H E S E P R I O R I T Y A R E A S . 17 S T R AT E G Y Page 18 A S T R AT E G Y T O D R I V E S H A R E H O L D E R R E T U R N S Page 20 C O M M E R C I A L T R A N S F O R M AT I O N S T R AT E G I C P I L L A R We want to be the partner of choice for our customers, anticipating their needs and inventing with them the solutions to build the future. This will further drive differentiation, growth and value. C A S E S T U D Y # 3 There’s No Place Like Home Helping small builders achieve their dreams Page 34 C A S E S T U D Y # 4 A Rock Solid Relationship Partnering every step of the way Page 40 C O S T L E A D E R S H I P S T R AT E G I C P I L L A R We will continue to systematically and rigorously manage our costs, leveraging scale and best practice. C A S E S T U D Y # 1 Fueling Ingenuity Reducing costs through fuel flexibility Page 22 A S S E T L I G H T S U S TA I N A B I L I T Y S T R AT E G I C P I L L A R We will optimize our current asset base, better leveraging our industrial footprint, reducing our capital expen- ditures and exploring new growth opportunities with lower capital intensity. C A S E S T U D Y # 2 A Win-Win Alliance Making assets work Page 28 S T R AT E G I C P I L L A R We want to run our business in a sustainable way to limit our impact on the environment and improve the lives of our stake holders. We also want to differentiate LafargeHolcim by leading the way in addressing the growing demand for sustainable solutions. C A S E S T U D Y # 5 Brick By Brick The recipe for affordable housing and environmental preservation in Malawi Page 46 18 L A F A R G E H O L C I M Annual Report 2016 S TR ATEG Y Worldwide spending on construction is estimated to have reached US$10,000 bil- lion in 2015 and is expected to increase further, driven by a continued rise in population, economic growth and urba- nization. The number of people living in urban environments is predicted to rise by 2.5 billion over the next 15 years. More than 80 percent of global consumption will occur in cities by 2030. Building these cities – which will need to be denser and more sustainable – and the infrastructure needed to connect them and make them function, represents an outstanding opportunity for LafargeHolcim which is uniquely placed to address the challenges of urbanization. In addition to these trends, the construc- tion industry is entering a period of transformation characterized by a more dynamic environment with increased demand for sustainable solutions, expand- ing influence of digital technologies, and a broader range of construction solutions, notably in affordable housing. U N M AT C H E D S T R E N G T H S LafargeHolcim is particularly well posi- tioned to take advantage of the oppor- tunities that arise, with a combination of strengths that are unmatched in our industry. We have: a global footprint, with leadership posi- tions in the vast majority of our markets. We are the number one player in a third of our markets and feature in the top three in 80 percent of the countries in which we operate a balanced and well diversified portfolio that offers significant room for growth in developing markets (52 percent of 2016 net sales) and recovery potential in mature markets (48 percent of 2016 net sales) a portfolio positioned in highly populated areas, geographically well placed to take advantage of the global trend towards urbanization industry-leading product innovation capability, enabling us to anticipate and meet the changing needs of our customers. We have around 2,000 grant- ed patents or patent applications for cutting-edge construction technologies a global pool of highly talented, experi- enced and motivated people from diverse backgrounds O u r s t r a t e g y 19 solutions and the way we run our busi- ness. With the objective to increase the value we bring to our stakeholders and open new and less capital-intensive growth avenues, we will drive growth and returns through differentiation. U N D E R P I N N I N G O U R S T R AT E G Y : Health & Safety – the wellbeing and safety of our employees, those who work with us, and the communities we interact with every day People – we are committed to engage, motivate and develop our people, pro- viding diverse and international career paths. We believe people are central to the success of the company and the value it creates for its stakeholders Digital – developing and adopting the digital solutions that support innovation, interconnectedness and bringing better solutions to more customers in more places is a key component of success in the future F O U R S T R AT E G I C P I L L A R S T O D R I V E R E T U R N S A N D G R O W T H LafargeHolcim has developed a strategy that aims to further strengthen the company’s leadership position in the construction industry and establish the Group as the partner of choice for our customers – involved early in the design phase of projects – to address the dual challenges of urbanization and sustainability. Building on our world-class innovation and global production capabilities, LafargeHolcim provides a comprehensive set of innovative and sustainable solutions across a wide range of projects: from the single-story family home to the most complex large-scale infrastructure project. Our strategy is built on four pillars: Cost Leadership, Asset Light, Commercial Transformation and Sustainability. Cost Leadership (Page 22) and an Asset Light (Page 28) approach are two essential factors that enable the business to grow returns through disciplined cost management and allocation of capital. Commercial Transformation (Page 34 and 40) and Sustainability (Page 46) will differentiate LafargeHolcim from competitors. We seek to anticipate the needs of our customers and address their challenges while pro- moting sustainability, both through our 20 L A F A R G E H O L C I M Annual Report 2016 A S TR ATEG Y TO DR I V E SH A R EHOLDER R E T UR N S At LafargeHolcim, our commitment is to create and return value to shareholders. Execution of our strategy will enable us to achieve that objective. We have estab- lished mid-term targets with a focus on maximizing free cash flow, generating profitable growth, driving strict capital allocation discipline and creating sustainable value for our shareholders. 2 0 1 8 O B J E C T I V E S¹ We will generate a run rate operating free cash flow of between CHF 2.8 and 3.3 billion, or CHF 5.00 per share, in 2018. We will keep run rate capital expenditure below CHF 2 billion in 2018. We will generate CHF 7 billion in Adjusted Operating EBITDA in 2018. We will increase our return on invested capital by 2018 by 300 basis points from the 2015 level, thanks to operational im- provements. We are committed to maintaining a solid investment grade rating and, commen- surate with this goal, return cash to shareholders through an attractive divi- dend policy and a share buyback program of up to CHF 1 billion in 2017 and 2018 as well as the potential for special dividends. 1 Targets assume current scope adjusted for the entire CHF 5.0bn disposal program and FX @ November 1, 2016. O u r s t r a t e g y 21 The Group is on track and is building on the momentum of earnings and cash flow growth in 2016. We reaffirm our commit- ment to a solid investment grade rating. Our potential to grow – benefiting from our best-in-class portfolio, operational leverage, ability to differentiate our offer, and optimization of our cost base – under- pins our 2018 targets. The result for shareholders is that, within our strict capital allo cation discipline, we will deliver signi ficant cash returns. 22 L A F A R G E H O L C I M Annual Report 2016 K H A L E D G H A R E I B , I N D U S T R I A L D I R E C T O R O F L A F A R G E C E M E N T E G Y P T S T R AT E G I C P I L L A R C O S T L E A D E R S H I P I COS T LE A DER SHI P W E W I L L C O N T I N U E T O S Y S T E M AT I C A L LY A N D R I G O R O U S LY M A N A G E O U R C O S T S , L E V E R A G I N G S C A L E A N D B E S T P R A C T I C E . Significant cost saving potential has been uncovered through the process of realizing synergies. Cost excellence is in the DNA of our organization and is essential to success in our industry. Driven by our performance organization, we will use all the available levers to control and reduce our costs. O B J E C T I V E S We will deliver the total run rate synergies of more than CHF 1 billion by the end of 2017, ahead of schedule. We will leverage expertise, best practice and scale benefits throughout the countries in which we operate. We will target all cost levers, including fuel mix optimization and energy efficiency to address rising energy prices. II S T R AT E G I C P I L L A R C O S T L E A D E R S H I P Our synergy targets for 2016 have been exceeded and are fully visible in our bottom line. This has been achieved thanks to the systematic approach we took to identify integration-related savings across our business and to the full mobilization of our teams to achieve those targets. Maintaining a tight rein on costs is a key element of our strategy. The work done on synergies and standard cost improvements allowed us to explore new avenues for cost re ductions. We ad- dressed new opportunities in SG&A and industrial fixed costs while trimming variable costs in addition to our focus on procure- ment and logistics. Initiatives totaling CHF 200 million have been identified in addition to on-going cost plans and will contribute positively to our 2018 EBITDA target. Beyond this, we continue to rigorously screen all cost categories to drive optimization and cost reduction. T I G H T C O S T M A N A G E M E N T As we combine the skills and know-how of the best professionals in the business, we are able to reduce our costs and operate efficiently anywhere in the world. Flexibility, agility, internal and external benchmarking and expertise close to our operations are key success factors to drive cost leadership. On fuel and energy costs, for example, in countries where petcoke wasn’t being used, we were able make the conversion from coal to petcoke quickly and efficiently during 2016. This was achieved by mobilizing global sourcing experts to work closely with local teams. In 2017, where we anticipate energy prices will be up by some 10 percent, addressing fuel mix optimization and energy efficiency as well as the use of alternative fuels, will be a key area of focus when mitigating energy costs. # 1 S T R AT E G I C P I L L A R C O S T L E A D E R S H I P L O C AT I O N S O K H N A , E G Y P T 23 C A S E S T U D Y # 1 FUE LIN G ING ENUITY Reducing costs through fuel flexibility During the last couple years, the Sokhna plant in Egypt developed and implemented an innovation change to drastically lower its energy costs. The experience prepared the team to weather future shifts in fuel costs, inevitable as they are. “We have increased our resilience and our immunity to cost shifts,” says Khaled Ghareib, Industrial Director of Lafarge Cement Egypt. 24 Khaled Ghareib and his colleagues at the Sokhna plant. L A F A R G E H O L C I M Annual Report 2016 CHF 60 million savings in fuel costs Applying “asset light” thinking, they decided to take one of the eight cement mills and convert it to a mill for processing petcoke. By modifying this existing asset, they would be able to save about CHF 30 million compared to building a new mill. But this was challenging – there was no blueprint for such a conversion as it was the first of its kind in the industry. “The Group empowered us, trusted us, to develop a solution through collaboration,” says Ghareib. “When people believe in a dream, they’ll make it happen. Working with the regional Cement Industrial Perfor- mance project management and engineering teams, we found a way to do it.” By May 2014 the mill was converted. G E T T I N G T H E O P T I M A L P E R F O R M A N C E In 2016, the team faced its second challenge: improving productivity of the converted mill. Again relying on their expansive expertise and the power of collaboration, the team succeeded in fully optimizing the plant, doubling productivity from under 40 tonnes per hour to above 80 tonnes per hour. This allowed them to significantly increase the percentage of petcoke used in the mix, taking advantage of this new fuel. A F I R S T - O F - I T S - K I N D C O N V E R S I O N Fuel is an essential cost driver in the energy-intensive cement industry, representing about 14 percent of total costs. To stay competitive, managing costs is critical. Since the Arab Spring in 2011, natural gas has been in short supply and, as such, much more expensive. Because of this, the plant began looking at alternate fuel sources. The prices of lower quality solid fuel were attractive. But how best to utilize them? In 2014, the team in Egypt launched a project to switch a significant percentage of the fuel mix to petcoke, a byproduct of the oil refining process. O u r s t r a t e g y Case Study #1 25 The Sokhna plant plans to increase the share of alternative fuels to 20 percent in 2017. K H A L E D G H A R E I B “ The Group empowered us, trusted us, to develop a solution through collaboration. When people believe in a dream, they’ll make it happen. Working with the regional Cement Industrial Performance project management and engineering teams, we found a way to do it.” 26 L A F A R G E H O L C I M Annual Report 2016 O u r s t r a t e g y Case Study #1 27 A N I N I T I AT I V E T O D E C R E A S E E N E R G Y C O S T S The Egypt project was part of the global Fuel Mix Optimization Initiative, FMOI, started in early 2016. The initiative embod- ies the Group’s priorities of fostering innovation, making “asset light” decisions and promoting sustainability. The objec- tive is to optimize the fuel mix used by not only reducing costs, but also improving product quality and lowering emissions. Fuel mix optimization will vary, of course, by location and external circumstances. FMOI is a collaborative initiative, involving know-how from Sustainable Development, Geocycle, CIP (Cement Industrial Perfor- mance) and Procurement. By using inter - disciplinary expert know-how, a global library of knowledge about optimized fuel mixes is being built to be used by plants as needed. The Sokhna plant, LafargeHolcim’s biggest cement plant. Petcoke, a byproduct of the oil refining process, is used as fuel in cement production. “The day we had commissioned the inaugural run of the fully optimized mill, I was there with the plant management team. We were in the control room for the launch, but things didn’t go as expected,” says Ghareib. At night, it was suggested that the team sleep in shifts, as the plant staff worked around the clock to get it started. “But no one did,” Ghareib remembers. “When we got the mill started for the first time 36 hours later, we were all there, thrilled to see the dream become reality.” S TAY I N G F L E X I B L E A N D A G I L E The impact on plant costs was significant. “In two years we’ve gone from zero to 80 percent petcoke. Our agility allowed us to shift from one fuel to another, capitalizing on the lower costs,” notes Ghareib. As a result, the fuel bill for the plant was reduced by CHF 60 million in 2016 compared with 2015. The experience of shifting fuel sources in the past couple of years has prepared the team for similar exercises in the future. “The market is characterized by movement,” says Ghareib. “It’s a question of being ready when the opportunity comes.” As for the next move? Ghareib says, “The name of the game next year is to shift to 20 percent alternative fuel, using processed waste. The team is ready.” 28 L A F A R G E H O L C I M Annual Report 2016 Y E L E N A S A N T I A G O , L A F A R G E H O L C I M O M A R A N D D A R I O M A R T I N E Z , I N C A C O N C R E T O S S T R AT E G I C P I L L A R A S S E T L I G H T III A S SE T L IGHT W E W I L L O P T I M I Z E O U R C U R R E N T A S S E T B A S E , B E T T E R L E V E R A G I N G O U R I N D U S T R I A L F O O T P R I N T, R E D U C I N G O U R C A P I TA L E X P E N D I T U R E S A N D E X P L O R I N G N E W G R O W T H O P P O R T U N I T I E S W I T H L O W E R C A P I TA L I N T E N S I T Y. Optimizing our current asset base is resulting in lower capital expenditure needs while supporting growth of our business. Future growth will also be focused on low-capital intensive business models that enable us to access more of the value chain. Our expansion is driven by operational excellence and capital-light asset models. O B J E C T I V E S Since 2015, we have limited capital expenditures. For 2016 to 2017, our goal is a cumulative capital expenditure of below CHF 3.5 billion. Thereafter, we target a capital expenditure run rate of less than CHF 2 billion per year. IV S T R AT E G I C P I L L A R A S S E T L I G H T LafargeHolcim is operating in a traditionally capital-intensive industry. Thanks to our global footprint with the already-installed capacity and our know-how in preventive maintenance and capacity optimization, we are successfully pursuing a lean capital spending strategy, significantly reducing our capital investment without hindering our ability to grow our business. By optimizing our current assets, we are using the capacity we already have or are developing. We are on track to meet our tar- gets of a cumulative capital expenditure of below CHF 3.5 billion for 2016 – 2017 and of a run rate of less than CHF 2 billion per year from 2018 onwards. A F O C U S O N O P T I M I Z AT I O N We actively optimize our current asset base and promote an asset light mindset across our business. We outsource our fleet management whenever possible and develop alternative logistics offers to reduce capital expenditure. Systematic debottlenecking and operational improvements at our plants are also delivering significant benefits. The leveraging of our global trading platform enables us to serve some markets without the need to invest in local clinker capacity. Our asset light approach is also focused on opti mizing future growth, developing innovative and less capital-intensive business models. For example, we are implementing franchise models in the ready-mix and retail segments, enabling us to reach custom- ers in a differentiated way while keeping capital expenditure low. # 2 S T R AT E G I C P I L L A R A S S E T L I G H T L O C AT I O N S A L T I L L O , M E X I C O A WI N -WIN ALLIANC E Making assets work 29 C A S E S T U D Y # 2 “Through this alliance, we – all the Allied Partners – can become the best concrete producers of this country,” says Omar Mar- tinez, Head of Operations for Inca Concretos in Coahuila, Mexico. LafargeHolcim is right there with them and shares their ambi- tion. Yelena Santiago, Strategic Marketing Leader – Industrial Segment for LafargeHolcim in Mexico, says of the relationship: “We support their growth. We really want them to be successful.” 30 L A F A R G E H O L C I M Annual Report 2016 Y E L E N A S A N T I A G O , S T R AT E G I C M A R K E T I N G L E A D E R , I N D U S T R I A L S E G M E N T F O R L A F A R G E H O L C I M I N M E X I C O “ The size of LafargeHolcim together with the Allied Partner Network means the sum is much stronger than any of its parts.” by 2018 Inca Concretos plans to grow to 10 plants Allied Partners – 24 in total at the end of 2016 – operate 60 active plants. Together with LafargeHolcim’s 40 existing plants, they form a network of 100 ready-mix sites in Mexico. B E N E F I T I N G F R O M S H A R I N G Inca Concretos has been a customer of LafargeHolcim since its inception in 2004. Martinez explains how they became part of the Allied Partner Network: “In 2012, we created a growth plan with the goal of having ten plants by 2018 – at the time we were just opening the third. In 2013, LafargeHolcim came to talk to us about their plants for sale and the Allied Partner Network. It was the perfect timing for us. We had been working on a structure to support growth, so this was an interesting opportunity to get closer to LafargeHolcim. We were very excited about the potential.” Inca Concretos bought four LafargeHolcim ready-mix plants. It now has a total of seven and is on track to meet its 2018 goal of ten, operating mainly in the northern part of the country. Membership in the Allied Partner Network has helped strengthen the relationship between Inca Concretos and LafargeHolcim. “Our commercial relationship has improved. There is more of a commit- ment to stick together and improve communication. There’s just a lot more trust,” says Martinez. C R E AT I N G R I S K - F R E E M A R K E T A C C E S S LafargeHolcim’s divestment of 50 ready-mix concrete plants in Mexico in recent years has led to a fruitful relationship with the new owners. This has been the strategy since 2012 and it is exceeding initial expecta- tions. Not only has the new Allied Partner Network increased brand awareness in markets that otherwise would not be accessed, allowing LafargeHolcim to have a stronger market position without significant capital outlay, it’s created an opportunity to benchmark and improve ready-mix operations. Santiago says of the relationship: “We’re giving them the location, the manual and the technical services. But they are helping us evolve our business model to serve our customers better.” O u r s t r a t e g y Case Study #2 31 Omar Martinez and Yelena Santiago at Inca Concretos headquarters and ready-mix plant in Saltillo. Samples for testing the mechanical strength of concrete. 32 L A F A R G E H O L C I M Annual Report 2016 Inca Concretos operates seven ready-mix plants in Mexico. Dario Martinez founded Inca Concretos in 2014. O u r s t r a t e g y Case Study #2 33 D A R I O M A R T I N E Z , C E O O F I N C A C O N C R E T O S “ We think we can grow into other markets. LafargeHolcim has the necessary scale and we expect to get technical support to help us become a better supplier.” 60 plants are operated by Allied Partners in Mexico Being an Allied Partner means that LafargeHolcim pro - vides technical support, IT systems, training, a purchasing club and access to market data, among other benefits. Santiago notes: “The size of LafargeHolcim together with the Allied Partner Network means the sum is much stronger than any of its parts.” Being able to share tech - nical advice and IT systems across sites means cost savings for all the partners. The purchasing club allows LafargeHolcim to negotiate discounts on everything from insurance to equipment, benefiting all involved. And the access to market data on construction permits, financial and economic indicators, and sharing of sales leads makes LafargeHolcim a valuable business partner, acting as far more than just a supplier. In 2016, LafargeHolcim implemented a third-party cer ti- fication process offering the Allied Partners Certification for Quality Ready-Mix Production. The certification process provides training and improves quality control. In exchange, LafargeHolcim offers brand support, access to specialized products and endorsement. Inca Concretos certified its first plant in 2016 and plans to certify the rest in 2017. Martinez says: “The certification process has shown us a different way to work. It has helped not only with quality, but also with how we structure our company. I think certification has increased commitment to quality and service throughout the company. And I think it will help us sell more.” I N I T F O R T H E L O N G H A U L The LafargeHolcim ready-mix footprint in Mexico supplies about 10 percent of the national demand – the Allied Partners supply another 10 percent. Inca Concretos plans to grow to ten plants by 2018 and sets its sights beyond that: “We also think we can grow into other markets. LafargeHolcim has the necessary scale and we expect to get technical support to help us become a better supplier,” says Dario Martinez, CEO of Inca Concretos. The relationship with Allied Partners goes beyond the transactional. Creating an ongoing two-way dialog helps the Allied Partners be more successful while also giving LafargeHolcim valuable information about local markets. Looking to the future, Dario Martinez says: “First, I expect our relationship to grow, as it has for the past three years. And I think loyalty will grow. I think the loyalty is there because of the alliance.” 34 34 L A F A R G E H O L C I M Annual Report 2016 H U B S T O R E C U S T O M E R N I D A S A N TA R O M A N A S T R AT E G I C P I L L A R C O M M E R C I A L T R A N S F O R M AT I O N V COMMERC I A L TR ANSFORMAT ION W E WA N T T O B E T H E PA R T N E R O F C H O I C E F O R O U R C U S T O M E R S , A N T I C I PAT I N G T H E I R N E E D S A N D J O I N T LY I N V E N T I N G T H E S O LU T I O N S TO B U I L D T H E F U T U R E . T H I S W I L L F U R T H E R D R I V E D I F F E R E N T I AT I O N , G R O W T H A N D VA L U E . Getting closer to our customers allows us to meet their needs with increased speed, precision and creativity. Our goal is to be leaders, recognized as the partner of choice in construction, whether for an individual home, a commercial building or the largest infra- structure project. We will use our scale and expertise to continue to innovate, co-creating solutions with our customers and nurturing long-term relationships. O B J E C T I V E S We will deliver our growth targets thanks to our focus on providing innovative and sustainable solutions to our customers and capturing the full value of our differentiated products and services in our pricing. VI S T R AT E G I C P I L L A R C O M M E R C I A L T R A N S F O R M AT I O N Commercial excellence begins with differentiated products and services. With our industry-leading expertise and R&D resources, we expect to maintain our position as the leading innovator in our industry. We have an extensive innovation pipeline, and are working on a number of significant and distinctive developments focusing on sustainable construction. To successfully differentiate and create a competitive advantage, we are strengthening collaboration with our partners. This is particularly relevant in infrastructure where we are building partner ships using our sectoral expertise, access to innovative solutions and world-class execution. With retail representing more than 60 percent of our volumes, a critical additional differentiating factor is our ability to promote innovative retail models, leveraging digital solutions, the strength of our brands and the quality of our products and services. R E A L I Z I N G T H E B E N E F I T S O F D I F F E R E N T I AT I O N The benefits of our focus on commercial transformation, which differentiates our products and services in a competitive market, are increasingly evident across our business. In retail, we are building on our existing knowledge to define new models, evidenced by our retail transformation across 30 – 50 coun- tries by 2020. We are also pioneering digital marketplaces – our e-commerce platform for the Disensa brand (www.disensa.com) was launched in October 2016 in Ecuador. Further countries will go live using a common technology platform. In the small to mid-sized building segment, we are increasing our presence in affordable housing, addressing the acute need in Asia Pacific, Middle East & Africa and Latin America. Globally, it is estimated that four billion people live without adequate housing. In infrastructure, we have worked with external experts to co- develop an integrated business approach to road construction that can be delivered in a wide range of countries. In the past 12 months we have increased our pipeline of work in this segment by 25 percent, leveraging significant incremental earnings poten- tial that is hard for our competitors to access. In our growing specialties segment, the establishment of an international key account management capability is enabling us to work with the largest global contractors whose requirements and models are quite different to local or regional players. One example is our partnership with Chinese company CCCC which is already delivering results, not least because of our ability to pro- vide Mandarin-speaking account managers on the ground. # 3 S T R AT E G I C P I L L A R C O M M E R C I A L T R A N S F O R M AT I O N L O C AT I O N TA R L A C , P H I L I P P I N E S 35 C A S E S T U D Y # 3 THE RE ’ S NO PLACE LI KE HOME Helping small builders achieve their dreams “I am confident that my home will stand the test of time because I used quality materials to build it,” says Nida Santa Romana, customer of one of LafargeHolcim’s Helps U Build, or HUB, franchise stores in the Philippines. The LafargeHolcim retail model goes beyond simply selling cement by offering individual homeowners and home improvers advice, a wide range of quality products at reason- able prices, logistics and partnership with a trusted brand. 36 L A F A R G E H O L C I M Annual Report 2016 Nida Santa Romana receives advice on construction materials from HUB associate Michael Beltran. Nida Santa Romana built her home with cement and other materials from her local HUB store. O u r s t r a t e g y Case Study #3 37 L A F A R G E H O L C I M ’ S R E TA I L S T R AT E G Y The HUB franchise model in the Philippines is an example of LafargeHolcim’s ambition of getting closer to the end user by devel- oping its presence in the retail market. The Group is currently exploring different retail concepts to find the best solution for each market, and is also looking at breakthrough digital solutions to better serve end users. The objective is to imple- ment successful retail models in 30 – 50 countries by 2020. T H E P U L L O F A B E T T E R P R O D U C T Santa Romana is in the finishing stages of building her home where she now lives with her family. When she first started construction, she was using cement and supplies from a LafargeHolcim competitor. During that time she met an account executive of one of the HUB stores, who introduced her to the benefits of using LafargeHolcim products. “My husband and I are in the electrical business,” says Santa Romana, “so we know the value of choosing products that will last.” Santa Romana decided to make a trial purchase of cement and steel bars from her local HUB store in Tarlac. Her contractor tried out LafargeHolcim’s Wallright masonry cement and was pleased at how easy it was to apply and how it didn’t crack upon drying. He was also impressed with the quality of the steel bars sold at the HUB. The quality is what first brought her over to the HUB store – the additional advice she received helped her finish her home, using building materials from the store. A W I N - W I N F R A N C H I S E M O D E L LafargeHolcim officially started franchising retail out- lets in the Philippines in 2015 and now has 22 stores spread across key cities of Luzon, the largest and most populous island. Ed Pineda acquired two HUB franchises in 2016 – Tarlac in April and Cabanatuan in October. Pineda, a former contractor, knows the construction industry well and has a large network of contacts working on government projects in the Tarlac and Cabanatuan areas. In the future, he is looking to further expand by opening franchise stores in Dagupan and Aurora, where he also has wide networks. Ed Pineda, who runs the Tarlac City HUB store, acquired two HUB franchises in 2016 and is planning to open two more. Since most HUB stores are strategically located in areas where LafargeHolcim is not the leading cement player, franchisees like Pineda help build market share by educating small contractors and homeowners about the advantages of LafargeHolcim products. This is exactly what happened when Pineda’s account executives first met Santa Romana. Because Pineda’s stores are part of a network of branches serviced by the HUB’s supply chain group, Pineda is able to offer reasonable prices and service a wider area than most competitor stores. He is able to share these efficiencies with his contractor customers who have widespread project sites. For individual homeowners like Santa Romana, he offers the convenience of small-scale deliveries. “In our business, there is a lot of competition. We offer a high standard of quality and our associates are experts on construction materials – we deliver what the customer wants, within the day,” Pineda says. 38 L A F A R G E H O L C I M Annual Report 2016 N I D A S A N TA R O M A N A , H U B S T O R E C U S T O M E R “ All of the products I bought were of good quality. If I ever build another house, there’s no doubt I’d use LafargeHolcim products and my local HUB store.” Holcim Skim Coat is used to correct surface imperfections and unevenness of concrete walls. O N T I M E A N D W I T H I N B U D G E T What did Santa Romana like best about buying her building materials at Pineda’s HUB? “Their personnel were very helpful. And doing business with them was so convenient and easy.” Because she was working on a budget, her building material requirements came in small quantities over the course of a year, allowing her to manage her funds. The small, mixed-merchandise deliveries were no problem for her HUB store, which has the logistical support to service small-scale deliveries. Pineda’s account executives were able to help Santa Romana in planning delivery schedules. This gave her peace of mind in being able to place the orders and not worry about the rest. And the store’s proximity made it easy for her to make those last-minute purchases needed by her contractor. Santa Romana sleeps easy now knowing, “all of the prod- ucts I bought were of good quality.” Though starting a new project is the last thing on her mind now, she did say, “If I ever build another house, there’s no doubt I’d use LafargeHolcim products and my local HUB store.” O u r s t r a t e g y Case Study #3 39 Nida Santa Romana’s house is in the finishing stages of construction. 22 HUB stores are today spread across the Philippines 40 L A F A R G E H O L C I M Annual Report 2016 J O N AT H A N P E A S E , O W N E R O F R O C K S O L I D S TA B I L I Z AT I O N A N D R E C L A M AT I O N , I N C . # 4 S T R AT E G I C P I L L A R C O M M E R C I A L T R A N S F O R M AT I O N L O C AT I O N C H A N N A H O N , I L L I N O I S , U S A 41 C A S E S T U D Y # 4 A ROCK SOLID RE LATI O NSHIP Partnering every step of the way “We’ve been working with Rock Solid Stabi- lization and Reclamation for over a decade. They’re one of our best customers,” says Tom Kiernan, Geotechnical Product Specialist for the Midwest Region for LafargeHolcim in the US. The partnership with Rock Solid embodies how LafargeHolcim differentiates itself from competitors, creating relation- ships that go way beyond selling construction materials. 42 L A F A R G E H O L C I M Annual Report 2016 Altering soils and enhancing their properties results in greater elasticity and resist- ance to wear. Jonathan Pease of Rock Solid and Tom Kiernan of LafargeHolcim at the job site in Channahon, Illinois. O u r s t r a t e g y Case Study #4 43 In 2014, Kiernan developed a special blend, consisting of Class C fly ash and Type 1 cement. The creation of this product illustrates LafargeHolcim’s commitment to innovation: it solved a local problem of cement shortage and tanker availability, while offering a solution for clients that could save them money through the bene ficial reuse of fly ash. The product was affectionately named in recognition of the two plants where the ingredients came from: the Joliet plant in Illinois and the Alpena plant in New York. Pease says: “Kiernan introduced us to the fly ash market and taught us how to use it correctly – LafargeHolcim was our mentor. They’ve always helped us out – if a different material was better for the job, they recom- mend it. They’re always ultimately interested in our good job performance.” Tom Kiernan, LafargeHolcim’s geotech- nical product specialist, enjoys helping Rock Solid find optimal materials and solutions for their projects. G E T T I N G T O K N O W T H E R O A D Road infrastructures are significant investments with economic, environmental and social challenges. Like his other colleagues who are all experts in their fields, Kiernan’s expertise is soil stabilization and full depth reclamation – savvy about the process and not just the sale. Being an expert in the field means that Kiernan speaks the same language as his customers and is able to adapt the products to real needs. Early on in any road project comes the need to optimize the soil on site. For decades, LafargeHolcim has offered products to help stabilize soil. Along the way, it has been the collaborative relationships with customers that have driven the development of new innovations. It was this type of innovation that laid the foundation for the relationship with Rock Solid. Rock Solid Stabilization and Reclamation, Inc. got into the soil stabilization business a little over a decade ago. Owner Jonathan Pease remembers how it all started: “In 2005, I was working with my dad at our exca vation company. He’d gotten a call about a live demo for fly ash stabilization put on by Chip Coulter from LafargeHolcim.” Class C fly ash – a coal combustion byproduct – is an alternative to Portland cement and can be used to dry wet soils on site, stabilizing unsuitable soil for roads and other structures. Using fly ash is a less expensive alternative to cement and uses a material that would otherwise go to landfill. A week later, Pease was going out to bid a job building a new parking lot. “I called Chip and asked him if he thought the fly ash would work to stabilize the wet clay soil on site rather than taking the engineer’s recommen- dation to undercut unsuitable soil and import aggregate and clay to build up the site. He said it would, and that was the first job we got with no import or export of any materials, utilizing only onsite soils. It made me a believer in the process. I still drive by that parking lot today and it looks great.” In 2007, Pease went into the soil stabilization business full time, launching Rock Solid. Kiernan has been working with Rock Solid since the early days. He knows that the best material for soil stabiliza- tion is local material with the right binder: this keeps costs down. So, rather than bringing in new soil or even bringing in up to 10 percent Portland cement, he’s always on the lookout for an alternative that uses less material and less transport, generates less CO2 and ultimately, costs less. 44 L A F A R G E H O L C I M Annual Report 2016 W O R K I N G T O G E T H E R , O N A N D O F F T H E R O A D The relationship with Rock Solid goes beyond soil stabilization with other road techniques. Both companies are active in ARRA (Asphalt Recycling & Reclaiming Association) – Kiernan was director of the ARRA Board from 2008 to 2015 until Pease took his spot. Over the past decade, Rock Solid and LafargeHolcim have teamed up to promote in-place recycling disciplines through ARRA regional seminars and local brown-bag lunches. Their joint promotional efforts have resulted in many successful projects. Rock Solid recently completed a soil stabilization project in Channahon, Illinois, using more than 200 loads of Class C fly ash and Type 1 cement from LafargeHolcim to treat the wet subgrade soil under the building pad and the truck staging areas. Pease says: “It’s an ongoing relationship. We have pro jects all over the country. We’ve probably worked in 25 states now. LafargeHolcim covers a big area, too, so we’re looking to work with them on a national level.” TA I L O R E D S O L U T I O N S With infrastructure, there’s no such thing as “one size fits all.” LafargeHolcim takes a segment approach with the end user in mind, creating a partnership early on by encouraging dialogue with our customers. What sets us apart is our in-depth knowl- edge of each business sector. Our people speak the same language as our customers, which makes them able to adapt our products to real needs. Our material and sourcing expertise is center stage, with a focus on optimizing the cost, schedule and durability of construction. In addition, we have the support of the research center in Lyon, France to solve our customers’ most challenging problems. Tom Kiernan and Jonathan Pease have been partnering on projects for over a decade. O u r s t r a t e g y Case Study #4 45 4646 L A F A R G E H O L C I M L A F A R G E H O L C I M Annual Report 2016 Annual Report 2016 B E N J A M I N K AT O L A , M A N A G I N G D I R E C T O R O F B U I L T E N V I R O N S S T R AT E G I C P I L L A R S U S TA I N A B I L I T Y VII SUS TA I N A BI L I T Y W E W A N T T O R U N O U R B U S I N E S S I N A S U S TA I N A B L E W AY T O L I M I T O U R I M PA C T O N T H E E N V I R O N M E N T, O P E R AT E S A F E L Y A N D I M P R O V E T H E L I V E S O F O U R S TA K E H O L D E R S . W E A L S O W A N T T O D I F F E R E N T I AT E L A F A R G E H O L C I M B Y L E A D I N G T H E WAY I N A D D R E S S I N G T H E G R O W I N G D E M A N D F O R S U S TA I N A B L E S O L U T I O N S . Our commitment to sustainability is a differentiating factor. We see it as a growing opportunity as well as a responsibility. Our development of new products and services is driven by our commitment to sustainability. O B J E C T I V E S We aim to reach a zero fatality target in Health & Safety. We aim to generate one-third of our turnover from solutions with enhanced sustainability performance by 2030. We are committed to leading the way on CO2 reduction through the way we do business. VIII S T R AT E G I C P I L L A R S U S TA I N A B I L I T Y We regard sustainability as both a responsibility and an oppor- tunity. Concrete is the second most used material in the world after water. Where there is a need to build there is a need for concrete. It is estimated that one-third of total worldwide greenhouse gas emissions is generated by buildings over the course of their life cycle. We already have many innovative solutions to address CO2 emissions in buildings and we need more. Building our business around sustainability will increasingly differentiate us in our sector, as future carbon pricing and cost of waste management become real issues for our customers. A N O P P O R T U N I T Y T O L E A D T H E W AY We’re already making great strides in developing innovative build- ing products that promote sustainability. Responding to a request from the Malawi government, we developed DURABRIC, a build- ing block technology that uses locally sourced earth combined with cement and prevents deforestation by avoiding the need for traditional wood-fired brick kilns. In 2016 we launched Airium, a high performance mineral foam insulation, that is fully recyclable and fire resistant, with a lower CO2 impact compared to other solutions. Working in partnership with Solidia Technologies, we have devel- oped a new binder that is produced at lower temperatures and through a chemical reaction that generates less CO2. Solidia CementTM hardens through the addition and absorption of CO2 in a patented curing process that reduces the overall carbon foot- print by up to 70 percent. Solidia Concrete reaches full strength in less than a day, offering considerable energy savings and cost reductions compared to precast concrete manufacturers. Our worldwide waste management brand, Geocycle, is allowing us to step up our use of alternative fuels by utilizing processed municipal and industrial waste to fire our clinker kilns. This solu- tion reduces CO2 emissions and cuts energy costs, while providing a sustainable solution to waste that would typically otherwise be disposed of in environmentally damaging landfill sites. More broadly, in 2016 we launched our sustainability strategy which we call the 2030 Plan. The 2030 Plan is the most far-reach- ing sustainability roadmap in our sector. It sets targets for our operations and drives positive impacts beyond our fence line, while highlighting the difference we can make for customers with our innovative products and services. We have set ourselves a transformational overall target: we want to generate one-third of our turnover from solutions with enhanced sustainability performance by 2030. # 5 S T R AT E G I C P I L L A R S U S TA I N A B I L I T Y L O C AT I O N L I L O N G W E , M A L A W I 47 C A S E S T U D Y # 5 B RIC K BY B RIC K The recipe for affordable housing and environmental preservation in Malawi “The way to go now is SSBs,” says Malawian contractor Benjamin Katola, Managing Director for Built Environs, speaking of soil stabilized bricks (SSB). Katola builds houses, schools, banks and hospitals in Central and Southern Malawi. In the past, common fired bricks were the norm for building. But that’s all changing with the optimiza- tion of SSBs, the technical term for bricks like DURABRIC, which offer a cost-effective, quality alternative with environmental benefits. 48 L A F A R G E H O L C I M Annual Report 2016 A P O W E R F U L C O L L A B O R AT I O N In order to scale up sustainable building and economic growth in the region, LafargeHolcim teamed up with CDC (the UK government development finance institution) in 2016 to create 14Trees, a joint venture company, named after one key benefit of DURABRIC. The partnership aims to accelerate the production and commercialization of DURABRIC in Sub-Saharan Africa. LafargeHolcim and CDC have jointly invested CHF 10 million into 14Trees operations and are eager to support the company’s future growth collabo ratively. At the end of 2016, 14Trees opened a new brick factory in Lilongwe to provide Central Malawi with DURABRIC for a variety of building needs. T H E S E A R C H F O R A B E T T E R B R I C K Like many other countries in Africa, Malawi is grappling with the effects of climate change caused, in part, by widespread deforestation. Deforestation is driven by demand for wood, some of which is used to fire the kilns to make common fired bricks. It wasn’t until recently that the soil stabilized brick became a superior alterna- tive for construction in Malawi. Back in 2013, LafargeHolcim reacted to a nationwide call for a solution that would not only stem the tide of deforestation by not requiring the use of wood-fired kilns, but would also be affordable and locally made. The result is DURABRIC, a brick made with the perfect mixture of soil, sand, cement and water. It is compressed in a mold and left to cure naturally, without firing. As a result, it can save 14 trees for each house built, compared to fired bricks. DURABRICs are three times stronger than traditional bricks, result in one-tenth the CO2 emissions compared to common bricks, are 20 percent cheaper per square meter of wall, and are more resistant to heavy rainfall. Katola is optimistic about the impact of DURABRIC: “Once we can start building with SSBs like DURABRIC through- out the country, we can preserve our natural resources, stop soil erosion and improve air quality.” And he thinks the time is right: “People are starting to see the benefits in the long run.” 14 trees can be saved for each house built with DURABRIC B E N J A M I N K AT O L A , M A N A G I N G D I R E C T O R O F B U I L T E N V I R O N S “ Once we can start building with SSBs like DURABRIC throughout the country, we can preserve our natural resources, stop soil erosion and improve air quality. People are starting to see the benefits in the long run.” O u r s t r a t e g y Case Study #5 49 The Teacher Training College in Lilongwe was built in 2016 with DURABRIC. The college hosts a secondary school and a tertiary college. 50 L A F A R G E H O L C I M Annual Report 2016 B E N J A M I N K AT O L A , M A N A G I N G D I R E C T O R O F B U I L T E N V I R O N S “ There won’t be a need to use anything but SSBs like DURABRIC.” Benjamin Katola, a customer of 14Trees, uses DURABRIC for building houses, schools, hospitals etc. The new DURABRIC factory was commissioned in September 2016. The plant employs 30 people. CHF 10 million LafargeHolcim and CDC have invested into 14Trees and are eager to support the company’s future growth O u r s t r a t e g y Case Study #5 51 51 52 L A F A R G E H O L C I M Annual Report 2016 A S U S TA I N A B LY B U I L T F U T U R E LafargeHolcim is confident about the commercial prospects of ventures such as 14Trees, which accelerate its four affordable housing offers: microfinance, distribution solutions for slums, mass housing, and earth-cement building solu- tions. These offers are implemented in 25 countries and aim to positively impact up to 25 million people by 2030. DURABRIC is a cornerstone of LafargeHolcim’s earth- cement building solutions, particularly in Africa where 14Trees will enable DURABRIC to be commercialized in other countries, particularly in Sub-Saharan Africa. DURABRIC also hits many points of the 2030 Plan, LafargeHolcim’s sustainability strategy: its reduced CO2 impact supports a key climate target, and the way DURABRIC offers affordable housing while advancing business opportunities furthers the goal of positively impacting people and communities. A nationwide advertising campaign for DURABRIC, “One Brick Saves More,“ was launched in Malawi in December 2016. Daudi Lelijveld, Director and Head of the Impact Accele- rator at CDC sees three objectives to the partnership: First, the aim is to eliminate the use of trees for fired bricks in order to halt rapid deforestation. “There’s a huge environmental impact made by eliminating the use of wood-fired bricks,” notes Lelijveld, “and with that an improvement in the social environment.” Second, the goal is to bring a building material to the village level that is strong, durable and has an attractive finish without plastering, thereby making SSBs the aspirational brick of choice. Third, the project aims to create microeconomies and microentrepreneurs at the local level in the building industry and beyond. What’s great about DURABRIC is that it can be made manually on any site, just like traditional clay bricks. Katola has been making SSBs for years. But having to make the bricks on site is not always an attractive option. “With the old methods of production you need a really big team on site to excavate the soil and use the manual molds,” says Katola. He’s looking forward to being able to purchase DURABRIC from the Lilongwe factory for building projects in Central Malawi. “By working with the company 14Trees, the bricks are already made.” More than 3 million DURABRICs have already been produced in Malawi since 2013, and have been used in around 500 buildings. The opening of the Lilongwe factory should rapidly increase their use in Central Malawi. Katola says that there are many health centers and schools to be built in the region this year. “There won't be a need to use anything but SSBs. If they’re close to Lilongwe, they’ll probably get them from the factory rather than struggle to make them on site.” K E Y EN A BLER S I N N O V A T I O N A N D G R O W T H Page 54 S U S T A I N A B L E D E V E L O P M E N T Page 60 P E O P L E Page 70 54 L A F A R G E H O L C I M Annual Report 2016 INNOVAT ION AND GROW TH Innovation is key to creating superior value for our customers and driving profitable growth across our company. Our focus on innovation is a reflection of our commitment to put end users and customers at the heart of everything we do. This goes beyond new products and services. By understanding what our customers do, listening to them and responding quickly with solutions, we aim to make LafargeHolcim their partner of choice. K e y E n a b l e r s Innovation and Growth 55 Our close relationships with customers and our grasp of their challenges drive the development of new products and services. With our expertise and know-how, we aim to offer our customers solutions that enhance their projects and build trust in our partnership. Beyond these solutions, our market growth activities are focused on creating new channels to serve our customers more effectively. Differentiation across the construction value chain Our aim to become a preferred partner is evident across our business, from infra- structure to industrial sectors. With our market-oriented approach, we are in a unique position to work closely with end users and customers, involving them in the development of solutions. Infrastructure LafargeHolcim impacts the lives of billions of people daily through its contribution to roads and highways, railways and tunnels, bridges, airports and ports, and through the energy and mining sector. Through our team of international key account managers, we are in the position to main- tain strong relationships with contractors and designers globally. We are ready to get involved early, building partnerships with our customers right from the design stage of a project. This allows us to work upstream with key project stakeholders and infra- structure decision makers. This approach is complemented by a comprehensive global network of infrastructure professionals with expertise far beyond cement into mining, roads, transport and energy. Our strong sectoral expertise and world-class excellence in project execution means that we are able to provide our customers with superior products and expert service at an attractive price. Our approach to innovation and growth delivered value across our sectors in 2016: – Mining: Driven by a Global Mining Hub unique in our industry, we were able to demonstrate our global expertise by providing backfilling solutions and becoming the partner of choice in several mining projects, especially in North America and Africa. – Roads: Our road experts co-developed advanced integrated offers on targeted projects worldwide. We also launched the development of innovative product solutions and optimization tools to bring additional value to our customers. – Transport: Our business and technical skills in ports, tunnels, rail, metro and data centers continued to deliver results, and we signed some major new projects. – Energy: We participated in important thermal power and petroleum facilities projects with major international contractors. We also launched R&D initiatives in renewable energies. 56 L A F A R G E H O L C I M Annual Report 2016 Distribution and retail Generating some 60 percent of our net sales, the distribution and retail sector plays an essential role in the success of LafargeHolcim. This sector also provides an opportunity to help us better serve and understand the needs of the different players at every point in the distribution chain. Our distribution routes are tailored to the needs of our local customers and we are constantly expanding our physical presence by growing our sales network. One example is our depot and container shop program, which aims to serve remote areas in countries such as Zambia and Uganda. Together with our networks of franchisees and affiliated partners, we also operate multi-product retail formats in Latin America (e.g., Disensa in Ecuador), Middle East Africa (e.g., Batistore in Algeria) and Asia (e.g., Helps U Build in the Philippines), providing attractive end-to-end solutions for individual home builders, homeowners, masons and contractors. See our Case Study #3 about Helps U Build in the Philippines on page 34. Our innovative packaging solutions illustrate our focus on the satisfaction of end users. With Mixopack, for instance, we have developed a unique packaging solution so that our cement bags disintegrate in the mixer to improve convenience and reduce waste. Through our strong cement and solutions brands (e.g., Fuerte in Mexico, Momtaz in Egypt and ACC Gold in India), we pursue commercial differentiation in each local market. We also aim to take advantage of the proliferation of digital technologies in the retail sector. A key highlight this year has been the launch of our first business-to-con sumer e-commerce platform, Disensa.com, a digital marketplace in Ecuador. Through the platform, homeowners and contractors can order building materials and other products online by selecting from a broad range of more than 3,000 items, helping customers realize their building or renovation dream conveniently. Building and affordable housing Representing two-thirds of global construction expenditure, the building market offers a sizeable opportunity to provide value-added solutions to customers. From detached houses to office towers, schools to industrial buildings, we continue to unlock new value beyond the traditional market. Recent examples include: – Airium, a mineral insulating foam that improves energy efficiency for buildings while being fire resistant and easily recyclable. With the launch of three pilots in Austria, France and Morocco in 2016, the commercialization of this technology is underway. – DURABRIC, a low-cost, earth-based brick that does not require firing, thereby re ducing deforestation. Through the launch of 14Trees, a joint venture with CDC, we will accelerate DURABRIC-based solutions in Sub-Saharan Africa and work jointly on the development of additional solutions for affordable housing. (See our Case Study #5 on DURABRIC in Malawi on page 46.) – Solidia™, a new binder technology that hardens through the absorption of CO2, allowing for a reduction of the overall carbon footprint of up to 70 percent while offering significant time gains in the curing process. The first significant commercial deals with US-based precast manufacturers as well as other major projects in Canada and Europe are on schedule for the commercial launch. K e y E n a b l e r s Innovation and Growth 57 Four billion people around the world do not have access to decent housing, and over 800 million live in slums. To help populations with low revenue access housing at affordable cost, LafargeHolcim has developed a range of affordable housing solutions to populations and governments. These solutions include micro-finance, earth-cement building solutions, slum renovation and collective social housing. For the Group, affordable housing is a business activity with high social impact: the offers are implemented in 25 countries and aim to positively impact up to 25 million people by 2030. With our engagement in Building Information Modeling (BIM), we are taking advantage of opportunities arising from the ongoing digitization of the construction value chain. BIM is a digital technology combining 3D models with information at all construction stages. This promotes collaboration and has the potential to significantly increase the effectiveness and efficiency of construction. We are developing the required know-how to ensure our countries are BIM-ready. Oil and gas LafargeHolcim is the global leader in providing construction solutions for onshore and offshore exploration. We offer reliable solutions that meet local and international standards while performing under extreme climate conditions, from the cold tundra to hot jungles. OneCem LD12.0, our patented cement for use in low density applications, allows our customers to easily adjust the slurry density on the drilling site by changing the water to cement ratio. This product provides high performance, can be used under any pressure and provides excellent flexibility to our customers. Our offerings are com- plemented by a wide array of upstream and downstream services helping our customers to build better wells. Ready-mix concrete and industrial In the ready-mix business, two recent initiatives aim to optimize know-how and strengthen customer relationships. First, to build and optimize our product portfolio, we are working on cross-selling of our ready-mix concrete solutions. Cross-selling includes local and global brands, as well as related services. Second, we are optimizing mix design globally to promote common management of raw materials and consistent quality. In parallel, for industrial customers, we are developing new offers through licenses and franchise models to share our internal expertise regarding safety, marketing and innovation (see Case Study #2 on page 28). Ductal Ductal is an ultra high performance concrete (UHPC), supported by 27 patents, that combines exceptional strength, durability, and aesthetic qualities. Ductal benefits from a dedicated team of trained architects and engineers located in multiple geographies with a wide range of expertise to help guide designers and customers to identify solu- tions for their demanding projects. In North America, for example, Ductal has been used in the retrofitting of more than 200 bridges since 2014. Besides infrastructure, Ductal is also successfully applied in the form of architectural solutions in many iconic buildings. This year, with the support of three manufacturing partners located in France, Italy and the US, an industrialized cladding panel solution was successfully launched for European and North American markets. 58 L A F A R G E H O L C I M Annual Report 2016 200 researchers representing over 20 nationalities working in R&D 2,000 granted patents or patent applications R&D: an essential cornerstone of innovation Customer driven Research and Development is fundamental to our innovation strategy. The hub of our R&D activities is the LafargeHolcim Research Center in Lyon, France, the first and largest R&D center in the construction industry. With 200 engineers and tech- nicians representing more than 20 nationalities, and a range of disciplines, its excellence is achieved through strong technical expertise from materials science to building struc- ture, semi-industrial scale testing capabilities and advanced open innovation approaches. The R&D center in Lyon is complemented by a global network of Construction Develop- ment Labs (CDL) and advanced technical centers, in order to better understand and serve local markets. Composed of multi-disciplinary teams, CDLs aim to develop new business opportunities through a focus on product application and construction systems, with a deep understanding of local customers and construction methods and conventions. To further accelerate our time-to-market for new technologies, we are pursuing open- innovation strategies to solve complex problems. The vast majority of our R&D projects are conducted with external innovation partners, academic institutions, suppliers, end users or customers. In 2016, we identified 14 start-ups with high potential and collab- orations were launched with three. We are also actively involved with innovation accel- eration programs and take part in leading European projects aimed at finding solutions to construction challenges such as recycling and low CO2 binders. These collaborations expand the innovation capabilities of our research center while helping us meet the needs of our end users and sustaining long-term growth of our company. LafargeHolcim’s patent estate is steadily growing as a result of R&D efforts, remaining the largest and most diversified in the cement and concrete industry. Patents range from cement manufacturing processes and construction solutions, to CO2 footprint solutions and efficient waste management. In 2016 a total of 22 new patent applications were filed and approximately 140 were granted. LafargeHolcim now owns approximately 270 active patent families, representing about 2,000 granted national patents or patent applications. K e y E n a b l e r s Innovation and Growth 59 Delivering value through commercial performance Innovation is present not only in our products and services, but also in the way we exe- cute growth opportunities. Anticipating customer needs early (sometimes before they are even aware of them) and being able to address them effectively requires a strong commercial backbone. At LafargeHolcim, we are developing this strength by institu- tionalizing sound commercial processes and building world-class commercial capabilities across our marketing and sales units. Launching growth plans A key pillar of our commercial strategy is the development of local growth plans where each country establishes how customer needs will be served through differentiated products, services and solutions. In 2016, every country across the Group developed a local plan for growth. By increasing understanding of our customers’ needs and the markets in which they operate, these plans will ensure we make our customers more successful and we capture our fair share of the value provided. Creating capability Having the best people of our industry is also essential to deliver the value of our inno- vative solutions. To achieve this, in 2016 we established Sales Academies in the regions aimed at making our salespeople more skilled in identifying relevant customer needs, offering solutions and ultimately bringing more value to the customer and the Group. Within the Sales Academies we take a holistic approach based on an individual assess- ment, subsequent training modules to close any gaps identified, and ongoing develop- ment through on-the-job application. The Sales Academies will train all LafargeHolcim sales people, more than 7,000 in total. The pilot was launched in the US in 2016 with 500 participants. In 2016 we also launched the first global Commercial Academy targeting the most senior leaders in our company. Country CEOs, commercial directors, marketing directors and sales directors attend the academy together as a country team. The aim is to further develop local commercial capabilities, methods and approaches to support local growth strategies and become more customer centric. Together with complementary training, as well as toolkits for our marketing and sales units, these efforts help us achieve our ambition of creating commercial excellence hubs in the countries, ultimately supporting our commercial transformation. 60 L A F A R G E H O L C I M Annual Report 2016 SUSTA INABLE DEVELOPMENT LafargeHolcim has demonstrated its commitment to sustainable development over many years. Building on this heritage, in 2016 we identified sustainability as one of four strategic pillars. Sustainability actively supports our business strategy and is a key driver of differentiation, revenue generation and value creation. K e y E n a b l e r s Sustainable Development 61 The Group’s overarching value: Health & Safety Health & Safety is the overarching company value for LafargeHolcim – it’s embedded in everything we do. In 2016 we continued our Health & Safety transformational path, which is designed to reduce incidents and move us toward the ambition of zero harm. Our performance last year demonstrates that we still have a long way to go. Since the majority of incidents occur on the road, road safety has been included as one of the five elements of our Health & Safety Roadmap. In addition, at the end of 2016 a new health management plan was developed for implementation during 2017. The plan aims to protect, support and grow the health and wellbeing of our employees and contractors. Health & Safety Fatalities Fatalities by personnel category Employees Contractors Third parties Onsite Fatalities by location Off-site at public site Off-site at somewhere else site Lost time injury (LTI) Employees Contractors on site Lost time injury frequency rate (LTIFR) Employees Contractors Employees and contractors on site 2016 2015 86 3 44 39 18 64 4 231 233 1.08 0.99 1.03 50 5 28 17 15 32 3 239 261 1.01 1.03 1.02 62 L A F A R G E H O L C I M Annual Report 2016 Learning from incidents We regretfully report that fatalities and injuries increased in 2016. A total of 86 fatal- ities were recorded for the year, including employees, contractors, and third parties. Each fatality is reviewed, with the CEO or a member of the Executive Committee present, to ensure that any learning is identified and communicated to every applicable site to minimize the risk that the same incident could occur elsewhere. To ensure all operations around the world implement key learnings from fatal incidents we have developed a process we call Mandatory Safety Release (MSR). It is used to accel- erate the implementation of key learnings following investigation, where there may be a risk of reoccurrence. The first such MSR was issued in December 2015 and required all cement sites to review and align their processes for managing hot material losses of containment from kilns. We are on track to have global implementation of this MSR by the end of the first quarter of 2017, preventing reoccurrence of any fatal incident of this sort in the future. Taking responsibility for Health & Safety During 2016, a standardized Health & Safety performance management process was developed and implemented across all countries. The Executive Committee in every country developed an improvement plan using this process to reduce the key health and safety risks in their businesses, and to drive further improvement of Health & Safety performance across all operations. Our ability to effectively execute these strategic initiatives has laid the foundation for improved results. Our Health & Safety transformational path was aligned under the five priority areas of focus: – Leadership and accountability – Health & Safety management systems – People capability – Effective execution – Road safety All activities under the five areas of focus have been supported by engagement and communication at different levels. Our Global Health & Safety Days during May and June 2016 were built around the theme, “I care, I share, I act.” As part of the initiative, employees were asked to individually commit to an action that tangibly helps improve health and safety. K e y E n a b l e r s Sustainable Development 63 The identification of road safety as an area of focus acknowledges the importance of addressing the largest cause of fatalities in our company. We are striving to achieve drastic performance improvement, for the safety of communities in which our vehicles operate and to protect drivers of vehicles connected with our business. The Road Transport Safety Roadmap has been developed, including setting global minimum requirements for 2017, and is focused on improving driver skills and behavior, the main cause of over 90 percent of fatalities. A Road Transport Safety Standard and Maturity Roadmap will also be developed in 2017. Embedding operational discipline The Health & Safety Management System (HSMS) remains at the heart of our drive for Health & Safety performance transformation. This structured approach for managing the prevention of injuries and occupational illnesses began during the first quarter of 2016. A new Health & Safety audit system was piloted from May to December 2016. With the new system, every unit will be audited in a three- to five-year cycle in order to assess implementation of the HSMS. The ultimate goal of HSMS is performance improvement. As a result, we want to focus on modifying conduct and promoting safe behaviors, not on imposing sanctions. In support of that, we will be implementing the Reward & Recognition Program for recog- nizing exemplary health and safety performance and the Consequence Management Program for managing breaches of policies and rules. Comprehensive health program launched We attach as much importance to health as we do to safety, with a focus on controlling workplace health risks, ensuring fitness to perform work tasks safely, and promoting the health and wellbeing of our employees and contractors. Based on interviews with management and feedback from Health & Safety, Human Resources, worker representatives and health practitioners, a corporate health manage- ment plan was developed and approved by the Executive Committee in September 2016. Implementation starts in January 2017 in all countries. A baseline assessment of the maturity of country health programs will be conducted to identify current strengths, priorities for improvement and the need for specialist support. The ambition of our health program is to protect, support and grow the physical, mental and social wellbeing of our people to help build a sustainable business. We aim not only to protect our workforce from health hazards at work, but also to accommodate illness and disability, support healthcare where needed, as well as encourage participation in wellbeing programs and community health engagement activities. 64 L A F A R G E H O L C I M Annual Report 2016 Our sustainable development strategy – the 2030 plan LafargeHolcim launched its sustainable development strategy in early 2016. Called “the 2030 Plan”, our strategy was developed in collaboration with a wide range of inter- nal and external stakeholders and is designed to help us develop and deploy solutions to a range of business, social and environmental challenges. The 2030 Plan is structured around one overarching objective – our contribution to a more sustainable construction sector, supported by four main fields of action: climate, circular economy, water and nature, and people and communities. Importantly, it addresses the positive impacts our operations can have beyond the boundaries of our plants. The 2030 Plan is summarized in the diagram opposite. The plan defines the required steps to achieve our objectives. In the course of 2016 we developed a series of interim 2020 targets. Performance against those targets is tracked through the annual monitoring process and will be reported in the 2016 Sustainability Report. The overarching aim of the 2030 Plan is to ensure that by 2030, one-third of net sales is generated from our portfolio of solutions with enhanced sustainability performance. A culture of innovation is fundamental to achieving this ambition. Innovative solutions to reduce CO2 The Paris Agreement, which followed the COP21 meeting in November 2015, has further highlighted the important leadership role that LafargeHolcim needs to play in improving CO2 efficiency. As a result of past efforts, LafargeHolcim is one of the most carbon efficient global cement companies. Our 2030 target to emit 40 percent less CO2 per tonne of cement than we did in 1990 means we are committed to maintaining a similar rate of reduction in the future. As we approach the limits of many known improvement levers, we are working diligently to identify new ways to reduce CO2 emissions. One example is Solidia Cement™, produced in partnership with US start-up company, Solidia Technologies. Solidia Cement™ is a new binder made from similar materials to traditional cement. Because it is produced at lower temperatures and uses a different chemical composition that requires less limestone, it generates less CO2 during produc- tion. Used to make precast concrete, Solidia Cement™ hardens not through the use of water (as in traditional cements), but through the addition and absorption of CO2. This reduces the overall carbon footprint in the production phase by up to 70 percent. Another new solution is Airium. Buildings are responsible for 30 to 40 percent of global CO2 emissions and we believe innovation can play a critical role in decreasing that footprint. We aim to reduce CO2 emissions from buildings by 10 million tonnes of CO2 annually through the use of our products and solutions. Airium, which saw its first commercial launch in 2016, is a mineral insulating foam that improves energy efficiency for buildings, from floor to ceiling. Apart from facilitating energy efficiency, Airium is entirely mineral based, thereby healthier and offers maximum fire resistance, is extremely durable, simple to use and is 100 percent recyclable. K e y E n a b l e r s Sustainable Development 65 The 2030 Plan – Building for tomorrow We will generate one-third of turnover from solutions with enhanced sustainability performance Climate Circular Economy Water and Nature People and Communities IN-HOUSE We will reduce net specific CO2 emissions by 40% per tonne of cement (vs 1990) We will use 80 million tonnes per year of waste-derived resources We will reduce specific fresh water with drawal in cement operations by 30% We will implement The WASH Pledge on all sites We will help our customers avoid 10 million tonnes of CO2 being released from buildings each year through our innovative solutions We will provide end-of-life solutions for our products and will supply four times more recycled aggregates from CDW/RAP We will make a positive impact on water in water–scarce areas We will show a positive change for biodiversity BEYOND OUR FENCE INNOVATIVE SOLUTIONS – Low-carbon cement ̵ Recycled aggregates ̵ Rainwater harvesting ̵ Affordable housing and concrete ̵ Urban mining ̵ Pervious concrete – Insulating concrete solutions – Thermal-mass solutions ̵ Waste management services ̵ Stormwater protection ̵ Vertical green solutions materials and solutions ̵ Affordable sanitation solutions Note: all targets are for 2030. Baseline year is 2015 unless stated otherwise. CDW: Construction and Demolition Waste, RAP: Reclaimed Asphalt Pavement, WASH: Water, Sanitation and Hygiene Implementation at the Workplace. LTIFR: Lost Time Injury Frequency Rate, TIFR: Total Injury Frequency Rate We want zero fatalities We will reduce LTIFR to < 0.20 We will reduce TIFR by 50% We will reduce our disease rate to < 0.1 We will have 30% minimum gender diversity at all management levels We will develop initiatives to benefit 75 million people We will engage in collective action to combat bribery and corruption in high-risk countries 66 L A F A R G E H O L C I M Annual Report 2016 The power of a circular economy As a leader in sustainability, we have a long track record of applying alternative ways to produce heat and provide raw materials required for cement and concrete manufacture. Turning waste into fuel and raw materials offers a solution to a growing problem for municipalities and industry while replacing the use of fossil fuels and lowering CO2 emissions. By 2030, we aim to re-use 80 million tonnes of waste-derived resources per year in our operations. To facilitate the use of waste, the Group’s Geocycle operations will further deploy our waste treatment services globally. State-of-the-art technology, tailored processes and in-depth expertise enable us to provide sustainable, safe and reliable answers to society’s waste challenges. Geocycle will further commission installations for the co-processing of waste-derived fuels and raw materials in cement production, and foster initiatives in partnership with local communities and farmers to sustainably use biomass residues from agriculture and forestry. Also contributing to a circular economy is Aggneo, our range of new generation, high-qual- ity recycled aggregates that gives a second life to demolition waste. By using recycled concrete, we divert material away from landfills and help conserve natural aggregates reserves. This solution is suitable for metropolitan areas where the necessary regulatory framework is in place. Safeguarding water and nature Water is a natural resource used at all LafargeHolcim operational sites, with around one- third of our cement production in water scarce areas. Thus, apart from our commitment to sustainability we have a strong business motivation to manage water resources effec- tively. Our plan is to reduce freshwater withdrawal in the cement segment by 30 percent by 2030. We will do this by harvesting rainwater, reusing water wherever possible and using freshwater resources as efficiently as possible within all our operations. As water is an increasingly important issue for society at large, our concern for water goes beyond our operational boundaries, and we are committed to showing a positive impact on water resources in water scarce areas. To demonstrate this, we use a methodology reviewed by the Swiss Agency for Development and Cooperation to determine a water positive index using water credit/debit approach. One of our water-related sustainability solutions is Hydromedia, a concrete that delivers sustainable solutions that combine the properties of concrete and advanced drainage technology. Highly permeable, it rapidly absorbs storm water off streets, parking surfaces, driveways, and walkways, thus reducing the risk of flooding. K e y E n a b l e r s Sustainable Development 67 In addition to sustainable water stewardship, our strategy commits LafargeHolcim to demonstrate a global positive change for biodiversity by 2030. In 2016 the Biodiversity Indicators Reporting System (BIRS), developed in collaboration with recognized conservation partners, was piloted at several plants in India and will now be extended to further Group operations. Creating better lives – enhancing people and communities LafargeHolcim has long recognized the value of engaging with the communities in which we operate, believing there are opportunities and an obligation to develop affordable solutions and new business models for people living there. With the 2030 Plan, LafargeHolcim aims to enhance local economies and wealth for people with lower incomes. By 2030, LafargeHolcim aims to benefit 75 million people with its affordable housing projects, and its social investment and inclusive business models. Our affordable housing solutions are designed to help address the enormous and growing challenge of providing decent and sustainable housing at an affordable cost, while contributing to the bottom line. In 2016 affordable housing projects were in place or being assessed in 25 LafargeHolcim operating countries, benefiting an estimated 445,000 people and contributing CHF 20 million to EBITDA. As part of the affordable housing program we continue to develop 2030 Solutions such as DURABRIC – a low- carbon non-fired earth and cement brick. The product reduces construction costs, is more resistant than traditional clay bricks, and has greatly reduced the CO2 emissions and deforestation caused by using fired bricks. For more information on DURABRIC, please see the Case Study #5 on page 46. Other sustainability impacts While the LafargeHolcim 2030 Plan focuses on the topics shown in the diagram on page 65, the company also manages, as part of its daily business, a number of other sustainability related issues. These include the reduction of other emissions (notably dust, NOX and SO2), waste, fuel and energy consumption, stakeholder engagement and employee rela- tions. Key performance indicators relating to these and other sustaina bility topics will be reported in our 2016 sustainability report. 68 L A F A R G E H O L C I M Annual Report 2016 Alignment with the UN Development Goals In response to the increasing calls for leadership in dealing with poverty, inequality and climate change, world leaders gathered on September 25, 2015 at the United Nations in New York to adopt the 2030 Agenda for Sustainable Development. The 2030 Agenda comprises 17 new Sustainable Development Goals (SDGs), or Global Goals, which will guide policy and funding for the next 15 years, beginning with a historic pledge to end poverty. As can be seen from the diagram below, LafargeHolcim’s 2030 Plan aligns with a large majority of the 17 Sustainable Development Goals adopted – particularly those that are most material to our operations. Sustainable Developing Goals – Building for tomorrow INNOVATION BY LAFARGEHOLCIM Industry, Innovation and Infrastructure Sustainable Cities and Communities Climate Circular Economy Water and Nature People and Communities Industry, Innovation and Infrastructure Responsible Consumption and Production Life on Land No Poverty Climate Action Climate Action Affordable and Clean Energy Partnerships for the Goals Affordable and Clean Energy Partnerships for the Goals Partnerships for the Goals Clean Water and Sanitation Decent Work and Economic Growth Good Health and Well-Being Peace, Justice and Strong Institutions Quality Education Partnerships for the Goals Gender Equality Clean Water and Sanitation K e y E n a b l e r s Sustainable Development 69 The Droneport prototype presented at the Venice Biennale. LafargeHolcim Foundation: world’s largest network advancing sustainable construction A key initiative in our efforts to promote sustainable construction design and practice is the LafargeHolcim Foundation for Sustainable Construction. Through the Foundation, we interact intensively with opinion leaders throughout the construction industry to promote greater sustainability of the built environment around the world. Since its creation in 2003, the Foundation has been continually expanding and enriching its network of leading experts and technical universities to encourage and develop sustainable construction at national, regional, and global levels. It acts as a link between our Group and stakeholders along the value chain of the construction industry including: architects, engineers, urban planners, contractors, NGOs, authorities, and students of the respective disciplines. The Foundation has established itself as a globally significant information hub for sustainable construction through its main activities: organizing academic symposiums for expert discussions; disseminating new approaches and best practices; and conducting the LafargeHolcim Awards – the world’s most significant competition for sustainable design. The Foundation carries out its activities in three-year cycles. The 5th cycle of the LafargeHolcim Awards opened for submissions in 2016. This international competition recognizes ecologically, socially, and economically outstanding projects in the field of sustainable construction. Unlike conventional design competitions, the LafargeHolcim Awards are for projects located anywhere in the world in planning, but not yet under construction. The realization of many of the previous winners has been made possible thanks to the prize money, recognition, and publicity earned through the LafargeHolcim Awards. The triennial LafargeHolcim Forum is organized jointly with affiliated universities from around the world and enables the Foundation to advance the academic discourse of sustainable construction. The symposium strengthens LafargeHolcim’s ties with inno- vative minds and expands the Foundation’s network. In April 2016, 300 architects, engineers, building professionals, and experts from all generations and geographic regions gathered in Detroit for the 5th International LafargeHolcim Forum. The theme of the conference was “Infrastructure Space,” examining how infrastructure must be designed so that it can contribute to a sustainable living environment. The findings of the Forum are of vital importance for sustainable development now, and in the future. The 15th International Architecture Biennale in Venice 2016 provided a good example of how the Foundation collaborates with an array of players to develop leading-edge solutions. Together with the Norman Foster Foundation, the LafargeHolcim Foundation presented a prototype of the Droneport, a self-supporting vault that would act as a terminal for remote-controlled drones. This cleverly designed building is part of a project to improve the supply of basic goods to remote areas in Africa by leap-frogging inade- quate road infrastructure to deliver urgent and emergency supplies. DURABRIC, a build- ing block made of cement-stabilized compressed earth was optimized to meet the specifications of the Droneport. This collaborative project underscored the innovative capacity of LafargeHolcim, promoted DURABRIC as a sustainable building material, and made a step toward improving quality of life. 70 L A F A R G E H O L C I M Annual Report 2016 PEOPLE People are our greatest asset. It is their knowledge, commitment and dedication that enables us to deliver the Group strategy and create value for all our stakeholders. With the difficult integration period of our merger largely over, we are now focused on creating an environment where everyone concentrates on the customer and where agility, collaboration and empowerment are at the heart of our new culture. K e y E n a b l e r s People 71 A culture of change Our culture plays an important role in achieving our company vision. In a rapidly changing industry, we need to ensure that our employees are equipped to manage significant change. We are investing in developing our employees and leaders and in 2016 we launched our new leadership framework which forms the basis of our future talent assessment and individual development. Employee engagement We conducted two Group-wide employee surveys in 2016: one in the first quarter and the second in the last quarter. Overall, the results were positive with more than 80 percent of employees saying that they are proud to work for LafargeHolcim. More than 90 percent said they “are willing to put in extra effort to make the company successful”. This is a testament to the dedication and commitment of our people. Almost 90 percent acknowledge LafargeHolcim’s commitment to Health & Safety, there- by confirming that our employees recognize this is an overriding value. But the surveys also revealed areas for improvement; hence our focus on agility, colla boration and empowerment which we believe will make us more responsive to customers and our markets and better leverage the capability and experience we have across the Group. Collaboration and Trust Empowerment, Accountability and Transparency Simplicity and Agility 72 L A F A R G E H O L C I M Annual Report 2016 Group employees by region 2016 2015 Asia Pacific 31,274 36,199 Europe 21,829 23,843 Latin America 10,536 11,707 Middle East Africa 13,191 16,123 North America 12,257 11,265 Service and trading companies 1,816 1,819 TOTAL GROUP 90,903 100,956 Group employees by segments 2016 2015 Cement 1 56,133 64,506 Aggregates 11,816 11,282 Other construction materials and services 21,257 23,472 Diverse 1,697 1,696 TOTAL GROUP 90,903 100,956 1 Including all other cementitious materials. Diversity and inclusion At LafargeHolcim, an inclusive and diverse workplace, reflecting our globally diverse business, is important to delivering sustainably strong performance. Our Group sustainability strategy – the 2030 Plan – recognizes the importance of gender balance and has set a target to achieve 30 percent minimum of each gender at all management levels by 2030. During 2016, an internal women’s task force – sponsored by the Group Executive Committee – reached out to male and female employees to assess our existing company culture and provide recommendations on how to improve gender diversity. We have subsequently developed a regional approach to setting targets and action plans. In 2016, this approach was implemented in Central and South America. It will be extended to the rest of the regions during 2017. We also continue to raise internal awareness by sponsoring and participating in women’s conferences around the world. In 2016, a total of 30 senior leaders from LafargeHolcim, both men and women, participated in the Women’s Forum events in Dubai, Mexico and France. Talent Management Now the merger phase is over, our focus is on developing our people and capabilities and offering good career and development opportunities. For instance, in 2016, we launched a global Commercial Academy for senior leaders and Sales Academies in every region (Read more about these in our section on Innovation and Growth on page 54). In 2017, we will be launching new leadership development programs. Composition of Top Managers Top management level Senior management level TOTAL Male 155 1,254 1,409 Female 18 236 254 Total 173 1,490 1,663 Percentage of women 10% 16% 15% C A P I TA L M A R K E T I NFOR M AT ION 74 L A F A R G E H O L C I M Annual Report 2016 CAPI TAL MARKET INFORMAT ION After a period of integration following the merger, 2016 was a year of consolidation and achievement. With the momentum of earnings and cash flow growth accelerating, the Group demonstrated its ability to deliver on its strategy and ambitions. In 2016, earnings grew in all Group regions. Margin improvement was supported by synergies delivery ahead of plan and rigorous focus on cost manage- ment, while pricing trends were favorable in a number of markets. Cash flow improvement and active portfolio optimization helped reduce the debt. This solid progress in financial per formance illustrates that LafargeHolcim is well positioned to deliver superior value to its stakeholders. K e y E n a b l e r s Capital Market Information 75 Performance of LafargeHolcim shares versus Swiss Market Index (SMI) and the CAC40 (rebased) in CHF 80 60 40 20 2012 2013 2014 2015 2016 LafargeHolcim VX Swiss Market Index (SMI) LafargeHolcim FP French Stock Market Index (CAC 40) After a difficult start into the year, equity markets, especially US indices, reached some highs in 2016 in the hope of new stimulus packages by the US administration and encouraging macro-economic statistics. In Europe, the Brexit vote and political uncer- tainty undermined investors’ confidence for a while. LafargeHolcim share price at CHF 53.70 grew by 6.7 percent from the 2015 year-end closing price of CHF 50.30. In comparison, the SMI decreased by 6.8 percent while the CAC 40 progressed by 4.9 percent and the Stoxx 600 Construction improved by 9.2 per- cent. After under-performing in the beginning of the year, LafargeHolcim closed the gap thanks to improved operational performance driven by strict execution of its strategy on pricing, synergies delivery and cost management. The Group also delivered on its divestment program and improved its Fee Cash Flow generation. In addition, the Group announced increased shareholder returns through proposed higher dividends and a CHF 1 billion share buy-back program to be conducted in 2017 and 2018. The average trading volume in 2016 amounted to approximately 2.0 million shares per day on the SIX Swiss Exchange and 0.4 million shares on the Euronext. 76 L A F A R G E H O L C I M Annual Report 2016 Additional data ISIN CH0012214059 Security code number 1221405 Telekurs code Bloomberg code Thomson Reuters code LHN LHN:VX LHN.VX Listings LafargeHolcim is listed on the SIX Swiss Exchange and on Euronext Paris. The Group is a member of the main large indices on both the SIX Swiss Exchange and Euronext Paris (SMI and CAC40), providing outstanding liquidity for shareholders. Each share carries one voting right. At year-end 2016, the company’s market capitalization stood at CHF 32.6 billion. Weighting of the LafargeHolcim registered share in selected share indices Index SMI, Swiss Market Index CAC 40, Euronext Paris SPI, Swiss Performance Index SLI, Swiss Leader Index SXOP, Dow Jones STOXX 600 Construction STOXX Europe Large 200 STOXX Europe 600 STOXX Global 1800 DJSI World Enlarged Index FTSE4Good Europe Index Sources: Bloomberg, FTSE Index Company, as of year-end 2016 Weighting in % 2.58 2.14 2.11 4.43 10.63 0.79 0.31 0.07 0.174 0.4 Distribution of LafargeHolcim shares and breakdown of shareholders The majority of shares held outside Switzerland and France are owned by shareholders in the United Kingdom and the United States. Free float Free float as defined by the SIX Swiss Exchange stands at 75 percent. Dividend policy Dividends are distributed annually. LafargeHolcim is committed to a progressively growing dividend per share and a payout ratio of 50 percent of Group net income attributable to shareholders of LafargeHolcim over the cycle. For the 2016 financial year, the Board is proposing a payout from the capital contribution reserves in the amount of CHF 2.00 per registered share. The payout is scheduled for May 10, 2017. K e y E n a b l e r s Capital Market Information 77 Key data LafargeHolcim registered shares Par value CHF 2.00 2016 2015 2014 1 2013 2012 1 Number of shares issued 606,909,080 606,909,080 327,086,376 327,086,376 327,086,376 Number of dividend-bearing shares 606,909,080 606,909,080 327,086,376 327,086,376 327,086,376 Number of shares conditional capital 2 1,422,350 1,422,350 1,422,350 1,422,350 1,422,350 Number of treasury shares 1,152,327 1,338,494 1,219,339 1,522,510 1,736,538 Stock market prices in CHF 2016 2015 2014 2013 2012 High Low Average Market capitalization (billion CHF) Trading volumes (million shares) Earnings per dividend bearing share in CHF 3 Cash earnings per share in CHF 4 Consolidated shareholders’ equity per share in CHF 5 Payout/dividend per share in CHF 57 34 47 32.6 615.0 2.96 5.44 50.88 2.00 6 73 48 63 30.5 449.1 (3.11) 5.29 51.79 1.50 83 62 73 23.3 266.8 3.63 7.63 53.49 1.30 79 63 69 21.8 215 3.91 8.56 49.77 1.30 68 49 58 21.9 231.4 1.89 8.16 50.52 1.15 1 Restated due to changes in accounting policies. 2 Shares reserved for convertible bonds. 3 EPS calculation based on net income attributable to shareholders of LafargeHolcim Ltd weighted by the average number of shares outstanding. EPS for 2014 was restated due to the distribution of a scrip dividend. 4 Cash EPS calculated based on cash flow from operating activities weighted by the 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. Major shareholders Information on major shareholders can be found on page 284 of this report. Disclosure of shareholdings Under the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (Financial Market Infrastructure Act, FMIA), who soever, directly, indirectly, or in concert with third parties, acquires or disposes of shares, for his own account, in a company incorporated in Switzerland whose equity securities are listed, in whole or in part, in Switzerland and thereby attains, falls below, or exceeds the threshold of 3, 5, 10, 15, 20, 25, 33⅓, 50, or 66⅔ percent of the voting rights, whether or not such rights may be exercised, shall notify the company and the stock exchanges on which the equity securities in question are listed. 78 L A F A R G E H O L C I M Annual Report 2016 Current rating (March 2017) Rating Agency Long-term rating Short-term rating Standard & Poor’s Ratings Services BBB, outlook stable Moody’s Investors Service Baa2, on review for downgrade A-2 P-2 Financial reporting calendar Results for the first quarter 2017 Annual General Meeting of shareholders Ex date Payout Date May 3, 2017 May 3, 2017 May 8, 2017 May 10, 2017 Registration in the share register and restrictions on voting rights On request, purchasers of registered shares are entered in the share register as voting shareholders provided that they expressly declare that they acquired the 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 company concerning their status and are subject to recognized banking or financial market supervision. The Board of Directors has issued the applicable Registration Regulations which can be found on the LafargeHolcim website. Information on LafargeHolcim registered shares Further information on LafargeHolcim registered shares can be found at: www.lafargeholcim.com/investor-relations BUS I NE S S R E V I E W G R O U P R E G I O N A S I A P A C I F I C Page 80 G R O U P R E G I O N E U R O P E Page 84 G R O U P R E G I O N L A T I N A M E R I C A Page 88 G R O U P R E G I O N M I D D L E E A S T A F R I C A Page 92 G R O U P R E G I O N N O R T H A M E R I C A Page 96 80 CEMENT & GRINDING PLANTS 87 Cement plant Grinding plant AGGREGATES PLANTS 69 READY-MIX CONCRETE PLANTS 317 B u s i n e s s R e v i e w Group Region Asia Pacific 81 A SI A PACIFIC DELI VERS DESPI TE INCREA SED COMPET I T ION The contribution from Asia Pacific increased despite a mixed economic picture across the region. Overall, the construction market was relatively flat and more intense competition and overcapacity in some markets affected prices. LafargeHolcim’s cement volumes were marginally down on the prior year. Thanks to positive contributions from countries such as the Philippines, Vietnam and India and the benefits of synergies, tight cost management and lower energy costs, Adjusted Operating EBITDA on a like-for-like basis for Asia Pacific was ahead of 2015. Economic and construction industry development In 2016, growth in Asia Pacific continued to outpace the global economy despite vola tility across the region. The rate of construction industry growth in China, was positive in 2016 after a sharp decline in 2015 and benefited from increased government spending – such as the one-belt-one-road infrastructure initiative – as well as a temporary increase in the housing sector activity. In India, the construction sector continued to expand and cement consumption increased. The Indian government’s demonetization policy, and the resulting impact on consumer spending power, negatively affected many sectors of the economy in the last two months of the year. In Southeast Asia, the Philippines economy saw significant and robust growth, especially during the first half of the year. Private and infrastructure construction continued to drive the sector’s growth and cement consumption increased as a consequence. Indonesia’s economic growth was supported by private consumption. Cement consumption increased, but below expectations following a slowdown in public sector infrastructure projects. Malaysia’s GDP grew moderately over the year due to weakened demand for exports of oil and manufactured goods. The construction market and cement consumption declined. Vietnam recorded robust economic growth. The construction market grew as residential, commercial and infrastructure construction activity increased. Economic growth was strong in Bangladesh and the construction market expanded. Large infrastructure projects and construction of industrial buildings, notably to serve the clothing industry, drove the market. In Australia, GDP growth rates remained soft as the economy felt the effects of lower global demand for commodities and continued the rebalance towards non-mining sectors. 82 L A F A R G E H O L C I M Annual Report 2016 LafargeHolcim performance by country In China, cement volumes increased supported by a new regional sales strategy. Aggre- gate volumes increased markedly with the initiation of a new plant in Wuxue and strong demand in Dujiangyan. Measures to take advantage of lower energy costs in particular contributed to a marked increase in Adjusted Operating EBITDA. Cement volumes in India were affected by the government’s demonetization program launched in the fourth quarter. The removal of certain banknotes from circulation had a particular impact on the retail business which relies to a significant degree on cash trans- actions. However, savings in fuel and other variable costs and the implementation of new marketing strategies offset the adverse effects in price and volume to drive an increase in Adjusted Operating EBITDA on the previous year. Strong construction demand across the country continued to drive volumes up in all seg- ments in the Philippines despite a softening in the fourth quarter. Higher volumes and prices supported by operating efficiencies drove improved Adjusted Operating EBITDA compared to the previous year. Vietnam reported an increase in cement volumes driven by strong market growth, power plant projects in the south of the country and an increase in residential housing construction. Ready-mix concrete volumes dropped significantly as a result of day-time delivery restrictions in Ho Chi Minh City. Supported by cost savings, Adjusted Operating EBITDA grew compared to 2015. In Bangladesh, the cement volumes were up driven by government-funded buildings and infrastructure. Despite downward price pressures, Adjusted Operating EBITDA increased compared to the prior year. In Indonesia, the entry of new manufacturers added to existing overcapacity in the market and exerted downward pressure on cement volumes and prices. Ready-mix concrete volumes remained stable, underpinned by high-rise projects, especially in the greater Jakarta area. Volume and price deterioration had a negative effect on the financial performance compared to the previous year. Malaysia registered a drop in cement volumes and prices as the market declined, competitors added new capacity and exports reduced. Volumes of ready-mix concrete increased as a result of new large infrastructure projects. Adjusted Operating EBITDA declined in both Indonesia and Malaysia for the year despite the positive effects of measures to improve competitive- ness and performance in these challenging markets. Australia saw flat aggregates volumes while ready-mix volumes grew. Adjusted Operating EBITDA declined, reflecting the completion of large infrastructure projects in the north west of the country and the end of the construction phase of the Gorgon gas project in Western Australia earlier in the year as well as the transition to the new Lynwood aggregates quarry which will serve the Sydney market. Measures to reduce the cost base were introduced during 2016. B u s i n e s s R e v i e w Group Region Asia Pacific 83 Asia Pacific Sales of cement million t 113.7 123.1 2016 2015 Sales of aggregates million t Sales of ready-mix concrete million m³ Net sales Operating EBITDA million CHF million CHF Operating EBITDA adjusted 1 million CHF Operating EBITDA margin % Operating EBITDA margin adjusted 1 % 1 Excluding merger, restructuring and other one-offs. 32.2 15.4 8,226 1,444 1,530 17.6 18.6 34.8 15.9 9,048 1,486 1,565 16.4 17.3 ±% –7.7 –7.5 –3.4 –9.1 –2.8 –2.2 ±% like- for-like –1.0 5.2 0.6 –2.0 4.4 5.2 Summary of Group region performance In the period under review, consolidated cement volumes in Asia Pacific decreased by 1.0 percent on a like-for-like basis to 113.7 million tonnes driven largely by volume decreases in Indonesia and Malaysia. Aggregates shipments increased by 5.2 percent on a like-for-like basis to 32.2 million tonnes, while ready-mix concrete volumes increased by 0.6 percent on a like-for-like basis at 15.4 million cubic meters. Net sales decreased by 2.0 percent to CHF 8,226 million, and adjusted operating EBITDA increased by 5.2 percent on a like-for-like basis to CHF 1,530 million. 84 L A F A R G E H O L C I M Annual Report 2016 CEMENT & GRINDING PLANTS 55 Cement plant Grinding plant AGGREGATES PLANTS 286 READY-MIX CONCRETE PLANTS 581 B u s i n e s s R e v i e w Group Region Europe 85 RESILIENT PERFORMANCE IN EUROPE LafargeHolcim turned in a resilient performance in Europe in a year characterized by slow economic growth, delayed infrastructure projects and widespread political uncertainty. Adjusted operating EBITDA improved versus the prior year – chiefly as a result of disci- plined cost management – despite a slight decrease in volumes across the region. Notable positive contributions came from the United Kingdom, Germany, France and Belgium, while Spain and Azerbaijan, impacted by political instability, saw the biggest downturns. Economic and construction industry development The Eurozone’s tentative economic recovery continued in 2016. The United Kingdom economy recovered its poise after the Brexit vote in June and continued to expand above the EU average, underpinned by a buoyant service sector, the effects of a weakening pound and government support for housing and infra structure spending. France remained in a cycle of modest growth during 2016. The construction sector grew slightly but public construction spending remained subdued. The Belgian economy grew modestly supported by lower unemployment, higher disposable income and low interest rates. The recovery in the residential and non-residential construction market was not mirrored in the infrastructure sector. Germany showed moderate economic growth, fueled mainly by consumption under- pinned by solid fundamentals. The construction sector advanced on the back of residen- tial demand. Non-residential construction suffered from a downturn in investment. After a difficult 2015, the Swiss economy saw increased rates of growth in 2016. Construction activity picked up slightly helped by the non-residential sector. The recovery of the Italian economy continued as domestic demand picked up. The construction industry witnessed moderate growth due to new infrastructure projects. Despite political uncertainty, the Spanish economy continued to achieve strong growth in 2016. Supported by household consumption, the residential construction sector grew steadily. Investments in infrastructure, however, decreased substantially as government cut spending to reduce the deficit. Greece reported weak but positive growth for 2016. The construction market, still at a historically low level, remained stable. The economy in Romania grew on the back of increased domestic consumption though the construction sector and cement consumption slowed. Bulgaria’s economy expanded in 2016, but cuts in EU funding for road construction negatively affected the construction market. 86 L A F A R G E H O L C I M Annual Report 2016 The Polish economy continued to grow in 2016. The construction market slowed down considerably due to lower EU development funds and change of government. The economies of Austria, the Czech Republic, Hungary and Slovenia grew moderately. The construction sector expanded in Austria, but decreased considerably in the other countries, especially in Hungary and in Slovenia. Oil prices and sanctions continued to weigh heavily on the Russian economy which remained in recession and the construction market remained sluggish. In Azerbaijan the economy continued to contract sharply. The construction market saw a marked decline due to lack of public financing and liquidity problems in the private sector. The Ukrainian economy showed modest signs of recovery over last year. In spite of political and economic instability, the economy in Moldova grew moderately. LafargeHolcim performance by country Steady demand in the United Kingdom market drove an upturn in the Group’s cement and ready-mix volumes while delays in road projects affected aggregates volumes negatively and the weakened pound resulted in cost increases. Despite the headwinds, Adjusted Operating EBITDA improved significantly due to full year impact of increased cement production, strong margin management, pricing and customer differentiation initiatives as well as particular focus on cost management. In France, volumes in the three segments remained relatively stable but revenues were impacted by pressure on prices. The financial performance improved slightly as a result of the tight focus on energy costs in particular and additional EBITDA from recycled aggregates. Belgium delivered higher volumes of cement and aggregates. Ready-mix concrete volumes were down following the right sizing the production footprint. Adjusted Operating EBITDA benefited from substantial improvements in the manufacturing pro- cess, strong performance in aggregates and cost discipline. In the Group’s operations in northern Germany, volumes of cement and ready-mix concrete remained stable while aggregates volumes increased slightly. In southern Germany cement and aggregates volumes increased while ready-mix concrete volumes declined. Adjusted Operating EBITDA for Germany improved significantly in part due to cost reduction actions. In Switzerland, positive market dynamics and the Group’s strong positions in large construction projects led to increased cement sales volumes. Adjusted Operating EBITDA improved year-on-year thanks to strict cost management and positive momentum of cement volumes, which more than compensated for price pressure in the market. Cement and ready-mix concrete volumes declined in Italy as large construction projects were completed and new ones delayed. Adjusted Operating EBITDA was down on 2015. Spain saw a decrease in cement, ready-mix concrete and aggregates volumes though major restructuring and decisive action on costs resulted in an improved Adjusted Operating EBITDA. Greece reported an increase in cement and aggregate volumes. Though operating in difficult circumstances, efforts to refocus the customer portfolio, pricing and cost savings resulted in higher Adjusted Operating EBITDA compared to the previous year. 87 B u s i n e s s R e v i e w Group Region Europe Europe Sales of cement million t 2016 41.6 2015 42.1 Sales of aggregates million t 124.2 123.0 Sales of ready-mix concrete million m³ Net sales Operating EBITDA million CHF million CHF Operating EBITDA adjusted 1 million CHF Operating EBITDA margin % Operating EBITDA margin adjusted 1 % 1 Excluding merger, restructuring and other one-offs. 18.4 7,023 1,217 1,329 17.3 18.9 18.7 7,356 1,089 1,264 14.8 17.2 ±% –1.4 1.0 –1.6 –4.5 11.8 5.1 ±% like- for-like –1.4 1.0 –1.6 –2.1 15.2 8.2 Softer cement demand, a lack of infrastructure projects and the reduction in exports drove volumes down in Romania. This was partly offset by savings in energy costs with a slightly improved financial performance compared to 2015. Bulgaria suffered from weakened demand and increased pressure on prices. Volumes in all three segments declined, and the Adjusted Operating EBITDA was down on 2015. Poland increased cement volumes in a highly competitive market while a slowdown in infrastructure projects negatively impacted aggregates volumes. Significant cost reductions offset the effect of lower prices and Adjusted Operating EBITDA was above previous year’s level. Austria and the Czech Republic, reported slightly higher sales. Volumes in Hungary were stable and declined in Slovenia. Thanks in large part to cost reduction measures, Adjusted Operating EBITDA improved in Czech Republic and Hungary. Russia saw reduced cement volumes as the overall market declined, impacted by low oil prices and sanctions. Aggregates sales were higher as the government restricted some imports, and new infrastructure projects were started. Price increases, a more focused commercial approach, and substantial cost reduction measures limited the downward pressure on Adjusted Operating EBITDA. Substantially weaker demand led to a drop in volumes in Azerbaijan. Financial performance was down on the previous year. Summary of Group region performance Despite higher volumes in many countries, consolidated cement volumes in Europe were down 1.4 percent to 41.6 million tonnes, primarily driven by declines in Russia and Romania. Aggregates shipments totaled 124.2 million tonnes in the year under review, represent- ing an increase of 1.0 percent. Ready-mix concrete deliveries were down by 1.6 percent to 18.4 million cubic meters, mainly due to negative performance in Spain, France and Italy. Net sales declined by 2.1 percent to CHF 7,023 million but due largely to cost reductions Adjusted Operating EBITDA increased by 8.2 percent to CHF 1,329 million. 88 L A F A R G E H O L C I M Annual Report 2016 CEMENT & GRINDING PLANTS 33 Cement plant Grinding plant AGGREGATES PLANTS 12 READY-MIX CONCRETE PLANTS 120 B u s i n e s s R e v i e w Group Region Latin America 89 PR ICING AND COST MEA SURES HELP OFFSET TOUGH CONDI T IONS IN L AT IN AMER ICA MARKETS LafargeHolcim’s performance in Latin America benefited from successful pricing strategies and cost saving measures implemented in 2016. This helped offset the decline in volumes due mainly to the ongoing economic crisis in Brazil and more moderate economic slowdown in other markets. Cement, aggregate and ready-mix concrete volumes and net sales decreased. Margins improved, driving Adjusted Operating EBITDA up for the region compared to the previous year. The Group continued to focus on pricing, cost discipline, customer excellence and on building on its established retail approach. Economic and construction industry development Overall, the economic slowdown across Latin America continued in 2016. Mexico’s economy grew moderately, affected by cuts in public spending and declining oil revenues. The construction sector slowed mainly as a consequence of lower than expected government spending, foreign direct investment flows and infrastructure investment. By contrast, the housing and commercial sectors remained dynamic, helping to underpin an increase in cement volumes. In Argentina the devaluation of the peso increased inflation and slowed down domestic consumption. Decrease of public spending and negative influence of neighboring Brazil contributed to the economic decline which was mirrored in the construction sector. Chile’s economy grew moderately. Mining projects, which are an important driver of the construction activity, nearly ceased in 2016. The consumption of cement remained stable, supported by private investment in the energy sector. The economies of Costa Rica and El Salvador grew but the demand for construction materials declined. Nicaragua saw the highest economic growth in the region, and a 10 percent expansion in the construction sector due to public investment in infrastructure. Ecuador’s economy declined primarily as a result of reduced public investment and lower consumer spending on the back of falling oil prices. Economic uncertainty also contri- buted to the continued decrease of construction activity. Colombia’s positive economic growth was not reflected in the construction sector that saw a decline in cement consumption. Severe GDP contraction, high unemployment and political instability characterized Brazil in 2016. The construction market declined considerably with private and public spending nearly coming to a halt as a result of a shrinking economy and the effects of the on-going corruption probe into the construction sector. 90 L A F A R G E H O L C I M Annual Report 2016 LafargeHolcim performance by country In Mexico, a focus on more profitable segments and cost reduction resulted in strong financial performance. Cement volumes declined, partly due to a decrease in public infra- structure spending. Ready-mix concrete volumes increased as the residential and com- mercial construction market remained buoyant. Cement and ready-mix volumes in Argentina decreased mainly due to a slowdown in the residential construction sector, and a decrease in public investment in infrastructure and housing. Pricing and cost optimization initiatives resulted in a significant increase in Adjusted Operating EBITDA. In Chile, volumes of cement and ready-mix decreased, due to a fall in the residential construction market in the second half of the year. Improved prices and lower production costs compensated for reduced volumes, resulting in a higher Adjusted Operating EBITDA versus the previous year. In El Salvador cement and concrete volumes declined, affected by political instability and security problems. Thanks to disciplined cost management, Adjusted Operating EBITDA improved. Costa Rica experienced a decrease in cement volumes and in Adjusted Operating EBITDA due to lack of public infrastructure projects and increased cement imports. Nicaragua saw increased cement volumes and improved its financial perfor- mance, underpinned by solid growth in the residential and commercial construction sector and in infrastructure. In Ecuador, the liquidity crisis and the consequent challenging economic environment continued to delay construction projects. Volumes of cement decreased markedly, though aggregates and concrete volumes remained stable. Despite the sluggish market, important projects such as Quito metro and Guayaquil hospital, led to an improvement in sales volumes. Following the April earthquake, the Disensa retail network has devel- oped and made available practical and affordable housing solutions to people whose homes were damaged. An aggressive contingency plan increased margins and limited the decrease of Adjusted Operating EBITDA compared to previous year. In Colombia, softer demand and a national transport strike lasting several weeks, negatively impacted cement and ready-mix volumes. Major projects, such as Bogota El Dorado International Airport helped to partly offset the lost volume. Despite price increases during the first half of the year, and a cost savings plan, Adjusted Operating EBITDA was down on 2015. In Brazil, the very challenging operating environment hit volumes of cement, aggregates and ready-mix. Coupled with an increased pressure on prices, this contributed to a significant fall in Adjusted Operating EBITDA. Reductions in fixed costs, and divestments or mothballing of non-performing assets, partially offset the decrease. B u s i n e s s R e v i e w Group Region Latin America 91 Latin America Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m³ 2016 24.1 6.0 6.5 2015 27.9 7.9 7.3 Net sales million CHF 2,773 3,241 Operating EBITDA million CHF Operating EBITDA adjusted 1 million CHF Operating EBITDA margin % Operating EBITDA margin adjusted 1 % 1 Excluding merger, restructuring and other one-offs. 835 885 30.1 31.9 876 907 27.0 28.0 ±% –13.5 –24.4 –10.6 –14.4 –4.7 –2.4 ±% like- for-like –13.5 –23.2 –10.1 –4.1 5.4 7.8 Summary of Group region performance Consolidated cement volumes in Latin America decreased 13.5 percent and amounted to 24.1 million tonnes, as the effect of some challenging markets contributed to an overall contraction in the regional economy. Aggregates shipments were down 23.2 percent to 6.0 million tonnes, due to general economic slowdowns as well as divestments in Costa Rica, and closing of aggregates plants in Mexico. Volumes in ready-mix concrete decreased 10.1 percent in the full year to 6.5 million cubic meters. Net sales reduced by 4.1 percent in comparison to previous year. Efforts on pricing and cost discipline drove an increase in margins and an improvement in Adjusted Operating EBITDA of 7.8 percent. 92 CEMENT & GRINDING PLANTS 46 Cement plant Grinding plant AGGREGATES PLANTS 34 READY-MIX CONCRETE PLANTS 220 B u s i n e s s R e v i e w Group Region Middle East Africa 93 SOLID GROW TH ACROSS MIDDLE EA ST AFR ICA OFFSETS CHALLENGES IN NIGER I A The Middle East Africa region overcame devaluation, energy and production challenges in Nigeria, and the effect of continued low oil and commodities prices on many African economies to deliver solid growth in Adjusted Operating EBITDA in 2016. Strong contri- butions from Algeria, Egypt and Lebanon – supported by positive pricing and volume increases – offset declines in markets such as South Africa. Economic and construction industry development In 2016, the Middle East Africa region continued to witness economic growth, despite the negative effects of the low oil price. Kenya showed resilient growth while Nigeria entered into recession, underlining the diversity of economic conditions across the region. The Moroccan economy was relatively stable and the cement market declined slightly. In Algeria, the construction sector was resilient with social housing and infrastructure projects driving demand. Economic growth, however, remained modest due to a fall in oil and gas revenues. In Egypt, the cement consumption increased slightly, underpinned by investments in residential housing, large-scale projects and infrastructure. Economic growth was slower than in 2015, inflation remained high and the Egyptian pound, allowed to float in November, devalued significantly. In Lebanon, the economy grew modestly, impacted by weakened public finances. Major infrastructure projects were delayed; an increase in cement consumption was under- pinned by a mild winter season and the residential housing sector. Iraq continued its recovery from a low base, affected by the impact of military conflict and low oil revenues. The construction sector contracted as government spending on infrastructure was reduced and projects postponed in many parts of the country. Cement imports fell, which improved market prices. Despite general unrest in the region, the security situation in Iraq improved. Nigeria saw its economy contract for the first time in several years, with activity affected by the low oil price, the country’s main source of revenue. The devaluation of the naira currency in June depressed consumption rates and inflation reached its highest level for several years. The overall industrial production was also constrained by political instability in the south. The political situation in Ivory Coast was stable and the economy grew. Cement consumption increased, underpinned by residential housing projects. 94 L A F A R G E H O L C I M Annual Report 2016 Kenya showed the resilience of its economy as it continued to grow at one of the fastest rates in the region. The construction market expanded, driven by large infrastructure projects such as the Standard Gauge Railway. The Ugandan economy declined slightly in 2016. Cement consumption nevertheless increased as the government continued to invest in oil pipelines, railways, hydropower dams and roads. Economic growth in South Africa was modest, affected by drought, high unemployment and political uncertainty. Cement consumption decreased due to postponed infrastructure projects as government and private companies reviewed spending plans in response to a weakened economy. LafargeHolcim performance by country In Morocco, volumes in the cement, aggregates and ready-mix segments declined slightly. The business performed strongly in terms of Adjusted Operating EBITDA, up on 2015 due to a positive combination of pricing, cost control and realization of synergies. In July 2016, Holcim Morocco operations were merged with the former Lafarge operations in the country to create LafargeHolcim Morocco. Algeria reported an increase in cement volumes and aggregates over the year while ready-mix volumes declined slightly. Better pricing conditions at the beginning of the year, in conjunction with higher cement volumes, resulted in a significant improvement of Adjusted Operating EBITDA compared to 2015. In Egypt, overall cement volumes declined as sales slowed during the last quarter though an effective marketing campaign helped deliver volume and price increases for the Momtaz retail cement brand. Aggregate and ready-mix concrete volumes increased thanks to projects in the power plant and airport segments. Adjusted Operating EBITDA improved significantly due to cost savings from changes in the fuel mix, better pricing and increased volumes in aggregates and ready-mix concrete for large-scale projects. Lebanon saw an increase in cement volumes following implementation of a new com- mercial strategy and improvements in production performance, while ready-mix concrete volumes declined as competition intensified. Strong price performance and tight cost control led to a significant increase in Adjusted Operating EBITDA. In Jordan, a lack of major construction projects due to political instability caused cement and ready-mix concrete volumes to decline. Adjusted Operating EBITDA was down on 2015. Despite a sluggish market, cement volumes increased in Iraq, as imports were limited by the introduction of higher custom duties. Activity in the ready-mix concrete market was seriously curtailed in the north of the country with the loss only partially offset by large projects in the south. Adjusted Operating EBITDA was higher versus the prior year thanks mainly to cost discipline. Affected by the interruption of gas supplies following militant group attacks on pipe- lines and acute logistic challenges, Nigeria suffered a sharp decline in cement volumes and in Adjusted Operating EBITDA over the year. Measures to increase fuel flexibility combined with price increases drove a strong recovery of EBITDA in the fourth quarter. Ivory Coast saw an increase in cement volumes. Adjusted Operating EBITDA was down on 2015. In Uganda, cement volumes rose, underpinned by residential housing and infrastructure projects such as the Kibali gold mine. Adjusted Operating EBITDA increased compared to the previous year. Kenya reported steady profits as Adjusted Operating EBITDA increased year-on-year despite a slight decline in cement volumes due to intense competition and slower export markets. Cement volumes declined in South Africa and Adjusted Operating EBITDA was significantly down on 2015. B u s i n e s s R e v i e w Group Region Middle East Africa 95 Middle East Africa Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m³ Net sales Operating EBITDA million CHF million CHF Operating EBITDA adjusted 1 million CHF Operating EBITDA margin % Operating EBITDA margin adjusted 1 % 1 Excluding merger, restructuring and other one-offs. ±% –6.9 8.7 7.7 –14.0 –11.7 –12.2 ±% like- for-like –1.5 11.2 10.0 –1.5 1.7 1.3 2016 40.3 12.2 6.0 3,900 1,127 1,196 28.9 30.7 2015 43.4 11.2 5.6 4,536 1,276 1,362 28.1 30.0 Summary of Group region performance Consolidated cement deliveries in Middle East Africa decreased over the previous year by 1.5 percent to 40.3 million tonnes, with increases in Algeria, Iraq and South Africa helping to offset particularly marked volume declines in Nigeria and Zambia. Aggregates deliveries were up 11.2 percent to 12.2 million tonnes. Ready-mix concrete volumes increased by 10.0 percent to 6.0 million cubic meters. Net sales decreased 1.5 percent to CHF 3,900 million and Adjusted Operating EBITDA on a like-for-like basis increased by 1.3 percent to CHF 1,196 million as improved results in Algeria, Egypt and Lebanon fully mitigated weaker profits in Nigeria, Zambia and Jordan. 96 CEMENT & GRINDING PLANTS 25 Cement plant Grinding plant AGGREGATES PLANTS 252 READY-MIX CONCRETE PLANTS 237 B u s i n e s s R e v i e w Group Region North America 97 S TRONG PERFORMANCE IN NORTH AMER IC A DR I VEN BY THE US LafargeHolcim posted solid results in the North America region, supported by a strong performance in the US and despite challenging conditions in the Canadian market. Volumes of cement, aggregates and ready-mix concrete decreased, mainly due to the economic downturn in Western Canada and tough comparisons with exceptionally mild weather in the fourth quarter of 2015 in the US and Canada. Adjusted Operating EBITDA and margin for the region improved markedly thanks largely to pricing, synergies and cost reduction measures. Economic and construction industry development In 2016, the US economy continued to expand at a moderate, steady rate across most parts of the country, except for the oil and gas producing states such as Texas, Oklahoma and the Dakotas which witnessed a relative slowdown. Rising employment and low interest rates underpinned a period of growth in the residential construction market. The US housing starts stood at approximately 1.1 million, still below the long-term average level of 1.5 million. The demand for cement in the US increased by 2.7 percent. The Canadian economy, driven by the eastern provinces and British Columbia, grew at a moderate rate. The Federal and Provincial governments, which had made infrastructure spending a priority, continued to invest in projects as a means of maintaining economic growth. A housing boom in Vancouver and Toronto also contributed to growth. Overall, economic activity was lower in Western Canada, which, with the exception of the British Columbia province, continued to suffer from an oil price-driven downturn. The regional differences in economic development were reflected in cement consumption which increased in the east of the country while, with the exception of British Columbia, declined in the western provinces compared to the previous year. LafargeHolcim performance by country In the US, cement volumes in 2016 were down slightly, impacted by lower construction growth in LafargeHolcim-specific markets versus the national average, as well as unfavorable weather conditions for construction in the third and fourth quarters. Aggregates and ready-mix concrete demand remained stable over 2016. Despite slightly lower volumes, the US reported strong financial performance. An uplift in Adjusted Oper- ating EBITDA was driven by a continued improvement in pricing and disciplined cost con- trol. The US succeeded in accelerating the capture of synergies through supply chain, plant network optimization, manufacturing and procurement with renegotiation of post-merger purchasing contracts. Organic cost savings measures were also implemented. 98 L A F A R G E H O L C I M Annual Report 2016 North America Sales of cement million t 2016 19.5 2015 21.8 Sales of aggregates million t 108.2 115.3 Sales of ready-mix concrete million m³ Net sales Operating EBITDA million CHF million CHF Operating EBITDA adjusted 1 million CHF Operating EBITDA margin % Operating EBITDA margin adjusted 1 % 1 Excluding merger, restructuring and other one-offs. 8.7 5,584 1,294 1,329 23.2 23.8 9.3 5,678 1,121 1,183 19.7 20.8 ±% –10.9 –6.2 –7.1 –1.7 15.4 12.3 ±% like- for-like –2.3 –6.2 –6.9 –2.7 13.8 10.8 In Canada, LafargeHolcim saw a drop in cement sales volumes, largely due to the effect of lower energy prices in the oil-dependent provinces in the west of the country and low- er exports to the US. In Eastern Canada, industrial action, affected exports of cement to the US, impacting volumes. The volumes of aggregates and ready-mix concrete also declined due to the economic downturn as well as lower levels of construction activity in Western Canada. In Eastern Canada, Montreal’s New Champlain bridge two-year project had a positive effect on volume and profitability. The completion of other major infra- structure projects during 2016, however, led to an overall decline in aggregates volumes. In ready-mix concrete, the positive developments in the residential sector were not enough to compensate for the lack of large infrastructure projects, thus resulting in low- er overall sales volumes. Adjusted Operating EBITDA in Canada was lower than in the previous year, despite measures on pricing and costs, due to the geographical sales mix. Summary of Group region performance Consolidated cement volumes in North America decreased by 2.3 percent like-for-like to 19.5 million tonnes in the year under review. The volume decrease was most pro- nounced in Western Canada where it was affected by lower investment activity due to oil price- driven economic downturn. Aggregates deliveries were down 6.2 percent in the period to 108.2 million tonnes, as the end of important infrastructure projects in East- ern Canada and the low activity in Western Canada brought down the region’s volumes. Ready-mix concrete shipments were down 6.9 percent to 8.7 million cubic meters due to lower demand in Western Canada. Despite the drop in volumes, the decrease in net sales was limited to 2.7 percent, resulting in net sales of CHF 5,584 million. Supported by pricing, synergies and cost reduction mea- sures, Adjusted Operating EBITDA increased by 10.8 percent to CHF 1,329 million. COR POR ATE GOV ER N A NCE C O R P O R A T E G O V E R N A N C E Page 100 100 L A F A R G E H O L C I M Annual Report 2016 CORPOR ATE GOVERNANCE LafargeHolcim applies high standards to corporate governance. The goal is to assure the long-term value and success of the company in the interests of various stakeholder groups: customers, share- holders, employees, creditors, suppliers, and the communities where LafargeHolcim operates. C o r p o r a t e G o v e r n a n c e 101 Acting responsibly The ultimate goal of effective corporate governance is long-term value creation and strengthening of the Group’s reputation. This includes continuous improvement to decision-making processes and management systems through legal, organization, and ethical directives and terms of reference, as well as measures to enhance transparency. Compliance with internal and external directives, early recognition of business risks, social responsibility for stakeholder groups, and open communication on all relevant issues are among the principles of LafargeHolcim. The Code of Business Conduct, binding for the entire Group, is part of our internal regulation. LafargeHolcim aims to achieve a balanced relationship between management and control by keeping the functions of Chairman of the Board of Directors and CEO sepa- rate. With one exception, all directors are independent according to the definition of the Swiss Code of Best Practice for Corporate Governance. The principle of “one share, one vote” applies. The information published in this chapter conforms to the Corporate Governance Directive of the SIX Swiss Exchange (SIX) and the disclosure rules of the Swiss Code of Obligations. In the interest of clarity, reference is made to other parts of the Annual Report or, for example, to the Group’s website (www.lafargeholcim.com). Pages 106 to 109 of this report describe the duties of the Finance & Audit Committee, the Nomination, Compensation & Governance Committee, and the Strategy & Sustainable Development Committee as well as the Organizational Rules. Except where otherwise indicated, this Annual Report reflects the legal situation as of December 31, 2016. Group structure and shareholders The holding company LafargeHolcim Ltd operates under the laws of Switzerland for an indefinite period. Its registered office is in Rapperswil-Jona (Canton of St. Gallen, Switzerland). It has direct and indirect interests in all companies listed on pages 261 to 263 of this Annual Report. The Group is organized by geographical regions. The management structure as per December 31, 2016, and changes which occurred in 2016, are described in this chapter. LafargeHolcim has no mutual cross-holdings with any other company. There are neither shareholders’ agreements nor other agreements regarding voting or the holding of LafargeHolcim shares. More detailed information on the business review, Group structure, and shareholders can be found on the following pages of the Annual Report: Topic Chapter Business review in the individual Group regions Segment information Principal companies Information about LafargeHolcim Ltd & listed Group companies Page 79 – 98 206 – 207 261 – 263 264 102 L A F A R G E H O L C I M Annual Report 2016 Capital structure LafargeHolcim has one uniform type of registered share in order to comply with inter- national capital market requirements in terms of an open, transparent, and modern capital structure and to enhance attractiveness, particularly for institutional investors. Share capital The share capital is divided into 606,909,080 registered shares of CHF 2.00 nominal value each. As of December 31, 2016, the nominal, fully paid-in share capital of LafargeHolcim Ltd amounted to CHF 1,213,818,160. Conditional share capital The share capital may be raised by a nominal amount of CHF 2,844,700 through the issuance of a maximum of 1,422,350 fully paid-in registered shares, each with a par value of CHF 2.00 (as per December 31, 2016). The conditional capital may be used for exercising convertible and/or option rights relating to bonds or similar debt instru- ments of the company or one of its Group companies. The subscription rights of the shareholders will be excluded. The current owners of conversion rights and/or war- rants will be entitled to subscribe for the new shares. The acquisition of shares through the exercise of conversion rights and/or warrants and each subsequent transfer of the shares will be subject to the restrictions set out in the Articles of Incorporation. As per December 31, 2016, no bonds or similar debt instruments of the company or one of its Group companies were outstanding that would give rise to conversion rights related to the conditional capital; therefore, in the year under review, no conversion rights have been exercised. Further information on conversion rights and/or warrants and appli- cable conditions may be found in the Articles of Incorporation of LafargeHolcim Ltd at: www.lafargeholcim.com/articles-association. Authorized share capital/Certificates of participation As per December 31, 2016, neither authorized share capital nor certificates of parti cipation were outstanding. Further information can be found under: www.lafargeholcim.com/investor-relations C o r p o r a t e G o v e r n a n c e Topic Article Articles of Incorporation of LafargeHolcim Ltd www.lafargeholcim.com/articles-association Code of Business Conduct www.lafargeholcim.com/corporate-governance 103 Page – – Changes in equity of LafargeHolcim Ltd Information for the year 2014 is included in the Annual Report 2015, P. 172 – 173 176 – 177 Detailed information on conditional capital Key data per share www.lafargeholcim.com/articles-association Articles of Incorporation, Art. 3bis – 74 – 78, 253, 285 Rights pertaining to the shares www.lafargeholcim.com/articles-association Articles of Incorporation, Art. 6, 9, 10 – www.lafargeholcim.com/articles-association Articles of Incorporation, Art. 4, 5 112 Regulations on transferability of shares and nominee registration Warrants/Options 248 – 252 Composition of the Board of Directors Board of Directors Position Beat Hess Chairman (Statutory Chairman) Bruno Lafont Co-Chairman Bertrand Collomb Member Philippe Dauman Member Paul Desmarais, Jr. Member Oscar Fanjul Alexander Gut Member Member Gérard Lamarche Member Adrian Loader Jürg Oleas Nassef Sawiris Member Member Member Thomas Schmidheiny Member Hanne Birgitte Breinbjerg Sørensen Member Dieter Spälti Member Board of Directors The Board of Directors consists of 14 members, 13 of whom are independent according to the definition of the Swiss Code of Best Practice for Corporate Governance. Please see pages 116 to 122 for the biographical information of the Board members as per December 31, 2016. The title “Chairman of the Board” as used herein refers to the Statutory Chairman of the Board. Prof. Dr. Wolfgang Reitzle retired from the Board of Directors at the Annual General Meet- ing of May 12, 2016. The Board of Directors expressed sincere gratitude for his service. In 2016, the Board re-elected Mr. Jürg Oleas, who was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2014, and retired from the Holcim Ltd Board in the context of the LafargeHolcim Ltd merger closing effective July 10, 2015. In 2016, the shareholders re-elected thirteen members of the Board of Directors, and elected Dr. Beat Hess as Chairman of the Board of Directors. Furthermore, the shareholders elected the five members of the Nomination, Compensation & Governance Committee. The shareholders also elected the auditors and the independent proxy. New members of the Board of Directors are introduced in detail to the company’s areas of business. The Board of Directors meets as often as business requires, but at least four times a year. In 2016, seven regular meetings were held. One additional meeting focused on strategy topics. The Board of Directors held one regular meeting with all members present, three meetings with one member excused, one meeting with two members excused, one meeting with three members excused and one meeting with four members excused. As a rule, the members of the Executive Committee atten- ded those parts of the regular meetings of the Board of Directors which dealt with operational issues of areas of their responsibility. The average duration of the regular meetings was five hours. 104 L A F A R G E H O L C I M Annual Report 2016 Other major Swiss and foreign mandates of the Board of Directors outside the LafargeHolcim Group as at December 31, 2016 Board of Directors Mandate Position Beat Hess Nestlé S.A., Vevey (Switzerland) * Sonova Holding AG, Stäfa (Switzerland) * Bruno Lafont World Business Council of Sustainable Development Member of the Board, Member of the Chairman’s and Corporate Governance Committee, Chairman of the Compensation Committee Vice Chairman of the Board, Member of the Nomination and Compensation Committee Member of the Executive Committee & Co-Chair of the Energy Efficiency in Buildings project European Round Table of Industrialists Chair of the Energy and Climate Change working group MEDEF (French Business Confederation) Chair of Sustainable Development Commission AFEP (French Large Companies Association) Member of the Board EDF * Member of the Board ArcelorMittal * Member of the Board Bertrand Collomb Académie des sciences morales et politiques, Paris (France); Global Advisory Board; The University of Tokyo, Tokyo (Japan) Member Philippe Dauman Lenox Hill Hospital, New York NY (USA) Member of the Executive Committee Dean’s Council at Columbia Law School, New York NY (USA) Member Kipp Foundation, San Francisco CA (USA) Member of the Board Paul Desmarais, Jr. Power Corporation of Canada, Montréal (Canada) * Member of the Board Great-West Lifeco Inc., Winnipeg (Canada) * IGM Financial Inc., Winnipeg (Canada) * Pargesa Holding SA, Geneva (Switzerland) Groupe Bruxelles Lambert, Brussels (Belgium) * Member of the Board Member of the Board Member of the Board Member of the Board Total SA, Paris (France) * Member of the Board SGS SA, Geneva (Switzerland) * Member of the Board Oscar Fanjul Marsh & McLennan Companies, New York NY (USA) * Member of the Board Ferrovial S.A., Madrid (Spain) * Member of the Board C o r p o r a t e G o v e r n a n c e 105 Board of Directors Mandate Position Alexander Gut Adecco Group AG, Opfikon (Switzerland) * Member of the Board and Chairman of the Audit Committee Credit Suisse (Switzerland) AG, Zurich (Switzerland) Member of the Board and Chairman of the Audit Committee Credit Suisse Group AG* and Credit Suisse AG, Zurich (Switzerland) Member of the Board and of the Audit Committee SIHAG Swiss Industrial Holding Ltd, Uetikon am See (Switzerland) Member of the Board Gérard Lamarche Gut Corporate Finance AG, Zurich (Switzerland) Groupe Bruxelles Lambert, Brussels (Belgium) * Total SA, Paris (France) * SGS SA, Geneva (Switzerland) * Adrian Loader Alderon Iron Ore, Montreal (Canada) * Managing Partner Co-CEO Member of the Board, Chairman of the Remuneration Committee and Member of the Audit Committee Member of the Board and of the Audit Committee Member of the Board Sherrit International Corporation, Toronto (Canada) * Member of the Board Jürg Oleas GEA Group Aktiengesellschaft, Düsseldorf (Germany)* Chief Executive Director Nassef Sawiris RUAG Holding AG, Bern (Switzerland) OCI N.V., Amsterdam (Netherlands) * Orascom Construction Limited, Dubai (United Arab Emirates) * Member of the Board Executive Director and Chief Executive Officer Chairman of the Board BESIX Group, Brussels (Belgium) Member of the Board OCI Partners LP, Delaware (USA) Member of the Board Thomas Schmidheiny Schweizerische Cement- Industrie- Aktiengesellschaft, Rapperswil-Jona (Switzerland) Chairman of the Board Hanne B. Sørensen Dieter Spälti Spectrum Value Management Ltd., Rapperswil-Jona (Switzerland) Chairman of the Board Abraaj Holdings, Dubai (United Arab Emirates) Damco International B.V., The Hague (Netherlands) Schweizerische Cement- Industrie- Aktiengesellschaft, Rapperswil-Jona (Switzerland) Member of the Board Chief Executive Officer Member of the Board Spectrum Value Management Ltd., Rapperswil-Jona (Switzerland) Member of the Board * Listed company Note: For further information on other major Swiss and foreign mandates outside the LafargeHolcim Group please refer to the CVs on pages 116 to 122. 106 L A F A R G E H O L C I M Annual Report 2016 Composition of the Finance & Audit Committee Finance & Audit Committee Position Gérard Lamarche Chairman Betrand Collomb Member Alexander Gut Dieter Spälti Member Member Elections and terms of office In line with the Federal Council Ordinance against Excessive Compensation (OaEC), since the 2014 Annual General Meeting, the terms of office of all members of the Board of Directors is set at one year, expiring after completion of the following Annual General Meeting. In addition, the Chairman of the Board of Directors, all members of the Board of Directors, and all members of the Nomination, Compensation & Governance Committee are elected for a one-year term at the Annual General Meeting. The Chairman of the Board of Directors, the members of the Board of Directors and the members of the Nomination, Compensation & Governance Committee may be proposed for re-election by the Board of Directors upon motion by the Nomination, Compensation & Governance Committee. The Nomination, Compensation & Governance Committee bases its motion on a review of the overall performance of each candidate. The following expert committees exist: Finance & Audit Committee The Finance & Audit Committee assists and advises the Board of Directors in conducting its supervisory duties with respect to the internal control systems. It examines the reporting for the attention of the Board of Directors and evaluates the Group’s external and internal audit procedures, reviews the risk management systems of the Group, and assesses financing issues. All members are independent according to the definition of the Swiss Code of Best Practice for Corporate Governance, in order to ensure the necessary degree of objectivity required for a Finance & Audit Committee. In 2016, six regular meetings and two additional meetings of the Finance & Audit Committee were held. Four of the regular meetings were held with all members of the committee present and two meetings with one member excused. The auditors, the Head of Group Internal Audit and the Chief Legal & Compliance Officer were present at all meetings for certain agenda topics. Furthermore, the Chairman of the Board, the CEO and the CFO attended the meetings of the Finance & Audit Committee as guests. The average duration of the regular meetings was four hours. In 2016, the committee reviewed in particular the financial reporting of the Group, the releases of the quarterly results and the findings of the external auditors. The committee took note of the status of the ICS (internal control system), discussed the findings of the Group Internal Audit, dealt with compliance and internal directives, and evaluated financing issues. The committee also evaluated the performance of the external auditors and their fees. The Chairman of the Finance & Audit Committee performed significant work in preparing and following up the committee’s meetings given the wide range of its duties (without being exhaustive assessing financial issues, tax planning, disposal impacts, hedging and compliance). The Finance & Audit Committee’s Charter is available at: www.lafargeholcim.com/articles-association C o r p o r a t e G o v e r n a n c e 107 Nomination, Compensation & Governance Committee The Nomination, Compensation & Governance Committee supports the Board of Directors in planning and preparing succession at the Board of Directors and senior management level. It monitors developments with regard to corporate governance and compensation for the Board of Directors and Executive Committee, and briefs the Board of Directors accordingly. The committee advises the Board of Directors on the compensation policy for the Board of Directors and for the Executive Committee and on the motion by the Board of Directors to the Annual General Meeting of shareholders for the total compen- sation of the Board of Directors and of the Executive Committee. In 2016, the Nomination, Compensation & Governance Committee held three regular meetings and three additional meetings. Two of the regular meetings were held with all members of the committee present and one meeting with one member excused. The meetings were also attended by the Chairman of the Board and the CEO as a guest, insofar as they were not themselves affected by the items on the agenda. The average duration of the regular meetings was two hours. The charter of the Nomination, Compensation & Governance Committee may be found at: www.lafargeholcim.com. More details on the activities of the Nomination, Compensa- tion & Governance Committee, in particular with regard to the process of determination of compensation, can be found in the compensation report, starting on page 128. Strategy & Sustainable Development Committee The Strategy & Sustainable Development Committee supports the Board of Directors in all matters related to strategy and sustainable development. It monitors developments with regard to these matters and briefs the Board of Directors accordingly. The com- mittee deals with any matters within the Board of Director’s authority, which are urgent and may arise between scheduled ordinary Board of Directors meetings, including the authorization to take preliminary action on behalf of the Board, followed by adequate information of the Board of Directors. In 2016, the Strategy & Sustainable Development Committee held ten regular meetings and two additional meetings. Seven of the regular meetings were held with all members of the committee present, two of the meetings with one member excused and one meet- ing with two members excused. Furthermore, the Chairman of the Board, the CEO and the CFO attended the meetings of the Strategy & Sustainable Development Committee as guests. The average duration of the regular meetings was three hours. The charter of the Strategy & Sustainable Development Committee may be found at: www.lafargeholcim.com/articles-association Composition of the Nomination, Compensation & Governance Committee Nomination, Compen- sation & Governance Committee Position Nassef Sawiris Chairman Paul Desmarais, Jr. Member Oscar Fanjul Adrian Loader Member Member Hanne Sørensen Member Composition of the Strategy & Sustainable Development Committee Strategy & Sustainable Development Committee Position Dieter Spälti Chairman Gérard Lamarche Member Oscar Fanjul Nassef Sawiris Member Member 108 L A F A R G E H O L C I M Annual Report 2016 Areas of responsibility The division of responsibilities between the Board of Directors, the CEO, and the Executive Committee is set out in detail in the company’s Organizational Rules. The Organizational Rules may be found at: www.lafargeholcim.com/articles-association. Organizational Rules The Organizational Rules entered into force on May 24, 2002, and according to the Orga- nizational Rules they shall be reviewed at least every two years and amended as required. They were last reviewed and amended in view of the merger in 2015. The Organizational Rules are issued by the Board of Directors of LafargeHolcim Ltd in accordance with the terms of Art. 716b of the Swiss Code of Obligations and Art. 18 of the company’s Articles of Incorporation. They stipulate the organizational structure of the Board of Directors and the Executive Committee and govern the tasks and powers conferred on the company’s executive bodies. They regulate the convocation, execution, and number of meetings to be held by the Board of Directors and the Executive Commit- tee as well as the tasks and competences of the company’s bodies. The Organizational Rules set out the tasks and responsibilities of the Chairman of the Board of Directors and the CEO. In the event that the Chairman of the Board of Directors is not independent, the Organizational Rules provide for the election of an Independent Lead Director. The Board of Directors also has the power to establish expert committees and, if required, ad-hoc committees for special tasks. The Board of Directors can delegate special tasks or tasks related to specific functions to a Vice-Chairman on a temporary or permanent basis. As part of its non-transferable statutory responsibilities, the Board of Directors defines the corporate strategy, approves the consolidated Group mid-term plan, including the budget, and the Annual Report for submission to the Annual General Meeting. The CEO is responsible for operational management, preparing a large part of the busi- ness of the Board of Directors – including corporate strategy proposals – and executing the latter’s resolutions. The CEO issues directives and recommendations with Group-wide significance in his own authority and is also responsible for electing and dismissing Area Managers, Function Heads and CEOs of Group companies, as well as for the nomination of the members of the Board of Directors and supervisory bodies of the Group companies. Within the framework of mid-term plan approval, the Board of Directors defines limits for investments and financing. Within these limits, the Executive Committee decides on financing transactions and on one-off investments and divestments for amounts up to CHF 400 million. Amounts exceeding this are subject to approval by the Board of Direc- tors. The Board of Directors is regularly informed about important transactions under the authority of the Executive Committee. The members of the Executive Committee may delegate their tasks in relation to their geographical areas of responsibility to Area Managers. The Board of Directors determines the CEO’s objectives upon motion by the Chairman of the Board and the Executive Committee members’ Group objectives upon motion by the Nomination, Compensation & Governance Committee, both after advice and assess- ment with the CEO. The CEO assesses the performance of the members of the Executive Committee and, after advice and assessment by the Nomination, Compensation & Governance Commit- tee, determines their respective individual objectives. C o r p o r a t e G o v e r n a n c e 109 The Executive Committee oversees risk ma nagement following appraisal by the Finance & Audit Committee. The Board of Directors is informed annually about the risk situation. In case of a direct conflict of interest, the Organizational Rules require each member of the corporate body concerned to stand aside voluntarily prior to any discussion of the matter in question. Members of the corporate bodies are required to treat all informa- tion and documentation which they may obtain or view in the context of their activities in these bodies as confidential and not to make such information available to third parties. All individuals vested with the powers to represent the company have only joint signatory power at two. Information and control instruments of the Board of Directors The Board of Directors determines the manner in which it is to be informed about the course of business. Any member of the Board of Directors may demand information on all issues relating to the Group and the company. All members of the Board of Directors may request information from the CEO after information of the Chairman of the Board of Directors. At meetings of the Board of Directors, any attending member of the Executive Committee has a duty to provide information. All members of the Board of Directors have a right to inspect books and files to the extent necessary for the performance of their tasks. 1. Financial reporting The Board of Directors is informed on a monthly basis about the current course of business, adopts the quarterly reports, and releases them for publication. The Board of Directors discusses the Annual Report, takes note of the auditors’ reports, and submits the Annual Report to the Annual General Meeting for approval. With regard to Group strategy development, a stra tegy plan, a mid-term plan covering three years and including the budget are submitted to the Board of Directors. 2. Risk Management LafargeHolcim benefits from many years of experience with risk management. The risk assessment process was concluded in 2016 across the consolidated Countries. Responsibilities concerning risks are clearly defined at country and corporate level. The underlying principle is that risk management is a line management responsibility. Line managers are supported by Group Risk Management (GRM) that forms part of the second line of defense. Internal Audit represents the third line of defense. GRM analyzes the Group’s overall risk exposure and supports the strategic decision- making process. The full risk spectrum from market, operations, finance and legal, to external risk factors of the business environment is reviewed, including compliance and reputational risks. The risk assessment is not limited to a hazard analysis, but also identifies potential opportunities. The Group’s risk profile is established by strategic, operational and topical risk assess- ments which are combined into a 360° risk analysis. GRM involves the Board of Directors, the Executive Committee, corporate Function Heads and the Countries in the risk assessment. The risk assessment process consists of several steps. First, risks are assessed and pri- oritized according to significance and likelihood. Top risks are analyzed more deeply regarding their causes, and risk treatment actions are defined when necessary. The con- solidated Group risk profile is established and presented to the Executive Committee and the conclusions reported to the Board of Directors and the Finance & Audit Committee. 110 L A F A R G E H O L C I M Annual Report 2016 3. Internal Control LafargeHolcim aims to have an effective Internal Control System and a culture of robust internal control, supported by the commitment of the Board of Directors and Senior Management. Group Internal Control (GIC) aims at providing the Board of Directors and Senior Management reasonable assurance concerning the reliability of the financial report- ing and statements, the compliance with laws and regulations, the protection of assets and fraud prevention, and the effectiveness and efficiency of processes. Internal control is monitored at all levels so that risks are identified and action plans are followed up on a continued basis. GIC gives an assessment to the Executive Committee and the Finance & Audit Committee on the existence, the design and the operating effec- tiveness of the Internal Control System in the Countries/Entities. In order to fulfill this responsibility, GIC is yearly calling the Group Internal Control Committee to update the work performed on internal control. GIC designs and coordinates the annual certification process to review the main action plans in progress and to confirm management responsibility at each relevant level of the Group organization on the quality of both internal control and financial reporting. This process also supports the identification of business risks. The outcome is presented to the Executive Committee and the Finance & Audit Committee. 4. Internal Audit Internal Audit assures the existence and pertinence of process controls and the integrity of information. Internal Audit reports to the CEO with an additional reporting line to the Chairman of the Finance & Audit Committee and periodically informs the Finance & Audit Committee. The members of the Board of Directors have access to Internal Audit at all times. Each year, the Finance & Audit Committee defines the audit focal areas to be addressed by Internal Audit, and the Head of Internal Audit periodically updates the Finance & Audit Committee on the activities of Internal Audit. Executive Committee Members of the Executive Committee (including the CEO) are appointed by the Board of Directors and are responsible for the management of the Group. The members of the Executive Committee may be assisted by Area Managers in their area of responsibility. Area Managers are appointed upon motion by the respective Executive Committee member by the CEO after advice and assessment by the Executive Committee. The tasks of the Executive Committee as Senior Management are divided into different areas of responsibility in terms of country and function, each of these areas being ultimately supervised and managed by a member of the Executive Committee. Further to the situation effective January 1, 2016 reported in the Annual Report 2015 on pages 106 – 107, the following changes within the Executive Committee during the year under review have occurred: Effective July 1, 2016, Caroline Luscombe joined LafargeHolcim as member of the Execu- tive Committee and took over responsibility for Organization and Human Resources. Effective August 5, 2016, Alain Bourguignon, responsible for North America, and Ian Thackwray, responsible for Asia Pacific, have decided to pursue other challenges outside the Group. LafargeHolcim thanked Alain Bourguignon and Ian Thackwray for their contribution to the Group. C o r p o r a t e G o v e r n a n c e 111 Effective August 5, 2016, Martin Kriegner, formerly responsible for India, has been appointed as member of the Executive Committee with additional responsibility for South East Asia, and Oliver Osswald, formerly CEO of Argentina, has been appointed as member of the Executive Committee with responsibility for Central and South America. Also effective August 5, 2016, Pascal Casanova, formerly responsible for the Latin America Region has taken responsibility for North America and Mexico, and Roland Köhler, responsible for the Europe Region, in addition assumed responsibility for Australia, New Zealand and Trading. Effective July 1, 2016, Jean-Jacques Gauthier, responsible for Integration, Organization & Human Resources, has stepped down from the Executive Committee and assumed the position as Algeria’s Country CEO. Effective December 31, 2016 the Executive Committee was composed of the following ten members. None of the members of the Executive Committee has important functions outside the LafargeHolcim Group or any other significant commitments of interest. Composition of the Executive Committee Executive Committee Position Responsibility Eric Olsen Ron Wirahadiraksa CEO CFO Urs Bleisch Member Performance and Cost Pascal Casanova Member Regional Head North America and Mexico Roland Köhler Member Region Head Europe, Australia/New Zealand, and Trading Martin Kriegner Member Region Head India and South East Asia Gérard Kuperfarb Member Growth and Innovation Caroline Luscombe Member Organization and Human Resources Oliver Osswald Member Regional Head Central and South America Saâd Sebbar Member Region Head Middle East Africa Please refer to pages 123 – 126 for biographical information on the members of the Executive Committee. Management agreements LafargeHolcim has no management agreements in place with companies or private individuals outside the Group. Compensation, shareholdings and loans Details of Board and management compensation, shareholdings, and loans are contained in the compensation report (starting at page 128) and in the Holding company results (page 282, note 14). 112 L A F A R G E H O L C I M Annual Report 2016 Shareholders’ participation Voting rights and representation restrictions All holders of registered shares who are registered as shareholders with voting rights in the share register on the closing date for the share registry (approximately one week prior to the Annual General Meeting. The closing date is communicated with the invita- tion to the Annual General Meeting) are entitled to participate in, and vote at, Annual General Meetings. Shares held by trusts and shares for which no declaration has been made that the holder requesting registration is holding the shares in his own name and for his own account are entered in the share register as having no voting rights. Share- holders not participating in person in the Annual General Meeting may be represented by another shareholder or by the independent voting proxy. In line with the requirements of the OaEC, an electronic voting option is provided for. Voting rights are not subject to any restrictions. Each share carries one vote. Statutory quorums The Annual General Meeting of shareholders constitutes a quorum, regardless of the number of shares represented or shareholders present; resolutions are passed by an absolute majority of the votes allocated to the shares represented, unless Art. 704 para. 1 of the Swiss Code of Obligations or the Merger Act provides otherwise. In such cases, resolutions may only be passed with the respective qualified majority of the votes represented. According to Art. 10 para. 2 of the Articles of Incorporation and in addition to Art. 704 para. 1 of the Swiss Code of Obligations, the approval of at least two-thirds of the votes represented and the absolute majority of the par value of shares represented shall be required for resolutions of the Annual General Meeting of shareholders with respect to the removal of restrictions set forth in Art. 5 of the Articles of Incorporation (entries in the share register), the removal of the mandatory bid rule (Art. 22 para. 3 of the Stock Exchange Act), and the removal or amendment of para. 2 of Art. 10 of the Articles of Incorporation. The chair of the meeting may also have votes and elections conducted electronically. Electronic votes and elections are deemed equivalent to secret votes and elections. Convocation of the Annual General Meeting and agenda rules The ordinary Annual General Meeting of shareholders takes place each year, at the latest six months following the conclusion of the financial year. It is convened by the Board of Directors, whereby invitations are published at least twenty days prior to the meeting and in which details are given of the agenda and items submitted. Shareholders repre- senting shares with a par value of at least one million Swiss francs may request the addi- tion of a particular item for discussion and resolution. A corresponding application must be submitted in writing to the Board of Directors at least forty days prior to the Annual General Meeting. Such application should indicate the items to be submitted. The invita- tions as well as the minutes of the Annual General Meetings shall be published on: www.lafargeholcim.com. C o r p o r a t e G o v e r n a n c e 113 Entries in the share register The company maintains a share register for registered shares in which the names and addresses of owners and beneficiaries are entered. According to the applicable rules and regulations, only those included in the share register are deemed shareholders or beneficial owners of the registered shares of the company. Upon request, purchasers of registered shares shall be included in the share register as shareholders with voting rights if they expressly declare that they have acquired the shares in their own name and for their own account. Exceptions to this rule apply for nominees who have signed a nominee agreement with the company regarding this position and are subject to a recognized banking or financial markets supervisory authority. The share register is closed approximately one week prior to the date of the Annual General Meeting (the exact date is communicated in the invitation to the Annual General Meeting). Shareholders’ participation and rights of protection are furthermore governed by the Swiss Code of Obligations. This information comprises excerpts from or references to the content of the Articles of Incorporation of LafargeHolcim Ltd. The full version of the Articles of Incorporation in force as at the date of publication of this Annual Report can be accessed at: www.lafargeholcim.com/articles-association. Changes of control and defense measures The Articles of Incorporation contain no waiver of the duty to make a public offer under the terms of Art. 32 and 52 of the Stock Exchange Act (“opting out”). The result is that a shareholder who directly, indirectly, or in concert with third parties acquires shares in the company and, together with the shares he already possesses, thereby exceeds the 33⅓ percent threshold of voting rights in the company must make an offer for all listed shares of the company. There are no clauses relating to changes of control. 114 L A F A R G E H O L C I M Annual Report 2016 Auditors As part of their auditing activity, the auditors inform the Finance & Audit Committee and the Executive Committee regularly about their findings and make suggestions for improve- ment. Taking into account the reporting and assessments by the Group companies, the Finance & Audit Committee evaluates the performance of the auditors and their remu- neration in line with market conditions. The Finance & Audit Committee approves the audit focus area, provides recommendations to the auditors and makes suggestions for improvement. In 2016, the auditors participated in all six regular meetings of the Finance & Audit Committee to discuss individual agenda items. Ernst & Young Ltd, Zurich, was appointed in 2002 as auditors to LafargeHolcim Ltd (then Holcim Ltd). Since 2016, Daniel Wuest has been responsible for managing the audit mandate, supported by Elisa Alfieri. The rotation of the lead auditor will be carried out in accordance with Art. 730a of the Swiss Code of Obligations. The auditors are elected for a one-year term by the Annual General Meeting. The fees shown below were charged for professional services rendered to the Group by Ernst & Young in 2016 and 2015: Million CHF Audit services 1 Audit-related services 2 Tax services Other services 3 TOTAL 2016 17.0 1.9 2.2 0.8 2015 20.9 5.5 0.3 0.5 21.8 27.2 1 This amount includes the fees for the individual audits of Group companies carried out by Ernst & Young as well as their fees for auditing the Group financial statements. 2 Audit-related services comprise, among other things, amounts for due diligences, comfort letters, accounting advice, information systems reviews and reviews on internal controls. 3 Other services include, among other things, amounts for accounting, actuarial and legal advisory services. C o r p o r a t e G o v e r n a n c e 115 Information policy LafargeHolcim Ltd reports to shareholders, the capital market, employees, and the public at large in a transparent and timely manner concerning its corporate performance, including achievement of its sustainability targets. Open dialog is nurtured with the most important stakeholders, based on mutual respect and trust. This promotes knowl- edge of the company and understanding of objectives, strategy, and business activities of the company. As a listed company, LafargeHolcim Ltd is under an obligation to disclose facts that may materially affect the share price (ad-hoc disclosure, Art. 53 and 54 of the SIX listing rules and Art 223-2 of the AMF General Regulations). LafargeHolcim Ltd is subject to the SIX and AMF rules on the disclosure of management trans actions 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 The most important information tools are the annual and quarterly reports, the web- site (www.lafargeholcim.com), media releases, press conferences, meetings for financial analysts and investors, and the Annual General Meeting. The commitment to sustainability is described on pages 60 to 69 of this Annual Report. Current information relating to sustainable development is available at: www.lafargeholcim.com. In 2017, LafargeHolcim Ltd will publish its second sustainability report after the merger. A full sustainability report is published every year. The financial reporting calendar is shown on pages 78 and 290 of this Annual Report. Should there be any specific queries regarding LafargeHolcim, please contact: Corporate Communications, Phone: +41 58 858 87 10, Fax: +41 58 858 87 19, E-Mail: communications@lafargeholcim.com Investor Relations, Phone: +41 58 858 87 87, Fax: +41 58 858 80 09, E-Mail: investor.relations@lafargeholcim.com 116 L A F A R G E H O L C I M Annual Report 2016 BOARD OF DIRECTORS Beat Hess (Chairman) Bruno Lafont (Co-Chairman) Beat Hess Swiss national born in 1949, Beat Hess is Chairman (Statutory Chairman) of the Board of Directors of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2010. He holds a doctorate in law and is admit- ted to the bar in Switzerland. From 1977 to 2003, he was initially Legal Counsel and subsequently General Counsel for the ABB Group. From 2004 until the end of 2010, he was Legal Director and a Member of the Executive Committee of the Royal Dutch Shell Group, London and The Hague. His other mandates include that he is a Member of the Board of Directors, a Member of the Chairman’s and Corporate Governance Committee, and Chairman of the Compensation Committee of Nestlé S.A., Vevey, Switzerland, as well as Vice-Chairman and Member of the Nomination and Compensation Committee of the Board of Directors of Sonova Holding AG, Stäfa, Switzerland. Bruno Lafont French national born in 1956, Bruno Lafont is Co-Chairman of the Board of Directors of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. He is a graduate of the Hautes Études Commerciales Business School (HEC Paris) and École Nationale d’Administration (ENA Paris). He was elected to the Board of Lafarge S.A. in 2005, became Chief Executive Officer in 2006, and served as Chairman of the Board of Directors and Chief Executive Officer of Lafarge S.A. from 2007 to 2015 and is there- fore considered non-independent according to the definition of the Swiss Code of Best Practice for Corporate Governance. Bruno Lafont is Honorary Chairman of Lafarge S.A. He joined Lafarge in 1983 and subsequently held various positions in finance and inter- national operations. In 1995, he was appointed Group Executive Vice President, Finance; in 1998, President of the Gypsum Division; and in 2003, Chief Operating Officer. Bruno Lafont is a director of EDF, France, and ArcelorMittal, Luxemburg. He is a Member of the Executive Committee of the World Business Council for Sustainable Development (WBCSD), where he co-chairs the Energy Efficiency in Buildings project. He also chairs the Energy and Climate Change working group of the European Round Table of Industrialists (ERT) and the Sustainable Development Commission of MEDEF (French Business Confederation) and is a Board Member of AFEP (French Large Companies Association). He is special adviser to the mayor of Chongqing, China. C o r p o r a t e G o v e r n a n c e 117 Bertrand Collomb French national born in 1942, Bertrand Collomb is a Member of the Board of Directors and a Member of the Finance & Audit Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. A graduate of the École Polytech- nique and the École des Mines in Paris, France, he also holds a French law degree and a PhD in Management from the University of Texas, USA. Bertrand Collomb is Honorary Chairman of Lafarge S.A., served as Chairman and Chief Executive Officer of Lafarge S.A. from 1989 to 2003, as Chairman from 2003 to 2007, and as Director until 2012. He joined Lafarge in 1975 and held various positions, including Chief Executive Officer of Lafarge in North America from 1985 to 1988. He founded the Center for Management Research at the École Polytechnique in Paris, France. He is also a founding member of the World Business Council for Sustainable Development (WBCSD), of which he was Chairman from 2004 to 2005. He was a Member of the Board of Directors of Total S.A., Courbevoie, France, of DuPont, Wilmington, Delaware, USA and of ATCO Group, Calgary, Canada until May 2015. His other mandates include that he is Member of the “Institut de France” and was Chairman of the “Académie des sciences morales et politiques” in 2013. Philippe Dauman American national born in 1954, Philippe Dauman is a Member of the Board of Directors of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. Philippe Dauman received his college degree from Yale University and his law degree from Columbia University School of Law. Philippe Dauman was a Member of the Board of Directors of Lafarge S.A. from 2007 to 2015 and was also Chairman of the Strategy, Investment and Sustainable Development Committee and a Member of the Corporate Governance and Nominations Committee of Lafarge S.A. until 2015. He is Member of the Board of Directors, President, and Chief Executive Officer of Viacom, New York, USA. He began his career working for the New York law firm Shearman & Sterling, where he became partner. He was General Counsel and Secretary of the Board of Directors of Viacom from 1993 to 1998, Executive Vice President from 1995 to 2000, and Deputy Chairman of the Board of Directors from 1996 to 2000. He was a Member of the Board of Lafarge North America from 1997 to 2006. In 2000, he became Joint Chairman of the Board of Directors and Chief Executive Officer of DND Capital Partners LLC, New York NY, USA. His other mandates include that Philippe Dauman is a Member of the Executive Committee of Lenox Hill Hospital, New York NY, USA, Member of the Dean’s Council at Columbia Law School, New York NY, USA, and Member of the Board of Directors of the Kipp Foundation, San Francisco CA, USA. Bertrand Collomb (Member) Philippe Dauman (Member) 118 L A F A R G E H O L C I M Annual Report 2016 Paul Desmarais, Jr. Canadian national born in 1954, Paul Desmarais, Jr. is a Member of the Board of Directors and a Member of the Nomination, Compensation and Governance Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim in 2015. He holds a Bachelor of Commerce from McGill University, Montréal, Canada, and an MBA from the European Institute of Business Administration (INSEAD), Paris, France. He was a Member of the Board of Directors of Lafarge S.A. from 2008 to 2015 and was also a Member of its Strategy, Investment and Sustainable Development Committee until 2015. Paul Desmarais, Jr. is Chairman and Co-Chief Executive Officer of Power Corporation of Canada and Executive Co-Chairman of Power Financial Corporation, both located in Montréal, Canada. He joined Power Corporation in 1981 and assumed the position of Vice-President the following year. In 1984, he led the creation of Power Financial to consolidate Power Corporation’s major financial holdings, as well as Pargesa Holding SA, Geneva, Switzerland, under a single corporate entity. Paul Desmarais, Jr. served as Vice-President of Power Financial from 1984 to 1986, as President and Chief Operating Officer from 1986 to 1989, as Executive Vice-Chairman from 1989 to 1990, as Executive Chairman from 1990 to 2005, as Chairman of the Executive Committee from 2006 to 2008 and as Executive Co-Chairman from 2008 until today. He also served as Vice- Chairman of Power Corporation from 1991 to 1996. He was named Chairman and Co-CEO of Power Corporation in 1996. From 1982 to 1990, he was a member of the Management Committee of Pargesa Holding SA and in 1991, Executive Vice Chairman and then Executive Chairman of the Management Committee. In 2003, he was appointed Co-Chief Executive Officer and in 2013 named Chairman of the Board. His other mandates include sitting on the Board of Directors of several Power group companies, including Power Corporation of Canada, Power Financial Corporation, Great-West Lifeco Inc., Winnipeg, Canada, and its major subsidiaries, IGM Financial Inc., Winnipeg, Canada, and its major subsidiaries, and several companies within the Pargesa Group, including Pargesa Holding SA, Geneva, Switzerland, Groupe Bruxelles Lambert, Brussels, Belgium, Total SA, Paris, France, and SGS SA, Geneva, Switzerland. Oscar Fanjul Dual Spanish and Chilean national born in 1949, Oscar Fanjul is a Member of the Board of Directors and a Member of the Strategy & Sustainable Development and of the Nomination, Compensation and Governance Committees of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. Oscar Fanjul holds a PhD in Economics. He was Vice-Chairman of the Board of Directors of Lafarge S.A. He was a member of the Board of Directors of Lafarge S.A. between 2005 and 2016. He began his career working for the industrial holding INI, Madrid, Spain. He was Chairman founder and CEO of Repsol, S.A., Madrid, Spain. He has also been Chairman of Hidroeléctrica del Cantábrico, S.A., Oviedo, Spain and of Deoleo S.A., Madrid, Spain. Oscar Fanjul is Vice Chairman of Omega Capital, Madrid, Spain and his other mandates include that he is a Member of the Boards of Marsh & McLennan Companies, New York NY, USA and Ferrovial S.A., Madrid, Spain. He has also been a board member of the London Stock Exchange, Unilever, London/Rotterdam, UK/Netherlands, and Areva, France, and BBVA, Spain. Paul Desmarais, Jr. (Member) Oscar Fanjul (Member) C o r p o r a t e G o v e r n a n c e 119 Alexander Gut Dual British and Swiss national born in 1963, Alexander Gut is a Member of the Board of Directors and a Member of the Finance & Audit Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2011. He holds a doctorate in Business Administration (Dr. oec. publ.) from the University of Zurich and is a Swiss Certified Accountant. He was Chairman of the Audit Committee of Holcim Ltd from 2013 to 2015. From 1991 to 2001, he was with KPMG in Zurich and London, and from 2001 to 2003, he was with Ernst & Young in Zurich, where he was promoted to part- ner in 2002. From 2003 to 2007, he was a partner with KPMG in Zurich, where he was promoted to the Executive Committee of KPMG Switzerland in 2005. Alexander Gut is the founder and managing partner of Gut Corporate Finance AG, an independent corporate finance advisory firm in Zurich. He is a Member of the Board of Directors and Chairman of the Nomination and Compensation Committee and a Member of the Audit Committee of Adecco Group AG, Opfikon, Switzerland, a Member of the Board of Directors and a Member of the Audit Committee of Credit Suisse Group AG and Credit Suisse AG, Zurich, Switzerland, Member of the Board of Directors and Chairman of the Audit Committee of Credit Suisse (Switzerland) AG, Zurich, Switzerland, as well as a Member of the Board of Directors of SIHAG Swiss Industrial Holding Ltd. Gérard Lamarche Belgian national born in 1961, Gérard Lamarche is a Member of the Board of Directors, the Chairman of the Finance & Audit Committee and Member of the Strategy & Sustain- able Development Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. He is a graduate in Economics Sciences from the University of Louvain-la-Neuve, Belgium, and the INSEAD Business School, Fontaine bleau, France (Advanced Management Program for Suez Group Executives). He also trained at Wharton International Forum in 1998-1999 (Global Leadership Series). He was a Mem- ber of the Board of Directors of Lafarge S.A. between 2012 and 2016 and also a Member of the Audit Committee and a Member of the Strategy, Investment and Sustainable Development Committee. Gérard Lamarche is Co-CEO of Groupe Bruxelles Lambert, Brussels, Belgium. He began his career with Deloitte Haskins & Sells, Brussels, Belgium, in 1983 and was appointed as an M&A consultant in the Netherlands in 1987. In 1988, he joined Société Générale de Belgique, Brussels, Belgium as Investment Manager. He was promoted to Controller in 1989 before becoming Advisor to the Strategy and Planning Department from 1992 to 1995. He joined Compagnie Financière de Suez as Special Advisor to the Chairman and Secretary to the Suez Executive Committee, Paris, France, and was later appointed Senior Vice President in charge of Planning, Control and Accounting. In 2000, he joined NALCO (the US subsidiary of the Suez Group based in Naperville Il, USA) as General Managing Director. He was appointed CFO of the Suez Group in 2003. Gérard Lamarche is Director of Total SA, Paris, France, and of SGS, Geneva, Switzerland. Alexander Gut (Member) Gérard Lamarche (Member) 120 L A F A R G E H O L C I M Annual Report 2016 Adrian Loader British national born in 1948, Adrian Loader is a Member of the Board of Directors and a Member of the Nomination, Compensation & Governance Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2006. Adrian Loader holds an Honours Degree in History from Cambridge University and is a fellow of the Chartered Institute of Personnel and Development. He was Chairman of the Nomination & Compensation Committee of Holcim Ltd from 2014 to 2015. He began his professional career at Bowater in 1969 and joined Shell the following year. Until 1998, he held various management positions in Africa, Latin America, Asia, and Europe and at the corporate level. In 1998, he was appointed President of Shell Europe Oil Products and in 2004 became Director for strategy, planning, sustainable development, and external affairs for the Shell Group. In 2005 he became Director of the Strategy and Business Development Directorate of Royal Dutch Shell, Den Haag, Netherlands, he became President and CEO of Shell Canada in 2007 and retired from Shell at the end of the year. In January 2008, he joined the Board of Directors of Candax Energy Inc., Toronto, Canada and was Chairman until June 2010. He then served as Chairman of Compton Petroleum, Calgary, Canada until August 2012. He also served as Chairman of the Board of Directors of Oracle Coalfields PLC, London, United Kingdom from 2011 until April 2016. His other mandates include serving as a Member of the Board of Directors of Sherritt Interna- tional Corporation, Toronto, Canada; and as a Member of the Board of Alderon Iron Ore, Montreal, Canada. Jürg Oleas Swiss national born in 1957, Jürg Oleas is a Member of the Board of Directors of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2014, retired from the Holcim Ltd Board in the context of the LafargeHolcim Ltd merger closing effective 10 July 2015 and was re-elected at the AGM 2016. He holds an MSc from the mechanical engineering from the Swiss Federal Institute of Technology (ETH) in Zurich, Switzerland. He is CEO of GEA Group Aktiengesellschaft, a Düsseldorf-based mechanical engineering company listed on Germany’s MDAX stock index. Jürg Oleas has been a member of the GEA Group Executive Board since joining the company in May 2001. Initially responsible for the Group’s chemical activities, he was appointed CEO of GEA Group on November 1, 2004. Before joining the GEA Group, he spent nearly 20 years with ABB and the Alstom Group, where he held several manage- ment positions. He is a member of the Board of RUAG Holding AG, Bern, Switzerland. Adrian Loader (Member) Jürg Oleas (Member) C o r p o r a t e G o v e r n a n c e 121 Nassef Sawiris Egyptian national born in 1961, Nassef Sawiris is Member of the Board of Directors, the Chairman of the Nomination, Compensation & Governance Committee and Member of the Strategy & Sustainable Development Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2015. He holds a Bachelor of Economics from the University of Chicago. Nassef Sawiris was a Member of the Board of Directors of Lafarge S.A. from 2008 to 2015 and was a Member of the Corporate Governance and Nominations Committee, Member of the Remunerations Committee and Member of the Strategy, Investment and Sustainable Development Committee of Lafarge S.A. until 2015. Nassef Sawiris is the Chief Executive Officer of OCI N.V. He joined the Orascom Group in 1982, became the Chief Executive Officer of OCI N.V.’s prede- cessor, Orascom Construction Industries (OCI S.A.E.), in 1998 and was also appointed Chairman of OCI S.A.E. in 2009. He was appointed Chairman of Orascom Construction Limited in 2015. Nassef Sawiris is a Member of the Cleveland Clinic’s International Leadership Board Executive Committee since 2011, and in 2013 he became a Member of the University of Chicago’s Board of Trustees. Nassef Sawiris has also previously served on the Boards of the Egyptian Stock Exchange and NASDAQ Dubai. His other mandates include that he is a Member of the Board of BESIX Group, Brussels, Belgium, and of OCI Partners LP, Delaware, USA. Thomas Schmidheiny Swiss national born in 1945, Thomas Schmidheiny is a Member of the Board of Directors of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holderbank Financière Glaris Ltd”, later “Holcim Ltd”) in 1978. He studied mecha- nical engineering at the ETH Zurich and complemented his studies with an MBA from the IMD Lausanne in 1972. In 1999, he was awarded an honorary doctorate for his services in the field of sustainable development from Tufts University, Massachusetts. He began his career in 1970 as Technical Director with Cementos Apasco and in 1976 was appointed to the Executive Committee of Holcim Ltd, where he held the office of Chairman from 1978 until 2001. He was Chairman of the Board of Directors of Holcim Ltd from 1984 until 2003 and a Member of the Nomination & Compensation Committee of Holcim Ltd until 2015. His other mandates include that he is the Chairman of the Board of Directors of Spectrum Value Management Ltd and of Schweizerische Cement-Industrie-Aktiengesellschaft, both in Rapperswil-Jona, Switzerland and a Member of the Board of Abraaj Holdings, Dubai, United Arab Emirates. He also serves as a member of the Board of Trustees of the Fletcher School of Law and Diplomacy, Cambridge, Massachusetts, USA. Nassef Sawiris (Member) Thomas Schmidheiny (Member) 122 L A F A R G E H O L C I M Annual Report 2016 Hanne Birgitte Breinbjerg Sørensen (Member) Dieter Spälti (Member) Hanne Birgitte Breinbjerg Sørensen Danish national born in 1965, Hanne Birgitte Breinbjerg Sørensen is a Member of the Board of Directors and a Member of the Nomination, Compensation & Governance Committee of LafargeHolcim Ltd. She was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2013. Hanne Birgitte Breinbjerg Sørensen holds an MSc in Business Economy from the University of Aarhus. She was a Member of the Nomination & Compensation Committee of Holcim Ltd from 2014 to 2015 and has been re-elected in 2016. Until the end of 2013 she was the Chief Executive Officer of Maersk Tankers, Copenhagen and has been Chief Executive Officer of Damco, The Hague, Netherlands, another company of the A.P. Møller-Maersk Group, Copenhagen, Denmark, from 2014 until December 31, 2016. Dieter Spälti Swiss national born in 1961, Dieter Spälti is a Member of the Board of Directors, the Chairman of the Strategy & Sustainable Development Committee and Member of the Finance & Audit Committee of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd (then “Holcim Ltd”) in 2003. He studied law at the University of Zurich, Switzerland, where he obtained a doctorate in 1989. He was a Member of the Audit Committee from 2010 to 2015 and of the Governance & Strategy Committee of Holcim Ltd from 2013 to 2015. Dieter Spälti began his professional career as a Credit Officer with Bank of New York in New York NY, USA, before taking up an appointment as Chief Financial Officer of Tyrolit (Swarovski Group), based in Inns- bruck, Austria and Zurich, Switzerland in 1991. From 1993 until 2001, he was with McKinsey & Company, ultimately as a partner, and was involved in numerous projects with industrial, financial, and technology firms in Europe, the USA, and Southeast Asia. In October 2002, he joined Rapperswil-Jona, Switzerland-based Spectrum Value Management Ltd as a partner; the firm administers the industrial and private invest- ments of the family of Thomas Schmidheiny. Since 2006, he has been Chief Executive Officer and Member of the Board of Directors of Spectrum Value Management Ltd. His other mandates include a membership in the Board of Directors of Schweizerische Cement-Industrie-Aktiengesellschaft, Rapperswil-Jona, Switzerland. C o r p o r a t e G o v e r n a n c e 123 EXECUT I VE COMMI T TEE Eric Olsen French and American national born in 1964, Eric Olsen has been the CEO of LafargeHolcim Ltd since July 10, 2015. He is a graduate in finance and accounting of the University of Colorado and holds a Masters of Business Administration degree awarded by the École des Hautes Études Commerciales (HEC). Eric Olsen joined Lafarge North America Inc. in 1999 as Senior Vice-President Strategy and Development. In 2001, he was appointed President of the Cement Division for the Northeast Region of North America and Senior Vice-President Purchasing for Lafarge North America Inc. He was appointed Chief Finance Officer of Lafarge North America Inc. in 2004. He was appointed Executive Vice President for Organization and Human Resources and became a member of the Executive Committee in 2007. As of September 1, 2013, he was appointed Executive Vice-President Operations. He is a member of the Supervisory Board of Cimpress N.V. (The Netherlands). Ron Wirahadiraksa Dutch national born in 1960, Ron Wirahadiraksa has been CFO of LafargeHolcim Ltd since December 1, 2015. He graduated with a Doctoral in Business Economics from the Free University of Amsterdam, the Netherlands. He also graduated as a Certified Registered Controller from the Free University of Amsterdam. Ron Wirahadiraksa joined the Philips group in 1987. He became Chief Financial Officer at LG. Philips LCD in South Korea in 1999, during which time he shared operating leadership with the Korean CEO. He also led the 2004 initial public offering of LG. Philips LCD on the Korean and New York Stock Exchanges and supported the significant growth and market leadership of the company. He became Chief Financial Officer at Philips Healthcare in 2008 and in 2011 he took over as CFO for the Philips Group. Urs Bleisch Swiss national born in 1960, Urs Bleisch has been a Member of the Executive Committee of LafargeHolcim Ltd (then “Holcim Ltd”) since September 30, 2014 and is responsible for Performance & Cost. He holds a Master’s in Business and Economics from the University of Basel. Urs Bleisch joined Holcim in 1994 as Head IT of Holcim Switzerland. From 2000 onward, he assumed Group-wide responsibility for Information Technology and was instrumental in the development and implementation of the global IT strategy of the Holcim Group. Since 2011, he has managed the Information and Knowledge Manage- ment function at Holcim Group Support Ltd. As of September 1, 2012 he was appointed CEO of Holcim Group Services Ltd and of Holcim Technology Ltd. He is leading the global functions Cement Industrial Performance, Project Management & Engineering, Logistics, Procurement, Waste Management / Geocycle, Aggregates and Performance Navigation. Eric Olsen (Chief Executive Officer) Ron Wirahadiraksa (Chief Financial Officer) Urs Bleisch (Performance & Cost) 124 L A F A R G E H O L C I M Annual Report 2016 Pascal Casanova French national born in 1968, Pascal Casanova has been a Member of the Executive Committee of LafargeHolcim Ltd since July 10, 2015 and is responsible for North America and Mexico. He is a graduate of the École Polythechnique and holds a PhD in Materials and Structures from the École Nationale des Ponts et Chassées. Pascal Casanova was hired in 1999 as Technical Director for Lafarge and was subsequently appointed Head of R&D and Industrial Performance of the Roofing activity based in the UK. In 2005, he directed the international activity of Roofing Components headquartered in Oberursel, Germany, ensuring the development of production and international sales, particularly in Malaysia, USA, South Africa, Brazil, and Western/Eastern Europe. In 2008, he was appointed Head of R&D of the Lafarge Group. In 2012 he was appointed Chief Executive Officer of Lafarge France. Roland Köhler Swiss national born in 1953, Roland Köhler has been a Member of the Executive Committee of LafargeHolcim Ltd (then “Holcim Ltd”) since March 15, 2010 and is responsible for Europe, Australia/New Zealand and Trading. He is a graduate in business administration from the University of Zurich. Roland Köhler joined the building materials group Hunziker, Switzerland, in 1988 as Head of Finance and Administration and transferred to Holcim Group Support Ltd as a Management Consultant in 1994. From 1995 to 1998, he was Head of Corporate Controlling and, from 1999 to end 2001, Head of Business Risk Manage- ment. Since 2002, he has headed Corporate Strategy & Risk Management. Effective January 1, 2005, Roland Köhler was promoted to Corporate Functional Manager respon- sible for Corporate Strategy & Risk Management. On March 15, 2010, he was appointed Member of the Executive Committee and CEO of Holcim Group Support Ltd. Since September 1, 2012 Roland Köhler has been responsible for the Group region Europe. Martin Kriegner Austrian national born in 1961, Martin Kriegner has been a Member of the Executive Committee of LafargeHolcim Ltd since August 2016 and is responsible for India and South East Asia. He is a graduate from the Vienna University with a Doctorate in Law and he obtained an MBA at the University of Economics in Vienna. Martin Kriegner joined Lafarge in 1990 and became the CEO of Lafarge Perlmooser AG, Austria in 1998. He moved to India as CEO of the Lafarge Cement operations in 2002 and later served as Regional President Cement for Asia, based in Kuala Lumpur. In 2012, he was appointed CEO of Lafarge India for the Cement, RMX and Aggregates. In July 2015 he became Area Manager Central Europe for LafargeHolcim operations and was appointed Head of India effective March 1, 2016. Pascal Casanova (Region Head North America and Mexico) Roland Köhler (Region Head Europe, Australia/New Zealand, and Trading) Martin Kriegner (Region Head India and South East Asia) C o r p o r a t e G o v e r n a n c e 125 Gérard Kuperfarb French national born in 1961, Gérard Kuperfarb has been a Member of the Executive Committee of LafargeHolcim Ltd since July 10, 2015 and is responsible for Growth and Innovation. He graduated from the École des mines de Nancy (France). He also holds a Master’s degree in Materials Science from the École des mines de Paris and an MBA from the École des Hautes Etudes Commerciales (HEC). Gérard Kuperfarb began his career in 1983 as an Engineer at the Centre de Mise en Forme des Matériaux (CEMEF) of the École des mines de Paris, before joining the Composite Materials Division at Ciba group in 1986, where he held sales and marketing positions. In 1989, he joined a strategy consulting firm in Brussels and Paris. He joined Lafarge in 1992 as Marketing Director for the Refractories business and then became Vice-President for Strategy at Lafarge Specialty Materials. In 1996, he became Vice-President of Ready-Mix Concrete Strategy in Paris. In 1998, he was appointed Vice-President/General Manager for the Aggregates & Concrete Business in southwest Ontario (Canada) before heading the Performance group at Lafarge Construction Materials in North America in 2001. He joined the Aggregates & Concrete Division in Paris as Senior Vice-President of Performance in 2002. From 2005 to August 2007, he was President of the Aggregates & Concrete Business for eastern Canada. On September 1, 2007, he became Executive Vice- President, Co-President of the Aggregates & Concrete Business, and a member of the Executive Committee of the Lafarge Group and since January 1, 2012 executive Vice- President Innovation of Lafarge. Caroline Luscombe British national born in 1960, Caroline Luscombe has been a Member of the Executive Committee of LafargeHolcim Ltd since July 2016 and is responsible for Organization and Human Resources. She holds a Bachelor’s degree in German from the University College, London. Caroline Luscombe joined LafargeHolcim from Syngenta where she was Head of Human Resources since January 2010 and a member of the Executive Committee. Prior to joining Syngenta, Caroline held senior HR roles in the financial and healthcare businesses of the GE Group, and in the specialty chemical company, Laporte plc. Gérard Kuperfarb (Growth & Innovation) Caroline Luscombe (Organization and Human Resources) 126 L A F A R G E H O L C I M Annual Report 2016 Oliver Osswald Swiss national born in 1971, Oliver Osswald has been a Member of the Executive Com- mittee of LafargeHolcim Ltd since August 2016 and is responsible for Central and South America. He is a graduate from the Technische Hochschule in Ulm and holds an MBA from the Harvard Business School. Oliver Osswald joined Holcim Apasco in Mexico in 1995. He has been responsible for a number of plants in Switzerland and in Germany between 1999 and 2005. From 2005 to 2010, he held management and marketing positions in Holcim Switzerland. He was appointed Commercial Director for Holcim Apasco in Mexico in 2012 before being appointed Country Head for Argentina in 2014. Saâd Sebbar Moroccan and French national born in 1965, Saâd Sebbar has been a Member of the Executive Committee of LafargeHolcim Ltd since July 10, 2015 and is responsible for Middle East Africa. He is an aeronautics engineer and graduated from the ESSEC Busi- ness School in Paris. Before joining Lafarge, Saâd Sebbar worked as an Investment Advisor and then as a Management and Organization Consultant. He joined Lafarge in 1997 as a Plant Manager and subsequently held several other positions in operations. In 2002, he was appointed Managing Director of Lafarge-Titan Egypt. From 2004 to 2008, he held the position of Managing Director of Herakles General Company in Greece, and then became East Asia Regional President with responsibility for South Korea, Japan, Vietnam, and the Philippines. In 2012, he was appointed Country Chief Executive Officer for Lafarge Morocco. Oliver Osswald (Region Head Central and South America) Saâd Sebbar (Region Head Middle East Africa) COMPEN S AT ION R EPORT C O M P E N S A T I O N R E P O R T Page 128 128 L A F A R G E H O L C I M Annual Report 2016 COMPENSAT ION REPORT Director and executive compensation is designed to reinforce the LafargeHolcim strategy, by helping the company attract, motivate and retain talent, while aligning their interests with those of shareholders. The executive remuneration structure provides balance by rewarding short-term and long-term performance, by combining absolute, financial and non-financial metrics with relative total shareholder return in measuring performance, and by delivering compensation through a mix of cash and company shares. Executives are expected to build their LafargeHolcim share ownership over time, to provide further alignment with shareholders. C o m p e n s a t i o n R e p o r t 129 Nassef Sawiris Dear Shareholders, The year 2016 has been the first full financial year of LafargeHolcim and my first year as the Chairman of the Nomination, Compensation and Governance Committee (NCGC, hereafter referred to as “the Committee”). After the in-depth review following the completion of the merger in July 2015, the Committee has focused on implement- ing the policy presented in our last Compensation Report. Our policy is based on the following principles: – The LafargeHolcim employees are at the heart of the success of the company and the value it creates for its shareholders – LafargeHolcim wants to be an attractive employer in the employment markets it operates in and regularly benchmarks compensation to ensure competitiveness – Incentive plans provide the opportunity to achieve a higher level of overall remuneration, when delivering strong short- and long-term performance which is directly linked to the Group’s strategy and aligned with shareholders’ interests – The Group rewards employees consistently across the business in a fair and transparent way; differentiating only by performance, value creation and market demands In 2016, our policy proved its ability to support Company strategy and developments at Executive Committee level: – We recruited and appointed new members to the Executive Committee on competi- tive remuneration arrangements in line with the envelope voted by our shareholders at our 2015 AGM – Our integration and synergies efforts were strongly supported by our incentives, in particular by the share option award, primarily focused on the delivery of planned synergies – The Committee felt that short- and long-term incentives were well aligned with the Company’s needs and the 2016 long-term incentive awards were broadly consistent in size and in design with those granted in 2015 In 2017, we aim at further aligning our compensation policy, both with company strategy and Swiss and international best practices. In particular, the Committee intends to: – Gradually bring the dates of long-term incentives forward in the year, to enable longer performance periods – Solely grant performance shares. Our plan rules allow for grants of fair market value stock options in exceptional circumstances; there will be no option grant in 2017 – Primarily seek total compensation competitiveness from performance-related pay In the following pages you will find more information about compensation at LafargeHolcim in 2016. We will seek your support on compensation matters at our AGM on May 3, 2017. Respectfully, Nassef Sawiris Chairman of the Nomination, Compensation and Governance Committee 130 L A F A R G E H O L C I M Annual Report 2016 Executive Committee Compensation The table opposite summarizes compensation principles and systems in force since July 10, 2015. Due to the merger and the changes in the Company’s senior management, a number of changes in the variable pay design took place on the merger completion date (July 10, 2015) designed to further increase the performance-orientation and long-term focus. Our compensation policy in 2016 broadly followed the structure in place from this date. Base salaries The Committee reviews base salaries of Executive Committee members annually, aiming at total compensation packages being broadly competitive against the Swiss Market Index. Salaries for all Executive Committee members were decided taking into account previous salaries of the individuals appointed, market practice for the relevant role, as well as consistency across the Executive Committee. Since the merger completion date, a number of new executives joined the Executive Committee, and we have adopted the same principles in setting their salary levels. C o m p e n s a t i o n R e p o r t 131 Remuneration policy applied in 2016 Fixed pay Element and link to strategy Operation Quantum Link with performance Basic salary Reflects key responsibilities, experience and market value Pension Provide competitive and appro priate retirement plans. Other benefits Provide competitive perquisites and appropriate expatriation-related benefits Variable pay – Paid monthly in cash – Reviewed annually based on a market competitiveness review, market movements and individual performance – Defined benefit scheme applicable to Swiss-based Senior Management – Overall pension promise is inclusive of all other local and supplementary schemes participants may benefit from – Non-Swiss based Executive Committee members benefit from local pension schemes – Set at a competitive level comparable to Swiss companies of similar size – Salary increase budgets reflect, inter alia, company performance – Salary increases will be closely linked to individual performance – N/A – Targeted to achieve, at age 62, assuming 10 years of service in Senior Management and 20 years of service with the Group, an amount of 40% of the average of last 3 years’ base salaries – Early or deferred retirement pensions adjusted based on actuarial calculations – Car/transport allowance – Housing, schooling and travel (for executives who had to relocate) – Amounts consistent – N/A with the LafargeHolcim policies applicable to all members of staff Element and link to strategy Operation Quantum Link with performance Annual bonus Rewards the achievement of the company’s annual targets and the executive’s own goals – Paid annually after the approval of annual accounts Long-Term Incentive Plan Performance shares Rewards long-term financial performance and shareholder value creation – Granted each year – Rewards Company per- formance over a three- year period – Delivered in LafargeHolcim shares – Strict leaver rules Share options – Granted on an exceptional basis, to strengthen the link between pay and specific strategic objectives – Option exercise price set at fair market value (average three days before grant) – Maximum opportunity is 200% of salary for the CEO and 125% of salary for other Executive Committee members – Based on a combination of financial results at Group level (and at Regional level as appropriate) and individual performance – Annual award of 225% – 30% of the LTIP vest based of salary for the CEO and 125% of salary for other Executive Committee members on adjusted EPS – 40% vest based on ROIC – 30% vest based on TSR, relative to a 17-company peer group – Face value of 500% of salary for CEO and 280% of salary for other Executive Committee members – In 2016, 100% of options vest on free cash flow achievement 132 L A F A R G E H O L C I M Annual Report 2016 Annual incentives The annual incentives, which are paid half in cash and half in shares deferred for three years, reward financial achievements at Group level (and at regional level for Executive Committee members as appropriate), as well as individual achievements and behaviors. The annual incentive design applicable to the Executive Committee is summarized below: Role CEO Other Executive Committee members Maximum opportunity 200% of salary 125% of salary Metrics Purpose Definition Weighting Payout formula Operating EBITDA (adjusted) Operating Free Cash Flow Individual performance Measures Group or Regional operational profitability Measures the company’s ability to generate cash Captures each Executive Committee member’s individual performance Earnings before Interest, Tax, Depreciation and Amortization, at budget FX rate, adjusted for changes of perimeter and exceptional items Free Cash Flow, adjusted for proceeds of divestments and cost of acquisitions Assessment of how each executive has met a number of strategic, operational or project-based objectives (including health & safety) 30% NCGC and Chairman assessment 30% 100% 60% 25% 0% 40% 100% 60% 25% 0% ≥ 90% of Target Target 110% of Target ≥ 90% of Target Target 110% of Target Long-term incentives The performance share plan (PSP) was designed to retain talent and to provide forward-looking incentives for sustained corporate performance. Under the scheme rules either conditional share awards or share options may be awarded, and vest after a three- year period. It is the Committee’s intention to normally grant conditional share awards annually, whilst share options will be granted in exceptional circumstances only. In 2015, share options were granted to support the demanding merger-related synergy and cash flow objectives. In December 2016, given the changes that took place within the Executive Committee within the year, and the need to incentivize the delivery of challenging 3-year cash flow generation targets, it was decided to award a second exceptional share option grant. There will be no option grant awarded in 2017. C o m p e n s a t i o n R e p o r t 133 2016 Performance share award Role CEO Other Executive Committee members Maximum opportunity 225% of salary 125% of salary Metrics Purpose Weighting Performance period Definition Performance- vesting Recurring Earnings per share ROIC Relative TSR Measures LafargeHolcim’s profitability to investors Measures the company’s ability to use invested capital increasingly efficiently Measures LafargeHolcim’s ability to provide investors with better returns compared to alternative investments 30% 2018 40% 2018 Underlying, fully-diluted earnings per share adjusted for after tax impairment, gains and losses on divestments and one-off items Return on Invested Capital at year end 2018, adjusted for changes in perimeter between 2016 and 2018, excluding one-off items 30% December 14, 2016 to December 13, 2018 Percentile-ranking of LafargeHolcim’s 3-month average TSR vs 17 sector peers: ACS, Bouygues, Buzzi Unicem, Cemex, CRH, HeidelbergCement, James Hardie Industries, Kingspan, Martin Marietta Materials, Mitsubishi Materials, NCC, Saint-Gobain, Sika, Skanska, Vicat, Vinci and Vulcan Materials 100% 75% 50% 25% 0% 100% 75% 50% 25% 0% 100% 75% 50% 25% 0% 80% of Target Target 120% of Target Target –50bps Target Target +50bps Median 60th percentile 75th percentile Absolute targets are not disclosed as they could give an unfair competitive advantage to our competitors, but are in line with the guidance given to investors and will be disclosed at vesting 134 L A F A R G E H O L C I M Annual Report 2016 Share options granted on December 14, 2016 Role CEO Other Executive Committee members Grant size (face value) Metric Purpose 500% of salary 280% of salary Cumulative Free Cash Flow Measures the company’s ability to generate cash sustainably over three years Weighting 100% Performance period Definition Performance- vesting 2017, 2018, 2019 Sum of cash generated and available for debt repayment, dividend and minority or share buy-backs over the years 2017 to 2019 excluding the impact of proceeds from the divestment program. 100% 75% 50% 25% 0% 90% of Target Target 110% of Target C o m p e n s a t i o n R e p o r t 135 Executive Share Ownership guidelines To reflect the importance the Committee places on aligning their interests with share- holders, executives are required to hold LafargeHolcim shares, with a value of 300 per- cent of salary for the CEO and 150 percent of salary for other Executive Committee members. Executives are expected to retain at least 50 percent of vested shares (after statutory deductions) until the required holding is met. Employment contracts for the Executive Committee The contracts of employment of the Executive Committee are concluded for an indefinite period of time and may be terminated with one year’s notice. Contracts of employment do not include severance compensation. Following the merger, various members of the Lafarge S.A. Senior Management have been employed under similar contractual arrangements as the existing Holcim Ltd Members of Senior Management. However, in the event that LafargeHolcim Ltd termi- nates the employment of a former Lafarge Senior Management member within two years, the commitments from the former Lafarge French employment contract will be paid to such Senior Management member. Retention awards As mentioned in previous remuneration reports, the former Holcim Nomination & Com- pensation Committee has put in place in 2014 appropriate measures to retain certain members of the Executive Committee and Senior Management. In total, CHF 2.0 million was paid in respect of these arrangements in 2016 (2015: CHF 8.2 million). No further payments are due under this merger-related scheme. Number 139,327 363,793 503,120 Share Options 4 Fair value (in CHF) 1,257,468 3,283,341 4,540,809 Pension contributions 5 525,620 4,762,181 5,287,801 Other 1,089,279 6 303,323 1,392,602 Total 2016 8,956,308 34,444,479 43,400,787 7 Total 2015 5,781,555 35,835,001 41,616,556 136 L A F A R G E H O L C I M Annual Report 2016 Compensation 2016 Name Eric Olsen 1 Position CEO Other Executive committee members TOTAL EXECUTIVE COMMITTEE Base Salary (in CHF) 2 Annual incentive (in CHF) 1,691,581 12,986,657 14,678,238 1,081,958 4,190,741 5,272,699 Performance shares 3 Face value (in CHF) 3,310,402 8,918,236 12,228,638 Number 62,697 168,906 231,603 1 Highest paid Individual. 2 Base salary including housing, schooling and relocation services. 3 Value per share CHF 52.80 (spot price at date of grant, 2015: CHF 49.12). Performance conditions not considered in this face value. 4 Stock option value of CHF 9.0253 determined using a Black-Scholes valuation model at December 14, 2016 (2015: CHF 10.1042), without considering performance conditions. 5 The contributions to pension plans also include the employer’s contributions to Swiss social security (AHV/IV). 6 Includes a payment for tax equalization related to prior years. 7 This figure compares to the adjusted final 2016 Executive Committee maximum compensation of CHF 89.1 million (original maximum of CHF 40.5 million, plus three 40% extensions, due to three new members of the Executive Committee having joined in the year, in accordance with Article 24 of the Articles of Incorporation). Compensation for financial year 2016 The table above reflects the compensation paid to Eric Olsen, CEO, and the LafargeHolcim Executive Committee in 2016. Total compensation for the CEO and the other nine Executive Committee members in 2016 is not directly comparable to that of 2015, given the merger that took place on July 10, 2015. Base salaries Base salaries were set at the time of the merger completion, in July 2015, and were not reviewed since. A planned increase to Eric Olsen’s salary, from CHF 1.35 million to CHF 1.5 million, was implemented on April 1, 2016. New members of the Executive Committee were appointed on salaries similar to, or lower than that of their pre- decessors. The total annual compensation for the members of the Executive Committee (including CEO) amounted to CHF 43.4 million (2015: CHF 41.6 million). This amount comprises base salaries and variable compensation of CHF 20.0 million (2015: CHF 24.7 million), share- based compensation of CHF 16.7 million (2015: CHF 18.6 million), employer contributions to pension plans of CHF 5.3 million (2015: CHF 5.6 million) and “other” compensation of CHF 1.4 million (2015: CHF 0.7 million). The CEO (Eric Olsen) received a combined base salary plus variable compensation of CHF 2.8 million (2015: CHF 1.7 million over six months), share-based compensation of CHF 4.6 million (2015: CHF 4.0 million), employer contributions to pension benefits of CHF 0.5 million (2015: CHF 0.1 million over six months) and “other compensation” of CHF 1,1 million (2015: CHF 0,0 million). As a result, the CEO total compensation amounted to CHF 9.0 million (2015: CHF 5.8 million over six months). C o m p e n s a t i o n R e p o r t 137 Compensation 2016 Name Eric Olsen 1 Position CEO Other Executive committee members TOTAL EXECUTIVE COMMITTEE 1 Highest paid Individual. 2 Base salary including housing, schooling and relocation services. 3 Value per share CHF 52.80 (spot price at date of grant, 2015: CHF 49.12). Performance conditions not considered in this face value. 4 Stock option value of CHF 9.0253 determined using a Black-Scholes valuation model at December 14, 2016 (2015: CHF 10.1042), without considering performance conditions. 5 The contributions to pension plans also include the employer’s contributions to Swiss social security (AHV/IV). 6 Includes a payment for tax equalization related to prior years. 7 This figure compares to the adjusted final 2016 Executive Committee maximum compensation of CHF 89.1 million (original maximum of CHF 40.5 million, plus three 40% extensions, due to three new members of the Executive Committee having joined in the year, in accordance with Article 24 of the Articles of Incorporation). Base Salary (in CHF) 2 Annual incentive (in CHF) 1,691,581 12,986,657 14,678,238 1,081,958 4,190,741 5,272,699 Performance shares 3 Face value (in CHF) 3,310,402 8,918,236 12,228,638 Number 62,697 168,906 231,603 Number 139,327 363,793 503,120 Share Options 4 Fair value (in CHF) 1,257,468 3,283,341 4,540,809 Pension contributions 5 525,620 4,762,181 5,287,801 Other 1,089,279 6 303,323 1,392,602 Total 2016 8,956,308 34,444,479 43,400,787 7 Total 2015 5,781,555 35,835,001 41,616,556 Annual bonus Annual bonuses were calculated based on objectives set and approved by the Board in early 2016. A detailed calculation of the CEO’s annual bonus follows: CEO Annual bonus calculation 2016 Metric Operating EBITDA (adjusted) Operating Free Cash Flow Personal performance Weighting Eligible salary in CHF 30% 40% 30% 438,750 585,000 438,750 TOTAL 100% 1,462,500¹ 1 made of three months at CHF 1.35 million and nine months at CHF 1.5 million Payout Achievement % of maximum bonus vs target opportunity % of salary CHF 95.23% 89.65% 85.00% – 11.5% 0% 25.5% 37.0% 23.0% 336,083 0% 51.0% 74.0% 0 745,875 1,081,958 Average bonus payout for other Executive Committee members was 44.1 percent, for a total of CHF 4.2 million paid. 138 L A F A R G E H O L C I M Annual Report 2016 Long-term incentives In December 2016, the CEO and Executive Committee members received conditional share awards (performance shares), in line with the principles described above. 62,697 performance shares were granted to the CEO (fair value: CHF 3.3 million), and 168,906 performance shares in total were granted to other Executive Committee members (fair value: CHF 8.9 million). In addition, due to important changes within the Executive Committee, and the need to help deliver demanding long-term cash flow generation objectives, the Committee decided to award an exceptional share option grant, subject to a cumulative Free Cash Flow condition, to the Executive Committee and selected executives within the company. The CEO received 139,327 share options (fair value: CHF 1.3 million) and other Executive Committee members received 363,793 share options in total (fair value: CHF 3.3 million). There will be no option grant in 2017. There were no Long-Term Incentives vesting in 2016. Long term incentive targets will be disclosed retrospectively after vesting. Compensation of former members of governing bodies In the year under review, compensation in the amount of CHF 4.0 million (2015: CHF 0.2 million) was paid to four (2015: six) former members of the Senior Management. C o m p e n s a t i o n R e p o r t 139 Non-Executive Director Compensation Director compensation policy Non-executive directors’ fees have been set at a level that allows for the attraction and retention of the appropriate caliber of individuals with global experience. The members of the Board of Directors receive a fixed fee, paid in cash and LafargeHolcim shares, subject to a five-year sale and pledge restriction period. The Chairman of the Board of Directors and Chairmen and members of the Committees receive additional compensation. Non-executive directors do not receive any per formance-based compen- sation. Position Annual base compensation Chairman of the Board of Directors Co-Chairman of the Board of Directors Member of the Board of Directors Committee membership and chairmanship fees Finance and Audit Committee Chairman Finance and Audit Committee member Nomination, Compensation and Governance Committee Chairman Nomination, Compensation and Governance Committee member Strategy and Sustainable Development Committee Chairman Strategy and Sustainable Development Committee member Cash compensation (in CHF) Share-based compensation (in CHF) Expense allowance (in CHF) Secretarial allowance (in CHF) 725,000 100,000 100,000 125,000 40,000 125,000 40,000 125,000 40,000 725,000 100,000 100,000 10,000 10,000 10,000 0 0 0 0 0 0 0 0 0 0 0 0 60,000 0 0 0 0 0 0 0 0 140 L A F A R G E H O L C I M Annual Report 2016 Compensation for financial year 2016 Name Beat Hess Wolfgang Reitzle Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais, Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti TOTAL Date of Board nomination (if in 2016) May 12 Board C / VC 1 C 4 CC n n n n n n n n n n n n FAC n2 n C / n7 C / n8 n NCGC n5 C / n6 n n C9 n10 Positions SSDC n3 Date of stepping down from the Board May 12 n n n C FAC: Finance & Audit Committee, NCGC: Nomination, Compensation and Governance Committee, SSDC: Strategy & Sustainable Development Committee, C: Chairman, CC: Co-Chairman, VC: Vice-Chairman, n: Member 1 Was vice-chairman until May 12 and chairman thereafter. 2 Was a Finance and Audit Committee member until May 12. 3 Was a Strategy & Sustainable Development Committee member until May 12. 4 Was chairman until May 12. 5 Was a Nomination and Compensation Committee member until May 12. Compensation for financial year 2016 In 2016, fifteen non-executive members of the Board of Directors received in total a remu- neration of CHF 5.4 million (2015: CHF 5.5 million) of which CHF 3.1 million (2015: CHF 3.8 million) was paid in cash, CHF 0.1 million (2015: CHF 0.1 million) was granted in the form of post-employment benefits, and CHF 1.9 million (2015: CHF 1.4 million) was paid in shares. Other compensation paid totaled CHF 0.2 million (2015: CHF 0.2 million). Loans granted to members of governing bodies As at December 31, 2016, there were no loans outstanding to members of Senior Management. There were no loans to members of the Board of Directors or to parties closely related to members of governing bodies. Number Value 11 Pension contributions 33,825 Cash (in CHF) 602,083 520,833 106,540 140,000 100,000 175,417 180,000 175,417 229,583 140,000 58,333 212,917 100,000 140,000 265,000 Shares 464,584 208,333 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 58,333 100,000 100,000 100,000 100,000 8,627 3,869 1,857 1,857 1,857 1,857 1,857 1,857 1,857 1,857 1,083 1,857 1,857 1,857 1,857 0 0 0 0 0 0 0 0 0 8,122 6,933 14,960 8,094 19,999 91,933 Other (in CHF) 45,000 29,167 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 7,500 10,000 10,000 10,000 10,000 Total 2016 1,145,492 758,333 216,540 258,122 216,933 285,417 290,000 300,377 339,583 250,000 124,166 322,917 218,094 250,000 394,999 Total 2015 712,082 2,183,611 99,444 121,305 99,444 141,945 130,139 390,000 132,500 324,028 116,944 113,611 238,176 245,833 305,454 3,146,123 35,863 1,931,250 201,667 5,370,973 5,354,516 6 Was chairman of the Nomination and Compensation Committee until May 12 and member of the Nomination and Compensation Committee thereafter. 7 Was chairman of the Audit Committee until May 12 and member of the Audit Committee thereafter. 8 Was member of the Audit Committee until May 12 and chairman of the Audit Committee thereafter. 9 Chairman of the Nomination and Compensation Committee since May 12. 10 Member of the Nomination and Compensation Committee since May 12. 11 The shares were valued at the average market price in the period from January 1, 2017 to February 15, 2017 and are subject to a five-year sale and pledge restriction period. Positions SSDC n3 Date of stepping down from the Board May 12 Compensation for financial year 2016 Date of Board nomination (if in 2016) Name Beat Hess Wolfgang Reitzle Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais, Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti TOTAL Board C / VC 1 C 4 CC n n n n n n n n n n n n FAC n2 n C / n7 C / n8 n NCGC n5 C / n6 n n C9 n10 May 12 n n n C C o m p e n s a t i o n R e p o r t Cash (in CHF) 602,083 520,833 106,540 140,000 100,000 175,417 180,000 175,417 229,583 140,000 58,333 212,917 100,000 140,000 265,000 Shares Number Value 11 Pension contributions Other (in CHF) 8,627 3,869 1,857 1,857 1,857 1,857 1,857 1,857 1,857 1,857 1,083 1,857 1,857 1,857 1,857 464,584 208,333 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 58,333 100,000 100,000 100,000 100,000 33,825 0 0 8,122 6,933 0 0 14,960 0 0 0 0 8,094 0 19,999 91,933 45,000 29,167 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 7,500 10,000 10,000 10,000 10,000 141 Total 2015 712,082 2,183,611 99,444 121,305 99,444 141,945 130,139 390,000 132,500 324,028 116,944 113,611 238,176 245,833 305,454 Total 2016 1,145,492 758,333 216,540 258,122 216,933 285,417 290,000 300,377 339,583 250,000 124,166 322,917 218,094 250,000 394,999 3,146,123 35,863 1,931,250 201,667 5,370,973 5,354,516 FAC: Finance & Audit Committee, NCGC: Nomination, Compensation and Governance Committee, SSDC: Strategy & Sustainable Development Committee, C: Chairman, CC: Co-Chairman, VC: Vice-Chairman, n: Member 1 Was vice-chairman until May 12 and chairman thereafter. 2 Was a Finance and Audit Committee member until May 12. 3 Was a Strategy & Sustainable Development Committee member until May 12. 4 Was chairman until May 12. 5 Was a Nomination and Compensation Committee member until May 12. 6 Was chairman of the Nomination and Compensation Committee until May 12 and member of the Nomination and Compensation Committee thereafter. 7 Was chairman of the Audit Committee until May 12 and member of the Audit Committee thereafter. 8 Was member of the Audit Committee until May 12 and chairman of the Audit Committee thereafter. 9 Chairman of the Nomination and Compensation Committee since May 12. 10 Member of the Nomination and Compensation Committee since May 12. 11 The shares were valued at the average market price in the period from January 1, 2017 to February 15, 2017 and are subject to a five-year sale and pledge restriction period. Other transactions As part of the employee share purchase plan, LafargeHolcim manages employees’ shares. It sells and purchases LafargeHolcim Ltd shares to and from employees and in the open market. No shares were purchased from members of Senior Management in 2015 and 2016. Share ownership information Shares owned by non-executive directors On December 31, 2016, non-executive members of the Board of Directors held a total of 98,323,773 registered shares in LafargeHolcim Ltd. This number comprises privately acquired shares and those allotted under participation and compensation schemes. As of the end of 2016 one non-executive member of the Board of Directors held options from compensation and participation schemes. 142 L A F A R G E H O L C I M Annual Report 2016 Until the announcement of market-relevant information or projects, the Board of Directors, Senior Management and any employees involved are prohibited from effecting transac- tions with equity securities or other financial instruments of LafargeHolcim Ltd, exchange-listed Group companies or potential target companies (trade restriction period). Number of shares and options held by the Board of Directors as of December 31, 2016 1 Name Beat Hess Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais Jr. Oscar Fanjul Alexander Gut Position Chairman Co-Chairman Member Member Member Member Member Gérard Lamarche Member, Finance and Audit Committee Chairman Adrian Loader Jürg Oleas Member Member Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti TOTAL BOARD OF DIRECTORS Member, Nomination, Compensation & Governance Committee Chairman Member Member Member, Strategy and Sustainable Development Committee Chairman Number of shares and options held by the Board of Directors as of December 31, 2015 1 Name Wolfgang Reitzle Beat Hess Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti TOTAL BOARD OF DIRECTORS Position Chairman Deputy Chairman Co-Chairman Member Member Member, Nomination, Compensation & Governance Committee Chairman Member Member, Finance and Audit Committee Chairman Member Member Member Member Member Member, Strategy and Sustainable Development Committee Chairman 1 From allocation, shares are subject to a five-year sale and pledge restriction period. Total number of call options 2016 443,086 Total number of shares 2016 8,792 44,939 121,673 1,129 37,086 5,901 8,161 2,209 14,882 2,314 28,938,346 69,070,670 4,920 62,751 98,323,773 443,086 Total number of call options 2015 448,206 Total number of shares 2015 6,455 6,400 43,810 116,094 0 35,957 4,772 5,769 1,080 12,490 28,935,639 69,068,278 2,527 50,859 98,290,130 448,206 C o m p e n s a t i o n R e p o r t 143 Shares and options owned by Executive Committee As of December 31, 2016, members of the Executive Committee held a total of 92,718 registered shares in LafargeHolcim Ltd. This figure includes both privately acquired shares and those allocated under the Group’s participation and compensation schemes. Furthermore, at the end of 2016, the Executive Committee held a total of 1,018,088 stock options and 393,825 performance shares; these arose as a result of the participation and compensation schemes of various years. Options are issued solely on registered shares in LafargeHolcim Ltd. One option entitles the holder to subscribe to one registered share in LafargeHolcim Ltd. Number of shares and options held by the senior management as of December 31, 2016 Name Eric Olsen Position CEO Ron Wirahadiraksa Member of the Executive Committee, CFO Urs Bleisch Pascal Casanova Roland Köhler Martin Kriegner Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Gérard Kuperfarb Member of the Executive Committee Caroline Luscombe Member of the Executive Committee Oliver Osswald Saâd Sebbar Member of the Executive Committee Member of the Executive Committee Total number of shares 2016 Total number of call options 2016 23,499 2,101 10,399 4,857 34,581 3,100 8,222 0 887 5,072 262,054 113,217 122,115 70,857 198,208 45,410 77,193 36,410 27,308 65,316 Total number of performance shares 2016 117,924 50,543 32,163 31,632 40,543 20,354 34,460 22,756 14,291 29,159 TOTAL SENIOR MANAGEMENT 92,718 1,018,088 393,825 Number of shares and options held by the senior management as of December 31, 2015 Name Eric Olsen Position CEO Ron Wirahadiraksa Member of the Executive Committee, CFO Urs Bleisch Member of the Executive Committee Alain Bourguignon Member of the Executive Committee Pascal Casanova Member of the Executive Committee Jean-Jacques Gauthier Member of the Executive Committee Total number of shares 2015 8,272 0 7,443 10,518 1,643 4,413 Total number of call options 2015 68,050 0 50,069 14,216 18,031 63,637 Roland Köhler Member of the Executive Committee 28,882 106,991 Gérard Kuperfarb Member of the Executive Committee Saâd Sebbar Ian Thackwray Member of the Executive Committee Member of the Executive Committee TOTAL SENIOR MANAGEMENT 5,115 6,356 19,122 91,764 66,083 15,669 102,207 504,953 144 L A F A R G E H O L C I M Annual Report 2016 Liquidity mechanism for remaining rights under the Lafarge long term incentive plans Following the success of the public exchange offer on Lafarge S.A. and the completion of the subsequent squeeze-out of Lafarge shares, LafargeHolcim has proposed a liquidity mechanism for (i) Lafarge shares that may be issued following the exercise on or after October 23, 2015 of stock options that have been allocated pursuant to the Lafarge stock option plans; or (ii) Lafarge shares that may be definitively allotted on or after October 23, 2015 in accordance with the Lafarge performance shares plans. Five members of the LafargeHolcim Executive Committee, including the Chief Executive Officer, have accepted this mechanism which will translate into an exchange or a purchase (according to their country of residence) of their Lafarge shares for LafargeHolcim shares. The exchange or purchase will take place at the end of the holding period (i.e. up to March 2019) for performance shares or following the exercise of stock options (all non- exercised options will lapse at the end of 2020 at the latest), applying the relevant exchange ratio to maintain the initial parity of the public exchange offer (at the end of December 2016, the exchange ratio is 0.945 LafargeHolcim share for 1 Lafarge share). The following table presents the rights of the Executive Committee members that are still under vesting period or holding period under the Lafarge performance shares plans and the non-exercised Lafarge stock options as of December 31, 2016. Beneficiaries Eric Olsen Pascal Casanova Martin Kriegner Gérard Kuperfarb Saâd Sebbar All these rights were granted before the merger. Lafarge (Performance shares) Lafarge (Stock options) 11,578 5,617 4,038 11,578 3,423 68,050 15,717 13,886 66,083 12,198 C o m p e n s a t i o n R e p o r t 145 The share options outstanding held by the Executive Committee (including former members) at year-end 2016 have the following expiry dates and exercise prices: Option grant date Expiry date Exercise price 1 2016 2015 Number 1 Number 1 2004 2008 2008 2009 2010 2010 2010 2011 2012 2013 2013 2014 2014 2015 (2006 3) 2015 (2007 3) 2015 (2008 3) 2015 (2009 3) 2015 (2010 3) 2015 (2011 3) 2015 (2012 3) 2015 2015 2015 2016 TOTAL 2016 2 2016 2020 2017 2018 2022 2022 2019 2020 2021 2025 2022 2026 2016 2017 2018 2019 2020 2020 2020 2023 2023 2025 2026 CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF 63.50 99.32 62.95 35.47 67.66 70.30 76.10 0 0 15,550 71,083 33,550 33,550 38,760 70,502 95,557 95,557 33,550 33,550 0 33,550 63.40 113,957 113,957 54.85 165,538 165,538 67.40 122,770 122,770 64.65 64.40 64.40 90.67 0 11,183 99,532 99,532 33,550 33,550 0 28,926 118.97 18,836 29,276 103.30 60,745 76,942 33.02 55.10 47.80 38.67 28,106 25,166 22,125 22,125 24,645 24,675 21,420 24,360 66.85 144,970 144,970 63.55 47,333 47,333 50.19 437,348 457,336 53.83 503,120 – 2,045,469 1,780,981 1 Adjusted to reflect former share splits and/or capital increases and/or scrip dividend. 2 Due to trade restrictions in 2008, the expiry date of the annual options granted for the years 2003 to 2004 has been extended by one year. 3 These options were granted through the Lafarge Stock-Options plans. The figures presented in this table are based on the application of the actual exchange ratio of 0.945. 146 L A F A R G E H O L C I M Annual Report 2016 Compensation governance Rules relating to Compensation in the LafargeHolcim Articles of Incorporation The Articles of Incorporation contain provisions regarding the approval of compensation of the Board of Directors and the Executive Management (Art. 23), the supplementary amount for new members of the Executive Management (Art. 24), the general compen- sation principles (Art. 25) as well as provisions regarding the agreements with members of the Board of Directors and the Executive Management (Art. 26). Moreover, the Articles of Incorporation contain provisions regarding the roles of the Board of Directors and the Nomination, Compensation & Governance Committee (Art. 17 and Art. 5). The Articles of Incorporation are available at www.lafargeholcim.com/articles-association. Board of Directors The Board of Directors has according to Article 17 of the Articles of Incorporation the responsibility for preparing the compensation report. Nomination, Compensation & Governance Committee The Nomination, Compensation & Governance Committee supports the Board of Directors according to Article 21 of the Articles of Incorporation in establishing and reviewing LafargeHolcim’s nomination, compensation and governance strategy and guidelines as well as in preparing the motions to the Annual General Meeting regarding the nomina- tion and compensation of the members of the Board of Directors and of the Executive Management. For predefined positions of the Board of Directors and of the Executive Management, the Committee proposes the applicable performance criteria, targets and compensation levels for the Board of Directors while the Committee itself determines, in accordance with the compensation guidelines established by the Board of Directors, the above metrics for other predefined positions. The Committee holds ordinary meetings at least three to five times a year: at the begin- ning of the year, in the middle of the year and in autumn. The Committee Chairman may invite members of the Executive Committee, other officers of the Group or third parties to attend the meetings. After each Committee meeting, the Board of Directors is informed of the topics discussed, decisions taken and recommendations made. In 2016, the Committee retained Kepler (a brand of Mercer Ltd) as its independent compensation advisor. The Committee is satisfied with their performance and the independence of their advice since its appointment. It will reassess regularly the quality of the consulting service and the opportunity of rotating advisors. Annual General Meeting (AGM) According to Art. 23 of the Articles of Incorporation, the Annual General Meeting approves annually the compensation of the Board of Directors for the period from the Annual General Meeting to the next Annual General Meeting as well as the compensation of the Executive Management for the following financial year. Art. 24 of the Articles of Incorporation provides for a supplementary amount for Executive Management members who become members of, or who are promoted to the Executive Management during a compensation period for which the Annual General Meeting has already approved the compensation of the Executive Management if the compensation already approved is not sufficient to cover this compensation. The supplementary amount per compensation period for each such member shall not exceed 40 percent of the aggregate amount of compensation last approved by the Annual General Meeting. In addition to this prospective compensation approval process, the Compensation Report is submitted to the Annual General Meeting for an advisory vote on a yearly basis. C o m p e n s a t i o n R e p o r t 147 The roles of the Committee, the Board of Directors, and the AGM The table below summarizes the roles of the Committee, the Board of Directors, and the Annual General Meeting: Nomination, Compensation & Governance Committee Board of Directors Annual General Meeting (AGM) Compensation Report Maximum compensation amount for the Board of Directors from AGM to AGM Maximum compensation for the Executive Management for the next financial year Individual compensation of members of the Board of Directors Proposes Proposes Proposes Proposes Approves Advisory vote Binding vote Binding vote Reviews and proposes to AGM Reviews and proposes to AGM Approves (subject to approval by AGM) Individual compensation of members of the Executive Management Approves (subject to approval by AGM) 148 L A F A R G E H O L C I M Annual Report 2016 TO THE GENERAL MEETING OF LAFARGEHOLCIM LTD, RAPPERSWIL-JONA Zurich, March 1, 2017 Report of the statutory auditor on the compensation report We have audited the compensation report of LafargeHolcim Ltd for the year ended December 31, 2016. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained on pages 136 to 141 of the compensation report. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the compensation system and defining individual compensation packages. Auditor’s responsibility Our responsibility is to express an 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 perform the audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14 – 16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to compensation, loans and credits in accor- dance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the compensation report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the compensation report for the year ended December 31, 2016 of LafargeHolcim Ltd complies with Swiss law and articles 14 – 16 of the Ordinance. Ernst & Young Ltd Daniel Wüst Licensed Audit Expert Auditor in charge Elisa Alfieri Licensed Audit Expert M A N AGEMENT DI SCUS S ION & A N A LYS I S M A N A G E M E N T D I S C U S S I O N & A N A L Y S I S Page 150 150 L A F A R G E H O L C I M Annual Report 2016 MANAGEMENT DISCUSSION & ANALYSIS 2016 2016 was a year of accelerating earnings momentum for the world’s leading building materials company. Strong returns were achieved across all regions with positive contributions for the year with divestments assisting in decreasing the asset base. This per- formance highlights the strength of the diversified portfolio. Despite some challenging markets, and a decline in cement sales volume in 2016, focus on pricing, synergies and disciplined cost management had a positive effect on earnings. For the full year, cash flow and earnings per share grew signi ficantly and operating EBITDA adjusted was up 8.7 percent on a like-for-like basis achieving the target for the year. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 151 This management discussion and analysis should be read in conjunction with the shareholders’ letter and the individual reports for the Group regions. Overview In 2016, LafargeHolcim achieved significant improvements on the key measures operat- ing EBITDA adjusted, cash flow and earnings per share driven by outperformance on synergies and excellent progress on cost and pricing. The strong execution was visible across the Group’s portfolio with all regions delivering increased operating EBITDA adjusted on a like-for-like basis for the full year on prior year. Continuing the trend seen over 2016, and highlighting the balanced nature of the portfolio, positive contributions were made by both mature and developing markets. Notably, Europe experienced performance growth in several construction markets, as well as benefiting from cost management and restructuring. A significant positive contribution from the US again reinforced the importance of this market to LafargeHolcim. Among other countries to finish the year in positive territory were Egypt, Argentina, Algeria and Mexico. India grew in 2016 despite the impact of the government’s move to withdraw high denomination bank notes from circulation. In Nigeria, measures to improve fuel flexibility following interruption to gas supplies earlier in the year, combined with improving prices, helped the country return to growth in Q4. LafargeHolcim was also faced with some challenging markets in 2016. Brazil’s economic crisis further depressed the construction sector and decisive measures have been taken to reduce costs. In Asia Pacific, Indonesia and Malaysia continued to feel the effects of market overcapacity and tough competition. Actions to improve competitiveness and performance are having an effect in difficult environments. Cement volumes were down globally by 2.5 percent like-for-like over the full year. On the other hand, steady improvement in pricing over the year means that overall price levels are now higher than before the marked decline seen over the course of 2015. The Group managed to mitigate the impact of contracting economies in some of its key markets, thanks to merger-related synergies delivered in 2016. Synergies generated by the merger on the operating EBITDA level, amounted to CHF 638 million in 2016, exceeding the target of CHF 550 million, a target that will gradually increase to CHF 1 billion by the end of 2017. On a pro forma basis, 2016 cement volumes sold were like-for-like below prior year by 2.5 percent or 6.1 million tonnes, aggregates volumes were down 1.7 percent or 4.9 million tonnes and ready-mix concrete shipments declined by 1.8 percent or 1.0 million cubic meters versus prior year. The Group achieved net sales of CHF 26,904 million, declining by 1.7 percent or CHF 484 million on a like-for-like basis. Unfavorable currency translation effects impacted the Group’s net sales by 3.2 percent or CHF 901 million, led by Middle East Africa (CHF 350 million, mainly in Egypt and Nigeria), Latin America (CHF 328 million, mainly in Argentina and Mexico), Europe (CHF 167 million, mainly in Azerbaijan and the UK) and Asia Pacific (CHF 108 million, mainly in China and India). 152 L A F A R G E H O L C I M Annual Report 2016 The Group incurred one-off costs of CHF 582 million in the year, which included CHF 242 mil- lion implementation cost related to synergies and CHF 341 million restructu ring costs and other one-offs not related to the merger. On a like-for-like basis, adjusted for merger, restructuring and other one-offs, the Group generated an operating EBITDA of CHF 5,825 million, 8.7 percent above the prior year, while the Group’s operating EBITDA margin increased by 2.1 percentage points to 21.6 percent. The Group’s year-end net financial debt stood at CHF 14,724 million, an improvement of CHF 2,541 million over prior year, driven by improved cash flow from operating activities and divestments. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 153 Operating results fourth quarter Sales volumes and principal key figures Oct–Dec 2016 Oct–Dec 2015 ±% like-for-like ±% Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m³ Net sales Operating EBITDA million CHF million CHF Operating EBITDA adjusted million CHF Operating EBITDA margin Operating EBITDA margin adjusted % % 55.9 71.2 13.1 6,526 1,296 1,611 19.9 66.5 75.8 14.3 7,441 988 1,395 13.3 24.7 18.8 (15.9) (6.1) (8.4) (12.3) 31.1 15.5 Cash flow from operating activities million CHF Operating Free Cash Flow million CHF 1,779 1,342 1,560 647 14.0 107.5 (5.8) (4.3) (3.3) (1.4) 51.5 30.5 32.0 Demand for cement, aggregates, ready-mix concrete and other construction materials and services is seasonal, as climatic conditions affect the level of activity in the construc- tion sector. The Group typically experiences a reduction in sales during the first and fourth quarters, reflecting the effect of the winter season in its principal markets in Europe and North America, and tends to see an increase in sales in the second and third quarters, reflecting the effect of the summer season. This effect can be particularly pronounced in harsh winters. On a like-for-like basis, cement deliveries decreased by 5.8 percent or 3.5 million tonnes to 55.9 million tonnes compared to the fourth quarter of 2015. With the exception of China, most countries in Asia Pacific saw a decrease in volumes during the fourth quarter, led by India, Indonesia and Malaysia. As a result, the region reported a 4.7 percent decrease compared to the prior year. The region Middle East Africa also reported a decline in cement sales volumes of 9.3 percent driven by Egypt, Nigeria and South Africa, despite improvement in Algeria, driven by new capacity in Biskra and strength in domestic demand. Volumes in North America declined by 10.9 percent, mostly in the US. Volumes in Latin America were also down 12.3 percent due to lower contributions mainly from Brazil and Mexico. On the other hand, volumes in Europe grew by 0.4 percent benefiting from very slight upsides in some markets such as Russia. 154 L A F A R G E H O L C I M Annual Report 2016 Sales of aggregates reached 71.2 million tonnes in the fourth quarter of 2016, represent- ing a like-for-like decrease of 4.3 percent or 3.2 million tonnes compared to the prior year. All regions, except Middle East Africa and Asia Pacific recorded volume declines in the quarter. Asia Pacific delivered 2.2 percent more aggregates, mainly driven by China and Indonesia, which was partly offset by Australia. Volume declines in both the Canada and US weighed on the results in North America, which witnessed a decline of 10.2 percent. Middle East Africa posted an increase of 23.6 percent for the quarter, on the back of improved deliveries in Algeria and Egypt. In Europe, volumes decreased slightly by 0.1 percent due to a lack of momentum in some Central European markets, which was partly offset by improvements in the UK. In Latin America, the recession and the low demand mainly in Brazil impacted volumes negatively, leading to a decline of 46.2 percent. Deliveries of ready-mix concrete reached 13.1 million cubic meters, a decline of 3.3 per- cent on a like-for-like basis compared to fourth quarter of 2015. While ready-mix concrete volumes were down in Latin America by 13.9 percent, in North America by 10.4 percent and in Europe by 1.6 percent, volumes grew in Middle East Africa by 4.0 percent and in Asia Pacific by 1.6 percent. Million CHF Net sales by region Asia Pacific Europe Latin America Middle East Africa North America Corporate/Eliminations TOTAL Adjusted operating EBITDA by region Asia Pacific Europe Latin America Middle East Africa North America Corporate/Eliminations TOTAL Cash flow Oct–Dec 2016 Oct–Dec 2015 ±% like-for-like ±% 1,990 1,668 691 888 1,380 (91) 2,363 1,783 784 1,077 1,501 (67) (15.8) (6.5) (11.9) (17.5) (8.1) 35.8 (3.6) (0.4) (2.2) 6.1 (8.8) 6,526 7,441 (12.3) (1.4) 411 337 230 370 359 (95) 1,611 400 304 217 271 326 (123) 1,395 2.7 10.8 5.9 36.5 10.2 (22.5) 15.5 13.4 17.7 20.0 87.8 9.3 30.5 Cash flow from operating activities 1,779 1,560 14.0 32.0 Net capital expenditures on property, plant and equipment to maintain productive capacity and to secure competitiveness Investments in property, plant and equipment for expansion (281) (505) 44.3 42.4 (155) (408) 61.9 56.9 M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 155 Fourth quarter consolidated net sales decreased like-for-like by 1.4 percent compared to the same prior year period. The unfavorable currency development of CHF 290 million in the quarter was due in large part to the depreciation of the British Pound (GBP) follow- ing the UK’s decision on Brexit. Fluctuations of the Egyptian Pound (EGP) and the Nigerian Naira (NGN), following the free floating of currencies by the central banks also continued to weigh on results. In the cement business, the overall decrease in sales volume was partly offset by price increases in Latin America, Middle East Africa and North America. Additionally, lower reported net sales driven by weaker volumes in the aggregates and ready-mix concrete businesses further affected the Group’s top line growth. The operating EBITDA adjusted improved by 30.5 percent or CHF 397 million on a like-for-like basis in the quarter, thanks to positive contribution from all regions. The operating results were impacted by unfavorable currency development of CHF 95 million. Backed mainly by the price normalization and better cost management in Algeria, Egypt and Nigeria, Middle East Africa improved its performance by 87.8 percent or CHF 195 million. The operating EBITDA adjusted in Europe increased by CHF 54 million or 17.7 percent on a like-for-like basis, driven by continuous cost management and tight margin management. Better pricing in the UK and lower costs in Spain were partly offset by lower volumes in Greece. In Asia Pacific, operating EBITDA adjusted increased by CHF 48 million or 13.4 percent on a like-for-like basis. The largest increase was recorded in China, where both prices and volumes improved. In the wake of demonetization in India, volumes were impacted, although posted positive like-for-like gains. In Latin America, operating EBITDA adjusted improved by CHF 43 million or 20.0 percent on a like-for-like basis. Positive price effects in Mexico more than offset price deterio ration in Colombia and Costa Rica. Additionally, Argentina faced cost inflation, which put additional burden on the operating EBITDA of the region. As a result, the quarterly operating EBITDA adjusted margin of the group, increased by 6.1 percentage points to 24.7 percent based on constant exchange rates. In the quarter, CHF 315 million one-off costs were incurred, of which CHF 65 million was in Europe, CHF 51 million in Middle East Africa, CHF 49 million in Asia Pacific, CHF 21 million in North America and CHF 19 million in Latin America. Cash flow from operating activities of CHF 1,779 million in the quarter increased by CHF 456 million or 32.0 percent on a like-for-like basis in the quarter. The improvement was primarily driven by increased like-for-like contribution in Australia, China, Mexico and Nigeria. 156 L A F A R G E H O L C I M Annual Report 2016 Operating results for the year 2016 Sales volumes and principal key figures Sales of cement Sales of aggregates million t million t Jan–Dec 2016 233.2 282.7 Jan–Dec 2015 255.7 292.2 Sales of ready-mix concrete million m³ 55.0 56.8 Net sales million CHF 26,904 29,483 Operating EBITDA million CHF Operating EBITDA adjusted million CHF Operating EBITDA margin Operating EBITDA margin adjusted % % 5,242 5,825 4,645 5,751 19.5 15.8 21.6 19.5 ±% like-for-like ±% (8.8) (3.2) (3.3) (8.7) 12.9 1.3 (2.5) (1.7) (1.8) (1.7) 22.0 8.7 Cash flow from operating activities million CHF Operating Free Cash Flow million CHF 3,295 1,660 2,550 29.2 46.2 (51) Net financial debt million CHF 14,724 17,266 (14.7) Sales volumes Consolidated cement sales volumes decreased by 2.5 percent or 6.1 million tonnes to 233.2 million tonnes on a like-for-like basis due to lower sales volumes in all regions. While volumes in most regions decreased slightly, Latin America faced more significant declines. In the region, volumes declines were mainly driven by economic recession and political unrest in Brazil, which took a toll on the cement demand. Volume decline in Asia Pacific was driven by India, Indonesia and Malaysia, partly offset by good performance in the Philippines. Due to currency devaluation in Egypt and challenging market condi- tions in Nigeria and Zambia, Middle East Africa delivered lower volumes than previous year, which was partially offset by Algeria. Volumes in Europe were down driven by dete- rioration in Russia, but partly offset by a good level of infrastructure projects in some countries and good housing and non-housing construction activity in others. In North America, volumes fell short of prior year in both the Canada and the US. Asia Pacific saw cement volumes decrease on a like-for-like basis by 1.0 percent or 1.1 mil- lion tonnes to 113.7 million tonnes. This development was primarily driven by Indonesia, reflecting continuous market deterioration since the end of first quarter with lower demand in Central and East Java. Inter-island competition in Sumatra as well as limited government spending on infrastructure projects drove the decline in volumes. Philippines recorded significantly higher cement volumes underpinned by competitive pressure on prices from cement imports. Performance in China improved by 7.2 percent compared to previous year due to continuous effect of new sales strategy, market recovery and higher demand since fourth quarter. On the other hand, cement volumes in Malaysia declined mainly driven by softer domestic and export demand and aggressive price movement from main competitors. In India, volumes were below prior year driven by weak demand that was intensified due to demonetization of the currency in November. Performance also suffered from lower prices in the first quarter of 2016. Cement sales in Europe slightly declined, like-for-like, by 1.4 percent or 0.6 million tonnes in the wake of reduced demand. Amid more challenging global conditions, its underlying dynamics remained slow. Investments experienced less confidence than in the past, as subdued demand and economic policy uncertainties persisted. Construction activity M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 157 remained low in a number of key countries, impacting cement sales volumes with a decrease of 1.4 percent or 0.6 million tonnes to 41.6 million tonnes compared to prior year. In 2016, the Brexit vote led to increased uncertainties. However, the British economy did recover, supported by a strong service sector and government spending on housing and infrastructure. Russia recorded a significant decrease of 13.8 percent or 0.7 million tonnes in cement volumes. In France and Romania sales volumes decreased by 2.1 per- cent and 7.7 percent respectively. Volumes slowed due to some completion of important infra structure projects in Switzerland or not yet started infrastructure projects as in Poland. The economies in Germany and Switzerland were significantly improved by a good housing and non- housing construction activity. Positive developments were witnessed in Greece, led by a good overall domestic market and increased cement exports. In Latin America, cement volumes declined like-for-like by 13.5 percent or 3.8 million tonnes to 24.1 million tonnes. Most of the volume decline was recorded in Brazil, Ecuador and Mexico. In Brazil, cement demand contracted drastically, impacted by a severe economic downturn and by the ongoing political unrest, which undermined consumer confidence. Ecuador’s development slowed down considerably as public investment in infrastructure decreased due to liquidity problems. However, the market trend continues to be positive mainly on the coast, where the volumes sold compared with previous year grew in both B2B and B2C segments. Mexico recorded lower sales volumes compared to prior year as a result of the price focused strategy. Due to a combination of lower construction demand, significant competition price reduction at the beginning of November and a nationwide transport strike in July, Colombia sold 15.0 percent less cement than in the prior year. Volume declines in Argentina were driven mainly by delayed public investment and heavy rainfalls. Cement sales in Middle East Africa were down like-for-like by 1.5 percent or 0.6 million tonnes compared to prior year. In Egypt, Jordan, Nigeria and Zambia economic growth was held back by volatile macroeconomic conditions. In Egypt, the reduction in sales volume was more than offset by price increase. Nigeria’s negative sales develop ment was mainly driven by interruption of gas supplies and a steadily worsening economy with a struggling oil industry and increasing inflation. Volume losses in those countries were partially offset by growing cement demand in Algeria. In Algeria, cement demand grew over the previous year due to excellent mobilization of the organization and high- er demand in the market. In North America, cement sales volumes decreased like-for-like by 2.3 percent or 0.5 mil- lion tonnes to 19.5 million tonnes. The volume shortfall in the US was mostly driven by exceptionally favorable winter conditions in the prior year, while the reduction in Canada West was due to economic down-turn related to oil prices. Aggregates sales volumes decreased by 1.7 percent or 4.9 million tonnes on a like-for-like basis to 282.7 million tonnes. This development largely stemmed from Latin America which recorded a sales volumes drop of 23.2 percent or 1.8 million tonnes, driven by deterio- rating market conditions in Brazil and lower public investment in infrastructure projects. Aggregates demand in Europe increased slightly by 1.0 percent with differentiated trends across Europe. While negatively impacted in France due to fewer ongoing infrastructure projects, improvements on the activity level came from Belgium, Greece and Germany. In North America, volumes declined by 6.2 percent or 7.1 million tonnes. The remaining regions reported positive development of aggregates sold. Middle East Africa recorded sales volume growth of 11.2 percent or 1.2 million tonnes mostly attributable to solid growth in Egypt due to infrastructure projects. In Asia Pacific, the sales volume increase of 5.2 percent or 1.6 million tonnes was mainly driven by strong demand in China. 158 L A F A R G E H O L C I M Annual Report 2016 On a like-for-like basis, sales of ready-mix concrete declined by 1.8 percent or 1.0 million cubic meters. With the exception of Middle East Africa and Asia Pacific, which reported growth, all the other Group’s regions recorded lower volumes compared to previous year. In Latin America, the ready-mix concrete business was hit the hardest by the depressed economic environment in Brazil. In North America, volumes dropped due to economic down-turn reflecting lower demand in Canada. Ready-mix concrete deliveries grew by 10.0 percent or 0.5 million cubic meters in Middle East Africa, due to large projects in Egypt. Asia Pacific experienced a slight volume increase of 0.6 percent, as the solid growth recorded in India and Malaysia was significantly offset by shortfall in Singapore. Europe was slightly below prior year in volumes despite strong construction activity. Net sales Net sales by region Million CHF Asia Pacific Europe Latin America Middle East Africa North America Corporate/Eliminations TOTAL Jan–Dec 2016 Jan–Dec 2015 ±% like-for-like ±% 8,226 7,023 2,773 3,900 5,584 (602) 9,048 7,356 3,241 4,536 5,678 (376) 26,904 29,483 (9.1) (4.5) (14.4) (14.0) (1.7) (60.0) (8.7) (2.0) (2.1) (4.1) (1.5) (2.7) (1.7) Net sales reached CHF 26,904 million in 2016 which represented a decrease of 8.7 per- cent compared to prior year net sales of CHF 29,483 million. The strengthening of the Swiss Franc was clearly felt with negative foreign currency impact of CHF 901 million or 3.2 percent. On a like-for-like basis, net sales decreased by 1.7 percent. Net sales declined across all regions compared to the previous year. Net sales in Asia Pacific amounted to CHF 8,226 million, a year-on-year decline of 2.0 percent on a like-for-like basis. This was largely due to India, Indonesia, and Malaysia. Volumes and prices in India were negatively impacted by demonetization which affected market confidence. Indonesia suffered from continuing market deterioration since the end of the first quarter of 2016 with lower demand in Central and East Java as well as lower cement volumes sold. Prices were driven down by increased domestic competi- tion and lower volumes were recorded in all segments. The main reason for the decrease is the limited government spending on infrastructure projects within the Java market. In Malaysia, net sales declined mainly due to softer demand on the domestic market as well as on exports and pricing pressure. These negative developments in the region were partially compensated by Australia and China. China benefited from continuing effect of new sales strategy, mainly in Yunnan, and market recovery in Q4. Net sales in Australia were positively impacted by Humes performance, completion of major projects and the transition to Lynwood aggregates quarry. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 159 In Europe, net sales reached CHF 7,023 million, a decline of 2.1 percent on a like-for-like basis. The largest decline was recorded in Azerbaijan, Italy, Russia and the UK. Poor market conditions in Italy impacted volumes and prices causing a decline in net sales. In the UK, net sales continued to track behind previous year by 3.2 percent on like-for-like basis. Germany and Greece were among the countries that recorded growth in Europe. Latin America saw a decline in net sales of CHF 133 million or 4.1 percent on a like-for-like basis. The main drivers for the decline were Brazil, Colombia and Ecuador. Brazil’s deterio- rating performance characterized by lower prices and lower volumes sold was driven by the economic crisis. Limited public investments in infrastructure in Ecuador caused a shortfall of 7.8 percent or CHF 36 million in net sales. Lower construction demand and a significant price reduction by the main competitor were the drivers for Colombia’s net sales decrease of 10.2 percent on a like-for-like basis. Market slowdown was also influenced by nationwide strike in June and July. These falls were partially compensated by Argentina where net sales increased by 21.9 percent or CHF 96 million on a like-for-like basis. Middle East Africa net sales declined by CHF 66 million or 1.5 percent on a like-for-like basis. Egypt and Nigeria recognized lower net sales in 2016. Egypt’s performance was impacted mainly by demand slowdown in November and December driven by local currency devaluation and increased imported material costs. Nigeria recorded a decline largely due to events such as gas shortages and logistics challenges. A recessionary economy with a struggling oil industry and increasing inflation put pressure on construc- tion demand. Net sales within the country declined by 20.5 percent or CHF 191 million, on a like-for-like basis. Negative development was also recorded in Zambia where, due to market difficulties, net sales declined by 31.4 percent. Algeria and Iraq partially offset this decline with a significant improvement of sales. In Algeria the growth was influenced by higher demand in the market with positive impact on volumes, prices and commis- sioning of the new Biskra plant. Iraq grew by 18 percent in cement volume sold due to improved political stability and import restrictions in central and southern region. North America achieved net sales of CHF 5,584 million, a decline of CHF 156 million or 2.7 percent on a like-for-like basis. While net sales for Canada reduced, US increased. Canada East’s unfavorable development was caused by a negative impact of the three- month long strike at St. Constant plant compounded by lower exports to the US. Sales volumes in all major segments were down on the previous year. Prices suffered from mix impacts on product, project and region. Ready-mix was particularly impacted by com- parably lower sales to high margin projects. Canada West sales decreased due to the economic down-turn, where sales volumes of all major segments declined compared to prior year, reflecting lower demand in the prairies, partially offset by solid demand in British Columbia. Sales prices were also affected, however at a lower magnitude with some positive mix effects particularly on cement, offsetting some of the general price reductions. In the US, net sales increased despite weaker market demand after first quarter and benefited mainly from higher pricing while volumes were slightly below previous year. The relative contribution of North America and Europe in the Group net sales increased to 20.2 percent (2015: 18.6 percent) and 25.4 percent (2015: 24.1 percent) respectively whereas the weight of Middle East Africa and Latin America decreased to 14.1 percent (2015: 14.9 percent) and 10.0 percent (2015: 10.6 percent) respectively. The relative contribution of Asia Pacific remained the same as in 2015. 160 L A F A R G E H O L C I M Annual Report 2016 Adjusted operating EBITDA Operating EBITDA adjusted by region Million CHF Asia Pacific Europe Latin America Middle East Africa North America Corporate/Eliminations TOTAL Jan–Dec 2016 Jan–Dec 2015 ±% like-for-like ±% 1,530 1,329 885 1,196 1,329 (445) 5,825 1,565 1,264 907 1,362 1,183 (531) 5,751 (2.2) 5.1 (2.4) (12.2) 12.3 16.2 1.3 5.2 8.2 7.8 1.3 10.8 8.7 Adjusted for merger, restructuring and other one-off costs, operating EBITDA in 2016 was CHF 5,825 million. On a like-for-like basis, operating EBITDA increased by CHF 484 million or 8.7 percent. North America reported significantly higher operating EBITDA, exceeding 10.0 percent growth, compared to last year. In Asia Pacific, Europe, and Latin America, operating EBITDA increased by more than 5.0 percent. Middle East Africa recorded slightly higher operating EBITDA. The foreign exchange effect also weighed heavily, reducing adjusted operating EBITDA by CHF 229 million or 4.1 percent. In 2016, the Group sold less CO2 certificates. The impact on operating EBITDA was minus CHF 14 million. The unadjusted operating EBITDA in 2016 increased by 22.0 percent on a like-for-like basis and amounted to CHF 5,242 million. Merger and restructuring costs amounted to CHF 582 million and it has decreased by CHF 523 million or 47.3 percent compared to 2015, impacting the operating EBITDA. In the following discussion, all comments about operating EBITDA refer to operating EBITDA adjusted for one-off costs. In Asia Pacific, operating EBITDA increased by CHF 76 million or 5.2 percent on a like-for-like basis. The largest improvements were recorded in China, India, Philippines and Vietnam. In China, operations benefited from lower fuel costs, favorable fixed cost development, and favorable volume and price driven by improved market conditions. In India, higher operating EBITDA was driven mainly by lower fuel, raw material and fixed costs, partially offset by lower cement prices in the first quarter and demonetization since November. The Philippines operating EBITDA growth was backed by volume improvement in the retail segment, where raw material and maintenance costs supported the overall perfor- mance. In Vietnam, both good sales performance and cost savings, translated to an increase in operating EBITDA. Partially offsetting these results was Australia where a lower operating EBITDA was driven by unfavorable regional mix, completion of major projects as well as the transition to new quarry operations to serve the Sydney market. Indonesia was impacted by market deterioration mainly in Central and East Java and unfavorable price development, slightly compensated by lower fuel costs and strong improvement in distribution and fixed costs. In Europe, operating EBITDA increased by CHF 103 million or 8.2 percent on a like-for-like basis driven mainly by France, Germany, Switzerland and UK. In France, variable cost improvement driven by lower power and fuel price, were the main drivers for the oper- ating EBITDA increase which was partially offset by higher fixed costs in cement and aggregates. In Germany, the growth was driven by an increase of housing, commercial and public construction orders, where prices were underperforming, but fixed costs were improved. Top line development in Switzerland was recorded, mainly driven by aggregates prices in the western region and cement volumes. The UK benefited from good cost man- agement and experienced significant depreciation of the British pound, attributable to the vote result on Brexit. The business performance increased mainly due to ready-mix and M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 161 cement segments which delivered strong performance over the last quarter, partially off- set by aggregates and asphalt volumes reduced. Poland experienced favorable clinker and cement volumes, and significant cost reductions partially offset by adverse price impact. Positive operating EBITDA development was further achieved in Belgium, Serbia, Spain and Hungary. Romania suffered from lower volumes partially mitigated by higher prices and lower costs. Russia achieved lower operating EBITDA with lower sales volumes due to low market demand mitigated by pricing initiatives and cost reduction. In Latin America, the operating EBITDA increased by CHF 70 million or 7.8 percent on a like-for-like basis. Significant depreciation of selected local currencies resulted in increased foreign currency impact of CHF 92 million or 10.1 percent. While most countries achieved lower operating EBITDA, Argentina, El Salvador, Chile, Mexico and Nicaragua remained above their prior year’s levels. Argentina benefited from higher prices partially offset by lower volumes and higher production costs. El Salvador improved its operating EBITDA thanks to favorable impact of lower fuel costs and costs reduction initiatives. In Chile, the positive operating EBITDA development was mainly due to improved variable costs and pricing. In Mexico, positive price and fixed cost impacts were partially offset by higher maintenance and production costs in the ready-mix segment. Nicaragua benefited from fixed cost improvement. All other countries in the region, in particular Brazil, Colombia and Ecuador, recorded lower results. In Brazil, lower volumes and softening of prices led to a decrease in operating EBITDA. Despite higher prices, Colombia recorded lower operating EBITDA driven by weaker volumes and increased fuel and energy costs. In Ecuador, lower public investment in infrastructure projects and liquidity constraints, which caused volumes to decline although prices and fuel costs were favorable. In Middle East Africa, the operating EBITDA slightly improved by CHF 17 million or 1.3 per- cent on a like-for-like basis. The depreciation of selected local currencies resulted in an unfavorable foreign currency impact of CHF 94 million or 7.4 percent. Algeria, Egypt, Iraq, Lebanon, Uganda and Zimbabwe had growth in their operating EBITDA. In Algeria, higher volumes and prices drove the increase in operating EBITDA, where the market is still undersupplied due to import restrictions. In Egypt, the growth is predominantly driven by higher clinker and cement profitability with consistent premium price strategy. This was partially offset by higher energy costs. In Lebanon, favorable volume and price development was supported with lower power and fuel costs. Positive price and produc- tion cost development supported an increase in operating EBITDA in Kenya. Operating EBITDA declined in Jordan, Nigeria, South Africa, and Zambia. In Jordan, lower volumes and prices were partially offset by favorable fuel and power prices. In Nigeria, unfavorable top line development, largely as a result of gas supply interruptions together with higher fuel and energy costs contributed to the lower operating EBITDA. South Africa benefited from higher volumes and prices which were mainly offset by unfavorable production costs. Unfavorable price and volume development were partially offset by reduced fixed cost in Zambia. The North America region improved its operating EBITDA by CHF 128 million or 10.8 per- cent on a like-for-like basis. Higher prices in addition to favorable fuel and energy costs led to strong performance in the US which was partially offset by higher fixed and ,pension costs due non-repeating benefits in the prior year. The decline in operating EBITDA in Canada was largely due to Canada West which saw lower demand from oil dependent states, partially compensated by lower production costs. Canada East recorded flat operating EBITDA driven by higher prices despite higher fixed costs. The operating EBITDA increase was contributed to mostly by North America where it increased to 22.8 percent (2015: 20.6 percent). The weighting of operating EBITDA in Europe increased to 22.8 percent (2015: 22.0 percent). The weighting of Asia Pacific decreased slightly to 26.3 percent (2015: 27.2 percent). Middle East Africa represented 162 L A F A R G E H O L C I M Annual Report 2016 20.5 percent of Group operating EBITDA (2015: 23.7 percent). The relative contribution of Latin America decreased to 15.2 percent (2015: 15.8 percent). Operating EBITDA margin adjusted Adjusted for one-off costs and on a like-for-like basis, the Group’s operating EBITDA margin increased by 2.1 percentage points to 21.6 percent in 2016. Currency impact on the Group’s margin was negligible. Growth in operating EBITDA margin was mainly attributable to Mexico, the UK and the US, whilst the conditions were challenging in Australia, Brazil, Malaysia and Nigeria. The group has recorded lower gains from CO2 sales of CHF 14 million. On a like-for-like basis, the operating EBITDA margin in Asia Pacific grew by 1.3 percentage points to 18.6 percent as fuel costs, lower industrial fixed costs and favorable adminis- tration outweighed price and volume decreases. Most countries in the region either increased or maintained their margins. China, Vietnam and India were the main contributors to margin increase while Australia, Malaysia and Vietnam deteriorated. In Europe, the operating EBITDA margin increased by 1.8 percentage points on a like-for-like basis. The main contributors to the margin increase were Belgium, Germany, Romania, Serbia and the UK. Notably, Belgium, Romania and the UK increased their margins chiefly through higher selling prices and a concerted focus on cost reductions. Sales of CO2 certificates were lower by CHF 13 million versus prior year. Negative margin developments in Austria were driven mainly by lower prices mainly. Operating EBITDA margin in Latin America increased by 3.5 percentage points, on a like-for-like basis. Most countries in Latin America increased their margin compared to last year, notably Mexico, Argentina Chile and Ecuador. Mexico benefited from price improvement. In Ecuador, favorable margin development was driven by cost saving initiatives and lower fuel costs. Margin declines were seen in Brazil and Colombia. In Brazil, lower prices were only partially offset by cost improvement. In Colombia, higher transportation and energy costs were the main reasons for the decline. Middle East Africa’s operating EBITDA margin increased by 0.9 percentage points. Over- all, there was a mixed picture across the region, where Algeria, Egypt, Kenya and Lebanon all increased their operating EBITDA margin. Egypt benefited from higher prices driven by ready-mix projects, volume and price increases in Algeria and favorable top line accom- panied by lower energy and fuel costs in Lebanon. Jordan, Nigeria, South Africa, and Zambia experienced margin decline affected by prices for commodities, oil and gas. Improvement of the operating EBITDA margin on a like-for-like basis was achieved in North America amounting to a gain of 2.9 percentage points. Favorable top line per- formance mainly stemmed from increased cement prices and lower fuel and energy costs in the US. There was a slight margin increase in Canada. In the cement segment, the operating EBITDA margin increased on a like-for-like basis by 0.8 percentage points to 26.4 percent. All the group regions in this segment managed to improve operating EBITDA margin, except for Middle East Africa. Operating EBITDA margin in the aggregates segment increased on a like-for-like basis by 1.2 percentage points to 17.4 percent. In this segment, Europe, Middle East Africa and North America achieved a margin improvement though margin deteriorated in the other Group regions. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 163 Cash flow and investments Cash flow and investments Million CHF Jan–Dec 2016 Jan–Dec 2015 ±% like-for-like ±% Cash flow from operating activities Operating Free Cash Flow 3,295 1,660 2,550 (51) 29.2 46.2 Net capital expenditures on property, plant and equipment to maintain productive capacity and to secure competitiveness Investments in property, plant and equipment for expansion (997) (1,148) 13.2 9.7 (638) (1,453) 56.1 52.3 Cash flow from operating activities Cash flow from operating activities increased on a like-for-like basis by CHF 1,083 million or 46.2 percent to CHF 3,295 million. The increase was mainly driven by Capex, financial expenses and Income taxes. The impact from cash effective merger, restructuring and other one-offs on the cash flow from operating activities was CHF 638 million (2015: CHF 784 million). Operating free cash flow increased significantly to CHF 1,660 million. Investment activities The net capital expenditure to maintain productive capacity and to secure competitive- ness amounted to CHF 997 million, while investments in expansion and diversification projects reached CHF 638 million. Investments in property, plant and equipment for expansion mainly reflected key projects, the objective of which was to increase cement capacity in developing countries. 164 L A F A R G E H O L C I M Annual Report 2016 Key investment projects Indonesia – Terminal at Lampung in South Sumatra The Group built a cement terminal and packing plant near Lampung, South Sumatra. This terminal is in operation since the first quarter of 2016. The Group already has a strong position in the regional market of Southern Sumatra which is growing faster than the Indonesian average. This strengthening of the footprint will allow for an improve- ment in customer service and a reduction in logistics costs. Brazil – Capacity expansion at Barroso Installation of a second kiln line at the Barroso plant was commissioned in Q2 2016. The additional cement capacity of 2.3 million tonnes will bring the total installed cement capacity of LafargeHolcim Brazil to 11.1 million tonnes. With this investment, Brazil will be able to improve its cost structure while the asset footprint is being constantly reassessed following the merger to adjust to the demand for building materials in the south-east of the nation. India – Expansion of market position The new production lines at Jamul in India went on stream mid-2016. Clinker production with an annual capacity of 2.8 million tonnes started in July 2016. Jamul and Sindri grinding units started production in September and October 2016. Their capacity is 2.5 million tonnes. New Zealand – Terminals at Timaru and Auckland Two 30,000 tonnes bulk cement import terminals were installed in the strategic ports of Timaru and Auckland to support an import strategy for Holcim New Zealand. The Timaru terminal was commissioned in February 2016 and the Auckland terminal in June 2016. This significant investment in Holcim New Zealand’s supply chain and supply partnerships will ensure our customers continue to have uninterrupted access to high quality cement and support for their business operations. Russia – Modernization at Volsk plant Russia’s modernization strategy continues with the upgrade of its existing wet process at the Volsk plant in the Volga region. The project is progressing on schedule and the new clinker line (semi wet) is planned to commission in the second half of 2017. Algeria – Djemourah – Biskra project The Group finished the construction, which commenced in November 2013, of a new integrated cement plant in the region of Biskra. The plant capacity is 2.7 million tonnes. Cement production started in April 2016 and clinker production at the end of July 2016. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 165 Canada – Capacity expansion at Exshaw The expansion project at the Exshaw plant, near Calgary, introduced a new five-stage kiln with an annual capacity of 1.3 million tonnes and existing kiln lines were upgraded to comply with necessary environmental requirements. First clinker production was in May 2016 and cement production commenced in September 2016. US – New line at Ravena The brownfield project for a clinker and cement production line in Ravena in the north- east of the US will supply 1.9 million tonnes of cement capacity. The project includes a pre-heater/pre-calcined kiln, clinker cooler, secondary crusher, vertical raw mill, wet scrubber, coal mill and selective non-catalytic reduction systems. This will replace the two existing long wet kilns. Clinker production is scheduled to commence in Q1 2017. US – Environmental Compliance and opportunistic upgrade in Hagerstown and Ada The investment is to comply with National Emission Standards for Hazardous Air Pollutants (NESHAP) at the Hagerstown plant in Maryland and Ada plant in Oklahoma by upgrading the kiln systems. The new upgraded kilns will also increase the capacities. Hagerstown started clinker and cement production in June 2016 and Ada is scheduled for Q1 2017. Nigeria – Second line for capacity expansion at Unicem A second cement production line with a capacity of 2.5 million tonnes per year was built at the Unicem Mfamosing plant in order to meet the strong market growth in the south and southeast of the country. This second line went operational at the end of 2016. 166 L A F A R G E H O L C I M Annual Report 2016 Financing activity LafargeHolcim’s investments were funded from the cash flow from operating activities. New debt capital issuances were mainly conducted for refinancing and general corporate purposes. In the year under review, capital market issuances of CHF 4.8 billion were undertaken by LafargeHolcim, enabling the Group to lock in historically low interest rates. The main capital market transactions were as follows: CHF 1.1 billion EUR and USD Schuldschein loans issued in May 2016 EUR 413 million EUR 209 million USD 40 million USD 121 million EUR 152 million EUR 25 million USD 15 million USD 25 million EUR 32.5 million Holcim Finance (Luxembourg) S.A. with a coupon of 1.04%, term 2016–2021 Holcim Finance (Luxembourg) S.A. with a coupon of 6M Euribor +1.00%, term 2016-2021 LafargeHolcim International Finance Ltd with a coupon of 2.80%, term 2016–2021 LafargeHolcim International Finance Ltd with a coupon of 3M Libor +1.60%, term 2016–2021 Holcim Finance (Luxembourg) S.A. with a coupon of 1.46%, term 2016–2023 Holcim Finance (Luxembourg) S.A. with a coupon of 6M Euribor +1.20%, term 2016–2023 LafargeHolcim International Finance Ltd with a coupon of 3.20%, term 2016–2023 LafargeHolcim International Finance Ltd with a coupon of 3M Libor +1.80%, term 2016–2023 Holcim Finance (Luxembourg) S.A. with a coupon of 2.00%, term 2016–2026 CHF 2.5 billion equivalent of EUR bonds issued in May 2016 EUR 1.15 billion EUR 1.15 billion Holcim Finance (Luxembourg) S.A. with a coupon of 1.38%, term 2016–2023 Holcim Finance (Luxembourg) S.A. with a coupon of 2.25%, term 2016–2028 The proceeds of these new bonds were partly used to repurchase a total nominal of CHF 1.2 billion equivalent of EUR and GBP bonds in the second quarter 2016. CHF 1 billion equivalent of USD bonds issued in September 2016 USD 400 million USD 600 million LafargeHolcim Finance US LLC with a coupon of 3.50%, term 2016–2026 LafargeHolcim Finance US LLC with a coupon of 4.75%, term 2016–2046 The group also repurchased a nominal of CHF 328 million outstanding EUR bond in the fourth quarter 2016. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 167 Net Financial debt The Group’s financial structure remained solid and net financial debt amounts to CHF 14,724 million in the year under review. Capital market financing of the Group as per December 31, 2016 (CHF 15,773 million) Category EUR Bonds USD Bonds CHF Bonds EUR PPs GBP Bonds AUD Bonds MXN Bonds USD PPs EUR CPs NGN Bonds CRC Bond TOTAL Category (details) Million CHF EUR Private Placements USD Private Placements EUR Commercial Paper 6,305 4,396 2,386 696 555 515 266 255 195 194 9 in % 40% 28% 15% 4% 4% 3% 2% 2% 1% 1% 0% 15,773 100% 168 L A F A R G E H O L C I M Annual Report 2016 Financing profile LafargeHolcim has a strong financial profile. 79 percent of financial liabilities are financed through various capital markets and 21 percent through banks and other lenders. There are no major positions with individual lenders. The average maturity of financial liabilities could be substantially increased from 4.2 years on December 31, 2015 to 5.9 years due to several capital market transactions during 2016. The Group’s maturity profile is well balanced with a large share of mid- to long-term financing. Maintaining a favorable credit rating is one of the Group’s objectives and LafargeHolcim therefore gives priority to achieving its financial targets and retaining its solid investment-grade rating (current rating information is displayed on page 78). The average nominal interest rate on LafargeHolcim’s financial liabilities as at December 31, 2016, was 4.8 percent, whereas the proportion of financial liabilities at fixed rates was at 61 percent. Detailed information on financial liabilities can be found in the respective Note 26. Maturity profile as of December 31, 2016 1 Million CHF 6,000 5,000 4,000 3,000 2,000 1,000 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 >2026 Bonds, private placements and commercial paper notes Loans from financial institutions and other financial liabilities 1 After risk-related adjustment of CHF 195 million from current financial liabilities to long term financial liabilities. Liquidity To secure liquidity, the Group held cash and cash equivalents of CHF 4,923 million at December 31, 2016. This cash is invested in term deposits held with a large number of banks on a broadly diversified basis. The counterparty risk is constantly monitored on the basis of clearly defined principles as part of the risk management process. As of December 31, 2016, LafargeHolcim had unused committed credit lines of CHF 6,256 million (see also note 26). Current financial liabilities (after risk-related adjustment of CHF 195 million) as at December 31, 2016, of CHF 4,781 million are comfortably covered by existing cash, cash equivalents and unused committed credit lines. LafargeHolcim has a USD com- mercial paper program as well as EUR commercial paper programs. The aim of these programs is to fund short-term liquidity needs at attractive terms. Commercial papers in the amount of EUR 182 million were outstanding as per December 31, 2016. M a n a g e m e n t D i s c u s s i o n & A n a l y s i s 169 Foreign exchange sensitivity The Group has a global footprint, generating the majority of its results in currencies other than the Swiss Franc. Only about 2 percent of net sales are generated in Swiss Francs. Foreign-currency volatility has little effect on the Group’s operating profitability. As the Group produces a very high proportion of its products locally, most sales and costs are incurred in the respective local currencies. The effects of foreign exchange movements are therefore largely restricted to the translation of local financial statements for the consolidated statement of income. In the last financial year, these were negatively impacted by the lifting of the Swiss Franc Euro peg in early 2015 and the continued appreciation of the Swiss Franc against main currencies. As a large part of the foreign capital is financed with matching currencies in local currency, the effects of the foreign currency translation on local balance sheets for the consolidated statement of financial position have not, in general, resulted in significant distortions in the consolidated statement of financial position. The following sensitivity analysis presents the effect of the main currencies on selected key figures of the consolidated financial statements. The sensitivity 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. Given the local nature of business activities, this type of transaction is seldom individually hedged. The following table shows the effects of a hypothetical 5 percent depreciation of the respective foreign currencies versus the Swiss Franc. Sensitivity analysis Million CHF 2016 EUR GBP USD CAD Latin American basket (MXN, BRL, ARS, COP) Asian basket (AUD, CNY, IDR, PHP) Middle East African basket (NGN, DZD, EGP) INR Actual figures Assuming a 5% strengthening of the Swiss Franc the impact would be as follows: Net sales 26,904 (171) (93) (215) Adjusted operating EBITDA Cash flow from operating activities Net financial debt 5,825 (17) 3,295 14,724 26 398 (17) (14) (16) (71) (48) (151) (94) (21) (13) 38 (86) (162) (178) (22) (11) (34) (28) (25) 26 (34) (17) (97) (97) (35) (27) 0 170 L A F A R G E H O L C I M Annual Report 2016 Reconciling measures of profit and loss to the consolidated statement of income of LafargeHolcim Group Million CHF OPERATING PROFIT 1 Depreciation, amortization and impairment of operating assets 1 OPERATING EBITDA 1 Pro Forma Adjustments (Lafarge H1 2015, Scope effect & Divestments) OPERATING EBITDA Merger, restructuring and other one offs OPERATING EBITDA ADJUSTED 1 As per consolidated financial statements. Oct–Dec 2016 Oct–Dec 2015 563 (2,115) 733 1,296 0 1,296 315 1,611 3,127 1,011 (23) 988 407 1,395 2016 2,837 2,405 5,242 0 5,242 582 5,825 2015 (739) 4,421 3,682 963 4,645 1,106 5,751 Million CHF NET INCOME 1 Oct–Dec 2016 Oct–Dec 2015 2016 2015 535 (2,863) 2,090 (1,361) Pro Forma Adjustments (Lafarge H1 2015, Scope effect & Divestments) 0 (46) 0 (597) NET INCOME 535 (2,909) 2,090 (1,958) Merger related one off costs Other one off costs above CHF 50 million Gains on disposals and impairments Bonds early repayment premiums RECURRING NET INCOME of which Recurring Net income Group share 1 As per consolidated financial statements. 51 64 (86) 0 564 480 134 181 189 64 550 242 2,515 (515) 2,135 0 (78) (15) 90 1,918 1,615 0 970 798 Reconciling measures of Operating Free Cash Flow to the consolidated statement of cash flows of LafargeHolcim Group Million CHF CASH FLOW FROM OPERATING ACTIVITIES 1 Purchase of property, plant and equipment 1 Disposal of property, plant and equipment 1 OPERATING FREE CASH FLOW 1 Pro Forma Adjustments (Lafarge H1 2015, Scope effect & Divestments) OPERATING FREE CASH FLOW 1 As per consolidated financial statements. Oct–Dec 2016 Oct–Dec 2015 1,779 (494) 57 1,342 0 1,342 1,534 (881) 43 696 (49) 647 2016 3,295 2015 2,465 (1,773) (2,106) 137 1,660 0 1,660 118 477 (528) (51) F I N A NC I A L I NFOR M AT ION K E Y F I G U R E S Page 172 C O N S O L I D A T E D S T A T E M E N T O F I N C O M E Page 173 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E E A R N I N G S Page 174 C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N Page 175 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y Page 176 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S Page 178 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 25. Trade accounts payable Page 230 26. Financial liabilities Page 230 27. Leases Page 234 28. Derivative financial instruments 1. Significant events of the period Page 179 Page 235 29. Taxes Page 236 2. Accounting policies Page 179 30. Provisions Page 238 3. Risk management Page 193 31. Employee benefits Page 240 4. Changes in the scope of consolidation Page 201 32. Share compensation plans Page 248 5. Principal exchange rates 33. Information on share capital Page 205 Page 253 6. Information by reportable 34. Non-controlling interest segment Page 206 Page 253 7. Information by product line 35. Contingencies, guarantees Page 208 8. Information by country Page 210 9. Summary of depreciation, amortization and impairment Page 210 10. Other income Page 211 11. Other expenses Page 212 12. Financial income Page 212 13. Financial expenses Page 212 14. Research and development Page 213 15. Earnings per share Page 213 16. Cash and cash equivalents Page 214 17. Accounts receivable Page 214 18. Inventories Page 215 19. Prepaid expenses and other current assets Page 215 20. Assets and related liabilities classified as held for sale Page 216 21. Long-term financial assets Page 217 22. Investments in associates and joint ventures Page 218 23. Property, plant and equipment Page 223 24. Goodwill and intangible assets Page 225 and commitments Page 254 36. Additional cash flow information Page 257 37. Transactions and relations with members of the Board of Directors and senior management Page 259 38. Events after the reporting period Page 260 39. Authorization of the financial statements for issuance Page 260 40. Principal companies of the Group Page 261 A U D I T O R S R E P O R T Page 266 H O L D I N G C O M P A N Y R E S U L T S Page 274 5 - Y E A R - R E V I E W L A F A R G E H O L C I M G R O U P Page 289 172 L A F A R G E H O L C I M Annual Report 2016 Key figures LafargeHolcim Group Annual cement production capacity Sales of cement Sales of aggregates Sales of ready-mix concrete Net sales Operating EBITDA Operating EBITDA margin Operating profit (loss) Net income (loss) Net income (loss) – shareholders of LafargeHolcim Ltd Cash flow from operating activities Net financial debt Total shareholders’ equity Personnel Earnings per share Fully diluted earnings per share Payout Payout per share million t million t million t million m 3 million CHF million CHF % million CHF million CHF million CHF million CHF million CHF million CHF CHF CHF million CHF CHF 2016 353.3 233.2 282.7 55.0 2015 374.0 193.1 231.5 47.6 26,904 23,584 5,242 19.5 2,837 2,090 1,791 3,295 14,724 34,747 90,903 2.96 2.96 1,2141 2.00 3,682 15.6 (739) (1,361) (1,469) 2,465 17,266 35,722 100,956 (3.11) (3.11) 909 1.50 ±% –5.5 +20.8 +22.2 +15.5 +14.1 +42.4 +484.1 +253.5 +222.0 +33.7 –14.7 –2.7 –10.0 +195.2 +195.2 +33.5 +33.3 1 Proposed by the Board of Directors for a maximum payout of CHF 1,214 million from capital contribution reserves. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 173 Consolidated statement of income of LafargeHolcim Group Million CHF NET SALES Production cost of goods sold GROSS PROFIT Distribution and selling expenses Administration expenses OPERATING PROFIT (LOSS) Other income Other expenses Share of profit of associates and joint ventures Financial income Financial expenses NET INCOME (LOSS) BEFORE TAXES Income taxes NET INCOME (LOSS) FROM CONTINUING OPERATIONS Net income from discontinued operations NET INCOME (LOSS) Net income (loss) attributable to: Shareholders of LafargeHolcim Ltd Non-controlling interest Net income from discontinued operations attributable to: Shareholders of LafargeHolcim Ltd Non-controlling interest Earnings per share in CHF Earnings per share Fully diluted earnings per share Earnings per share from continuing operations in CHF Earnings per share Fully diluted earnings per share Earnings per share from discontinued operations in CHF Earnings per share Fully diluted earnings per share Notes 8 2016 26,904 2015 23,584 (15,632) (16,490) 11,272 (6,394) (2,041) 2,837 824 (68) 205 187 7,093 (5,883) (1,949) (739) 1,219 (415) 157 154 (1,104) (1,060) 2,882 (835) 2,047 43 2,090 1,791 299 43 0 2.96 2.96 2.89 2.89 0.07 0.07 (684) (781) (1,465) 103 (1,361) (1,469) 108 100 3 (3.11) (3.11) (3.32) (3.32) 0.21 0.21 10 11 22 12 13 29 15 15 15 15 15 15 174 L A F A R G E H O L C I M Annual Report 2016 Consolidated statement of comprehensive earnings of LafargeHolcim Group Million CHF NET INCOME (LOSS) OTHER COMPREHENSIVE EARNINGS Items that will be reclassified to the statement of income in future periods Currency translation effects – Exchange differences on translation – Realized through statement of income – Tax effect Available-for-sale financial assets – Change in fair value – Realized through statement of income – Tax effect Cash flow hedges – Change in fair value – Realized through statement of income – Tax effect Net investment hedges in subsidiaries – Change in fair value – Realized through statement of income – Tax effect SUBTOTAL Items that will not be reclassified to the statement of income in future periods Defined benefit plans – Remeasurements – Tax effect SUBTOTAL Notes 2016 2,090 2015 (1,361) 5 (1,097) (1,935) 3 1 1 0 0 34 6 (8) (3) 0 (3) (58) 35 0 0 0 (17) 8 5 (43) 44 0 (1,065) (1,962) (142) 32 (111) 131 (20) 112 11 31 TOTAL OTHER COMPREHENSIVE EARNINGS (1,176) (1,850) TOTAL COMPREHENSIVE EARNINGS 914 (3,211) Total comprehensive earnings attributable to: Shareholders of LafargeHolcim Ltd Non-controlling interest 464 450 (3,180) (31) F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 175 Consolidated statement of financial position of LafargeHolcim Group Million CHF Cash and cash equivalents Accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale TOTAL CURRENT ASSETS Long-term financial assets Investments in associates and joint ventures Property, plant and equipment Goodwill Intangible assets Deferred tax assets Other long-term assets TOTAL LONG-TERM ASSETS TOTAL ASSETS Trade accounts payable Current financial liabilities Current income tax liabilities Other current liabilities Short-term provisions Liabilities directly associated with assets classified as held for sale TOTAL CURRENT LIABILITIES Long-term financial liabilities Defined benefit obligations Deferred tax liabilities Long-term provisions TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES Share capital Capital surplus Treasury shares Reserves TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF LAFARGEHOLCIM LTD Non-controlling interest TOTAL SHAREHOLDERS’ EQUITY Notes 31.12.2016 31.12.2015 16 17 18 19 20 21 22 23 24 24 29 25 26 30 20 26 31 29 30 33 33 34 4,923 4,074 2,645 747 2,046 4,393 4,222 3,060 884 772 14,435 13,331 811 3,241 32,052 16,247 1,017 1,060 753 770 3,172 36,747 16,490 1,416 764 608 55,182 59,967 69,617 73,298 3,048 4,976 641 2,558 575 711 3,693 6,866 598 3,074 602 0 12,509 14,832 14,744 14,925 2,079 3,387 2,151 1,939 3,840 2,041 22,361 22,744 34,870 37,577 1,214 25,536 (72) 4,144 30,822 3,925 34,747 1,214 26,430 (86) 3,807 31,365 4,357 35,722 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 69,617 73,298 176 L A F A R G E H O L C I M Annual Report 2016 Share capital 1,214 Capital surplus 26,430 Treasury shares (86) Retained Available-for-sale Total shareholders of Non-controlling shareholders’ Cash flow hedging reserve Currency translation adjustments (10) (11,158) Total equity attributable to reserves LafargeHolcim Ltd Consolidated statement of changes in equity of LafargeHolcim Group Million CHF EQUITY AS AT JANUARY 1, 2016 Net income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS Payout Change in treasury shares Share-based remuneration Capital repaid to non-controlling interest Disposal of participation in Group companies Change in participation in existing Group companies EQUITY AS AT DECEMBER 31, 2016 1,214 25,536 EQUITY AS AT JANUARY 1, 2015 Net (loss) income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS Payout Acquisition of Lafarge – Increase in share capital – Transaction costs relating to the issuance of new shares – Scrip dividend – Fair value of Lafarge share-based payments – Acquisition of non-controlling interest – Squeeze-out Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interest Disposal of participation in Group companies Change in participation in existing Group companies 654 7,776 501 58 1 (424) 17,410 (56) 1,608 33 82 (909) 15 14 (72) (82) (4) EQUITY AS AT DECEMBER 31, 2015 1,214 26,430 (86) (13) (10) (11,158) 1 Equity as at December 31, 2016 include CHF –85 million of cumulative expenses recognized in other comprehensive earnings relating to assets and directly associated liabilities classified as held for sale. reserve (13) 1 1 (13) (13) 32 32 23 (5) (5) (5) (1,254) (1,254) (12,412) (9,338) (1,820) (1,820) earnings 14,988 1,791 (106) 1,685 (10) (117) 16,546 18,438 (1,469) 113 (1,355) (1,666) (438) (3) 12 14,988 3,807 1,791 (1,327) 464 (10) (117) 4,144 9,082 (1,469) (1,712) (3,181) (1,666) (438) (3) 31,365 1,791 (1,327) 464 (909) 5 15 (117) 30,822 17,430 (1,469) (1,712) (3,180) (424) 17,910 (56) (404) (7) 82 13 3,807 13 31,365 interest 4,357 299 151 450 (248) (2) (165) (467) 3,925 2,682 108 (138) (31) (274) 69 2,338 (295) (69) 31 (109) 15 4,357 Total equity 35,722 2,090 (1,176) 914 (1,157) 5 15 (2) (165) (584) 34,7471 20,112 (1,361) (1,850) (3,211) (697) 17,910 (56) 69 2,338 (699) (7) 14 31 (109) 27 35,722 EQUITY AS AT DECEMBER 31, 2016 1,214 25,536 Consolidated statement of changes in equity of LafargeHolcim Group EQUITY AS AT JANUARY 1, 2016 Million CHF Net income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS Payout Change in treasury shares Share-based remuneration Capital repaid to non-controlling interest Disposal of participation in Group companies Change in participation in existing Group companies EQUITY AS AT JANUARY 1, 2015 Net (loss) income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS Payout Acquisition of Lafarge – Increase in share capital – Transaction costs relating to the issuance of new shares – Scrip dividend – Fair value of Lafarge share-based payments – Acquisition of non-controlling interest – Squeeze-out Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interest Disposal of participation in Group companies Change in participation in existing Group companies Share capital 1,214 Capital surplus 26,430 Treasury shares (86) (909) 15 (424) 17,410 (56) 1,608 33 82 654 7,776 501 58 1 14 (72) (82) (4) EQUITY AS AT DECEMBER 31, 2015 1,214 26,430 (86) 1 Equity as at December 31, 2016 include CHF –85 million of cumulative expenses recognized in other comprehensive earnings relating to assets and directly associated liabilities classified as held for sale. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements Retained earnings Available-for-sale reserve Cash flow hedging reserve Currency translation adjustments Total equity attributable to shareholders of Total reserves LafargeHolcim Ltd Non-controlling interest 14,988 1,791 (106) 1,685 (10) (117) 16,546 18,438 (1,469) 113 (1,355) (1,666) (438) (3) 12 14,988 (13) (10) (11,158) 1 1 (13) (13) 32 32 23 (5) (5) (5) (1,254) (1,254) (12,412) (9,338) (1,820) (1,820) 3,807 1,791 (1,327) 464 (10) (117) 4,144 9,082 (1,469) (1,712) (3,181) (1,666) (438) (3) 31,365 1,791 (1,327) 464 (909) 5 15 (117) 30,822 17,430 (1,469) (1,712) (3,180) (424) 17,910 (56) (404) (7) 82 (13) (10) (11,158) 13 3,807 13 31,365 4,357 299 151 450 (248) (2) (165) (467) 3,925 2,682 108 (138) (31) (274) 69 2,338 (295) (69) 31 (109) 15 4,357 177 Total shareholders’ equity 35,722 2,090 (1,176) 914 (1,157) 5 15 (2) (165) (584) 34,7471 20,112 (1,361) (1,850) (3,211) (697) 17,910 (56) 69 2,338 (699) (7) 14 31 (109) 27 35,722 178 L A F A R G E H O L C I M Annual Report 2016 Consolidated statement of cash flows of LafargeHolcim Group Million CHF NET INCOME (LOSS) Income taxes Other income Other expenses Share of profit of associates and joint ventures Financial expenses net Depreciation, amortization and impairment of operating assets Other non-cash items Change in net working capital CASH GENERATED FROM OPERATIONS Dividends received Interest received Interest paid Income taxes paid Other expenses CASH FLOW FROM OPERATING ACTIVITIES (A) Purchase of property, plant and equipment Disposal of property, plant and equipment Acquisition of participation in Group companies Disposal of participation in Group companies Purchase of financial assets, intangible and other assets Disposal of financial assets, intangible and other assets CASH FLOW FROM INVESTING ACTIVITIES (B) Payout on ordinary shares Dividends paid to non-controlling interest Capital (repaid to) paid-in by non-controlling interest Movements of treasury shares Transaction costs relating to the issuance of new shares Net movement in current financial liabilities Proceeds from long-term financial liabilities Repayment of long-term financial liabilities Increase in participation in existing Group companies CASH FLOW FROM FINANCING ACTIVITIES (C) INCREASE IN CASH AND CASH EQUIVALENTS (A + B + C) CASH AND CASH EQUIVALENTS AS AT THE BEGINNING OF THE PERIOD (NET) Increase in cash and cash equivalents Currency translation effects CASH AND CASH EQUIVALENTS AS AT THE END OF THE PERIOD (NET) Notes 29 10 11 22 12, 13 9 36 29 36 15 34 16 16 2016 2,090 835 (824) 68 (205) 917 2,405 470 (694) 5,063 160 169 2015 (1,361) 781 (1,219) 415 (157) 906 4,421 669 (232) 4,223 156 165 (1,187) (1,053) (860) (49) 3,295 (940) (86) 2,465 (1,773) (2,106) 137 (4) 2,245 (402) 503 706 (909) (249) (20) 5 0 (946) 6,216 (6,600) (375) (2,879) 118 208 6,515 (487) 985 5,234 (424) (296) 32 (7) (56) 516 3,484 (8,553) (697) (6,000) 1,122 1,699 3,771 1,122 (99) 4,795 1,941 1,699 131 3,771 F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 179 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As used herein, the terms “LafargeHolcim” or the “Group” refer to LafargeHolcim Ltd together with the companies included in the scope of consolidation. 1. Significant events of the period The financial position and performance of the Group were particularly affected by the following events and transactions during the reporting period: – The disposals, as part of the divestment program, of entities in South Korea, Sri Lanka, India, Saudi Arabia and Turkey and the restructuring of operations in Morocco, Francophone Sub-Saharan Africa and in China contributing to the reduction of the net financial debt of CHF 2.5 billion (see note 4); and – The optimization of the Group financial structure contributing to the repayment of long-term financial liabilities of CHF 6.6 billion and the issuance of new long-term financial liabilities of CHF 6.2 billion (see note 26). 2. Accounting policies Basis of preparation The consolidated financial statements have been prepared in accordance with Inter- national Financial Reporting Standards (IFRS). Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount. Adoption of revised and new International Financial Reporting Standards and interpretations In 2016, LafargeHolcim adopted the following amended standards relevant to the Group: Amendments to IAS 1 Disclosure Initiative Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization Improvements to IFRS Clarifications of existing IFRSs (issued in September 2014) The amendments to IAS 1 Presentation of Financial Statements largely clarify a number of presentation issues and highlight that preparers are permitted to tailor the format and presentation of the financial statements to their circumstances. The adoption of these amendments did not materially impact the presentation of the Group’s financial statements. The amendments to IFRS 11 Joint Arrangements require business combination accounting according to IFRS 3 Business Combinations to be applied to an acquisition of an interest in a joint operation that constitutes a business. The adoption of these amendments did not materially impact the Group’s financial statements. The amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets clarify that revenue-based amortization is generally inappropriate. The adoption of these amendments did not impact the Group’s financial statements. 180 L A F A R G E H O L C I M Annual Report 2016 The improvements to IFRS relate largely to clarification issues. Therefore, the adoption of these amendments did not materially impact the Group’s financial statements. In 2017, LafargeHolcim will adopt the following amended standards relevant to the Group: Amendments to IAS 12 Income Taxes Amendment to IAS 7 Disclosure Initiative Improvements to IFRSs Clarifications of existing IFRSs (issued in December 2016) The amendments to IAS 12 Income Taxes clarify the requirements for recognizing deferred tax assets on unrealized losses. The amendments also clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. The adoption of these amendments will not materially impact the Group’s financial statements. The amendment to IAS 7 Statement of Cash Flows introduces the disclosure of the recon- ciliation of liabilities arising from financing activities. The adoption of this amendment is disclosure related only and therefore will not materially impact the Group’s financial statements. The adoption of the improvements to IFRSs will not materially impact the Group’s financial statements. In 2018, LafargeHolcim will adopt the following new standards and interpretations relevant to the Group: IFRS 15 IFRS 9 Amendments to IFRS 2 IFRIC 22 Revenue from Contracts with Customers Financial Instruments Classification and measurement of share-based payment transactions Foreign Currency Transactions and Advance Consideration (Clarifications to IAS 21) In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations. Except for the disclosure requirements, the new standard will not materially impact the Group financial statements. In July 2014, the IASB issued IFRS 9 Financial Instruments which replaces IAS 39 Financial Instruments: Recognition and Measurement and that will change the classification and measurement requirements of financial assets and financial liabilities and the general hedge accounting rules. Except for the disclosure requirements, the new standard will not materially impact the Group financial statements. The amendments to IFRS 2 Share-based Payment provide additional guidance on the accounting for cash-settled share-based payments and add a narrow scope exception that requires equity-settled accounting where settlement of share-based payment awards is split between the equity instruments issued to the employee and the cash payment made to the tax authorities on the employee’s behalf. The adoption of these amendments will not impact the Group financial statements. In December 2016, the IASB issued IFRIC 22 Foreign Currency Transactions and Advance Consideration which provides guidance on how to account for an advance consideration when it is paid or received in a foreign currency. The Group is in the process of evalu ating the impact IFRIC 22 may have on its consolidated financial statements. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 181 In 2019, LafargeHolcim will adopt the following new standard relevant to the Group: IFRS 16 Leases In January 2016, the IASB issued IFRS 16 Leases, which replaces IAS 17 Leases and related interpretations. The new standard will require lessees to recognize a lease liability re- flecting future lease payments and a right-of-use asset for virtually all lease contracts. The Group is in the process of evaluating the impact this new standard may have on its consolidated financial statements. Change in presentation that will affect the Group after December 31, 2016 As from January 1, 2017, management decided to reclassify the Group’s share of profit of joint ventures within operating profit as such a presentation will provide more relevant information regarding the Group’s financial performance, considering that the underlying operational activities of joint ventures are jointly controlled and reflect the core business activities of LafargeHolcim. Based on 2016 figures, this change in presen- tation would increase operating profit by CHF 125 million. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and related disclosures at the date of the financial state- ments. These estimates are based on management’s best knowledge of current events and actions that the Group may undertake in the future. However, actual results could differ from those estimates. Management also uses judgment in applying the Group’s accounting policies. Critical estimates and assumptions Estimates and judgments are continually evaluated and are based on historical experi- ence and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant risk of causing a material adjust- ment to the carrying amounts of assets and liabilities within the next financial year are summarized below: – the Group tests annually whether goodwill has suffered any impairment and in case of an impairment indication whether a non-financial asset may be impaired in accor- dance with its accounting policy. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of estimates such as discount rates and growth rates; – liabilities and costs for defined benefit pension plans and other post-employment benefits are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty; – the recognition of deferred tax assets requires assessment of whether it is probable that sufficient future taxable profit will be available against which the deferred tax assets can be utilized; 182 L A F A R G E H O L C I M Annual Report 2016 – the measurement of site restoration provisions requires long-term assumptions regarding the phasing of the restoration work to be carried out and the appropriate discount rate to be used; – other long-term provisions require an estimate of the expenditure and timing of the settlement. The litigations and claims to which the Group is exposed are assessed by management with assistance of the legal department and in certain cases with the support of external specialized lawyers. Disclosures related to such provisions, as well as contingent liabilities, also require judgment; – the determination of depreciation and amortization charges depends on the useful lives for which judgment and estimates are required; – the fair value of financial instruments is estimated either on the basis of market quotations, on valuation techniques relying on observable market data or by estimating the present value of future cash flows. The use of different valuations, methodologies and assumptions may have a material effect on the estimated fair value amounts; and – the classification of a subsidiary or a disposal group as held for sale requires the judgment of management especially as to whether the sale is expected to be completed within one year from the date of classification as held for sale, and whether the proceeds expected to be received will exceed its carrying amount. Scope of consolidation The consolidated financial statements comprise those of LafargeHolcim Ltd and of its subsidiaries. The list of principal companies is presented in the note 40. Principles of consolidation The Group consolidates a subsidiary if it has an interest of more than one half of the voting rights or otherwise is able to exercise control over the operations. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the consideration given at the date of exchange. For each business combination, the Group measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed in the statement of income. Identi- fiable assets acquired and liabilities assumed in a business combination are measured initially at fair value at the date of acquisition. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. If the business combination is achieved in stages, the carrying amount of the Group’s pre- viously held equity interest in the acquiree is remeasured to fair value as at the acquisition date with any resulting gain or loss recognized in the statement of income. Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognized in the statement of income. Contingent liabilities assumed in a business combination are recognized at fair value and subsequently measured at the higher of the amount that would be recognized as a provision and the amount initially recognized. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 183 Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions and balances between Group companies are eliminated in full. Changes in the ownership interest of a subsidiary that do not result in loss of control are accounted for as an equity transaction. Consequently, if LafargeHolcim acquires or partially disposes of a non-controlling interest in a subsidiary, without losing control, any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognized directly in retained earnings. It is common practice for the Group to write put options and acquire call options in connection with the remaining shares held by the non-controlling shareholders mainly as part of a business combination. If the Group has acquired a present ownership inter- est as part of a business combination, the present value of the redemption amount of the put option is recognized as a financial liability with any excess over the carrying amount of the non-controlling interest recognized as goodwill. In such a case, the non-controlling interest is deemed to have been acquired at the acquisition date and therefore any excess arising should follow the accounting treatment as in a business combination. All subsequent fair value changes of the financial liability are recognized in the statement of income and no earnings are attributed to the non-controlling interest. However, where the Group has not acquired a present ownership interest as part of a business combination, the non-controlling interest continues to receive an allocation of profit or loss and is reclassified as a financial liability at each reporting date as if the acquisition took place at that date. Any excess over the reclassified carrying amount of the non-controlling interest and all subsequent fair value changes of the financial liability are recognized directly in retained earnings. Interests in joint arrangements are interests over which the Group exercises joint control and are classified as either joint operations or joint ventures depending on the contrac- tual rights and obligations arising from the agreement rather than the legal structure of the joint arrangement. If the interest is classified as a joint operation, the Group recog- nizes its share of the assets, liabilities, revenues and expenses in the joint operation in accordance with the relevant IFRSs. Associates are companies in which the Group generally holds between 20 and 50 percent of the voting rights and over which the Group has significant influence but does not exercise control. Associates and joint ventures are accounted for using the equity method of accounting. Goodwill arising from an acquisition is included in the carrying amount of the invest- ment in associated companies and joint ventures. Equity accounting is discontinued when the carrying amount of the investment together with any long-term interest in an associated company or joint venture reaches zero, unless the Group has also either incurred or guaranteed additional obligations in respect of the associated company or joint venture. 184 L A F A R G E H O L C I M Annual Report 2016 Foreign currency translation The assets and liabilities of each of the Group’s companies are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Statements of income of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and statements of financial position are translated at the exchange rates prevailing on December 31. Goodwill arising from the acquisition of a foreign operation is expressed in the functional currency of the foreign operation and is translated at the closing rate, at the date of the reporting period. Foreign currency transactions translated into the functional currency are accounted for at the exchange rates prevailing at the date of the transactions; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income, except when deferred outside the statement of income as qualifying cash flow hedges or net investment hedges. Exchange differences arising on monetary items that form part of a company’s net investment in a foreign operation are recognized in other comprehensive earnings (currency translation adjustment) and are fully reclassified to the statement of income should the Group lose control of a subsidiary, lose joint control over an interest in a joint arrangement or lose significant influence in an associate. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the statement of income as part of the net gain or loss on sale, except for a partial disposal of a subsidiary without loss of control, where a proportionate share of the cumulative currency translation adjustments is re-attributed to non-controlling interest and not recognized in the statement of income. Segment information The Group is organized by countries. Countries or regional clusters are the Group’s operating segments. For purposes of presentation to the Chief Operating Decision Maker, five regions corresponding to the aggregation of countries or regional clusters are reported: Asia Pacific Latin America Europe North America Middle East Africa While each operating segment is reviewed separately by the Chief Operating Decision Maker, the countries have been aggregated into five reportable segments as they have similar long-term average gross margins and are similar in respect of products, production processes, distribution methods and types of customers. Each of the above reportable segments derives its revenues from the sale of cement, aggregates and other construction materials and services. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 185 The Group has three product lines: Cement, which comprises clinker, cement and other cementitious materials Aggregates Other construction materials and services, which comprises ready-mix concrete, concrete products, asphalt, construction and paving, trading and other products and services Group financing (including financing costs and financing income) and income taxes are managed on a Group basis and are not allocated to any reportable segments. Transfer prices between segments are set on an arm’s-length basis in a manner similar to transactions with third parties. Segment revenue and segment result include transfers between segments. Those transfers are eliminated on consolidation. Cash and cash equivalents Cash and cash equivalents are financial assets. Cash equivalents are readily convertible into a known amount of cash with original maturities of three months or less. For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at banks and in hand, deposits held on call with banks and other short-term, highly liquid investments, net of bank overdrafts. Accounts receivable Trade accounts receivable are carried at the original invoice amount less an estimate made for doubtful debts based on a review of all outstanding amounts of the financial asset at the year end. Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined by using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials and additives, direct labor, other direct costs and related production overheads. Cost of inventories includes transfers from equity of gains or losses on qualifying cash flow hedges relating to inventory purchases. Long-term financial assets Long-term financial assets consist of (a) financial investments – third parties, (b) long-term receivables – associates and joint ventures, (c) long-term receivables – third parties, and (d) derivative assets. Financial investments in third parties are classified as available- for- sale and long-term receivables from associates, joint ventures and third parties are classified as loans and receivables. Derivative assets are regarded as held for hedging unless they do not meet the strict hedging criteria under IAS 39 Financial Instruments. Accounting policies on derivative instruments are detailed further below. All purchases and sales of long-term financial assets are recognized on trade date, which is the date that the Group commits to purchase or sell the asset. The purchase cost includes transaction costs, except for derivative instruments. Loans and receivables are measured at amortized cost using the effective interest method. Available-for-sale investments are carried at fair value. Gains and losses arising from changes in the fair value of available-for-sale investments are included in other comprehensive earnings until the financial asset is either impaired or disposed of, at which time the cumulative gain or loss previously recognized in other comprehensive earnings is reclassified from equity to the statement of income. 186 L A F A R G E H O L C I M Annual Report 2016 Property, plant and equipment Property, plant and equipment is valued at acquisition or construction cost less depreciation and impairment loss. Cost includes transfers from equity of any gains or losses on qualifying cash flow hedges. Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight-line method, on the following bases: Land and mineral reserves No depreciation except on land with raw material reserves Buildings and installations 20 to 40 years Machinery and equipment 3 to 30 years Costs are only included in the asset’s carrying amount when it is probable that economic benefits associated with the item will flow to the Group in future periods and the cost of the item can be measured reliably. Costs include the initial estimate of the costs for dismantling and removing the item and for restoring the site on which it is located. All other repairs and maintenance expenses are charged to the statement of income during the period in which they are incurred. Mineral reserves are valued at cost and are depreciated based on the unit-of-production method over their estimated commercial lives. Costs incurred to gain access to mineral reserves (typically stripping costs) are capital- ized and depreciated over the life of the quarry, which is based on the estimated tonnes of raw material to be extracted from the reserves. Interest costs on borrowings to finance construction projects, which necessarily take a substantial period of time to get ready for their intended use, are capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed in the period in which they are incurred. Government grants received are deducted from property, plant and equipment and reduce the depreciation charge accordingly. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment acquired through a finance lease is capitalized at the date of the commencement of the lease term at the present value of the minimum future lease payments or, if lower, at an amount equal to the fair value of the leased asset as determined at the inception of the lease. The corresponding lease obligations, excluding finance charges, are included in either current or long-term financial liabilities. For sale-and-lease-back transactions, the book value of the related property, plant or equipment remains unchanged. Proceeds from a sale are included as a financing liability and the financing costs are allocated over the term of the lease in such a manner that the costs are reported over the relevant periods. Gains and losses on disposals are determined by comparing proceeds with carrying amounts, and are recognized in the statement of income in “Other income (expenses)”. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 187 Non-current assets (or disposal groups) classified as held for sale and discontinued operations Non-current assets (or disposal groups) are classified as held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Gains and losses on disposals of non-current assets (or disposal groups) are determined by comparing proceeds with carrying amounts, and are recognized in the statement of income in “Other income (expenses)”. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Goodwill Goodwill represents the excess of the aggregate of the consideration transferred and the amount recognized for the non-controlling interest over the fair value of the net identi fiable assets acquired and liabilities assumed. Such goodwill is tested annually for impairment or whenever there are impairment indicators, and is carried at cost less accumulated impairment losses. Goodwill on acquisitions of associates and joint ventures is included in the carrying amount of the respective investments. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income. On disposal of a subsidiary or joint operation, the related goodwill is included in the determination of profit or loss on disposal. For the purpose of impairment testing, goodwill arising from acquisitions of subsidiaries is allocated to cash generating units expected to benefit from the synergies of the business combination. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets Expenditure on acquired trademarks, mining rights, software, patented and unpatented technology and other intangible assets is capitalized and amortized using the straight-line method over their estimated useful lives, but not exceeding 20 years, except for mining rights which are depleted on a volume basis. Impairment of non-financial assets At each reporting date, the Group assesses whether there is any indication that a non-financial asset may be impaired. If any such indication exists, the recoverable amount of the non-finan- cial asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual non-financial asset, the Group estimates the recoverable amount of the smallest 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 disposal and its value in use. If the recoverable amount of a non- financial asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the non-financial asset or cash generating unit is reduced to its recover- able amount. Impairment losses are recognized immediately in the statement of income. 188 L A F A R G E H O L C I M Annual Report 2016 Where an impairment loss subsequently reverses, the carrying amount of the non- financial asset or cash generating unit is increased to the revised estimate of its recoverable amount. However, this increased amount cannot exceed the carrying amount that would have been determined if no impairment loss had been recognized for that non-financial asset or cash generating unit in prior periods. A reversal of an impairment loss is recognized immediately in the statement of income. Impairment of financial assets At each reporting date, the Group assesses whether there is any indication that a financial asset may be impaired. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the future estimated cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allow- ance account. The amount of the loss is recognized in the statement of income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Any reversal of an impairment loss is recognized in the statement of income. An impairment loss in respect of an available-for-sale financial asset is recognized in the statement of income and is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. Reversals of impairment losses on equity instruments classified as available-for-sale are recognized in other comprehensive earnings, while reversals of impairment losses on debt instruments are recognized in the statement of income if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the statement of income. Impairment losses of financial assets carried at cost cannot be reversed. Objective evidence that an available-for-sale financial asset is impaired includes observable data about the following loss events: – the occurrence of significant financial difficulties of the issuer or obligor; – adverse changes in national or local economic conditions have occurred; – adverse changes that have taken place in the technological, economic or legal environment; and – the existence of a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. In relation to accounts receivable, a provision for doubtful debts is made when there is objective evidence (such as the probability of insolvency or significant financial diffi culties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of accounts receivable is reduced through use of an allowance account. Impaired accounts receivable are derecog- nized when they are assessed as uncollectable. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 189 Long-term financial liabilities Bank loans acquired and bonds issued are recognized initially at the proceeds received, net of transaction costs incurred. Subsequently, bank loans and bonds are stated at amor- tized cost, using the effective interest method, with any difference between proceeds (net of transaction costs) and the redemption value being recognized in the statement of income over the term of the borrowings. Financial liabilities that are due within 12 months after the end of the reporting period are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability until more than 12 months after the reporting period. The repay- ment of the current portion of such liabilities is shown in the statement of cash flows in the line “Repayment of long-term financial liabilities”. Derivative instruments The Group mainly uses derivative financial instruments in order to reduce its exposure to changes in interest rates, foreign currency exchange rates and commodities prices. The Group enters into foreign exchange contracts and interest rate swaps to hedge certain exposures relating to debt, foreign exchange contracts to hedge firm commitments for the acquisition of certain property, plant and equipment and into swaps and options in order to manage its exposure to commodity risks. Derivatives are regarded as held for hedging unless they do not meet the strict hedging criteria stipulated under IAS 39 Financial Instruments: Recognition and Measurement, in which case they will be classified as held for trading. Financial derivatives expected to be settled within 12 months after the end of the reporting period are classified as current liabilities or current assets. Movements in the cash flow hedging reserve are shown in the consolidated statement of changes in equity. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss is dependent on the nature of the item being hedged. On the date a derivative contract is entered into, the Group designates certain derivatives as either (a) a hedge of the fair value of a recognized asset or liability (fair value hedge) or (b) a hedge of a particular risk associated with a recognized asset or liability, such as future interest payments on floating rate debt (cash flow hedge) or (c) a hedge of a foreign currency risk of a firm commitment (cash flow hedge) or (d) a hedge of a net investment in a foreign entity (accounted for similarly to a cash flow hedge). Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective are recorded in the statement of income, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective are recognized outside the statement of income. Where the firm commitment results in the recognition of an asset, for example, property, plant and equipment, or a liability, the gains or losses previously deferred in equity are transferred from equity and included in the initial measurement of the non-financial asset or liability. Otherwise, amounts deferred in equity are transferred to the statement of income and classified as income or expense in the same periods during which the cash flows, such as hedged firm commitments or interest payments, affect the statement of income. 190 L A F A R G E H O L C I M Annual Report 2016 Deferred taxes Deferred tax is provided, using the balance sheet liability method, on temporary differ- ences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Tax rates enacted or substantively enacted by the end of the reporting period are used to determine the deferred tax expense. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which deductible temporary differences or unused tax losses can be utilized. Deferred tax liabilities are recognized for taxable temporary differences arising from investments in subsidiaries, associates and interests in joint arrangements except where the Group is able to control the distribution of earnings from these respective entities and where dividend payments are not expected to occur in the foreseeable future. Deferred tax is charged or credited in the statement of income, except when it relates to items credited or charged outside the statement of income, in which case the deferred tax is treated accordingly. Site restoration and other environmental provisions The Group provides for the costs of restoring a site where a legal or constructive obligation exists. The estimated future costs for known restoration requirements are determined on a site-by-site basis and are calculated based on the present value of estimated future costs. The cost of raising a provision before exploitation of the raw materials has commenced is included in property, plant and equipment and depreciated over the life of the site. The effect of any adjustments to the provision due to further environmental damage as a result of exploitation activities is recorded through operating costs over the life of the site, in order to reflect the best estimate of the expenditure required to settle the obligation at the end of the reporting period. Changes in the measurement of a provision that result from changes in the estimated timing or amount of cash outflows, or a change in the discount rate, are added to or deducted from the cost of the related asset to the extent that they relate to the asset’s installation, construction or acquisition. All provisions are discounted to their present value. Restructuring provisions A provision for restructuring costs is recognized when the restructuring plans have been approved by the management, a detailed formal plan exists and when the Group has raised a valid expectation in those affected that it will carry out the restructuring plan either by announcing its main features to those affected by it or starts to implement that plan and recognize the associated restructuring costs. The provision only includes direct expenditures arising from the restructuring, notably severance payments, early retire- ment costs, costs for notice periods not worked and other costs directly linked with the closure of the facilities. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 191 Other provisions A provision is recognized when there exists a legal or constructive obligation arising from past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of this amount. Emission rights The initial allocation of emission rights granted is recognized at nominal amount (nil value). Where a Group company has emissions in excess of the emission rights granted, it will recognize a provision for the shortfall based on the market price at that date. The emission rights are held for compliance purposes only and therefore the Group does not intend to speculate with these in the open market. Employee benefits – Defined benefit plans Some Group companies provide defined benefit pension plans for employees. Pro- fessionally qualified independent actuaries value the defined benefit obligations on a regular basis. The obligation and costs of pension benefits are determined using the projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs, which comprise plan amend- ments and curtailments, as well as gains or losses on the settlement of pension benefits are recognized immediately in the statement of income when they occur. Remeasurements, which comprise actuarial gains and losses on the pension obligation, the return on plan assets and changes in the effect of the asset ceiling excluding amounts included in net interest, are recognized directly in other comprehensive earnings and are not reclassified to the statement of income in a subsequent period. The pension obli- gation is measured at the present value of estimated future cash flows using a discount rate that is determined by reference to the interest rate on high quality corporate bonds where the currency and terms of the corporate bonds are consistent with the currency and estimated terms of the defined benefit obligation. A net pension asset is recorded only to the extent that it does not exceed the present value of any economic benefits available in the form of refunds from the plan or reduc- tions in future contributions to the plan. The cost for defined benefit plans charged to the statement of income consists of service cost (current service cost, past service cost and curtailments as well as gains or losses on settlements) and the net interest expense. The service costs are recorded in “Cost of goods sold”, “Distribution and selling expenses” or “Administrative expenses” based on the beneficiaries of the plan and the net interest expense is recorded in the “Financial expenses”. Employee benefits – Defined contribution plans In addition to the defined benefit plans described above, some Group companies spon- sor defined contribution plans based on local practices and regulations. The Group’s contributions to defined contribution plans are charged to the statement of income in the period to which the contributions relate. 192 L A F A R G E H O L C I M Annual Report 2016 Employee benefits – Other long-term employment benefits Other long-term employment benefits include long-service leave or sabbatical leave, medical aid, jubilee or other long-service benefits, long-term disability benefits and, if they are not expected to be settled wholly within twelve months after the year end, profit sharing, variable and deferred compensation. The measurement of these obligations differs from defined benefit plans in that all remeasurements are recognized immediately in the statement of income and not in other comprehensive earnings. Employee benefits – Equity compensation plans The Group operates various equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options or shares is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted. The amounts are charged to the statement of income over the relevant vesting periods and adjusted to reflect actual and expected levels of vesting. Equity Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. Treasury shares (own equity instruments held by the Group) are accounted for as a reduc- tion of equity at acquisition cost and are not subsequently remeasured. When shares are sold out of treasury shares, the resulting profit or loss is recognized in equity, net of tax. Revenue recognition Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received net of sales taxes and discounts. Revenue from the sale of goods is recognized when delivery has taken place and the transfer of risks and rewards of ownership has been completed. The significant risks and rewards of products sold are transferred according to the specific delivery terms that have been formally agreed with the customer, generally upon delivery when the bill of lading is signed by the customer as evidence that they have accepted the product delivered to them. Interest is recognized on a time proportion basis that reflects the effective yield on the asset. Dividends are recognized when the shareholder’s right to receive payment is established. Contingent liabilities Contingent liabilities arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of LafargeHolcim. They are accordingly only disclosed in the notes to the financial statements. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 193 3. Risk Management Group Risk Management Group Risk Management supports the Board of Directors, the Executive Committee and the management teams of the Countries in analyzing the overall risk exposure. Group Risk Management aims to systematically identify, monitor and manage major risks the company encounters. All types of risks from industry, operations, finance and legal, up to the external business environment are considered including compliance, sustainable development and reputational aspects. Risks are understood as the effect of uncertainty on business objectives which can be an opportunity or a threat. The risk horizon includes long-term strategic risks but also short- to medium-term business risks. Potential risks are identified and evaluated at an early stage and monitored. Mitigating actions are proposed and implemented at the appropriate level so that risk management remains a key responsibility of the line management. Risk transfer through insurance solutions forms an integral part of risk management. The Group’s risk profile is established by strategic, operational and topical risk assess- ments which are combined to a 360 degree risk analysis. Besides the Countries, the Board of Directors, the Executive Committee and selected Corporate Function Heads are involved in the risk assessment during the Group’s management cycle. The results of the annual Group risk process are presented to the Executive Committee and the conclusions reported to the Board of Directors and the Finance & Audit Committee. Country risk LafargeHolcim’s major presence in developing markets exposes the Group to risks such as political, financial and social uncertainties and turmoil, terrorism, civil war and unrest. Brexit vote The impact of United Kingdom’s withdrawal from the European Union (“Brexit”) has been assessed and preventive measures have been taken. Relevant currency exposures and counterparty risks were reduced before the Brexit vote. LafargeHolcim is actively following-up on the future potential Brexit consequences. Financial Risk Management The Group’s activities expose it to a variety of financial risks, including liquidity, interest rate, foreign exchange, commodity and credit risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts, commodity and interest rate swaps to hedge certain exposures. The Group does not enter into derivative or other financial transactions which are unrelated to its business needs. Financial risk management within the Group is governed by policies approved by key management personnel. It provides principles for overall risk management as well as policies covering specific areas such as interest rate risk, foreign exchange risk, credit risk, use of derivative financial instruments and investing of cash. 194 L A F A R G E H O L C I M Annual Report 2016 Liquidity risk Group companies need liquidity to meet their obligations. Individual companies are responsible for their own cash balances and the raising of internal and external credit lines to cover the liquidity needs, subject to guidance by the Group. The Group monitors its liquidity risk by using a recurring liquidity planning tool and maintains cash, readily realizable marketable securities and unused committed credit lines to meet its liquidity requirements. In addition, the strong creditworthiness of the Group allows it to make efficient use of international financial markets for financing purposes. Within 1 year Within 2 years Within 3 years Within 4 years Within 5 years Thereafter Total Carrying amount Contractual undiscounted cash flows 3,048 2,617 2,325 730 16 (34) 0 514 316 220 110 18 1,677 557 11 0 48 1,680 435 9 3 59 1,204 320 5 109 1,608 267 4 0 6,969 2,571 44 0 11 3,048 3,794 3,048 3,770 15,463 15,773 4,880 90 79 118 67 35 8,703 2,807 2,502 1,859 1,989 9,612 27,472 Contractual maturity analysis Million CHF 2016 Trade accounts payable Loans from financial institutions Bonds, private placements and commercial paper notes Interest payments Finance leases Derivative financial instruments net 1 Financial guarantees TOTAL 2015 Trade accounts payable Loans from financial institutions Bonds, private placements and commercial paper notes Interest payments Finance leases Derivative financial instruments net 1 Financial guarantees TOTAL 3,693 2,833 897 396 359 235 152 3,974 2,336 934 19 (67) 76 688 30 2 1,881 522 10 2 29 1,865 418 9 2 2,169 262 5 82 3,748 1,649 48 0 3,693 4,872 3,693 4,886 15,973 16,705 4,473 122 21 105 91 (23) 11,462 3,953 2,840 2,653 2,754 5,597 29,259 1 The contractual cash flows include both cash in- and outflows. Additional information is disclosed in note 28. The maturity profile is based on contractual undiscounted amounts including both inter- est and principal cash flows and based on the earliest date on which LafargeHolcim can be required to pay. Contractual interest cash flows relating to a variable interest rate are calculated based on the rates prevailing as of December 31. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 195 Market risk LafargeHolcim is exposed to market risk, primarily relating to interest rate, foreign exchange and commodity prices. To manage the volatility relating to these exposures, LafargeHolcim uses a variety of derivative financial instruments. The Group’s objective is to reduce fluctuations in earnings and cash flows associated with changes in interest rates, foreign exchange rates and commodity prices. Interest rate risk Interest rate risk arises from movements in interest rates which could affect the Group’s financial result and market values of its financial instruments. The Group is primarily exposed to fluctuations in interest rates on its financial liabilities at floating rates which may cause variations in the Group’s financial result. The exposure is mainly addressed through the management of the fixed/floating ratio of financial liabilities. To manage this mix, the Group may enter into interest rate swap agreements, in which it exchanges peri- odic payments based on notional amounts and agreed-upon fixed and floating interest rates. The Group is also exposed to the evolution of interest rates and credit markets for its future refinancing, which may result in a lower or higher cost of financing. The Group constantly monitors credit markets and the aim of its financing strategy is to achieve a well-balanced maturity profile to thereby reduce both the risk of refinancing and large fluctuations of its financing cost. Interest rate sensitivity The Group’s sensitivity analysis has been determined based on the interest rate expo- sure relating to the Group’s financial liabilities at a variable rate on a post hedge basis as at December 31. A 1 percentage point change is used when the interest rate risk is reported internally to key management personnel and represents management’s assessment of a reasonably possible change in interest rates. At December 31, 2016, a 1 percentage point shift in interest rates, with all other assump- tions held constant, would result in approximately CHF 49 million (2015: CHF 74 million) of annual additional/lower financial expenses before tax on a post hedge basis. The Group’s sensitivity to interest rates is lower than last year mainly due to the decrease of current financial liabilities as well as the decrease of the ratio of financial liabilities at variable rates to total financial liabilities from 50 percent to 39 percent. Impacts on equity due to derivative instruments are considered as not material based on the shareholders’ equity of the Group. 196 L A F A R G E H O L C I M Annual Report 2016 Foreign exchange risk The Group’s global footprint exposes it to foreign exchange risks. The translation of foreign operations into the Group reporting currency leads to currency translation effects. The Group may hedge certain net investments in foreign entities with foreign currency borrowings or other instruments. Hedges of net investments in foreign entities are accounted for similarly to cash flow hedges. To the extent that the net invest- ment hedge is effective, all foreign exchange gains or losses are recognized in equity and included in currency translation adjustments. Due to the local nature of the construction materials business, transaction 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. Foreign exchange sensitivity The Group’s sensitivity analysis has been determined based on the Group’s net trans- action exposure that arises on monetary financial assets and liabilities at December 31 that are denominated in a foreign currency other than the functional currency in which they are measured. The Group’s net foreign currency transaction risk mainly arises from CHF, USD and EUR against the respective currencies the Group operates in. A 5 percent change is used when the net foreign currency transaction risk is reported internally to key management personnel and represents management’s assessment of a reasonably possible change in foreign exchange rates. A 5 percent change in CHF, USD and EUR against the respective currencies the Group operates in would only have an immaterial impact on foreign exchange (loss) gains net on a post hedge basis in both the current and prior year. Impacts on equity due to derivative instruments are considered as not material based on the shareholders’ equity of the Group. Commodity risk The Group is subject to commodity risk with respect to price changes mainly in the electricity, natural gas, petcoke, coal, oil refined products and sea freight markets. The Group uses derivative instruments to hedge part of its exposure to these risks. Deri vative instruments are generally limited to swaps and standard options. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 197 Credit risk Credit risks arise, among others, from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk, the Group periodically assesses the financial reliability of customers. Credit risks, or the risk of counterparties defaulting, are constantly monitored. Counter- parties to financial instruments consist of a large number of major financial institutions. The Group does not expect any counterparty to be unable to fulfill their obligations under their respective financing agreements. At year end, LafargeHolcim has 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. Capital structure The Group’s objectives when managing capital are to secure the Group’s financial needs as a going concern as well as to cater for its growth targets, in order to provide returns to shareholders and benefits for other stakeholders and to maintain a solid invest- ment grade rating. 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. The Group monitors capital, among others, on the basis of the ratio of net financial debt to operating EBITDA adjusted. The net financial debt to operating EBITDA adjusted ratio is used as an indicator of financial risk and shows how many years it would take the Group to pay back its debt. Million CHF Net financial debt Operating EBITDA adjusted NET FINANCIAL DEBT/OPERATING EBITDA ADJUSTED 2016 2015 14,724 17,266 5,825 2.5 5,751 3.0 Fair value estimation The fair value of publicly traded financial instruments is generally based on quoted market prices at the end of the reporting period. For non-publicly traded financial instruments, the fair value is determined by using a variety of methods, such as the discounted cash flow method and option pricing models. The valuation methods seek to maximize the use of observable market data existing at the end of the reporting period. 198 L A F A R G E H O L C I M Annual Report 2016 The fair value of current financial assets and liabilities at amortized cost are assumed to approximate their carrying amounts due to the short-term nature of these financial instruments. Carrying amount (by measurement basis) Amortized cost Fair value level 1 Fair value level 2 Total Comparison Fair value Fair values as of December 31, 2016 Million CHF IAS 39 Category Current financial assets Cash and cash equivalents Financial assets Trade accounts receivable Other receivables Derivative assets Derivative assets Long-term financial assets Long-term receivables Loans and receivables at amortized cost Loans and receivables at amortized cost Held for hedging at fair value Held for trading at fair value Loans and receivables at amortized cost Financial investments third parties Financial investments at cost 4,923 2,826 559 638 92 Financial investments third parties Available-for-sale financial assets 5 Derivative assets Derivative assets Held for hedging at fair value Held for trading at fair value Current financial liabilities Trade accounts payable Financial liabilities at amortized cost Current financial liabilities Financial liabilities at amortized cost 3,048 4,946 Derivative liabilities Held for hedging at fair value Derivative liabilities Held for trading at fair value 4,923 2,826 559 60 8 638 636 1 92 75 6 1 3,048 4,946 9 21 60 8 70 6 1 9 21 Long-term financial liabilities Long-term financial liabilities Financial liabilities at amortized cost 14,666 14,666 15,386 2 Derivative liabilities Held for hedging at fair value 79 79 1 The comparison fair value for long-term receivables consists of CHF 6 million level 1 and CHF 630 million level 2 fair value measurements. 2 The comparison fair value for long-term financial liabilities consists of CHF 13,049 million level 1 and CHF 2,337 million level 2 fair value measurements. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 199 Carrying amount (by measurement basis) Amortized cost Fair value level 1 Fair value level 2 Total Comparison Fair value Fair values as of December 31, 2015 Million CHF IAS 39 Category Current financial assets Cash and cash equivalents Financial assets Trade accounts receivable Other receivables Loans and receivables at amortized cost Loans and receivables at amortized cost 4,393 3,408 209 Other current assets Available-for-sale financial assets 1 Derivative assets Derivative assets Held for hedging at fair value Held for trading at fair value Long-term financial assets Long-term receivables Loans and receivables at amortized cost Financial investments third parties Financial investments at cost 512 90 Financial investments third parties Available-for-sale financial assets 3 Derivative assets Derivative assets Held for hedging at fair value Held for trading at fair value Current financial liabilities Trade accounts payable Financial liabilities at amortized cost Current financial liabilities Financial liabilities at amortized cost 3,693 6,823 Derivative liabilities Held for hedging at fair value Derivative liabilities Held for trading at fair value 4,393 3,408 209 1 10 71 512 90 117 42 9 3,693 6,823 17 26 10 71 114 42 9 17 26 503 1 Long-term financial liabilities Long-term financial liabilities Financial liabilities at amortized cost 14,859 14,859 15,539 2 Derivative liabilities Held for hedging at fair value 66 66 1 The comparison fair value for long-term receivables consists of CHF 46 million level 1 and CHF 457 million level 2 fair value measurements. 2 The comparison fair value for long-term financial liabilities consists of CHF 13,032 million level 1 and CHF 2,507 million level 2 fair value measurements. The table above shows the carrying amounts and fair values of financial assets and liabilities. 200 L A F A R G E H O L C I M Annual Report 2016 The levels of fair value hierarchy used are defined as follows: – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of assets carried at level 1 fair value are equity and debt securities listed in active markets; – Level 2 fair value measurements are those derived from valuation techniques using inputs for the asset or liability that are observable market data, either directly or indirectly. Such valuation techniques include the discounted cash flow method and option pricing models. For example, the fair value of interest rate and currency swaps is determined by discounting estimated future cash flows, and the fair value of forward foreign exchange contracts is determined using the forward exchange market at the end of the reporting period; and – Level 3 fair value measurements are those derived from valuation techniques using inputs for the asset or liability that are not based on observable market data. In 2016 and 2015, there were no financial assets and liabilities allocated to level 3. There have been no transfers between the different hierarchy levels in 2016 and 2015. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 201 4. Changes in the scope of consolidation 4.1 Divestments during the current reporting period South Korea The Group signed an agreement with a consortium of private equity funds Glenwood and Baring Asia for the divestment of Lafarge Halla Cement Corporation in South Korea. This transaction was closed on April 29, 2016 for a total consideration of CHF 522 million and resulted in no gain or loss before taxes. Morocco and Sub-Saharan African countries On March 17, 2016, the Group signed an agreement with SNI, its historical partner in Morocco, to enlarge its joint venture by merging Lafarge Ciments and Holcim (Maroc) S.A. The transaction was effected on July 4, 2016 as a result of the shareholders of Lafarge Ciments and Holcim (Maroc) S.A. agreeing to merge the two companies on that date by an exchange of shares, the new merged company being renamed as LafargeHolcim Maroc. As a result, the Group deconsolidated Holcim (Maroc) S.A. and recorded a net gain before taxes of CHF 236 million for a total consideration of CHF 498 million, of which CHF 233 million were received in cash. In conjunction with the transaction above, the Group further agreed to reinforce its partnership with SNI by creating a joint venture for Francophone Sub-Saharan Africa, to be named LafargeHolcim Maroc Afrique. Four African companies were sold to the joint venture during the second semester 2016: – On July 4, 2016, the Group company LafargeHolcim Côte d’Ivoire, previously named Société de Ciments et Matériaux (SOCIMAT), was sold for a total consideration of CHF 73 million resulting in a net gain before taxes of CHF 9 million; – On October 10, 2016, the Group company Cimenteries du Cameroun was sold for a total consideration of CHF 54 million resulting in a net gain before taxes of CHF 15 million; – On October 10, 2016, the joint venture Groupement SCB Lafarge in Benin was sold for a total consideration of CHF 60 million resulting in a net gain before taxes of CHF 26 million; and – On December 20, 2016, the Group company LafargeHolcim Guinée, previously named Ciment de Guinée S.A., was sold for a total consideration of CHF 5 million resulting in a net loss before taxes of CHF 2 million. Sri Lanka On July 25, 2016, the Group signed an agreement with Siam City Cement Public Company Limited for the divestment of its entire interest in Holcim (Lanka) Ltd. The transaction was closed on August 10, 2016 for a total consideration of CHF 365 million and resulted in a net gain before taxes of CHF 225 million. 202 L A F A R G E H O L C I M Annual Report 2016 Saudi Arabia The Group signed an agreement for the divestment of its 25 percent interest in the associated company Al Safwa Cement Company in Saudi Arabia to El-Khayyat Group. The transaction was closed on August 17, 2016 for a total consideration of CHF 123 million and resulted in a net loss before taxes of CHF 9 million. India On October 4, 2016, the Group disposed of Lafarge India Pvt. Limited for a total con- sideration of CHF 1,168 million resulting in a net gain before taxes of CHF 35 million. Turkey On November 29, 2016, the Group disposed of its 50 percent interest in the joint venture Dalsan Alci Sanayi Ve Ticaret AS for a total consideration of CHF 36 million resulting in no gain or loss before taxes. China The Group streamlined its operations in China, which resulted in a net gain before taxes of CHF 192 million. The transactions were entered into at the same time and in contem- plation of each other and consisted of the following: – the disposal of 73.5 percent of the listed shares in Sichuan Shuangma Cement Co. Ltd. held by LafargeHolcim Group for a total consideration of CHF 658 million resulting in a gain before taxes of CHF 370 million. At the same time the parties entered into a put and call option agreement resulting in LafargeHolcim retaining control over Shuangma’s cement assets. The liability for this put option amounts to CHF 389 million as of December 31, 2016 and is presented in the statement of financial position as current financial liability. Of the total consideration, CHF 200 million was received in cash in the fourth quarter 2016, CHF 352 million was received on an escrow account and is presented as accounts receivable with the remaining amount of CHF 105 million due in 2018 recorded as a long-term financial receivable. Since the Group did not dispose of the underlying cement assets, the cash received up to the amount of the put option liability is presented as financing cash flow. Accordingly, CHF 200 million was reflected in the line Net movement in current financial liabilities of the cash flow statement; and – the disposal of non-listed cement assets in China to the Group’s associate Huaxin Cement Co. Ltd for an expected total consideration of CHF 202 million. These assets and associated liabilities were classified as held for sale in the fourth quarter 2016 which resulted in a loss of CHF 178 million. The transaction will be closed in the first quarter 2017. 4.2 Finalization of the merger between Holcim and Lafarge The merger between Holcim and Lafarge announced publicly on April 7, 2014 became effective on July 10, 2015 after completion of the public exchange offer filed by Holcim Ltd for all the outstanding shares of Lafarge S.A. As at July 9, 2016, the purchase price allocation (PPA) was completed and therefore the fair values assigned to the identifiable assets acquired and liabilities assumed became final. The main changes in the purchase price allocation in 2016 related to property, plant and equipment, intangible assets and contingent liabilities and resulted in an increase in the goodwill of CHF 522 million. As the effect on depreciation, amortization and other income is immaterial, the 2015 comparative information has not been restated. The final fair values of the net assets acquired are as follows: F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 203 Million CHF Cash and cash equivalents Accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale TOTAL CURRENT ASSETS Long-term financial assets Investments in associates and joint ventures Property, plant and equipment Intangible assets Deferred tax assets Other long term assets TOTAL LONG-TERM ASSETS Trade accounts payable Current financial liabilities Current income tax liabilities Other current liabilities Short term provisions Liabilities directly associated with assets classified as held for sale TOTAL CURRENT LIABILITIES Long-term financial liabilities Defined benefit obligations Deferred tax liabilities Long-term provisions TOTAL LONG-TERM LIABILITIES FAIR VALUE OF NET ASSETS ACQUIRED Fair Values disclosed in Q4 2015 PPA refinements in 2016 Final Fair Values 1,704 2,544 1,706 571 4,874 11,399 657 1,644 20,177 1,030 99 56 23,663 2,074 2,272 81 1,646 106 367 6,546 13,320 1,194 2,732 992 18,237 10,279 1,704 2,536 1,673 571 4,874 11,358 636 1,639 19,961 907 101 56 23,300 2,064 2,272 81 1,655 106 367 6,545 13,320 1,194 2,647 1,263 18,423 9,690 (8) (33) (41) (21) (5) (216) (123) 2 (363) (10) 9 (1) (85) 271 186 (589) Non-controlling interest 2,407 (67) 2,340 FAIR VALUE OF NET ASSETS ACQUIRED ATTRIBUTABLE TO SHAREHOLDERS OF LAFARGEHOLCIM LTD 7,872 (522) 7,350 CONSIDERATION FOR THE BUSINESS COMBINATION 19,483 Fair value of net assets acquired attributable to shareholders of LafargeHolcim Ltd GOODWILL 7,872 11,611 (522) 522 19,483 7,350 12,133 204 L A F A R G E H O L C I M Annual Report 2016 4.3 Divestments and business combinations during the previous comparative reporting period Divestments On January 5, 2015, LafargeHolcim disposed of Holcim (Česko) a.s. in Czech Republic, Gador cement plant and Yeles grinding station in Spain for CHF 243 million to Cemex. This resulted in a gain on disposal before taxes of CHF 61 million. On March 30, 2015, LafargeHolcim sold its entire remaining shareholding of 27.5 percent in Siam City Cement Public Company Limited in Thailand via a private placement in capital markets for a total consideration of CHF 661 million. This resulted in a gain on disposal before taxes of CHF 371 million. On July 1, 2015, LafargeHolcim disposed of its entire lime business in New Zealand. This resulted in a gain on disposal before taxes of CHF 68 million. LafargeHolcim also divested a number of entities and businesses as part of a rebalancing of the global portfolio of the combined group resulting from the merger and to address regulatory concerns. On July 31, 2015, LafargeHolcim disposed of assets and operations to CRH mainly in Europe, North America and Brazil, followed by assets disposed of in the Philippines on September 15, 2015. This resulted in a gain on disposal before taxes of CHF 63 million. In December 2015, the ownership interest of several subsidiaries in the Philippines was diluted following a share capital subscription from a third party shareholder, which resulted in the loss of control of these subsidiaries. The investment in these companies was reclassified as investment in associate and recognized at its fair value. Overall, this transaction generated a gain before taxes of CHF 97 million. Acquisition On January 5, 2015, LafargeHolcim acquired control of a group of companies from Cemex which operate in Western Germany and the Netherlands for a total cash consideration of CHF 210 million. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 205 5. Principal exchange rates The following table summarizes the principal exchange rates that have been used for translation purposes. 1 Euro 1 US Dollar 1 British Pound 1 Australian Dollar 100 Brazilian Real 1 Canadian Dollar 1 Chinese Renminbi 100 Algerian Dinar 1 Egyptian Pound 1,000 Indonesian Rupiah 100 Indian Rupee 100 Mexican Peso 100 Nigerian Naira 100 Philippine Peso EUR USD GBP AUD BRL CAD CNY DZD EGP IDR INR MXN NGN PHP Statement of income Average exchange rates in CHF Statement of financial position Closing exchange rates in CHF 2015 (12 months) 2015 (from July 10 to December 31) 1 31.12.2016 31.12.2015 1.07 0.96 1.47 0.72 1.08 0.98 1.50 0.71 1.07 1.02 1.26 0.74 1.08 0.99 1.47 0.72 2016 1.09 0.98 1.33 0.73 28.44 29.31 26.60 31.39 24.99 0.74 0.15 0.90 0.10 0.07 1.47 5.28 0.40 2.07 0.75 0.15 0.96 0.12 0.07 1.50 6.07 0.49 2.11 0.74 0.15 0.93 0.12 0.07 1.49 5.89 0.49 2.10 0.76 0.15 0.92 0.06 0.08 1.50 4.93 0.32 2.06 0.71 0.15 0.92 0.13 0.07 1.50 5.69 0.50 2.10 1 As a result of the merger with Lafarge, some transactions started to be consolidated from July 10, 2015. The average exchange rates for the period from July 10, 2015 to December 31, 2015 were used for these transactions. The devaluation of the Nigerian Naira in June 2016, the Egyptian Pound in November 2016, and weakening of the British Pound led to significant currency impacts. These amounted to CHF 807 million, CHF 511 million and CHF 817 million respectively, and are reflected accordingly in the consolidated statement of other comprehensive earnings. These impacts were partially offset by the strengthening of the US Dollar and the Canadian Dollar. 206 L A F A R G E H O L C I M Annual Report 2016 6. Information by reportable segment Capacity and sales (unaudited) Annual cement production capacity (Million t) Sales of cement (Million t) Sales of aggregates (Million t) Sales of ready-mix concrete (Million m³) Statement of income (Million CHF) Net sales to external customers Net sales to other segments TOTAL NET SALES OPERATING EBITDA Operating EBITDA margin in % OPERATING PROFIT (LOSS) Operating profit (loss) margin in % Statement of financial position (Million CHF) Invested capital Total assets Total liabilities Statement of cash flows (Million CHF) Cash flow from operating activities Capital expenditure Income taxes paid Personnel (unaudited) Number of personnel Reconciliation of measures of profit and loss to the consolidated statement of income OPERATING EBITDA Depreciation, amortization and impairment of operating assets of which impairment charge relating to property, plant and equipment of which impairment charge relating to goodwill of which impairment charge relating to intangible assets OPERATING PROFIT (LOSS) Other income Other expenses Share of profit of associates and joint ventures Financial income Financial expense NET INCOME (LOSS) BEFORE TAXES Asia Pacific 2016 2015 2016 Europe 2015 77.8 33.6 103.6 16.5 5,982 271 6,252 922 14.7 (396) (6.3) 161.7 96.8 29.4 13.2 7,589 42 7,631 1,277 16.7 296 3.9 76.4 41.6 124.2 18.4 6,575 448 7,023 1,217 17.3 632 9.0 14,535 19,685 7,260 14,480 17,547 8,676 15,401 18,165 9,474 932 558 247 966 270 131 453 369 338 150.5 113.7 32.2 15.4 8,100 125 8,226 1,444 17.6 851 10.4 12,230 16,901 6,587 1,054 364 277 31,274 36,199 21,829 23,843 10,536 11,707 13,191 16,123 12,257 11,265 1,816 1,819 90,903 100,956 1,444 (593) (4) (40) 1,277 (982) (477) (1) 1,217 (585) (5) 851 296 632 922 (1,318) (490) (311) (27) (396) 866 (1,069) (439) (421) (13) (203) 1,127 (363) (7) (1) 764 581 (457) (1) (228) 1,294 (534) (9) 940 (528) (149) (674) (114) (904) 1 5,242 (67) (2,405) 123 759 412 (788) (971) 1 2,837 Latin America Middle East Africa North America Corporate/Eliminations Total Group 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 (6.0) (5.0) 353.3 233.2 282.7 55.0 374.0 193.1 231.5 47.6 5,584 4,704 26,904 23,584 26,904 23,584 39.5 26.0 6.5 6.8 2,983 69 3,053 866 28.4 (203) (6.6) 3,869 5,096 3,497 306 269 200 55.3 40.3 12.2 6.0 3,871 29 3,900 1,127 28.9 764 19.6 62.6 24.9 6.4 2.9 2,325 103 2,428 581 23.9 123 5.1 29.2 19.5 108.2 8.7 5,584 1,294 23.2 759 13.6 32.3 16.7 85.6 8.1 4,704 940 20.0 412 8.8 8,214 10,554 3,570 10,326 12,512 4,632 12,462 16,894 7,295 12,071 15,364 6,359 837 375 146 517 327 96 718 518 110 699 453 58 (602) (602) (674) (485) (485) (904) 1 (788) (971) 1 (160) 2,562 5,666 2 (638) 10 (469) 2,475 6,354 (441) 13 41.9 24.1 6.0 6.5 2,773 2,773 835 30.1 619 22.3 3,707 5,159 3,076 358 99 196 835 (216) 619 5,242 19.5 2,837 10.5 50,933 69,617 34,870 3,295 1,635 860 (25) (40) (1) 824 (68) 205 187 3,682 15.6 (739) (3.1) 55,733 73,298 37,577 2,465 1,988 940 3,682 (4,421) (1,556) (962) (40) (739) 1,219 (415) 157 154 (1,104) (1,060) 2,882 (684) 1 The amounts of CHF –904 million and CHF –971 million included the merger related provision for restructuring of CHF 250 million in 2015. 2 The amount of CHF 5,666 million (2015: CHF 6,354 million) consists of borrowings by Corporate from third parties amounting to CHF 19,176 million (2015: CHF 20,345 million) and elimination of cash transferred to regions of CHF 13,510 million (2015: CHF 13,991 million). F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 207 Asia Pacific 2016 2015 2016 Latin America Middle East Africa North America Corporate/Eliminations Total Group 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 41.9 24.1 6.0 6.5 2,773 2,773 835 30.1 619 22.3 3,707 5,159 3,076 358 99 196 39.5 26.0 6.5 6.8 2,983 69 3,053 866 28.4 (203) (6.6) 3,869 5,096 3,497 306 269 200 55.3 40.3 12.2 6.0 3,871 29 3,900 1,127 28.9 764 19.6 62.6 24.9 6.4 2.9 2,325 103 2,428 581 23.9 123 5.1 5,584 1,294 23.2 759 13.6 4,704 940 20.0 412 8.8 8,214 10,554 3,570 10,326 12,512 4,632 12,462 16,894 7,295 12,071 15,364 6,359 837 375 146 517 327 96 718 518 110 699 453 58 29.2 19.5 108.2 8.7 32.3 16.7 85.6 8.1 (6.0) (5.0) 353.3 233.2 282.7 55.0 374.0 193.1 231.5 47.6 5,584 4,704 26,904 23,584 (602) (602) (674) (485) (485) (904) 1 (788) (971) 1 (160) 2,562 5,666 2 (638) 10 (469) 2,475 6,354 (441) 13 26,904 23,584 5,242 19.5 2,837 10.5 50,933 69,617 34,870 3,295 1,635 860 3,682 15.6 (739) (3.1) 55,733 73,298 37,577 2,465 1,988 940 31,274 36,199 21,829 23,843 10,536 11,707 13,191 16,123 12,257 11,265 1,816 1,819 90,903 100,956 Reconciliation of measures of profit and loss to the consolidated statement of income Depreciation, amortization and impairment of operating assets of which impairment charge relating to property, plant and equipment of which impairment charge relating to goodwill of which impairment charge relating to intangible assets 1,444 (593) (4) (40) 1,277 (982) (477) (1) 1,217 (585) (5) 922 (1,318) (490) (311) (27) (396) OPERATING PROFIT (LOSS) 851 296 632 835 (216) 619 866 (1,069) (439) (421) (13) (203) 1,127 (363) (7) (1) 764 581 (457) (1) (228) 1,294 (534) (9) 940 (528) (149) (674) (114) (904) 1 5,242 (67) (2,405) (25) (40) (1) 123 759 412 (788) (971) 1 2,837 824 (68) 205 187 3,682 (4,421) (1,556) (962) (40) (739) 1,219 (415) 157 154 1 The amounts of CHF –904 million and CHF –971 million included the merger related provision for restructuring of CHF 250 million in 2015. 2 The amount of CHF 5,666 million (2015: CHF 6,354 million) consists of borrowings by Corporate from third parties amounting to CHF 19,176 million (2015: CHF 20,345 million) and elimination of cash transferred to regions of CHF 13,510 million (2015: CHF 13,991 million). (1,104) (1,060) 2,882 (684) Europe 2015 77.8 33.6 103.6 16.5 5,982 271 6,252 922 14.7 (396) (6.3) 161.7 96.8 29.4 13.2 7,589 42 7,631 1,277 16.7 296 3.9 76.4 41.6 124.2 18.4 6,575 448 7,023 1,217 17.3 632 9.0 14,535 19,685 7,260 14,480 17,547 8,676 15,401 18,165 9,474 932 558 247 966 270 131 453 369 338 150.5 113.7 32.2 15.4 8,100 125 8,226 1,444 17.6 851 10.4 12,230 16,901 6,587 1,054 364 277 6. Information by reportable segment Capacity and sales (unaudited) Annual cement production capacity (Million t) Sales of cement (Million t) Sales of aggregates (Million t) Sales of ready-mix concrete (Million m³) Statement of income (Million CHF) Net sales to external customers Net sales to other segments TOTAL NET SALES OPERATING EBITDA Operating EBITDA margin in % OPERATING PROFIT (LOSS) Operating profit (loss) margin in % Statement of financial position (Million CHF) Invested capital Total assets Total liabilities Statement of cash flows (Million CHF) Cash flow from operating activities Capital expenditure Income taxes paid Personnel (unaudited) Number of personnel OPERATING EBITDA Share of profit of associates and joint ventures Other income Other expenses Financial income Financial expense NET INCOME (LOSS) BEFORE TAXES 208 L A F A R G E H O L C I M Annual Report 2016 7. Information by product line Million CHF Statement of income and statement of cash flows Net sales to external customers Net sales to other segments TOTAL NET SALES – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate/Eliminations OPERATING EBITDA – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate Operating EBITDA margin in % Capital expenditure Personnel (unaudited) Number of personnel 1 Cement, clinker and other cementitious materials. 2016 16,747 1,206 17,952 6,488 3,161 2,376 3,426 2,747 (246) 4,320 1,312 749 808 1,063 873 (486) 24.1 1,414 Cement 1 2015 14,460 1,098 15,558 6,039 2,609 2,618 2,190 2,225 (123) 3,132 1,104 566 841 571 642 (593) 20.1 1,695 2016 2,756 1,177 3,933 527 1,822 44 118 1,422 628 92 315 (5) 21 311 (104) 16.0 146 Aggregates 2015 2,226 1,039 3,265 490 1,600 49 67 1,060 449 127 239 (1) 8 192 (116) 13.8 200 Other construction materials and services 2015 Corporate/Eliminations 2016 2015 2016 Total Group 2015 6,898 736 7,634 1,437 2,944 595 261 2,016 381 100 47 117 26 2 105 (196) 1.3 79 (2,855) (2,855) (400) (1,008) (201) (194) (618) (435) (2,873) (2,873) (334) (901) (209) (89) (597) (743) (5) 15 26,904 23,584 26,904 23,584 8,226 7,023 2,773 3,900 5,584 (602) 5,242 1,444 1,217 835 1,127 1,294 (674) 19.5 1,635 7,631 6,252 3,053 2,428 4,704 (485) 3,682 1,277 922 866 581 940 (904) 15.6 1,988 2016 7,402 473 7,875 1,611 3,047 554 550 2,033 79 294 40 153 32 43 110 (84) 3.7 81 56,133 64,506 11,816 11,282 21,257 23,472 1,697 1,696 90,903 100,956 F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 209 Other construction materials 2016 7,402 473 7,875 1,611 3,047 554 550 2,033 79 294 40 153 32 43 110 (84) 3.7 81 and services 2015 Corporate/Eliminations 2016 2015 2016 Total Group 2015 6,898 736 7,634 1,437 2,944 595 261 2,016 381 100 47 117 26 2 105 (196) 1.3 79 (2,855) (2,855) (400) (1,008) (201) (194) (618) (435) (2,873) (2,873) (334) (901) (209) (89) (597) (743) (5) 15 26,904 23,584 26,904 23,584 8,226 7,023 2,773 3,900 5,584 (602) 5,242 1,444 1,217 835 1,127 1,294 (674) 19.5 1,635 7,631 6,252 3,053 2,428 4,704 (485) 3,682 1,277 922 866 581 940 (904) 15.6 1,988 56,133 64,506 11,816 11,282 21,257 23,472 1,697 1,696 90,903 100,956 7. Information by product line Million CHF Statement of income and statement of cash flows Net sales to external customers Net sales to other segments TOTAL NET SALES – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate/Eliminations OPERATING EBITDA – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate Operating EBITDA margin in % Capital expenditure Personnel (unaudited) Number of personnel 1 Cement, clinker and other cementitious materials. 2016 16,747 1,206 17,952 6,488 3,161 2,376 3,426 2,747 (246) 4,320 1,312 749 808 1,063 873 (486) 24.1 1,414 Cement 1 2015 14,460 1,098 15,558 6,039 2,609 2,618 2,190 2,225 (123) 3,132 1,104 566 841 571 642 (593) 20.1 1,695 2016 2,756 1,177 3,933 527 1,822 44 118 1,422 628 92 315 (5) 21 311 (104) 16.0 146 Aggregates 2015 2,226 1,039 3,265 490 1,600 49 67 1,060 449 127 239 (1) 8 192 (116) 13.8 200 210 L A F A R G E H O L C I M Annual Report 2016 8. Information by country Million CHF Switzerland USA India Canada United Kingdom France Australia Algeria Nigeria Other countries TOTAL GROUP Net sales to external customers Non-current assets 2016 620 3,732 3,234 1,874 1,856 1,620 1,133 793 609 2015 750 3,024 3,307 1,681 2,041 1,101 1,089 336 357 2016 1,064 8,846 4,566 4,574 2,055 3,944 1,421 3,424 2,183 2015 1,135 8,668 5,201 4,150 2,504 4,179 1,416 3,268 3,107 11,433 9,899 17,240 21,024 26,904 23,584 49,316 54,653 Net sales to external customers are based primarily on the location of assets (origin of sales). Non-current assets for this purpose consist of property, plant and equipment, goodwill and intangible assets. There is no single external customer where net sales amount to 10 percent or more of the Group net sales. 9. Summary of depreciation, amortization and impairment Million CHF Production facilities Distribution and sales facilities Administration facilities TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF OPERATING ASSETS (A) of which impairment charge relating to property, plant and equipment of which impairment charge relating to goodwill of which impairment charge relating to other intangible assets Impairment of long-term financial assets Impairment of investments in associates and joint ventures Ordinary depreciation of non-operating assets Unusual write-offs TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF NON-OPERATING ASSETS (B) TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT (A + B) 2016 2015 (2,267) (3,933) (32) (106) (354) (134) (2,405) (4,421) (25) (40) (1) 0 (5) (8) (4) (1,556) (962) (40) (64) (75) (13) (1) (17) (153) (2,422) (4,574) Of which depreciation of property, plant and equipment (note 23) (2,161) (1,752) F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 211 10. Other income Million CHF Dividends earned Net gain on disposal before taxes Revaluation gain on previously held equity interest Other TOTAL 2016 6 756 0 63 2015 3 706 511 0 824 1,219 In 2016, the position “Net gain on disposal before taxes” mainly includes: – a gain on the disposal of Holcim (Maroc) S.A. of CHF 236 million; – a gain on the disposal of Holcim (Lanka) Ltd of CHF 225 million; – a gain from the transactions entered in China of CHF 192 million; and – gains on disposal of property, plant and equipment of CHF 46 million. Further information is disclosed in the note 4. In 2015, the position “Net gain on disposal before taxes” mainly included: – a gain on the disposal of LafargeHolcim’s entire remaining stake in Siam City Cement Public Company Limited of CHF 371 million; – a gain relating to the change in ownership interest of several subsidiaries in the Philippines of CHF 97 million; – a gain on the disposal of LafargeHolcim entire lime business in New Zealand of CHF 68 million; – a gain on the disposal of operations and assets to CRH in Europe, North America and Brazil of CHF 63 million; – a gain on the disposal of Holcim (Česko) a.s. in Czech Republic and LafargeHolcim’s Gador cement plant and Yeles grinding station in Spain to Cemex of CHF 61 million; and – gains on disposal of property, plant and equipment of CHF 42 million. In 2015, the position “Revaluation gain on previously held equity interest” comprised: – the revaluation gain on the previously held equity interest of Lafarge Cement Egypt S.A.E. and of Unicem of CHF 357 million and CHF 181 million respectively; and – in connection with these acquisitions in stages, the reclassification of a foreign exchange loss for Lafarge Cement Egypt S.A.E. of CHF 33 million and a foreign exchange gain for Unicem of CHF 6 million. 212 L A F A R G E H O L C I M Annual Report 2016 11. Other expenses Million CHF Depreciation, amortization and impairment of non-operating assets Other TOTAL 2016 (17) (51) (68) 2015 (89) (326) (415) In 2015, the position “Other” mainly included: – several provisions amounting to a total of CHF 202 million; and – a reclassification of foreign exchange losses amounting to CHF 81 million relating to changes in LafargeHolcim holding structure in Thailand. This reclassification was partially offset with the gain of CHF 44 million, which could be recognized due to the reclassification of the fair value of a net investment hedge. 12. Financial income Million CHF Interest earned on cash and cash equivalents Other financial income TOTAL 2016 132 55 187 2015 126 28 154 The position “Other financial income” relates primarily to interest income from loans and receivables. 13. Financial expenses Million CHF Interest expenses Fair value changes on financial instruments Unwinding of discount on provisions Net interest expense on retirement benefit plans Impairment of long-term financial assets Other financial expenses Foreign exchange loss net Financial expenses capitalized TOTAL 2016 (896) 2 (32) (56) 0 (87) (68) 34 2015 (751) (2) (21) (47) (64) (112) (147) 84 (1,104) (1,060) The positions “Interest expenses” and “Other financial expenses” relate primarily to financial liabilities measured at amortized cost. The position “Interest expenses” includes amortization on bonds and private placements of CHF 393 million (2015: CHF 159 million). It also includes bonds early repayment premiums of CHF 90 million. The position “Financial expenses capitalized” comprises interest expenditures on large- scale projects during the reporting period. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 213 14. Research and development Research and development projects are carried out with a view to generate added value for customers through end user oriented products and services. Additionally, process innovation aims at environmental protection and production system improvements. Research and development costs of CHF 141 million (2015: CHF 105 million) were charged directly to the consolidated statement of income. 15. Earnings per share EARNINGS PER SHARE IN CHF From continuing operations From discontinued operations Net income (loss) – shareholders of LafargeHolcim Ltd – as per statement of income (in million CHF) From continuing operations From discontinued operations 2016 2.96 2.89 0.07 1,791 1,749 43 2015 (3.11) (3.32) 0.21 (1,469) (1,569) 100 Weighted average number of shares outstanding 605,680,320 472,584,899 FULLY DILUTED EARNINGS PER SHARE IN CHF From continuing operations From discontinued operations Net income (loss) used to determine diluted earnings per share (in million CHF) From continuing operations From discontinued operations 2.96 2.89 0.07 1,791 1,749 43 (3.11) (3.32) 0.21 (1,469) (1,569) 100 Weighted average number of shares outstanding 605,680,320 472,584,899 Adjustment for assumed exercise of share options and performance shares Weighted average number of shares for diluted earnings per share 358,140 0 606,038,460 472,584,899 In conformity with the decision taken at the annual general meeting on May 12, 2016, a payout related to 2015 of CHF 1.50 per registered share was paid out of capital con- tribution reserves. This resulted in a total payment of CHF 909 million. A cash payment out of the capital contribution reserves in respect of the financial year 2016 of CHF 2.00 per registered share, amounting to a maximum payment of CHF 1,214 million, is to be proposed at the annual general meeting of shareholders on May 3, 2017. These consolidated financial statements do not reflect this cash payment, since it will only be effective in 2017. 205,614 stock options, which would have an anti-dilutive impact on the calculation of the diluted earnings per share, are excluded from the calculation for the year 2015. 214 L A F A R G E H O L C I M Annual Report 2016 16. Cash and cash equivalents Million CHF Cash at banks and on hand Short-term deposits TOTAL Bank overdrafts Cash and cash equivalents classified as held for sale CASH AND CASH EQUIVALENTS FOR THE PURPOSE OF THE CONSOLIDATED STATEMENT OF CASH FLOWS 2016 3,175 1,747 4,923 (263) 135 2015 3,195 1,198 4,393 (622) 0 4,795 3,771 Cash and cash equivalents comprise cash at banks and on hand, deposits held on call with banks and other short-term highly liquid investments. Bank overdrafts are included in current financial liabilities. 17. Accounts receivable Million CHF Trade accounts receivable – associates and joint ventures Trade accounts receivable – third parties Other receivables – associates and joint ventures Other receivables – third parties Receivable on escrow account in connection with the transaction in China (note 4) TOTAL Of which pledged/restricted Overdue accounts receivable Million CHF Not overdue Overdue 1 to 89 days Overdue 90 to 180 days Overdue more than 180 days Allowances for doubtful accounts TOTAL 2016 109 2015 93 2,717 3,315 171 726 352 4,074 42 73 741 0 4,222 16 2016 3,044 767 124 329 (190) 4,074 Trade accounts receivable in connection with multi-year securitization agreements amounted to CHF 257 million as of December 31, 2016 (2015: CHF 368 million). The financ- ing generated by these securitization programs, classified as current financial liabilities, amounts to CHF 185 million as of December 31, 2016 (2015: CHF 288 million). The securiti- zation agreements are guaranteed by subordinated deposits and units amounting to CHF 72 million as of December 31, 2016 (2015: CHF 80 million). Due to the local nature of the business, specific terms and conditions for accounts receiv- able trade exist for local Group companies and as such Group guidelines are not required. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 215 Allowance for doubtful accounts Million CHF JANUARY 1 Disposal of Group companies Allowance recognized Amounts used Unused amounts reversed Currency translation effects DECEMBER 31 18. Inventories Million CHF Raw materials and additives Semi-finished and finished products Fuels Parts and supplies TOTAL 2016 (206) 11 (54) 42 14 3 2015 (182) 17 (79) 15 6 17 (190) (206) 2016 429 2015 674 1,332 1,291 235 649 218 877 2,645 3,060 In 2016, the Group recognized inventory write-downs to net realizable value of CHF 4 mil- lion (2015: CHF 23 million) relating mainly to raw materials and semi-finished products. 19. Prepaid expenses and other current assets Million CHF Prepaid expenses and accruals Derivative assets Other current assets TOTAL 2016 255 68 423 747 2015 409 81 393 884 216 L A F A R G E H O L C I M Annual Report 2016 20. Assets and related liabilities classified as held for sale The net assets classified as held for sale as of December 31, 2016 amount to CHF 1,335 mil- lion and mainly relate to the following transactions. China The disposal of non-listed cement assets in China to the Group’s associate Huaxin Cement Co. Ltd will be closed in the first quarter 2017 for a total consideration of CHF 202 mil- lion. Accordingly, the assets and associated liabilities were classified as held for sale in the fourth quarter 2016, and are disclosed in the reportable segment Asia Pacific. Upon classifi cation as held for sale, the assets were written down by CHF 178 million to its fair value less costs to sell. Further information is disclosed in the note 4. Vietnam On August 4, 2016, the Group announced it has signed an agreement with Siam City Cement Public Company Limited (“SCCC”) for the divestment of its entire 65 percent shareholding in LafargeHolcim Vietnam for an enterprise value of CHF 867 million (on a 100 percent basis). LafargeHolcim Vietnam operates one integrated plant and four grind- ing plants with an annual cement grinding capacity of 6.3 million tons. The company is also a leading ready-mix concrete producer operating seven plants in Southern Vietnam. Closing of the transaction in Vietnam is subject to customary regulatory approval. The shareholders of SCCC approved the acquisition in the fourth quarter 2016. Accordingly, LafargeHolcim Vietnam was classified as held for sale on December 31, 2016, and is disclosed in the reportable segment Asia Pacific. Chile On October 7, 2016, the Group signed an agreement with Inversiones Caburga Limitada, a company of the Hurtado Vicuña Group, for the divestment of its 54.3 percent interest in Cemento Polpaico in Chile for an enterprise value of approximately CHF 220 million (on a 100 percent basis). The transaction will be executed by way of a public tender offer by Inversiones Caburga Limitada to all shareholders of Cemento Polpaico. Cemento Polpaico operates one integrated plant and two grinding plants with an annual cement capacity of 2.3 million tons. The company is also a leading ready-mix concrete producer operating 25 plants and produces aggregates in Chile. The launch of the public tender offer is subject to the approval of the Chilean competition authorities which is expected during the first half of 2017. Accordingly, Cemento Polpaico was classified as held for sale on December 31, 2016 and is disclosed in the reportable segment Latin America. The assets classified as held for sale as of December 31, 2015 amounted to CHF 772 mil- lion and related to the Sonadih cement plant and the Jojobera grinding station in India which had been agreed with the Competition Commission of India (CCI) in order to receive conditional clearance for the LafargeHolcim merger. The assets held for sale consisted of property, plant and equipment and were disposed of as a result of the sale of Lafarge India on October 4, 2016. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 217 The assets and related liabilities classified as held for sale are disclosed by major classes of assets and liabilities in the table below. Million CHF Cash and cash equivalents Inventories Other current assets Property, plant and equipment Goodwill and intangible assets Other long term assets ASSETS CLASSIFIED AS HELD FOR SALE Current liabilities Long-term liabilities LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS CLASSIFIED AS HELD FOR SALE 2016 135 123 240 2015 0 0 0 1,294 772 227 27 0 0 2,046 772 567 144 711 0 0 0 NET ASSETS CLASSIFIED AS HELD FOR SALE 1,335 772 21. Long-term financial assets Million CHF Financial investments – third parties Long-term receivables – associates and joint ventures Long-term receivables – third parties Long-term receivables in connection with the transaction in China (note 4) Derivative assets TOTAL Of which pledged/restricted 2016 168 295 237 105 6 811 12 2015 207 219 292 0 51 770 54 Long-term receivables and derivative assets are primarily denominated in USD, CNY and AUD. The repayment dates vary between one and 23 years (2015: one and 24 years). 218 L A F A R G E H O L C I M Annual Report 2016 22. Investments in associates and joint ventures Million CHF Investments in associates Investments in joint ventures TOTAL 22.1 Investment in associates Movement in investments in associates Million CHF JANUARY 1 Share of profit of associates Dividends earned Merger with Lafarge (note 4) Associates of Lafarge Revaluation of previously held interests Consolidation of Unicem and Lafarge Cement Egypt S.A.E. PPA refinement (note 4) Net (disposals) acquisitions Reclassifications Impairments Currency translation effects DECEMBER 31 Investments in associates Million CHF Huaxin Cement Other associates TOTAL 2016 1,309 1,932 3,241 2015 1,433 1,739 3,172 2016 1,433 81 (16) (5) (125) (23) (5) (32) 2015 1,387 49 (72) 258 538 (680) 77 (67) (57) 1,309 1,433 30.9.2016 31.12.2015 814 456 840 593 1,270 1,433 The disclosed amounts for the investments in associates are as of September 30, 2016 and include only the first nine months. This is due to the fact that Huaxin Cement ( China), a material associate of the Group, is a publicly listed company in China and has not yet published its financial statements for the year 2016. The position “Net (disposals) acquisitions” mainly relates to the divestment of the Group’s 25 percent interest in its associated company Al Safwa Cement Company in Saudi Arabia. In 2015, it mainly related to the change in ownership interest of several subsidiaries in the Philippines. Further information is disclosed in the note 4. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 219 Huaxin Cement (China) As of December 31, 2016, the Group holds 41.8% (2015: 41.8%) of the voting rights in the associate company Huaxin Cement. The fair value of the investment in Huaxin Cement based on a quoted market price on December 31, 2016 amounted to CHF 624 million (2015: 678 million). Based on a value in use calculation, the present value of the future cash flows expected to be derived from the investment in Huaxin Cement exceeds its carrying amount. Set out below is the summarized financial information for the material associate company Huaxin Cement, which is accounted for using the equity method. The summarized financial information presented below are the amounts included in the IFRS financial statements of Huaxin Cement as at September 30, 2016 and as at December 31, 2015. As of September 30, 2016, dividends of CHF 5 million (December 31, 2015: CHF 16 million) were received from Huaxin Cement. Huaxin Cement – Statement of financial position Million CHF Current assets Long-term assets TOTAL ASSETS Current liabilities Long-term liabilities TOTAL LIABILITIES 30.9.2016 31.12.2015 864 3,096 3,960 1,006 1,146 2,152 787 3,275 4,062 1,116 1,086 2,201 NET ASSETS 1,808 1,861 SHAREHOLDERS’ EQUITY (EXCLUDING NON-CONTROLLING INTEREST) 1,599 1,643 Huaxin Cement – Statement of comprehensive earnings Million CHF NET SALES NET INCOME Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS Jan–Sep 2016 Jan–Dec 2015 1,358 2,037 46 52 0 46 (4) 48 A reconciliation of the summarized financial information to the carrying amount of the investment in Huaxin Cement is as follows: Huaxin Cement Million CHF Group share of 41.8% (2015: 41.8%) of shareholders’ equity (excluding non-controlling interest) Goodwill TOTAL 30.9.2016 31.12.2015 669 144 814 688 151 840 220 L A F A R G E H O L C I M Annual Report 2016 The Group has additional interests in associates, none of which is considered as indi- vidually material. The following table summarizes, in aggregate, the financial information of all individually immaterial associates that are accounted for using the equity method: Aggregated financial information of LafargeHolcim’s share in other associates Million CHF 30.9.2016 31.12.2015 CARRYING AMOUNT OF INVESTMENTS IN OTHER ASSOCIATES 456 593 Net income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS 28 0 28 28 0 28 There are no unrecognized shares of losses, either for the current reporting period or cumulatively, relating to the above associates. 22.2 Investments in joint ventures Movement in investments in joint ventures Million CHF JANUARY 1 Share of profit of joint ventures Dividends earned Merger with Lafarge (note 4) Net additions (disposals) Reclassifications Impairments Currency translation effects DECEMBER 31 Investments in joint ventures Million CHF Lafarge Maroc Other joint ventures TOTAL 2016 1,739 125 (161) 0 223 23 0 (18) 2015 588 108 (74) 1,386 (269) 0 (8) 7 1,932 1,739 30.6.2016 31.12.2015 1,120 570 1,689 1,131 608 1,739 The Group’s main investment in joint ventures corresponds to the 50 percent interest in Lafarge Maroc, the parent company of LafargeHolcim Maroc and LafargeHolcim Maroc Afrique. The position “Net additions (disposals)” mainly relates to the increase in value of LafargeHolcim Maroc following the merger between Lafarge Ciments and Holcim (Maroc) S.A. on July 4, 2016. In 2015, it mainly related to the disposal of the investment in Siam City Cement Public Company Limited. Further information is disclosed in the note 4. In 2015, the position “Merger with Lafarge” mainly related to LafargeHolcim Maroc (previously named Lafarge Ciments). F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 221 Since LafargeHolcim Maroc is a publicly listed company in Morocco and has not yet published its financial statements for the year 2016, the disclosed amounts for the invest- ment in the joint venture Lafarge Maroc are as of June 30, 2016. Lafarge Maroc As of December 31, 2016, the Group holds 50 percent (2015: 50 percent) of the voting rights in the joint venture company Lafarge Maroc. Set out below is the summarized financial information for the material joint venture Lafarge Maroc, which is accounted for using the equity method. The summarized financial informa- tion presented below are the amounts included in the IFRS financial statements of Lafarge Maroc as at June 30, 2016 and as at December 31, 2015. As of June 30, 2016, dividends of CHF 49 million (December 31, 2015: CHF 9 million) were received from Lafarge Maroc. Lafarge Maroc – Statement of financial position Million CHF Current assets Long-term assets TOTAL ASSETS Current liabilities Long-term liabilities TOTAL LIABILITIES NET ASSETS SHAREHOLDERS’ EQUITY (EXCLUDING NON-CONTROLLING INTEREST) Lafarge Maroc – Statement of comprehensive earnings Million CHF NET SALES OPERATING EBITDA Depreciation and amortization OPERATING PROFIT Other income Financial expenses Income taxes NET INCOME NET INCOME (EXCLUDING NON-CONTROLLING INTEREST) Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS (EXCLUDING NON-CONTROLLING INTEREST) 30.6.2016 31.12.2015 336 787 254 830 1,123 1,085 348 192 540 233 193 426 583 658 411 466 Jan–June 2016 July–Dec 2015 292 228 147 (29) 117 8 (1) (43) 81 60 0 60 125 (18) 107 (4) (2) (33) 68 47 1 48 222 L A F A R G E H O L C I M Annual Report 2016 A reconciliation of the summarized financial information to the carrying amount of the investment in Lafarge Maroc is as follows: Lafarge Maroc Million CHF Group share of 50% (2015: 50%) of shareholders’ equity (excluding non-controlling interest) Goodwill TOTAL 30.6.2016 31.12.2015 206 913 233 898 1,120 1,131 The following table summarizes, in aggregate, the financial information of all individually immaterial joint ventures that are accounted for using the equity method: Aggregated financial information of LafargeHolcim’s share in joint ventures Million CHF 30.6.2016 31.12.2015 CARRYING AMOUNT OF INVESTMENTS IN JOINT VENTURES 570 608 Net income Other comprehensive earnings TOTAL COMPREHENSIVE EARNINGS 14 0 14 85 0 85 There are no unrecognized shares of losses, either for the current reporting period or cumulatively, relating to the above joint ventures. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 23. Property, plant and equipment Million CHF 2016 At cost of acquisition Accumulated depreciation/impairment NET BOOK VALUE AS AT JANUARY 1 PPA refinement (note 4) Divestments Reclassification to assets classified as held for sale Additions Disposals Reclassifications Depreciation Impairment loss (charged to statement of income) Currency translation effects Land and mineral reserves Buildings and installations Machinery and equipment Construction in progress 7,989 (1,594) 6,394 (314) (180) (30) 11 (33) 281 (191) (8) 26 10,567 (3,739) 6,828 (73) (367) (661) 5 (22) 1,254 (381) (1) 14 31,526 (11,368) 20,158 236 (1,057) (704) 51 (52) 1,511 (1,589) (14) (799) 3,517 (150) 3,367 (64) (51) (41) 1,669 (1) (3,045) 0 (2) (71) 223 Total 53,598 (16,850) 36,747 (216) (1,654) (1,437) 1,736 (108) 0 (2,161) (25) (830) NET BOOK VALUE AS AT DECEMBER 31 5,956 6,596 17,740 1,761 32,052 At cost of acquisition Accumulated depreciation/impairment NET BOOK VALUE AS AT DECEMBER 31 7,576 (1,621) 5,956 10,726 (4,130) 6,596 2015 At cost of acquisition Accumulated depreciation/impairment NET BOOK VALUE AS AT JANUARY 1 Merger with Lafarge (note 4) Other acquisitions Divestments Additions Disposals Reclassifications Depreciation Impairment loss (charged to statement of income) Currency translation effects NET BOOK VALUE AS AT DECEMBER 31 At cost of acquisition Accumulated depreciation/impairment NET BOOK VALUE AS AT DECEMBER 31 6,002 (1,450) 9,200 (4,126) 4,551 2,791 64 (348) 48 (30) 68 (143) (367) (241) 6,394 7,989 (1,594) 6,394 5,075 2,382 29 (443) 150 (22) 503 (316) (79) (451) 6,828 10,567 (3,739) 6,828 30,741 (13,001) 17,740 20,638 (11,838) 8,800 13,629 202 (837) 185 (52) 1,178 (1,292) (986) (669) 20,158 31,526 (11,368) 20,158 1,794 (33) 1,761 2,740 (79) 2,661 1,376 14 (115) 1,814 8 (1,749) 0 (124) (517) 3,367 3,517 (150) 3,367 50,837 (18,784) 32,052 38,580 (17,493) 21,086 20,177 309 (1,742) 2,196 (95) 0 (1,752) (1,556) (1,877) 36,747 53,598 (16,850) 36,747 224 L A F A R G E H O L C I M Annual Report 2016 The net book value of leased property, plant and equipment amounts to CHF 60 million (2015: CHF 112 million) and mainly relates to buildings, machinery and equipment. CHF 638 million of the total net book value of property, plant and equipment are pledged or restricted (2015: CHF 559 million). Net gains on sale of property, plant and equipment amounted to CHF 46 million (2015: CHF 42 million). In 2015, after the merger and as part of Group strategy, LafargeHolcim carried out an extensive portfolio review and assessed asset impairment indicators which resulted in an aggregate impairment charge relating to property, plant and equipment of CHF 1,556 million, of which CHF 464 million was impaired as insufficient goodwill was available to absorb the full impairment charge (see note 24). The remaining impairment charge of CHF 1,092 million mainly consisted of: – a third kiln line (construction in progress) relating to the Joppa cement plant in the United States which was fully written-off by CHF 105 million. The reportable segment for United States is North America; – CHF 280 million relating to cement plants, various ready-mix, asphalt and concrete product plants including aggregate quarries which were largely mothballed in Europe; and – CHF 460 million relating to the closure and mothballing of cement plants in China. Apart from the third kiln line mentioned above, no asset impairment was deemed to be individually material. The aggregate impairment charge of CHF 1,556 million resulted primarily from: – overlaps arising in certain countries resulting in overcapacity as a consequence of the merger which therefore impacted the recoverable amounts of the assets ( including assets that were under construction or previously mothballed); and – the weaker than anticipated outlook for the macro-economic environment, especially in terms of expected growth rates and cement demand for countries such as China and Brazil (see note 24). The carrying amount of investment property held by the Group is not material. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 225 24. Goodwill and intangible assets Million CHF 2016 At cost of acquisition Accumulated amortization/impairment NET BOOK VALUE AS AT JANUARY 1 PPA refinement (note 4) Divestments Reclassification to assets classified as held for sale Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects Goodwill Intangible assets 17,698 2,584 (1,209) (1,168) 16,490 1,416 522 (266) (85) 0 0 0 (40) (374) (123) (28) (138) 96 (8) (188) (1) (9) NET BOOK VALUE AS AT DECEMBER 31 16,247 1,017 At cost of acquisition Accumulated amortization/impairment NET BOOK VALUE AS AT DECEMBER 31 2015 At cost of acquisition Accumulated amortization/impairment NET BOOK VALUE AS AT JANUARY 1 Merger with Lafarge (note 4) Other change in structure Reclassification Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects 17,514 2,325 (1,267) (1,309) 16,247 1,017 7,377 (247) 7,130 11,611 (834) 0 0 0 0 (962) (456) 1,597 (996) 601 1,030 (61) (30) 88 (19) (132) (40) (20) NET BOOK VALUE AS AT DECEMBER 31 16,490 1,416 At cost of acquisition Accumulated amortization/impairment NET BOOK VALUE AS AT DECEMBER 31 17,698 2,584 (1,209) (1,168) 16,490 1,416 Intangible assets have finite useful lives, over which the assets are amortized. The corre- sponding amortization expense is recognized mainly in administration expenses. Intangible assets mainly consist of mining rights, trademarks and brands. As explained in note 4, the finalization of the purchase price allocation led to an increase in the goodwill of CHF 522 million. 226 L A F A R G E H O L C I M Annual Report 2016 During the fourth quarter 2015, the Group carried out an extensive portfolio review and identified a number of brands being in local decline therefore resulting in an aggregate impairment charge of CHF 40 million. No asset impairment was deemed to be individu- ally material. Impairment tests for goodwill For the purpose of impairment testing, goodwill is allocated to a cash-generating unit or to a group of cash-generating units that are expected to benefit, among others, from the synergies of the business combination. The Group’s cash-generating units are defined on the basis of the geographical market, normally country- or region-related. The carry- ing amount of goodwill allocated to the countries or regions stated below is significant in comparison with the total carrying amount of goodwill, while the carrying amount of goodwill allocated to the other cash-generating units is individually not significant. For the impairment test, the recoverable amount of a cash-generating unit, which has been determined based on value in use, is compared to its carrying amount. An impair- ment loss is only recognized if the carrying amount of the cash-generating unit exceeds its recoverable amount. Future cash flows are discounted using the weighted average cost of capital (WACC). The cash flow projections are based on a three-year financial planning period using busi- ness plans approved by management. Cash flows beyond the three-year budget period are extrapolated based on increasing sustainable cash flows. In any event, the growth rate used to extrapolate cash flow projections beyond the three-year budget period does not exceed the long-term average growth rate for the relevant market in which the cash-generating unit operates. In respect of the goodwill allocated to “Others”, the same impairment model and param- eters are used, as is the case with individually significant goodwill positions, except that different key assumptions are used depending on the risks associated with the respective cash-generating units. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 227 Key assumptions used for value-in-use calculations in respect of goodwill 2016 Cash-generating unit (Million CHF) North America Algeria India France United Kingdom Central Europe West Nigeria Poland Philippines Mexico Others 1 TOTAL Carrying amount of goodwill 4,808 1,812 1,678 1,398 884 656 648 478 470 398 3,017 16,247 Currency USD/CAD DZD INR EUR GBP CHF/EUR NGN PLN PHP MXN Pre-tax discount rate Long-term growth rate 8.6% 10.9% 13.4% 8.6% 7.6% 7.0% 17.3% 9.2% 11.4% 11.0% 2.1% 4.0% 4.9% 2.1% 2.0% 1.3% 8.0% 2.5% 3.5% 3.0% Various 6.6%–15.7% 0.4%–7.0% Key assumptions used for value-in-use calculations in respect of goodwill 2015 Cash-generating unit (Million CHF) North America Algeria India France United Kingdom Nigeria Central Europe West Philippines Poland Mexico Others 1 TOTAL 1 Individually not significant. Carrying amount of goodwill 4,495 1,709 1,669 1,215 1,058 998 624 475 456 450 3,341 16,490 Currency USD/CAD DZD INR EUR GBP NGN CHF/EUR PHP PLN MXN Pre-tax discount rate Long-term growth rate 7.6% 9.3% 10.4% 8.0% 7.0% 12.8% 6.5% 10.0% 8.1% 8.8% 2.1% 4.0% 4.0% 1.9% 1.9% 7.0% 1.3% 4.0% 3.0% 4.0% Various 6.4%–12.8% 1.2%–7.5% In 2016, management recognized a goodwill impairment charge of CHF 40 million relating to cash-generating units “Others” within the reportable segment Asia Pacific. In 2015, subsequent to the completion of the impairment test performed on the provision- al goodwill, management recognized a goodwill impairment charge of CHF 962 million relating to certain cash-generating units (country- or region-related). 228 L A F A R G E H O L C I M Annual Report 2016 The cash-generating units included in “Others” comprised the following impairment charges: – a goodwill impairment charge relating to Brazil of CHF 421 million and since insuffi- cient goodwill was available to absorb this amount, an additional impairment charge of CHF 358 million was recognized for property, plant and equipment. A pre-tax discount rate of 7.7 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Brazil is Latin America; – a goodwill impairment charge relating to Iraq of CHF 228 million. A pre-tax discount rate of 11.6 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Iraq is Middle East Africa; – a goodwill impairment charge relating to Russia of CHF 185 million and since insufficient goodwill was available to absorb this amount, an additional impairment charge of CHF 106 million was recognized for property, plant and equipment. A pre-tax discount rate of 9.0 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Russia is Europe; and – a goodwill impairment charge relating to Spain of CHF 112 million. A pre-tax discount rate of 6.4 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Spain is Europe. The total recoverable amount of countries that were impaired for goodwill amounted to CHF 2.5 billion. No retrospective adjustment to the provisional goodwill impairment charge of CHF 962 million was necessary as a result of the finalization of the purchase price allocation in 2016. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 229 Sensitivity to changes in assumptions With regard to the assessment of value in use of a cash-generating unit or a group of cash-generating units, management believes that except for the countries listed below, a reasonably possible change in the pre-tax discount rate of 0.5 percentage point, and a 0.25 percentage point change in long-term growth rate, would not cause the carrying amount of a cash-generating unit or a group of cash-generating units to materially exceed its recoverable amount. For the countries listed below, a change in the pre-tax discount rate and long-term growth rate would have the following impacts: Sensitivity to changes in assumptions 2016 Used pre-tax discount rate 8.3% 10.1% 9.2% 7.8% Used long-term growth rate 2.2% 3.0% 2.5% 3.2% Excess of recoverable amount over carrying amount (Million CHF) Break-even pre-tax discount rate using the used long-term growth rate Break-even long-term growth rate using the used pre-tax discount rate 33 97 62 27 8.4% 10.5% 9.5% 8.1% 2.1% 2.5% 2.1% 2.8% Cash-generating unit Australia/New Zealand Malaysia Poland Spain Sensitivity to changes in assumptions 2015 Used pre-tax discount rate 7.5% 7.9% 10.4% 11.2% Used long-term growth rate 1.8% 2.6% 4.0% 6.0% Excess of recoverable amount over carrying amount (Million CHF) Break-even pre-tax discount rate using the used long-term growth rate Break-even long-term growth rate using the used pre-tax discount rate 7 73 114 1 7.7% 8.2% 10.6% 11.2% 1.6% 1.9% 3.6% 6.0% Cash-generating unit Belgium Australia/New Zealand India Argentina 230 L A F A R G E H O L C I M Annual Report 2016 25. Trade accounts payable Million CHF Trade accounts payable – associates and joint ventures Trade accounts payable – third parties TOTAL 2016 85 2,963 3,048 2015 49 3,644 3,693 26. Financial liabilities Million CHF Current financial liabilities – associates and joint ventures Current financial liabilities – third parties Current portion of long-term financial liabilities Derivative liabilities 2016 52 2,014 2,881 30 2015 15 3,264 3,544 43 TOTAL CURRENT FINANCIAL LIABILITIES 4,976 6,866 Long-term financial liabilities – third parties Derivative liabilities TOTAL LONG-TERM FINANCIAL LIABILITIES TOTAL Of which secured Details of total financial liabilities Million CHF Loans from financial institutions Bonds and private placements Commercial paper notes TOTAL LOANS AND BONDS Obligations under finance leases (note 27) Derivative liabilities (note 28) TOTAL 14,666 14,859 79 66 14,744 14,925 19,720 21,791 87 84 2016 3,770 2015 4,886 15,578 15,447 195 1,258 19,544 21,591 67 109 91 109 19,720 21,791 “Loans from financial institutions” include amounts due to banks and other financial institutions. Repayment dates vary between one and 12 years (2015: one and 13 years). CHF 2,570 million (2015: CHF 2,821 million) is due within one year. The Group complied with its debt covenants. Unused committed credit lines totaled CHF 6,256 million at year-end 2016 (2015: CHF 6,733 million). F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 231 Financial liabilities by currency Currency Million CHF 7,581 5,286 2,425 901 693 601 425 1,808 In % 38.4 26.8 12.3 4.6 3.5 3.0 2.2 9.2 19,720 100.0 2016 Interest rate 1 Million CHF 3.2 5.0 2.1 7.3 4.2 8.0 7.2 8.5 4.8 8,006 4,973 2,923 1,276 679 715 506 2,713 21,791 2015 Interest rate 1 4.4 5.3 2.2 5.6 4.3 7.7 10.6 9.0 5.1 In % 36.7 22.8 13.4 5.9 3.1 3.3 2.3 12.5 100.0 EUR USD CHF CNY AUD GBP BRL Others TOTAL 1 Weighted average nominal interest rate on financial liabilities at December 31. Interest rate structure of total financial liabilities Million CHF Financial liabilities at fixed rates Financial liabilities at floating rates TOTAL 2016 2015 12,060 10,918 7,660 10,873 19,720 21,791 Financial liabilities that are hedged to a fixed or floating rate are disclosed on a post hedge basis. Information on the maturity of financial instruments is disclosed in the note 3. 232 Bonds and private placements as at December 31 Nominal interest rate Effective interest rate Term Description Nominal value In million LafargeHolcim Ltd CHF CHF CHF CHF CHF CHF CHF 400 3.13% –0.53% 2007–2017 Bonds swapped into floating interest rates at inception 450 4.00% 4.19% 2009–2018 Bonds with fixed interest rate 475 2.38% 2010–2016 Bonds with fixed interest rate 450 3.00% 2.97% 2012–2022 Bonds with fixed interest rate 250 2.00% 2.03% 2013–2022 Bonds with fixed interest rate 250 0.38% 0.41% 2015–2021 Bonds with fixed interest rate 150 1.00% 1.03% 2015–2025 Bonds with fixed interest rate L A F A R G E H O L C I M Annual Report 2016 Net book value in CHF 1 Net book value in CHF 1 2016 2015 413 449 0 451 250 250 150 427 448 474 451 250 250 150 Holcim Overseas Finance Ltd. CHF 425 3.38% 3.42% 2011–2021 Bonds guaranteed by LafargeHolcim Ltd 424 424 Lafarge S.A. EUR EUR EUR EUR EUR EUR EUR GBP USD GBP EUR 250 7.25% 6.59% 2009–2017 Private placement with fixed interest rate 150 6.85% 6.13% 2009–2017 Private placement with fixed interest rate 50 5.25% 5.03% 2012–2017 Private placement with fixed interest rate 175 5.00% 4.68% 2012–2018 Private placement with fixed interest rate 357 5.50% 4.74% 2009–2019 Bonds with fixed interest rate (partially repaid 2016) 247 5.00% 5.19% 2010–2018 Bonds with fixed interest rate (partially repaid 2016) 371 4.75% 4.19% 2005–2020 Bonds with fixed interest rate (partially repaid 2016) 56 6.63% 6.13% 2002–2017 Bonds with fixed interest rate (partially repaid 2016) 600 7.13% 5.90% 2006–2036 Bonds with fixed interest rate 80 8.75% 7.45% 2009–2017 Bonds with fixed interest rate (partially repaid 2016) 289 5.38% 5.04% 2007–2017 Bonds with fixed interest rate (partially repaid 2016) 277 169 54 194 429 278 439 74 728 104 316 298 181 56 202 701 388 613 115 717 155 346 EUR 430 4.33% 4.98% 2010–2018 Bonds, partly swapped into floating interest rates ( partially repaid 2016) 503 656 EUR EUR EUR EUR EUR USD 198 4.95% 4.00% 2012–2019 Bonds, partly swapped into floating interest rates ( partially repaid 2016) 332 4.25% 2005–2016 Bonds with fixed interest rate 477 7.63% 2009–2016 Bonds with fixed interest rate 24 5.38% 2012–2017 Bonds with fixed interest rate (early repaid in 2016) 750 4.75% 2013–2020 Bonds with fixed interest rate (early repaid in 2016) 800 6.50% 2006–2016 Bonds with fixed interest rate Aggregate Industries Holdings Limited GBP 163 7.25% 2001–2016 Bonds, partly swapped into floating interest rates Holcim GB Finance Ltd. 237 0 0 0 0 0 0 324 362 553 28 930 813 251 GBP 300 8.75% 8.81% 2009–2017 Bonds guaranteed by LafargeHolcim Ltd 377 440 Holcim Capital Corporation Ltd. USD USD USD 50 7.65% 7.65% 2001–2031 Private placement guaranteed by LafargeHolcim Ltd 250 6.88% 7.28% 2009–2039 Bonds guaranteed by LafargeHolcim Ltd 250 6.50% 6.85% 2013–2043 Bonds guaranteed by LafargeHolcim Ltd Holcim Capital México, S.A. de C.V. MXN 800 4.20% 2012–2016 Bonds guaranteed by LafargeHolcim Ltd, with floating interest rates MXN 1,700 7.00% 7.23% 2012–2019 Bonds guaranteed by LafargeHolcim Ltd MXN 2,000 5.99% 5.02% 2014–2018 MXN 1,700 6.51% 5.95% 2015–2020 SUBTOTAL Bonds guaranteed by LafargeHolcim Ltd, with floating interest rates Bonds guaranteed by LafargeHolcim Ltd, with floating interest rates 1 Includes adjustments for fair value hedge accounting, where applicable. 51 247 248 0 84 99 84 49 240 240 45 97 114 97 7,377 11,886 F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements Nominal interest rate Effective interest rate Term Description Nominal value In million SUBTOTAL Holcim Finance (Luxembourg) S.A. EUR EUR EUR EUR EUR 200 6.35% 6.40% 2009–2017 Bonds guaranteed by LafargeHolcim Ltd 500 3.00% 3.11% 2014–2024 Bonds guaranteed by LafargeHolcim Ltd 33 2.00% 2.03% 2016–2026 Schuldschein loan guaranteed by LafargeHolcim Ltd 152 1.46% 1.51% 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd 1,150 1.38% 1.43% 2016–2023 Bonds guaranteed by LafargeHolcim Ltd EUR 209 0.79% 0.94% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates EUR EUR EUR 25 0.99% 1.13% 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates 413 1.04% 1.10% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd 1,150 2.25% 2.23% 2016–2028 Bonds guaranteed by LafargeHolcim Ltd Holcim Finance (Australia) Pty Ltd AUD AUD AUD 250 6.00% 6.24% 2012–2017 Bonds guaranteed by LafargeHolcim Ltd 200 5.25% 5.52% 2012–2019 Bonds guaranteed by LafargeHolcim Ltd 250 3.75% 3.90% 2015–2020 Bonds guaranteed by LafargeHolcim Ltd Holcim US Finance S.à.r.l. & Cie S.C.S. USD USD USD EUR USD USD 200 6.21% 6.24% 2006–2018 Private placement guaranteed by LafargeHolcim Ltd 125 6.10% 2006–2016 Private placement guaranteed by LafargeHolcim Ltd 750 6.00% 6.25% 2009–2019 Bonds guaranteed by LafargeHolcim Ltd 500 2.63% 3.06% 2012–2020 Bonds guaranteed by LafargeHolcim Ltd, swapped into USD and floating interest rates at inception 500 5.15% 5.30% 2013–2023 Bonds guaranteed by LafargeHolcim Ltd 50 4.20% 4.20% 2013–2033 Bonds guaranteed by LafargeHolcim Ltd LafargeHolcim International Finance Ltd USD 40 2.80% 2.88% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd USD USD 121 2.49% 2.59% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates 15 3.20% 3.27% 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd USD 25 2.69% 2.78% 2016–2023 LafargeHolcim Finance US LLC Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates USD USD 400 3.50% 3.59% 2016–2026 Bonds guaranteed by LafargeHolcim Ltd 600 4.75% 5.00% 2016–2046 Bonds guaranteed by LafargeHolcim Ltd Holcim (Costa Rica) S.A. CRC CRC 8,000 8.70% 2014–2016 Bonds with fixed interest rate 5,000 6.95% 7.13% 2016–2018 Bonds with fixed interest rate Holcim (US) Inc. USD USD USD 33 25 27 0.04% 0.06% 1999–2032 Industrial revenue bonds – Mobile Dock & Wharf 0.07% 0.08% 2003–2033 Industrial revenue bonds – Holly Hill 0.01% 0.01% 2009–2034 Industrial revenue bonds – Midlothian Lafarge Africa PLC NGN 26,386 14.25% 16.08% 2016–2019 Bonds with fixed interest rate NGN 33,614 14.75% 16.39% 2016–2021 Bonds with fixed interest rate Lafarge India Private Limited INR 3,500 9.15% 2013–2016 Bonds with fixed interest rate TOTAL 1 Includes adjustments for fair value hedge accounting, where applicable. 233 Net book value in CHF 1 Net book value in CHF 1 2016 2015 7,377 11,886 215 533 35 163 1,231 224 27 442 1,238 184 147 184 204 0 761 558 507 51 41 123 15 25 407 595 0 9 34 26 27 86 109 216 536 0 0 0 0 0 0 0 181 144 180 198 124 736 556 490 49 0 0 0 0 0 0 15 0 33 25 26 0 0 0 52 15,578 15,447 234 L A F A R G E H O L C I M Annual Report 2016 27. Leases Future minimum lease payments Million CHF Within 1 year Between 1 and 5 years Thereafter TOTAL Interest TOTAL FINANCE LEASES Operating leases Finance leases Operating leases 2016 252 567 446 1,264 2015 336 616 393 1,346 2016 16 29 44 90 (23) 67 Finance leases 2015 19 55 48 122 (31) 91 The total expense for operating leases recognized in the consolidated statement of income in 2016 was CHF 257 million (2015: CHF 227 million). There are no individually significant operating lease agreements. The liabilities from finance leases due within one year are included in current financial liabilities and liabilities due thereafter are included in long-term financial liabilities (note 26). There are no individually significant finance lease agreements. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 235 28. Derivative financial instruments Derivative assets with maturities exceeding one year are included in long-term financial assets (note 21) and derivative assets with maturities less than one year are included in prepaid expenses and other current assets (note 19). Derivative liabilities are included in financial liabilities (note 26). Derivative assets and liabilities Million CHF Fair value hedges Interest rate Currency Cross-currency TOTAL FAIR VALUE HEDGES Cash flow hedges Currency Commodity TOTAL CASH FLOW HEDGES Net investment hedges Currency TOTAL NET INVESTMENT HEDGES Held for trading Currency Cross-currency Commodity TOTAL HELD FOR TRADING Fair value assets 2016 Fair value liabilities 2016 Nominal amount 2016 Fair value assets 2015 Fair value liabilities 2015 Nominal amount 2015 18 15 4 36 7 22 29 0 0 7 0 1 8 0 0 78 78 2 4 6 5 5 20 0 0 20 1,007 26 653 1,685 74 123 197 467 467 1,702 0 1 1,703 44 0 0 44 7 1 8 0 0 71 9 0 80 0 0 59 59 2 22 24 0 0 26 0 0 26 1,581 16 621 2,218 133 116 249 0 0 3,084 26 0 3,110 TOTAL 74 109 4,053 132 109 5,577 236 L A F A R G E H O L C I M Annual Report 2016 29. Taxes Million CHF Current taxes Deferred taxes TOTAL 2016 (943) 109 (835) 2015 (924) 143 (781) Reconciliation of tax rate Net income (loss) before taxes 2,882 (684) GROUP’S WEIGHTED AVERAGE TAX (CHARGE) INCOME / RATE (870) +30% 168 +25% 2016 2015 Effect of non-deductible items Effect of non-taxable items Effect of non-recoverable withholding tax Effect from unrecognized tax losses and deferred tax asset write-offs Other effects GROUP’S EFFECTIVE INCOME TAX (CHARGE) / RATE (143) 166 (153) 17 148 +5% –6% +5% –1% –5% (391) 234 (206) (651) 65 –57% +34% –30% –95% +10% (835) +29% (781) –114% The Group’s weighted average tax rate is calculated based on profits (losses) before taxes of Group companies. In 2015, the difference between expected and effective tax rate related mainly to impairments of assets without recognition of deferred taxes, non tax- deductible goodwill impairments and changes in unrecognized tax losses carryforward. In 2016, total income taxes paid amounted to CHF 1,000 million, of which CHF 140 million related to the divestment of Group companies and are included in position “Disposal of participation in Group companies” in the consolidated statement of cash flows. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 237 Change in deferred tax asset and liabilities Million CHF 2016 DEFERRED TAX LIABILITIES NET AS AT JANUARY 1, 2016 Charged (credited) Property, plant and equipment Intangible and other long-term assets Provisions Other Tax losses carryforward Total 4,946 124 (866) (229) (898) 3,077 – to the statement of income (358) (110) – to other comprehensive income PPA refinement (note 4) Divestments Reclassification to liabilities directly associated with assets classified as held for sale Currency translation effects DEFERRED TAX LIABILITIES NET AS AT DECEMBER 31, 2016 2015 DEFERRED TAX LIABILITIES NET AS AT JANUARY 1, 2015 Charged (credited) (111) (307) (14) (120) 4,035 3 3 21 229 (32) (68) 11 1 (7) (732) 141 7 295 (188) 3 39 68 (11) (109) (202) 35 11 (22) (86) (449) (10) (74) (1,064) 2,327 2,165 163 (354) (190) (914) 869 – to the statement of income (250) (184) – to other comprehensive income Merger with Lafarge (note 4) Other change in structure Currency translation effects DEFERRED TAX LIABILITIES NET AS AT DECEMBER 31, 2015 Reflected in the statement of financial position as follows: Million CHF Deferred tax assets Deferred tax liabilities DEFERRED TAX LIABILITIES NET 3,356 (164) (161) 44 98 3 41 (22) (564) 28 5 104 (42) 53 (197) 42 146 (311) 117 64 (143) (20) 2,632 (216) (46) 4,946 124 (866) (229) (898) 3,077 2016 (1,060) 3,387 2,327 2015 (764) 3,840 3,077 Temporary differences for which no deferred tax is recognized Million CHF On unremitted earnings of subsidiary companies (taxable temporary difference) 2016 933 2015 653 238 L A F A R G E H O L C I M Annual Report 2016 Tax losses carryforward Million CHF TOTAL TAX LOSSES CARRYFORWARD Of which reflected in deferred taxes TOTAL TAX LOSSES CARRYFORWARD NOT RECOGNIZED Expiring as follows: 1 year 2 years 3 years 4 years 5 years Thereafter Losses carry-forward 2016 10,843 (3,760) Tax effect 2016 2,910 (1,064) Losses carry-forward 2015 10,673 (3,092) Tax effect 2015 3,109 (898) 7,083 1,846 7,581 2,211 97 76 96 35 36 18 18 20 9 8 73 83 69 51 83 17 19 16 12 19 6,742 1,773 7,221 2,128 30. Provisions Million CHF JANUARY 1 Merger with Lafarge (note 4) PPA refinement (note 4) Divestments Reclassification to liabilities directly associated with assets held for sale Provisions recognized Provisions used during the year Provisions reversed during the year Unwinding of discount and discount rate changes Reclassifications Currency translation effects DECEMBER 31 Of which short-term provisions Of which long-term provisions Site restoration and other environ- mental provisions Specific business risks Restructuring provisions Other provisions Total 2016 Total 2015 996 0 22 (25) (13) 46 (61) (64) 4 0 6 912 71 841 594 0 249 (4) (2) 122 (58) (23) 1 0 51 929 120 809 455 0 0 0 (4) 159 (181) (23) 0 (38) (2) 365 192 173 598 0 0 (25) (1) 250 (202) 2,643 0 271 (55) (19) 576 (502) 1,309 1,098 0 (87) 0 960 (313) (105) (214) (216) 7 0 (2) 520 192 328 12 (38) 52 2,726 575 2,151 11 0 (118) 2,643 602 2,041 F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 239 Site restoration and other environmental provisions Site restoration and other environmental provisions represent the Group’s legal or con- structive obligations of restoring a site. The timing of cash outflows of these provisions is dependent on the completion of raw material extraction and the commencement of site restoration. Specific business risks The total provision for specific business risks amounted to CHF 929 million as of December 31, 2016 (2015: CHF 594 million). Specific business risks comprise litigation provisions and provisions for contractual risks recorded in connection with purchase price allocations. Provisions for litigations mainly relate to antitrust and commercial disputes, environmental claims, product liability as well as tax claims and are set up to cover legal and administrative proceedings. Provisions for litigations amounted to CHF 903 million (2015: CHF 576 million), which included provisions for risks related to income taxes and other taxes of CHF 171 million (2015: CHF 137 million). The provisions for other contractual risks in connection with purchase price allocations amounted to CHF 26 million (2015: CHF 18 million). Provisions for contingent liabilities arising from business combinations amounted to CHF 488 million (2015: CHF 217 million). The timing of cash outflows of provisions for litigations is uncertain since it will largely depend upon the outcome of administrative and legal proceedings. The sensitivity associated with certain provisions led management to limit the extent of the disclosure discussed above as it believes it could seriously prejudice the position of the Group. Restructuring provisions Provisions for restructuring costs relate to various restructuring programs and amounted to CHF 365 million (2015: CHF 455 million) on December 31. These provisions are expected to result in future cash outflows mainly within the next one to three years. Other provisions Other provisions relate mainly to provisions that have been set up to cover other contractual liabilities. The composition of these items is extremely manifold and comprised, as of December 31, among other things: provisions for health insurance and pension schemes, which do not qualify as benefit obligations, of CHF 21 million (2015: CHF 34 million) and provisions related to sales and other taxes of CHF 17 million (2015: CHF 57 million). The expected timing of the future cash outflows is uncertain. 240 L A F A R G E H O L C I M Annual Report 2016 31. Employee benefits Personnel expenses and number of personnel The Group’s total personnel expenses, including social charges, are recognized in the rel- evant expenditure line by function in the consolidated statement of income and amount- ed to CHF 5,100 million (2015: CHF 4,421 million). As of December 31, 2016, the Group employed 90,903 people (2015: 100,956 people). Defined benefit pension plans The Group is managing the pension plans through the Group Pension Fund Commit- tee. The Committee is co-chaired by Finance and Organization & Human Resources and includes as well legal, tax and treasury specialists. The Group’s main defined benefit pension plans are located in the United Kingdom, North America and Switzerland. They respectively represent 51 percent (2015: 52 percent), 23 percent (2015: 22 percent) and 17 percent (2015: 17 percent) of the Group’s total defined benefit obligation on pensions. These main plans are funded through legally separate trustee administered funds. The cash funding of these plans, which may from time to time involve special payments, is designed to ensure that present and future contri butions should be sufficient to meet future liabilities. United Kingdom (UK) The companies operate three defined benefit pension plans in the UK: the Lafarge UK pension plan, the Aggregate Industries pension plan and the Ronez 2000 pension plan. Pensions payable to employees depend on average final salary and length of service within the Group. These plans are registered schemes under UK tax law and managed by independent Boards of Trustees. They are closed to new entrants and vested rights of the Lafarge UK pension Plan were frozen in 2011. The vested rights of the Ronez 2000 pension plan were frozen in 2016. These plans are funded by employer contributions, which are negotiated every three years based on plan valuations carried out by independent actuaries, so that the long- term financing services are ensured. – The last funding valuation of the Lafarge UK Pension plan was carried out based on the June 30, 2015 fund situation. On September 30, 2016, the Board of Trustees agreed with the company that no further contribution from the Group was needed based on the low level of deficit, calculated in line with local legislation, at the valuation date. The next funding valuation will be conducted in the year 2018. No contributions were paid in 2016 (2015: CHF 45 million based on the valuation conducted in 2012). – A new funding valuation is currently being conducted as at April 5, 2015 for the Aggregate Industries pension plan. A last funding valuation for the Ronez Pension Plan has been conducted as at December 31, 2015. In relation to risk management and asset allocation, the Boards of Trustees’ aims to ensure that it can meet its obligations to the beneficiaries of the plan both in the short and long term. Subject to this primary objective, the Board of Trustees targets to maxi- mize the long-term investment return whilst minimizing the risk of non-compliance with any statutory funding requirements. The Board of Trustees is responsible for the plan’s long-term investment strategy but usually delegate’s strategy design and monitoring to an Investment Committee. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 241 For the Lafarge UK pension plan, the Board of Trustees employs a fiduciary manager to implement the strategy and manage the plan’s investments. The fiduciary manager is responsible for the selection and deselection of underlying investment managers and funds as well as managing the asset allocation of the plan within agreed guidelines. The fair value of investment funds is based on a mixture of market values and estimates. Cash and cash equivalents are invested with financial institutions that have at least a “A/ BBB” rating. Strategies have been designed to target an asset value equal to 100 percent of the liability value. This objective has been translated into two main asset categories: – a portfolio of return-seeking assets, which include shares, real estate and alternative assets classes; – a portfolio of instruments that provides a reasonable match to changes in liability values, which includes government bonds, corporate bonds and derivatives. Share instruments represent investments in equity funds and direct investments which have quoted market prices in an active market. Alternative asset classes are used for both risk management and return generation purposes, and its fair value is based on market values. Real estate comprises investments in listed real estate funds or direct invest- ments. Real estates that are held directly are valued annually by an independent expert. Bonds generally have a credit rating that is not lower than “A/BBB” and have quoted market prices in an active market. Liability Driven Investment (LDI) portfolio is mainly composed of government bonds and swaps. This strategy mainly involves hedging the fund’s exposure to liquidity risks and to changes in interest rates and inflation. In 2016, the de-risking strategy applied by the Aggregate Industries Pension plan has been continued; the scheme purchased an insurance contract for the liability towards current retirees in June 2016. No material plan amendment or curtailment has occurred during the year, beside the plan freeze of the Ronez 2000 plan in 2016. The companies operate also defined contribution plans which include active members from frozen defined benefit plans and employees who are not members of a defined benefit plan. North America (United States and Canada) The companies operate defined contribution plans and a number of defined benefit pension plans. The majority of the defined benefit pension plans were closed to new entrants and some plans were frozen to future accruals. Pensions payable to employees depend on average final salary and length of service within the Group. In 2015, a pension plan freeze occurred for the largest US plans. From July 1, 2015 or January 1, 2016 vested rights are frozen and active members are no longer acquiring further rights in these defined benefit plans. The Group companies must contribute a minimum amount to the defined benefit 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. 242 L A F A R G E H O L C I M Annual Report 2016 In the United States, the companies intend to pay the minimum required contributions as prescribed under Internal Revenue Service (IRS) regulations in addition to voluntary amounts in order to achieve and maintain an IRS funded status of at least 80 percent. In Canada, the Group companies intend to pay at least the minimum required contributions under the applicable pension legislation for each plan. The companies delegate various responsibilities to Pension Committees. These committees define and manage long-term investment strategies for reducing risks as and when appro- priate including interest rate risks and longevity risks. The assets in the United States and Canada include a certain proportion which hedge the liability swings against inter- est rate movements, with those assets primarily invested in fixed income investments, particularly intermediate and longer term instruments. In 2016, the de-risking strategy applied by the Lafarge Western Canada pension plan has been continued; the scheme purchased insurance contracts for the liability towards current retirees in July and August 2016. No material plan amendment, curtailment or settlement has occurred during the year. Switzerland The Swiss pension plans of Swiss companies contain a cash balance benefit formula, accounted for as a defined benefit plan. Employer and employee contributions are defined in the pension fund rules in terms of an age related sliding scale of percentages of salary. Under Swiss law, the pension fund guarantees the vested benefit amount as confirmed annually to members. Interest may be added to member balances at the discretion of the Board of Trustees. At retirement date, members have the right to take their retirement benefit as a lump sum, an annuity or part as a lump sum with the balance converted to a fixed annuity at the rates defined in the fund rules. The Board of Trustees, composed of half employer and half employees’ representatives, may increase the annuity at their discretion subject to the plan’s funded status including sufficient free funds as deter- mined according to Swiss statutory valuation rules. The Swiss pension plans fulfill the requirements of the regulatory framework which requires a minimum level of benefits. The Board of Trustees invests in a diversified range of assets in accordance with the local legal requirements. The investment strategy takes into account the pension fund’s tolerance to risk as well as the funding needs (minimum investment return necessary to stabilize the coverage ratio in the long run). A settlement occurred in 2016 due to a restructuring of the corporate functions in Switzerland and the settlement gain amounted to CHF 17 million. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 243 Other post-employment benefit plans The Group operates a number of other post-employment benefit plans which are covered by provisions in the statement of financial position of the respective companies. Status of the Group’s defined benefit plans The status of the Group’s defined benefit plans using actuarial assumptions determined in accordance with IAS 19 Employee Benefits is summarized below. The tables provide reconciliations of defined benefit obligations, plan assets and the funded status for the defined benefit pension plans to the amounts recognized in the statement of financial position. Reconciliation of retirement benefit plans to the statement of financial position Million CHF Net liability arising from defined benefit pension plans Net liability arising from other post-employment benefit plans NET LIABILITY Reflected in the statement of financial position as follows: Other long-term assets Defined benefit obligations NET LIABILITY 2016 1,499 308 1,807 (271) 2,079 1,807 2015 1,424 304 1,729 (211) 1,939 1,729 244 L A F A R G E H O L C I M Annual Report 2016 Retirement benefit plans Million CHF Present value of funded obligations Fair value of plan assets PLAN DEFICIT OF FUNDED OBLIGATIONS Present value of unfunded obligations Effect of asset ceiling Defined benefit pension plans Other post-employment benefit plans 2016 8,940 2015 8,835 (8,162) (8,122) 778 720 1 713 710 1 NET LIABILITY FROM FUNDED AND UNFUNDED PLANS 1,499 1,424 Of which: United Kingdom North America (United States and Canada) Switzerland Rest of world Costs recognized in the statement of income are as follows: Current service costs Past service costs (including curtailments) 1 Gains on settlements 2 Net interest expense Special termination benefits Others TOTAL Of which: United Kingdom North America (United States and Canada) Switzerland Rest of world Amounts recognized in other comprehensive earnings: Actuarial gains (losses) arising from changes in demographic assumptions (30) 598 252 679 125 (16) (19) 44 12 0 146 9 52 29 56 11 Actuarial gains (losses) arising from changes in financial assumptions (1,078) Actuarial gains (losses) arising from experience adjustments Return on plan assets excluding interest income Change in effect of asset ceiling excluding interest (income) expense TOTAL RECORDED IN OTHER COMPREHENSIVE EARNINGS Of which: United Kingdom North America (United States and Canada) Switzerland Rest of world 90 834 0 (142) (58) 7 (21) (70) (84) 587 241 679 121 (74) (15) 40 17 0 90 19 47 27 (3) 43 149 28 (92) 1 129 191 (24) (53) 15 1 Past service costs (including curtailments) in 2015 include among others, CHF –55 million curtailment in France recorded in connection with the merger and a curtailment in the United States of CHF –22 million related to a plan freeze and the elimination of post 65 retiree medical insurance. 2 Gains on settlements in 2016 include a settlement gain of CHF 17 million resulting from a restructuring in Switzerland. 2016 2015 0 0 0 308 0 308 0 244 0 64 3 0 0 12 0 0 16 0 12 0 4 5 (8) 3 0 0 (1) 0 5 0 (6) 0 0 0 304 0 304 0 243 0 61 3 (16) 0 8 0 0 (5) 0 (7) 0 2 0 (2) 2 0 0 1 0 4 0 (4) F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 245 Retirement benefit plans Million CHF 2016 2015 2016 2015 Defined benefit pension plans Other post-employment benefit plans Present value of funded and unfunded obligations OPENING BALANCE AS PER JANUARY 1 Merger with Lafarge Divestments Reclassifications Current service costs Interest expense Contribution by the employees Actuarial (gains) losses Benefits paid Past service costs (including curtailments) Settlements Special termination benefits Currency translation effects CLOSING BALANCE AS PER DECEMBER 31 Of which: United Kingdom North America (United States and Canada) Switzerland Rest of world Fair value of plan assets OPENING BALANCE AS PER JANUARY 1 Merger with Lafarge Divestments Interest income Return on plan assets excluding interest income Contribution by the employer Contribution by the employees Benefits paid Settlements Currency translation effects CLOSING BALANCE AS PER DECEMBER 31 Of which: United Kingdom North America (United States and Canada) Switzerland Rest of world 9,546 0 (51) 38 125 300 21 977 (538) (16) (75) 12 (680) 9,660 4,956 2,196 1,628 879 8,122 0 (9) 256 834 229 21 (537) (55) (698) 8,162 4,987 1,598 1,376 201 3,705 6,597 (249) 0 121 218 20 (220) (398) (74) (88) 17 (103) 9,546 4,953 2,097 1,617 878 2,932 5,676 (246) 177 (92) 205 20 (383) (72) (94) 8,122 5,038 1,509 1,376 199 304 0 (5) 0 3 12 0 1 (20) 0 0 0 13 308 0 244 0 64 0 0 0 0 0 20 0 (20) 0 0 0 0 0 0 0 81 253 (7) 0 3 8 0 (1) (15) (16) 0 0 (2) 304 0 243 0 61 0 0 0 0 0 14 0 (14) 0 0 0 0 0 0 0 246 L A F A R G E H O L C I M Annual Report 2016 Retirement benefit plans Million CHF Plan assets based on quoted market prices: Cash and cash equivalents Equity instruments 2 Debt instruments 3 Liability-driven investments 4 Alternative investments 5 Land and buildings occupied or used by third parties Investment funds Derivatives Structured debt Plan assets based on non-quoted prices: Equity instruments Structured debt Investment funds Land and buildings occupied or used Debt instruments 3 Insurance policies Others Defined benefit pension plans 2016 2015 1 275 1,837 1,463 1,505 1,162 374 91 (15) 0 38 194 274 112 32 688 130 125 1,750 1,669 1,311 1,035 375 202 32 21 231 410 188 203 12 474 84 TOTAL PLAN ASSETS AT FAIR VALUE 8,162 8,122 1 Insurance policies are now presented in a separate line item, the 2015 numbers were adjusted accordingly. 2 Equity instruments include CHF 3 million (2015: CHF 2 million) quoted equity instruments of LafargeHolcim Ltd or subsidiaries. 3 Debt instruments include CHF 5 million (2015: CHF 5 million) quoted and CHF 4 million (2015: CHF 4 million) non-quoted debt instruments of LafargeHolcim Ltd or subsidiaries. 4 Liability-driven investment (LDI) is an investment strategy that is defined considering the risk profiles of the liability of the plan. The LDI investment strategy mainly consists of index-linked government bonds and swaps and involves hedging the plan against liquidity risk and change in interest rates or inflation yields. 5 Alternative investments include among others hedge-funds, multi-asset values and reinsurance investments. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 247 Principal actuarial assumptions (weighted average) used at the end of the reporting period for defined benefit pension plans Discount rate in % Expected salary increases in % Life expectancy in years after the age of 65 Total Group United Kingdom North America Switzerland 2016 2.8% 2.3% 2015 3.4% 2.5% 2016 2.8% 3.3% 2015 3.8% 3.0% 2016 4.0% 2.9% 2015 4.2% 2.9% 2016 0.7% 0.8% 2015 0.9% 1.2% 22.7 21.8 23.0 22.1 22.4 21.4 23.3 21.9 Weighted average duration of defined benefit pension plans Duration of the defined benefit obligation Total Group United Kingdom North America Switzerland Weighted average duration in years 2016 15.6 2015 14.9 2016 17.6 2015 16.4 2016 14.3 2015 13.8 2016 14.2 2015 13.5 Sensitivity analysis as per December 31, 2016 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 (±1% change in assumption) Expected salary increases (±1% change in assumption) (1,334) 1,633 (772) 957 (266) 316 (207) Life expectancy in years after the age of 65 (±1 year change in assumption) 362 (358) 245 (236) 124 (108) 24 (21) 14 50 (13) (49) 20 54 258 (19) (61) Sensitivity analysis as per December 31, 2015 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 (1,241) 1,478 (705) 844 (253) 291 (199) 245 Discount rate (±1% change in assumption) Expected salary increases (±1% change in assumption) 137 (120) 23 (20) Life expectancy in years after the age of 65 (±1 year change in assumption) 328 (336) 210 (209) Expected contributions by the employer to be paid to the post-employment benefit plans during the annual period beginning after the end of the reporting period are CHF 111 mil- lion, of which CHF 44 million related to North America, CHF 32 million related to Switzer- land and CHF 17 million related to United Kingdom. 13 47 (13) (46) 19 52 (19) (60) 248 L A F A R G E H O L C I M Annual Report 2016 32. Share compensation plans The total personnel expense arising from the LafargeHolcim share compensation plans amounted to CHF 16.6 million in 2016 (2015: CHF 17.5 million) as presented in the fol- lowing table: Million CHF Employee share purchase plan LafargeHolcim Performance Share Plan LafargeHolcim Senior Management Plan Share plan for management of Group companies Senior management share plan Share option plan Liquidity mechanism for remaining Lafarge rights Personnel expenses 2016 Personnel expenses 2015 0.9 5.8 1.1 0.0 0.0 0.2 8.6 0.9 0.0 0.0 7.9 3.2 1.5 4.0 TOTAL 16.6 17.5 All shares granted under these plans are either purchased from the market or derived from treasury shares. 32.1 Description of plans Employee share purchase plan LafargeHolcim offers an employee share-ownership plan for all employees of Swiss sub- sidiaries and some executives from Group companies. This plan entitles employees to acquire a limited amount of discounted LafargeHolcim Ltd shares generally at 70 percent of the market value based on the prior-month average share price. The shares cannot be sold for a period of two years from the date of purchase. LafargeHolcim Performance Share Plan LafargeHolcim set up a performance share plan in 2015. Performance shares and/or options are granted to executives, senior management and other employees for their contribution to the continuing success of the business. These shares and options will be delivered after a three-year vesting period following the grant date and are subject to performance conditions (shares are subject to both internal and external conditions, options are subject to internal conditions). Information related to awards granted through the LafargeHolcim Performance Share Plan is presented below: JANUARY 1 Granted Forfeited DECEMBER 31 2016 2015 Shares Options Shares Options 610,167 747,136 0 0 780,003 832,320 610,167 747,136 (25,467) (19,988) 0 0 1,364,703 1,559,468 610,167 747,136 F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 249 The fair value of the plan was calculated by an independent consultant as follows: – 780,003 performance shares were granted in 2016 under the Performance Share Plan (2015: 610,167). These shares are subject to a three-year vesting period. 546,002 shares (2015: 427,117) are subject to internal performance conditions and the fair value per share is CHF 52.80 (2015: CHF 49.12). 234,001 shares (2015: 183,050) are subject to an external performance condition, based on the Total Shareholder Return. This external condition was included in the fair value per share of CHF 21.40 (2015: CHF 14.35) using a Monte Carlo simulation; – 832,320 share options were granted in 2016 under the Performance Share Plan (2015: 747,136). These share options are subject to a three-year vesting period and internal performance conditions. The fair value per share option has been determined using the Black-Scholes model and amounts to CHF 9.03 (2015: CHF 10.10). Underlying assumptions for the fair value of the share options are presented below: Grant date Share price at grant date Exercise price Assumed / expected dividend yield 1 Expected volatility of stock 2 Risk-free interest rate Expected life of the options 1 Based on data market provider estimates. 2 Based on a 2 year at-the-money implied volatility. 2016 2015 December 14 December 14 CHF 52.80 CHF 49.12 CHF 53.83 CHF 50.19 3.3% 28.5% 0.04% 8 years 1.75% 27.41% –0.44% 8 years LafargeHolcim Senior Management Plan Part of the variable, performance-related compensation for Senior Management is paid in LafargeHolcim Ltd shares, which are granted based on the market price of the share in the following year. The shares cannot be sold by the employee for the next three years. Share plan for management of Group companies and senior management share plan Under these legacy Holcim plans, part of the variable, performance-related compen- sation for management was paid in LafargeHolcim Ltd shares, which could not be sold by the employee during the next three or five years following the grant date. The last shares under these plans were granted in 2015. 250 L A F A R G E H O L C I M Annual Report 2016 Share option plans Two types of share options were granted to senior management of the Group: the ones, which were granted as part of the annual variable compensation and those, that were allotted to the Executive Committee upon appointment. In both cases, each option rep- resented the right to acquire one registered share of LafargeHolcim Ltd at the market price of the shares at the date of grant. These plans are closed. The last share options under this plan were granted in 2015. The contractual term of the first type of option plan is eight years, with immediate vest- ing but exercise restrictions for a period of three years following the grant date. The con- tractual term of the second type of option plan is twelve years and the options have a vesting period (service-related only) of nine years from the date of grant, with sale and pledge restrictions. The Group has no legal or constructive obligation to repurchase or settle the options in cash. The Fair Value of the options granted in 2015 under this plan has been determined using the Black-Scholes model based on the following assumptions: Grant date Share price at grant date Exercise price Assumed / expected dividend yield Expected volatility of stock 2 Risk-free interest rate Expected life of the options Share option plans July 8 February 19 CHF 68.65 CHF 72.05 CHF 63.55 1 CHF 66.85 1 1.89% 23.27% –0.50% 6 years 1.80% 27.99% –0.35% 6 years 1 Adjusted to reflect the scrip dividend. 2 The expected volatility is based on the historic volatility of the shares on a monthly basis for 72 and 96 months as of grant date. Liquidity mechanism for remaining rights under the Lafarge long-term incentive plans The Lafarge long-term incentive plans consisted of stock options (granted up to 2012) and performance share (granted up to 2014) plans, all subject to performance conditions. All Lafarge stock options are vested, while some performance shares granted in 2013 and 2014 are still under vesting period (vesting period was 3 or 4 years). Performance conditions include internal conditions and a market condition related to Total Shareholder Return. The market condition is included in the fair value of each granted instrument. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 251 Following the success of its public 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: – Lafarge S.A. shares that may be issued following the exercise on or after the date of the squeeze-out of stock options that have been allocated pursuant to the Lafarge stock option plans; or – Lafarge S.A. shares that may be definitively allotted on or after the squeeze-out in accordance with the Lafarge performance share plans. In 2016, the liquidity mechanism has been applied as follows: – 90,503 Lafarge S.A. shares have been purchased; – 67,592 Lafarge S.A. shares have been exchanged for 58,724 LafargeHolcim shares; and – No Lafarge S.A. options have been exercised in 2016. One Lafarge S.A. stock options plan ended in June 2016 and 653,466 unexercised Lafarge S.A. options have been lapsed. 32.2 Outstanding Share Options Movements in the number of share options outstanding and their related weighted aver- age exercise prices are as follows: Number 1 Number 1 Weighted average exercise price 1 2016 2015 JANUARY 1 CHF 73.72 4,098,017 1,159,468 Granted and vested (individual component of variable compensation) Granted and under vesting period 2 Increase due to liquidity mechanism 3 Forfeited Exercised Lapsed DECEMBER 31 CHF CHF CHF CHF CHF CHF CHF – 0 192,303 53.83 832,320 747,136 – 0 3,076,385 66.09 67,427 101,217 35.47 31,742 109,272 90.95 704,158 866,786 66.90 4,127,010 4,098,017 Of which exercisable at the end of the year 2,175,057 2,790,893 1 Adjusted to reflect former share splits and/or capital increases and/or scrip dividend. 2 These options will not be delivered before the end of the 3-year vesting period and are subject to the level of achievement of performance conditions. 3 These options were granted under the Lafarge stock option plans. The figures presented in this table are based on the closing exchange rate and the actual exchange ratio of 0.945. In 2016, options exercised resulted in 31,742 shares (2015: 109,272) being issued at a weighted average share price of CHF 51.40 (2015: CHF 70.98) 252 L A F A R G E H O L C I M Annual Report 2016 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 prices as listed below: Option grant date Expiry date Exercise price 1 Number 1 Number 1 2004 2008 2008 2009 2010 2010 2010 2011 2012 2013 2013 2014 2014 2015 (2006 3) 2015 (2007 3) 2015 (2008 3) 2015 (2009 3) 2015 (2010 3) 2015 (2011 3) 2015 (2012 3) 2015 2015 2015 2016 TOTAL 2016 2 2016 2020 2017 2018 2022 2022 2019 2020 2021 2025 2022 2026 2016 2017 2018 2019 2020 2020 2020 2023 2023 2025 2026 CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF 63.50 99.32 62.95 35.47 67.66 70.30 76.10 2016 2015 0 0 15,550 71,083 33,550 33,550 38,760 70,502 95,557 95,557 33,550 33,550 0 33,550 63.40 113,957 113,957 54.85 165,538 165,538 67.40 122,770 122,770 64.65 64.40 64.40 90.67 0 11,183 99,532 99,532 33,550 33,550 0 617,525 118.97 418,113 418,551 103.30 551,892 551,892 33.02 103,545 103,545 55.10 197,212 199,480 47.80 149,617 149,617 38.67 218,096 218,096 66.85 144,970 144,970 63.55 47,333 47,333 50.19 727,148 747,136 53.83 832,320 0 4,127,010 4,098,017 1 Adjusted to reflect former share splits and/or capital increases and/or scrip dividend. 2 Due to trade restrictions in 2008, the expiry date of the annual options granted for the year 2004 has been extended by one year. 3 These options were granted through the Lafarge stock option plans. The figures presented in this table are based on the application of the actual exchange ratio of 0.945. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 253 33. Information on share capital Number of registered shares December 31 2016 2015 TOTAL OUTSTANDING SHARES 605,756,753 605,570,586 Treasury shares Reserved for call options Unreserved TOTAL TREASURY SHARES 929,067 223,260 1,092,175 246,319 1,152,327 1,338,494 TOTAL ISSUED SHARES 606,909,080 606,909,080 Shares out of conditional share capital Reserved for convertible bonds 1,422,350 1,422,350 TOTAL SHARES OUT OF CONDITIONAL SHARE CAPITAL 1,422,350 1,422,350 TOTAL SHARES 608,331,430 608,331,430 The par value per share is CHF 2.00. The share capital amounts to nominal CHF 1,214 million (2015: CHF 1,214 million) and the treasury shares amount to CHF 72 million (2015: CHF 86 million). 34. Non-controlling interest LafargeHolcim has two Group companies with material non-controlling interests. Information regarding these subsidiaries is as follows: Material non-controlling interest Company Million CHF ACC Limited Ambuja Cements Ltd. Principal place of business Non-controlling interest 1 Net income 2 Total equity 2 Dividends paid to non-controlling interest 2016 2015 India 63.9% 49.7% 2016 57 2015 48 2016 561 2015 742 2016 23 2015 42 India 36.9% 49.7% 48 53 915 906 29 55 1 The non-controlling interest of these companies represents the ownership interests, which is equal to the voting rights in these companies. 2 Attributable to non-controlling interest. Besides the reorganization of its holding structure in India, the Group also increased its shareholding in ACC Limited and Ambuja Cements Ltd for a total amount of CHF 325 million. 254 L A F A R G E H O L C I M Annual Report 2016 Set out below is the summarized financial information relating to ACC Limited and Ambuja Cements Ltd. before intercompany eliminations. Statement of financial position Million CHF Current assets Long-term assets TOTAL ASSETS Current liabilities Long-term liabilities TOTAL LIABILITIES 2016 605 1,721 2,326 508 273 781 ACC Limited Ambuja Cements Ltd. 2015 544 1,689 2,233 490 250 740 2016 609 2,228 2,837 491 209 700 2015 997 1,484 2,481 442 218 659 NET ASSETS 1,545 1,493 2,137 1,822 Statement of income Million CHF NET SALES NET INCOME Statement of cash flows Million CHF CASH FLOW FROM OPERATING ACTIVITIES 2016 1,593 2015 1,723 2016 1,336 2015 1,398 90 97 135 106 2016 201 2015 213 2016 252 2015 262 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 63 (25) (393) 91 35. Contingencies, guarantees and commitments Contingencies In the ordinary course of its business, the Group is involved in lawsuits, claims of various natures, investigations and proceedings, including product liability, commercial, environ- mental, health and safety matters, etc. The Group operates in countries where political, economic, social and legal developments could have an impact on the Group’s operations. In connection with disposals made in the past years, the Group provided customary warranties notably related to accounting, tax, employees, product quality, litigation, competition, and environmental matters. LafargeHolcim and its subsidiaries received or may receive in the future notice of claims arising from said warranties. At December 31, 2016, the Group’s contingencies amounted to CHF 1,155 million (2015: CHF 545 million). The increase is mainly related to the CCI case in India explained below. Except for what has been provided for as disclosed in note 30, the company has conclud- ed that due to the uncertainty with some of the matters mentioned below, the potential losses for some of these cases cannot be reliably estimated. There are no further single matters pending that the Group expects to be material in relation to the Group’s busi- ness, financial result or results of operations. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 255 The following is a description of the material legal and tax matters currently ongoing. Legal and tax matters with new developments since last reporting period The Competition Commission of India (“CCI”) issued in June 2012 an order imposing a penalty on Ambuja Cements Ltd. (“ACL”) and ACC Limited (“ACC”). The order found those companies together with other cement producers in India to have engaged in price coordination. Following a successful appeal by the companies before the Competition Appellate Tribunal (“Compat”), which set aside the order on December 11, 2015, a new order was issued on August 31, 2016 confirming its initial order and imposing the same penalties on the cement companies and their trade association amounting to an aggre- gate of CHF 348 million (INR 23,106 million) for ACC and ACL. The total amount of pen- alties (including interests) for ACC and ACL is CHF 361 million (INR 23,992 million) as of December 31, 2016. ACC and ACL appealed this new order before the Compat and continue to vigorously defend themselves. As per the interim order passed by the Compat, a deposit of 10 percent of the penalty amounts has been placed with a financial institution by both LafargeHolcim Group companies with a lien in favor of the Compat. On May 28, 2014, the Administrative Council for Economic Defense (“CADE”) ruled that Holcim Brazil along with other cement producers had engaged in price collusion and other anti-competitive behavior. The ruling includes behavioral remedies prohibiting certain greenfield projects, divestment of a ready-mix plant, and M&A activities and fines against the defendants. This order became enforceable on September 21, 2015 and applies to Holcim Brazil, which has been fined CHF 159 million (BRL 508 million) as at the date of the order. As of December 31, 2016, the total amount including interests and monetary adjustment was CHF 208 million (BRL 662 million). In September 2015, Holcim Brazil filed an appeal against the order, offering a cement plant as guarantee to support its appeal. The fine and the behavioral remedies imposed by CADE were suspended by two decisions of the court of first instance on September 29, 2016 and October 21, 2016. Unless successfully appealed by CADE, the suspension will remain in effect until the completion of the substantive proceedings against the CADE ruling. On December 31, 2010, in an extraordinary general meeting, the merger of Lafarge Brasil S.A. into LACIM was approved by the majority of shareholders of Lafarge Brasil S.A. Two minority shareholders (Maringa and Ponte Alta) holding a combined owner- ship of 8.93 per cent, dissented from the merger decision and subsequently exercised their right to withdraw as provided for by the Brazilian Corporation law. In application of such law, an amount of CHF 24 million (BRL 76 million) was paid by Lafarge Brasil S.A. to the two shareholders. In March 2013, the two shareholders obtained a ruling from the Court of first instance ordering Lafarge Brasil S.A. to pay to Maringa and Ponte Alta the amount of approximately CHF 115 million (BRL 366 million) as at the date of the order. As of December 31, 2016 the total amount including interest amounted to CHF 158 mil- lion (BRL 503 million). Following the unsuccessful appeal by Lafarge Brasil S.A. filed in June 2013, the Rio de Janeiro Tribunal denied admittance of a further appeal by the com- pany before the Superior Court of Justice and to the Supreme Court in July 2015. Lafarge Brasil S.A. (that merged into Holcim (Brazil) S.A. in December 2016) has appealed this decision directly to both the Superior Court of Justice and to the Supreme Court, and the Superior Court of Justice has accepted the appeal in March 2016. In July 2016, Lafarge Brasil S.A. received an assessment from the Brazilian Internal Revenue Service, claiming the reversal of a deducted Goodwill for the years 2011 and 2012. The amount in dispute is CHF 91 million (BRL 289 million) and includes any penalty and interest. The company is contesting this assessment. 256 L A F A R G E H O L C I M Annual Report 2016 In November and December 2016, the Indonesian tax authorities issued the final objection letter in respect of the 2010 PT Lafarge Cement Indonesia payment of Corporate Income and Withholding Tax including associated penalties of a total amount of CHF 38 mil- lion (IDR 500 billion) related to refinancing transactions. PT Lafarge Cement Indonesia appealed against this decision at the tax court to defend its initial statement. In case of a negative outcome for PT Lafarge Cement Indonesia, the total claim amounts to CHF 76 mil- lion (IDR 1 trillion) due to additional penalties charged for the appeal. In the course of 2016, publications reported allegations that in connection with its operations in Syria the Lafarge Group had engaged in dealings with certain armed groups and sanctioned parties during 2013 until the plant was closed in September 2014. In response to the reported allegations, the company commenced an internal independent investigation under the supervision of the Finance and Audit Committee of the Board. It appears from that investigation that the local company provided funds to third parties to work out arrangements with armed groups, including sanctioned parties, in order to maintain operations and ensure safe passage of employees and supplies to and from the plant. In response to the findings the Board has taken a number of decisions including the creation of a new Ethics, Integrity and Risks committee supervised by a member of the Executive Committee and additional measures to strengthen the compliance program. The Board instructed executive management to vigorously implement these actions. In connection with these reported allegations, criminal complaints are reported to have been filed in France. Such proceedings are usually conducted under secrecy and neither Lafarge SA nor any of its subsidiaries have been made a party to these proceedings. Previously disclosed legal matters with no developments since last reporting period In late 2005, several class actions and individual lawsuits were filed in the United States District Court for the Eastern District of Louisiana. In their complaints, plaintiffs allege that Lafarge North America Inc. (“LNA”), and/or several other defendants including the federal government, are liable for death, bodily and personal injury and property and environ- mental damage to people and property in and around New Orleans, Louisiana. Some of the referenced complaints claim that these damages resulted from a barge under contract to LNA that allegedly breached the Inner Harbor Navigational Canal levee in New Orleans during or after Hurricane Katrina. A case involving the first few plaintiffs was tried before a judge, who ruled in favor of LNA in January 2011. In October 2011, LNA obtained sum- mary judgment against all remaining plaintiffs with claims in Federal Court. A new case was filed against LNA in September 2011 by the Parish of Saint Bernard in Louisiana State Court. The case was moved to Federal Court which granted LNA’s motion for summary judgment against the Parish of Saint Bernard in January 2013. In a decision in Decem- ber 2013, a three judge panel of the Court of Appeals reversed and remanded the case back to the Trial Court for a Jury Trial, which is scheduled to take place in May 2017. LNA continues to vigorously defend in this ongoing proceeding. Guarantees At December 31, 2016, the Group’s guarantees issued in the ordinary course of business amounted to CHF 809 million (2015: CHF 814 million). Commitments In the ordinary course of business, the Group enters into purchase commitments for goods and services, buys and sells investments, associated companies and Group com- panies or portions thereof. It is common practice for the Group to make offers or receive call or put options in connection with such acquisitions and divestitures. At December 31, 2016, the Group’s commitments amounted to CHF 1,707 million (2015: CHF 2,230 million). F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 36. Additional cash flow information Cash flow from operating activities – analysis of change in operating working capital items Million CHF Increase in inventories Decrease in accounts receivable (Increase)/Decrease in other receivables excluding financial and income tax receivables Increase/(Decrease) in trade payables Decrease in liabilities excluding financial and income tax liabilities CHANGE IN NET WORKING CAPITAL 2016 (19) 1 (22) 99 (752) (694) 257 2015 (23) 193 9 (170) (241) (232) Cash flow information related to investing activities Million CHF Purchase of property, plant and equipment net Replacements Proceeds from sale of property, plant and equipment CAPITAL EXPENDITURES ON PROPERTY, PLANT AND EQUIPMENT TO MAINTAIN PRODUCTIVE CAPACITY AND TO SECURE COMPETITIVENESS Expansion investments TOTAL PURCHASE OF PROPERTY, PLANT AND EQUIPMENT NET (A) ACQUISITION OF PARTICIPATION IN GROUP COMPANIES (NET OF CASH AND CASH EQUIVALENTS ACQUIRED) DISPOSAL OF PARTICIPATION IN GROUP COMPANIES (NET OF CASH AND CASH EQUIVALENTS DISPOSED OF) Purchase of financial assets, intangible and other assets Increase in financial investments including associates and joint ventures Increase in other financial assets, intangible and other assets TOTAL PURCHASE OF FINANCIAL ASSETS, INTANGIBLE AND OTHER ASSETS Disposal of financial assets, intangible and other assets Decrease in financial investments including associates and joint ventures Decrease in other financial assets, intangible and other assets TOTAL DISPOSAL OF FINANCIAL ASSETS, INTANGIBLE AND OTHER ASSETS 2016 2015 (1,134) 137 (997) (638) (1,635) (1,099) 118 (981) (1,007) (1,988) (4) 208 2,245 6,515 (7) (395) (402) 283 220 503 (3) (484) (487) 675 310 985 TOTAL DISPOSAL (PURCHASE) OF FINANCIAL ASSETS, INTANGIBLE AND OTHER ASSETS BUSINESSES NET (B) 2,342 7,222 TOTAL CASH FLOW FROM INVESTING ACTIVITIES (A + B) 706 5,234 258 L A F A R G E H O L C I M Annual Report 2016 Cash flow from acquisitions and disposals of Group companies 2016 2015 2016 Acquisitions Disposals 2015 Million CHF Cash and cash equivalents Assets classified as held for sale Other current assets Total Merger with Lafarge Other acquisitions 1 Total (1,704) (4,874) (4,821) (24) (1,728) (4,874) (48) (4,869) Merger related divestments 97 4,134 754 Total 153 746 497 Property, plant and equipment (20,177) (309) (20,486) 1,654 1,651 (3,486) (1) (3,487) 108 199 Other assets Bank overdrafts Other current liabilities Long-term provisions Other long-term liabilities NET ASSETS 415 6,131 992 17,246 415 6,182 1,040 17,292 51 48 46 (10,279) (236) (10,515) (160) (453) (102) (383) 2,061 (165) 1,896 266 (668) (132) (588) 5,447 (103) 5,344 815 Non-controlling interest 2,407 16 2,423 NET ASSETS (ACQUIRED) DISPOSED (7,872) (220) (8,092) Goodwill (acquired) disposed (11,611) (11,611) Fair value of previously held equity interest 680 680 Other disposals 2 20 17 256 48 (54) (12) (106) 169 (6) 163 46 Total 117 4,134 771 1,907 247 (722) (144) (694) 5,616 (109) 5,507 861 Net gain on disposals TOTAL (PURCHASE) DISPOSAL CONSIDERATION Purchase consideration in the form of shares Acquired (disposed) cash and cash equivalents Income taxes paid Deferred consideration NET CASH FLOW 511 63 226 289 (18,803) (220) (19,023) 2,673 6,222 435 6,657 17,910 17,910 (265) (82) (82) 1,289 24 1,313 6 (97) (20) (117) (4) (4) 7 403 (195) 7 208 (140) (28) 2,245 6,125 57 390 57 6,515 1 Mainly include the acquisition of companies from Cemex in Germany and the Netherlands, see note 4. 2 Include among others the disposals of operations in Spain and Czech Republic to Cemex classified as held for sale at the end of 2014, see note 4. For the purpose of this table, the assets and related liabilities classified as held for sale are presented in their respective balance sheet positions. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 259 37. Transactions and relations with members of the Board of Directors and senior management Key management compensation Board of Directors In 2016, fifteen non-executive members of the Board of Directors received a total remu- neration of CHF 5.4 million (2015: CHF 5.5 million) in the form of cash of CHF 3.1 million (2015: CHF 3.8 million), post-employment benefits of CHF 0.1 million (2015: CHF 0.1 mil- lion), share-based payments of CHF 2.0 million (2015: CHF 1.4 million) and other compen- sation of CHF 0.2 million (2015: CHF 0.2 million). Senior management The total annual compensation for the ten members of senior management (including CEO) amounted to CHF 30.5 million (2015: CHF 35.0 million). This amount comprises of base salary and variable compensation of CHF 20.0 million (2015: CHF 24.7 million), share-based compensations of CHF 3.8 million (2015: CHF 4.0 million), employer contributions to pension plans of CHF 5.3 million (2015: CHF 5.6 million) and other compensation of CHF 1.4 million (2015: CHF 0.7 million). The base salary and the variable cash compensation are disclosed, including foreign withholding taxes. Further included in the contribution to pension plans are the employer’s contributions to social security (AHV/IV). Compensation for former members of governing bodies In the year under review, compensation in the amount of CHF 4.0 million (2015: CHF 0.2 mil- lion) was paid to four (2015: six) former members of senior management. Loans As at December 31, 2016 and December 31, 2015, there were no loans outstanding to members of the Board of Directors and members of senior management. Other transactions As part of the employee share purchase plan, LafargeHolcim manages employees’ shares. It sells and purchases LafargeHolcim Ltd shares to and from employees and on the open market. In 2016, the company did not purchase any LafargeHolcim Ltd share from mem- bers of senior management (2015: CHF 0.0 million). As a result of the merger, LafargeHolcim has identified the following transactions with other parties or companies related to the Group: Lafarge S.A. has received indemnifications guarantees from (in relation to an acquisition in 2008) and entered into a cooperation agreement with Orascom Construction Industries S.A.E (OCI). Mr. Nassef Sawiris is Chief Executive Officer and Director of Orascom Construction Industries N.V., parent company of OCI, former director of Lafarge S.A. and current director of LafargeHolcim. The cooperation agreement dated December 9, 2007 aims to allow OCI to participate in tenders in respect of the construction of new plants in countries where OCI has the capability to meet certain of LafargeHolcim’s construction needs. 260 L A F A R G E H O L C I M Annual Report 2016 At this stage, the construction agreements entered into with the OCI Group are consid- ered to be at arm’s length business transactions, intervening within the framework of consortia, OCI being one of the members. There is no conflict of interest between Mr. Nassef Sawiris and LafargeHolcim on this subject. Under these agreements, the outstanding balances with the OCI Group are not significant as at December 31, 2016. No compensation was paid or loans granted to parties closely related to members of the governing bodies. 38. Events after the reporting period In the first two months 2017, operations and assets were transferred from Lafarge China Cement Ltd to the associate company Huaxin Cement Co. Ltd. Further information on the transactions in China is disclosed in the notes 4 and 20. On February 20, 2017, LafargeHolcim Ltd redeemed a CHF 400 million bond with a coupon of 3.13 percent which was issued on February 20, 2007. On February 28, 2017 the Group disposed of its 65 percent shareholding in LafargeHolcim Vietnam for a total consideration of CHF 546 million before tax. The assets and the related liabilities were classified as held for sale on December 31, 2016, as described in note 20. 39. Authorization of the financial statements for issuance The consolidated financial statements were authorized for issuance by the Board of Directors of LafargeHolcim Ltd on March 1, 2017 and are subject to shareholder approval at the annual general meeting of shareholders scheduled for May 3, 2017. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 261 40. Principal companies of the Group Principal operating Group companies Region Company Asia Pacific Holcim (Australia) Holdings Pty Ltd Holcim Cement (Bangladesh) Ltd. Lafarge Surma Cement Ltd. Lafarge Shui On Cement Limited Lafarge Dujiangyan Cement Co., Ltd. ACC Limited Ambuja Cements Ltd. PT Holcim Indonesia Tbk. PT Lafarge Cement Indonesia Holcim (Malaysia) Sdn Bhd Lafarge Malaysia Berhad Holcim (New Zealand) Ltd Holcim Philippines Inc. Holcim (Singapore) Ltd Lafarge Cement Singapore Pte Ltd Holcim (Vietnam) Ltd Latin America Holcim (Argentina) S.A. Holcim (Brasil) S.A. Cemento Polpaico S.A. Holcim (Colombia) S.A. Holcim (Costa Rica) S.A. Holcim (Ecuador) S.A. Holcim El Salvador S.A. de C.V. Place Australia Bangladesh Bangladesh China China India India Indonesia Indonesia Malaysia Malaysia New Zealand Philippines Singapore Singapore Vietnam Argentina Brazil Chile Colombia Costa Rica Ecuador El Salvador Société des Ciments Antillais French Antilles Holcim Mexico S.A. de C.V. Holcim (Nicaragua) S.A. Mexico Nicaragua Other con- struction materials and services Partici- pation (percent- age of interest) l 100.0% Listed company 100.0% 29.4% X l l l l l l l l l l l l l l l l l X X X X X X X X X 100.0% 75.0% 36.1% 63.1% 80.6% 80.6% 51.0% 51.0% 100.0% 75.3% 90.8% 51.0% 65.0% 79.6% 99.9% 54.3% 99.8% 65.6% 92.2% 95.4% 69.7% 100.0% 52.5% Cement Aggre- gate u n n n n n n n n n n n n n n n n n n n n n n n n u u u u u u u u u u u u 262 L A F A R G E H O L C I M Annual Report 2016 Other con- struction materials and services Partici- pation (percent- age of interest) Listed company Cement Aggre- gate Region Europe Company Lafarge Zementwerke GmbH Holcim (Azerbaijan) O.J.S.C. Holcim (Belgique) S.A. Holcim (Bulgaria) AD Holcim (Hrvatska) d.o.o. Lafarge Cement a.s. Lafarge Bétons France Lafarge Ciments Lafarge Ciments Distribution Lafarge Granulats France Holcim (Deutschland) GmbH Holcim (Süddeutschland) GmbH Heracles General Cement Company S.A. Holcim Magyarország Kft. Lafarge Cement Hungary Ltd Holcim Gruppo (Italia) S.p.A. Lafarge Ciment (Moldova) S.A. Lafarge Cement S.A. Lafarge Kruszywa i Beton Holcim (Romania) S.A. Holcim (Rus) OAO OAO Lafarge Cement Lafarge Beocinska Fabrika Cementa Lafarge Slovenia Holcim (España) S.A. Holcim Trading S.A. Lafarge Aridos y Hormigones, S.A.U. Lafarge Cementos, S.A.U. Holcim (Schweiz) AG Holcim Group Services Ltd Holcim Technology Ltd LH Trading Ltd Place Austria Azerbaijan Belgium Bulgaria Croatia Czech Republic France France France France Germany Germany Greece Hungary Hungary Italy Moldova Poland Poland Romania Russia Russia Serbia Slovenia Spain Spain Spain Spain Switzerland Switzerland Switzerland Switzerland Klesivskiy Karier Nerudnykh Kopalyn “Technobud” Ukraine Aggregate Industries Ltd United Kingdom Lafarge Cauldon Limited United Kingdom n n n n n n n n n n n n n n n n n n n n n n n n n 70.0% 80.2% 100.0% 100.0% 99.9% 68.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 70.0% 100.0% 95.3% 100.0% 100.0% 99.7% 100.0% 75.0% 100.0% 70.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 65.0% 100.0% 100.0% l l l l l l l l l l l l l l l l l l u u u u u u u u u u u u u u F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 263 Region Company North America Lafarge Canada Inc. Holcim (US) Inc. Aggregate Industries Management Inc. Lafarge North America Inc. Middle East Africa Lafarge Ciment de M’sila “LCM” Lafarge Béton Algérie “LBA” Lafarge Ciment Oggaz “LCO” Lafarge Logistique Algérie “LLA” Lafarge Cement Egypt S.A.E. Lafarge Ready Mix S.A.E. Bazian Cement Company Limited United Cement Company Limited Jordan Cement Factories Company P.S.C. Bamburi Cement Limited Holcim (Liban) S.A.L. Holcim (Outre-Mer) Trading S.A.S. Lafarge Cement Malawi Ltd Lafarge (Mauritius) Cement Ltd Ashakacem Plc. Lafarge Africa Plc. United Cement Company of Nigeria Ltd Place Canada USA USA USA Algeria Algeria Algeria Algeria Egypt Egypt Iraq Iraq Jordan Kenya Lebanon La Réunion Malawi Mauritius Nigeria Nigeria Nigeria Lafarge Industries South Africa (Pty) Ltd South Africa Lafarge Mining South Africa (Pty) Ltd South Africa Lafarge Cement Syria Mbeya Cement Company Limited Hima Cement Ltd. Lafarge Cement Zambia Plc Syria Tanzania Uganda Zambia Lafarge Cement Zimbabwe Limited Zimbabwe Other con- struction materials and services Participa- tion (percent- age of interest) Listed company Cement Aggre- gate n n n n n n n n n n n n n n n n n n n n n n n n u u u u u u u u u l l l l 100.0% 100.0% 100.0% 100.0% 100.0% 99.5% 100.0% 99.5% 97.4% l 100.0% l l l l l l 70.0% 60.0% 50.3% 58.6% 54.3% 100.0% 100.0% 58.4% 61.8% 72.8% 72.8% 72.8% 72.8% 98.7% 61.5% 71.0% 75.0% 76.5% X X X X X X X 264 L A F A R G E H O L C I M Annual Report 2016 Listed Group companies Region Company Domicile Place of listing December 31, 2016 in local currency Market capitalization at Security code number Asia Pacific Lafarge Surma Cement Ltd. Bangladesh Chittagong/Dhaka ACC Limited Ambuja Cements Ltd. India India Mumbai Mumbai BDT INR 95,349 million BD0643LSCL09 249,954 million INE012A01025 INR 409,939 million INE079A01024 PT Holcim Indonesia Tbk. Indonesia Jakarta IDR 6,896,610 million ID1000072309 Lafarge Malaysia Berhad Malaysia Kuala Lumpur MYR 6,109 million MYL3794OO004 Holcim Philippines Inc. Philippines Manila PHP 106,460 million PHY3232G1014 Latin America Holcim (Argentina) S.A. Argentina Buenos Aires Cemento Polpaico S.A. Chile Santiago Holcim (Costa Rica) S.A. Costa Rica San José Holcim (Ecuador) S.A. Ecuador Quito, Guayaquil Middle East Africa Jordan Cement Factories Company P.S.C. Jordan Amman Bamburi Cement Limited Kenya Nairobi Holcim (Liban) S.A.L. Lebanon Beirut Ashakacem Plc. Nigeria Lagos Lafarge Africa Plc. Nigeria Lagos Lafarge Cement Zambia Plc Zambia Lusaka ARS CLP CRC USD JOD KES USD NGN NGN ZMW 12,216 million ARP6806N1051 130,487 million CLP2216J1070 145,815 million CRINC00A0010 1,229 million ECP516721068 94 million JO4104211019 58,073 million KE0000000059 229 million LB0000012833 26,918 million NGASHAKACEM8 223,787 million NGWAPCO00002 1,036 million ZM0000000011 Lafarge Cement Zimbabwe Limited Zimbabwe Harare USD 31 million ZW0009012056 Principal joint ventures and associated companies Region Asia Pacific Company Cement Australia Holdings Pty Ltd Huaxin Cement Co. Ltd. Middle East Africa Karbala Cement Manufacturing Ltd Lafarge Maroc Readymix Qatar W.L.L. Lafarge Emirates Cement LLC Country of incorpo ration or residence Participation (percentage of interest) Australia China Iraq Morocco Qatar United Arab Emirates 50.0% 41.8% 51.0% 50.0% 49.0% 50.0% F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements Principal finance and holding companies Company Holcim Finance (Australia) Pty Ltd Vennor Investments Pty. Ltd. Holcibel S.A. Holcim Finance (Belgium) S.A. Holcim Capital Corporation Ltd. Holcim GB Finance Ltd. Holcim Overseas Finance Ltd. Holcim Investments (France) S.A.S. Lafarge S.A. Financière Lafarge S.A.S. Sabelfi SNC Société financière immobilière et mobilière “SOFIMO” S.A.S. Holcim Auslandbeteiligungs GmbH (Deutschland) Holcim Beteiligungs GmbH (Deutschland) Holcim Finance (Luxembourg) S.A. Holcim US Finance S. à r.l. & Cie S.C.S. Holderind Investments Ltd. Holcim Capital México, S.A. de C.V. Holchin B.V. Holderfin B.V. Holcim Investments (Spain), S.L. LafargeHolcim Ltd 1 LafargeHolcim Albion Finance Ltd LafargeHolcim Continental Finance Ltd LafargeHolcim Helvetia Finance Ltd LafargeHolcim International Finance Ltd Aggregate Industries Holdings Limited Holcim Participations (UK) Limited Lafarge International Holdings Limited Lafarge Building Materials Limited Lafarge Minerals Limited LafargeHolcim Finance US LLC Holcim Participations (US) Inc. 1 LafargeHolcim Ltd, Zürcherstrasse 156, CH-8645 Rapperswil-Jona 265 Participation (percentage of interest) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Place Australia Australia Belgium Belgium Bermuda Bermuda Bermuda France France France France France Germany Germany Luxembourg Luxembourg Mauritius Mexico Netherlands Netherlands Spain Switzerland Switzerland Switzerland Switzerland Switzerland United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom USA USA 266 L A F A R G E H O L C I M Annual Report 2016 TO THE GENERAL MEETING OF LAFARGEHOLCIM LTD, RAPPERSWIL-JONA Zurich, March 1, 2017 Statutory auditor’s report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of LafargeHolcim Ltd and its subsidiaries (the Group) as at December 31, 2016, which comprise the consolidated state- ment of income, consolidated statement of comprehensive earnings, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion the consolidated financial statements (pages 173 to 265) give a true and fair view of the consolidated financial position of the Group as at December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for opinion We conducted our audit in accordance with Swiss law, International Standards on Audit- ing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 267 Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the consolidated financial statements. Finalization of the Purchase Price Allocation from the LafargeHolcim merger Risk Holcim merged with the Lafarge Group on July 10, 2015. Following the acquisition of the Lafarge Group, LafargeHolcim management prepared a Purchase Price Allocation (PPA) calculation. The PPA was preliminarily prepared as of December 31, 2015 and finalized by July 9, 2016 as disclosed in note 4. PPA accounting and the related allocation of goodwill required a signifi- cant number of management estimates. The key judgments relate to the allocation of the purchase price to the assets, liabilities and contingent liabilities acquired as well as to the initial goodwill allocation. Our audit response We assessed, with involvement of our valuation specialists, the valuation methodology adopted in determining fair values, the underlying assumptions and the mathematical accuracy of the valuation models. We analyzed the purchase price allocation and we assessed the allocation of goodwill to both existing groups of CGUs and those created through the merger. We involved our internal tax experts to assess the recognition and valuation of deferred tax assets and liabilities. 268 L A F A R G E H O L C I M Annual Report 2016 Goodwill and long-lived assets impairment Risk The entity’s disclosures about long-lived assets are included in note 23, those relating to goodwill and intangible assets are included in note 24. LafargeHolcim management steadily monitors impairment indicators for goodwill and long-lived assets. The carrying values of goodwill and long-lived assets are dependent on the generation of future cash flows. The determination of the recoverable amount is based on these cash flows and other assumptions such as the discount rate and growth rate. The annual impairment testing process is complex, contains items based on judgments and includes assumptions that are affected by expected future market conditions. There is a risk in impairment testing that future cash flows may not meet expectation or that the outcomes may differ from the estimated values. Our audit response We evaluated management’s assessment of impairment indicators for the long-lived assets and the allocated goodwill. We reviewed the valuations prepared by management and supporting third party evidence for the carrying value of goodwill. We evaluated the assumptions used in respect of forecast growth rates and involved our EY valuation specialists to review the discount rates used which included comparison to economic and industry forecasts. We performed audit procedures on the mathematical accuracy of the valuation models and on the consistency of the definition of the cash generating units as well as of the goodwill reporting units. We reviewed the sensitivity analyses for the main assumptions and we analyzed the disclosures of the assumptions. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 269 Litigations, fines or penalties Risk Several Group companies are involved in legal proceedings, including anti-trust, regulatory and other governmental proceedings as well as investigations by authorities as disclosed in notes 30 and 35. Since the ultimate disposition of asserted claims, proceedings and investigations cannot be predicted with certainty, an adverse out come could have a material effect on the financial position, earnings and cash flows. Assessing the impact and likely outcome of a litigation matter re quires significant judgment. The judgments involved in determining the likely outcome of such matters may result in a risk that those legal provisions may be incorrect or are not made on a timely basis. Our audit response We evaluated the Group process for the identification and evaluation of claims, proceedings and investigations at different levels in the organiza- tion, as well as for the recording and continuous re-assessment of the related (contingent) liabilities and provisions. We assessed judgments and accounting treatments made by management arising from current legal proceedings including anti-trust cases and other regulatory risks. We analyzed the disclosures relating to the provision for specific business risks and for contingent liabilities. We inquired with the Group chief legal and compliance officer and Group Management as well as local management and financial staff in respect of ongoing investigations, claims or proceedings; assessed relevant correspon- dence; reviewed the minutes of the meetings of the Finance and Audit Committee, Board of Directors and Executive Committee; obtained external legal confirmation letters from a selection of external legal counsels and received a legal represen tation letter from Group Companies. 270 L A F A R G E H O L C I M Annual Report 2016 Tax matters Risk Our audit response The Group operates in multiple jurisdictions and is therefore exposed to numerous tax laws around the world. The recognition of a related risk provision, and the likelihood that a liability will crystallize, are both con- sidered to be significant judgmental areas. Another source of risk arises from tax authorities challenging certain tax treatments, with a possible focus on taxation of multinational businesses. Moreover, the recognition of deferred tax assets from temporary diffe- rences and loss carry forwards requires management assessment of whether it is probable that sufficient future taxable profit will be available against which the deferred tax assets can be utilized. There is a risk that judgments involved in determining provisions for tax liabilities or the future recoverability of deferred tax assets may be incorrect. We evaluated the Group process for the identification and evaluation of uncertain tax positions and other tax risks as well as for the assessment of the recoverability of deferred tax assets. We also considered the Group process for the recording and continuous re- assessment of the related (contingent) liabilities and provisions as well as deferred taxes. We reviewed tax exposures estimated by management and the risk analysis associated with these exposures along with claims or assessments made by tax authorities to date. We analyzed the tax risk provision with the involvement of our internal tax experts to evaluate whether it reflects the tax risks in the business. We reviewed documentation of tax audits and evaluated whether exposures raised by the tax authorities have been considered. We tested the calculation of deferred tax assets and liabilities and considered the management estimates relating to the recoverability of deferred tax assets. We analyzed the off-setting and presentation of deferred tax positions. F i n a n c i a l I n f o r m a t i o n Consolidated Financial Statements 271 Other information in the annual report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements, the compensation report and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other infor- mation in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstate- ment of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibility of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from mate- rial misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. 272 L A F A R G E H O L C I M Annual Report 2016 Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated finan- cial statements as a whole are free from 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 audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstate- ment when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://www.expertsuisse.ch/en/ audit-report-for-public-companies. This description forms part of our auditor’s report. Report on other legal and regulatory requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the pre- paration of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Ernst & Young Ltd Daniel Wüst Licensed Audit Expert Auditor in charge Elisa Alfieri Licensed Audit Expert HOLDI NG COMPA N Y R E SULT S 274 L A F A R G E H O L C I M Annual Report 2016 Statement of income LafargeHolcim Ltd Million CHF Dividend income – Group companies Financial income – Group companies Other operational income TOTAL INCOME Financial expenses – Group companies Financial expenses – Third parties Other operational expenses Impairment of financial investments – Group companies Direct taxes TOTAL EXPENSES NET INCOME Notes 3 4 5 6 2016 5,910 214 11 6,135 (32) (50) (729) (5,203) 0 (6,014) 2015 5,202 90 1,218 6,511 (6) (61) (406) (3,776) (28) (4,277) 120 2,234 F i n a n c i a l I n f o r m a t i o n Holding Company Results 275 Statement of financial position LafargeHolcim Ltd Million CHF Cash and cash equivalents Trade receivables – Group companies Short-term financial receivables – Group companies Other current receivables – Group companies Accrued income and prepaid expenses – Third parties CURRENT ASSETS Loans – Group companies Financial investments – Group companies Other financial assets LONG-TERM ASSETS TOTAL ASSETS Interest bearing short-term financial liabilities – Group companies Interest bearing short-term financial liabilities – Third parties Other current liabilities – Group companies Other current liabilities – Third parties CURRENT LIABILITIES Interest bearing long-term financial liabilities – Group companies Interest bearing long-term financial liabilities – Third parties LONG-TERM LIABILITIES TOTAL LIABILITIES Share capital Statutory capital reserves Statutory retained earnings – Statutory retained earnings – Reserves for treasury shares held by subsidiaries Voluntary retained earnings – Retained earnings prior year – Annual profit Treasury Shares SHAREHOLDERS’ EQUITY Notes 31.12.2016 31.12.2015 334 2 91 45 2 474 4,246 36,428 4 79 52 34 23 1 189 4,585 36,864 1 40,678 41,450 41,152 41,639 173 400 565 60 1,198 1,888 1,550 3,438 210 475 41 75 801 1,583 1,950 3,533 4,636 4,334 1,214 21,624 2,531 0 11,102 120 (75) 1,214 22,532 2,517 13 8,869 2,234 (73) 36,516 37,305 7 8 9 10 11 16 12 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 41,152 41,639 276 L A F A R G E H O L C I M Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS OF LAFARGEHOLCIM LTD LafargeHolcim Ltd, with registered office in Rapperswil-Jona, is the ultimate holding company 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: no employees). 1. Accounting Policies Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount. Accounting principles applied Share based payments expense is recorded on an accrual basis over the course of the years. The shares are granted at their fair value. Treasury shares are recognized at acquisition cost and deducted from equity. Gains and losses on the sale are recognized in the statement of income. F i n a n c i a l I n f o r m a t i o n Holding Company Results 277 2. Principal exchange rates Statement of income Average exchange rates in CHF Statement of financial position Closing exchange rates in CHF 1 Euro 1 US Dollar 1 British Pound 1 Australian Dollar 1 Canadian Dollar 100 Mexican Peso 1 Brazilian Real 1 New Zealand Dollar EUR USD GBP AUD CAD MXN BRL NZD 2016 1.09 0.98 1.33 0.73 0.74 5.28 0.28 0.69 3. Dividend income – Group companies Million CHF LafargeHolcim Continental Finance Ltd Holcim Beteiligungs GmbH Holcim Capital Corporation Ltd. Holcim European Finance Ltd. Holcim Participations (US) Inc. Holcim GB Finance Ltd. Holpac Limited Holderfin B.V. Cesi S.A. Holcim Group Services Ltd TOTAL 4. Other operational income Million CHF Gain on sale of trademark license usage right Gain on sale of Holcim (Canada) Inc. Branding and trademark fees Foreign exchange gains TOTAL 2015 31.12.2016 31.12.2015 1.07 0.96 1.47 0.72 0.75 6.07 0.29 0.67 1.07 1.02 1.26 0.74 0.76 4.93 0.31 0.71 2016 5,708 0 0 0 0 20 0 0 168 14 1.08 0.99 1.47 0.72 0.71 5.69 0.25 0.68 2015 0 159 1,808 404 99 38 144 2,318 232 0 5,910 5,202 2016 0 0 1 10 11 2015 832 159 220 8 1,218 278 L A F A R G E H O L C I M Annual Report 2016 5. Other operational expenses Million CHF Board of Director fees Stewardship, branding and project expenses Administrative expenses Loss on expired options Foreign exchange losses TOTAL 2016 (6) (612) (20) 0 (91) (729) 6. Impairment of financial investments – Group companies Million CHF Holmin Limited Holcim Capital Corporation Ltd. LafargeHolcim Continental Finance Ltd Holcim European Finance Ltd. Holcim Finance (Canada) Inc. Holcim GB Finance Ltd. Holcim Overseas Finance Ltd. Holchil Limited TOTAL 7. Loans – Group companies Million CHF Fernhoff Ltd. Holcim Participations (US) Inc. Holcim (Schweiz) AG LafargeHolcim International Finance Ltd LafargeHolcim Albion Finance Ltd Holdertrade Ltd TOTAL 2015 (9) (276) (41) (3) (78) (406) 2015 (86) (1,627) 0 (398) (13) (39) (1,565) (48) 2016 0 0 (5,203) 0 0 0 0 0 (5,203) (3,776) 31.12.2016 31.12.2015 63 322 885 60 401 970 2,932 3,138 13 31 15 0 4,246 4,585 8. Financial Investments – Group companies The principal direct and indirect subsidiaries and other holdings of LafargeHolcim Ltd are shown in note 40 to the Group’s consolidated financial statements. F i n a n c i a l I n f o r m a t i o n Holding Company Results 279 9. Interest bearing short-term financial liabilities – Third parties Million CHF 31.12.2016 31.12.2015 –0.53% floating, UBS Bond swapped into floating interest rates at inception, 2007–2017 2.38% fixed, CS Bond, 2010–2016 TOTAL 400 0 400 0 475 475 10. Interest bearing long-term financial liabilities – Group companies Million CHF LafargeHolcim International Finance Ltd LafargeHolcim Helvetia Finance Ltd Provision for unrealized foreign exchange gains TOTAL 31.12.2016 31.12.2015 1,454 434 0 1,348 218 17 1,888 1,583 11. Interest bearing long-term financial liabilities – Third Parties Million CHF 31.12.2016 31.12.2015 –0.53% floating, UBS Bond swapped into floating interest rates at inception, 2007–2017 4.00% fixed, CS Bond, 2009–2018 3.00% fixed, CS Bond, 2012–2022 2.00% fixed, UBS Bond, 2013–2022 1.00% fixed, CS Bond, 2015–2025 0.38% fixed CS Bond, 2015–2021 TOTAL 12. Movement in Treasury Shares 0 450 450 250 150 250 400 450 450 250 150 250 1,550 1,950 Number held by Lafarge Holcim Ltd Million CHF Price per share in CHF Number held by subsidi aries Reserve for treasury shares held by subsidiaries in Million CHF Price per share in CHF 1,119,339 289,544 (256,556) 1,152,327 1,135,918 239,043 (255,622) 1,119,339 73 12 (10) 75 76 11 (15) 73 65.3 40.3 40.0 64.7 67.1 47.9 56.8 65.3 219,155 150,000 (369,155) 0 83,421 543,149 (407,415) 219,155 13 7 (20) 0 6 36 (29) 13 58.1 46.2 53.2 0.0 67.1 67.1 71.9 58.1 Opening Purchases Sales Closing Opening Purchases Sales Closing 01.01.2016 2016 2016 31.12.2016 01.01.2015 2015 2015 31.12.2015 280 L A F A R G E H O L C I M Annual Report 2016 13. Contingent liabilities Million CHF 31.12.2016 31.12.2015 Holcim Capital Corporation Ltd. – Guarantees in respect of holders of 7.65% USD 50 million private placement due in 2031 6.88% USD 250 million bonds due in 2039 6.50% USD 250 million bonds due in 2043 Holcim Capital México, S.A. de C.V. – Guarantees in respect of holders of 4.20% MXN 800 million bonds due in 2016 5.99% MXN 2,000 million bonds due in 2018 7.00% MXN 1,700 million bonds due in 2019 6.51% MXN 1,700 million bonds due in 2020 Holcim Finance (Australia) Pty Ltd – Guarantees in respect of holders of 6.00% AUD 250 million bonds due in 2017 5.25% AUD 200 million bonds due in 2019 3.75% AUD 250 million bonds due in 2020 Holcim Finance (Belgium) S.A. 81 281 281 0 109 92 92 203 162 203 81 272 272 50 125 107 107 199 159 199 Commercial Paper Program, guarantee based on utilization, EUR 3,500 million maximum 215 1,260 Holcim Finance (Luxembourg) S.A. – Guarantees in respect of holders of 6.35% EUR 200 million bonds due in 2017 0.79% EUR 209 million Schuldschein loans due in 2021 1.04% EUR 413 million Schuldschein loans due in 2021 0.99% EUR 25 million Schuldschein loans due in 2023 1.38% EUR 1,150 million bonds due in 2023 1.46% EUR 152 million Schuldschein loans due in 2023 3.00% EUR 500 million bonds due in 2024 2.00% EUR 33 million Schuldschein loans due in 2026 2.25% EUR 1,150 million bonds due in 2028 236 247 488 30 1,359 180 591 39 1,359 238 0 0 0 0 0 594 0 0 F i n a n c i a l I n f o r m a t i o n Holding Company Results 281 Million CHF 31.12.2016 31.12.2015 Holcim GB Finance Ltd. – Guarantees in respect of holders of 8.75% GBP 300 million bonds due in 2017 Holcim Overseas Finance Ltd. – Guarantees in respect of holders of 3.38% CHF 425 million bonds due in 2021 Holcim US Finance S.à r.l. & Cie S.C.S. Commercial Paper Program, guarantee based on utilization, USD 1,000 million maximum Guarantees in respect of holders of 6.10% USD 125 million private placement due in 2016 6.21% USD 200 million private placement due in 2018 6.00% USD 750 million bonds due in 2019 2.63% EUR 500 million bonds due in 2020 4.20% USD 50 million bonds due in 2033 5.15% USD 500 million bonds due in 2023 LafargeHolcim International Finance Ltd – Guarantees in respect of holders of 2.49% USD 121 million Schuldschein loans due in 2021 2.80% USD 40 million Schuldschein loans due in 2021 2.69% USD 25 million Schuldschein loans due in 2023 3.20% USD 15 million Schuldschein loans due in 2023 LafargeHolcim Finance US LLC – Guarantees in respect of holders of 3.50% USD 400 million bonds due in 2026 4.75% USD 600 million bonds due in 2046 414 485 468 468 0 0 204 843 591 56 562 136 45 28 17 450 674 124 124 198 816 594 54 544 0 0 0 0 0 0 Guarantees for committed credit lines, utilization CHF 0 million (2015: CHF 96 million) Other guarantees 5,619 14 3,219 14 LafargeHolcim Ltd is part of a value added tax group and therefore jointly liable to the Swiss Federal Tax Administration for the value added tax liabilities of the other members. LafargeHolcim Ltd guarantees Holcim Finance (Luxembourg) S.A. any amount needed to fulfill its obligations from financing agreements. 282 L A F A R G E H O L C I M Annual Report 2016 14. Share interests of Board of Directors and senior management As of December 31, 2016, the members of the Board of Directors and senior management of LafargeHolcim Ltd held directly and indirectly in the aggregate 98,810,316 registered shares (2015: 98,381,894 registered shares) and no rights to acquire further registered shares and 1,461,174 call options on registered shares (2015: 953,159 call options on registered shares). Number of shares and options held by the Board of Directors as of December 31, 2016 1 Name Beat Hess Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti TOTAL BOARD OF DIRECTORS Position Chairman Co-Chairman Member Member Member Member Member Member, Finance and Audit Committee Chairman Member Member Member, Nomination, Compensation & Governance Committee Chairman Member Member Member, Strategy and Sustainable Development Committee Chairman Number of shares and options held by the Board of Directors as of December 31, 2015 1 Name Wolfgang Reitzle Beat Hess Bruno Lafont Bertrand Collomb Philippe Dauman Paul Desmarais Jr. Oscar Fanjul Alexander Gut Gérard Lamarche Adrian Loader Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Position Chairman Deputy Chairman Co-Chairman Member Member Member, Nomination, Compensation & Governance Committee Chairman Member Member, Finance and Audit Committee Chairman Member Member Member Member Member Dieter Spälti TOTAL BOARD OF DIRECTORS Member, Strategy and Sustainable Development Committee Chairman 1 From allocation, shares are subject to a five-year sale and pledge restriction period. Total number of call options 2016 443,086 Total number of shares 2016 8,792 44,939 121,673 1,129 37,086 5,901 8,161 2,209 14,882 2,314 28,938,346 69,070,670 4,920 62,751 98,323,773 443,086 Total number of call options 2015 448,206 Total number of shares 2015 6,455 6,400 43,810 116,094 0 35,957 4,772 5,769 1,080 12,490 28,935,639 69,068,278 2,527 50,859 98,290,130 448,206 F i n a n c i a l I n f o r m a t i o n Holding Company Results 283 In 2016, 35,863 shares with a value of CHF 1.9 Million were granted to the Board of Directors (2015: 34,466 shares with a value of CHF 1.4 Million). Shares and options owned by Senior Management As of December 31, 2016, members of Senior Management held a total of 486,543 registered shares in LafargeHolcim Ltd. This figure includes both privately acquired shares and those allocated under the Group’s participation and compensation schemes. Furthermore, at the end of 2016, Senior Management held a total of 1,018,088 share options; these arose as a result of the participation and compensation schemes of various years. Options are issued solely on registered shares in LafargeHolcim Ltd. One option entitles the holder to subscribe to one registered share in LafargeHolcim Ltd. Number of shares and options held by the senior management as of December 31, 2016 Name Eric Olsen Position CEO Ron Wirahadiraksa Member of the Executive Committee, CFO Urs Bleisch Pascal Casanova Roland Köhler Martin Kriegner Gérard Kuperfarb Caroline Luscombe Oliver Osswald Saâd Sebbar TOTAL SENIOR MANAGEMENT Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Total number of shares 2016 23,499 2,101 10,399 4,857 34,581 3,100 8,222 0 887 5,072 92,718 Total number of call options 2016 262,054 113,217 122,115 70,857 198,208 45,410 77,193 36,410 27,308 65,316 Total number of performance shares 2016 117,924 50,543 32,163 31,632 40,543 20,354 34,460 22,756 14,291 29,159 1,018,088 393,825 Number of shares and options held by the senior management as of December 31, 2015 Name Eric Olsen Position CEO Ron Wirahadiraksa Member of the Executive Committee, CFO Urs Bleisch Alain Bourguignon Pascal Casanova Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Jean-Jacques Gauthier Member of the Executive Committee Roland Köhler Gérard Kuperfarb Saâd Sebbar Ian Thackwray TOTAL SENIOR MANAGEMENT Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Member of the Executive Committee Total number of shares 2015 8,272 0 7,443 10,518 1,643 4,413 28,882 5,115 6,356 19,122 91,764 Total number of call options 2015 Total number of performance shares 2015 68,050 0 50,069 14,216 18,031 63,637 106,991 66,083 15,669 102,207 504,953 284 L A F A R G E H O L C I M Annual Report 2016 15. Significant shareholders According to the share register and disclosed through notifications filed with LafargeHolcim Ltd and the SIX Swiss Exchange shareholders owning 3 percent or more are as follows: – Thomas Schmidheiny directly and indirectly holds 69,070,670 shares or 11.40 percent as per December 31, 2016 (2015: 69,068,278 shares or 11.40 percent)¹; – Groupe Bruxelles Lambert holds 57,238,551 shares or 9.40 percent as per December 31, 2016 (2015: 57,238,551 shares or 9.40 percent); – NNS Jersey Trust holds 28,935,639 shares or 4.80 percent as per December 31, 2016 (2015: 28,935,639 shares or 4.80 percent)²; – Dodge & Cox declared holdings of 17,779,690 shares (falling below the threshold of 3 percent) as per November 25, 2016 (2015: 19,835,811 shares or 3.30 percent); – BlackRock Inc. declared holdings of 18,343,270 shares or 3.02 percent as per January 6, 2017 (January 26, 2016: 9,582,830 or below 3 percent); – Harris Associates L.P. declared holdings of 30,285,539 shares or 4.99 percent on August 15, 2016 (March 31, 2016: 39,345,335 or 6.48 percent). Harris Associates Investment Trust declared holding of 17,498,554 shares (falling below threshold of 3 percent) as per August 16, 2016 (February 13, 2016: 18,412,635 shares or 3.03 percent). 1 Included in share interest of Board of Directors 2 Included in share interest of Board of Directors, ultimate beneficial owner Nassef Sawiris F i n a n c i a l I n f o r m a t i o n Holding Company Results 285 16. Share capital Shares Number Million CHF Number Million CHF 2016 2015 Registered shares of CHF 2.00 par value 606,909,080 1,214 606,909,080 TOTAL 606,909,080 1,214 606,909,080 1,214 1,214 8,869 2,234 11,102 120 11,222 11,102 Appropriation of retained earnings Retained earnings brought forward Net income of the year RETAINED EARNINGS AVAILABLE FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS The Board of Directors proposes to the annual general meeting of shareholders to carry the balance forward to the new accounts BALANCE TO BE CARRIED FORWARD 11,222 11,102 Payout from capital contribution reserves The Board of Directors proposes to the annual general meeting of shareholders an appro- priation from statutory capital reserves to voluntary retained earnings and payout of CHF 2.00 per registered share up to an amount of CHF 1,214 million¹. Payout per share, gross Less withholding tax Payout per share, net 2016 2015 Cash payout CHF Cash payout CHF 2.00 1.50 0 0 2.00 1.50 1 There is no payout on treasury shares held by LafargeHolcim. On January 1, 2017 treasury holdings amounted to 1,152,327 registered shares. 286 L A F A R G E H O L C I M Annual Report 2016 TO THE GENERAL MEETING OF LAFARGEHOLCIM LTD, RAPPERSWIL-JONA Zurich, March 1, 2017 Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of LafargeHolcim Ltd, which comprise the statement of income, balance sheet and notes (pages 274 to 285), for the year ended December 31, 2016. Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorpora- tion. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended December 31, 2016 comply with Swiss law and the company’s articles of incorporation. Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. F i n a n c i a l I n f o r m a t i o n Holding Company Results 287 We have fulfilled the responsibilities described in the Auditor’s responsibilities section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying financial statements. Financial investments – Group companies Risk LafargeHolcim Ltd holds several financial investments in group companies. The principal direct and indirect subsidiaries and other holdings of LafargeHolcim Ltd are disclosed on pages 261 to 265. There is a risk that the carrying amount of the financial investments may no longer be supported through their value in use calculated on the basis of budgeted future cash flows. Management undertakes impairment tests when there are indications of impairment. If management concludes on a low underlying risk after their initial assessment, a simplified procedure is applied. Our audit response We assessed, with involvement of our valuation specialists, the valuation methodology, the underlying assumptions and the mathematical accuracy of the valuation models. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the prepa- ration of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young Ltd Daniel Wüst Licensed Audit Expert Auditor in charge Elisa Alfieri Licensed Audit Expert 5 -Y E A R- R E V I E W L A FA RGEHOLC I M GROUP F i n a n c i a l I n f o r m a t i o n 5-Year-Review LafargeHolcim Group 289 5-Year-Review LafargeHolcim Group Statement of income Net sales Gross profit Operating EBITDA Operating EBITDA margin Operating profit (loss) Operating profit (loss) margin Income taxes Tax rate Net income (loss) Depreciation, amortization and impairment of operating assets million CHF 2016 2015 2014 1 2013 2 2012 1 million CHF 26,904 23,584 18,825 19,719 21,160 million CHF 11,272 million CHF % million CHF % million CHF % 5,242 19.5 2,837 10.5 2,405 835 29 7,093 3,682 15.6 (739) (3.1) 4,421 781 (114) 8,365 3,647 19.4 2,244 11.9 1,402 581 26 8,632 3,896 19.8 2,357 12.0 1,538 533 25 8,631 3,889 18.4 1,749 8.3 2,140 550 35 million CHF 2,090 (1,361) 1,619 1,596 1,002 Net income (loss) margin % 7.8 (5.8) 8.6 8.1 Net income (loss) – shareholders of LafargeHolcim Ltd million CHF 1,791 (1,469) 1,287 1,272 4.7 610 Statement of cash flows Cash flow from operating activities million CHF 3,295 2,465 2,484 2,787 2,643 Investments in property, plant and equipment for maintenance net million CHF Investments in property, plant and equipment for expansion million CHF (997) (638) (981) (732) (719) (1,007) (1,005) (1,282) (790) (803) Disposal of financial assets, intangible and other assets and businesses net Statement of financial position Current assets Long-term assets Total assets Current liabilities Long-term liabilities Total shareholders’ equity Shareholders’ equity as % of total assets Non-controlling interest Net financial debt Capacity, sales and personnel Annual production capacity cement Sales of cement Sales of aggregates Sales of ready-mix concrete Personnel million CHF 2,342 7,222 35 336 396 million CHF 14,435 13,331 7,231 7,590 8,275 million CHF 55,182 59,967 32,259 30,355 32,922 million CHF 69,617 73,298 39,490 37,944 41,198 million CHF 12,509 14,832 6,847 7,461 8,299 million CHF 22,361 22,744 12,531 11,807 13,665 million CHF 34,747 35,722 20,112 18,677 19,234 million CHF 49.9 3,925 48.7 4,357 million CHF 14,724 17,266 million t million t million t million m³ 353.3 233.2 282.7 55.0 374.0 193.1 231.5 47.6 50.9 2,682 9,520 208.8 138.2 153.1 37.0 49.2 2,471 9,461 206.2 138.9 154.5 39.5 46.7 2,797 10,325 209.3 142.3 158.2 45.3 90,903 100,956 67,137 70,857 76,359 1 Restated due to changes in accounting policies. 2 As reported in the respective years, not restated due to changes in accounting policies. 290 L A F A R G E H O L C I M Annual Report 2016 Cautionary statement regarding forward-looking statements This document may contain certain forward-looking statements relating to the Group’s future business, development and economic performance. Such statements may be subject to a number of risks, uncertainties and other important factors, such as but not limited to (1) competitive pressures; (2) legislative and regulatory developments; (3) global, macroeconomic and political trends; (4) fluctuations in currency exchange rates and general financial market conditions; (5) delay or inability in obtaining ap provals 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 this document. LafargeHolcim assumes no obligation to update or alter forward-looking statements whether as a result of new information, future events or otherwise. Disclaimer LafargeHolcim Ltd publishes Annual Reports in English, German, and French. The English version is legally binding. Financial reporting calendar Results for the first quarter 2017 Annual General Meeting of shareholders Ex date Payout Date May 3, 2017 May 3, 2017 May 8, 2017 May 10, 2017 F i n a n c i a l I n f o r m a t i o n 291 Definition of Non-GAAP Measures used in this release Pro Forma Information The Pro Forma Financial Information for the period ended December 31, 2015 reflects the merger of Holcim and Lafarge as if the Merger had occurred on January 1, 2015. The Pro Forma Financial Information is derived from: – the audited financial information of LafargeHolcim for the period ended December 31, 2015; and – Lafarge interim financial information for the six month period ended June 30, 2015 translated into Swiss Francs. The Pro Forma Financial Information also reflects the following effects: – the financial impact corresponding to the 10 days between July 1 and July 10, 2015 (Merger date); – the impacts of the fair value adjustments for the six month period ended June 30, 2015. They mainly relate to long-term financial debt and depreciation and amortization of property, plant and equipment; – the change of scope resulting from the Merger (mainly the full consolidation of operations in China and Nigeria); and – the divestments carried out as part of a rebalancing of the Group global portfolio and completed in the second semester of 2015 mainly to CRH for operations in Europe, North America, Brazil and the Philippines. The Pro Forma Financial Information does not take into consideration any purchase price accounting impact on operating EBITDA which mainly relates to inventory valuation. Like-for-like information is information factoring out changes in the scope of consolidation occurring in 2016 (such as divestments occurring in 2016) and currency translation effects (2016 figures are converted with 2015 exchange rates in order to calculate the currency effects). The changes in scope in connection with the merger with Lafarge were already taken into account in the Pro Forma Financial Information. Like-for-like Operating EBITDA The Operating EBITDA is an indicator to measure the performance of the Group. It is defined as: – Operating profit before depreciation, amortization and impairment of operating assets. Merger, restructuring and other one-offs Operating EBITDA adjusted Operating EBITDA margin adjusted Recurring Net Income Recurring Earnings Per Share (EPS) The Merger, restructuring and other one-offs are an indicator to identify the impacts of the merger and other non recurring effects. It is defined as: – Costs directly related to the merger such as legal, banking fees and advisory costs related to the merger, employee costs related to redundancy plans directly related to the merger; and – Restructuring costs and other non recurring costs such as employee costs related to other redundancy plans. The Operating EBITDA adjusted is an indicator to measure the performance of the Group excluding the impacts of non recurring items such as merger costs and other. It is defined as: – Operating EBITDA excluding merger, restructuring and other one-offs. The Operating EBITDA margin adjusted is an indicator to measure the profitability of the Group excluding the impacts of non recurring items such as merger costs and other. It is defined as: – Operating EBITDA margin excluding merger, restructuring and other one-offs. The Recurring Net Income is an indicator to measure the net income excluding any non recurring transactions. It is defined as: +/– Net income (loss) – merger-related one-off costs; – other one-off costs above CHF 50 million on an individual basis; – costs of early bond repayments; and – gains/losses on disposals and impairments. The Recurring Earnings Per Share (EPS) is an indicator that measures the theoretical profitability per share of stock outstanding based on a Recurring Net Income. It is defined as: – Recurring Net Income divided by the weighted average number of shares outstanding. 292 L A F A R G E H O L C I M Annual Report 2016 Net Maintenance and Expansion Capex (“Capex” or “Capex Net”) The Net Maintenance and Expansion Capex (“Capex” or “Capex Net”) is an indicator to measure the cash spent to maintain or expand its asset base. It is defined as: + Expenditure to increase existing or create additional capacity to pro duce, distribute or provide services for existing products (expansion) or to diversify into new products or markets (diversification); + Expenditure to sustain the functional capacity of a particular com po- nent, assembly, equipment, production line or the whole plant, which may or may not generate a change of the resulting cash flow; and – Proceeds from sale of property, plant and equipment. The Operating Free Cash Flow is an indicator to measure the level of cash generated by the Group after spending cash to maintain or expand its asset base. It is defined as: +/– Cash flow from operating activities; and – Net Maintenance and expansion Capex. Operating Free Cash Flow Net financial debt (“Net debt”) The Net financial debt (“Net debt”) is an indicator to measure the financial debt of the Group after deduction of the cash. It is defined as: + Financial liabilities (Long Term & Short Term) including derivative liabilities; – Cash and cash equivalents; and – Derivative assets. Invested Capital The Invested Capital is an indicator that measures total funds invested by shareholders, lenders and any other financing sources. It is defined as: + Accounts receivable; + Inventories; + Prepaid and other current assets (excluding current income tax receivable); + Long-term financial assets; + Investments in associates and joint ventures; + Property, plant and equipment; + Goodwill; + Intangible assets; + Other long-term assets; – Trade accounts payable; – Other current liabilities; – Short-term provisions; – Defined benefit obligations; and – Long-term provisions. Net Operating Profit After Tax (“NOPAT”) Return On Invested Capital (“ROIC”) The Net Operating Profit After Tax (“NOPAT”) is an indicator that measures the Group’s potential earnings if it had no debt. It is defined as: +/– Net Operating Profit (being the net income before taxes, adjusted for the net financial expenses but including the interest earned on cash and cash equivalents and marketable securities); and – Standard Taxes (being the taxes applying the country tax rate to the Net Operating Profit (as defined above) after deduction of interest expenses). The ROIC (Return On Invested Capital) measures the Group’s ability to use invested capital increasingly efficiently. It is defined as Net Operating Profit After Tax (NOPAT) divided by the average Invested Capital. The average is calculated by adding the Invested Capital at the beginning of the period to that at the end of the period and dividing the sum by 2 (based on a rolling 12 month calculation). This set of definitions can be found on our website: www.lafargeholcim.com/non-gaap-measures LafargeHolcim Ltd Zürcherstrasse 156 CH-8645 Jona/Switzerland Phone +41 58 858 86 00 communications@lafargeholcim.com www.lafargeholcim.com Concept and design: hw.design gmbh © 2017 LafargeHolcim Ltd Cover photograph: Bosco Verticale in Milan, Italy, a striking example of modern and sustainable architecture. Built with LafargeHolcim concrete and advanced technical support, Bosco Verticale was designed by architect Stefano Boeri and has won numerous international prizes.