LafargeHolcim Annual Report 2017

Plain-text annual report

B U I L DI N G F O R G RO W T H 2 0 17 A N N UA L R E P O R T LAFA RGEHOLCIM L AFARGEHOLCIM IS THE LEADING GLOBAL CONSTRUC T ION MATER I ALS AND SOLUT IONS COMPANY. FROM SMALL LOCAL PROJECTS TO THE BIGGEST, MOST TECHNICALLY CHALLENGING INFRASTRUCTURE ENDEAVORS, WE SUPPORT BUILDERS AROUND THE WORLD. TOWA RD INTEG RATED REPORTING SUSTAINABILITY REPORT (cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:564)(cid:85)(cid:86)(cid:87)(cid:3)(cid:86)(cid:87)(cid:72)(cid:83)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:77)(cid:82)(cid:88)(cid:85)(cid:81)(cid:72)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:3) integrated annual report. By applying the principles of integrated reporting, we aim to present a more holistic (cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:82)(cid:90)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16) (cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:17)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:82)(cid:83)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3) report will be an increasingly effective tool for all stakeholders to understand how LafargeHolcim contributes to our world. FIND OUT MORE ABOUT WHAT WE DO ONLINE www.lafargeholcim.com The Sustainability Report complements this report. It presents more detail on our sustainability achievements as well as progress against our sustainability strategy, The 2030 Plan. It will be published in April 2018. K E Y GROUP F IGUR E S FIN A NCI AL HIGHLIGHTS SALES CONTENTS 6.1 4.7 RECURRING EBITDA GROWTH % 2016: 8.7 NET SALES GROWTH % 2016: –1.7 5,9 9 0 RECURRING EBITDA CHF M 2016: 5,950 209. 5 SALES OF CEMENT MILLION TONNES 2016: 233.2 1,6 85 FREE CASH FLOW CHF M 2016: 1,660 278.7 SALES OF AGGREGATES MILLION TONNES 2016: 282.7 5.8 50.6 RETURN ON INVESTED CAPITAL % 2016: 5.2 SALES OF READY-MIX CONCRETE MILLION M3 2016: 55.0 Notes: Recurring EBITDA replaces the former Operating EBITDA Adjusted. Recurring EBITDA excludes restructuring, litigation, implementation and other non-recurring costs. Free cash flow is defined as cash flow from operating activities less net maintenance and expansion Capex. Recurring EBITDA growth and Net Sales growth are both presented on a like-for-like basis. Return On Invested Capital 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). The non-GAAP measures used in this report are defined on page 251. 1 2 4 6 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 42 44 46 50 54 84 Group at a glance Chairman’s statement Chief Executive’s statement Our Leadership Around our business Tailored solutions Customer focus Recycled materials Unlocking value Marketplace Strategy 2022 By the numbers Business review: > Asia Pacific > Europe > Latin America > Middle East Africa > North America Innovation Our people Health & Safety Risk management Capital market information Corporate governance Compensation report Management discussion & analysis Financial information 108 121 LAFARGEHOLCIM ANNUAL REPORT 20172 L A F A R G E H O L C I M GROUP AT A GL ANCE GROUP AT A GL A NCE As the leading global construction materials and solutions company, LafargeHolcim can help address challenges such as urbanization and climate change. We offer a strong asset base in around 80 countries, the most innovative cement, concrete, and aggregates solutions to meet our customers’ needs, and a commitment to health, safety, and sustainability. OUR GLOBAL PRESENCE 81,000 EMPLOYEES WORLDWIDE 2,300 OPERATING SITES Top 3 POSITION IN 80% OF OUR MARKETS NO RT H A MERI CA NET SALES [CHFm] 5,664 READ MORE P36 — 37 L AT IN A MERI CA NET SALES [CHFm] 2,944 READ MORE P32 — 33 OUR BUSINESSES CEMENT AGGR EGATES From classic masonry cements to high- performance products tailored for specialized settings, we offer an extensive line of cements and hydraulic binders. Customers range from individuals buying bag cement to businesses undertaking major construction projects. Our aggregates serve as raw materials for concrete, masonry and asphalt as well as base materials for buildings, roads and landfills. Our recycled aggregates use crushed concrete and asphalt from deconstruction. 209.5 SALES MILLION TONNES 2016: 233.2 278.7 SALES MILLION TONNES 2016: 282.7 3 EUROPE NET SALES [CHFm] 7,167 READ MORE P30 — 31 MIDDLE EAST AFRICA NET SALES [CHFm] 3,374 READ MORE P34 — 35 A SI A PAC IF I C NET SALES [CHFm] 7,441 READ MORE P28 — 29 REA DY-MIX SOLUTIONS & PRODUCTS READ MORE Concrete is the world’s second most consumed substance by volume after water. In this highly competitive and decentralized market, we stand apart through the quality and consistency of our products, the breadth of our portfolio and our innovative solutions. Supported by technical expertise and generations of experience, we create innovative solutions that meet our customers’ specific needs and requirements. CHIEF EXECUTIVE’S STATEMENT P6 — 9 STRATEGY P24 — 25 50.6 SALES MILLION M3 2016: 55.0 2.1 NET SALES 2017: CHF bn LAFARGEHOLCIM ANNUAL REPORT 20174 L A F A R G E H O L C I M CHA IRMAN ’ S S TATEMENT CH A I R M A N ’ S S TATE ME NT Dear shareholders, 2017 was a year of progress for LafargeHolcim. In performance terms we delivered continued growth in net sales and margins leading to an increase in Recurring EBITDA and cash flow. This solid operational result once again highlights the underlying strength of our asset base combined with our ability to deliver in all types of market conditions. But, like you, we have high expectations and believe that LafargeHolcim has the potential to achieve even more. I’m excited, therefore, that Jan Jenisch joined us as Chief Executive Officer in September last year. The speed with which he has identified the opportunities to grow our company is impressive. The Board and I have full faith in Jan’s approach to leading LafargeHolcim, which you can read in his own words on page 6. Guided by our Strategy 2022 we are confident we can deliver long-term year-on- year success. LafargeHolcim is the global leader in building materials and solutions. We employ the most talented people in the industry and apply the right technology and solutions to help our customers achieve their goals, thereby helping to meet global challenges such as urbanization and climate change. The future of LafargeHolcim looks bright. We hope you will see evidence of this strength and differentiation as you look through this report. In keeping with our commitment to integrated reporting, our aim with this 2017 edition is to demonstrate to all our stakeholders how LafargeHolcim creates value in both financial and non- financial terms. In the coming editions we hope to do this more and more as we seek to find the right way to improve our disclosures and track our progress. I hope I have managed to convey some of my excitement for the years ahead. Please read Jan’s letter to learn about the course that will guide us. I would like to take this opportunity to express my gratitude to my fellow Board members for their commitment and wise counsel and to the members of the Executive Committee under whose leadership we made real progress in 2017. I also extend my sincere thanks and admiration to our employees around the world who make a difference every day and who will take us to the next level of performance in the coming years. Most of all, I thank you for your continued confidence in this great company. Beat Hess Chairman A time for reflection Any review of 2017 must also address the events that took place in our operations in Syria in 2014 and that have been reported by various news outlets during the year. The Board and I condemn the mistakes that were made in no uncertain terms. They are unacceptable and we have taken decisive steps to prevent this happening again. Such events impact our reputation. They also affect our people. That’s why our focus has been squarely on our employees. Speaking on behalf of the Board, we are determined to ensure that our employees continue to take pride in the work we do and the way we do it. To underline the importance of these aims we took a number of actions in 2017. Among the most notable was the establishment of a Health, Safety and Sustainability Committee of the Board (see page 63) and an Ethics, Integrity and Risk Committee at operational level (see page 46). In keeping with our commitment to good corporate citizenship, the Board has also endorsed a strategy for dealing with our carbon emissions. These actions reinforce the underlying truth: LafargeHolcim is a first-class company that holds itself to the highest standards wherever it operates. We work every day to create a safe, healthy and ethical workplace for the people who truly create value for all our stakeholders, including you, our shareholders. Today’s LafargeHolcim is a global company. We draw from a long history of operations around the world, using our diversity as a strength and driver of differentiation from our peers. At the same time we are a local company, close to our customers and vital contributors to the communities in which we live and work. 5 We are confident we can deliver long-term year-on-year success. LafargeHolcim is the global leader in building materials and solutions. We employ the most talented people in the industry and apply the right technology and solutions to help our customers achieve their goals, thereby helping to meet global challenges such as urbanization and climate change. The future of LafargeHolcim looks bright. CORPORATE GOVERNANCE Our approach to assuring the long-term value of the Group Find out more P54 THE 2030 PLAN For complete results of our progress against The 2030 Plan, see our 2017 Sustainability Report, to be published in April 2018. LAFARGEHOLCIM ANNUAL REPORT 20176 L A F A R G E H O L C I M CHIEF E XECUT I VE ’ S S TATEMENT CHI E F E X ECU T I V E ’ S S TATE ME NT My review of the business underlined the opportunities and made our priorities as a company clear. While we delivered strong annual results in 2017, they do not reflect the full potential of this business. As the market leader, we will hold ourselves to a higher standard than anyone else in our industry. The building materials sector is highly attractive with growth driven by the rapid rise in the global population, the continuing shift towards urban living and the increasing need for infrastructure development. Demand for better living standards and more efficient infrastructure, digitalization of the construction value chain and the requirement to develop sustainable construction solutions are also fueling innovation and spending. Our traditional business segments of Cement, Aggregates and Ready-mix Concrete are at the center of these global megatrends. Our international scale and excellent positioning in local markets will enable us to take full advantage of them. Dear shareholders, In 2017 we made good progress across all key metrics. The growth in sales and the over-proportional increase in EBITDA represent a good performance and gives us a very good basis to build on. The fact that four of our five regions reported growing EBITDA is further testimony to the global strength of LafargeHolcim. Recurring EBITDA reached CHF 5,990 million for the full year. This figure includes the reclassification of the Group’s profit share in the Chinese joint venture Huaxin — CHF 126 million for 2017 — pursuant to our IFRS 11 assessment, following the ongoing streamlining of our Chinese operations. Like-for-like Recurring EBITDA, which is not impacted by the reclassification of Huaxin profits, grew by 6.1 percent over the full year, in line with guidance from last October. Since joining the company in September 2017 I have visited many of our operations around the world to see at first-hand the scale and strengths of the business. I have been very impressed by the experience and enthusiasm of our people, whose commitment and hard work are the foundation for our success. LafargeHolcim is a first-class company with the best assets in a growing building materials market and there are clear opportunities to enhance the business and target growth and outperformance. 7 LafargeHolcim is a first-class company with the best assets in a growing building materials market and there are clear opportunities to enhance the business and target growth and outperformance. LAFARGEHOLCIM ANNUAL REPORT 20178 L A F A R G E H O L C I M CHIEF E XECUT I VE ’ S S TATEMENT Strategy 2022 LafargeHolcim has launched its new Strategy 2022 – ‘Building for Growth’, that aims to drive profitable growth and simplify the business to deliver resilient returns and attractive value to stakeholders. The new strategy will shift gears towards growth of the top and bottom line over the next five years. Over this period, the Group commits to the following targets 1: – Annual Net Sales growth of 3 to 5 percent – Annual Recurring EBITDA growth of at least 5 percent – Improvement in Free Cash Flow to over 40 percent of Recurring EBITDA – Improvement in ROIC to more than 8 percent The strategy is based on the four value drivers of Growth, Simplification & Performance, Financial Strength and Vision & People. Growth The Group will focus on capitalizing on this underlying growth, seeking to deliver above- market performance. LafargeHolcim will utilize its strong asset base to invest in markets where greater opportunities exist while being more selective in other markets. The Group will execute more aggressive strategies for Aggregates and Ready-mix Concrete alongside its existing strong Cement business. The Group will build a fourth business segment, Solutions & Products, to take advantage of products and applications that are closer to the customer. This segment, which currently includes precast, concrete products, asphalt, mortars and contracting and services, already generates annual Net Sales of CHF 2.1 billion. The agile, country-based growth strategies will target value-enhancing bolt-on acquisitions to leverage scale and margins. Simplification & Performance The value driver Simplification & Performance, will create a cost disciplined operating model and a corporate-light structure. There will be a greater focus on countries, with local markets empowered and fully profit and loss accountable. The 35 biggest markets will report directly to Group management and local profit & loss leaders will be assigned for all four business segments. The two Corporate business functions have been merged and the Group management is reduced to nine members. Simplification will allow LafargeHolcim to 1 All figures at constant exchange rates 9 improve its cost efficiency considerably. This is expected to create an Sales, General & Administration (SG&A) cost saving of CHF 400 million per annum with the related program expected to be completed by Q1 2019. As part of this program, the Corporate offices in Singapore and Miami will be closed by mid-year. A strong performance culture will be created with simplified KPIs and new incentives that are fully aligned to the Group’s goals. Profit and loss responsibility and accountability is implemented for countries and all four business segments. In Aggregates and Ready-mix Concrete we intend to close the performance gap to best in class. Financial Strength Financial Strength will ensure disciplined value creation through maintaining an investment grade credit rating. Growth will be funded through divestment of selected assets during the course of 2019 worth at least CHF 2 billion. Capex investment will be kept below CHF 2 billion per annum and excess free cash flow will be used to pay an attractive dividend. Vision & People Vision & People further develops our values of trust and integrity, our commitment to Health & Safety and our desire to be at the forefront of sustainable construction solutions and innovation. We want to foster an entrepreneurial leadership style and we are focused on the long-term success of LafargeHolcim. My team and I are now working to implement this strategy across the Group. We will provide regular updates as we focus on achieving our targets and on producing an even stronger result in 2018. On behalf of all of LafargeHolcim’s employees I thank you for your continued trust and support. Jan Jenisch Chief Executive Officer OUR STRATEGY Learn more about our plan to realize our full potential P24 — 25 BY THE NUMBERS A summary of 2017 performance P26 — 27 LAFARGEHOLCIM ANNUAL REPORT 201710 L A F A R G E H O L C I M OUR LE ADER SHIP OUR LE A DE R S HI P Meet the LafargeHolcim Executive Committee. Collectively, they are responsible for the day-to-day management of our Group. Oliver Osswald Géraldine Picaud Marcel Cobuz Caroline Luscombe René Thibault 11 ABOUT OUR DIRECTORS Learn about our Board of Directors in Corporate Governance Find out more P72 — 77 Saâd Sebbar Jan Jenisch Martin Kriegner Urs Bleisch LAFARGEHOLCIM ANNUAL REPORT 201712 L A F A R G E H O L C I M AROUND OUR BUS INESS A ROUND OUR BUS I NE S S Our materials and solutions help customers meet their objectives. This also helps to solve global challenges. Together with our customers we are helping (cid:87)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:15)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:72)(cid:602)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3) versatile, more affordable and more sustainable solutions. Through the LafargeHolcim Foundation for Sustainable Construction we raise awareness of the role that architecture, engineering, urban planning, and the building industry have in achieving a more sustainable future — especially through the LafargeHolcim Awards (see inset). Today we are becoming a lean, agile (cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:564)(cid:85)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3) our customers’ needs, while at the same time we look at our business from many points of view — i.e., an ‘integrated (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:519)(cid:3)(cid:515)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:78)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3) In the following pages we highlight a few examples of how we’ve added value in 2017. As the population grows, so does the need for building. New homes, new workplaces, new infrastructure — all required on an unprecedented scale. Faced with the challenge of rapid urbanization, diminishing resources and climate change, it’s not enough to simply meet demand. Building must be safer and more affordable. The structures we leave behind must be more durable and more sustainable. Materials and techniques must be more friendly to the environment than they have been in the past. Solutions should be developed that will allow builders to gain time and maximize space. Transport links should connect communities and businesses more effectively. Affordable homes that are built today should be passed proudly to the next generation. As the world’s leading provider of building materials and solutions, LafargeHolcim is well-placed to make a difference. We can leverage our global strength and generations of know-how to offer the best and most innovative materials and solutions to our customers. The building materials sector is highly attractive with growth driven by the rapid rise in the global population, the continuing shift towards urban living and the increasing need for infrastructure development. CHIEF EXECUTIVE’S STATEMENT P6 — 9 HOW WE PERFORMED IN OUR REGIONS P28 — 37 AS A GROUP P108 — 113 13 The LafargeHolcim Foundation conducts the most significant global competition for sustainable design — the LafargeHolcim Awards. The 5th Awards in 2017 attracted more than 5,000 projects and visions in sustainable construction to be implemented across 131 countries. Half of all entries were submitted by participants younger than 30 years of age. The LafargeHolcim Awards Silver winner of 2017 in Asia Pacific by SHAU is shown above. The Fibonacci-inspired park pavilion in Bandung, Indonesia is as minimalistic as it is well conceived — providing not only a public library, but also storage, public toilets and a prayer room. MATERIALS AND TECHNIQUES THAT ARE MORE FRIENDLY TO THE ENVIRONMENT SOLUTIONS THAT ALLOW BUILDERS TO GAIN TIME AND MAXIMIZE SPACE TRANSPORT LINKS THAT CONNECT COMMUNITIES AND BUSINESSES MORE EFFECTIVELY AFFORDABLE HOUSING THAT CAN BE PASSED PROUDLY FROM ONE GENERATION TO THE NEXT LAFARGEHOLCIM ANNUAL REPORT 201714 WOR K ING FOR TA RGE T INFR A S TRUC TUR E M A R K E T S Mexico City’s new international airport will be the most sustainable in the world — and we are proud to support it. Our teams designed special concretes able to withstand aggressive sulfate and chloride conditions for 75 years, with a minimal environmental footprint. This project adds to the list of major airports we helped build, a list which already includes Jeddah International and Kuala Lumpur International. We also have expertise in mining. In Canada’s Timmins mining camp, we are on-site at one of the world’s deepest underground mines where we’ve developed and continue to supply specialty backfill products to help increase mine output. LafargeHolcim has deployed such mine-specific solutions in more than 40 mines across North America, Africa, Europe and Asia Pacific. In Algeria LafargeHolcim worked with contractors and local authorities to develop a range of solutions for road foundations and pavement. As a result we helped lower the cost and construction time of road projects and at the same time made them far more durable (enabling a typical lifespan of 15 – 20 years, as compared to 2 – 5 years for conventional road projects). These specific road solutions are now available in more than 20 countries. Every infrastructure sector has its own specific challenges when it comes to construction and operations. LafargeHolcim’s expert infrastructure teams work from the design stage to deliver sector-specific solutions so that infrastructure projects are more efficient and sustainable, anywhere in the world. A B B 15 TAI LO RED SOLUT IONS Want to comment? Tweet @LafargeHolcim using #INFRASTRUCTURE 16 A A CU S TOM ER FO C US Want to comment? Tweet @LafargeHolcim using #RETAIL 17 CLOS E TO OUR M A R K E T S In 2005 we established a retail construction franchise network, called Disensa, in Ecuador. The network laid the foundation for a worldwide expansion that now accounts for 1,000 Disensa stores across Latin America (including Mexico) and more than 600 similar stores in the Middle East and Africa, where they’re called Binastore. Our vision for retail is to offer self-builders and smaller contractors a one-stop shop. Within our stores these customers enjoy easy access to LafargeHolcim’s own building solutions as well as a wide range of other construction materials and services. The stores support customers with microcredit and technical help as well as complete kits for different phases of home building. They also offer solutions to facilitate construction including financing plans, access to architects and standard building designs. To strengthen the foundation we give our franchisees the tools to succeed, for example with training on products, store management, marketing and finance. With individual customers accounting for around 60 percent of Group net sales, having direct access to the retail market is a strategic priority. In 2018 we aim to continue broadening our reach, focusing particularly on India and Southeast Asia. This global initiative demonstrates how we are bringing our commitment to commercial excellence to life for our retail customers while developing a strong network of trained franchisees. 18 CLOS I NG T HE C I RCLE In December 2016, Bouygues Construction began renovating two heritage buildings in the heart of Paris. Rather than producing new concrete for the reconstruction project, they partnered with LafargeHolcim’s business in France to turn the sites’ rubble — the waste left behind after construction and demolition — into ready-to-use concrete. Using our aggneo® solutions, our teams in France were able to make use of all inert material, turning 12.5 percent into new concrete products and 87.5 percent into new road gravels. Transporting, sorting and recycling 4,000 tonnes of demolition materials meant that we preserved that same amount of natural resources from quarry extraction. More than 500 tonnes of this waste was then recycled to make new concrete, contributing to a reduction in CO2 emissions of up to 8 percent for 1 tonne of recycled aggregates. The two renovated buildings now comply with France’s green building standards (“Haute Qualité Environnementale” or HQE) as well as Europe’s targets for the recycling of construction and demolition waste. This circular economy project is also an illustration of how the solutions driven by our sustainability strategy (The 2030 Plan) can be used to overcome the real-life building challenges faced by our customers and partners. B 19 A A REC YCL ED M ATER IA LS Want to comment? Tweet @LafargeHolcim using #CIRCULARECONOMY 20 A A U N LO CK ING VA LUE Want to comment? Tweet @LafargeHolcim using #WASTEMANAGEMENT 21 GEOC YCLE I N I NDI A In India about 80 percent of municipal waste is uncontrolled, dumped and openly burned. The problem is felt acutely in Goa, where the economy thrives on tourism. Local authorities are tackling the problem head-on, showcasing new methods to create a clean and green Goa. In 2017 Geocycle India met with public and private sector players working on landfill remediation. To demonstrate how they could help, Geocycle co-processed approximately 5,000 tonnes of refuse-derived fuel, winning the trust of authorities. The pilot provided a sustainable model for cleaning up landfills without any future liability for the state government. The Goa site is now being visited by city officials from all over India as a showcase of successful partnership between Geocycle and municipalities. Municipalities of Bangalore, Chennai, Mumbai and others are now looking at similar projects. B S OLV I NG A MOUN T I NG CH A LLE NGE Fifty million people move to cities each year to find better opportunities for themselves and their children. One consequence is a lot more waste. Between 2012 and 2025, the amount of municipal solid waste generated each year will increase from 1.3 billion tonnes to 2.2 billion tonnes, according to World Bank estimates. The extremely high temperatures required for cement production offer a unique and safe solution to dispose of waste for which no other solution exists. Geocycle thus opens a channel for a ‘circular economy’: it takes waste that cannot be reused or recycled, treats it and then converts it into a resource. Our Geocycle business offers a unique and sustainable solution to this growing challenge. Today Geocycle treats around 10 million tonnes of waste annually, serving more than 10,000 customers in over 50 countries. Our aim is to reach 22 million tonnes by 2025. Using state-of-the art technology, tailored processes and in-depth expertise, Geocycle converts industrial, municipal and agricultural waste into a suitable material from which mineral and/or combustible components can be recovered in our cement kilns. Geocycle contributes to lower CO2 emissions from cement production by reducing use of natural resources such as fossil fuels and virgin raw materials. Simultaneously it conserves land which would otherwise be used for landfill and reduces air and water pollution as compared to either landfill or incineration. This also significantly reduces the burden on municipalities that need solutions to this ever-growing problem. 22 L A F A R G E H O L C I M MARKE TPL ACE M A R K E T PL ACE The world needs to build — now more than ever before. At LafargeHolcim we offer materials and solutions that meet the needs of customers around the world. This is our marketplace. LONG-TER M TRENDS AFFE CTI NG O UR BUSI NESS UR BANIZATIO N CHA NGING STA KEHOLDER EXP ECTATIONS The number of people living in cities increases by 50 million every year, and the figure is growing. In the next fifteen years the number of cities whose population exceeds 15 million will rise from 13 to 20, with all seven new ‘megacities’ appearing in emerging markets. By 2050 an estimated six billion people — or two-thirds of the world’s population — will live in cities. This growth will require durable, affordable workplaces and homes. Resilient and sustainable buildings must be constructed in congested urban areas, and the non-recyclable construction waste must be disposed of sustainably. GLO BAL IZATION AND THE CONTINUED RISE OF E MERGI NG MARKE TS National boundaries and geographical distance are less important than in the past. Ideas, goods and services now travel more freely, helping to diffuse the locations of innovation and economic growth. This will be a key driver of the increasing share of wealth creation that will occur in emerging Asia, Africa and Latin America. The proliferation of mobile devices and social media enables political and social activity just as much as economic activity. Interest groups can advance their agendas quickly and draw membership from a wider geographic area. Ordinary citizens can thus wield greater influence over commercial and non- commercial institutions than in the past. CLIMATE CHANGE AND SUSTA INABL E RESOURCE MANAGEMENT The earth’s climate is changing. The 2015 UNFCCC COP21 conference in Paris marked a turning point in the global consensus, achieving broad agreement that society must reduce its carbon emissions to help limit warming to a tolerable level (the ‘2 degree scenario’). This deliberate reduction will have significant consequences for building and infrastructure designers, developers and owners, the construction industry and the construction materials industry. Most notably, sustainability criteria are becoming an increasingly critical decision factor when choosing building materials. 23 50m Increase in the number of people living in cities every year TH E SHORT-ME DIUM TERM ENVIR ONMENT OUR RESPO NSE OVE R CAPAC ITY From a global perspective, cement plants are being utilized below capacity. However, the market-level picture varies. While some markets indeed face structural over-supply issues, others remain under-supplied. DIGI TA LI ZATI ON Whether it’s homebuilders buying materials online or developers conceptualizing projects over a virtual workspace, digital technologies are reshaping the practice of building. E N VIR ONMENTAL RE GULATION A ND QUAS I- REGU LATI ON Regulators aren’t the only ones enforcing environmental standards. Investors, NGOs, employees and communities expect companies to be transparent about their activities and mindful of the potential impact. The markets for building materials are fundamentally local — so location and diversification are key. LafargeHolcim operates in a roughly even balance between mature and emerging markets. Urban markets are a strength. We are among the top three in 80 percent of our markets, and no single market contributes more than 15 percent of our revenue. Global strength allows us to disseminate best practices and innovative products. Through our research and development we develop new products and solutions that deliver more for our customers and meet their specific needs, for example in Building Information Modelling. Often our research leads to products with enhanced sustainability characteristics, providing benefits to society overall. We are focused on creating value for all stakeholders over the long term. This is one of the main reasons we developed The 2030 Plan, which reflects our view of sustainability as both responsibility and business opportunity. (Our full performance against this plan is reported in the 2017 Sustainability Report, to be published April 2018.) And as demonstrated by our active engagement in the Carbon Pricing Leadership Coalition and the Carbon Disclosure Project, we support carbon pricing mechanisms as essential to developing competitive low-carbon solutions as well as transparency in disclosing carbon-related performance. The strategy that follows has been developed in full view of the trends in our marketplace and our unique strengths as a company. It will guide us for the next five years. LAFARGEHOLCIM ANNUAL REPORT 2017 24 L A F A R G E H O L C I M S TR ATEGY 202 2 S T R ATEG Y 2 02 2 : BUI LDI NG FOR GROW TH STRATEGY WIL L D EL IVER AT TRACTIVE RETURNS LafargeHolcim’s new Strategy 2022, “Building for Growth”, aims to drive profitable growth and simplify the business to deliver resilient returns and attractive value to stakeholders. The new strategy will shift gears towards growth of the top and bottom line over the next five years. Over this period, the Group commits to the following targets1: NET S ALES GROW TH RECURR ING EBI TDA GROWTH FREE CA SH FLOW TO RECURRING EBITDA RETURN ON INVESTED CAP ITAL 3-5 % ANNUALLY OF AT LEAST 5 % ANNUALLY >40 % >8 % The strategy is based on the four value drivers of Growth, Simplification & Performance, Financial Strength and Vision & People. The building materials market is a CHF 2,500 billion fragmented global market which is forecast to grow 2 to 3 percent per annum, faster than GDP. Through the value driver Growth, the Group will aim to capitalize on this underlying growth, seeking to deliver above-market performance. LafargeHolcim will utilize its strong asset base to invest in markets where greater opportunities exist while being more selective in other markets. The Group will execute more aggressive strategies for Aggregates and Ready-mix Concrete alongside its existing strong Cement business. The Group will build a fourth business segment, Solutions & Products, to take advantage of products and applications that are closer to the customer. This segment, which currently includes precast, concrete products, asphalt, mortars and contracting and services, already generates annual Net Sales of CHF 2.1 billion. The agile, country-based growth strategies will target value-enhancing bolt-on acquisitions to leverage scale and margins. 1 All figures at constant exchange rates CHIEF EXECUTIVE’S STATEMENT Find out more P6 — 9 BY THE NUMBERS Find out more P26 — 27 25 Our strategy will enable us to realize the full potential of LafargeHolcim. GR OWTH SI MPLI FI CATION & PERFORMANCE FINA NCI AL STRENGTH VISI ON & PEOP LE Financial Strength will ensure disciplined value creation through maintaining an investment grade credit rating. Growth will be funded through divestment of selected assets during the course of 2019 worth at least CHF 2 billion. Capex investment will be kept below CHF 2 billion per annum and excess free cash flow will be used to pay an attractive dividend. The value driver Vision & People further develops the values of trust and integrity, the commitment to Health & Safety and the desire to be at the forefront of sustainable construction solutions and innovation. We want to foster an entrepreneurial leadership style and a focus on the long-term success of LafargeHolcim. The value driver Simplification & Performance will create a cost disciplined operating model and a corporate-light structure. There will be a greater focus on countries, with local markets empowered and fully profit and loss accountable. The 35 biggest markets will report directly to Group management and local profit and loss leaders will be assigned for all four business segments. The two Corporate business functions Performance & Cost and Growth & Innovation have been merged and the Group management is reduced to nine members. The simplification will allow LafargeHolcim to improve its cost efficiency considerably. This is expected to create a Sales, General & Administration (SG&A) cost saving of CHF 400 million per annum with the related program expected to be completed by Q1 2019. A strong performance culture will be created with simplified KPIs and new incentives that are fully aligned to the Group’s goals. Profit and loss responsibility and accountability is implemented for countries and all four business segments. In Aggregates and Ready-mix Concrete, the Group intends to close the performance gap to the best-in-class performers. LAFARGEHOLCIM ANNUAL REPORT 201726 L A F A R G E H O L C I M BY THE NUMBER S BY T HE NUMBE R S FINA NCI AL RECURRING EBITDA 1 MILLION CHF A key measure of earnings and operating profitability. SALES OF CEMENT MILLION TONNES A critical input to housing, non- CO2 EMISSIONS housing and infrastructure % INTENSITY REDUCTION 17 16 5,990 5,950 2017 in brief Solid performance led by good growth in India and operational excellence in the US. 209.5 233.2 construction. 2017 in brief Turnaround in second half of 2017 drives performance. FREE CASH FLOW 2 MILLION CHF A measure of how much cash our business generates. SALES OF AGGREGATES MILLION TONNES A key material for roads, landfills HEALTH & SAFETY FATALITIES 17 16 1,685 1,660 2017 in brief A benefit of prudent capital allocation focusing on key markets. RETURN ON INVESTED CAPITAL 3 % 17 16 5.8 5.2 A measure of how well we deploy capital to generate returns. 2017 in brief A strong foundation for future performance. 1 Excluding restructuring, litigation, implementation and other non-recurring costs. 2 Cash flow from operating activities less net maintenance and expansion Capex. 3 Return On Invested Capital 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). BUSINESS REVIEW P28 — 37 MD&A P108 — 118 17 16 17 16 and buildings. 2017 in brief 278.7 282.7 Stable performance despite difficult weather. 24 24 Reduction of net CO2 emissions per tonne of cement 1 compared to 1990 (the industry baseline). 2017 in brief Stable performance of net CO2 emissions per tonne of cement We want to achieve a zero fatality target by 2030. 2017 in brief 31 47 The number of employees who lost their lives increased from three to ten. Thirty-four third- party individuals died, compared to 39 in 2016. SALES OF READY-MIX CONCRETE Used by construction and public GENDER DIVERSITY We track gender diversity at MILLION M3 works contractors worldwide. % MINIMUM OF EACH GENDER management level. 50.6 55.0 2017 in brief Challenging conditions in key 17 16 markets. 2017 in brief 18 15 The figure at left combines top and senior management levels. 17 16 17 16 17 16 OPERATIONAL NO N-FINA NCIA L RECURRING EBITDA 1 MILLION CHF A key measure of earnings and operating profitability. 5,990 5,950 2017 in brief Solid performance led by good growth in India and operational excellence in the US. SALES OF CEMENT MILLION TONNES 17 16 209.5 233.2 A critical input to housing, non- housing and infrastructure construction. 2017 in brief Turnaround in second half of 2017 drives performance. CO2 EMISSIONS % INTENSITY REDUCTION 17 16 FREE CASH FLOW 2 MILLION CHF A measure of how much cash our business generates. SALES OF AGGREGATES MILLION TONNES A key material for roads, landfills and buildings. HEALTH & SAFETY FATALITIES 1,685 1,660 2017 in brief A benefit of prudent capital allocation focusing on key markets. 17 16 278.7 282.7 2017 in brief Stable performance despite difficult weather. 17 16 27 24 24 31 47 Reduction of net CO2 emissions per tonne of cement 1 compared to 1990 (the industry baseline). 2017 in brief Stable performance of net CO2 emissions per tonne of cement We want to achieve a zero fatality target by 2030. 2017 in brief The number of employees who lost their lives increased from three to ten. Thirty-four third- party individuals died, compared to 39 in 2016. RETURN ON INVESTED CAPITAL 3 A measure of how well we deploy capital to generate 5.8 5.2 returns. 2017 in brief A strong foundation for future performance. 1 Excluding restructuring, litigation, implementation and other non-recurring costs. 2 Cash flow from operating activities less net maintenance and expansion Capex. 3 Return On Invested Capital 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). SALES OF READY-MIX CONCRETE MILLION M3 Used by construction and public works contractors worldwide. GENDER DIVERSITY % MINIMUM OF EACH GENDER We track gender diversity at management level. 17 16 50.6 55.0 2017 in brief Challenging conditions in key markets. 17 16 18 15 2017 in brief The figure at left combines top and senior management levels. 1 This refers to cementitious materials as per WBCSD-CSI Cement CO2 and Energy Protocol 17 16 17 16 % 17 16 LAFARGEHOLCIM ANNUAL REPORT 201728 L A F A R G E H O L C I M BUS INESS RE V IE W BUS I NE S S R E V I E W : A S I A PAC I F IC In 2017 volumes were stronger in India, though challenges remain in Southeast Asia. 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(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) (cid:82)(cid:81)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:42)(cid:82)(cid:82)(cid:71)(cid:3)(cid:87)(cid:82)(cid:83)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3) (cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:54)(cid:82)(cid:88)(cid:87)(cid:75)(cid:3) (cid:58)(cid:68)(cid:79)(cid:72)(cid:86)(cid:17) Our presence* 117 CEMENT & GRIND IN G P LANT S 6 8 AGGREGATES PLANTS 35 4 READY-MIX CONCRETE PLANTS (cid:13)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:89)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86) 29 Circular economy In 2017 the Chinese government enforced a number of plant shutdowns in the steel and cement industry as a means of mitigating their environmental impact. However, the ruling did not affect the facilities of Huaxin Cement (a joint venture company), due to its far-sighted commitment to alternative fuels. For years Huaxin has adhered to a harmonious integration of business activities and environmental protection. Based on the pressing need to safely dispose of solid waste in China, Huaxin has developed innovative technologies for co-processing domestic waste, floating waste, municipal sludge and hazardous waste in cement kilns. It has received 94 patents and 1 software copyright for its innovations in co- processing solid waste in Huaxin kilns. WHERE WE OPERATE Cement plant Grinding plant 1,418 RECURRING EBITDA CHF MILLION 2016: 1,594 These solid regional performances were offset by challenging market conditions in a cost inflationary environment in Southeast Asia. Strong competition and soft demand in Malaysia affected price levels compared to the prior year. In the Philippines, delays in infrastructure projects and an influx of imports affected revenues. In Indonesia, continuous volume growth was muted by pressure on price resulting from new capacity in the market. CONSOLIDATED CEMENT GRINDING CAPACITY MILLION TONNES PER YEAR 67.8 INDIA 10.9 CHINA 9.1 PHILIPPINES 117.4 ASIA PACIFIC 14.8 INDONESIA 10.9 MALAYSIA 3.9 BANGLADESH LAFARGEHOLCIM ANNUAL REPORT 201730 L A F A R G E H O L C I M BUS INESS RE V IE W BUS I NE S S R E V I E W : EUROPE Market recovery in the region and continued focus on costs support further margin expansion. Our presence 56 CEMENT & GRIND IN G P LANT S 267 AGGREGATES PLANTS 569 READY-MIX CONCRETE PLANTS Market overview Our Europe region can be roughly divided into Eastern and Western Europe, with Eastern Europe performing strongly in recent quarters due to positive growth and infrastructure investment. Our largest Western European markets have grown more slowly, though macroeconomic indicators have been improving recently. There has been notable growth in the countries bordering the Mediterranean, albeit from a low base. Across Western Europe there are extensive long-term infrastructure plans already in place (e.g., in France and the UK) which we expect to see developing in the coming years. We see positive implications in rising employment levels and demand for housing. 2017 in review In 2017 the region ended the year up 2 percent in Net Sales on a like-for-like basis compared to the prior year. Recurring EBITDA was up 3.7 percent. Strong performances in Eastern Europe continued in 2017. Western Europe was faced with a number of unrelated operational challenges, with France and Belgium impacted in the beginning of the year and Germany at the end. These temporary disruptions have all since been resolved and do not undermine the fundamentally positive market developments we see accelerating in Western Europe. In Switzerland a number of important infrastructure projects came to an end in 2016, leading to a drop in contributions. 1,385 RECURRING EBITDA CHF MILLION 2016: 1,334 31 Innovative solutions At our Retznei plant in Austria we are participating in a pilot project that may help solve carbon emissions. The project aims to demonstrate how carbon emissions from cement production can be safely captured and stored, with a special focus on efficient methods to retrofit the necessary equipment onto existing plants. Carbon capture and storage (CCS) is one of many tools that can help reduce greenhouse gas emissions of cement manufacturing. Energy efficiency measures and renewable fuels can also play a big part (see page 20). CCS is an attractive counterpart, as it can help address emissions due to the calcination of limestone, which accounts for a large portion of emissions. WHERE WE OPERATE Cement plant Grinding plant CON SO LI DATED CEMENT GRI NDING CAPACITY [ MIL L ION TON NES PER YEAR] 73.4 EUROPE 7.6 SPAIN 5.7 ROMANIA 2.4 ITALY 1.9 9.7 FRANCE 7.3 GERMANY 4.8 GREECE 2.1 AUSTRIA 1.9 9.6 RUSSIA 7.0 POLAND 3.3 SWITZERLAND 2.1 BELGIUM 1.8 AZERBAIJAN UNITED KINGDOM HUNGARY 1.5 BULGARIA 1.2 CZECH REPUBLIC 1.4 SERBIA 0.9 CROATIA 1.3 MOLDOVA LAFARGEHOLCIM ANNUAL REPORT 201732 L A F A R G E H O L C I M BUS INESS RE V IE W BUS I NE S S R E V I E W : L AT I N A ME R IC A Another year of strong performance in Latin America — and a milestone for retail. Our presence 30 CEMENT & GRIND IN G P LANT S 11 AGGREGATES PLANTS 98 READY-MIX CONCRETE PLANTS Market overview The Latin America region contains a number of attractive markets with strong underlying demographics and expanding middle classes driving demand for building materials. A large share of that demand is attributable to small and self-builders, making it a natural home for retail. 2017 in review (cid:44)(cid:81)(cid:3)(cid:47)(cid:68)(cid:87)(cid:76)(cid:81)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:90)(cid:72)(cid:3)(cid:564)(cid:81)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3) (cid:20)(cid:20)(cid:98)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:72)(cid:87)(cid:3)(cid:54)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:16)(cid:73)(cid:82)(cid:85)(cid:16)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3) basis compared to 2016 and 22.9 percent higher in terms of Recurring EBITDA. Mexico and Argentina were the two standout performers in 2017. Major infrastructure projects drove demand in Mexico (see page 15), while there was a general pickup in Argentina, notably in housing, due to broad economic and political improvements. We also celebrated the opening of the 1,000th Disensa store this year, highlighting the successful roll-out of our retail strategy in its home region. Teams in Brazil continue to focus on managing costs while the economic slowdown continues. 33 WHERE WE OPERATE Cement plant Grinding plant 1,055 RECURRING EBITDA CHF MILLION 2016: 885 CONSOLIDATE D CEM ENT GR INDING CAPACITY MILLION TONNE S PER YEAR 39.3 12.2 LATIN AMERICA MEXICO 10.8 BRAZIL 4.7 ARGENTINA 1.7 5.5 ECUADOR 2.1 COLOMBIA 1.1 EL SALVADOR COSTA RICA 0.7 0.4 WEST INDIES NICARAGUA Empowered to succeed The Brazilian economy has been in recession since 2014, with predictable impact on our business. But rather than making cost reduction a task for management alone, we invited the entire organization to contribute. It’s the employees, after all, who know the plants and work processes best. More than 350 initiatives have been launched and implemented at the plants and offices in Brazil thanks to our employees’ suggestions through the “Crie Na Crise” (‘create in the crisis’) program. The program has delivered a sizeable portion of savings over 2017. We have focused on sharing, replicating, rewarding and recognizing the hundreds of initiatives generated by our employees in the program. It’s a consequence of empowering people to take control of their environment and their futures. LAFARGEHOLCIM ANNUAL REPORT 201734 L A F A R G E H O L C I M BUS INESS RE V IE W BUS I NE S S R E V I E W : M I DDLE E A S T A FR IC A A challenging year in the region. Our presence* 4 4 CEMENT & GRIND IN G P LANT S 30 AGGREGATES PLANTS 212 READY-MIX CONCRETE PLANTS (cid:13)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:89)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86) Market overview The Middle East Africa region has the (cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:71)(cid:72)(cid:80)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:70)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) (cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:68)(cid:83)(cid:76)(cid:71)(cid:79)(cid:92)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3) middle classes 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(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:40)(cid:74)(cid:92)(cid:83)(cid:87)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:86)(cid:76)(cid:564)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:70)(cid:85)(cid:82)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:86)(cid:87)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:71)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:76)(cid:81)(cid:565)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:49)(cid:76)(cid:74)(cid:72)(cid:85)(cid:76)(cid:68)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:86)(cid:88)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:68)(cid:3)(cid:75)(cid:68)(cid:85)(cid:71)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:564)(cid:85)(cid:86)(cid:87)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:49)(cid:76)(cid:74)(cid:72)(cid:85)(cid:76)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:74)(cid:92)(cid:83)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) (cid:87)(cid:72)(cid:68)(cid:80)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:88)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:83)(cid:87)(cid:76)(cid:80)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:74)(cid:76)(cid:86)(cid:87)(cid:76)(cid:70)(cid:86)(cid:17)(cid:3)(cid:54)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) region are also looking to export as a means (cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:17)(cid:3) 1,085 RECURRING EBITDA (cid:38)(cid:43)(cid:41)(cid:3)(cid:48)(cid:44)(cid:47)(cid:47)(cid:44)(cid:50)(cid:49) (cid:21)(cid:19)(cid:20)(cid:25)(cid:29)(cid:3)(cid:20)(cid:15)(cid:21)(cid:23)(cid:26) 35 From a global view As the world’s leading building materials group, we have a worldwide view of the seaborne cementitious trade market as well as a wide network of customers. LafargeHolcim Trading is there to help take advantage of this scale, capturing additional opportunities to generate additional profits outside of local markets. This global strength helped support the Middle East Africa region in 2017. Following the steep decline in the Egyptian market, 1 million tonnes of cement and clinker were exported through Trading in 2017. We were able to conclude the first cement exports out of Algeria. Every year LafargeHolcim trades approximately 35 million tonnes of cementitious materials, gypsum, slag, and other dry bulk goods around the world. WHERE WE OPERATE Cement plant Grinding plant CON SO LI DATED CEMENT GRI NDING CAPACITY MIL L ION TONNES PER YEAR 55.3 12.6 MIDDLE EAST AFRICA ALGERIA 10.5 NIGERIA 8.9 EGYPT 3.2 SOUTH AFRICA 1.4 ZAMBIA 0.6 QATAR 0.3 MALAWI 5.7 IRAQ 2.5 LEBANON 1.2 UGANDA 0.5 REUNION 0.2 MADAGASCAR 3.9 JORDAN 2.3 KENYA 1.1 TANZANIA 0.4 ZIMBABWE LAFARGEHOLCIM ANNUAL REPORT 201736 L A F A R G E H O L C I M BUS INESS RE V IE W BUS I NE S S R E V I E W : NOR T H A ME R IC A Continued strong performance in our largest region in terms of earnings. Our presence 2 4 CEMENT & GRINDING P LANT S 253 AGGREGATES PLANTS 2 4 6 READY-MIX CONCRETE PLANTS 2017 in review (cid:44)(cid:81)(cid:3)(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:90)(cid:72)(cid:3)(cid:564)(cid:81)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3) down 0.4 percent in Net Sales on a like- for-like basis compared to 2016, and 10.5 percent like-for-like increase in terms of Recurring EBITDA. The North America region posted another (cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:78)(cid:86)(cid:3) to the Ste Genevieve (MO) ramp-up after enhancements and improvements at our plant in Ravena (NY). The contribution from Canada was also strong as the oil sector continued its recovery. Market overview (cid:55)(cid:75)(cid:72)(cid:3)(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:72)(cid:602)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) and highly industrialized. Demand for infrastructure investment is expected to rise in the coming years in both the US and Canada after a disappointing 2017, creating positive prospects for the building materials industry. Of all cement companies operating in the US, we have the broadest coverage as well (cid:68)(cid:86)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:602)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) plants. In Canada we enjoy a strong market position, especially in the western half of the country. Strong economic indicators suggest that demand in the US will be supported by rising employment and housing construction, while (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:82)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:3) from rising commodity prices. WHERE WE OPERATE Cement plant Grinding plant 1,483 RECURRING EBITDA CHF MILLION 2016: 1,335 CONSOLIDATE D CEM ENT GR INDING CAPACITY MILLION TONNES P ER YEAR 33.0 24.7 NORTH AMERICA UNITED STATES 8.3 CANADA 37 Digital learning In North America we already operate some of the most advanced and efficient plants in our industry. We aim to train our teams with the same cutting-edge approach. By using digital e-learning platforms we have found a more efficient and effective way to promote employee understanding of critical topics such as health and safety. We use those same platforms to deliver targeted training for specific groups, such as commercial teams who need to understand and sell new products. Compared to conventional methods, the digital approach offers more consistent content and quality. Training can be delivered nearly wherever and whenever it suits the trainee. The platforms also deliver feedback on trainee competence that can be aggregated to give us a picture of the overall state of skills and knowledge across our organization. LAFARGEHOLCIM ANNUAL REPORT 201738 I NNOVAT ION We seek to understand our customers’ challenges with one goal in mind: creating new ways to operate and better serve their needs. Like many countries, Malaysia struggles to meet a growing need for affordable housing. In 2017 the government tested four different approaches to tackling the problem, judging each for efficiency, quality and cost. Following its impressive debut, the FASTBUILD™ solution was quickly selected for another 3,500 homes across Malaysia, and it is currently being deployed in Nigeria and Iraq. Lafarge Malaysia innovated to win with an approach called FASTBUILD™. Developed in partnership with MFE Aluminum Formwork, FASTBUILD™ capitalizes on Agilia® — our highly fluid, self-placing and self-leveling concrete. Agilia® flows through the FASTBUILD™ formwork, leaving no space unfilled and producing flawless finishing. The approach delivers ultra-rapid construction of affordable, quality homes. It’s also cost-effective, as the formwork can be used up to 100 times without sacrificing quality. Focused on customer needs At LafargeHolcim, innovation is for our customers. We constantly seek to understand their challenges with one goal in mind: creating new ways to operate and better serve their needs. For construction companies, for example, we know that building faster and more efficiently means increased productivity and additional business. So we have developed specialty concretes, such as our rapid- strength Chronolia® and Speedcrete, as well as self-placing and self-leveling concretes (Agilia®, Easycrete, or Cemflow) that lead to quicker construction. We develop ultra-high performance concretes such as Ductal®, which support beautiful, efficient and high-strength building systems and construction elements. Demand for better living standards and more efficient infrastructure, digitalization of the construction value chain and the requirement to develop sustainable construction solutions are fueling innovation and spending. CHIEF EXECUTIVE’S STATEMENT P6 — 9 LAFARGEHOLCIMINNOVATION 39 After innovating at the product stage we then invest to make sure we’re actually reaching the market by creating networks of professionally-trained partners who can apply the technology. We’re also bringing targeted innovations to the infrastructure sector. Roads, mines, ports, dams, data centers, stadiums, wind farms, and electric power plants are often complex projects. All these sectors have specific ecosystems with international players acting globally and expecting specific construction solutions from us. Our offer includes an international key account management team, which supports major infrastructure players from the project design phase forward, bringing dedicated sectoral expertise and world-class construction material solutions to these critical projects (see page 14). We’re taking advantage of opportunities arising from the ongoing digitization of the construction value chain, such as Building Information Modelling (BIM). By employing 3D models at all stages of construction, BIM promotes collaboration and can significantly increase the effectiveness and efficiency of construction. We aim to ensure that all our countries are BIM-ready. In many of our markets, the emergence of climate change challenges has started to change the game for our clients. Developers and project owners have to comply with sustainable construction requirements such as energy efficiency, water management or recycling. We have a range of solutions to help our clients achieve high environmental standards, including our mineral insulating foam Airium or energy efficient insulating concrete Thermedia. We extend the lifecycle of building materials, as with our recycled aggregates (like aggneo®, see page 18). We innovate for customers working at every level. Masons and individual homebuilders, for example, need materials and solutions close to where they live and work. Therefore, we have developed local retail networks in emerging markets, such as Disensa in Latin America and Binastore in Middle East Africa (see page 17). In regions where people lack access to decent housing we’ve implemented a range of solutions, from microfinance schemes to earth-cement building solutions such as our low-carbon Durabric. Yesterday’s innovations are showing up in our bottom line today. In waste management, for example, we have decades of experience to developing innovative and tailored approaches for a variety of customers. Today the heritage continues under the Geocycle brand, which maintains a network of more than 50 operations that together comprise one of the world’s leading providers of waste management services (see page 21). LAFARGEHOLCIM ANNUAL REPORT 201740 The innovation pipeline The cornerstone of our global R&D activities is the LafargeHolcim Research Center in Lyon, France. It is the first and largest research center in the global construction industry. Of course our business is highly local so we operate a network of local laboratories. In 2017 we opened our eighth Construction Development Lab (CDL) in Morocco. The Casablanca CDL will house 50 engineers, architects and technicians specialized in Moroccan and African construction markets. Like its counterparts in Algeria, Argentina, China, France, India, Malaysia and Mexico, the Casablanca facility will develop partnerships with startups, universities and other institutions. It will test new ideas and organize training to promote innovative solutions in the target markets. LAFARGEHOLCIMINNOVATION41 This approach has led to many successes. Our India CDL helped the inhabitants of Dharavi, a slum in the heart of Mumbai, to build solid and watertight houses. The Algerian CDL developed a specific product for soil stabilization in road construction. In China, the CDL team developed Thermedia® Screed 0.3, which is four times more insulating than traditional floor screeds. And on a global level, our portfolio includes more than 1,500 patents. At LafargeHolcim, innovation is for our customers. We constantly seek to understand their challenges with one goal in mind: creating new ways to operate and better serve their needs. LAFARGEHOLCIM ANNUAL REPORT 201742 OUR PEOPLE Our people strategy focuses on developing a stronger performance culture and investing in developing current and future leaders. Leadership development In 2017 LafargeHolcim invested in developing new programs and approaches to leadership development building on previous best practices. We have a broad range of programs for developing all levels of leadership including newly appointed managers and supervisors. We offer a wide range of training programs to our employees to build skills in many areas including business, financial, Health & Safety, operations and compliance topics. Performance and talent management We have a well-established global performance management system where employees agree objectives at the beginning of the year and line managers are encouraged to regularly review performance and set development objectives with individuals and teams. Strengthening our feedback is an important part of improving our performance culture — a priority for 2018. LAFARGEHOLCIMOUR PEOPLE43 In 2017 we launched a new global Talent Review & Succession Planning process to enable better succession planning and career and development decisions and identify where we need to improve our talent pipeline to ensure we have the right people for our current and future business. Employee engagement In 2017, we again ran a global employee survey and followed up with focus groups in countries to address areas for improvement as well as sharing best practices across the Group. Diversity and inclusion LafargeHolcim values diversity and promotes a workplace that is inclusive and fair and which fosters respect for all employees. In 2017, we: – Set 2020 targets and action plans at country and regional levels covering gender balance and inclusion – Developed an Inclusion Index to measure the extent to which our employees feel they are valued by the company and are committed GRO UP EMP LOYEES BY REGIO N Asia Pacific Europe 2017 2016 24,153 31,274 21,317 21,829 Latin America 9,305 10,536 Middle East Africa 12,901 13,191 North America 12,697 12,257 Service and trading companies 1,588 1,816 – Created a global and multi-functional task Total Group 81,960 90,903 force to contribute to our Diversity & Inclusion programs – Started to roll-out Inclusiveness programs to raise awareness of unconscious bias starting at the top of the company COMPOSITION OF MANAGEM ENT Top management level Senior management level Total MALE 127 1,175 1,302 FEMALE PERCENTAGE OF WOMEN 11 271 282 8% 19% 18% GRO UP EMP LOYEES BY SEGMENT Cement1 Aggregates Other construction materials and services 2017 2016 47,531 56,133 10,777 11,816 22,182 21,257 Diverse 1,470 1,697 Total Group 81,960 90,903 1 Including all other cementitious materials. LAFARGEHOLCIM ANNUAL REPORT 201744 HE A LT H & S A FE T Y Health & Safety Health & Safety (H&S) is a core value of the LafargeHolcim Group, which has established targets of a zero harm culture and zero fatalities by 2030. In 2017, the H&S strategy (Ambition “0”) was revised in collaboration with over 60 country CEOs and more than 200 executives throughout the Group. Ambition “0” focuses on six areas: onsite Fatality Elimination, Zero Harm Culture, Systems & Processes, Road Safety, Control of Health Risks and Contractor Partnerships. With the new strategy in place standardized global programs are being developed to drive a consistent approach and zero harm culture in every country where we operate. H&S is promoted through engagement and communication campaigns. Our Global H&S Days, introduced in 2016, were continued in 2017, using the theme “Stop Unsafe Work”. We also introduced a new Key Lessons format, sharing all incidents in a simple and effective way to reach all members of the workforce. HEALT H & SA FETY Fatalities Fatalities by personnel category Fatalities by location Lost time injury (LTI) 1 Employees Contractors Onsite Offsite Employees Contractors onsite Lost time injury frequency rate (LTIFR) 2 Employees Contractors Employee and contractors onsite 2017 2016 31 10 21 17 14 173 169 0.93 0.89 0.91 47 3 44 18 29 231 233 1.08 0.99 1.03 1 Lost Time Injury: Work-related injury, after which the affected person cannot work for at least one full shift or full working day any time after the shift or day on which the incident causing the work-related injury occurred, regardless of whether such person is scheduled to work. 2 Lost time injury frequency rate: number of lost time injuries per million hours worked LAFARGEHOLCIMHEALTH & SAFETY45 Auditing our H&S performance 2017 marked the first full year of the Group H&S audit program. The program measures the capacity and capability to implement the Group H&S Standards and ensures effective H&S Management Systems (HSMS) at Unit level across the Group. The audit program provides an independent governance process that aligns with Group Internal Audit. Sixty-eight audits were conducted in 2017 across 34 countries. Over 500 employees participated as auditors further contributing to knowledge-sharing across facilities, product lines, and borders. Ninety audits are scheduled for 2018. Despite these efforts, and most regrettably, 31 employees and contractors lost their lives in 2017 compared to 47 in 2016. While the number of contractors who died dropped significantly, the number of employees who lost their lives increased from 3 to 10 due to the nature of the onsite incidents that occurred in 2017. Thirty-four third-party individuals died, compared to 39 in 2016. These deaths are unacceptable. The Board and management are committed to ensuring that the strategy and underpinning programs are fully embedded in the organization. Road safety program Based on the fact that less than 5 percent of driving incidents are due to vehicle condition, the 2017 road safety efforts focused on monitoring and improving driver skills and behavior. The training program has been fully revisited so that going forward, training has to happen in-cab and must include a robust pass/fail assessment. Recognized experts in driver training have been identified at Group level to ensure high-quality training is implemented in all countries with qualified trainers. We have started to use in-vehicle monitoring systems (iVMS) to evaluate both driver behavior (speed and hours of work) and skills (harsh braking and harsh acceleration). Training and/or consequence management is applied accordingly. In India we’ve launched a Central Transport Control Tower pilot project as part of our effort to improve road safety. Monitoring our worksites Through the continued application of our Design Safety and Construction Quality Program (DSCQP), we mitigate risks linked to design safety and construction quality of structures (steel, concrete, etc.) and quarries (and slopes), in order to prevent catastrophic failures and incidents. In 2017 we invested CHF 79 million based on DSCQP recommendations. Such vigilance helped support a target outcome on our own capital expenditure projects — i.e., zero fatalities — in 2017. Supporting the health of our workforce The implementation of the renewed health program began in January 2017. A global reporting module for occupational illness cases was included in our H&S incident reporting system. Every global Unit management team (560) completed a baseline assessment to rate the level of maturity of 17 key health program elements. Based on these findings, each country selected actions to address the highest-priority health risk as part of their 2017 H&S Improvement Plan. The country data was analyzed to identify the ten lowest- maturity countries, which then received additional support from Group occupational medicine and hygiene specialists. In 2017 the two highest global health priorities were medical emergency response planning and workplace occupational hygiene programs. A three-year occupational hygiene improvement plan was agreed on a global basis. Regional training workshops are scheduled during 2018. LAFARGEHOLCIM ANNUAL REPORT 201746 L A F A R G E H O L C I M R I SK MANAGEMENT R I S K M A N AGE ME NT Understanding risks is key to strategic decision-making. Through the annual Group risk report processes, we aim to assess and prioritize risks according to their significance and likelihood. Our goal is to analyze our risks more deeply regarding their causes, and to define risk mitigating actions when necessary. Our analyses consider market and operational risks, financial and legal risks, compliance and reputational risks as well as external risk factors in our business environment. We attempt to consider a risk horizon that includes long-term strategic risks, short- to medium-term risks as well as single events. We collect risks from the individual countries through a bottom-up risk assessment, while our Board and Executive Committee members contribute a top-down view. To those two assessments we add a topical risk assessment, generated through interviews with our function heads. One of the outputs of this process is a forward-looking Group risk report. This consolidated Group risk report is presented to the Executive Committee and the conclusions are reported to the Board of Directors and the Finance & Audit Committee. We view the risks on the opposite page as material and fundamental to our strategy for value creation over 2018–2020. This list is not exhaustive. Further information is provided in the Corporate Governance section (pages 54–83), Management Discussion & Analysis (pages 108–118) and Note 3 of the Consolidated Financial Statements (“Risk management,” pages 145–154). Ethics, Integrity & Risk Committee In the course of 2016 a number of publications reported allegations that company personnel of a Lafarge plant in Syria had engaged in dealings with armed groups and sanctioned parties during 2013 until the plant closed in September 2014. The Board of Directors commissioned law firms with substantial experience in complex cross-border investigations. The process of the investigation adhered to well-accepted standard including as to the rigor and independence. Its integrity was closely protected from external influences. In March 2017 the Board of Directors shared its initial findings from its independent internal investigation into those allegations. The findings confirmed that violations of Lafarge’s established standards of business conduct had taken place. In response the Board mandated remedial measures including the adoption of a more rigorous risk assessment process focusing on high-risk third parties; introduction of a restricted party screening program and a new sanctions and export control program. The Ethics, Integrity & Risk Committee is responsible for overseeing the rigorous implementation which will strengthen and enhance Group-wide compliance. The committee is co-chaired by the Executive Committee member responsible for Human Resources and the Chief Legal and Compliance Officer. It reports to the Finance and Audit Committee of the Board of Directors. 47 K E Y R I S K S * RISK P OT E NTIA L IMPAC T OU R RESPON SE Market demand The risk that economic development in a given country will significantly change and have an influence on demand for construction and building materials Legal and compliance risk The risk that the company is found to have violated laws covering business conduct such as those that combat bribery, corruption, terrorism and unfair competition Demand for construction materials is fundamentally driven by economic growth (or contraction) in a given territory. These changes in underlying demand may then lead to changes in pricing and/or industry structure. Investigation costs, financial penalties, debarment, profit disgorgement and reputational damage. The impact is compounded by the fact that local violations can have an effect on the entire group. Energy prices (including alternative fuels) The risk that prices for fuels, electricity or planned savings from alternative fuels will change significantly Raw materials (including mineral components) The risk that raw materials cannot be supplied at economical cost or suitable quality Changes in energy prices are a supply chain risk that could significantly alter our production costs. Much of our business depends on the reliable supply of mineral resources, e.g. sand and limestone. Sustainability risk The risk that the Group is not effectively managing its commitments to sustainability and corporate social responsibility The cement industry is associated with significant negative externalities, notably high CO2 emissions, thus reducing our attractiveness to some stakeholders. LafargeHolcim maintains a globally diversified portfolio, with a good balance between mature and developing markets. We have a top-three position in 80 percent of our markets, with none exceeding 15 percent of total revenues. We also trade in clinker, cement and other products to take advantage of shifting demand between countries. LafargeHolcim maintains a comprehensive risk-based compliance program with dedicated resources at local, regional and Group level. Comprehensive training is provided and our Code of Business Conduct sets out our practices to be adhered to across the Group. A dedicated alert hotline is available. The program is embedded in the three lines of defense model and maintains state-of-the-art policies, processes and compliance solutions. Periodic and ad hoc reporting to the Ethics, Integrity & Risk Committee and ultimately to the Finance & Audit Committee ensure effective program oversight. Optimizing fuel mix and energy efficiency, as well as the use of alternative fuels, is a key area of focus at all our plants. At Group level, we use derivative instruments to hedge part of our exposure to these risks. In countries where the supply of raw materials is at risk, we apply a range of tactics including strategic sourcing, changing input mixtures and maintaining minimum long-term reserve levels. At Group level our research and development is devoted to finding ways to mitigate this risk while at the same time lowering our environmental footprint, e.g. by using waste-derived materials. The 2030 Plan, which includes commitments to reducing net CO2/tonne of cement by 40 percent compared to 1990, is one reason we are considered a sustainability leader in our sector. Increasingly our business is aimed toward sustainable products and solutions. We actively promote industry and regulatory measures that can mitigate environmental harm, including advocating a carbon price, as well as those that promote sustainable construction and infrastructure development. * The risks listed in the table are not exhaustive, and additional risks and uncertainties not presently known to LafargeHolcim or that it currently deems immaterial may also have or develop a material adverse effect on its business, operations, financial condition or performance, or other interests. Similarly, the mitigating actions mentioned are not exhaustive, may be ineffective and may be adjusted from time to time, and their inclusion in this section does not create any legal obligation for the company. The sequence in which these risks and mitigating actions are presented in no way reflects any order of importance, chance or materiality. LAFARGEHOLCIM ANNUAL REPORT 201748 L A F A R G E H O L C I M R I SK MANAGEMENT RISK P OT E NTIA L IMPAC T OU R RESPON SE Political risk The risk that political instability, changes of government or political pressure lead to national and/or international conflict. Political instability, changes of government or increased political pressure can impact our business. That impact may be direct, as with infrastructure spending, or indirect, as with economic uncertainty. As with market demand, the best defense is diversification. LafargeHolcim has leading positions in nearly every market where we are active. LafargeHolcim is politically neutral. Talent risk The risk that the company does not have a sufficiently robust talent pipeline given its growth ambition. Cyber risk The risk that an information/ cybersecurity event affects the privacy, confidentiality, availability or integrity of data. Joint Ventures and Associates The Group does not have a controlling interest in certain of its business entities (i.e. joint ventures and associates) in which it has invested. The absence of a controlling interest increases the governance complexity. This may restrict the Group’s ability to generate adequate returns and to implement the LafargeHolcim control framework and compliance program. Goodwill and asset impairment Significant under-performance in any of the Group’s major cash- generating units or the divestment of businesses in the future may give rise to a material write-down of goodwill or assets. Without the right people, LafargeHolcim will be unable to deliver on its growth ambition. We have a global talent review and succession planning process to evaluate current and future talent. We invest significantly in developing both functional and management skills (see ‘Our People’, page 42). An information or cybersecurity event could lead to financial loss, reputational damage, safety or environmental impact. In 2017 we established a Group cybersecurity roadmap to protect critical assets from cyberattacks and improve our cyber resilience. These limitations could impair the Group’s ability to manage joint ventures and associates effectively and/or realize the strategic goals for these businesses. In addition this might, impede the ability of LafargeHolcim to implement organization efficiencies and its controls framework, including its full compliance program. It can also impede the ability to transfer cash and assets between subsidiaries in order to allocate assets in the most effective way. A write-down of goodwill or assets could have a substantial impact on the Group’s net income and equity. In subsidiaries where we have joint control we seek to govern our relationships with formal agreements to effect LafargeHolcim controls and programs. In these joint venture arrangements, LafargeHolcim has traditionally appointed LafargeHolcim personnel to facilitate integration, best practice transfer and drive performance. Indicators of goodwill or asset impairment are monitored closely through our reporting process to ensure that potential impairment issues are addressed on a timely basis. Detailed impairment testing for each cash-generating unit within the Group is performed prior to year-end or at an earlier stage when a triggering event materializes. The Finance and Audit Committee regularly reviews the goodwill impairment process. 49 RISK P OT E NTIA L IMPAC T OU R RESPON SE Risk of downgrade of the Group’s credit rating may affect the availability and costs of future funding. LafargeHolcim’s overall risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. The Group has established policies for financial risk management which set out the principles to manage liquidity, interest rate, foreign exchange and credit risks. Please see note 3 to the consolidated financial statements for further detail. The Group could be impacted by losses where recovery from insurance is either not available or non-reflective of the incurred loss. We place insurance with international insurers of high repute, together with our internal captive insurance companies. We continuously monitor our risk environment to determine whether additional insurances will need to be obtained. Cash contributions may be required to fund unrecoverable deficits. Where possible, defined benefit pension schemes have been closed. Active management is in place to mitigate the volatility and match investment returns with benefit obligations. Financial risks The risk on the unpredictability of financial markets could cause potential adverse effects on the financial performance of the Group. The main financial risks of the Group include liquidity, interest rate, foreign exchange and credit risk. Insurance Our sector is subject to a wide range of risks, not all of which can be adequately insured. The Group obtains coverage as far as possible, commensurate with the relevant risks. Defined benefit pension schemes The Group operates a number of defined benefit pension schemes and schemes with related obligations (for example jubilee/ long-term service benefits) in several of its countries. The assets and liabilities of defined benefit pension schemes may exhibit significant volatility. LAFARGEHOLCIM ANNUAL REPORT 201750 L A F A R G E H O L C I M C API TAL MARKE T INFORMAT ION C A P I TA L M A R K E T I NFOR M AT ION 2017 was a fairly strong year for equity markets which benefited from a resurgence of global economic growth, a rally in emerging markets, increased inflation, the weakening of the US dollar and the continued expansionary monetary policy of the US Federal Reserve. In Switzerland, the franc weakened, markedly against the euro, which also supported dividend stocks. In Europe, Brexit talks as well as political events in Germany and Spain failed to dampen investor confidence. LafargeHolcim’s share price closed at CHF 55.0, an increase of 2.4 percent from 2016 year-end closing price on the Swiss market. The share price contracted by 5.8 percent on the Paris stock exchange, mostly impacted by the devaluation of the Swiss Franc against the euro. In comparison, the SMI increased by 14.1 percent while the CAC 40 progressed by 9.3 percent. PERFORMANCE OF LAFARGEHOLCIM SH ARES VER SU S SWISS MAR KET INDEX (SMI) AND THE CAC 40 OVER 5 YEARS 1 80 60 40 20 2013 2014 2015 2016 2017 LafargeHolcim SW in CHF Swiss Market Index (SMI) in CHF LafargeHolcim FP in EUR French Stock Market Index (CAC 40) in EUR 1 SMI rebased to LafargeHolcim SW share price at January 2, 2013; CAC40 and LafargeHolcim FP rebased to LafargeHolcim SW share price at July 9, 2015. 51 The average trading volume in 2017 amounted to approximately 2.0 million shares per day on the SIX Swiss Exchange and 0.3 million shares per day on the Euronext Paris. 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 CAC 40). Each share carries one voting right. At year-end 2017, the company’s market capitalization stood at CHF 33.3 billion. ADDITIONAL DATA ISIN CH0012214059 Security code number Telekurs code Bloomberg code Thomson Reuters code 1221405 LHN LHN:SW LHN.SW W EIG HTI NG O F THE LAFARGEHOLCIM REGISTERED SHA RE IN SELECTED SHARE INDICES Weighting in % 2.71 1.85 1.95 4.47 9.04 0.35 0.27 0.07 0.15 0.34 Index SMI, Swiss Market Index CAC 40, Euronext Paris SPI, Swiss Performance Index SLI, Swiss Leader Index STOXX Europe 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 2017 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. LAFARGEHOLCIM ANNUAL REPORT 201752 L A F A R G E H O L C I M C API TAL MARKE T INFORMAT ION Free float Free float as defined by the SIX Swiss Exchange and the Euronext stands at 79 percent. Dividend policy Dividends are distributed annually. LafargeHolcim is committed to an attractive dividend policy. For the 2017 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 16, 2018. Significant shareholders Information on significant shareholders can be found on page 242 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), whosoever, 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. Significant shareholders are disclosed on page 242. K E Y DATA LA FARGEHOLCIM REGISTERED SHARES Par value CHF 2.00 Number of shares issued 2017 2016 2015 20141 2013 606,909,080 606,909,080 606,909,080 327,086,376 327,086,376 Number of dividend-bearing shares 598,067,626 606,909,080 606,909,080 327,086,376 327,086,376 Number of shares conditional capital 2 Number of treasury shares 1,422,350 9,698,149 1,422,350 1,422,350 1,422,350 1,422,350 1,152,327 1,338,494 1,219,339 1,522,510 Stock market prices in CHF High Low Average Market capitalization (billion CHF) Trading volumes (million shares) Earnings per share (EPS) in CHF EPS before impairment and divestments in CHF Cash earnings per share in CHF 4 Consolidated shareholders’ equity per share in CHF 5 Dividend per share in CHF 2017 60 51 56 33.3 574.6 (2.78) 2.35 5.04 51.87 2.00 6 2016 57 34 47 32.6 615.0 2.96 2.10 5.44 50.88 2.00 2015 73 48 63 30.5 449.1 (3.11) – 5.22 51.79 1.50 2014 83 62 73 23.3 266.8 3.63 3 – 7.01 53.49 1.30 2013 79 63 69 21.8 215 3.91 – 8.56 49.77 1.30 1 Restated due to changes in accounting policies. 2 Shares reserved for convertible bonds. 3 EPS for 2014 was restated due to the distribution of a scrip dividend. 4 Cash EPS calculated based on cash flow from operating activities divided by the weighted-average number of shares outstanding. 5 Based on shareholders’ equity — attributable to shareholders of LafargeHolcim Ltd — and the number of dividend-bearing shares (less treasury shares) as per December 31. 6 Proposed by the Board of Directors for a payout from capital contribution reserves. 53 CURRENT R ATING (MARCH 2, 2018) FINANCIA L REPORTING CA LEN DAR Date May 8, 2018 May 8, 2018 May 11, 2018 May 16, 2018 Rating Agency Long-term rating Short-term rating BBB, outlook negative Baa2, outlook negative A-2 P-2 Results for the first quarter 2018 Annual General Meeting of shareholders Information on LafargeHolcim registered shares Further information on LafargeHolcim registered shares can be found at: www.lafargeholcim.com/investor-relations Ex date Payout Standard & Poor’s Ratings Services Moody’s Investors Service 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. LAFARGEHOLCIM ANNUAL REPORT 201754 COR P OR AT E GOV E R N A NCE 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, shareholders, employees, creditors, suppliers, and the communities where LafargeHolcim operates. TO PI C Business review in the individual Group regions Segment information Principal companies Information about LafargeHolcim Ltd & listed Group companies 28–37 160 217 220 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 217 to 221 of this Annual Report. The Group is organized by geographical regions. The management structure as per December 31, 2017, and changes which occurred in 2017, 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: 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 separate. 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 60 to 63 of this report describe the duties of the Finance & Audit Committee, the Nomination, Compensation & Governance Committee, the Strategy Committee (former: Strategy & Sustainable Development Committee), the newly established Health, Safety & Sustainability Committee as well as the Organizational Rules. Except where otherwise indicated, this Annual Report reflects the legal situation as of December 31, 2017. LAFARGEHOLCIMCORPORATE GOVERNANCE55 Authorized share capital/Certificates of participation As per December 31, 2017, neither authorized share capital nor certificates of parti cipation were outstanding. FURTHER INFORMATION CAN BE FOUND UNDER www.lafargeholcim.com/investor-relations TOP IC Articles of Incorporation of LafargeHolcim Ltd www.lafargeholcim.com/articles-association Code of Business Conduct www.lafargeholcim.com/corporate-governance Changes in equity of LafargeHolcim Ltd Information for the year 2015 is included in the Annual Report 2016 176–177, 126–127 Detailed information on conditional capital www.lafargeholcim.com/articles-association Articles of Incorporation Art. 3bis Key data per share 50–53, 208, 243 Rights pertaining to the shares www.lafargeholcim.com/articles-association Articles of Incorporation Art. 6, 9, 10 Regulations on transferability of shares and nominee registration www.lafargeholcim.com/articles-association Articles of Incorporation Art. 4, 5 Warrants/Options 203–207 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, 2017, 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, 2017). The conditional capital may be used for exercising convertible and/or option rights relating to bonds or similar debt instruments 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 warrants 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, 2017, 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 applicable conditions may be found in the Articles of Incorporation of LafargeHolcim Ltd at: www.lafargeholcim.com/articles-association LAFARGEHOLCIM ANNUAL REPORT 201756 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 2017, six regular meetings and eight additional meetings were held. Two meetings focused on strategy topics. As a rule, the members of the Executive Committee attended 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. Board of Directors The Board of Directors consists of 12 members, all of whom are independent according to the definition of the Swiss Code of Best Practice for Corporate Governance. Please see pages 74 to 77 for the biographical information of the Board members as per December 31, 2017. Mr. Bruno Lafont, Mr. Alexander Gut, and Mr. Philippe Dauman retired from the Board of Directors at the Annual General Meeting of May 3, 2017. In 2017, the shareholders elected Mr. Patrick Kron as new member and re-elected 11 members of the Board of Directors. Dr. Beat Hess was re-elected as Chairman of the Board of Directors. Furthermore, the shareholders re-elected the five members of the Nomination, Compensation & Governance Committee. The shareholders also elected the auditors and re-elected the independent proxy. LAFARGEHOLCIMCORPORATE GOVERNANCE57 BOAR D AND COMMIT T EE AT T E NDA NC E AT SC H ED UL ED O RD I N ARY ME ETI NGS NAME Beat Hess Oscar Fanjul Bertrand Collomb Paul Desmarais, Jr. Patrick Kron 1 Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris POSITION Chairman Vice-Chairman Member Member Member Member Member Member Member Thomas Schmidheiny Member Hanne B. Sørensen Dieter Spälti Member Member 1 Elected to the Board at the AGM 2017 2 Member of the FAC as of May 3, 2017 BOARD MEETINGS ATTENDED FINANCE & AUDIT COMMITTEE NOMINATION, COMPENSATION & GOVERNANCE COMMITTEE STRATEGY COMMITTEE HEALTH, SAFETY & SUSTAINABILITY COMMITTEE 6/6 6/6 6/6 4/6 4/4 5/6 6/6 6/6 6/6 6/6 6/6 6/6 – – 5/5 – – 5/5 – 3/3 2 – – – 4/5 – 2/3 – 2/3 – – 3/3 – 3/3 – 3/3 – – 5/5 – – 2/2 4/5 – – – – – 5/5 – – – – 3/3 – 3/3 – – 3/3 3/3 – LAFARGEHOLCIM ANNUAL REPORT 201758 L A F A R G E H O L C I M CORPOR ATE GOVERNANCE OTHE R MA JO R SW ISS AN D FOR EI GN M A NDATES O F THE BOA RD O F DI REC TORS (cid:50) (cid:56) (cid:55)(cid:54)(cid:44)(cid:39)(cid:40)(cid:3)(cid:55)(cid:43)(cid:40) (cid:3)(cid:47)(cid:36)(cid:41)(cid:36)(cid:53)(cid:42)(cid:40)(cid:43)(cid:50)(cid:47)(cid:38)(cid:44) (cid:48) (cid:3) (cid:42)(cid:53) (cid:50)(cid:56)(cid:51) (cid:3)(cid:36)(cid:54)(cid:3)(cid:36)(cid:55)(cid:3)(cid:39)(cid:40)(cid:38)(cid:40)(cid:48) (cid:37)(cid:40)(cid:53)(cid:2013) (cid:22)(cid:20)(cid:15)(cid:3)(cid:21) (cid:19)(cid:20)(cid:26) BOARD OF DIRECTORS MANDATE POSITION Beat Hess Nestlé S.A. Vevey (Switzerland)* Sonova Holding AG, Stäfa (Switzerland)* 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 Oscar Fanjul (cid:48)(cid:68)(cid:85)(cid:86)(cid:75)(cid:3)(cid:9)(cid:3)(cid:48)(cid:70)(cid:47)(cid:72)(cid:81)(cid:81)(cid:68)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)(cid:49)(cid:60)(cid:3)(cid:11)(cid:56)(cid:54)(cid:36)(cid:12)(cid:585)(cid:13) Member of the Board Omega Capital, Madrid (Spain) Ferrovial S.A., Madrid (Spain)* Bertrand Collomb Académie des sciences morales et politiques, Paris (France); Global Advisory Board; The University of Tokyo, Tokyo (Japan) Vice Chairman Member of the Board Member Paul Desmarais, Jr. (cid:51)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:15)(cid:3)(cid:48)(cid:82)(cid:81)(cid:87)(cid:85)(cid:171)(cid:68)(cid:79)(cid:3)(cid:11)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:12)(cid:585)(cid:13) Member of the Board (cid:42)(cid:85)(cid:72)(cid:68)(cid:87)(cid:16)(cid:58)(cid:72)(cid:86)(cid:87)(cid:3)(cid:47)(cid:76)(cid:73)(cid:72)(cid:70)(cid:82)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)(cid:58)(cid:76)(cid:81)(cid:81)(cid:76)(cid:83)(cid:72)(cid:74)(cid:3)(cid:11)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:12)(cid:585)(cid:13)(cid:3) Member of the Board (cid:44)(cid:42)(cid:48)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)(cid:3)(cid:58)(cid:76)(cid:81)(cid:81)(cid:76)(cid:83)(cid:72)(cid:74)(cid:3)(cid:11)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:12)(cid:585)(cid:13) Pargesa Holding SA, Geneva (Switzerland) Member of the Board Member of the Board (cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:72)(cid:3)(cid:37)(cid:85)(cid:88)(cid:91)(cid:72)(cid:79)(cid:79)(cid:72)(cid:86)(cid:3)(cid:47)(cid:68)(cid:80)(cid:69)(cid:72)(cid:85)(cid:87)(cid:15)(cid:3)(cid:37)(cid:85)(cid:88)(cid:86)(cid:86)(cid:72)(cid:79)(cid:86)(cid:3)(cid:11)(cid:37)(cid:72)(cid:79)(cid:74)(cid:76)(cid:88)(cid:80)(cid:12)(cid:585)(cid:13) Member of the Board Patrick Kron (cid:55)(cid:85)(cid:88)(cid:603)(cid:72)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:15)(cid:3)(cid:51)(cid:68)(cid:85)(cid:76)(cid:86)(cid:3)(cid:11)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:12) (cid:54)(cid:42)(cid:54)(cid:3)(cid:54)(cid:36)(cid:15)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:89)(cid:68)(cid:3)(cid:11)(cid:54)(cid:90)(cid:76)(cid:87)(cid:93)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:12)(cid:585)(cid:13)(cid:3) (cid:54)(cid:68)(cid:81)(cid:82)(cid:564)(cid:3)(cid:54)(cid:17)(cid:36)(cid:17)(cid:15)(cid:3)(cid:42)(cid:72)(cid:81)(cid:87)(cid:76)(cid:79)(cid:79)(cid:92)(cid:3)(cid:11)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:12)(cid:13) Bouygues, Paris (France)* Member of the Board Chairman Member of the Board Member of the Board Gérard Lamarche Groupe Bruxelles Lambert, Brussels (Belgium)* Co-CEO Halcor Metal Works S.A., Athens (Greece)* Member of the Board Total SA, Paris (France)* Member of the Board, Chairman of the Remuneration Committee and Member of the Audit Committee SGS, Geneva (Switzerland)* Member of the Board and of the Audit Committee Umicore, Brussels (Belgium)* Member of the Board Adrian Loader Alderon Iron Ore Corp. Montreal (Canada)* Member of the Board Jürg Oleas GEA Group Aktiengesellschaft, Düsseldorf (Germany)* (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:602)(cid:70)(cid:72)(cid:85) Sherrit International Corporation, Toronto (Canada)* Member of the Board LL Plant Engineering AG, Ratingen (Germany) Chairman of the Board RUAG Holding AG, Bern (Switzerland) Member of the Board and Chairman of the Strategy Committee 59 BOARD OF DIRECTORS MANDATE POSITION Nassef Sawiris OCI N.V., Amsterdam (The Netherlands)* Executive Director and Chief Executive Officer Adidas AG, Herzogenaurach (Germany)* Member of the Board OCI Partners LP, Delaware (USA) Thomas Schmidheiny Schweizerische Cement-Industrie-Aktiengesellschaft, Rapperswil-Jona (Switzerland) Spectrum Value Management Ltd., Rapperswil-Jona (Switzerland) Member of the Board Chairman of the Board Chairman of the Board Abraaj Holdings, Dubai (United Arab Emirates) Member of the Board Hanne B. Sørensen Ferrovial S.A., Madrid (Spain)* Member of the Board Koninklijke Vopak N.V., Rotterdam (The Netherlands)* Member of the Board Delhivery Pvt. Ltd., Gurgaon (India) Schweizerische Cement-Industrie-Aktiengesellschaft, Rapperswil-Jona (Switzerland) Spectrum Value Management Ltd., Rapperswil-Jona (Switzerland) Member of the Board Member of the Board Member of the Board Dieter Spälti * Listed company LAFARGEHOLCIM ANNUAL REPORT 201760 ELECTIONS AND TERMS OF OFFICE The following expert committees exist: CO MPOSITION OF T HE FINANCE AND AUDIT COMMIT TEE FINANCE & AU DI T COMM I T T EE NAME POSITION Gérard Lamarche Chairman Betrand Collomb Member Jürg Oleas Member Dieter Spälti Member 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 2017, five regular meetings and four additional meetings of the Finance & Audit Committee were held. 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 2017, 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 Finance & Audit Committee performed significant work in preparing and following up the committee’s meetings, including oversight of the internal investigation on Syria operations and the review of the current compliance program (policies, protocols, and related financial controls) to ensure that misconduct identified can be better detected and/or prevented altogether. The charter of the Finance & Audit Committee is available at: www.lafargeholcim.com/articles-association LAFARGEHOLCIMCORPORATE GOVERNANCE61 CO MPOSITI ON OF T HE NOMIN ATION, COMPE NSATI ON & GOVERNANCE COMMIT TEE NOMI NATI ON , COM PE N SAT I O N & GOVERN AN CE COMM I T T EE NAME POSITION Nassef Sawiris Chairman Paul Desmarais, Jr. Member Oscar Fanjul Member Adrian Loader Member Hanne B. Sørensen Member The charter of the Nomination, Compensation & Governance Committee is available at: www.lafargeholcim.com/articles-association More details on the activities of the Nomination, Compensation & Governance Committee, in particular with regard to the process of determination of compensation, can be found in the Compensation Report, starting on page 84. 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 compensation of the Board of Directors and of the Executive Committee. In 2017, the Nomination, Compensation & Governance Committee held three regular meetings and seven additional meetings. 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. LAFARGEHOLCIM ANNUAL REPORT 201762 CO MPOSITION OF T HE STR ATEGY COMMIT TEE STRATEG Y COM M IT TE E NAME POSITION Dieter Spälti Chairman Oscar Fanjul Member Patrick Kron Member Gérard Lamarche Member The Strategy Committee supports the Board of Directors in all matters relating to the strategic priorities of the company. The committee 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 2017, the Strategy Committee held five regular meetings and two additional meetings. The Chairman of the Board, the CEO and the CFO attended the meetings of the Strategy Committee as guests. The average duration of the regular meetings was three hours. The charter of the Strategy Committee is available at: www.lafargeholcim.com/articles-association LAFARGEHOLCIMCORPORATE GOVERNANCE63 CO MPOSITI ON OF T HE HE ALT H, SA FETY AND SUSTAINABILITY CO MMIT TEE HEALTH, S AFE T Y AN D SUSTAI NABI LI TY CO MM I T TE E NAME POSITION Adrian Loader Chairman Patrick Kron Member Thomas Schmidheiny Member Hanne B. Sørensen Member The newly established Health, Safety and Sustainability Committee supports and advises the Board of Directors on the development and promotion of a healthy and safe environment for employees and contractors as well as on sustainable development and social responsibility. Since its establishment in May 2017 the Health, Safety and Sustainability Committee held three regular meetings. The Head of Health and Safety and the Head of Sustainable Development were present at all meetings. The Chairman of the Board and the CEO attended the meetings of the Health, Safety and Sustainability Committee as guests. The average duration of the meetings was two hours. The charter of the Health, Safety & Sustainability Committee is available at: www.lafargeholcim.com/articles-association LAFARGEHOLCIM ANNUAL REPORT 201764 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 Organizational Rules they shall be reviewed at least every two years and amended as required. They were last reviewed and amended in September 2017. 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 Committee 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 business 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 Directors. 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 assessment with the CEO. LAFARGEHOLCIMCORPORATE GOVERNANCE65 The CEO assesses the performance of the members of the Executive Committee and, after advice and assessment by the Nomination, Compensation & Governance Committee, determines their respective individual objectives. The Executive Committee oversees risk management 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 information 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 informing 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. 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. Risk Management LafargeHolcim benefits from many years of experience with risk management. The risk assessment process was concluded in 2017 across the 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 the risks, but also identifies potential opportunities. The Group’s risk map is established by strategic, operational and topical risk assessments which are combined into a Group risk report. 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 prioritized according to significance and likelihood. Top risks are analyzed more deeply regarding their causes, and risk mitigating actions are defined. The consolidated Group risk report is presented to the Executive Committee and the conclusions reported to the Finance & Audit Committee and to the Board of Directors. 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 reporting 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 continuous basis. GIC gives an assessment to the Executive Committee and the Finance & Audit Committee on the existence, the design and the operating effectiveness of the Internal Control System in the Countries/Entities. In order to fulfill this responsibility, GIC calls the Group Internal Control Committee for an annual update on 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. LAFARGEHOLCIM ANNUAL REPORT 201766 Effective September 1, 2017, Jan Jenisch has been appointed Chief Executive Officer of the Group succeeding Eric Olsen, who has resigned effective July 15, 2017. Beat Hess, Chairman of the Board, has overseen the transition period as interim Chief Executive Officer. Ron Wirahadiraksa, Chief Financial Officer of the Group, has decided to pursue new opportunities outside the Group and has been succeeded by Géraldine Picaud as of January 3, 2018. Effective January 1, 2018 Pascal Casanova, Region Head North America and Mexico, and Gérard Kuperfarb, responsible for Growth and Innovation, have decided to pursue a career outside the Group. Roland Köhler, Region Head Europe, Australia/New Zealand, and Trading, has decided to retire at the beginning of 2018. Effective January 1, 2018, Marcel Cobuz, previously Country CEO Morocco, has been appointed member of the Executive Committee as Head Region Europe. Also effective January 1, 2018, René Thibault, previously CEO of Western Canada, has been appointed member of the Executive Committee as Head Region North America. During the year under review, the Executive Committee of LafargeHolcim was comprised of the following ten members: The outcome is presented to the Executive Committee and the Finance & Audit Committee. 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. They 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 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, 2017 reported in the Annual Report 2016 on pages 110 – 111, the following changes within the Executive Committee during the year under review have occurred: LAFARGEHOLCIMCORPORATE GOVERNANCE67 COMP OSITIO N OF THE EXECUTIVE COM M IT TEE EXECUTIVE COMMITTEE POSITION RESPONSIBILITY Jan Jenisch (as of September 1, 2017) Ron Wirahadiraksa (Géraldine Picaud as of January 3, 2018) CEO CFO Urs Bleisch Pascal Casanova Roland Köhler Martin Kriegner Gérard Kuperfarb Caroline Luscombe Oliver Osswald Saâd Sebbar Member Cost & Performance Member Member Member Regional Head North America and Mexico Region Head Europe, Australia/New Zealand, and Trading Region Head India and South East Asia Member Growth and Innovation Member Human Resources Member Member Regional Head Central and South America Region Head Middle East Africa Compensation, shareholdings and loans Details of Board and management compensation, shareholdings, and loans are contained in the Compensation Report (starting at page 84) and in the Holding company results (page 240, note 14). Please refer to pages 80–83 for biographical information on the members of the Executive Committee. None of the members of the Executive Committee has important functions outside the LafargeHolcim Group or any other significant commitments of interest, with the exception of Jan Jenisch who is a non-executive Director of the stock- listed Schweiter Technologies AG and of the privately held Glas Troesch. Management agreements LafargeHolcim has no management agreements in place with companies or private individuals outside the Group. LAFARGEHOLCIM ANNUAL REPORT 201768 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 invitation 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. Shareholders 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 Ordinance against Excessive Compensation in public corporations, 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 representing shares with a par value of at least one million Swiss Francs may request the addition 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 invitations as well as the minutes of the Annual General Meetings shall be published on: www.lafargeholcim.com 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 LAFARGEHOLCIMCORPORATE GOVERNANCE69 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. 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 improvement. Taking into account the reporting and assessments by the Group companies, the Finance & Audit Committee evaluates the performance of the auditors and their remuneration 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 2017, the auditors participated in all five regular meetings of the Finance & Audit Committee to discuss individual agenda items. Deloitte AG, Zurich, was appointed at the Annual General Meeting 2017 as the auditors of LafargeHolcim Ltd. David Quinlin has been responsible for managing the audit mandate, supported by Frédéric Gourd. 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 (excluding JVs) by the auditors (Ernst & Young Ltd until AGM 2017 and Deloitte AG as of AGM 2017) in 2017 and 2016: 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 Million CHF Audit services 1 Audit-related services 2 Tax services Other services 3 Total 2017 14.5 0.2 0.1 0.0 14.8 2016 17.0 1.9 2.2 0.8 21.8 1 This amount includes the fees for the individual audits of Group companies carried out by Deloitte as well as their fees for auditing the Group financial statements. 2 Audit-related services comprise, among other things, amounts for comfort letters, accounting advice, information systems reviews and reviews on internal controls. 3 Other services include, among other things, amounts for due diligences and translation services. 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. LAFARGEHOLCIM ANNUAL REPORT 201770 Current information relating to sustainable development is available at: www.lafargeholcim.com A full sustainability report is published every year. The financial reporting calendar is shown on pages 53 and 250 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 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 knowledge 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 half-year reports, the website (www.lafargeholcim.com), media releases, press conferences, meetings for financial analysts and investors, and the Annual General Meeting. LAFARGEHOLCIMCORPORATE GOVERNANCE71 LAFARGEHOLCIM ANNUAL REPORT 201772 BOA R D OF DI R EC TOR S BEAT HESS Chairman Date appointed: 2010 Nationality: Swiss Born: 1949 Biography P74 OSCAR FANJUL Vice-Chairman Date appointed: 2015 Nationality: Spanish and Chilean Born: 1949 Biography P74 BERTRAND COLLOMB Member Date appointed: 2015 Nationality: French Born: 1942 Biography P74 PAUL DESMARAIS, JR. Member Date appointed: 2015 Nationality: Canadian Born: 1954 Biography P75 PATRICK KRON Member Date appointed: 2017 Nationality: French Born: 1953 Biography P75 GÉRARD LAMARCHE Member Date appointed: 2015 Nationality: Belgian Born: 1961 Biography P75 LAFARGEHOLCIMCORPORATE GOVERNANCE73 ADRIAN LOADER Member Date appointed: 2006 Nationality: British Born: 1948 Biography P76 JÜRG OLEAS Member Date appointed: 2014 / 2016 Nationality: Swiss Born: 1957 Biography P76 NASSEF SAWIRIS Member Date appointed: 2015 Nationality: Egyptian Born: 1961 Biography P77 THOMAS SCHMIDHEINY Member Date appointed: 1978 Nationality: Swiss Born: 1945 Biography P77 HANNE BIRGITTE BREINBJERG SØRENSEN Member Date appointed: 2013 Nationality: Danish Born: 1965 Biography P77 DIETER SPÄLTI Member Date appointed: 2003 Nationality: Swiss Born: 1961 Biography P77 LAFARGEHOLCIM ANNUAL REPORT 201774 BEAT HESS Chairman Beat Hess is 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 admitted 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. OSCAR FANJUL Vice-Chairman Oscar Fanjul is Vice-Chairman of the Board of Directors and a Member of the Strategy 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 began his career working for the industrial holding INI, Madrid, Spain. He was Chairman founder and CEO of Repsol. He has also been Chairman of Hidroeléctrica del Cantábrico, 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, Areva, France, and BBVA, Spain. BERTRAND COLLOMB Member 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 Polytechnique 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. LAFARGEHOLCIMCORPORATE GOVERNANCE75 PAUL DESMARAIS, JR. Member Paul Desmarais, Jr. 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 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, and SGS SA, Geneva, Switzerland. Chairman of the executive board of Imerys. A director of Alstom since July 2001, he was appointed CEO of Alstom in January 2003, and then Chairman and CEO in March 2003, a position he held until January 2016, when he created PKC&I (Patrick Kron - Conseils & Investissements). In November 2016, he was appointed Chairman of Truffle Capital, Paris, France. His other mandates include that he is a Member of the Board of Directors of Sanofi S.A., Paris, France, of Halcor Metal Works S.A., Athens, Greece, and of Bouygues, Paris, France. PATRICK KRON Member GÉRARD LAMARCHE Member Patrick Kron is a Member of the Board of Directors and a Member of the Strategy and of the Health, Safety & Sustainability Committees of LafargeHolcim Ltd. He was elected to the Board of Directors of LafargeHolcim Ltd in 2017. Patrick Kron is a graduate of the École Polytechnique and the Paris École des Mines, France. He began his career at the French Industry Ministry in 1979 before joining the Pechiney group in 1984, where he held senior operational responsibilities in one of the group’s largest factories in Greece before becoming manager of Pechiney’s Greek subsidiary in 1988. Between 1988 and 1993, Patrick Kron held various operational and financial positions, first managing a group of activities in aluminum processing, before being appointed Chairman and CEO of Pechiney Électrométallurgie. In 1993, he became member of the executive committee of the Pechiney group and was Chairman and CEO of Carbone Lorraine from 1993 to 1997. From 1995 to 1997, he ran Pechiney’s Food and Health Care Packaging Sector and held the position of COO of the American National Can Company in Chicago (United States). From 1998 to 2002, Patrick Kron was Gérard Lamarche is a Member of the Board of Directors, the Chairman of the Finance & Audit Committee and Member of the Strategy 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 Member 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 LAFARGEHOLCIM ANNUAL REPORT 201776 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, of SGS, Geneva, Switzerland, and of Umicore, Brussels, Belgium. 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, and as Chairman of the Board of Directors of Oracle Coalfields PLC, London, United Kingdom until April 2016. His other mandates include serving as a Member of the Board of Directors of Sherritt International Corporation, Toronto, Canada, and as a Member of the Board of Alderon Iron Ore, Montreal, Canada. ADRIAN LOADER Member JÜRG OLEAS Member Adrian Loader is a Member of the Board of Directors, Chairman of the Health, Safety & Sustainability Committee 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 Jürg Oleas 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 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 management positions. He is Chairman of the Board of LL Plant Engineering AG, Ratingen, Germany, and a Member of the Board and Chairman of the Strategy Committee of RUAG Holding AG, Bern, Switzerland. LAFARGEHOLCIMCORPORATE GOVERNANCE77 NASSEF SAWIRIS Member Nassef Sawiris is a Member of the Board of Directors and Chairman of the Nomination, Compensation & Governance 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 equivalent Committees. Nassef Sawiris is the Chief Executive Officer of OCI N.V. a role previously held at Orascom Construction Industries (OCI S.A.E.) where he was additionally appointed Chairman in 2009. Orascom Construction Industries SA, which he joined in 1982, was the predecessor company to OCI N.V. He also serves on the Board of OCI Partners LP. His other appointments include that he is a Member of the Cleveland Clinic’s International Leadership Board Executive Committee since 2011, a Member of the University of Chicago’s Board of Trustees since 2013, a Member of the International Advisory Board of JP Morgan since 2017, and a Member of the Board of Adidas AG since 2016. THOMAS SCHMIDHEINY Member Thomas Schmidheiny is a Member of the Board of Directors and a Member of the Health, Safety & Sustainability Committee 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. HANNE BIRGITTE BREINBJERG SØRENSEN Member Hanne Birgitte Breinbjerg Sørensen is a Member of the Board of Directors and a Member of the Health, Safety & Sustainability and of the Nomination, Compensation & Governance Committees 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 Economics and Management 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. Her other mandates include that she is a Member of the Board of Ferrovial S.A., Madrid, Spain, of Delhivery Pvt. Ltd., Gurgaon, India, and of Tata Motors Ltd, Mumbai, India. She was a Member of the Board of Koninklijke Vopak N.V., Rotterdam, The Netherlands, until February 16, 2018. DIETER SPÄLTI Member Dieter Spälti is a Member of the Board of Directors, the Chairman of the Strategy 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 Innsbruck, 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 investments 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. LAFARGEHOLCIM ANNUAL REPORT 201778 E X ECU T I V E COMM I T T E E 1 JAN JENISCH CEO Date appointed: 2017 Nationality: German Born: 1966 Biography P80 URS BLEISCH Member Date appointed: 2014 Nationality: Swiss Born: 1960 Biography P81 MARCEL COBUZ Member Date appointed: 2018 Nationality: Romanian Born: 1971 Biography P83 MARTIN KRIEGNER Member Date appointed: 2016 Nationality: Austrian Born: 1961 Biography P80 1 As of March 2, 2018 LAFARGEHOLCIMCORPORATE GOVERNANCE79 CAROLINE LUSCOMBE Member Date appointed: 2016 Nationality: British Born: 1960 Biography P81 OLIVER OSSWALD Member Date appointed: 2016 Nationality: Swiss Born: 1971 Biography P81 GÉRALDINE PICAUD Member Date appointed: 2018 Nationality: French Born: 1970 Biography P83 SAÂD SEBBAR Member Date appointed: 2015 Nationality: Moroccan and French Born: 1965 Biography P82 RENÉ THIBAULT Member Date appointed: 2018 Nationality: Canadian Born: 1966 Biography P83 LAFARGEHOLCIM ANNUAL REPORT 201780 JAN JENISCH CEO MARTIN KRIEGNER Member Jan jenisch has been CEO of LafargeHolcim since September 1, 2017. He has studied in Switzerland and the US and is a graduate of the University Fribourg, Switzerland with an MBA (lic. rer. pol.). From 2012 Jan Jenisch served as Chief Executive Officer of Sika AG which develops and manufactures systems and products for the building materials and automotive sector. Under his leadership, Sika expanded into new markets and set new standards of performance in sales and profitability. Jan Jenisch joined Sika in 1996 and went on to work in various management functions and countries. He was appointed to the Management Board in 2004 as Head of the Industry Division and he served as President Asia Pacific from 2007 to 2012. He is a non-executive Director of the stock-listed Schweiter Technologies AG and of the privately held Glas Troesch. Martin Kriegner has been a Member of the Executive Committee of LafargeHolcim Ltd since August 2016 and is Region Head for 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 the Group in 1990 and became the CEO of Lafarge Perlmooser AG, Austria in 1998. He moved to India as CEO of the Lafarge 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 in 2016. Effective January 2018, Martin Kriegner is Region Head Asia, including Australia and New Zealand. RON WIRAHADIRAKSA CFO GÉRARD KUPERFARB Member 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. 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 LAFARGEHOLCIMCORPORATE GOVERNANCE81 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. URS BLEISCH Member Urs Bleisch has been a Member of the Executive Committee of LafargeHolcim Ltd (then “Holcim Ltd”) since September 30, 2014 and is responsible for Growth & Performance. 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 Management function at Holcim Group Support Ltd. In 2012 he was appointed CEO of Holcim Group Services Ltd and of Holcim Technology Ltd. Since July 2015, Urs Bleisch has led the global functions of Cement Industrial Performance, Project Management & Engineering, Logistics, Procurement, Waste Management / Geocycle, Aggregates and Performance Navigation. In January 2018 he took on additional responsibility for the commercial area, development of innovative products and services as well as the capabilities to bring these solutions to customers around the world. PASCAL CASANOVA Member 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 Member 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 responsible 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. CAROLINE LUSCOMBE Member Caroline Luscombe has been a Member of the Executive Committee of LafargeHolcim Ltd since July 2016 and is responsible for 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. 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 OLIVER OSSWALD Member Oliver Osswald has been a Member of the Executive Committee 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 Executive Education Degree from LAFARGEHOLCIM ANNUAL REPORT 201782 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 Member 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 Business 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. LAFARGEHOLCIMCORPORATE GOVERNANCE83 THE FOL LOWING EXECUTI VE COM MI T TEE MEMBERS JOIN ED AFTER TH E END OF 2017 MARCEL COBUZ Region Europe Romanian and French national born in 1971, Marcel Cobuz became a member of the Executive Committee in January 2018 and is responsible for the Europe region. He studied Law and Global Economics at University of Bucharest and has completed Executive Education programs at IMD and INSEAD. Marcel Cobuz joined the company in 2000. At LafargeHolcim, he has held various operational roles in six different countries during which time he established a successful P&L track record. He has been country CEO of Indonesia, Iraq and Morocco. In his various country roles, Marcel has delivered results notably by investing in new offers in building and infrastructure, constructing and operating new plants and managing joint ventures and partnerships in listed companies. In Group roles between 2012 and 2015, he was instrumental in leading organisational change in marketing across Lafarge before heading up the Global Pre-Merger Integration Project between Lafarge and Holcim. GÉRALDINE PICAUD Chief Financial Officer French national born in 1970, Géraldine Picaud became Chief Financial Officer for LafargeHolcim in January 2018. She holds a Master Degree in Business Administration from Reims Business School. Géraldine Picaud joined the Group from CAC 40-listed ophthalmic optics company Essilor International, where she was Group CFO. Prior to that she was CFO of Volcafe Holdings, the Switzerland-based coffee business of ED&F Man. Géraldine initially joined ED&F Man in London in 2007 as Head of Corporate Finance in charge of M&A. This followed 13 years as CFO at international specialty chemicals group, Safic Alcan as Head of Business Analysis and then as CFO. Géraldine Picaud started her career with audit firm Arthur Andersen. RENÉ THIBAULT Region North America Canadian national born in 1966, René Thibault became a member of the Executive Committee in January 2018 and is responsible for the North America region. He is a graduate of Queen’s University in civil engineering and has completed the Advanced Management Program at Harvard Business School. René Thibault joined the company in 1989 and has built a strong commercial track record, with a particular expertise in downstream offerings to customers. After progressing through leadership roles in Canada, in 2007 René served as Vice President, Strategy for Europe, Middle East and Africa based in France. Returning to Canada in 2009, he led the Western Canada, aggregates and concrete businesses. In 2012, adding the cement business to his control, he was appointed CEO Western Canada. LAFARGEHOLCIM ANNUAL REPORT 201784 COMPE N S AT ION R E P OR T 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. TOP IC Letter from the Compensation Committee Chairman to shareholders Compensation system of the Board of Directors and the Executive Committee Compensation for 2017 awarded to the Board of Directors and the Executive Committee Shareholdings of the Board of Directors and the Executive Committee Compensation governance Outlook for 2018 85 87 93 97 101 104 The executive compensation structure provides balance by rewarding short-term and long-term performance, by combining absolute and relative as well as financial and non-financial metrics in measuring performance, and by delivering compensation through a mix of cash and equity. Executives are expected to build their LafargeHolcim share ownership over time, to provide further alignment with shareholders. The compensation report provides detailed information on the compensation programs at LafargeHolcim, on the governance framework around compensation and on the compensation awarded to the members of the Board of Directors and the Executive Committee in 2017. It is written in accordance with the Ordinance against Excessive Compensation in Listed Stock Corporations, the standard relating to information on Corporate Governance of the SIX Swiss Exchange and the principles of the Swiss Code of Best Practice for Corporate Governance of economiesuisse. LAFARGEHOLCIMCOMPENSATION REPORTNassef Sawiris Dear shareholders, I am pleased to share with you LafargeHolcim’s Compensation Report for the financial year 2017, which has been prepared in accordance with applicable laws, rules and regulations. As the leading global construction materials and solutions company, LafargeHolcim aims to be an employer of choice for our employees. This is supported by our compensation framework which is designed to attract, motivate and retain the qualified talent needed to succeed globally while providing excellent returns to our shareholders. 2017 has been a year with solid like-for-like results and positive contributions from most regions. Jan Jenisch was appointed as the new CEO as of 1 September 2017. He succeeds Eric Olsen who left in July 2017, with Beat Hess carrying out the duties of interim CEO and Chairman during the transition period. In 2017, the Nomination, Compensation and Governance Committee (“NCGC”) conducted a thorough review of the compensation programs to ensure their alignment to the new business strategy and decided to implement the following changes in the incentive programs in 2018: – To further focus Executive Committee members on the delivery of financial performance objectives, the proportion of the annual incentive that relates to financial performance will be increased to 85 percent of the total incentive opportunity. A new relative performance measure which compares the annual financial performance of LafargeHolcim to a sector peer group will be introduced with a weighting of 30 percent of the total incentive opportunity. The remaining 55 percent will continue to be absolute financial objectives. – 15 percent of the annual incentive will be linked to a Health & Safety score. This score will reflect improvements in the lost-time injury frequency rate – The 2018 grant under the long-term incentive program will consist of performance share awards conditional upon earnings per share (EPS) before impairment and divestments and return on invested capital (ROIC) of the Group – In addition to this, due to the exceptional changes to the Executive team, and to support the launch of the new growth strategy, a performance share option grant will be made to the Executive Committee members in 2018. You will find further details about these changes as well as information on the NCGC activities and on our remuneration systems in this Compensation Report. The report will be submitted to a consultative shareholder vote at the Annual General Meeting 2018. Looking ahead, we will continue to regularly assess our remuneration plans to ensure that they are fulfilling their purpose. We trust that you will find this report informative. Yours sincerely, Nassef Sawiris Chairman of the Nomination, Compensation and Governance Committee LAFARGEHOLCIM ANNUAL REPORT 20178586 COMPE N S AT ION PR I NC I PLE S 20 17 COMPE N SAT ION OVERV I EW B OARD OF DI RECTORS ELEMENT P UR P OSE ST RU CTU RE DRIVERS PERFORMA NCE MEA SU RES Annual retainer Pay for the function on the Board of Directors Committee fees Pay for additional contribution and time commitment Expense allowance Cover Board members’ expenses incurred EXECUTIVE CO MMIT TEE – Annual retainer in cash and 5-year blocked shares – Differentiation between membership and chairmanship – Paid in cash – Paid in cash – Role – Responsibilities – Time commitment – Experience required – Role – Responsibilities – Time commitment – Experience required - Buisness expenses incured None None None ELEMENT P UR P OSE ST RU CTU RE DRIVERS PERFORMA NCE MEA SU RES Base salary Attract and retain Fixed amount paid monthly in cash Pensions Attract and retain Pension and insurances Benefits Attract and retain, protect against risks – Perquisites – Car or allowance – Relocation benefits – Role – Responsibilities – Experience – Market value – Market practice – Role – Market practice – Role Annual Incentive Reward for short-term performance Variable amount paid half in cash and half in shares deferred for 3 years – Annual financial and non-financial performance – Recurring EBITDA – Free Cash Flow – Individual performance Long-Term Incentive (LTI) Reward long-term performance Align with shareholders Retain Performance shares delivered after 3 year vesting period – Long-term financial business performance over 3 years – Earnings per share (EPS) before impairment and divestments – Return on invested capital (ROIC) – Relative Total Shareholder Return (TSR) LAFARGEHOLCIMCOMPENSATION REPORTCOMPENSATION SYSTEM Board of Directors To guarantee their independence in exercising their supervisory duties, the members of the Board of Directors receive fixed compensation only. Part of the compensation is paid in shares in order to strengthen alignment with shareholders’ interests. The Board compensation consists of an annual retainer as Chairman, Vice-Chairman or member of the Board of Directors and additional fees for assignments to committees of the Board either as chair or member. The annual retainer is paid partially in cash and partially in shares, which are blocked from sale and pledging for a period of five years. The committee fees are paid in cash. Additionally, a lump sum expense allowance is paid in cash. The Chairman of the Board of Directors is also entitled to a secretarial allowance. The members of the Board of Directors receive no additional reimbursements of business expenses beyond travel costs from abroad. The members of the Board do not participate in LafargeHolcim’s employee benefit plans. In exceptional circumstances, additional fees are payable to a Board member or Chairman when an exceptional workload beyond the regular function on the Board has been required. Cash compensation is paid quarterly for the Board members and monthly for the Chairman. The shares are transferred in March of the term (year) of office. COM P ENSATIO N MODE L OF THE BOARD OF DIR ECTOR S ANNUAL RETAIN ER (GROS S P. A .) Chairman of the Board of Directors 1 Vice-Chairman of the Board of Directors Members of the Board of Directors CA SH COM PENSATIO N IN CHF SHARE-BASED CO MPENSATIO N 2 IN CHF EXPEN SE AL LOWA NC E IN CHF SECRETARIAL ALLOWANCE IN C HF 725,000 200,000 100,000 725,000 200,000 100,000 10,000 10,000 10,000 60,000 COMMIT TEE FEES (GROSS P. A.) Committee chair Committee member CA SH COM PENSATIO N IN CHF 125,000 40,000 1 The Chairman of the Board of Directors is not eligible for committee fees. 2 Converted into shares based on the average share price between 1 January 2018 and 15 February 2018. LAFARGEHOLCIM ANNUAL REPORT 20178788 Executive Committee Executive Committee 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 compensation structure balances short-term and long-term performance, combines absolute and relative performance, and financial and non-financial metrics in measuring performance, and delivers 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. The compensation for members of the Executive Committee includes the following elements: – Fixed base salary – Pensions and benefits – Variable compensation: annual and long-term incentives Base salaries Base salaries of Executive Committee members are reviewed annually, with the objective to provide total compensation packages which are broadly competitive against companies of the Swiss Market Index (SMI). Salaries for Executive Committee members are set taking into account market practice for the relevant role, and internal consistency. In 2017, a number of new executives joined the Executive Committee, and the same principles were applied in setting their salary levels. LAFARGEHOLCIMCOMPENSATION REPORTPension Members of the Executive Committee participate in the benefits plans available in the country of their employment contract. Benefits consist mainly of retirement, insurance and healthcare plans that are designed to provide a reasonable level of protection for the employees and their dependents in respect to the risk of retirement, disability, death and health. The members of the Executive Committee with a Swiss employment contract participate in LafargeHolcim’s defined benefit pension scheme applicable to Swiss-based senior management, which is set up to achieve, at age 62 and assuming 10 years of service in senior management and 20 years of service with the Group, an amount of 40 percent of the average of the last 3 years’ base salaries, inclusive of all other pension incomes participants may benefit from. Early or deferred retirement pensions are adjusted based on actuarial calculations. LafargeHolcim’s pension funds exceed the legal requirements of the Swiss Federal Law on occupational Retirement, Survivors and Disability Pension Plans (BVG). Members of the Executive Committee under foreign employment contracts are insured commensurately with market conditions and with their position. Each plan varies in line with the local competitive and legal environment and is, as a minimum, in accordance with the legal requirements of the respective country. Benefits and perquisites Members of the Executive Committee may receive certain executive perquisites such as a company car or transport allowances and other benefits in kind, in line with competitive market practice in their country of contract. Executives who are relocating may also be provided with housing, schooling and travel benefits, in line with the LafargeHolcim International Mobility policy. The monetary value of these other elements of compensation is evaluated at fair value and is included in the disclosure in the compensation tables. LAFARGEHOLCIM ANNUAL REPORT 20178990 Annual incentives The annual incentive, which is paid half in cash and half in shares deferred for three years, rewards financial achievements at Group level (and at regional level for Executive Committee members as appropriate), as well as individual performance over a time horizon of one year. The annual incentive design applicable to the Executive Committee is summarized below: ROLE CE O OTHER EX EC UT IVE COMM IT T EE M EM BERS Maximum opportunity 250% of salary 125% of salary METRICS Purpose Definition Weighting Payout formula RE C URRING E BIT DA FREE CA SH FLOW IN DIVIDUAL PERFORMANCE Measures Group or Regional operational profitability Measures the company’s ability to generate cash Captures each Executive Committee member’s individual performance Cash Flow from operating activities, adjusted for net maintenance and expansion Capex Operating profit before depreciation, amortization and impairment of operating assets and before restructuring, litigation, implementation and other non recurring costs, at budget FX rate, adjusted for changes in scope 30% 100% 60% 25% 0% 40% 100% 60% 25% 0% 90% of Target Target 110% of Target 90% of Target Target 110% of Target Assessment of how each executive has met a number of strategic, operational or project-based objectives (including health & safety) and demonstrated behaviors in line with company values 30% NCGC and Chairman assessment Long-term incentives The performance share plan (PSP) is designed to retain talent and to provide forward-looking incentives for sustained Group performance. Under the current plan rules, conditional share awards and/or share options may be awarded, and vest after a three-year period. LAFARGEHOLCIMCOMPENSATION REPORTIt is the NCGC’s intention to normally grant conditional share awards annually, whilst share options may be granted in exceptional circumstances. No option grant was awarded in 2017. The long-term incentive design applicable to the Executive Committee is summarized below: 20 17 PERFO RMANCE SHARE AWARD ROLE CE O OTHER EX EC UT IVE COMM IT T EE M EM BERS Maximum opportunity 250% of salary 140% of salary METRICS Purpose E ARN IN GS PE R SH ARE BE F OR E IMPAIRME N T AND DIVE ST ME N TS ROIC REL ATIVE TSR Measures LafargeHolcim’s profitability to investors Measures the company’s ability to use invested capital efficiently Weighting Performance period 30% 2019 40% 2019 Definition Underlying, fully-diluted earnings per share adjusted for after tax gains and losses on disposals of Group companies and impairments of goodwill and assets Return on Invested Capital at year end 2019, adjusted for changes in scope between 2017 and 2019 Measures LafargeHolcim’s ability to provide investors with better returns compared to alternative investments 30% July 25, 2017 to July 24, 2020 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 Performance vesting 100% 75% 50% 25% 0% 100% 75% 50% 25% 0% 100% 75% 50% 25% 0% Target –4.6% Target Target +15.7% Target –100bps Target Target +100bps 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 LAFARGEHOLCIM ANNUAL REPORT 20179192 The unvested performance share awards forfeit upon termination of employment, except in the case of retirement, ill-health, disability, termination due to a change of control, or at the discretion of the Nomination, Compensation and Governance Committee. In such circumstances, unvested performance share awards are subject to a pro-rata vesting (for the number of full months between grant date and termination date) at regular vesting date. In the event of death, vesting is immediate and performance conditions are considered met. For the avoidance of doubt, performance shares always lapse when termination is due to resignation or gross misconduct. Executive Share Ownership guidelines To reflect the importance the NCGC places on aligning their interests with shareholders, executives are required to hold LafargeHolcim shares, with a value of 300 percent 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 or change of control clauses except the vesting provisions of long-term incentive (LTI) awards as described above. In the case of one former Lafarge Executive Committee member, a contractual commitment is payable in the event of termination by the company before December 31st 2017. Retention awards No payments were made in 2017 under a retention scheme (2016: CHF 2.0 million, merger related). No further retention payments are due to any member of the Executive Committee. LAFARGEHOLCIMCOMPENSATION REPORTCOMPENSATION FOR FINANCIA L YEA R 2017 The tables in this section were audited according to Article 17 of the Ordinance against Excessive Compensation in Listed Stock Corporations. BOAR D OF DIRECTORS SHARE-BASED COMPENSATION NAME POSITIONS AS PER 31 DECEMBER CASH COMPEN- SATION CHF NUMBER VALUE CHF OTHER CHF SUBTOTAL CHF SOCIAL SECURITY CHF 2017 TOTAL CHF 2016 TOTAL CHF Beat Hess, Chairman 1,075,000 1 12,690 725,000 70,000 1,870,000 82,275 1,952,275 1,145,492 Oscar Fanjul 2 2 3 Bertrand Collomb Philippe Dauman 3 Paul Desmarais, Jr. Alexander Gut 3 Patrick Kron 4 Bruno Lafont 3 Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne B. Sørensen 1 1 1 1 2 2 2 2 3 4 3 4 4 4 Dieter Spälti 1 3 238,334 140,000 41,667 140,000 58,334 105,000 41,667 265,000 212,917 123,333 241,667 123,333 163,333 265,000 2,917 1,750 729 166,667 100,000 41,667 10,000 10,000 4,167 415,001 250,000 87,501 0 415,001 290,000 10,144 260,144 258,122 5,835 93,336 216,933 1,750 100,000 10,000 250,000 0 250,000 285,417 729 1,021 729 1,750 1,750 1,750 1,750 1,750 1,750 1,750 41,667 58,333 41’667 100,000 100,000 100,000 100,000 100,000 100,000 100,000 4,167 5,833 4,167 10,000 10,000 10,000 10,000 10,000 10,000 10,000 104,168 169,166 87,501 375,000 322,917 233,333 351,667 233,333 273,333 375,000 7,929 6,425 112,097 300,377 175,591 0 0 0 0 0 0 87,501 216,540 375,000 339,583 322,917 250,000 233,333 124,166 351,667 322,917 9,290 242,623 218,094 0 273,333 250,000 19,999 394,999 394,999 Total 3,234,585 34,565 1,975,001 188,334 5,397,920 141,897 5,539,817 4,612,640 Chairman of Committee 1 FAC: Finance & Audit Committee 2 NCGC: Nomination, Compensation and Governance Committee 3 SC: Strategy Committee 4 HSSC: Health, Safety & Sustainability Committee since May 3, 2017 1 Includes additional fee of CHF 350,000 for the additional time commitment to organize the CEO’s succession. 2 Vice-Chairman since May 3, 2017 3 Board-Member until May 3, 2017 4 Board-Member since May 3, 2017 LAFARGEHOLCIM ANNUAL REPORT 201793 94 Compensation for financial year 2017 In 2017, fifteen non-executive members of the Board of Directors received in total a remuneration of CHF 5.5 million including mandatory Social Security payments (2016: CHF 5.4 million when including CHF 0.8 million paid to one former Board Member having left during 2016) of which CHF 3.2 million (2016: CHF 3.1 million) was paid in cash, CHF 0.1 million (2016: CHF 0.1 million) in the form of social security contributions, and CHF 2.0 million (2016: CHF 1.9 million) in shares. Other compensation paid totaled CHF 0.2 million (2016: CHF 0.2 million). These amounts include an additional fee of CHF 350,000 paid to the Chairman for the additional time commitment involved in organizing the CEO succession. At the Annual General Meeting 2016, shareholders approved a maximum aggregate amount of compensation of CHF 5,400,000 for the Board of Directors for the term until the Annual General Meeting 2017. The remuneration paid to the Board for this term was CHF 4,868,336 (excluding mandatory Social Security payments) and is therefore within the approved limits. At the AGM 2017, shareholders approved an unchanged maximum aggregate amount of compensation of CHF 5,400,000 for the Board of Directors for the term until the Annual General Meeting 2018. The remuneration paid to the Board of Directors for this term is anticipated to be approx. CHF 5.4 million. The final amount will be disclosed in the 2018 compensation report. LAFARGEHOLCIMCOMPENSATION REPORTEXE CUTIVE COMMIT TE E PERFORMANCE SHARES 4 OTHER SHARE AWARDS 5 EXECUTIVE BASE SALARY CHF OTHER FIXED PAY CHF 1 ANNUAL BONUS CHF NUMBER OF SHARES FAIR VALUE AT GRANT CHF NUMBER OF SHARES FAIR VALUE AT GRANT CHF PENSION CONTRI- BUTIONS CHF TOTAL 2017 CHF TOTAL 2016 6 CHF Eric Olsen 1,500,000 323,871 1,800,000 2 0 0 0 0 501,692 4,125,563 7,207,062 01.01.2017 to 15.07.2017 Jan Jenisch 01.09.2017 to 31.12.2017 Other Exco 01.01.2017 to 31.12.2017 533,332 8,667 1,120,000 3 70,422 1,971,112 89,784 4,861,804 278,062 8,772,977 0 7,312,047 1,590,048 1,646,258 173,171 4,847,056 0 0 3,971,649 19,367,058 29,732,002 Total 9,345,379 1,922,586 4,566,258 243,593 6,818,168 89,784 4,861,804 4,751,403 32,265,598 36,939,064 1 Includes the value of benefits in kind: car allowance and benefits for internationally mobile members (expatriates) such as housing, schooling and tax consulting 2 Amount paid on-target as per policy and according to contractual agreement in line with Swiss regulations 3 Bonus agreed at hire, paid on-target for the period September to December 2017 for the financial portion (70% of bonus opportunity) and based on effective performance for the individual portion (30% of bonus opportunity). Also includes amount paid in respect of forfeited 2017 bonus from previous employer. 4 Performance shares granted under the long-term incentive plan, subject to a three-year performance-based vesting period 5 Other share awards are restricted share awards granted to Jan Jenisch at hire, compensating for share awards forfeited from his previous employer, on a strict like-for-like basis. Vesting of these restricted shares is in December 2017, December 2018 and December 2019, reflecting the vesting dates of forfeited awards 6 2016 figures also reflect the fair value at grant of the performance share awards under the LTI. (Performance shares were previously disclosed at face value, which corresponds to the maximum payout opportunity. Stock options were disclosed at fair value.) Compensation for financial year 2017 Total compensation for Executive Committee members in 2017 is as follows: The total annual compensation for the members of the Executive Committee amounted to CHF 32.3 million (2016: CHF 36.9 million). This amount comprises base salaries and variable compensation of CHF 15.8 million (2016: CHF 21.3 million), share-based compensation of CHF 11.7 million (2016: CHF 10.3 million), employer contributions to pension plans of CHF 4.8 million (2016: CHF 5.3 million). LAFARGEHOLCIM ANNUAL REPORT 20179596 Explanatory comments to the compensation table: The compensation changes in 2017 compared to 2016 are mainly caused by the following factors: – The former CEO (Eric Olsen) left the company July 15th 2017, and contractually due payments for 2017 are included in the total Executive Committee compensation in the table above. The contractual terms are as follows: 12-month notice period, 12-month non- competition period and partial forfeiture of LTI awards as per LTI plan rules. – The new CEO (Jan Jenisch) started on September 1st 2017 and received a combined base salary plus variable compensation of CHF 1.7 million, share-based compensation of CHF 6.8 million, employer contributions to pension benefits of CHF 0.3 million. As a result, the new CEO’s total compensation amounted to CHF 8.8 million. He received a replacement award of 89,784 shares for long-term incentive awards forfeited at his previous employer due to joining LafargeHolcim. This replacement award will vest in three tranches each in December 2017, 2018 and 2019 and is included in the compensation table above (value at grant). It was also agreed that, with regard to 2017, he would receive CHF 240,000 in compensation for his forfeited bonus from his previous employer, and a LafargeHolcim annual incentive payment for 2017 reflecting on-target achievement for the financial portion (70% of the bonus opportunity) and based on effective performance for the individual portion (30% of the bonus opportunity). – The need for interim coverage as Group CEO by Beat Hess, Chairman, included in the section “other EXCO”, was compensated with 0.2 million fixed pay. No incentives were paid for the interim period. – The performance achievement under the annual bonus was lower in 2017 than in 2016. Further details are provided below. – As a result of the 2017 compensation review, it was decided not to increase Executive Committee and CEO base salaries, but to increase their long-term incentive opportunity. CEO normal award was increased from 225 percent to 250 percent of salary and Executive Committee normal award was increased from 125 percent to 140 percent of salary. The compensation awarded to the Executive Committee members for 2017 (including the compensation for the interim CEO and the supplement for the interim COO) is within the total maximal amount of compensation for the Executive Committee for the financial year 2017 of CHF 40,500,000 approved at the Annual General Meeting 2016. Annual incentive 2017 annual incentives for members of the Executive Committee (excluding Jan Jenisch and Eric Olsen) were on average, 24 percent of maximum, with an average payout on financial objectives of 4 percent of maximum and of 69 percent for the achievement of personal objectives. Long-term incentive plan vesting in 2017 The first LafargeHolcim long-term incentive plan vesting will take place in December 2018 and will be disclosed in the 2018 Compensation Report. Loans granted to members of governing bodies As at December 31, 2017, there were no loans outstanding to members of the Executive Committee. There were no loans to members of the Board of Directors or to parties closely related to members of governing bodies. 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 the Executive Committee in 2016 and 2017. Compensation for former members of governing bodies During 2017, payments in the total amount of CHF 7.8 million were made to four former members of the Executive Committee. LAFARGEHOLCIMCOMPENSATION REPORTSHARE OWNER SHIP INFORMATION Ownership of shares: Board of Directors On December 31, 2017, non-executive members of the Board of Directors held a total of 94,528,975 registered shares in LafargeHolcim Ltd. This number comprises privately acquired shares and those allotted under participation and compensation schemes. As of the end of 2017 one non-executive member of the Board of Directors held privately acquired LafargeHolcim share purchase (call) options. Until the announcement of market-relevant information or projects, the Board of Directors, the Executive Committee and any employees involved are prohibited from effecting transactions with equity securities or other financial instruments of LafargeHolcim Ltd, exchange-listed Group companies or potential target companies (trade restriction period). SH ARES AND O PT IONS HELD BY THE BOARD OF DIR ECTORS SHARES HELD AS OF DECEMBER 31, 2017 OPTIONS HELD AS OF DECEMBER 31, 2017 SHARES HELD AS OF DECEMBER 31, 2016 OPTIONS HELD AS OF DECEMBER 31, 2016 NAME Beat Hess POSITION Chairman Oscar Fanjul Vice-Chairman Bertrand Collomb Paul Desmarais Jr Member Member Patrick Kron Member (from May 3, 2017) Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Member Member Member Member Thomas Schmidheiny Member Hanne B. Sørensen Member Dieter Spälti Member Philippe Dauman Member (until May 3, 2017) Alexander Gut Member (until May 3, 2017) Bruno Lafont Co-chairman (until May 3, 2017) 17,419 7,758 116,065 38,943 0 4,066 16,739 3,397 25,180,203 69,072,527 6,776 65,082 n/a n/a n/a 10,000,000 1 8,792 5,901 121,673 37,086 0 2,209 14,882 2,314 28,938,346 69,070,670 4,920 62,751 1,129 8,161 44,939 Total 94,528,975 10,000,000 98,323,773 1 5,000,000 Call-Options/Exercise Price = CHF 59,096/expiry date July 3, 2018, and 5,000,000 Call-Options/Exercise Price = CHF 59,096/expiry date July 4, 2018, both European Style. 2 From former equity based compensation (Lafarge S.A.). 443,068 2 443,068 LAFARGEHOLCIM ANNUAL REPORT 20179798 Ownership of shares and options: Executive Committee As of December 31, 2017, members of the Executive Committee held a total of 209,225 registered shares in LafargeHolcim Ltd. This figure includes both privately acquired shares and those allocated under the Group’s compensation schemes. Furthermore, at the end of 2017, the Executive Committee held a total of 919,834 stock options and 605,372 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 buy to one registered share in LafargeHolcim Ltd. N UM BER OF SHARES AND OPTIONS HELD BY EXECUTIVE COMMIT TEE MEMBERS AS OF DECEMBER 31, 201 7 NAME POSITION Jan Jenisch CEO Ron Wirahadiraksa Member Urs Bleisch Member Pascal Casanova Member Roland Köhler Member Martin Kriegner Member Gérard Kuperfarb Member Caroline Luscombe Member Oliver Osswald Member Saâd Sebbar Member Total TOTAL NUMBER OF SHARES TOTAL NUMBER OF OPTIONS 120,000 5,649 13,116 8,057 39,288 4,094 11,240 1,474 1,784 4,523 80,0001 113,217 122,115 86,574 195,927 52,353 140,614 36,410 27,308 65,316 TOTAL NUMBER OF PERFORMANCE SHARES 126,868 77,655 49,416 56,351 67,655 38,026 76,760 40,009 27,231 45,401 209,225 919,834 605,372 1 80,000 call options (HOLN C56 JUN18), strike price: CHF 56, expiry date 15 June 2018, privately acquired N UM BER OF SHARES AND OPTIONS HELD BY EXECUTIVE COMMIT TEE MEMBERS AS OF DECEMBER 31, 201 6 NAME POSITION Eric Olsen CEO Ron Wirahadiraksa Member Urs Bleisch Member Pascal Casanova Member Roland Köhler Member Martin Kriegner Member Gérard Kuperfarb Member Caroline Luscombe Member Oliver Osswald Member Saâd Sebbar Member Total TOTAL NUMBER OF SHARES TOTAL NUMBER OF OPTIONS TOTAL NUMBER OF PERFORMANCE SHARES 117,924 50,543 32,163 31,632 40,543 20,354 34,460 22,756 14,291 29,159 262,054 113,217 122,115 70,857 198,208 45,410 77,193 36,410 27,308 65,316 1,018,088 393,825 23,499 2,101 10,399 4,857 34,581 3,100 8,222 – 887 5,072 92,718 LAFARGEHOLCIMCOMPENSATION REPORTDuring 2017, Jan Jenisch purchased 77’086 LafargeHolcim shares, for a total value as at 31st December of CHF 4.2 million, or 263 percent of his base salary, thereby (together with granted registered shares) meeting the CEO Share Ownership Guideline of 300 percent of salary. 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 former 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 2017, 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, 2017. 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 63,421 15,717 6,943 63,421 7,569 LAFARGEHOLCIM ANNUAL REPORT 201799100 The share options outstanding held by the Executive Committee (including former members) at year-end 2017 have the following expiry dates and exercise prices: Issuing Company Expiry date Exercise price 1 2017 2016 Number 1 Number 1 Option grant date 2008 2009 2010 2010 2011 2012 2013 2014 2014 Holcim Holcim Holcim Holcim Holcim Holcim Holcim Holcim Holcim 2015 (2007 2) Lafarge 2015 (2008 2) Lafarge 2015 (2009 2) Lafarge 2015 (2010 2) Lafarge 2015 (2011 2) Lafarge 2015 (2012 2) Lafarge 2015 2015 2015 2016 Total Holcim Holcim LafargeHolcim LafargeHolcim 2020 2017 2018 2022 2019 2020 2021 2022 2026 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 62.95 35.47 67.66 70.30 63.40 54.85 67.40 64.40 64.40 129.46 112.41 35.93 59.96 52.01 42.07 66.85 63.55 50.19 53.83 33,550 0 95,557 33,550 33,550 38,760 95,557 33,550 113,957 113,957 165,538 165,538 122,770 122,770 99,532 99,532 33,550 33,550 0 18,836 60,745 25,166 22,125 60,745 28,106 22,125 24,675 24,645 24,360 21,420 144,970 144,970 47,333 47,333 417,360 437,348 503,120 503,120 1,967,858 2,045,412 1 Adjusted to reflect former share splits and/or capital increases and/or scrip dividend. 2 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. The year specified between brackets is the original option grant date and the exercise price is converted from EUR to CHF at the closing rate of 1.17. LAFARGEHOLCIMCOMPENSATION REPORTCOMPENSATION 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 Committee (Art. 24), the general compensation principles (Art. 25) as well as provisions regarding the agreements with members of the Board of Directors and the Executive Committee (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 approved by the shareholders and 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 In accordance with Article 21 of the Articles of Incorporation, the NCGC supports the Board of Directors 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 nomination and compensation of the members of the Board of Directors and of the Executive Committee. The NCGC proposes to the Board of Directors the compensation of the Board of Directors. It decides upon the applicable performance criteria, targets and compensation levels for the Executive Committee and informs the Board of Directors accordingly. The NCGC is composed of five members of the Board of Directors that are elected individually by the Annual General Meeting for a period of one year. Since the Annual General Meeting 2017, Mr. Nassef Sawiris (Chair), Mrs. Hanne Birgitte Breinbjerg Sørensen, Mr. Oscar Fanjul, Mr. Paul Desmarais, Jr and Mr. Adrian Loader are re-elected members of the NCGC. The NCGC holds ordinary meetings at least three times a year: at the beginning of the year, in the middle of the year, and in December. In 2017, the NCGC held three meetings and the attendance rate was 94 percent. The NCGC Chair may invite members of the Executive Committee, other officers of the Group or third parties to attend the meetings. They will however not be present if their own performance or compensation is discussed or determined. After each NCGC meeting, the Board of Directors is informed of the topics discussed, decisions taken and recommendations made. In 2017, the NCGC retained Mercer Ltd as its independent compensation advisor. The NCGC 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. LAFARGEHOLCIM ANNUAL REPORT 2017101102 Annual General Meeting – Shareholder involvement 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 Committee for the following financial year. Art. 24 of the Articles of Incorporation provides for a supplementary amount for Executive Committee members who become members of, or who are promoted to the Executive Committee during a compensation period for which the Annual General Meeting has already approved the compensation of the Executive Committee if the compensation already approved is not sufficient to cover this compensation. The supplementary amount per compensation period shall not exceed 40 percent of the aggregate amount of compensation last approved by the Annual General Meeting in total. 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. The table below summarizes the roles of the NCGC, the Board of Directors, and the Annual General Meeting: N OMIN ATION , CO MPENSATIO N & GOVERNA NCE CO MMIT TEE BOA RD OF DIRECTORS AN N UAL GEN ERAL MEETING (AGM) Compensation Report Proposes Approves Advisory vote Maximum compensation amount for the Board of Directors from AGM to AGM Maximum compensation for the Executive Management for the next financial year Proposes Reviews and proposes to AGM Binding vote Proposes Reviews and proposes to AGM Binding vote Individual compensation of members of the Board of Directors Proposes Approves (within the budget approved by the AGM) Individual compensation of members of the Executive Management Approves (within the budget approved by the AGM) LAFARGEHOLCIMCOMPENSATION REPORTMethod for determining compensation: Periodic benchmarking The compensation of the Board of Directors is regularly reviewed against prevalent market practice of other multinational industrial companies of the SMI. This provides for a peer group which is well-balanced in terms of market capitalization, revenue size and headcount. The compensation model of the Board of Directors has not had any significant change since the creation of LafargeHolcim in 2015. Regarding the compensation of the Executive Committee, a benchmarking analysis is conducted regularly with the support of independent data sources (Willis Towers Watson, Aon Hewitt). The same peer group of companies has been chosen as for the review of compensation of the Board of Directors. Mercer gathers the relevant benchmarking data and summarizes them in a report that serves as basis for the NCGC to analyze the compensation of the CEO and the Executive Committee and to set their target compensation levels. The policy of LafargeHolcim is to target market median compensation for on-target performance, with significant upside for above target performance. Such compensation benchmarking analysis was undertaken in 2017 and served as basis for the NCGC to analyze the compensation of the CEO and the Executive Committee and to set their target compensation levels for the business year 2018. LAFARGEHOLCIM ANNUAL REPORT 2017103104 OUTLOOK 2018 Composition of the Executive Committee As announced on 15 December 2017, the Board of Directors of LafargeHolcim has decided to establish a more market-focused and agile management organization. As a result, the Executive Committee will be reduced to nine members. Géraldine Picaud started as the new Chief Finance Officer on 3 January 2018, replacing Ron Wirahadiraksa. Their respective hiring and exit terms are in full compliance with Swiss regulations, and will be included in the 2018 Compensation Report. The positions of Head of Performance & Cost and Head of Growth & Innovation have been combined into one role, held by Urs Bleisch. Marcel Cobuz has been nominated Head of Europe, replacing Roland Köhler, and René Thibault has been nominated Head of North America, replacing Pascal Casanova. 2018 Compensation System In light of the new Strategy 2022, the NCGC has decided to make several changes to the compensation system of the Executive Committee for 2018. Those changes will be described in detail in the 2018 Compensation Report and are summarized below: Annual base salary: Except for promotions to — or within — the Executive Committee, annual base salaries are not expected to change substantially in the future. Annual incentive: – To further focus Executive Committee members on the delivery of pre-determined targets, the proportion the annual incentive that relates to financial performance objectives will increase to 85 percent of the total incentive opportunity. An annual relative performance measure which compares the annual financial performance of LafargeHolcim to a sector peer group (see details page 91) will be introduced. The relative performance measure will have a weighting of 30 percent of the total incentive opportunity and will combine relative Group revenue growth and relative Group recurring EBITDA growth. LafargeHolcim’s relative performance will be independently calibrated by a specialist financial information company. The other 55 percent will continue to be absolute financial objectives that are set either at Group level (for corporate roles) or at Regional level (for regional roles). – 15 percent of the annual bonus opportunity will be linked to a Health & Safety score, at Group or Regional level depending on the Executive Committee member’s role. This score will reflect improvements in the lost-time injury frequency rate (LTIFR). The Compensation Committee will also consider the overall Health & Safety-related outcomes during the year when determining the achievement level of the Health & Safety objective. LAFARGEHOLCIMCOMPENSATION REPORTThe exhibit below illustrates the 2018 structure of the annual bonus: Financial performance (85%) Relative Group performance Recurring EBITDA Free Cash Flow Non-financial performance (15%) Health & Safety objectives (15%) CO RPORATE EXEC UTIVE CO MMIT TEE ROL ES REG IONAL EXECU TIVE CO MMIT TEE ROL ES 30% 30% 30% (Group level) 25% (Group level) 15% (Group level) 30% (regional level) 25% (regional level) 15% (regional level) Long-term incentive: In order to support the new business strategy, the grant that will be awarded in 2018 under the long-term incentive will consist of both performance shares and stock options. – Performance share awards will be subject to a three-year vesting period based on Group earnings per share (EPS) before impairment and divestments and Group return on invested capital (ROIC). These performance metrics have been chosen as they reflect the strategic priorities of the Group to increase profitability through strong operating leverage (EPS before impairment and divestments) and to improve how the company generates cash relative to the capital it has invested in its business (ROIC). For both metrics, the NCGC determines a Threshold performance level (below which there is no vesting), a Target level (vesting of 50 percent) and a ‘Stretch’ performance level (vesting in full). Between these levels, vesting is calculated on a straight-line basis, as for previous performance share awards. – Stock options will be subject to a five year vesting period based on LafargeHolcim’s 3-month average Total Shareholder Return (TSR) and will have a maturity of ten years. Threshold vesting (25 percent of maximum) will be achieved for a TSR of 35 percent, Target vesting (50 percent of maximum) will be achieved for a TSR of 40 percent and full vesting will be achieved for a Stretch TSR of 50 percent at the end of the five-year period. The vesting level between Threshold, Target and Stretch TSR will be calculated on a straight-line basis. Should the 50 percent TSR target be achieved before the end of the five-year period, the options will vest at that moment but no earlier than three years from the grant date. LAFARGEHOLCIM ANNUAL REPORT 2017105106 The decision to replace the former relative TSR performance share awards by stock options was driven by the intention to further strengthen the link between the compensation of the Executive Committee and the shareholders’ interests in the context of the new, growth- orientated business strategy. The changes to the incentive programs for 2018 ensure a balanced measurement of performance between financial and non-financial achievements, relative and absolute performance, as well as short-term and long-term results. The incentive programs reward the long-term performance and the sustainable success of LafargeHolcim and are strongly aligned to the interests of the shareholders. LAFARGEHOLCIMCOMPENSATION REPORTTO THE GENER AL MEETING OF LAFARGEHOLCIM LTD, R APPERSWIL-JONA Zurich, March 1, 2018 REPORT OF THE STATUTORY AU DITOR ON TH E COM PENSATION R EP OR T We have audited the compensation report of LafargeHolcim Ltd for the year ended December 31, 2017. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive Compensation in Listed Stock Corporations (Ordinance) contained on pages 93 to 96 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 accordance 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, 2017 of LafargeHolcim Ltd complies with Swiss law and articles 14 – 16 of the Ordinance. Deloitte AG David Quinlin Licensed Audit Expert Auditor in charge Frédéric Gourd LAFARGEHOLCIM ANNUAL REPORT 2017107 108 M A N AGE ME NT DI S CUS S ION & A N A LYS I S 2 017 This management discussion and analysis should be read in conjunction with the shareholders’ letter and the individual reports for the Group regions. GROUP Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 2017 209.5 278.7 50.6 2016 1 233.2 282.7 55.0 Net sales million CHF 26,129 26,904 Recurring EBITDA 2 million CHF Operating (loss) profit million CHF 5,990 (478) Net (loss) income million CHF (1,716) 5,950 2,963 2,090 ±% (10.2) (1.4) (7.9) (2.9) 0.7 ±% like-for-like 3.3 0.3 (2.8) 4.7 6.1 Earnings per share before impairment and divestments Cash flow from operating activities CHF 2.35 2.10 11.9 million CHF 3,040 3,295 Capex million CHF (1,355) (1,635) Free Cash Flow million CHF 1,685 1,660 Net financial debt million CHF 14,346 14,724 (7.8) 17.2 1.5 (2.6) 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". Volume, income statement and cash flow statement In 2017, LafargeHolcim continued to show improvements in the key measures relating to Net sales and recurring EBITDA driven by cost discipline and commercial initiatives. The strong performance was most visible in the Americas, while most remaining regions continued to show growth as net sales and recurring EBITDA were higher than prior year on a like-for-like basis. 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, Latin America performed well with growth stemming from retail and infrastructure projects as well as cost management and pricing growth. Recurring EBITDA, in particular, India, Mexico, Argentina and Nigeria were markets which showed significant growth in top-line which also translated into strong profit growth. Challenges in some markets, although isolated, impacted the growth of regions in 2017. The performance in Malaysia was impacted by weak market demand which drove prices down whilst in Switzerland; the decline in performance was the result of infrastructure projects finishing without follow-up projects to bridge the gap. LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSIS2017 cement volumes sold were like-for-like above prior year by 3.3 percent or 6.7 million tonnes, aggregates volumes were up by 0.3 percent or 0.7 million tonnes and ready-mix concrete shipments declined by 2.8 percent or 1.4 million cubic meters versus prior year. The Group achieved net sales of CHF 26,129 million, improving by 4.7 percent or CHF 1,194 million on a like-for-like basis. Unfavorable currency translation effects impacted the Group’s net sales by 1.1 percent or CHF 285 million, led by Egypt and Nigeria. On a like-for-like basis, adjusted for restructuring, litigation, implementation and other non-recurring costs, the Group generated a recurring EBITDA of CHF 5,990 million including the reclassification of the Group’s share of Huaxin profits, (CHF 126 million) which did not impact the higher 6.1 percent like-for-like growth above the prior year. The Group’s recurring EBITDA margin increased by 0.8 percentage points to 22.9 percent. Restructuring costs were the main driver for the one-offs during 2017 with further implementation of business service centers in the regions also accounting for some additional non-recurring expenditure. Following the weaker than anticipated outlook for the macro-economic environment, especially in terms of expected growth rates and pricing developments of countries such as Algeria, Malaysia and Spain, management performed an impairment test on the goodwill during the fourth quarter 2017 as well as a detailed review of the fair value of its assets. Subsequent to the completion of the impairment test performed, management recognized a total impairment loss of CHF 3.8 billion. Further information on the impairments recognized has been detailed in the notes 10, 25 and 26. This impairment loss resulted in an operating loss of CHF 478 million. The items below operating profit were broadly in line with prior year. The lower gains on divestments were due to the fewer entities divested in comparison to prior year. Taxes for the current year were also lower due to lower taxable income, resulting in a net loss of CHF 1,716 million. Earnings per share (EPS) before impairment and divestments increased by 12 percent to CHF 2.35. The increase in return attributable to LafargeHolcim Ltd. shareholders is driven by marginally higher recurring EBITDA, a reduction in other non-operating costs and lower tax expenses. These all contributed to the increase in EPS before impairment and divestments, whilst the share buyback performed during the year also assisted with the improvement. The group’s Free Cash Flow improved by 1.5 percent to CHF 1,685 million. The improvement was driven by the strong performance in the Americas. Working capital variation deteriorated as a result of a low 2016 ending position and in some countries, changes in customer payment terms during 2017 saw delays in receipts. Capex was well controlled across the Group and lower than prior year in all regions, except Europe. LAFARGEHOLCIM ANNUAL REPORT 2017109110 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 1.5 billion were undertaken, enabling the Group to lock in historically low interest rates. The main capital market transactions were the following: GBP 300  million AUD 300 million EUR 750 million LafargeHolcim Sterling Finance (Netherlands) B.V. with a coupon of 3.00 %, term 2017–2032 Holcim Finance (Australia) Pty Ltd with a coupon of 3.50 %, term 2017–2022 Holcim Finance (Luxembourg) S.A. with a coupon of 1.75 %, term 2017–2029 Net financial debt The Group’s year-end net financial debt stood at CHF 14,346 million, an improvement of CHF 378 million over prior year, driven by divestments and improved cash flows. Capital market financing of the Group as per December 31, 2017 (CHF 15,258 million) Others (GBP and MXN bonds, USD and EUR Private Placements, NGN bonds and commercial paper) CHF 1,377 m AUD Bonds CHF 569 m CHF Bonds CHF 1,974 m USD Bonds CHF 4,262 m 4% 9% 13% 28% EUR Bonds CHF 7,076 m 46% Financing profile LafargeHolcim has a strong financial profile. 82 percent of financial liabilities are financed through various capital markets and 18 percent through banks and other lenders. There are no major positions with individual lenders. The average maturity of financial liabilities increased from 5.9 years at December 31, 2016, to 6.3 years at December 31, 2017, due to several capital market transactions during 2017. 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 53). The average nominal interest rate on LafargeHolcim’s financial liabilities as at December 31, 2017, was 4.5 percent, and the proportion of financial liabilities at fixed rates was at 69 percent. Detailed information on financial liabilities can be found in the respective Note 28. LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSISMaturity profile Million CHF 6,000 5,000 4,000 3,000 2,000 1,000 0 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7 2 0 2 7 2 0 2 > n Bonds, private placements and commercial paper notes n Loans from financial institutions and other financial liabilities Liquidity To secure liquidity, the Group held cash and cash equivalents of CHF 4,217 million at December 31, 2017. This cash is mainly 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, 2017, LafargeHolcim had unused committed credit lines of CHF 6,794 million (see also note 28). Current financial liabilities as at December 31, 2017, of CHF 3,843 million are comfortably covered by existing cash, cash equivalents and unused committed credit lines. LafargeHolcim has USD, EUR and NGN commercial paper programs. The aim of these programs is to fund short-term liquidity needs at attractive terms. As per December 31, 2017, commercial paper of NGN 26 billion (CHF 82 million) were outstanding. 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. As a large part of the foreign capital is financed with matching transactions 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. LAFARGEHOLCIM ANNUAL REPORT 2017111112 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. The following table shows the effects of a hypothetical 5 percent depreciation of the respective foreign currencies against the Swiss Franc. Sensitivity analysis Million CHF 2017 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 Net sales Recurring EBITDA Cash flow from operating activities Net financial debt Actual figures 26,129 5,990 3,040 14,346 Assuming a 5% strengthening of the Swiss franc the impact would be as follows: (178) (31) (14) (346) (86) (17) (12) (13) (220) (77) (40) (244) (98) (22) (14) 50 (99) (31) (11) (29) (177) (152) (32) (27) 38 (29) (14) (68) (86) (35) (14) (11) LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSISReconciliation of non-GAAP measures Reconciling measures of profit and loss to the consolidated statement of income of LafargeHolcim Million CHF Operating (loss) profit Depreciation and amortization Impairment of operating assets Restructuring, litigation, implementation and other non-recurring costs Recurring EBITDA Million CHF Net (loss) income Impairments Profit on disposals of Group companies Net income before impairment and divestments 2017 (478) (2,300) (3,707) (461) 5,990 2017 (1,716) (3,501) 226 1,560 2016 2,963 (2,343) (62) (582) 5,950 2016 2,090 (62) 583 1,570 of which net income before impairment and divestments – shareholders of LafargeHolcim Ltd 1,417 1,273 Adjustments disclosed net of taxation. Reconciling measures of Free Cash Flow to the consolidated statement of cash flows of LafargeHolcim Million CHF Cash flow from operating activities Purchase of property, plant and equipment Disposal of property, plant and equipment Free cash flow 2017 3,040 (1,522) 167 1,685 2016 3,295 (1,773) 137 1,660 LAFARGEHOLCIM ANNUAL REPORT 2017113114 ASIA PACIFIC Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 Net sales Recurring EBITDA 2 million CHF million CHF 2017 91.7 31.8 12.8 7,441 1,418 2016 1 113.7 32.2 15.4 8,226 1,594 ±% (19.3) (1.4) (16.7) (9.5) (11.1) ±% like-for-like 5.5 9.7 0.7 6.7 (6.9) 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". The markets in Asia Pacific showed heterogeneous performance. South East Asia countries were impacted by change in demand supply while India, China and Australia posted solid growth. Overall, Cement volumes sold increased by 5.5 percent on a like-for-like basis to 91.7 million tonnes. This was mainly driven by higher demand and additional capacities in India. In Indonesia, infrastructure and retail supported the demand. Aggregates volumes sold stood at 31.8 million tonnes for 2017, an improvement of 9.7 percent on a like-for-like basis. Infrastructure growth in Australia was particularly strong with significant projects on the east coast. Ready-mix concrete volumes sold stood at 12.8 million cubic meters which translated to a growth of 0.7 percent on a like-for-like basis. The growth for the region was driven by Australia and India, both of which benefited from residential building and capitalization of local footprint. The challenges in the Singapore market weighed heavily on the regional ready-mix volume performance resulting in only marginal growth. Net sales for the year stood at CHF 7,441 million, a like-for-like growth of 6.7 percent, which translated to a recurring EBITDA of CHF 1,418 million. Top line was improved driven by volumes growth in India and Indonesia and despite price pressure in South East Asian countries. In Philippines, influx of importers changed the market dynamics. In Malaysia, soft demand and new capacities also lead to change in market behavior. The cost inflation particularly visible in energy (solid fuels mainly) and raw materials impacted the financial performance. It was partly offset by strong fixed costs actions, first results of change in regional structure with higher leverage of shared service center and focus on operational improvements. The share of profit of Huaxin joint venture was recognized within recurring EBITDA during 2017, contributed CHF 126 million to the region and did not impact the like-for-like growth. Due to the continuing concerns on market perspectives in Malaysia, an impairment loss of CHF 448 million was recognized. LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSIS EUROPE Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 Net sales Recurring EBITDA 2 million CHF million CHF 2017 42.8 125.2 18.2 7,167 1,385 2016 1 41.6 124.2 18.4 7,023 1,334 ±% 2.9 0.8 (0.9) 2.1 3.8 ±% like-for-like 3.0 1.2 (0.5) 2.0 3.7 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". The markets in Europe overall showed solid economic growth, although uncertainties relating to Brexit negatively impacted the market in the United Kingdom. Countries within continental Europe showed clear signs of recovery. Western Europe saw growth in construction specifically in France with recovery driven mainly by the residential sector. In the eastern countries, construction activity was strong, particularly in Poland and Romania which benefitted from increased residential demand. Cement volumes sold reached 42.8 million tonnes improving by 3.0 percent on a like-for-like basis. This resulted from improved demand for residential projects with growth in infrastructure across the region. There was partial offset coming from Greece, Switzerland and the United Kingdom. Aggregates volumes sold stood at 125.2 million tonnes for 2017 and grew slightly by 1.2 percent on a like-for-like basis with strong levels in the majority of the countries in continental Europe. Ready-mix concrete volumes sold were 18.2 million cubic meters which translated to a deterioration of 0.5 percent on a like-for-like basis, notably coming from lower sales in Switzerland due to the end of large infrastructure projects. Net sales for the year ended at CHF 7,167 million, growing by 2.0 percent on a like-for-like basis. This translated into a recurring EBITDA of CHF 1,385 million, registering a growth of 3.7 percent on a like-for-like basis. The increase in results was supported by good cost discipline across the region to improve recurring EBITDA. France, United Kingdom and Central Europe were overall stable throughout the year, while we suffered a deterioration in Switzerland due to the conclusion of infrastructure projects and a softer demand. Russia has strongly benefited of our good positioning in the Moscow market, while a weaker environment in the Volga region has led to an impairment loss of CHF 152 million. In a similar way, the continuing concerns on market perspectives in Spain have resulted in an impairment loss of CHF 221 million. LAFARGEHOLCIM ANNUAL REPORT 2017115 116 LATIN AMERICA Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 Net sales Recurring EBITDA 2 million CHF million CHF 2017 24.9 4.2 5.8 2,944 1,055 2016 1 24.1 6.0 6.5 2,773 885 ±% 3.4 (29.4) (11.4) 6.1 19.3 ±% like-for-like 5.6 (18.8) (2.6) 11.0 22.9 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". The market in Latin America had a strong year. This was driven particularly by the significant performance improvement of Mexico and Argentina due to increased private and public spending. Other areas of Latin America were stable during the year. Cement volumes sold was 24.9 million tonnes improving by 5.6 percent on a like-for-like basis, due to large infrastructure projects in Mexico, in particular the New Mexico City International Airport. In Argentina, strong cement demand and recovery of the construction activity fueled by improvement in the overall political and economic environment, contributed to the region. Market remained challenging in Brazil where cement demand continued contracting in year 2017 after the slump in post- Olympic games projects. The negative impacts from the market have been off-set by positive results achieved in the implementation of Brazil Turn-Around Plan which provided for material improvement versus prior year both in recurring EBITDA and Cash Flow. Aggregates volumes sold stood at 4.2 million tonnes for 2017, a weakening of 18.8 percent on a like-for-like basis. Key reason for this movement in volumes sold is Brazil due to market contraction although offset by increased market share. Ready-mix concrete volumes sold ended the year at 5.8 million cubic meters, a deterioration of 2.6 percent on a like-for-like basis, mainly due to the soft demand in Chile in the first half of the year. Net sales for the year stood at CHF 2,944 million, which translated to a recurring EBITDA of CHF 1,055 million, an improvement of 22.9 percent on a like-for-like basis. This is due to a strong top line growth, both volume and price driven particularly in Argentina and Mexico, value proposition offerings while building on the well-established retail business, continuous focus on cost optimization and discipline. In Brazil, the still contracting market demand impacted prices which have been offset by a strong focus on cost leadership. LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSIS MIDDLE EA ST AFR ICA Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 Net sales Recurring EBITDA 2 million CHF million CHF 2017 35.7 10.4 4.7 3,374 1,085 2016 1 40.3 12.2 6.0 3,900 1,247 ±% (11.4) (15.0) (21.4) (13.5) (13.0) ±% like-for-like (4.2) (13.0) (19.5) 5.4 3.5 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". The market in Middle East Africa continued to be affected by macroeconomic structural adjustments which started to impact Egypt and Nigeria in 2016 and impacting Algeria in 2017. Changes in the competitive profile and shifts of supply and demand balance in some countries of the African continent impacted results. Still, Middle East Africa remains an attractive market with significant growth potential which saw signs of turnaround late in 2017. Cement volumes sold was 35.7 million tonnes declining by 4.2 percent on a like-for-like basis. This was mainly due to Algeria switching to an oversupplied market during the second half of 2017 due to new capacities coming on stream in the market and liquidity issues affecting public spending. Lower growth rates in Egypt and Nigeria were driven by macroeconomic imbalances as the currency liberalization in 2016 continued to affect the economy. Aggregates volumes sold stood at 10.4 million tonnes for 2017, a weakening of 13.0 percent on a like-for-like basis. Delays in infrastructure projects and a significant geographical shift in demand on the African continent drove the decline of volumes in the region. Although not cancelled, significant projects were delayed in Egypt, while South Africa struggled with the demand. Ready-mix concrete volumes sold 4.7 million cubic meters which translated into a deterioration of 19.5 percent on a like-for- like basis driven mainly by the northern countries of Africa as the macroeconomic conditions impacted all segments. The Middle East remained stable throughout 2017. Net sales for the year stood at CHF 3,374 million growing by 5.4 percent on a like-for-like basis translating to a recurring EBITDA of CHF 1,085 million, following the cement volume evolution in our major markets and price recovery in Egypt and Nigeria. Although, operational results were stable, an impairment loss of CHF 1,008 million was recognized in Algeria due to changes in the market perspective and decline of profitability evidenced by the end of the year. LAFARGEHOLCIM ANNUAL REPORT 2017117 118 NORTH AMERICA Sales of cement Sales of aggregates million t million t Sales of ready-mix concrete million m3 Net sales Recurring EBITDA 2 million CHF million CHF 2017 19.2 2016 1 19.5 107.1 108.2 9.1 5,664 1,483 8.7 5,584 1,335 ±% (1.7) (1.0) 4.9 1.4 11.1 ±% like-for-like (1.7) (1.0) (1.5) (0.4) 10.5 1 Restated due to change in presentation. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named "Operating EBITDA adjusted". The US economy recorded increasing GDP growth over the quarters, reaching the highest growth in 3 years. Canada experienced some recovery in the west of the country as oil prices recovered from its lows of prior year. Eastern Canada continued to grow, supported by increased exports to US, benefiting from favorable exchange rates and the strengthening US market. Cement volumes sold reached 19.2 million tonnes, declining by 1.7 percent on like-for-like basis. Volume growth did not materialize as initially anticipated although trends improved in the last quarter of the year. This decline was mainly caused by lower deliveries in the US market, which were below prior year by 3.9 percent. Above average precipitation until October, including hurricanes Irma and Harvey, hindered business activity and cement shipments. Canada reported a volume increase by 4.7 percent on a like-for-like basis, mainly benefiting from the economic recovery in the west. Aggregates volumes sold stood at 107.1 million tonnes for 2017, lower compared to prior year on like-for-like basis by 1.0 percent. This reduction was mainly driven by the impacts of the challenging weather conditions on the US construction activity. Canada’s volumes improved, partially offsetting the US shortfall. Ready-mix concrete volumes sold were 9.1 million cubic meters, which translated to a reduction of 1.5 percent on like-for-like basis, reflecting lower sales in US, which were partially compensated by more volumes in Canada. Net sales for the year stood at CHF 5,664 million and recurring EBITDA of CHF 1,483 million, an improvement of 10.5 percent over prior year on like-for-like basis. This improvement reflects mainly higher sales prices and cost focus throughout the region. An impairment loss on the US Aggregates business was recognized during the year amounting to CHF 371 million which resulted from a review of geographical markets. LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSIS RESPONSIBILITY STATEMENT We certify that, to the best of our knowledge and having made reasonable inquiries to that end, the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets and liabilities, and of the financial position and results of the Company and of its consolidated subsidiaries, and that this annual report provides a true and fair view of the evolution of the business, results and financial condition of the Company and of its consolidated subsidiaries, and a description of the main risks and uncertainties the Company and its consolidated subsidiaries are subject to. Zürich, March 1, 2018 Jan Jenisch Chief Executive Officer Géraldine Picaud Chief Financial Officer LAFARGEHOLCIM ANNUAL REPORT 2017119 120 LAFARGEHOLCIMMANAGEMENT DISCUSSION & ANALYSISF I N A NC I A L I NFOR M AT ION CONTENTS Key Figures Consolidated Statement of Income Consolidated Statement of Comprehensive Earnings Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 1. Significant events of the period 2. Accounting policies 3. Risk management 4. Changes in the scope of consolidation 5. Principal exchange rates 122 123 124 125 126 21. Prepaid expenses and other current assets 22. Assets and related liabilities classified as held for sale 23. Long-term financial investments and other long-term assets 24. Investments in associates and joint ventures 25. Property, plant and equipment 26. Goodwill and intangible assets 27. Trade accounts payable 128 28. Financial liabilities 29. Leases 129 129 145 155 159 30. Derivative financial instruments 31. Taxes 32. Provisions 33. Employee benefits 34. Share compensation plans 35. Information on share capital 36. Non-controlling interest 170 170 171 172 177 179 184 184 188 189 190 193 195 203 208 209 37. Contingencies, guarantees, commitments and contingent assets 210 38. Additional cash flow information 213 39. Transactions and relations with members of the Board of Directors and Executive Committee 40. Events after the reporting period 41. Authorization of the financial statements for issuance 42. Principal companies of the Group Auditors Report Holding Company Results 5-Year-Review LafargeHolcim Group Definitions of non-GAAP measures 215 216 216 217 222 231 248 251 6. Information by reportable segment 160 7. Information by product line 8. Information by country 9. Production cost of goods sold 162 164 164 10. Summary of depreciation, amortization and impairment 165 11. Profit on disposals and other non- operating income 12. Loss on disposals and other non- operating expenses 13. Financial income 14. Financial expenses 15. Research and development 16. Earnings per share 17. Cash and cash equivalents 18. Trade Accounts receivable 19. Current financial receivables 20. Inventories 165 166 166 166 167 167 168 168 169 169 LAFARGEHOLCIM ANNUAL REPORT 2017121122 K E Y FI GU RES LAFARGEHOLCIM GROUP Annual cement production capacity Sales of cement Sales of aggregates Sales of ready-mix concrete Net sales Recurring EBITDA 2 Recurring EBITDA margin 3 Net income (loss) Net income (loss) – shareholders of LafargeHolcim Ltd Net income before impairment and divestments – shareholders of LafargeHolcim Ltd Cash flow from operating activities Net financial debt Total shareholders’ equity Personnel Earnings per share Earnings per share before impairment and divestments Payout Payout per share million t million t million t million m3 million CHF million CHF million CHF million CHF million CHF million CHF million CHF million CHF million CHF CHF CHF million CHF CHF 2017 318.4 209.5 278.7 50.6 26,129 5,990 22.9 (1,716) (1,675) 1,417 3,040 14,346 30,975 81,960 (2.78) 2.35 1,196 4 2 2016 Restated 1 353.3 233.2 282.7 55.0 26,904 5,950 22.1 2,090 1,791 1,273 3,295 14,724 34,747 90,903 2.96 2.10 1,212 2 ±% –9.9% –10.2% –1.4% –7.9% –2.9% +0.7% –182.1% –193.5% +11.3% –7.8% –2.6% –10.9% –9.8% –193.9% +11.9% –1.3% +0.0% 1 Restated due to change in presentation, see note 2. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named “Operating EBITDA adjusted”, refer to the definitions of non-GAAP measures, table in page 251. 3 Previously named “Operating EBITDA adjusted margin”, refer to the definitions of non-GAAP measures, table in page 251. 4 Proposed by the Board of Directors for a maximum payout of CHF 1,196 million from capital contribution reserves. There is no payout on treasury shares held by LafargeHolcim. The non-GAAP measures used in this report are defined on page 251. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSCON SO LI DATED STATEME NT OF INCOME OF LAFA R GEH OLCIM Million CHF Net sales Production cost of goods sold Gross profit Distribution and selling expenses Administration expenses Share of profit of joint ventures Operating (loss) profit Profit on disposals and other non-operating income 2 Loss on disposals and other non-operating expenses 3 Share of profit of associates Financial income Financial expenses Net (loss) income before taxes Income taxes Net (loss) income from continuing operations Net income from discontinued operations Net (loss) income Net (loss) income 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 1 Restated due to change in presentation, see note 2. 2 Previously named “Other income”. 3 Previously named “Other expenses”. Notes 8 9 24 11 12 24 13 14 31 16 16 16 16 16 16 2017 26,129 (18,348) 7,781 (6,608) (1,938) 286 (478) 447 (242) 51 153 (1,111) (1,180) (536) (1,716) 0 (1,716) (1,675) (41) 0 0 (2.78) (2.78) (2.78) (2.78) 0.00 0.00 2016 Restated 1 26,904 (15,632) 11,272 (6,394) (2,041) 125 2,963 824 (68) 81 187 (1,104) 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 LAFARGEHOLCIM ANNUAL REPORT 2017123 124 CON SO LI DATED STATEME NT OF COMPREHENSIVE EARNINGS OF LAFARGEHOLCIM Million CHF Net (loss) income 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 Total other comprehensive earnings Notes 2017 (1,716) 2016 2,090 5 (302) (1,097) 95 0 (2) 10 1 (8) 5 0 30 0 0 3 1 1 0 0 34 6 (8) (3) 0 (3) (172) (1,065) 33 216 (70) 146 (142) 32 (111) (26) (1,176) Total comprehensive earnings (1,742) 914 Total comprehensive earnings attributable to: Shareholders of LafargeHolcim Ltd Non-controlling interest (1,704) (39) 464 450 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSCON S OL IDATED STATEMENT OF FINANCIAL POSITION OF LAFARGEHOLCIM Million CHF Cash and cash equivalents Short-term derivative assets Current financial receivables Trade accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale Total current assets Long-term financial investments and other long-term assets Investments in associates and joint ventures Property, plant and equipment Goodwill Intangible assets Deferred tax assets Pension assets Long-term derivative assets Total non-current 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 Long-term income tax liabilites Deferred tax liabilities Long-term provisions Total non-current liabilities Total liabilities Share capital Capital surplus Treasury shares Reserves Total equity attributable to shareholders of LafargeHolcim Ltd Non-controlling interest Total shareholder’s equity Total liabilities and shareholder’s equity Notes 31.12.2017 31.12.2016 1 17 30 19 18 20 21 22 23 24 25 26 26 31 33 30 27 28 32 22 28 33 31 31 32 35 35 36 4,217 44 262 3,340 2,870 1,335 550 12,618 1,114 3,120 30,152 14,569 1,026 758 308 14 51,061 63,679 3,715 3,843 765 2,444 592 160 11,519 14,779 1,861 398 2,345 1,801 21,185 32,703 1,214 24,340 (554) 2,787 27,787 3,188 30,975 63,679 4,923 68 207 2,826 2,645 1,720 2,046 14,435 1,287 3,241 32,052 16,247 1,017 1,060 271 6 55,182 69,617 3,307 4,976 641 2,299 575 711 12,509 14,744 2,079 146 3,387 2,005 22,361 34,870 1,214 25,536 (72) 4,144 30,822 3,925 34,747 69,617 1 Some line items have been reclassified or disaggregated, such as Accounts receivables, Long-term financial assets and Other long-term assets and the comparative figures have been adjusted accordingly. LAFARGEHOLCIM ANNUAL REPORT 2017125126 CON SO LI DATED STATEME NT OF CHANGES IN EQUITY OF LAFARGEHOLCIM Million CHF Equity as at January 1, 2017 Net loss Other comprehensive earnings Total comprehensive earnings Payout Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interests (Disposal) Acquisition of participation in Group companies Change in participation in existing Group companies Share capital 1,214 Capital surplus 25,536 Treasury shares (72) Retained earnings Available-for-sale reserve Total equity attributable to shareholders Total of LafargeHolcim Non-controlling shareholders’ (1,212) 16 (482)1 Equity as at December 31, 2017 1,214 24,340 (554) 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 The amount of CHF –482 million includes the impact of the share buyback program of CHF –500 million, see note 35. 1,214 26,430 (86) 4,357 35,722 (909) 15 14 1,214 25,536 (72) (13) 23 (12,412) (117) 4,144 (117) 30,822 Cash flow hedging reserve Currency translation adjustments 23 (12,412) (4) (4) (184) (184) 19 (10) 32 32 (11) (12,606) (11,158) (1,254) (1,254) (13) 10 10 (4) (13) 1 1 reserves 4,144 (1,675) (29) (1,704) (7) 354 2,787 3,807 1,791 (1,327) 464 (10) Ltd 30,822 (1,675) (29) (1,704) (1,212) (489) 16 354 27,787 31,365 1,791 (1,327) 464 (909) 5 15 interest 3,925 (41) 2 (39) (247) 55 (118) (388) 3,188 299 151 450 (248) (2) (165) (467) 3,925 Total equity 34,747 (1,716) (26) (1,742) (1,459) (489) 16 55 (118) (34) 30,975 2,090 (1,176) 914 (1,157) 5 15 (2) (165) (584) 34,747 16,546 (1,675) 149 (1,526) (7) 365 15,378 14,988 1,791 (106) 1,685 (10) (117) 16,546 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSCONSOL IDATED STATEMENT OF CHANG ES IN EQUITY OF LAFARGE HOLCI M Retained earnings Available-for-sale reserve Total equity attributable to shareholders of LafargeHolcim Ltd Non-controlling interest Total shareholders’ equity (13) 10 10 (4) (13) 1 1 Cash flow hedging reserve Currency translation adjustments 23 (12,412) (4) (4) (184) (184) 19 (10) 32 32 (11) (12,606) (11,158) (1,254) (1,254) Total reserves 4,144 (1,675) (29) (1,704) (7) 354 2,787 3,807 1,791 (1,327) 464 (10) 30,822 (1,675) (29) (1,704) (1,212) (489) 16 354 27,787 31,365 1,791 (1,327) 464 (909) 5 15 (13) 23 (12,412) (117) 4,144 (117) 30,822 3,925 (41) 2 (39) (247) 55 (118) (388) 3,188 34,747 (1,716) (26) (1,742) (1,459) (489) 16 55 (118) (34) 30,975 4,357 35,722 299 151 450 (248) (2) (165) (467) 3,925 2,090 (1,176) 914 (1,157) 5 15 (2) (165) (584) 34,747 16,546 (1,675) 149 (1,526) (7) 365 15,378 14,988 1,791 (106) 1,685 (10) (117) 16,546 Equity as at December 31, 2017 1,214 24,340 (554) Equity as at January 1, 2017 Million CHF Net loss Other comprehensive earnings Total comprehensive earnings Payout Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interests (Disposal) Acquisition of participation in Group companies Change in participation in existing Group companies 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 Share capital 1,214 Capital surplus 25,536 Treasury shares (72) (1,212) 16 (482)1 1,214 26,430 (86) (909) 15 14 1 The amount of CHF –482 million includes the impact of the share buyback program of CHF –500 million, see note 35. 1,214 25,536 (72) LAFARGEHOLCIM ANNUAL REPORT 2017127128 CON SO LI DATED STATEME NT OF CASH FLOWS OF L A FA RGEHOLCIM Million CHF Net (loss) income Income taxes Profit on disposals and other non-operating income 1 Loss on disposals and other non-operating expenses 2 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 paid-in by (repaid to) non-controlling interest Movements of treasury 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) (Decrease) Increase in cash and cash equivalents (A + B + C) Cash and cash equivalents as at the beginning of the period (net) (Decrease) Increase in cash and cash equivalents Currency translation effects Cash and cash equivalents as at the end of the period (net) 1 Previously named “Other income”. 2 Previously named “Other expenses”. Notes 31 11 12 24 13,14 10 38 31 38 16 3 3 3 17 17 2017 (1,716) 536 (447) 242 (337) 958 6,007 237 (925) 4,555 303 146 (917) (871) (176) 3,040 (1,522) 167 55 858 (347) 113 (675) (1,212) (237) 63 (489) (163) 2,047 (3,079) (13) (3,083) 2016 2,090 835 (824) 68 (205) 917 2,405 470 (694) 5,063 160 169 (1,187) (860) (49) 3,295 (1,773) 137 (4) 2,245 (402) 503 706 (909) (249) (20) 5 (946) 6,216 (6,600) (375) (2,879) (718) 1,122 4,795 (718) (122) 3,954 3,771 1,122 (99) 4,795 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As used herein, the terms “LafargeHolcim” or “Group” refer to LafargeHolcim Ltd together with the companies included in the scope of consolidation. 1. SIGNIFICANT EVENTS OF THE PER IOD The financial position and performance of the Group were particularly impacted by the following events and transactions during the reporting period: – The disposals of entities in Vietnam and Chile and the restructuring of operations in China (see note 4); – The extensive portfolio review and asset impairment indicators assessment in several countries resulting in a total impairment charge of CHF 3.8 billion related mainly to property, plant and equipment and goodwill (see notes 10, 25 and 26); – The initiation of a share buyback program of up to CHF 1 billion over the period 2017 and 2018 (see note 35). 2. ACCOUNTING POL ICIES 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 2017, LafargeHolcim adopted the following amended standards relevant to the Group: Amendments to IAS 12 Amendment to IAS 7 Improvements to IFRSs Income Taxes Disclosure Initiative 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 did not materially impact the Group’s financial statements. The amendment to IAS 7 Statement of Cash Flows introduces the disclosure of the reconciliation of liabilities arising from financing activities. The adoption of this amendment is disclosure related only, and therefore did not materially impact the Group’s financial statements. The adoption of the improvements to IFRSs did not materially impact the Group’s financial statements. LAFARGEHOLCIM ANNUAL REPORT 2017129130 In 2018, LafargeHolcim will adopt the following new standards, interpretation and amended standards 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, as over 90 percent of Group net sales relate to the delivery at a point in time of cement, aggregates and ready-mix concrete. In July 2014, the IASB issued IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments: Recognition and Measurement, which will change the classification and measurement requirements of financial assets, financial liabilities and the general hedge accounting rules. Except for the disclosure requirements, the new standard will not materially impact the Group financial statements, considering that sales are made with credit terms largely ranging between 30 days and 60 days and the Group generally applies hedge accounting using standard derivative contracts. 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 are split between the equity instruments issued to the employee and the cash payment made to the tax authorities on the employee’s behalf. Since LafargeHolcim does not have any cash-settled share based payment transactions and settles equity-settled payment transactions on a gross basis, 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 adoption of this interpretation will not materially impact the Group’s financial statements. In 2019, LafargeHolcim will adopt the following new standards, interpretation and amended standards relevant to the Group: IFRS 16 IFRIC 23 Amendments to IAS 28 Improvements to IFRS Leases Uncertainty over Income Tax Treatments Long-term Interests in Associates and Joint Ventures Clarifications of existing IFRSs (issued in December 2017) 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSIn June 2017, the IASB issued IFRIC 23 Uncertainty over Income Tax Treatments which clarifies that an entity will be required to reflect the effect of uncertainty in determining its taxable profit (and potentially the related tax base) by applying either the “most likely amount” method or the “expected value” method whichever amount better predicts the resolution of the uncertainty. Such guidance would be applied in situations where an entity concluded that it was not probable that the taxation authority would accept a particular tax treatment, such as, the deductibility of a certain expense. The Group is in the process of evaluating the impact IFRIC 23 may have on its consolidated financial statements. In October 2017, the IASB issued amendments to IAS 28 Long-term Interests in Associates and Joint Ventures, which clarifies that an entity first applies IFRS 9 Financial Instruments to other financial instruments, such as long-term interests to which the equity method is not applied, before the entity takes account of its share of profit or loss of an associate or joint venture by applying the equity method under IAS 28. Consequently, in applying IFRS 9, an entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying IAS 28. The Group is in the process of evaluating the impact the amendments to IAS 28 may have on its consolidated financial statements. The adoption of the improvements to IFRSs will not materially impact the Group financial statements. Change in presentation As from January 1, 2017, management decided to reclassify the Group’s share of profit of joint ventures within operating profit due to the fact that such a presentation provides 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 presentation increased 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 statements. 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 experience 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 following details the judgments, apart from those involving estimations, that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in the financial statements: – The classification of a subsidiary or a disposal group as held for sale 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 the carrying amount (note 22). LAFARGEHOLCIM ANNUAL REPORT 2017131132 The following details the assumptions the Group makes about the future, and other major sources of estimation uncertainty at year end, that could have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year: – The determination of the useful lives of fixed assets which impacts the depreciation charge recognized in profit or loss (note 10); – Assumptions underlying the estimation of value in use in respect of cash-generating units for impairment testing purposes require the use of estimates such as long-term discount rates and growth rates (note 26); – Liabilities and costs for defined benefit pension plans and other post-employment benefits are determined using actuarial valuations. The actuarial valuations involve making assumptions about discount rates, expected future salary increases and mortality rates which are subject to significant uncertainty due to the long-term nature of such plans (note 33); – The measurement of site restoration and other environmental provisions require long-term assumptions regarding the completion of raw material extraction and the phasing of the restoration work to be carried out and the appropriate discount rate to use (note 32); – The recognition and measurement of provisions requires 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 the assistance of the legal department and in certain cases with the support of external specialized lawyers (note 32). Disclosures related to such provisions, as well as contingent liabilities, also require significant judgment (note 37); – The recognition of deferred tax assets requires assessment of whether it is probable that sufficient future taxable profit will be available against which the unused tax losses can be utilized (note 31). 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 42. 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. Identifiable 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 previously 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSAny 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. 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 does 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 interest 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 contractual 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 recognizes 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 investment 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. LAFARGEHOLCIM ANNUAL REPORT 2017133134 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 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 are re-attributed to non-controlling interest and not recognized in the statement of income. Operating profit Operating profit excludes items that are not directly related to the Group’s normal operating activities. These primarily relate to gains or losses on the disposal of property, plant and equipment, gains or losses on the sale of Group companies, associates and joint ventures, revaluation gains or losses on previously held equity interests, disputes with minority shareholders, other major lawsuits, share of profit or loss of associates and financial income and expenses. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSSegment 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 (i.e. the Group CEO), five regions corresponding to the aggregation of countries or regional clusters are reported: – Asia Pacific – Europe – Latin America – Middle East Africa – North America While each operating segment is reviewed separately by the Chief Operating Decision Maker (i.e. the Group CEO), 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. 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 at arm’s-length basis in a manner similar to transactions with third parties. Segment revenues and segment results 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, such as monetary mutual funds, net of bank overdrafts. LAFARGEHOLCIM ANNUAL REPORT 2017135136 Accounts receivable Accounts receivable consist of (a) current financial receivables, (b) prepaid expenses and other current assets, and (c) trade 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 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 investments and other long-term assets Long-term financial assets consist of (a) financial investments – third parties, (b) long-term receivables – associates and joint ventures and (c) long-term receivables – third parties. 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. 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. 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. Property, plant and equipment Property, plant and equipment is valued at acquisition or construction cost less depreciation and impairment losses. Cost includes transfers from equity of any gains or losses on qualifying cash flow hedges. Depreciation is charged 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 Machinery and equipment 20 to 40 years 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSMineral 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 capitalized 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 are 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 “Profit (Loss) on disposals and other non- operating income (expenses)”. 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 “Profit (Loss) on disposals and other non-operating 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. LAFARGEHOLCIM ANNUAL REPORT 2017137138 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 identifiable 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. For further information, refer to the note 26. Intangible assets Expenditure on acquired trademarks, mining rights, software, patented and unpatented technology and other intangible assets are 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-financial 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 recoverable amount. Impairment losses are recognized immediately in the statement of income. 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSImpairment 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 allowance 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 derecognized when they are assessed as uncollectable. LAFARGEHOLCIM ANNUAL REPORT 2017139140 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 commodity 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 and accumulated in the cash flow hedging reserve. 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 the cash flow hedging reserve 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSLong-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 amortized 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 repayment of the current portion of such liabilities is shown in the statement of cash flows in the line “Repayment of long-term financial liabilities”. Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision and liability for income taxes. There are many transactions and calculations where the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for tax issues based on estimates of whether additional taxes will be due, based on its best interpretation of the relevant tax laws and rules. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred taxes Deferred tax is provided, using the balance sheet liability method, on temporary differences 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. Long-term income tax liabilities In the event the Group expects to settle income taxes payable beyond the next 12 months, they are classified as long-term income taxes payable and are recognized at the discounted amount. LAFARGEHOLCIM ANNUAL REPORT 2017141142 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 for restructuring only includes direct expenditures arising from the restructuring, notably severance payments, early retirement costs, costs for notice periods not worked and other costs directly linked largely with the closure of the facilities. Other provisions A provision is recognized when a legal or constructive obligation arising from past events exists, 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSEmployee 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 amendments 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 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 obligation 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 reductions 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 “Financial expenses”. LAFARGEHOLCIM ANNUAL REPORT 2017143144 Employee benefits – Defined contribution plans In addition to the defined benefit plans described above, some Group companies sponsor 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. 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 issuance 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 reduction 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 disclosed in the notes to the financial statements. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS3. 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 Group 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 map is established by strategic, operational and topical risk assessments which are combined into a Group risk report. Besides the Countries, the Board of Directors, the Executive Committee and 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. 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. 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. 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 access international financial markets for financing purposes. LAFARGEHOLCIM ANNUAL REPORT 2017145146 Contractual maturity analysis Million CHF 2017 Payables 1 Loans from financial institutions Bonds, private placements and commercial paper notes Interest payments Finance leases Derivative financial instruments net 2 Financial guarantees Total 2016 Payables 1 Loans from financial institutions Bonds, private placements and commercial paper notes Interest payments Finance leases Derivative financial instruments net 2 Financial guarantees Total Within 1 year Within 2 years Within 3 years Within 4 years Within 5 years Thereafter Total Carrying amount Contractual undiscounted cash flows 3,743 1,887 478 497 189 98 37 3,743 3,186 3,743 3,177 1,822 1,703 1,222 1,666 676 502 14 (56) 0 12 15 0 379 7 108 0 316 6 0 0 929 270 4 0 0 7,662 15,003 15,258 2,519 4,662 340 41 0 11 84 67 11 64 64 8,086 2,710 2,213 2,177 1,301 10,270 26,757 3,345 2,617 514 316 220 110 18 3,345 3,794 3,345 3,770 2,325 1,677 1,680 1,204 1,608 6,969 15,463 15,773 730 557 435 16 (34) 0 11 0 48 9 3 59 320 5 109 0 267 2,571 4,880 333 4 0 0 44 0 11 90 79 118 67 35 8,999 2,807 2,502 1,859 1,989 9,612 27,770 1 Payables include trade account payables and payables related to the purchase of property, plant and equipment included in other current liabilities. 2 The contractual cash flows include both cash in- and outflows. Additional information is disclosed in note 30. The maturity profile is based on contractual undiscounted amounts including both interest and principal cash flows and is 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS 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 periodic 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 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 exposure 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, 2017, a 1 percentage point shift in interest rates, with all other assumptions held constant, would result in approximately CHF 34 million (2016: CHF 49 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 39 percent to 31 percent. 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. To the extent that the net investment 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, foreign exchange risk is limited. However, for many Group companies, income will be primarily in local currency, whereas debt servicing and a significant amount of capital expenditures may be in foreign currencies. As a consequence thereof, the Group may enter into derivative contracts which are designated as either cash flow hedges or fair value hedges, as appropriate and also include the hedging of forecasted transactions. LAFARGEHOLCIM ANNUAL REPORT 2017147148 Foreign exchange sensitivity The Group’s sensitivity analysis has been determined based on the Group’s net transaction 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 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. Derivative instruments are generally limited to swaps and standard options. 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. Counterparties to financial instruments consist of a large number of established financial institutions. The Group does not expect any counterparty to be unable to fulfill its obligations under its respective financing agreements. At year end, LafargeHolcim 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSTax risk The Group’s tax filings for various periods will be subject to audit by tax authorities in most jurisdictions in which the Group operates. In particular, such jurisdictions may have extended focus on issues related to the taxation of multinational corporations. These audits may result in assessments of additional taxes, as well as interest and/or penalties, and could affect the Group’ s financial results. Due to the uncertainty associated with tax matters, it is possible that at some future date, liabilities resulting from audits or litigations could vary significantly from the Group’s provisions. Changes in tax laws, regulations, court rulings, related interpretations, and tax accounting standards in countries in which the Group operates may adversely affect its financial results. Legal risk In the ordinary course of its business, the Group is involved in lawsuits, claims of various natures, investigations and proceedings, including product liability, commercial, environmental, 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. 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 investment 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 recurring EBITDA. LAFARGEHOLCIM ANNUAL REPORT 2017149150 Million CHF 31.12.2016 Cash flows Non cash flows 31.12.2017 Current financial liabilities 1 Long-term financial liabilities Gross financial debt Derivative assets Cash and cash equivalents Net financial debt 4,976 14,744 19,720 (74) (4,923) 14,724 (115) (1,032) (1,147) 0 670 (477) (1,019) 1,067 48 16 35 99 3,843 14,779 18,621 (58) (4,217) 14,346 1 Including bank overdraft cash movement for CHF 48 million. Million CHF 2017 2016 Net financial debt as at beginning of the period Cash flow from operating activities Cash flow from investing activities Payout on ordinary shares Dividends paid to non-controlling interests Capital (paid-in by) repaid to non-controlling interest Movements of treasury shares Increase in participation in existing Group companies Total cash effective movements as per statement of cash flows Cash proceeds reflected in the financing flows 1 Total cash effective movements as per Net financial debt Change in scope Change in fair values Currency translation effects Others 2 Total non – cash effective movements 14,724 (3,040) 675 1,212 237 (63) 489 13 (477) (181) (658) 106 (83) 378 (119) 281 17,266 (3,295) (706) 909 249 20 ( 5) 375 (2,453) (200) (2,653) (221) (170) 84 417 111 Net financial debt as at closing of the period 14,346 14,724 1 From the disposal of 73.5 percent listed shares in Sichuan Shuangma Cement Co. Ltd, these amounts are presented in the cash flow from financing activities in the line Net movement in current financial liabilities. 2 Out of which, in 2016, the liability for the put option related to China transactions amounted to CHF 389 million which was presented in the statement of financial position as current financial liability. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSThe net financial debt to recurring EBITDA 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 Recurring EBITDA 2 Net financial debt/recurring EBITDA 2017 14,346 5,990 2.4 2016 Restated 1 14,724 5,950 2.5 1 Restated due to change in presentation, see note 2. 2 Excluding restructuring, litigation, implementation and other non-recurring costs, but including contribution from joint ventures, previously named “Operating EBITDA adjusted”. 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. LAFARGEHOLCIM ANNUAL REPORT 2017151152 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, 2017 Million CHF IAS 39 Category Current financial assets Cash and cash equivalents Financial assets Trade accounts receivable Financial receivables Derivative assets Derivative assets Long-term financial assets Financial 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 Derivative assets Held for hedging at fair value 4,217 3,340 262 432 85 Current financial liabilities Payables 2 Financial liabilities Derivative liabilities Derivative liabilities Long-term financial liabilities Financial liabilities at amortized cost Financial liabilities at amortized cost 3,743 3,734 Held for hedging at fair value Held for trading at fair value 4,217 3,340 262 42 2 432 85 14 3,743 3,734 22 86 42 2 14 22 86 432 1 Financial liabilities Financial liabilities at amortized cost 14,766 14,766 15,655 3 Derivative liabilities Held for hedging at fair value 13 13 1 The comparison fair value for long-term receivables consists of CHF 12 million level 1 and CHF 420 million level 2 fair value measurements. 2 Payables include trade account payables and payables related to the purchase of property, plant and equipment included in other current liabilities. 3 The comparison fair value for long-term financial liabilities consists of CHF 12,760 million level 1 and CHF 2,895 million level 2 fair value measurements. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSCarrying 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 Financial receivables Derivative assets Derivative assets Long-term financial assets Financial 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 2,826 207 638 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 Payables 2 Financial liabilities Derivative liabilities Derivative liabilities Long-term financial liabilities Financial liabilities at amortized cost Financial liabilities at amortized cost 3,345 4,946 Held for hedging at fair value Held for trading at fair value 4,923 2,826 207 60 8 638 636 1 92 75 6 1 3,345 4,946 9 21 60 8 70 6 1 9 21 Financial liabilities Financial liabilities at amortized cost 14,666 14,666 15,386 3 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 Payables include trade account payables and payables related to the purchase of property, plant and equipment included in other current liabilities. 3 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. The table above shows the carrying amounts and fair values of financial assets and liabilities. LAFARGEHOLCIM ANNUAL REPORT 2017153 154 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 2017 and 2016, there were no financial assets and liabilities allocated to level 3. There have been no transfers between the different hierarchy levels in 2017 and 2016. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS4. CHANGES IN THE SCOPE OF CONSOLIDATION 4.1 Divestments during the current reporting period China The streamlining of the Group’s operations in China, which started in 2016, continued in 2017. The impact in the 2016 financial statements is explained in 4.2 below. The transactions entered included: – the disposal of the non-listed cement assets in China to the Group’s joint venture Huaxin; and – the disposal of 73.5 percent of the listed shares in Sichuan Shuangma together with a put and call option agreement to repurchase the underlying Shuangma cement companies. The disposal of the non-listed cement assets was finalised in the first quarter 2017, operations and assets were disposed from Lafarge China Cement Ltd to the Group’s joint venture Huaxin for a total consideration of CHF 257 million. The assets and the related liabilities were classified as held for sale on December 31, 2016. From the disposal of 73.5 percent of the listed shares in Sichuan Shuangma Cement Co. Ltd. in 2016, CHF 352 million was received on an escrow account in December 2016 and was released in 2017. Since the Group did not dispose of the underlying cement assets, the cash received up to the amount of the initial put option liability is presented as financing cash flow, resulting in 2017 in CHF 181 million presented in the cash flow from financing activities in the line Net movement in current financial liabilities and the remainder in the cash flow from investing activities in the line Disposal of participation in Group companies. An additional amount of CHF 114 million is only due in 2018 and is presented in the current financial receivables. The put and call option agreement entered into in 2016 resulted in LafargeHolcim retaining control over four Shuangma cement companies. The put and call option agreement expired in December 2017 and two cement companies were deconsolidated with a loss of CHF 40 million recognized. As LafargeHolcim signed a Share Purchase Agreement for the remaining two cement companies, the Group continued to maintain control with a corresponding net liability of CHF 215 million presented in the statement of financial position as current financial liability. The assets and associated liabilities for these two cement companies are classified as held for sale and a write-down of CHF 58 million was recorded. Vietnam On February 28, 2017, the Group disposed of its 65 percent shareholding in LafargeHolcim Vietnam for a total consideration of CHF 546 million before taxes which resulted in a net gain before taxes of CHF 339 million. The assets and the related liabilities were classified as held for sale on December 31, 2016. Chile On August 14, 2017, the Group disposed of its 54 percent shareholding in Cemento Polpaico S.A. (Chile) for a total consideration of CHF 114 million before taxes which resulted in a net loss before taxes of CHF 40 million. The assets and the related liabilities were classified as held for sale on December 31, 2016. LAFARGEHOLCIM ANNUAL REPORT 2017155 156 4.2 Divestments during the previous comparative reporting period South Korea On April 29, 2016, the Group disposed of Lafarge Halla Cement Corporation in South Korea for a total consideration of CHF 522 million which resulted in no gain or loss before taxes. Morocco and Sub-Saharan African countries On July 4, 2016, the shareholders of Lafarge Ciments and Holcim (Maroc) S.A. agreed to merge the two companies 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 tax 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 reinforced its partnership with SNI by creating a joint venture for Francophone Sub-Saharan Africa, named LafargeHolcim Maroc Afrique. Four African companies were sold to this 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 August 10, 2016, the Group disposed of its entire interest in Holcim (Lanka) Ltd for a total consideration of CHF 365 million which resulted in a net gain before taxes of CHF 225 million. Saudi Arabia On August 17, 2016, the Group disposed of its 25 percent interest in the associated company Al Safwa Cement Company in Saudi Arabia for a total consideration of CHF 123  million which resulted in a net loss before taxes of CHF 9 million. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSIndia 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 contemplation of each other and consisted of the following: – the disposal of 73.5 percent of the listed shares in Sichuan Shuangma Cement Co. Ltd. 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. As of December 31, 2016, the liability for this put option amounted to CHF 389 million and was 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 presented as prepaid expenses and other current assets and 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 was 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 Huaxin Cement Co. Ltd. for a consideration of CHF 257 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 was closed in the first quarter 2017. 4.3 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. The final fair values of the net assets acquired are as follows: LAFARGEHOLCIM ANNUAL REPORT 2017157158 Million CHF Cash and cash equivalents Accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale Total currrent 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 non-current 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 non-current liabilities Fair value of net assets acquired Non-controlling interest Fair value of net assets acquired attributable to shareholders of Lafargeholcim Ltd Consideration for the business combination Fair value of net assets acquired attributable to shareholders of LafargeHolcim Ltd Goodwill Fair Values dis- closed 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 2,407 7,872 19,483 7,872 11,611 (8) (33) (41) (21) (5) (216) (123) 2 (363) (10) 9 (1) (85) 271 186 (589) (67) (522) (522) 522 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 2,340 7,350 19,483 7,350 12,133 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS5. PRINCIPAL EXCHA NGE RATES The following table summarizes the principal exchange rates that have been used for translation purposes. Statement of income Average exchange rates in CHF Statement of financial position Closing exchange rates in CHF EUR USD GBP AUD BRL CAD CNY DZD EGP IDR INR MXN NGN PHP 2017 1.11 0.98 1.27 0.75 0.31 0.76 0.15 0.89 0.06 0.07 1.51 5.22 0.32 1.95 2016 1.09 0.98 1.33 0.73 0.28 0.74 0.15 0.90 0.10 0.07 1.47 5.28 0.40 2.07 31.12.2017 31.12.2016 1.17 0.98 1.32 0.76 0.29 0.78 0.15 0.85 0.05 0.07 1.53 4.96 0.32 1.96 1.07 1.02 1.26 0.74 0.31 0.76 0.15 0.92 0.06 0.08 1.50 4.93 0.32 2.06 1 Euro 1 US Dollar 1 British Pound 1 Australian Dollar 1 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 LAFARGEHOLCIM ANNUAL REPORT 2017159160 6. IN FO RMATI ON 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 Recurring EBITDA 2 Recurring EBITDA margin in % Operating profit (loss) Operating profit (loss) margin in % Statement of financial position (Million CHF) Invested capital 3 Investments in associates and joint ventures Total assets Total liabilities Statement of cash flows (Million CHF) Cash flow from operating activities Capex 4 Personnel (unaudited) Number of personnel Reconciliation of measures of profit and loss to the consolidated statement of income Recurring EBITDA 2 Restructuring, litigation, implementation and other non-recurring costs Depreciation, amortization and impairment of operating assets of which impairment charge relating to property, plant and equipment and assets classified as held for sale of which impairment charge relating to goodwill of which impairment charge relating to intangible assets of which impairment charge relating to investments in joint ventures Operating profit (loss) Profit on disposals and other non-operating income 5 Loss on disposals and other non-operating expenses 6 Share of profit of associates Financial income Financial expense Net (loss) incomme before taxes Asia Pacific 2017 2016 1 2017 117.4 91.7 31.8 12.8 7,357 84 7,441 1,418 19.1 7 0.1 9,297 1,185 14,438 6,031 150.5 113.7 32.2 15.4 8,100 125 8,226 1,594 19.4 916 11.1 10,520 1,148 16,901 6,587 Europe 2016 1 76.4 41.6 124.2 18.4 6,575 448 7,023 1,334 19.0 637 9.1 73.4 42.8 125.2 18.2 6,838 330 7,167 1,385 19.3 260 3.6 11,738 11,263 350 17,608 7,921 340 17,547 8,676 Latin America Middle East Africa North America Corporate/Eliminations Total Group 2017 2016 1 2017 2016 1 2017 2016 1 2017 2016 1 2017 2016 1 2,941 2,773 5,664 5,584 26,129 26,904 55.3 35.7 10.4 4.7 3,329 45 3,374 1,085 32.2 (1,215) (36.0) 7,265 1,421 8,720 3,889 55.3 40.3 12.2 6.0 3,871 29 3,900 1,247 32.0 815 20.9 9,187 1,618 10,554 3,570 33.0 19.2 107.1 9.1 5,664 1,483 26.2 552 9.7 29.2 19.5 108.2 8.7 5,584 1,335 23.9 764 13.7 (4.8) (6.0) 318.4 209.5 278.7 50.6 353.3 233.2 282.7 55.0 (462) (462) (436) (602) (602) (445) (649) (788) 26,129 26,904 5,990 22.9 (478) (1.8) 5,950 22.1 2,963 11.0 11,054 11,505 1,009 43,556 46,641 56 15,311 5,878 53 16,894 7,295 1,605 105 3,075 6,105 78 2,562 5,666 3,120 63,679 32,703 3,241 69,617 34,870 41.9 24.1 6.0 6.5 2,773 885 31.9 619 22.3 3,158 3 5,159 3,076 885 (50) (216) 39.3 24.9 4.2 5.8 3 2,944 1,055 35.9 568 19.3 2,598 4 4,527 2,879 1,055 (58) (429) (213) (11) 704 328 1,054 364 819 313 966 270 483 80 358 99 420 254 837 375 851 370 718 518 (238) 10 (638) 10 3,040 1,355 3,295 1,635 24,153 31,274 21,317 21,829 9,305 10,536 12,901 13,191 12,697 12,257 1,588 1,816 81,960 90,903 1,418 (70) (1,341) (320) (545) (4) 1,594 (86) (593) (4) (40) 1,385 (111) (1,013) (368) (40) (5) (4) 1,334 (112) (585) (5) 1,085 (162) (2,138) (474) (1,237) (14) (103) 1,247 (69) (363) (7) (1) 1,483 38 (969) 1,335 (36) (534) (371) (9) (436) (98) (116) (1) 7 916 260 637 568 619 (1,215) 815 552 764 (649) (788) (445) (229) (114) 5,990 (461) 5,950 (582) (6,007) (2,405) (1,745) (1,821) (35) (107) (478) 447 (242) 51 153 (1,111) (1,180) (25) (40) (1) 2,963 824 (68) 81 187 (1,104) 2,882 1 Restated due to change in presentation, see note 2. 2 Previously named “Operating EBITDA Adjusted”. Comparative figures have been adjusted accordingly. 3 The definition of invested capital as presented in the Annual Report last year has been changed to provide more relevant information regarding the Group’s financial performance (see new definition on page 251). The new definition includes net deferred tax liabilities that are mainly linked to the property, plants and equipment and excludes the financial investments third party and financial receivables which are not part of the core operations. Comparative figures have been adjusted accordingly. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS6. I NFOR MATION BY REPORTABLE SEG MENT 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 Recurring EBITDA 2 Recurring EBITDA margin in % Operating profit (loss) Operating profit (loss) margin in % Statement of financial position (Million CHF) Investments in associates and joint ventures Invested capital 3 Total assets Total liabilities Statement of cash flows (Million CHF) Cash flow from operating activities Capex 4 Personnel (unaudited) Number of personnel Recurring EBITDA 2 Operating profit (loss) Profit on disposals and other non-operating income 5 Loss on disposals and other non-operating expenses 6 Share of profit of associates Financial income Financial expense Net (loss) incomme before taxes Europe 2016 1 76.4 41.6 124.2 18.4 6,575 448 7,023 1,334 19.0 637 9.1 73.4 42.8 125.2 18.2 6,838 330 7,167 1,385 19.3 260 3.6 11,738 11,263 350 17,608 7,921 340 17,547 8,676 117.4 91.7 31.8 12.8 7,357 84 7,441 1,418 19.1 7 0.1 9,297 1,185 14,438 6,031 150.5 113.7 32.2 15.4 8,100 125 8,226 1,594 19.4 916 11.1 10,520 1,148 16,901 6,587 Asia Pacific Latin America Middle East Africa North America Corporate/Eliminations Total Group 2017 2016 1 2017 2017 2016 1 2017 2016 1 2017 2016 1 2017 2016 1 2017 2016 1 39.3 24.9 4.2 5.8 41.9 24.1 6.0 6.5 2,941 2,773 3 2,944 1,055 35.9 568 19.3 2,598 4 4,527 2,879 2,773 885 31.9 619 22.3 3,158 3 5,159 3,076 55.3 35.7 10.4 4.7 3,329 45 3,374 1,085 32.2 (1,215) (36.0) 7,265 1,421 8,720 3,889 55.3 40.3 12.2 6.0 3,871 29 3,900 1,247 32.0 815 20.9 33.0 19.2 107.1 9.1 29.2 19.5 108.2 8.7 (4.8) (6.0) 318.4 209.5 278.7 50.6 353.3 233.2 282.7 55.0 5,664 5,584 26,129 26,904 5,664 1,483 26.2 552 9.7 5,584 1,335 23.9 764 13.7 (462) (462) (436) (602) (602) (445) (649) (788) 26,129 26,904 5,990 22.9 (478) (1.8) 5,950 22.1 2,963 11.0 9,187 1,618 10,554 3,570 11,054 11,505 56 15,311 5,878 53 16,894 7,295 1,605 105 3,075 6,105 1,009 43,556 46,641 78 2,562 5,666 3,120 63,679 32,703 3,241 69,617 34,870 704 328 1,054 364 819 313 966 270 483 80 358 99 420 254 837 375 851 370 718 518 (238) 10 (638) 10 3,040 1,355 3,295 1,635 24,153 31,274 21,317 21,829 9,305 10,536 12,901 13,191 12,697 12,257 1,588 1,816 81,960 90,903 Reconciliation of measures of profit and loss to the consolidated statement of income Restructuring, litigation, implementation and other non-recurring costs Depreciation, amortization and impairment of operating assets of which impairment charge relating to property, plant and equipment and assets classified as held for sale of which impairment charge relating to goodwill of which impairment charge relating to intangible assets of which impairment charge relating to investments in joint ventures 1,418 (70) (1,341) (320) (545) (4) 1,594 (86) (593) (4) (40) 1,385 (111) (1,013) (368) (40) (5) (4) 1,334 (112) (585) (5) 1,055 (58) (429) (213) (11) 885 (50) (216) 1,085 (162) (2,138) (474) (1,237) (14) (103) 1,247 (69) (363) (7) (1) 1,483 38 (969) 1,335 (36) (534) (371) (9) (436) (98) (116) (1) 7 916 260 637 568 619 (1,215) 815 552 764 (649) (788) 1 Restated due to change in presentation, see note 2. 2 Previously named “Operating EBITDA Adjusted”. Comparative figures have been adjusted accordingly. 3 The definition of invested capital as presented in the Annual Report last year has been changed to provide more relevant information regarding the Group’s financial performance (see new definition on page 251). The new definition includes net deferred tax liabilities that are mainly linked to the property, plants and equipment and excludes the financial investments third party and financial receivables which are not part of the core operations. Comparative figures have been adjusted accordingly. 4 The capex consists of the purchase and disposal of property, plant and equipment. 5 Previously named “Other income”. 6 Previously named “Other expenses”. (445) (229) (114) 5,990 (461) 5,950 (582) (6,007) (2,405) (1,745) (1,821) (35) (107) (478) 447 (242) 51 153 (1,111) (1,180) (25) (40) (1) 2,963 824 (68) 81 187 (1,104) 2,882 LAFARGEHOLCIM ANNUAL REPORT 2017161162 7. IN FO RMATI ON 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 Recurring EBITDA 3 – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate Recurring EBITDA margin in % Capex Personnel (unaudited) Number of personnel 1 Cement, clinker and other cementitious materials. 2 Restated due to change in presentation, see note 2. 3 Previously named “Operating EBITDA Adjusted”. 2017 16,012 1,168 17,181 5,656 3,370 2,572 2,973 2,796 (186) 4,768 1,143 886 1,031 1,051 1,012 (355) 27.8 1,134 Cement 1 2016 2 16,747 1,206 17,952 6,488 3,161 2,376 3,426 2,747 (246) 4,858 1,442 835 849 1,175 888 (330) 27.1 1,414 2017 2,759 1,157 3,916 574 1,819 36 112 1,374 1 759 156 317 (2) 12 344 (67) 19.4 167 Aggregates 2016 2 Other construction materials and services Corporate/Eliminations 2017 2016 2 2017 2016 2 2017 Total Group 2016 2 2,756 1,177 3,933 527 1,822 44 118 1,422 684 97 327 (3) 22 313 (72) 17.4 146 7,357 348 7,705 1,624 2,971 528 429 2,088 66 462 119 182 27 22 127 (15) 6.0 86 7,402 473 7,875 1,611 3,047 554 550 2,033 79 408 56 173 39 50 134 (44) 5.2 81 (2,673) (2,673) (413) (992) (192) (140) (594) (343) (2,855) (2,855) (400) (1,008) (201) (194) (618) (435) (32) (5) 26,129 26,904 26,129 26,904 7,441 7,167 2,944 3,374 5,664 (462) 5,990 1,418 1,385 1,055 1,085 1,483 (436) 22.9 1,355 8,226 7,023 2,773 3,900 5,584 (602) 5,950 1,594 1,334 885 1,247 1,335 (445) 22.1 1,635 47,531 56,133 10,777 11,816 22,182 21,257 1,470 1,697 81,960 90,903 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS7. I NFOR MATION BY PRODUCT L INE Million CHF of cash flows Statement of income and statement 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 Recurring EBITDA 3 – of which Asia Pacific – of which Europe – of which Latin America – of which Middle East Africa – of which North America – of which Corporate Recurring EBITDA margin in % Capex Personnel (unaudited) Number of personnel 1 Cement, clinker and other cementitious materials. 2 Restated due to change in presentation, see note 2. 3 Previously named “Operating EBITDA Adjusted”. 2017 16,012 1,168 17,181 5,656 3,370 2,572 2,973 2,796 (186) 4,768 1,143 886 1,031 1,051 1,012 (355) 27.8 1,134 Cement 1 2016 2 16,747 1,206 17,952 6,488 3,161 2,376 3,426 2,747 (246) 4,858 1,442 835 849 1,175 888 (330) 27.1 1,414 2017 2,759 1,157 3,916 574 1,819 36 112 1,374 1 759 156 317 (2) 12 344 (67) 19.4 167 2,756 1,177 3,933 527 1,822 44 118 1,422 684 97 327 (3) 22 313 (72) 17.4 146 Aggregates 2016 2 Other construction materials and services Corporate/Eliminations 2017 2016 2 2017 2016 2 2017 Total Group 2016 2 7,357 348 7,705 1,624 2,971 528 429 2,088 66 462 119 182 27 22 127 (15) 6.0 86 7,402 473 7,875 1,611 3,047 554 550 2,033 79 408 56 173 39 50 134 (44) 5.2 81 (2,673) (2,673) (413) (992) (192) (140) (594) (343) (2,855) (2,855) (400) (1,008) (201) (194) (618) (435) (32) (5) 26,129 26,904 26,129 26,904 7,441 7,167 2,944 3,374 5,664 (462) 5,990 1,418 1,385 1,055 1,085 1,483 (436) 22.9 1,355 8,226 7,023 2,773 3,900 5,584 (602) 5,950 1,594 1,334 885 1,247 1,335 (445) 22.1 1,635 47,531 56,133 10,777 11,816 22,182 21,257 1,470 1,697 81,960 90,903 LAFARGEHOLCIM ANNUAL REPORT 2017163164 8. INFORMATION BY COUNTRY Million CHF Switzerland USA India Canada United Kingdom France Australia Algeria Nigeria Other countries Total Net sales to external customers Non-current assets 2017 673 3,769 3,535 1,950 1,713 1,771 1,242 766 660 2016 620 3,732 3,234 1,874 1,856 1,620 1,133 793 609 2017 1,096 7,987 4,598 4,638 2,139 4,226 1,429 2,156 2,077 2016 1,064 8,846 4,566 4,574 2,055 3,944 1,421 3,424 2,183 10,049 26,129 11,433 26,904 15,400 45,747 17,240 49,316 Net sales to external customers are based primarily on the location of assets (origin of sales). Non-current assets consist of property, plant and equipment, goodwill and intangible assets. There is no single external customer where net sales amount to 15 percent or more of the Group net sales. 9. PRODUCTION COST OF GOODS SOLD Million CHF Material expenses Fuel expenses Electricity expenses Personnel expenses Maintenance expenses Depreciation, amortization and impairment Other production expenses Changes in inventory Total 2017 (4,208) (1,616) (1,311) (2,288) (1,581) (5,632) (1,662) (49) 2016 (4,397) (1,550) (1,470) (2,382) (1,722) (2,267) (1,797) (47) (18,348) (15,632) LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS10. SUMMARY OF DEPRECIATION, AM OR TIZATION AND IM PAIRMENT Million CHF Production facilities Distribution and sales facilities Administration facilities 2017 2016 (5,632) (2,267) (250) (126) (32) (106) Total depreciation, amortization and impairment of operating assets (a) (6,007) (2,405) of which impairment charge relating to property, plant and equipment and assets classified as held for sale (note 25) of which impairment charge relating to goodwill (note 26) of which impairment charge relating to intangible assets (note 26) of which impairment charge relating to investments in joint ventures (note 24) Impairment of long-term financial assets (note 14) Impairment of investments in associates (note 24) 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) Of which depreciation of property, plant and equipment (note 25) (1,745) (1,821) (35) (107) (119) (4) (5) (1) (128) (6,135) (2,112) 11. PROFIT ON DISPOSALS AND OTHER NON-OPER ATING INCOM E Million CHF Dividends earned Net gain on disposal before taxes Other Total 2017 6 441 0 447 (25) (40) (1) 0 0 (5) (8) (4) (17) (2,422) (2,161) 2016 6 756 63 824 In 2017, the position “Net gain on disposal before taxes” mainly includes a gain on the disposal of LafargeHolcim Vietnam of CHF 339 million and gains on property, plant and equipment of CHF 82 million. In 2016, the position “Net gain on disposal before taxes” mainly included: – 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. LAFARGEHOLCIM ANNUAL REPORT 2017165166 12. LOSS ON DISPOSALS AND OTHER NON-OPER ATING EXPENSES Million CHF 2017 2016 Depreciation, amortization and impairment of non-operating assets Net loss on disposal before taxes Other Total (10) (108) (124) (242) (17) 0 (51) (68) In 2017, the position “Net loss on disposal before taxes” relates mainly to the loss of CHF 40 million on the disposal of Cemento Polpaico S.A. (Chile) and CHF 40 million from the transactions entered in China (see note 4). In 2017, the position “Other” includes expenses in relation to ongoing legal cases (see note 37 for further information on legal cases) and expenses incurred in connection with assets, that are not operating anymore, abandoned or not part of the operating business cycle. 13. FINANCIA L INCOME Million CHF Interest earned on cash and cash equivalents Other financial income Total 2017 92 60 153 2016 132 55 187 The position “Other financial income” relates primarily to interest income from loans and receivables. 14. FINANCIA L 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 gain/ (loss) net Financial expenses capitalized Total 2017 (760) 0 (27) (52) (119) (200) 26 21 2016 (896) 2 (32) (56) 4 (91) (68) 34 (1,111) (1,104) The position “Interest expenses” relates primarily to financial liabilities measured at amortized cost and includes amortization on bonds and private placements of CHF 99 million (2016: CHF 393 million). The decrease of this position in 2017 is the result of lower financial liabilities and a decrease in average interest rates (see note 28). In 2016, it also included bonds early repayment premiums of CHF 90 million (2017: CHF 0 million). LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSThe position “Impairment of long-term financial assets” includes write-offs of third parties financial investments and long-term financial receivables (see note 23). The position “other financial expenses” includes accruals for interest related to ongoing legal cases (see note 37 for further information on legal cases), impacts of reevaluation of put options liabilities and bank charge fees. The position “Financial expenses capitalized” comprises interest expenditures on large-scale projects during the reporting period. 15. 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 96 million (2016: CHF 141 million) were charged directly to the consolidated statement of income. 16. EARNINGS PER SHARE Earnings per share in CHF From continuing operations From discontinued operations Net (loss) income – shareholders of LafargeHolcim Ltd – as per statement of income (in million CHF) From continuing operations From discontinued operations 2017 (2.78) (2.78) 0.00 (1,675) (1,675) 0 2016 2.96 2.89 0.07 1,791 1,749 43 Weighted average number of shares outstanding 603,235,216 605,680,320 Fully diluted earnings per share in CHF From continuing operations From discontinued operations Net (loss) income used to determine diluted earnings per share (in million CHF) From continuing operations From discontinued operations (2.78) (2.78) 0.00 (1,675) (1,675) 0 2.96 2.89 0.07 1,791 1,749 43 Weighted average number of shares outstanding 603,235,216 605,680,320 Adjustment for assumed exercise of share options and performance shares Weighted average number of shares for diluted earnings per share 0 358,140 603,235,216 606,038,460 In conformity with the decision taken at the annual general meeting on May 3, 2017, a payout related to 2016 of CHF 2.00 per registered share was paid out of capital con tribution reserves. This resulted in a total payment of CHF 1,212 million. LAFARGEHOLCIM ANNUAL REPORT 2017167168 A cash payment out of the capital contribution reserves in respect of the financial year 2017 of CHF 2.00 per registered share, amounting to a maximum payment of CHF 1,196 million, is to be proposed at the annual general meeting of shareholders on May 8, 2018. These consolidated financial statements do not reflect this cash payment, since it will only be effective in 2018. 296,752 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 2017. 17. CASH AND CASH EQUIVA LENTS Million CHF Cash at banks and on hand Short-term deposits Total Bank overdrafts Cash and cash equivalents classified as held for sale 2017 2,449 1,768 4,217 (275) 11 2016 3,175 1,747 4,923 (263) 135 Cash and cash equivalents for the purpose of the consolidated statement of cash flows 3,954 4,795 Cash and cash equivalents comprise cash at banks and on hand, deposits held on call with banks, monetary mutual funds and other short-term highly liquid investments that are readily convertible to a known amount of cash with a maturity of three months or less from the date of acquisition. Investments in monetary mutual funds amounting CHF 377 million (2016: CHF 275 million) are considered cash equivalents since they are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Bank overdrafts are included in current financial liabilities. 18 . TRADE ACCOUNTS R ECEIVABL E Million CHF Trade accounts receivable – associates and joint ventures Trade accounts receivable – third parties Total 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 2017 119 3,221 3,340 2017 1,877 1,249 189 217 (192) 2016 109 2,717 2,826 2016 1,961 670 118 260 (183) 3,340 2,826 Due to the local nature of the business, specific terms and conditions for trade accounts receivable exist for local Group companies. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS Allowance for doubtful accounts Million CHF January 1 Disposal of Group companies Allowance recognized Amounts used Unused amounts reversed Currency translation effects December 31 19. CURRENT FINANCIAL RECEIVA B LES Million CHF Marketable securities Current financial receivables – associates and joint ventures Current financial receivables – third parties Total of which pledged/ restricted 2017 (183) 0 (81) 6 68 (2) 2016 (189) 11 (52) 4 44 (1) (192) (183) 2017 1 25 236 262 45 2016 0 105 102 207 42 The current financial receivables third parties increased mainly in connection with the transaction entered in China for which an amount of CHF 114 million is due in 2018 (see note 4). 20. INVENTORIES Million CHF Raw materials and additives Semi-finished and finished products Fuels Parts and supplies Total 2017 420 1,444 312 693 2,870 2016 429 1,332 235 649 2,645 In 2017, the Group recognized inventory write-downs to net realizable value of CHF 9 million (2016: CHF 4 million) relating mainly to semi-finished and finished products. LAFARGEHOLCIM ANNUAL REPORT 2017169170 21. PREPAID EXPENSES AND OTHER CUR RENT A SSETS Million CHF Prepaid expenses and accruals Other current assets Other receivables – associates and joint ventures Other receivables – third parties Receivable on escrow account in connection with the transaction in China (note 4) Total 2017 211 406 20 697 0 1,335 2016 255 216 171 726 352 1,720 As indicated in note 4, the receivable of CHF 352 million in connection with the disposal of 73,5 percent listed shares in Sichuan Shuangma Cement Co in 2016 was released in 2017. 22. ASSE TS AND RELATED LIA BIL ITIES CLA SSIFIED A S HEL D FOR SALE The net assets classified as held for sale as of December 31, 2017 amount to CHF 390 million and mainly relate to two cement companies in China, as explained below. China As disclosed in note 4, LafargeHolcim signed a Share Purchase Agreement for two Shuangma cement companies in 2017, which resulted in the Group continuing to exercise control over them. As the Group believes it is highly probable that the two cement companies will be sold by the end of 2018, they remained classified as held for sale at December 31, 2017. This resulted in the assets being written down by CHF 58 million to its fair value less costs to sell. The two cement companies are disclosed in the reportable segment Asia Pacific. The assets include two cement plants with a combined annual cement capacity of 7.7m tons. The disposal of non-listed cement assets in China to the Group’s joint venture Huaxin Cement Co. Ltd. was closed in the first quarter 2017 for a consideration of CHF 257 million. The assets and associated liabilities were classified as held for sale in the fourth quarter 2016, and were 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 in 2016. Further information is disclosed in note 4. Vietnam On August 4, 2016, the Group announced it had 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 operated one integrated plant and four grinding plants with an annual cement grinding capacity of 6.3 million tons and was a leading ready-mix concrete producer. The shareholders of SCCC approved the acquisition in the fourth quarter 2016 and consequently LafargeHolcim Vietnam was classified as held for sale on December 31, 2016 and was disclosed in the reportable segment Asia Pacific. On February 28, 2017, the Group disposed of its 65 percent shareholding in LafargeHolcim Vietnam. Further information is disclosed in note 4. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSChile 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). Cemento Polpaico operated one integrated plant and two grinding plants with an annual cement capacity of 2.3 million tons and was a leading ready-mix and aggregates producer in Chile. Cemento Polpaico was classified as held for sale on December 2016 and was disclosed in the reportable segment Latin America. On August 14, 2017, the Group disposed of its 54.3 percent shareholding in Cemento Polpaico S.A. (Chile). Further information is disclosed in note 4. 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 Net assets classified as held for sale 2017 11 14 78 382 39 26 550 149 11 160 390 2016 135 123 240 1,294 227 27 2,046 567 144 711 1,335 23 . LONG-TERM FINANCIAL INV ESTM ENTS A ND OTHER LONG-TE RM AS SE T S 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) Deferred charges Other long-term assets Total Of which pledged/restricted 2017 85 192 240 0 101 496 1,114 13 2016 168 295 237 105 50 432 1,287 12 Long-term receivables are primarily denominated in USD, AUD and BRL. The repayment dates vary between one and 22 years (2016: one and 23 years). As indicated in note 4, a receivable of CHF 114 million (2016: CHF 105 million) in connection with the transaction in China entered in 2016 is due in 2018 and has been accordingly reclassified to current financial receivables (see note 19). LAFARGEHOLCIM ANNUAL REPORT 2017171172 As indicated in note 14, impairment of financial investments – third parties and write-offs of long-term financial receivables were recorded in 2017. Other long-term assets include notably various deposits in connection with ongoing legal cases (see note 37). 24. I N V E S TMENTS IN ASSOCIATES AND JOINT VENTUR ES Million CHF Investments in associates Investments in joint ventures Total 2017 426 2,693 3,120 2016 1,309 1,932 3,241 In 2017, as a result of the streamlining of the Chinese operations (see note 4), the Group has joint control in Huaxin Cement Co. Ltd. which was reclassified from an investment in an associate to an investment in a joint venture. In 2016, the share of profit of Huaxin Cement Co. Ltd. amounted to CHF 42 million and was reflected in the line share of profit of associates in the consolidated statement of income. 24.1 Investment in associates Movement in investments in associates Million CHF January 1 Share of profit of associates Dividends earned PPA refinement (note 4) Net acquisitions (disposals) Reclassifications Impairments Currency translation effects December 31 Investments in associates Million CHF Huaxin Cement Co. Ltd. Other associates Total 2017 1,309 51 (16) 0 1 (924) (4) 9 426 2016 1,433 81 (16) (5) (125) (23) (5) (32) 1,309 31.12.2017 31.12.2016 0 426 426 848 462 1,309 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSAs of December 31, 2017, the Group has no interests in associates that are 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 Carrying amount of investments in other associates Net income Total comprehensive earnings 31.12.2017 31.12.2016 426 51 51 462 39 39 There are no unrecognized share of losses relating to the above associates. 24.2 Investments in joint ventures Movement in investments in joint ventures Million CHF January 1 Share of profit of joint ventures Dividends earned Net additions Reclassifications Impairments Currency translation effects December 31 2017 1,932 286 (263) 17 847 (107) (19) 2016 1,739 125 (161) 223 23 0 (18) 2,693 1,932 In 2017, the position impairment mainly relates to the impairment of the Group’s interest in certain joint ventures in Middle East and Africa. In 2016, the position “Net additions (disposals)” mainly related to the increase in value of LafargeHolcim Maroc following the merger between Lafarge Ciments and Holcim (Maroc) S.A. on July 4. Further information is disclosed in the note 4. The Group has two material investments in joint ventures: – the 50 percent interest in Lafarge Maroc in Morocco, the parent company of LafargeHolcim Maroc and LafargeHolcim Maroc Afrique, and – the 41.8 percent interest in Huaxin Cement Co. Ltd. in China Since LafargeHolcim Maroc is a publicly listed company in Morocco and has not yet published its financial statements for the year 2017, the disclosed amounts for the investment in the joint venture Lafarge Maroc are as of June 30, 2017. Likewise, since Huaxin Cement Co. Ltd. is a publicly listed company in China and has not yet published its financial statements for the year 2017, the disclosed amounts for the investments in the joint venture Huaxin Cement Co. Ltd. are as of September 30, 2017. LAFARGEHOLCIM ANNUAL REPORT 2017173174 Lafarge Maroc As of December 31, 2017, the Group holds 50 percent (2016: 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, 2017 and as at December 31, 2016. As of June 30, 2017, dividends of CHF 25 million (December 31, 2016: CHF 49 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) 30.6.2017 31.12.2016 374 2,249 2,623 465 673 1,138 1,485 1,026 358 2,311 2,669 400 688 1,089 1,581 1,091 The net financial debt of Lafarge Maroc amounted to CHF 628 million as of June 30, 2017, and to CHF 495 million as of December 31, 2016. Lafarge Maroc – Statement of comprehensive earnings Million CHF Net sales Recurring EBITDA1 Depreciation and amortization Operating profit Loss on disposals and other non-operating expenses 2 Financial expenses Income taxes Net income Net income (excluding non-controlling interest) Other comprehensive earnings Total comprehensive earnings (excluding non-controlling interest) 1 Previously named “Operating EBITDA adjusted”. 2 Previously named “Other expenses”. Jan-June 2017 Jan-Dec 2016 505 213 (46) 168 (13) (12) (46) 97 65 2 67 751 357 (73) 284 (28) (6) (83) 166 114 (1) 113 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% (2016: 50%) of shareholders’ equity (excluding non-controlling interest) Goodwill Total 30.6.2017 31.12.2016 513 786 1,299 545 802 1,347 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSHuaxin Cement Co. Ltd. As of December 31, 2017, the Group holds 41.8 percent (2016: 41.8 percent) of the voting rights in the joint venture company Huaxin Cement Co. Ltd. The fair value of the investment in Huaxin Cement Co. Ltd. based on a quoted market price on December 31, 2017 amounted to CHF 1,123 million (2016: CHF 624 million). Set out below is the summarized financial information for the material joint venture company Huaxin Cement Co. Ltd., 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 Co. Ltd. as at September 30, 2017 and as at December 31, 2016. As of September 30, 2017, dividends of CHF 4 million (December 31, 2016: CHF 5 million) were received from Huaxin Cement Co. Ltd. Huaxin Cement Co. Ltd. – 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) 30.9.2017 31.12.2016 1,150 3,343 4,493 1,268 1,231 2,499 1,994 1,804 1,107 3,149 4,256 1,159 1,210 2,370 1,887 1,675 The net financial debt of Huaxin Cement Co. Ltd. amounted to CHF 1,113 million as of September 30, 2017 and to CHF 1,061 million as of December 31, 2016. Huaxin Cement Co. Ltd. – Statement of comprehensive earnings Million CHF Net sales Recurring EBITDA1 Depreciation and amortization Operating profit Profit (Loss) on disposals and other non-operating income/expenses 2 Financial income Financial expenses Income taxes Net income Net income (excluding non-controlling interest) Other comprehensive earnings Total comprehensive earnings (excluding non-controlling interest) 1 Previously named “Operating EBITDA adjusted”. 2 Previously named “Other income (expenses)”. Jan-Sep 2017 2,069 469 (177) 292 7 5 (81) (38) 185 169 (3) 166 Jan-Dec 2016 1,998 439 (192) 247 (4) 3 (90) (27) 129 100 2 102 LAFARGEHOLCIM ANNUAL REPORT 2017175176 A reconciliation of the summarized financial information to the carrying amount of the investment in Huaxin Cement Co. Ltd. is as follows: Huaxin Cement Co. Ltd. Million CHF Group share of 41.8% (2016: 41.8%) of shareholders’ equity (excluding non-controlling interest) Goodwill Total 30.9.2017 31.12.2016 755 145 901 701 146 848 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 Carrying amount of investments in joint ventures Net income Total comprehensive earnings 31.12.2017 31.12.2016 377 95 95 498 69 69 There are no unrecognized share of losses relating to the above joint ventures. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS25 . PRO PERTY, PL ANT AND EQUI PME NT Million CHF 2017 At cost of acquisition Accumulated depreciation/impairment Net book value as at January 1 Acquisition 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 2016 At cost of acquisition Accumulated depreciation/impairment Net book value as at January 1 PPA refinement (note 4) Divestments Reclassifications to assets classified as held for sale 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 Land and mineral reserves Buildings and installations Machinery and equipment Construction in progress 7,576 (1,621) 5,956 63 (12) 10 (41) 100 (191) (491) 95 5,489 7,654 (2,164) 5,489 7,989 (1,594) 6,394 (314) (180) (30) 11 (33) 281 (191) (8) 26 5,956 7,576 (1,621) 5,956 10,726 (4,130) 6,596 12 (14) 2 (16) 375 (362) (290) 14 6,317 11,064 (4,748) 6,317 10,567 (3,739) 6,828 (73) (367) (661) 5 (22) 1,254 (381) (1) 14 6,596 10,726 (4,130) 6,596 30,741 (13,001) 17,740 152 (2) 13 (32) 1,424 (1,559) (794) 65 17,007 32,003 (14,996) 17,007 31,526 (11,368) 20,158 236 (1,057) (704) 51 (52) 1,511 (1,589) (14) (799) 17,740 30,741 (13,001) 17,740 1,794 (33) 1,761 126 0 1,492 (1) (1,900) 0 (115) (24) 1,339 1,490 (152) 1,339 3,517 (150) 3,367 (64) (51) (41) 1,669 (1) (3,045) 0 (2) (71) 1,761 1,794 (33) 1,761 Total 50,837 (18,784) 32,052 352 (28) 1,517 (90) 0 (2,112) (1,690) 151 30,152 52,211 (22,060) 30,152 53,598 (16,850) 36,747 (216) (1,654) (1,437) 1,736 (108) 0 (2,161) (25) (830) 32,052 50,837 (18,784) 32,052 LAFARGEHOLCIM ANNUAL REPORT 2017177178 The net book value of leased property, plant and equipment amounts to CHF 61 million (2016: CHF 60 million) and mainly relates to buildings, machinery and equipment. CHF 209 million of the total net book value of property, plant and equipment are pledged or restricted (2016: CHF 638 million). Net gains on sale of property, plant and equipment amounted to CHF 82 million (2016: CHF 46 million) reported in the line “Profit on disposals and other non-operating income” in the consolidated statement of income (see note 11). In 2017, 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 1,690 million, of which CHF 904 million was impaired as insufficient goodwill was available to absorb the full impairment charge (see note 26). The remaining impairment charge of CHF 786 million mainly consisted of CHF 371 million relating to specific aggregates sites in North America. Apart from the assets mentioned above, no asset impairment was deemed to be individually material in the other reportable segments but pertained mostly to assets in Europe and Middle East and Africa. The total impairment charge of CHF 1,745 million resulted primarily from the weaker than anticipated outlook for the macro-economic environment, especially in terms of expected growth rates, cement demand and export opportunities for countries such as Malaysia, Spain and Egypt (see note 26). LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS26. GOODWIL L AND INTA NGIBLE ASSETS Million CHF 2017 At cost of acquisition Accumulated amortization/impairment Net book value as at January 1 Divestments Reclassification Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31 At cost of acquisition Accumulated amortization/impairment Net book value as at December 31 2016 At cost of acquisition Accumulated amortization/impairment Net book value as at January 1 PPA refinement (note 4) Divestments Reclassification from assets classified as held for sale Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31 At cost of acquisition Accumulated amortization/impairment Net book value as at December 31 Goodwill Intangible assets 17,514 (1,267) 16,247 (3) 0 27 0 0 (1,821) 119 14,569 17,603 (3,034) 14,569 17,698 (1,209) 16,490 522 (266) (85) 0 0 0 (40) (374) 16,247 17,514 (1,267) 16,247 2,325 (1,309) 1,017 (2) 62 135 (4) (190) (35) 44 1,026 2,612 (1,586) 1,026 2,584 (1,168) 1,416 (123) (28) (138) 96 (8) (188) (1) (9) 1,017 2,325 (1,309) 1,017 LAFARGEHOLCIM ANNUAL REPORT 2017179180 Intangible assets Intangible assets have finite useful lives, over which the assets are amortized. The corresponding amortization expense is recognized mainly in administration expenses. Intangible assets mainly consist of mining rights, trademarks and brands. During the fourth quarter 2017, 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 35 million. No asset impairment was deemed to be individually material. Goodwill As explained in note 4, in 2016, the finalization of the purchase price allocation led to an increase in the goodwill of CHF 522 million. Impairment test of 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 carrying 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 its value in use or its fair value less costs to sell, is compared to its carrying amount. An impairment loss is recognized if the carrying amount of the cash-generating unit exceeds its recoverable amount. The value in use is determined based on future discounted cash flows using the weighted average cost of capital (WACC). The WACC used for the impairment test is a post-tax discount rate and is applied to post-tax cash flows. There is no material difference in the outcome of the impairment test using the discount rate applied when compared to using a pre-tax discount rate for pre-tax cash flows. The cash flow projections are based on a three-year financial planning period using business 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 parameters 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSKey assumptions used for value-in-use calculations in respect of goodwill 2017 Cash-generating unit (Million CHF) North America India France United Kingdom Algeria Central Europe West Nigeria Poland Philippines Mexico Others 1 Total Carrying amount of goodwill 4,750 1,705 1,521 929 709 682 639 550 484 400 2,199 14,569 Currency USD/CAD INR EUR GBP DZD CHF/EUR NGN PLN PHP MXN Post-tax discount rate Long-term growth rate +6.9% +10.7% +6.5% +6.6% +11.7% +6.1% +22.7% +8.2% +8.7% +8.7% +2.2% +5.0% +1.8% +2.0% +4.0% +1.4% +14.5% +2.5% +3.0% +3.0% Various 5.6%–17.7% 1.0%–9.1% 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 1 Individually not significant. 2 Figures adjusted from pre-tax to post-tax. 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 Post-tax discount rate2 Long-term growth rate +6.8% +9.7% +10.7% +6.7% +6.6% +5.9% +14.9% +8.2% +9.2% +8.7% +2.1% +4.0% +4.9% +2.1% +2.0% +1.3% +8.0% +2.5% +3.5% +3.0% Various 4.6%–13.9% 0.4%–7.0% In 2017, management recognized a total impairment charge of CHF 3,566 million relating to certain cash-generating units (country- or region-related), of which CHF 1,821 million has been allocated to goodwill. The total impairment charge resulted primarily from: – higher WACC to consider risks and uncertainties that may materialize in the coming years and attributable to change in markets, national economic circumstances, political complex situations and governments’ ability to fund infrastructure projects for countries such as Algeria, Brazil, Indonesia, Zambia and Iraq. – the weaker than anticipated outlook for the macro-economic environment, especially in terms of expected growth rates, cement demand and export opportunities for countries such as Malaysia, Spain and Egypt. LAFARGEHOLCIM ANNUAL REPORT 2017181182 A goodwill impairment charge relating to Algeria of CHF 1,008 million was recognized. A post- tax discount rate of 11.7 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Algeria is Middle East and Africa; The cash-generating units included in “Others” comprised the following impairment charges: – a total impairment charge relating to Malaysia of CHF 448 million, of which CHF 277 million has been allocated to goodwill. Since there was insufficient goodwill available to absorb the full impairment amount, an additional impairment charge of CHF 171 million was recognized for property, plant and equipment. A post-tax discount rate of 9.7 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Malaysia is Asia Pacific; – a total impairment charge relating to Brazil of CHF 226 million. Since there was no goodwill available to absorb the full impairment amount, the impairment charge was fully allocated to property, plant and equipment. A post-tax discount rate of 12.3 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 total impairment charge relating to Spain of CHF 221million, of which CHF 40 million has been allocated to goodwill. Since there was insufficient goodwill available to absorb the full impairment amount, an additional impairment charge of CHF 181 million was recognized for property, plant and equipment. A post-tax discount rate of 7.5 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Spain is Europe; – a total impairment charge relating to Iraq of CHF 216 million, of which CHF 38 million has been allocated to goodwill. Since there was insufficient goodwill available to absorb the full impairment amount, an additional impairment charge of CHF 178 million was recognized for property, plant and equipment. A post-tax discount rate of 15.7 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Iraq is Middle East and Africa; – a goodwill impairment charge relating to Indonesia of CHF 205 million. A post-tax discount rate of 10.7 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Indonesia is Asia Pacific; – a total impairment charge relating to Egypt of CHF 197 million, of which CHF 49 million has been allocated to goodwill. Since there was insufficient goodwill available to absorb the full impairment amount, an additional impairment charge of CHF 148 million was recognized for property, plant and equipment. A post-tax discount rate of 14.8 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Egypt is Middle East and Africa; – a goodwill impairment charge relating to Zambia of CHF 141 million. A post-tax discount rate of 14.8 percent was used to calculate the recoverable amount, which was measured based on value in use. The reportable segment for Zambia is Middle East and Africa; – management recognized also an aggregated goodwill impairment charge of CHF 63 million related to cash-generating units within the reported segments Others. The total recoverable amount of countries that were impaired amounted to CHF 5.8 billion. In 2016, management recognized a goodwill impairment charge of CHF 40 million relating to cash-generating units “Others” within the reportable segment Asia Pacific. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSSensitivity 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 possible change in the post-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 post-tax discount rate and long-term growth rate would have the following impacts: Used post-tax discount rate Used long-term growth rate +10.7% +11.7% +4.0% +4.0% Excess of recoverable amount over carrying amount (Million CHF) Break-even post-tax discount rate using the used long-term growth rate Break-even long-term growth rate using the used post-tax discount rate 0 0 +10.7% +11.7% +4.0% +4.0% Used post-tax discount rate1 Used long-term growth rate +6.9% +8.7% +8.2% +7.2% +2.2% +3.0% +2.5% +3.2% Excess of recoverable amount over carrying amount (Million CHF) Break-even post-tax discount rate using the used long-term growth rate1 Break-even long-term growth rate using the used post-tax discount rate1 33 97 62 27 +7.0% +9.1% +8.5% +7.6% +2.1% +2.5% +2.1% +2.8% Sensitivity to changes in assumptions 2017 Cash-generating unit Indonesia Algeria Sensitivity to changes in assumptions 2016 Cash-generating unit Australia/New Zealand Malaysia Poland Spain 1 Figures adjusted from pre-tax to post-tax. LAFARGEHOLCIM ANNUAL REPORT 2017183184 27. TRADE ACCOUNTS PAYABLE Million CHF Trade accounts payable – associates and joint ventures Trade accounts payable – third parties Advance payments from customers – third parties 1 Total 2017 126 3,307 282 3,715 2016 85 2,963 259 3,307 1 Advance payments from customers – third parties are now shown separately, comparative figures have been adjusted accordingly. 28. FINANCIA L LIAB ILITIES Million CHF Current financial liabilities – associates and joint ventures Current financial liabilities – third parties Current portion of long-term financial liabilities Derivative liabilities (note 30) Total current financial liabilities Long-term financial liabilities – associates and joint ventures 2017 24 1,306 2,403 109 3,843 39 2016 52 2,014 2,881 30 4,976 0 Long-term financial liabilities – third parties 14,727 14,666 Derivative liabilities (note 30) 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 29) Derivative liabilities (note 30) Total 13 14,779 18,621 83 79 14,744 19,720 87 2017 3,177 2016 3,770 15,177 15,578 82 195 18,435 19,544 64 122 67 109 18,621 19,720 “Loans from financial institutions” include amounts due to banks and other financial institutions. Repayment dates vary between one and 11 years (2016: one and 12 years). CHF 1,876 million (2016: CHF 2,570 million) is due within one year. As per the loans agreements, the Group is required to comply with certain provisions or covenants. The Group complied with its debt covenants in all material respect. Unused committed credit lines totaled CHF 6,794 million at year-end 2017 (2016: CHF 6,256 million). LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSFinancial liabilities by currency Currency Million CHF EUR USD CHF AUD GBP NGN IDR BRL Others Total 7,528 5,229 2,009 738 396 393 391 355 1,582 18,621 2017 Interest rate 1 Million CHF 2.8 5.1 2.7 3.8 3.0 15.8 7.7 10.3 5.8 4.5 7,581 5,286 2,425 693 601 314 365 425 2,030 19,720 In % 40.4 28.1 10.8 4.0 2.1 2.1 2.1 1.9 8.5 100.0 2016 Interest rate1 3.2 5.0 2.1 4.2 8.0 14.4 9.0 7.2 7.4 4.8 In % 38.4 26.8 12.3 3.5 3.0 1.6 1.9 2.2 10.3 100.0 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 2017 12,910 5,711 18,621 2016 12,060 7,660 19,720 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. LAFARGEHOLCIM ANNUAL REPORT 2017185186 Bonds and private placements as at December 31 Nominal interest rate Effective interest rate Term Description Nominal value Million CHF LafargeHolcim Ltd CHF CHF CHF CHF CHF CHF 400 450 450 250 250 150 3.13% 4.00% 3.00% 2.00% 0.38% 1.00% Holcim Overseas Finance Ltd. 2007–2017 Bonds swapped into floating interest rates at inception 4.19% 2.97% 2.03% 0.41% 1.03% 2009–2018 Bonds with fixed interest rate 2012–2022 Bonds with fixed interest rate 2013–2022 Bonds with fixed interest rate 2015–2021 Bonds with fixed interest rate 2015–2025 Bonds with fixed interest rate Net book value in CHF 1 Net book value in CHF1 2017 2016 0 449 451 250 250 150 413 449 451 250 250 150 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 250 150 50 175 357 247 371 56 600 80 289 7.25% 6.85% 5.25% 5.00% 5.50% 5.00% 4.75% 6.63% 7.13% 8.75% 5.38% 2009–2017 Private placement with fixed interest rate 2009–2017 Private placement with fixed interest rate 2012–2017 Private placement with fixed interest rate 4.68% 2012–2018 Private placement with fixed interest rate 4.74% 5.19% 4.19% 2009–2019 Bonds with fixed interest rate (partially repaid 2016) 2010–2018 Bonds with fixed interest rate (partially repaid 2016) 2005–2020 Bonds with fixed interest rate (partially repaid 2016) 2002–2017 Bonds with fixed interest rate 5.90% 2006–2036 Bonds with fixed interest rate 2009–2017 Bonds with fixed interest rate 2007–2017 Bonds with fixed interest rate 0 0 0 205 450 292 464 0 691 0 0 277 169 54 194 429 278 439 74 728 104 316 EUR 430 5.38% 4.98% 2010–2018 EUR 198 5.88% 4.29% 2012–2019 Holcim GB Finance Ltd. Bonds, partly swapped into floating interest rates (partially repaid 2016) Bonds, partly swapped into floating interest rates (partially repaid 2016) 522 503 247 237 GBP 300 8.75% 2009–2017 Bonds guaranteed by LafargeHolcim Ltd 0 377 Holcim Capital Corporation Ltd. USD USD USD 50 250 250 7.65% 6.88% 6.50% 7.65% 7.28% 6.85% Holcim Capital México, S.A. de C.V. 2001–2031 Private placement guaranteed by LafargeHolcim Ltd 2009–2039 Bonds guaranteed by LafargeHolcim Ltd 2013–2043 Bonds guaranteed by LafargeHolcim Ltd MXN 1,700 7.00% 7.23% 2012–2019 Bonds guaranteed by LafargeHolcim Ltd MXN 2,000 7.78% 5.53% 2014–2018 MXN 1,700 8.01% 6.78% 2015–2020 Subtotal 1 Includes adjustments for fair value hedge accounting, where applicable. Bonds guaranteed by LafargeHolcim Ltd, with floating interest rates Bonds guaranteed by LafargeHolcim Ltd, with floating interest rates 49 237 237 84 99 84 51 247 248 84 99 84 5,636 7,377 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSNet book value in CHF 1 2017 5,636 0 581 38 177 Net book value in CHF1 2016 7,377 215 533 35 163 Nominal interest rate Effective interest rate Term Description Nominal value Million CHF Subtotal Holcim Finance (Luxembourg) S.A. EUR EUR EUR EUR EUR 200 500 33 152 1,150 6.35% 3.00% 2.00% 1.46% 1.38% 3.11% 2.03% 1.51% 1.43% 2009–2017 Bonds guaranteed by LafargeHolcim Ltd 2014–2024 Bonds guaranteed by LafargeHolcim Ltd 2016–2026 Schuldschein loan guaranteed by LafargeHolcim Ltd 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd 2016–2023 Bonds guaranteed by LafargeHolcim Ltd 1,340 1,231 EUR 209 0.72% 0.85% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates EUR EUR EUR EUR 25 413 1,150 750 0.99% 1.04% 2.25% 1.75% Holcim Finance (Australia) Pty Ltd AUD AUD AUD AUD 250 200 250 300 6.00% 5.25% 3.75% 3.50% 1.04% 1.10% 2.23% 1.90% 5.52% 3.90% 3.73% Holcim US Finance S. à r.l. & Cie S.C.S. USD USD EUR USD USD 200 750 500 500 50 6.21% 6.00% 2.63% 5.15% 4.20% 6.24% 6.25% 3.59% 5.30% 4.20% LafargeHolcim International Finance Ltd 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd 2016–2028 Bonds guaranteed by LafargeHolcim Ltd 2017-2029 Bonds guaranteed by LafargeHolcim Ltd 2012–2017 Bonds guaranteed by LafargeHolcim Ltd 2012–2019 Bonds guaranteed by LafargeHolcim Ltd 2015–2020 Bonds guaranteed by LafargeHolcim Ltd 2017-2022 Bonds guaranteed by LafargeHolcim Ltd 2006–2018 Private placement guaranteed by LafargeHolcim Ltd 2009–2019 Bonds guaranteed by LafargeHolcim Ltd 2012–2020 Bonds guaranteed by LafargeHolcim Ltd, swapped into USD and floating interest rates at inception 2013–2023 Bonds guaranteed by LafargeHolcim Ltd 2013–2033 Bonds guaranteed by LafargeHolcim Ltd 244 224 29 482 27 442 1,347 1,238 863 0 0 152 190 227 195 729 597 485 49 184 147 184 0 204 761 558 507 51 USD 40 2.80% 2.88% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd 39 41 USD USD 121 15 3.01% 3.20% 3.03% 3.27% 2016–2021 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd USD 25 3.21% 3.23% 2016–2023 Schuldschein loan guaranteed by LafargeHolcim Ltd, with floating interest rates 118 15 123 15 24 25 LafargeHolcim Finance US LLC USD USD 400 600 3.50% 4.75% 3.59% 5.00% 2016–2026 Bonds guaranteed by LafargeHolcim Ltd 2016–2046 Bonds guaranteed by LafargeHolcim Ltd LafargeHolcim Sterling Finance (Netherlands) B.V. GBP 300 3.00% 3.16% 2017–2032 Bonds guaranteed by LafargeHolcim Ltd Holcim (Costa Rica) S.A. CRC 5,000 6.95% 2016–2018 Bonds with fixed interest rate (early repaid in 2017) Holcim (US) Inc. USD USD USD 33 25 27 Lafarge Africa PLC 0.94% 0.98% 0.91% 0.94% 0.98% 0.91% 1999–2032 Industrial revenue bonds – Mobile Dock & Wharf 2003–2033 Industrial revenue bonds – Holly Hill 2009–2034 Industrial revenue bonds – Midlothian NGN NGN Total 26,386 14.25% 16.08% 2016–2019 Bonds with fixed interest rate 33,614 14.75% 16.39% 2016–2021 Bonds with fixed interest rate 1 Includes adjustments for fair value hedge accounting, where applicable. 389 569 388 0 33 24 26 407 595 0 9 34 26 27 84 107 86 109 15,177 15,578 LAFARGEHOLCIM ANNUAL REPORT 2017187188 29 . LE ASES 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 Finance leases 2017 340 753 521 1,614 2016 252 567 446 1,264 2017 14 29 41 84 (20) 64 2016 16 29 44 90 (23) 67 The total expense for operating leases recognized in the consolidated statement of income in 2017 was CHF 352 million (2016: CHF 257 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 28). There are no individually significant finance lease agreements. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSDerivative 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 Total 30. DERIVATIVE FINANCIAL INSTRUM ENTS Derivative liabilities are included in financial liabilities (note 28) and derivative assets are separately disclosed in the consolidated statement of financial position. Fair value assets Fair value liabilities 2017 2017 Nominal amount 2017 Fair value assets Fair value liabilities 2016 2016 Nominal amount 2016 0 0 0 0 18 33 50 6 6 2 0 0 2 58 0 0 10 10 14 6 19 6 6 86 0 0 87 122 0 0 613 613 1,690 229 1,919 1,333 1,333 687 30 0 717 4,583 18 15 4 36 7 22 29 0 0 7 0 1 8 74 0 0 78 78 2 4 6 5 5 20 0 0 20 109 1,007 26 653 1,685 74 123 197 467 467 1,702 0 1 1,703 4,053 LAFARGEHOLCIM ANNUAL REPORT 2017189190 31. TAXES Million CHF Current taxes Deferred taxes and non-current taxes Total 2017 (1,042) 507 (536) 2016 (943) 109 (835) In 2017, CHF 131 million (2016: CHF 177 million) related to the divestment of Group companies are included in the current taxes position in the consolidated statement of income. Reconciliation of tax rate Net (loss) income before taxes Group’s expected weighted average tax income (charge) 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 Effect from non tax deductible goodwill impairments Other effects Group’s effective income tax (charge)/rate 2017 (1,180) 2016 2,882 142 (134) 70 (128) (53) (403) (30) (870) (143) 166 (153) 17 0 148 (536) –45% (835) +29% The Group’s expected tax expense at weighted average applicable tax rate is the result from applying the domestic statutory tax rates to net (loss) income before taxes of each entity in the country it operates. In 2017, the difference between expected and effective tax rate related mainly to impairments of assets without recognition of deferred taxes, non tax- deductible goodwill impairments, impacts of the US tax reform measures, reassessment of tax risks and changes in unrecognized tax losses carryforward. Other effects of CHF (30) million mainly include provisions for tax risks and the impact of the US tax reform as disclosed in the page 192. Excluding impairment and divestments, the Group’s expected weighted average tax rate amounts to 28.3 percent (2016: 29.5 percent) and the Group’s effective tax rate amounts to 30.5 percent (2016: 29.6 percent). In 2017, total income taxes paid amounts to CHF 1,043 million (2016: CHF 1,000 million), of which CHF 163 million (2016: 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 and 9 million included in position “Dividends paid to non-controlling interest”. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSDeferred tax in the consolidated statement of financial position as follows: Million CHF Deferred tax assets Deferred tax liabilities Deferred tax liabilities net 2017 (758) 2,345 1,587 2016 (1,060) 3,387 2,327 The Group’s deferred tax asset position is primarily the result of uncertainties regarding the future realization of recorded tax benefits on temporary differences and tax loss carryforwards from operations in various jurisdictions. Change in deferred tax asset and liabilities Million CHF 2017 2017 Deferred tax liabilities net as at January 1, 2017 Charged (credited) – to the statement of income – to other comprehensive income Divestments Reclassifications Currency translation effects Deferred tax liabilities net as at December 31, 2017 2016 2016 Deferred tax liabilities net as at January 1, 2016 Charged (credited) – to the statement of income – 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 Property, plant and equipment Intangible and other long-term assets Provisions Other Tax losses carry- forward Total 4,035 (566) 0 (72) 63 37 3,497 21 (4) 0 7 16 9 48 (732) 68 (1,064) 2,327 116 70 10 (80) (1) (155) 0 (3) (120) (54) (157) 0 58 121 (36) (766) 70 0 0 (43) (616) (264) (1,078) 1,587 4,946 124 (866) (229) (898) 3,077 (358) 0 (111) (307) (14) (120) (110) 3 0 0 0 3 229 (32) (68) 11 1 (7) 4,035 21 (732) 141 7 295 (188) 3 39 68 (11) 0 (202) 35 0 11 (109) (22) (86) (449) (10) (74) (1,064) 2,327 The Group has not recognized deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. LAFARGEHOLCIM ANNUAL REPORT 2017191192 Tax losses carryforward Million CHF Total tax losses carryforward Of which reflected in deferred taxes Total tax losses carryforward not recognized Expiring as follows: Within 1 year Between 2 and 5 years Thereafter Losses carry-forward Tax effect Losses carry-forward Tax effect 2017 10,836 (4,141) 6,695 138 550 6,006 2017 2,725 (1,078) 1,647 33 128 1,487 2016 10,843 (3,760) 7,083 97 243 6,742 2016 2,910 (1,064) 1,846 18 55 1,773 In 2017, CHF 1,647 million (2016: CHF 1,846 million) of deferred tax assets on tax losses were not recognized as the Group considers it will not generate sufficient taxable income within the carryforward period to realize these deferred tax benefits in all juridictions where the Group operates. In 2017, net deferred tax assets recognized on prior year losses amounted to CHF 227 million. Long-term income tax liabilities The long-term income tax liabilities include provisions for risks related to income tax liabilities amounting to CHF 268 million (2016: CHF 146 million) for which the Group does not expect the resolution within 12 months and the effect of the one-time repatriation tax arising from the US tax reform legislation payable over 8 years amounting to CHF 130 million. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS32 . PROVI SI O NS Million CHF January 1 PPA refinement (note 4) Change in structure 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 912 0 (9) 0 69 (58) (35) 31 0 6 916 87 829 Specific business risks 812 0 1 0 173 (98) (246) 2 (6) (5) 633 139 494 Restructuring provisions Other provisions Total 2017 Total 2016 1 365 492 2,580 0 0 0 118 (143) (52) 0 (26) 18 279 171 109 0 2 0 286 (189) (60) 3 32 (1) 564 195 369 0 (6) 0 647 (488) (392) 36 0 18 2,393 592 1,801 2,463 271 (55) (19) 572 (484) (198) 12 (38) 57 2,580 575 2,005 1 The year 2016 has been adjusted for the provisions for income tax risks which are now presented separately in the line long-term income tax liabilities. LAFARGEHOLCIM ANNUAL REPORT 2017193 194 Site restoration and other environmental provisions Site restoration and other environmental provisions represent the Group’s legal or constructive 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 633 million as of December 31, 2017 (2016: CHF 812 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 and product liabilities and are set up to cover legal and administrative proceedings. Provisions for contingent liabilities arising from business combinations amounted to CHF 192 million (2016: CHF 426 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 279 million (2016: CHF 365 million) on December 31, 2017. 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 and amounted to CHF 564 million (2016: CHF 492 million). The composition of these items is manifold and comprised, as of December 31, 2017, among other things: provisions for performance related compensation and various severance payments to employees of CHF 138 million (2016: CHF 130 million), provisions for health insurance and pension schemes, which do not qualify as benefit obligations, of CHF 17 million (2016: CHF 21 million) and provisions related to sales and other taxes of CHF 77 million (2016: CHF 17 million). The expected timing of the future cash outflows is uncertain. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS33. EMPLOYEE BENEFITS Personnel expenses and number of personnel The Group’s total personnel expenses, including social charges, are recognized in the relevant expenditure line by function in the consolidated statement of income and amounted to CHF 4,932 million (2016: CHF 5,100 million). As of December 31, 2017, the Group employed 81,960 people (2016: 90,903 people). Defined benefit pension plans The Group is managing the pension plans through the Group Pension Fund Committee. The Committee is co-chaired by Finance and Organization & Human Resources and includes as well legal and treasury specialists. The Group’s main defined benefit pension plans are located in the United Kingdom, North America and Switzerland. They respectively represent 52 percent (2016: 51  percent), 22 percent (2016: 23 percent) and 16 percent (2016: 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. Unfunded pension plans are mainly retirement indemnity schemes or end of service benefits where benefits are vested only if the employee is still employed by the Group company at the retirement date. They also include certain benefits in addition to the general and mandatory pension plans where limitations may apply. The unfunded pension plans are located largely in the United States, Canada and France. 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 2017 and 2016. – The last funding valuation for the Aggregate Industries Pension Plan was conducted as at 5 April 2015. A revised schedule of contributions setting out the deficit repayment contributions payable by the Employer was put in place with the aim of removing the funding deficit in the Plan by 5 April 2027. The next funding valuation will be conducted as at 5 April 2018. LAFARGEHOLCIM ANNUAL REPORT 2017195196 – Under the Ronez 2000 Pension Plan, there are currently no contributions being paid by the Employer following the closure of the Plan to future accrual. The Trustee is currently carrying out the actuarial valuation as at December 31, 2015. In relation to risk management and asset allocation, the Board 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 maximize 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 delegates strategy design and monitoring to an Investment Committee. 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 includes 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 investments. 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 changes in interest rates and inflation. No material plan amendment or curtailment occurred during the year. 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 are closed to new entrants and some plans are frozen to future accruals. Pensions payable to employees depend on average final salary and length of service within the Group. In 2017, for the largest US plans, annuities contracts were purchased in September for certain retirees and a lump sum window was offered in October to certain terminated vested participants leading to a net settlement gain of CHF 10 million. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSThe 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. 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 appropriate 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 interest rate movements, with those assets primarily invested in fixed income investments, particularly intermediate and longer term instruments. In 2017, a pension plan freeze was announced for all Canadian salaried employees participating in the defined benefit plan. From January 1, 2020, active members will no longer acquire further rights in this defined benefit plan. Active members will then participate in a defined contribution plan. 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 above legal requirements 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 determined 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). In 2017, a plan amendment occurred and led to a minor gain. A settlement occurred in 2016 due to a restructuring of the corporate functions in Switzerland and the settlement gain amounted to CHF 17 million. LAFARGEHOLCIM ANNUAL REPORT 2017197198 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. In 2017, a plan amendment occurred in Canada for the post-retirement benefits offered to salaried employees first eligible to retire on or after January 1, 2020. The benefits will be changed from traditional insurance to fixed dollar amounts coverage and, also for these employees, life insurance coverage will be eliminated. 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: Pension assets Defined benefit obligations Net liability 2017 1,265 288 1,553 (308) 1,861 1,553 2016 1,499 308 1,807 (271) 2,079 1,807 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSRetirement 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 Net liability from funded and unfunded plans 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) Gains on settlements 1 Net interest expense Special termination benefits Total recorded in the statement of income 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 Actuarial gains (losses) arising from changes in financial assumptions 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 Defined benefit pension plans Other post-employment benefit plans 2017 9,142 (8,596) 546 714 5 1,265 (96) 581 66 714 123 (21) (11) 41 10 142 1 42 40 59 71 (274) 8 410 (4) 211 46 1 181 (17) 2016 8,940 (8,162) 778 720 1 1,499 (30) 598 252 679 125 (16) (19) 44 12 146 9 52 29 56 11 (1,078) 90 834 0 (142) (58) 7 (21) (70) 2017 2016 0 0 0 288 0 288 0 226 0 61 2 (5) 0 11 0 9 0 6 0 3 1 (16) 21 0 0 5 0 7 0 (2) 0 0 0 308 0 308 0 244 0 64 3 0 0 12 0 16 0 12 0 4 5 (8) 3 0 0 (1) 0 5 0 (6) 1 Gains on settlements in 2017 included a settlement gain of CHF 10 million in the United States relating to annuities purchases and a lump sum window for certain beneficiaries. In 2016, it included a settlement gain of CHF 17 million resulting from a restructuring in Switzerland. LAFARGEHOLCIM ANNUAL REPORT 2017199200 Retirement benefit plans Million CHF Present value of funded and unfunded obligations Defined benefit pension plans Other post-employment benefit plans 2017 2016 2017 2016 Opening balance as per January 1 9,660 9,546 308 304 Divestments Reclassifications and other change in structure 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 Divestments Other change in structure 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 0 16 123 258 20 196 (551) (21) (111) 10 257 9,857 5,172 2,161 1,600 924 (51) 38 125 300 21 977 (538) (16) (75) 12 (680) 9,660 4,956 2,196 1,628 879 8,162 8,122 0 6 217 410 198 20 (551) (101) 234 (9) 0 256 834 229 21 (537) (55) (698) 8,596 8,162 5,272 1,580 1,534 210 4,987 1,598 1,376 201 0 (2) 2 11 0 (5) (18) (5) 0 0 (4) 288 0 226 0 61 0 0 0 0 0 18 0 (18) 0 0 0 0 0 0 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 LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSRetirement benefit plans Million CHF Plan assets based on quoted market prices: Cash and cash equivalents Equity instruments 1 Debt instruments 2 Liability-driven investments 3 Alternative investments 4 Investment in real estate occupied or used by third parties Investment funds Derivatives Plan assets based on non-quoted prices: Equity instruments Structured debt Investment funds Land and buildings occupied or used Debt instruments 2 Insurance policies Others Defined benefit pension plans 2017 2016 199 2,019 1,287 1,934 995 449 99 16 48 195 280 53 23 703 297 275 1,837 1,463 1,505 1,162 374 91 (15) 38 194 274 112 32 688 130 Total plan assets at fair value 8,596 8,162 1 Equity instruments include CHF 3 million (2016: CHF 3 million) quoted equity instruments of LafargeHolcim Ltd or subsidiaries. 2 Debt instruments include CHF 4 million (2016: CHF 5 million) quoted and CHF 0 million (2016: CHF 4 million) non-quoted debt instruments of LafargeHolcim Ltd or subsidiaries. 3 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. 4 Alternative investments include among others hedge-funds, multi-asset values and reinsurance investments. LAFARGEHOLCIM ANNUAL REPORT 2017201202 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 2017 +2.5% +2.4% 2016 +2.8% +2.3% 2017 +2.6% +3.2% 2016 +2.8% +3.3% 2017 2016 2017 2016 +3.5% +2.9% +4.0% +2.9% +0.6% +0.8% +0.7% +0.8% 22.3 22.7 23.8 23.0 22.8 22.4 22.5 23.3 Weighted average duration of defined benefit pension plans Weighted average duration in years Total Group United Kingdom North America Switzerland 2017 15.3 2016 15.6 2017 17.4 2016 17.6 2017 13.3 2016 14.3 2017 13.7 2016 14.2 Sensitivity analysis as per December 31, 2017 on defined benefit pension plans Impact on the defined benefit obligation Total Group United Kingdom North America Switzerland Million CHF Increase Decrease Increase Decrease Increase Decrease Increase Decrease Discount rate (±1% change in assumption) (1,359) 1,665 (813) 1,009 (266) 314 (197) 243 Expected salary increases (±1% change in assumption) Life expectancy in years after the age of 65 (±1 year change in assumption) 120 (105) 20 (18) 378 (365) 258 (244) 17 52 (17) (50) 19 52 (19) (60) 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) (1,334) 1,633 (772) 957 (266) 316 (207) 258 Expected salary increases (±1% change in assumption) Life expectancy in years after the age of 65 (±1 year change in assumption) 124 (108) 24 (21) 362 (358) 245 (236) 14 50 (13) (49) 20 54 (19) (61) The sensitivity analysis above may not be representative of the actual change in the defined benefit pension plans as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. 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 108 million, of which CHF 36 million related to North America, CHF 33 million related to Switzerland and CHF 18 million related to United Kingdom. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS34. SHARE COMPENSATION PLANS The total personnel expense arising from the LafargeHolcim share compensation plans amounted to CHF 20.5 million in 2017 (2016: CHF 16.6 million) as presented in the following table: Million CHF Employee share purchase plan LafargeHolcim Performance Share Plan LafargeHolcim Senior Management Plan Share option plan Liquidity mechanism for remaining Lafarge rights Total Personnel expenses 2017 Personnel expenses 2016 0.5 15.5 2.9 0.2 1.3 20.5 0.9 5.8 1.1 0.2 8.6 16.6 All shares granted under these plans are either purchased from the market or derived from treasury shares. 34.1 Description of plans Employee share purchase plan LafargeHolcim offers an employee share-ownership plan for all employees of Swiss subsidiaries 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 2017 2016 Shares Options Shares Options 1,364,703 1,559,468 610,167 747,136 926,203 0 780,003 832,320 (58,716) (169,723) (25,467) (19,988) December 31 2,232,190 1,389,745 1,364,703 1,559,468 LAFARGEHOLCIM ANNUAL REPORT 2017203204 The fair value of the plan was calculated by an independent consultant as follows: – 926,203 performance shares were granted in 2017 under the Performance Share Plan (2016: 780,003). These shares are subject to a three-year vesting period. 648,342 shares (2016: 546,002) are subject to internal performance conditions and the fair value per share is CHF 57.45 (2016: CHF 52.80). 277,861 shares (2016: 234,001) 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 26.27 (2016: CHF 21.40) using a Monte Carlo simulation; – no share options were granted in 2017 under the Performance Share Plan (2016: 832,320). These share options are subject to a three-year vesting period and internal performance conditions. In 2016, the fair value per share option had been determined using the Black- Scholes model and amounted to CHF 9.03. Underlying assumptions for the fair value of the share options granted in 2016 are presented below (no grants in 2017): 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. December 14, 2016 CHF 52.80 CHF 53.83 3.3% 28.5% 0.04% 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSShare 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 represented 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 vesting but exercise restrictions for a period of three years following the grant date. The contractual 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. 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 2014 are still under vesting period (vesting period was 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. 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 2017, the liquidity mechanism has been applied as follows: – 84,993 Lafarge S.A. shares have been purchased; – 81,833 Lafarge S.A. shares have been exchanged for 76,425 LafargeHolcim shares; and – 60,490 Lafarge S.A. options have been exercised in 2017. One Lafarge S.A. stock options plan ended in June 2017 and 442,448 unexercised Lafarge S.A. options have been lapsed. LAFARGEHOLCIM ANNUAL REPORT 2017205 206 34.2 Outstanding Share Options Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: January 1 Granted and under vesting period 2 Forfeited Exercised Lapsed December 31 Number 1 Number1 Weighted average exercise price1 2017 2016 CHF CHF CHF CHF CHF CHF 66.90 4,127,010 4,098,017 0.00 52.24 39.36 0 832,320 169,723 95,923 67,427 31,742 129.46 418,113 704,158 64.29 3,443,251 4,127,010 Of which exercisable at the end of the year 1,794,103 2,175,057 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. The weighted average share price for the options exercised in 2017 was CHF 54.08 (2016: CHF 51.40) LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSShare 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 price1 Number 1 Number1 2008 2009 2010 2010 2011 2012 2013 2014 2014 2015 (2007 2) 2015 (2008 2) 2015 (2009 2) 2015 (2010 2) 2015 (2011 2) 2015 (2012 2) 2015 2015 2015 2016 Total 2020 2017 2018 2022 2019 2020 2021 2022 2026 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 62.95 35.47 67.66 70.30 63.40 54.85 67.40 64.40 64.40 2017 2016 33,550 33,550 0 38,760 95,557 33,550 95,557 33,550 113,957 113,957 165,538 165,538 122,770 122,770 99,532 33,550 99,532 33,550 129.46 0 418,113 112.41 551,892 551,892 35.93 59.96 52.01 42.07 66.85 63.55 50.19 53.83 85,677 103,545 197,212 197,212 139,000 149,617 189,418 218,096 144,970 144,970 47,333 47,333 652,939 727,148 736,806 832,320 3,443,251 4,127,010 1 Adjusted to reflect former share splits and/or capital increases and/or scrip dividend. 2 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. The year specified between brackets is the original option grant date and the exercise price is converted from EUR to CHF at the closing rate of 1.17. LAFARGEHOLCIM ANNUAL REPORT 2017207208 35. INFORMATION ON SHAR E CAPITA L Number of registered shares December 31 Total oustanding shares Treasury shares Share buyback program Reserved for share compensation plans Total treasury shares Total issued shares Shares out of conditional share capital Reserved for convertible bonds Total shares out of conditional share capital Total shares 2017 2016 597,210,931 605,756,753 8,841,454 0 856,695 1,152,327 9,698,149 1,152,327 606,909,080 606,909,080 1,422,350 1,422,350 1,422,350 1,422,350 608,331,430 608,331,430 The par value per share is CHF 2.00. The share capital amounts to nominal CHF 1,214  million (2016: CHF 1,214 million) and the treasury shares amount to CHF 554 million (2016: CHF 72 million). In 2017, the Group initiated a share buyback program of up to a CHF 1 billion over the period 2017 and 2018. The program started on June 1, 2017 and 8,841,454 shares were purchased in 2017 for an average price of CHF 56.56. At the end of the buyback program, the Board of Directors will put a proposal to the LafargeHolcim Annual General Meeting to approve the cancellation of the repurchased shares and to reduce LafargeHolcim’s share capital accordingly. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS36. NON-CONTROL LING INTER EST 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 interest1 Net income2 Total equity 2 2017 2016 2017 2016 India India 63.9% 36.9% 63.9% 36.9% 87 56 57 48 2017 622 958 2016 561 915 Dividends paid to non-controlling interest 2017 2016 35 27 23 29 1 The non-controlling interest of these companies represents the percentage interest (direct and indirect). 2 Attributable to non-controlling interest. Set out below is the summarized financial information relating to ACC Limited and Ambuja Cements Ltd. before intercompany eliminations. ACC Limited Ambuja Cements Ltd. Statement of financial position Million CHF Current assets Long-term assets Total assets Current liabilities Long-term liabilities Total liabilities Net assets Statement of income Million CHF Net sales Net income Statement of cash flows Million CHF Cash flow from operating activities Increase (decrease) in cash and cash equivalents 2017 860 1,738 2,598 660 289 948 1,650 2017 1,977 136 2017 257 115 2016 605 1,721 2,326 508 273 782 1,545 2016 1,593 90 2016 201 63 2017 832 2,251 3,082 617 206 823 2,259 2017 1,560 176 2017 301 138 2016 609 2,228 2,837 491 209 700 2,137 2016 1,336 135 2016 252 (393) LAFARGEHOLCIM ANNUAL REPORT 2017209210 37. CONTINGENCIES, GUARANTEES, COMM ITMENTS AND CONTINGENT ASSETS 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, environmental, 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. The Group is exposed to varying degrees of uncertainty related to tax planning and regulatory reviews and audits. The Group accounts for its income taxes on the basis of its own internal analyses, supported by external advice. The Group continually monitors its global tax position, and whenever uncertainties arise, The Group assesses the potential consequences and either accrues the liability or discloses a contingent liability in its financial statements, depending on the strength of the Group’s position and the resulting risk of loss. As of December 31, 2017, the Group’s contingencies amounted to CHF 1,354 million (2016: CHF 1,155 million). The increase is mainly related to tax contingencies in various countries. Except for what has been provided for as disclosed in note 32, the company has concluded 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 business, financial result or results of operations. 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 aggregate of CHF 353 million (INR 23,106 million) for ACC and ACL. The total amount of penalties (including interests) for ACC and ACL is CHF 414 million (INR 27,057 million) as of December 31, 2017. 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 in 2016 with a financial institution by both LafargeHolcim Group companies with a lien in favor of the Compat. In May 2017, all matters pending before COMPAT were transferred to the National Company Law Appellate Tribunal (NCLAT). Hearings before the NCLAT have been completed in October 2017 and the case is reserved for judgment. It can be appealed before the Supreme Court. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSOn 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 ownership 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 22 million (BRL 76 million) was paid by Lafarge Brasil S.A. to the two dissenting shareholders. In March 2013, the two shareholders obtained a ruling from the Court of first instance ordering Lafarge Brasil S.A. to pay Maringa and Ponte Alta the difference between the amount paid for their shares at the time of the exercise of the withdrawal rights by the plaintiffs (based on book value) and the price per share calculated according to a fair market value, this value approximates CHF 108 million (BRL 366 million) as at the date of the order. Following a first unsuccessful appeal by Lafarge Brasil S.A., in September 2017, the Superior Court of Justice denied a further appeal filed by Lafarge Brasil S.A. (now merged into LafargeHolcim (Brasil) S.A.). An extraordinary appeal filed with the Supreme Court is still pending. Following the Superior Court of Justice decision, the plaintiffs are entitled to request the provisional enforcement of the Court of First Instance decision, as amended by the first appeal decision and duly updated. Following these latest developments, management has made an appropriate adjustment to its provision for this matter. In September 2011, the Parish of Saint Bernard (Louisiana) filed suit against Lafarge North America Inc. (“LNA”), alleging that a barge under contract to LNA breached the Inner Harbor Navigational Canal levee, flooding the Parish and damaging Parish-owned property. On 12 June 2017, LNA and the Parish entered into an agreement to settle the case the terms of which are confidential. Whilst LNA denies all claims against it of liability, wrongdoing or damages (as is it also stated in the settlement agreement), LNA sought to settle the case solely to avoid the uncertainties, expense, and delay inherent in continued litigation. This settlement resolves the last remaining Katrina-related litigation against LNA. The criminal proceedings in France related to the alleged dealings of Lafarge Cement Syria with terrorist organizations in the years 2013 and 2014 are currently pending with the investigating judges in Paris. Criminal investigations in France are conducted under a rule of secrecy and neither Lafarge SA nor any of its affiliates have been made a party to these proceedings as per 31 December 2017. Although there have been preliminary inquiries by authorities outside of France, including from the Swiss and US authorities, the Group is not aware of any other active government investigation at this time. The Group has completed its internal independent investigation into the alleged underlying facts under the supervision of the Board of Directors. On April 24, 2017, the Group reported on the main findings of the investigation and the remediation measures decided on by the Board of Directors. Based on the information available as of this date, there is no indication that the reported allegations are likely to result in penalties that will have an adverse financial impact that is material to the Group. There has been litigation in Hungary for a number of years related to the ownership of assets and damage compensation in the context of the privatization of one of the former Holcim cement plants in Hungary. This plant was closed a number of years ago and remains inactive. This litigation is ongoing on first instance court level and there is currently no decision on the merits. Following a procedural hearing on February 6, 2018 in one of the main cases, the evidence taking process, including hearing of experts, is currently expected to complete in the first half of 2018. LAFARGEHOLCIM ANNUAL REPORT 2017211212 Previously disclosed legal matters with no developments since last reporting period 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 150 million (BRL 508 million) as at the date of the order. As of December 31, 2017, the total amount including interests and monetary adjustment was CHF 211 million (BRL 717 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. 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 93 million (BRL 315 million) and includes any penalty and interest. The company is contesting this assessment. 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 36 million (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 72 million (IDR 1 trillion) due to additional penalties charged for the appeal. Guarantees At December 31, 2017, the Group’s guarantees issued in the ordinary course of business amounted to CHF 873 million (2016: CHF 809 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 companies 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, 2017, the Group’s commitments amounted to CHF 1,577 million (2016: CHF 1,707 million) and included CHF 1,303 million (2016: CHF 1,448 million) related to the purchase of various products, inventories and services and CHF 274 million (2016: CHF 259 million) related to the purchase of property, plant and equipment. Contingent assets A contingent asset is a possible asset that arises from past events, which existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. At December 31, 2017, the total contingent assets for various claims in favor of the Group amounted to CHF 126 million (2016: CHF 2 million) and are valued at the maximum potential recoverable amount. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS38 . ADD ITIO NAL CASH FLOW INFORMATION Cash flow from operating activities - analysis of change in net working capital items Million CHF (Increase) in inventories (Increase)/Decrease in trade accounts receivable (Increase) in other receivables excluding financial and income tax receivables Increase in trade accounts payables (Decrease) in liabilities excluding financial and income tax liabilities Change in net working capital 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 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 Total disposal of financial assets, intangible and other assets and businesses net (b) Total cash flow from investing activities (a + b) 1 As reported in 2016, not restated due to change in presentation. 2017 (272) (379) (88) 360 (546) (925) 2016 1 (19) 1 (22) 99 (752) (694) 2017 2016 1 (1,048) 167 (881) (474) (1,355) 55 858 (5) (341) (347) 22 91 113 679 (675) (1,134) 137 (997) (638) (1,635) (4) 2,245 (7) (395) (402) 283 220 503 2,342 706 LAFARGEHOLCIM ANNUAL REPORT 2017213214 Cash flow from acquisitions and disposals of Group companies Acquisitions Disposals Million CHF Cash and cash equivalents Assets classified as held for sale Other current assets Property, plant and equipment Other assets Bank overdrafts Other current liabilities Long-term provisions Other long-term liabilities Net assets Non-controlling interest Net assets (acquired) disposed Goodwill (acquired) disposed Fair value of previously held equity interest Net gain on disposals 2016 Total 2017 Total (59) (73) (353) (28) 253 10 256 7 (3) 4 (27) 20 Total (purchase) disposal consideration (3) Purchase consideration in the form of shares Acquired (disposed) cash and cash equivalents 59 Tax and disposal costs paid Deferred consideration Net cash flow 55 (4) (4) 2017 1 Total 86 355 868 161 (457) (40) (297) 676 (115) 561 88 285 934 (86) (174) 185 858 2016 Total 153 746 497 1,654 108 (160) (453) (102) (383) 2,061 (165) 1,896 266 511 2,673 (265) 6 (140) (28) 2,245 1 Include among others the disposals of operations in China, Vietnam and Chile classified as held for sale at the end of 2016, 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. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS39. TRANSACTIONS AND R ELATIONS WITH MEMB ER S OF THE BOARD OF DIRE CTOR S AND EXECUTIVE COMM IT TEE Key management compensation Board of Directors In 2017, fifteen non-executive members of the Board of Directors received in total a remuneration of CHF 5.5 million including mandatory Social Security payments (2016: CHF 5.4 million when including CHF 0.8 million paid to one former Board Member having left during 2016) of which CHF 3.2 million (2016: CHF 3.1 million) was paid in cash, CHF 0.1 million (2016: CHF 0.1 million) in the form of social security contributions, and CHF 2.0 million (2016: CHF 1.9 million) in shares. Other compensation paid totaled CHF 0.2 million (2016: CHF 0.2 million). These amounts include an additional fee of CHF 350,000 for the Chairman for the additional time commitment involved in organizing the CEO succession. Executive Committee Compensation for the members of the Executive Committee amounted to CHF 32.3 million (2016: CHF 36.9 million). This amount comprises base salaries and variable compensation of CHF 15.8 million (2016: CHF 21.3 million), share-based compensation of CHF 11.7 million (2016: CHF 10.3 million), employer contributions to pension plans of CHF 4.8 million (2016: CHF 5.3 million). Compensation for former members of governing bodies During 2017, compensation in the amount of CHF 7.8 million was paid to four former members of the Executive Committee. Loans granted to members of governing bodies As at December 31, 2017, there were no loans outstanding to members of the Executive Committee. There were no loans to members of the Board of Directors or to parties closely related to members of governing bodies. 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. In 2016 and 2017, the company did not purchase any LafargeHolcim Ltd share from members of the Executive Committee. 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. LafargeHolcim has two indemnification claims contingent on the approval of OCI under the indemnification guarantees. 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. There are no outstanding balances under this agreement as at December 31, 2017. LAFARGEHOLCIM ANNUAL REPORT 2017215216 40. EVENTS AFTER THE REPOR TING P ER IOD In connection with the streamlining of its operations in China, as explained in detail in note 4, the Group reacquired the shares of the two consolidated cement companies Dujiangyan Cement Co., Ltd and of Jiangyou LafargeHolcim Shuangma Cement Co., Ltd on February 9, 2018 and extinguished the remaining liability. A settlement agreement related to the minority shareholders case in Brazil as described in note 37 was signed on February 28, 2018 between the parties. This settlement resolves the litigation and is adequately provisioned with no further material impact expected. The share buyback program is discontinued with CHF 581 million completed. 41. AUTHORIZATION OF THE FINA NCIA L STATEM ENTS FOR ISSUANCE The consolidated financial statements were authorized for issuance by the Board of Directors of LafargeHolcim Ltd on March 1, 2018 and are subject to shareholder approval at the annual general meeting of shareholders scheduled for May 8, 2018. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS42 . PRI NCIPA L CO MPAN IES OF THE GROUP Principal operating Group companies Region Company Asia Pacific Holcim (Australia) Holdings Pty Ltd Holcim Cement Bangladesh Ltd LafargeHolcim Bangladesh Limited 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 Latin America Holcim (Argentina) S.A. LafargeHolcim (Brasil) 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 Argentina Brazil 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 construc- tion mate- rials and services Effective partici- pation (percent- age of interest) Listed company Cement Aggre- gate u l 100.0% 100.0% 29.4% u l 100.0% 75.0% 36.1% 63.1% 80.6% 80.6% 51.0% 51.0% 100.0% 75.3% 90.8% 51.0% 79.6% 99.9% 99.8% 65.6% 92.2% 95.4% 69.7% 100.0% 52.5% l l l l l l l l l l l l l l u u u u u u u u u u n n n n n n n n n n n n n n n n n n n n n n X X X X X X X X X LAFARGEHOLCIM ANNUAL REPORT 2017217218 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. 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. LLC Holcim (Rus) CM JSC Lafarge Cement Lafarge Beocinska Fabrika Cementa Lafarge Cement d.o.o Holcim (España) S.A. Holcim Trading S.A. Lafarge Aridos y Hormigones, S.A.U. Lafarge Cementos, S.A.U. Holcim (Schweiz) AG LH Trading Ltd Place Austria Azerbaijan Belgium Bulgaria Croatia Czech Republic France France France France Germany Germany Greece Hungary Italy Moldova Poland Poland Romania Russia Russia Serbia Slovenia Spain Spain Spain Spain Switzerland Switzerland Klesivskiy Karier Nerudnykh Kopalyn “Technobud” Ukraine Aggregate Industries Ltd. Lafarge Cauldon Limited United Kingdom United Kingdom Cement Aggre- gate Other construc- tion mate- rials and services Listed company Effective partici- pation (percent- age of interest) 70.0% 90.2% 100.0% 100.0% 99.9% 68.0% l l l 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 u u l 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 70.0% l l l 100.0% l l l 95.3% 100.0% 100.0% 99.7% 100.0% 90.5% l 100.0% l l l l l 70.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 65.0% l 100.0% 100.0% LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSRegion 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” Cilas Spa Lafarge Cement Egypt S.A.E. Lafarge Ready Mix S.A.E. Bazian Cement Company Limited Karbala Cement Manufacturing Ltd 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. Lafarge Industries South Africa (Pty) Ltd Lafarge Mining South Africa (Pty) Ltd Mbeya Cement Company Limited Hima Cement Ltd. Lafarge Cement Zambia Plc Lafarge Cement Zimbabwe Limited Other construc- tion mate- rials and services Effective partici- pation (percent- age of interest) l 100.0% Listed company l l l 100.0% 100.0% 100.0% 100.0% 99.5% 100.0% 99.5% 49.0% 97.4% l 100.0% l l l l l l 70.0% 51.0% 60.0% 50.3% 58.6% 52.1% 100.0% 100.0% 58.4% 76.3% 76.3% 76.3% 76.3% 61.5% 71.0% 75.0% 76.5% X X X X X X 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 Place Canada USA USA USA Algeria Algeria Algeria Algeria Algeria Egypt Egypt Iraq Iraq Iraq Jordan Kenya Lebanon La Réunion Malawi Mauritius Nigeria Nigeria South Africa South Africa Tanzania Uganda Zambia Zimbabwe LAFARGEHOLCIM ANNUAL REPORT 2017219220 Listed Group companies Region Company Domicile Place of listing Market capitalization at December 31, 2017 in local currency Security code number Asia Pacific LafargeHolcim Bangladesh Limited Bangladesh ACC Limited Ambuja Cements Ltd. India India Chittagong/ Dhaka Mumbai Mumbai BDT INR 81,180 million BD0643LSCL09 330,205 million INE012A01025 INR 540,195 million INE079A01024 PT Holcim Indonesia Tbk. Indonesia Jakarta IDR 6,398,522 million ID1000072309 Lafarge Malaysia Berhad Malaysia Kuala Lumpur Holcim Philippines Inc. Philippines Manila Latin America Holcim (Argentina) S.A. Argentina Buenos Aires Holcim (Costa Rica) S.A. Costa Rica San José Middle East Africa Holcim (Ecuador) S.A. Ecuador Jordan Cement Factories Company P.S.C. Bamburi Cement Limited Holcim (Liban) S.A.L. Lafarge Africa Plc. Jordan Kenya Lebanon Nigeria Lafarge Cement Zambia Plc Zambia Quito, Guayaquil Amman Nairobi Beirut Lagos Lusaka MYR PHP ARS CRC 5,268 million MYL3794OO004 69,554 million PHY3232G1014 27,038 million ARP6806N1051 145,815 million CRINC00A0010 USD 1,372 million ECP516721068 JOD KES USD NGN ZMW 73 million JO4104211019 65,333 million KE0000000059 282 million LB0000012833 250,297 million NGWAPCO00002 1,250 million ZM0000000011 Lafarge Cement Zimbabwe Limited Zimbabwe Harare USD 112 million ZW0009012056 Principal joint ventures and associated companies Region Asia Pacific Middle East Africa Company Cement Australia Holdings Pty Ltd Huaxin Cement Co. Ltd. Lafarge Maroc SA Readymix Qatar W.L.L. Lafarge Emirates Cement LLC Country of incorporation or residence Australia China Morocco Qatar United Arab Emirates Effective participation (percentage of interest) 50.0% 41.8% 50.0% 49.0% 50.0% LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSPrincipal 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. 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. LafargeHolcim Sterling Finance B.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 Holcim Group Services Ltd Holcim Technology 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. Place Australia Australia Belgium Belgium Bermuda Bermuda Bermuda France France France France Germany Germany Luxembourg Luxembourg Mauritius Mexico Netherlands Netherlands Netherlands Spain Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom USA USA Effective 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% 100.0% 100.0% LAFARGEHOLCIM ANNUAL REPORT 2017221222 TO THE GENER AL MEETING OF LAFARGEHOLCIM LTD, R APPERSWIL-JONA Zurich, March 1, 2018 REPORT ON THE AUDIT OF THE CONSOLIDATED FINA NC IAL STATE ME NT S Opinion We have audited the consolidated financial statements of LafargeHolcim Ltd and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2017 and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and 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 121 to 221) give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, 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 Auditing (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. A summary of our Audit Approach Audit scope – We scoped our audit of component operations based on the significance of account balances and significant risks. – We gained sufficient and appropriate coverage of the Group. Group materiality Key audit matters – Coverage details are provided on page 228. – CHF 114.6 million – 5% of normalised 2-year average profit before tax – Goodwill – Property, plant and equipment – Taxation – Litigation LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSKey audit matters Key audit matters are those matters that, in our professional judgment, were of most sig- nificance 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. Goodwill Key audit matter The Group’s balance sheet includes CHF 14,569 million of goodwill, representing 22.9% of total Group assets. In accordance with IFRS, these balances are allocated to Cash Generating Units (CGUs) which are tested annually for impairment using discounted cash flow models to determine the recoverable values of the CGUs, which is compared to the carry value of the net assets of the CGUs, including goodwill. A deficit in recoverable value compared with the carrying amount would result in an impairment. The annual impairment testing of goodwill for impairment is considered a key audit matter because the assumptions on which the tests are based are highly judgemental and affected by future market conditions, which are inherently uncertain, and because of the materiality of the balances taken as a whole. Refer to Note 26 for key assumptions used in goodwill impairment testing. In assessing the recoverable value of goodwill, management is required to estimate future cash flows. In determining future cash flows management is required to make assumptions relating to future profitability, including revenue growth and operating margins, and the determination of an appropriate discount rate. The outcome of the impairment assessments could vary significant if different judgements are applied. Refer to Note 26 for Impairment test of goodwill. In total, impairments amounting to CHF 1,821 million were recognised against goodwill – refer to Note 26. LAFARGEHOLCIM ANNUAL REPORT 2017223224 How the scope of our audit responded to the key audit matter We considered the controls implemented by management in testing for impairment and the judgements in determining the CGUs to which goodwill is allocated. We focused our audit effort based on assessing the risk of goodwill being impaired, which was based on the level of headroom of the recoverable value over carrying value of the CGUs. We utilised Deloitte valuation specialists to develop independent discount rates and compared these from external market data and compared this to management estimates for the discount rate and country risk premium. For all CGUs selected for detailed testing, we benchmarked key operating assumptions in the models to historical performance and benchmarked demand growth assumptions to external growth forecasts and supply growth to industry reports and recent historical trends, particularly with respect to export/import volumes and met with Senior Management at the CGU level. We checked the mechanical accuracy of the discounted cash flow models and the extraction of inputs from source documents. We challenged management’s sensitivity analyses and performed our own sensitivity calculations, where the headroom was limited, to assess the level of excess of recoverable value against the carrying amount of the CGU. We considered the adequacy of management’s disclosures in respect to impairment testing and whether the disclosures appropriately disclose the underlying sensitivities. Our procedures found the discounted cash flow models of the CGUs to be supported by appropriate inputs and assumptions. We concluded that discount rate assumptions were in line with third party evidence and our expert’s acceptable ranges. We reviewed management’s disclosures on key assumptions and sensitivities and found them to be appropriate. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSProperty, plant and equipment Key audit matter How the scope of our audit responded to the key audit matter Significant judgement is involved in assessing property, plant & equipment for impairment. Property plant and equipment is tested at a CGU level. The CGUs are tested when a trigger for impairment is identified. Impairment testing is undertaken using discounted cash flow models to determine the recoverable values of the CGUs, which is compared to the carry value of the non-current assets of the CGUs. A deficit in recoverable value compared with the carrying amount would result in an impairment. Due to the size of the impairment amounting to CHF 1,690 million (refer to Note 25) as well as the nature of key assumptions and the fact that the outcome of the impairment assessment could vary significantly were different assumptions applied – (refer to note 26 for the key assumptions) the impairment of property, plant and equipment is a key audit matter. The key judgements are assumptions made by management in developing the discounted cash flows is similar to that noted above for goodwill impairment testing. We considered the controls implemented by management in testing for impairment and the judgements in determining the CGUs to which property, plant and equipment is tested for impairment. We tested the key assumptions and inputs in the discounted cash flow models similar to that applied above for goodwill impairment testing. Our procedures found the discounted cash flow models of the CGUs supported by appropriate inputs and assumptions. We concluded that discount rate assumptions were in line with third party evidence and our expert’s acceptable ranges. We reviewed management’s disclosures on key assumptions and sensitivities and found them to be appropriate. LAFARGEHOLCIM ANNUAL REPORT 2017225226 Taxation Key audit matter How the scope of our audit responded to the key audit matter There is significant judgement in accounting for income taxes, particularly given the large number of jurisdictions in which the Group operates and exposures to numerous different tax laws around the world. This gives rise to complexity and uncertainty in respect of the calculation of income taxes, deferred tax positions, as well as the assessment of provisions for uncertain tax positions, including estimates of interest and penalties where appropriate. As at 31 December 2017, the Group has recorded a tax expense of CHF 536 million, CHF 1,587 million Deferred tax liabilities net (refer to Note 31) , CHF 765 million Current income tax liabilities and CHF 398 million Long-term income tax liabilities. Due to their significance to the financial statements as a whole, combined with the judgment and estimation required to determine their values, the evaluation of current and deferred tax balances is considered to be a key audit matter. We discussed with management the adequate implementation of Group policies and controls regarding current and deferred tax, as well as the reporting of uncertain tax positions. We evaluated the design and implementation of controls in respect of provisions for current tax and the recognition and recoverability of deferred tax assets. We examined the procedures in place for the current and deferred tax calculations for completeness and valuation and audited the related tax computations and estimates in the light of our knowledge of the tax circumstances. Our work was conducted with the support of our tax specialists. We performed an assessment of the material components impacting the Group’s tax expense, balances and exposures, including the impact of the United States of America tax reform. We reviewed and challenged the infor- mation reported by components with the support of our own local tax specialists, where appropriate. With the support of our tax specialists at group level, we verified the consolidation and analysis of tax balances. We considered management’s assessment of the validity and adequacy of provisions for uncertain tax positions, evaluating the basis of assessment and reviewing relevant correspondence and legal advice where available including any information regarding similar cases with the relevant tax authorities. In respect of deferred tax assets and liabilities, we assessed the appropriateness of management’s assumptions and estimates, including the likelihood of generating sufficient future taxable income to support deferred tax assets for tax losses carried forward as disclosed in Note 31 of CHF 1,078 million. We validated the appropriateness and completeness of the related disclosures in Note 31 to the consolidated financial statements. Based on the procedures performed above, we obtained sufficient audit evidence to corroborate management’s estimates regarding current and deferred tax balances and provisions for uncertain tax positions. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSLitigation Key audit matter How the scope of our audit responded to the key audit matter The Group operates in multiple jurisdictions, exposing it to a variety of different laws, regulations and interpretations thereof. In this environment, there is an inherent litigation risk. In the normal course of business, provisions and contingent liabilities may arise from legal proceedings, including anti- trust, regulatory and other governmental proceedings, as well as investigations by authorities and commercial claims. At 31 December 2017, the Group held legal provisions of CHF 633 million. Given the highly complex nature of regulatory and legal cases, management applies significant judgement when considering whether, and how much, to provide for the potential exposure of each matter. These estimates could change substantially over time as new facts emerge and each legal case progresses. Given the complexity and magnitude of potential exposures across the Group, and the judgement necessary to determine required disclosures this is a key audit matter. We discussed the status of significant known actual and potential litigation with the Head of Legal and Compliance, other management and directors who have knowledge of these matters. We challenged the decisions and rationale for provisions held or for decisions not to record provisions or make disclosures. For the most significant of the matters, we assessed relevant historical and recent judgments passed by the court authorities and consid- ered legal opinion obtained by management from external lawyers to challenge the basis used for the provisions recorded and the disclosures made by the Group. We reviewed internal reports and met with Internal Audit to identify actual and potential noncompliance with laws and regulations, both those specific to the Group’s business and those relating to the conduct of business generally. For those matters where management concluded that no provisions should be recorded, we also considered the adequacy and completeness of the Group’s disclosures made in relation to contingent liabilities. Based on the procedures performed above, we obtained sufficient audit evidence to corroborate management’s estimates for legal provisions and disclosures in Note 37 relating to contingencies. LAFARGEHOLCIM ANNUAL REPORT 2017227228 Other matters The consolidated financial statements of the Group for the year ended 31 December 2016 were audited by another auditor whose report, dated 1 March 2017, expressed an unqualified opinion on those financial statements. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement we determined materiality for the Group as a whole to be CHF 114.6 million, based on a calculation of 5% of normalised 2-year average profit before tax for 2016 and 2017. The materiality applied by the component auditors ranged from CHF 3.4 million to CHF 65.3 million depending on the scale of the component’s operations, the component’s contribution to Group profit before tax and our assessment of risks specific to each location. We agreed with the Finance & Audit Committee that we would report to the committee all audit differences in excess of CHF 5.7 million, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Finance & Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including groupwide controls, and assessing the risks of material misstatement at the Group level. Based on our continuing assessment, we focused our Group audit scope primarily on the audit work at 26 components, representing the Group’s most material country operations, and utilised 26 component audit teams in 24 countries. All 26 components were subject to full scope audits, where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group’s operations at those locations. These 26 components represent the principal business units and account for 72% of the Group’s net assets, 85% of the Group’s net sales and 89% of the Group’s EBITDA. At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material mis- statement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances. The Group audit team continued to follow a programme of planned visits that has been de- signed so that a senior member of the Group audit team visits each of the locations where the Group audit scope was focused. Where we have not visited a significant component we included the component audit team in our team briefing, discussed their risk assessment, and reviewed documentation of the findings from their work. LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTSNet sales EBITDA Net assets 15% 11% 28% 85% 89% 72% n Full audit scope n Review at group level 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 standalone financial statements of the Company upon which we issue a separate Statutory Auditor’s report, the Compensation Report from pages 84 to 106 and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other information 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 misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. LAFARGEHOLCIM ANNUAL REPORT 2017229230 Responsibility of the Board of Directors for the Consolidated Financial Statements The Board of Directors is responsible for the preparation of the financial statements in ac- cordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the entity’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 entity or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial 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 misstatement 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://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 paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation 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. Deloitte AG David Quinlin Licensed Audit Expert Auditor in charge Frédéric Gourd LAFARGEHOLCIMCONSOLIDATED FINANCIAL STATEMENTS HOLDING COMPANY RESULTS LAFARGEHOLCIM ANNUAL REPORT 2017231232 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 2017 5,736 197 258 6,191 (16) (51) (649) (5,030) (17) (5,763) 428 2016 5,910 214 11 6,135 (32) (50) (729) (5,203) 0 (6,014) 120 LAFARGEHOLCIMHOLDING COMPANY RESULTSStatement 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 Other current receivables – Third parties Accrued income and prepaid expenses – Third parties Current assets Long-term financial receivables – 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 Total liabilities and shareholders’ equity Notes 31.12.2017 31.12.2016 175 0 234 32 1 1 443 2,732 36,875 3 39,610 40,053 1,380 450 598 31 2,459 1,246 1,100 2,346 4,805 1,214 334 2 91 45 0 2 474 4,246 36,428 4 40,678 41,152 173 400 565 60 1,198 1,888 1,550 3,438 4,636 1,214 20,412 21,624 2,531 0 2,531 0 11,222 11,102 428 (559) 35,248 40,053 120 (75) 36,516 41,152 7 8 9 10 11 16 12 LAFARGEHOLCIM ANNUAL REPORT 2017233234 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: fewer than ten employees). 1. ACCOUNTING POL ICIES 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. 2. PRINCIPAL EXCHA NGE RATES 1 Euro 1 US Dollar 1 British Pound 1 Australian Dollar 1 Canadian Dollar 100 Mexican Peso 1 Brazilian Real 1 New Zealand Dollar 1 Polish Zloty EUR USD GBP AUD CAD MXN BRL NZD PLN Statement of income Average exchange rates in CHF Statement of financial position Closing exchange rates in CHF 2017 1.11 0.98 1.27 0.75 0.76 5.22 0.31 0.70 0.26 2016 31.12.2017 31.12.2016 1.09 0.98 1.33 0.73 0.74 5.28 0.28 0.69 0.25 1.17 0.98 1.32 0.76 0.78 4.96 0.29 0.69 0.28 1.07 1.02 1.26 0.74 0.76 4.93 0.31 0.71 0.24 LAFARGEHOLCIMHOLDING COMPANY RESULTS3. DIVIDEN D INCOME – GR OUP COMPA NIES Million CHF LafargeHolcim Continental Finance Ltd LafargeHolcim International Finance Ltd Holdertrade Ltd Holchile S.A. Holcim Participations (US) Inc. Aggregate Industries Europe Holcim Finance (Canada) Inc. Holderfin B.V. Lafarge S.A. Cesi S.A. Holcim Group Services Ltd Total 4. OTHER OPERATIONAL INCOM E Million CHF Branding and trademark fees Foreign exchange gains Total 5. OTHER OPERATIONAL EXPENSES Million CHF Board of Director fees Stewardship, branding and project expenses Administrative expenses Foreign exchange losses Total 2017 1,044 1,509 65 13 893 0 1 147 2,064 0 0 5,736 2017 0 258 258 2017 (6) (369) (12) (262) (649) 2016 5,708 0 0 0 0 20 0 0 0 168 14 5,910 2016 1 10 11 2016 (6) (612) (20) (91) (729) LAFARGEHOLCIM ANNUAL REPORT 2017235236 6. IMPAIRMENT OF FINANCIA L INVESTM ENTS – GR OUP COMPANIES Million CHF Lafarge S.A. LafargeHolcim Continental Finance Ltd LafargeHolcim International Finance Ltd Cemasco B.V. Holchil Limited Total 2017 (3,218) (952) (840) (19) (1) 2016 0 (5,203) 0 0 0 (5,030) (5,203) 7. LONG-TE RM FINANCIAL RECEIVAB L ES – G ROU P COM PANIES Million CHF Fernhoff Ltd. Cemasco B.V. Heracles General Cement Company S.A. Lafarge Cement Polska S.A. Holcim (US) Inc. Holcim Participations (US) Inc. Holcim (Schweiz) AG LafargeHolcim International Finance Ltd LafargeHolcim Albion Finance Ltd Holdertrade Ltd Total 31.12.2017 31.12.2016 62 10 62 255 117 132 855 1,143 0 96 63 0 0 0 0 322 885 2,932 13 31 2,732 4,246 8. FINANCIAL INVESTMENTS – G ROUP COMPA NIES The principal direct and indirect subsidiaries and other holdings of LafargeHolcim Ltd are shown in note 42 to the Group’s consolidated financial statements. 9. INTEREST BEARING SHORT-TERM FINANCIAL LIABILITIES – THIRD PARTIES Million CHF 4.00% fixed, Bond, 2009–2018 –0.53% floating, Bond swapped into floating interest rates at inception, 2007–2017 Total 31.12.2017 31.12.2016 450 0 450 0 400 400 LAFARGEHOLCIMHOLDING COMPANY RESULTS10. INTEREST BEA RING LONG-TERM FINANCIAL LIA BIL ITIES – GROUP COMPANIES Million CHF LafargeHolcim International Finance Ltd LafargeHolcim Helvetia Finance Ltd LafargeHolcim Continental Finance Ltd Total 31.12.2017 31.12.2016 10 581 655 1,454 434 0 1,246 1,888 11. INTEREST BEA RING LONG-TERM FINANCIAL LIA BIL ITIES – THIRD PARTIES Million CHF 4.00% fixed, Bond, 2009–2018 3.00% fixed, Bond, 2012–2022 2.00% fixed, Bond, 2013–2022 1.00% fixed, Bond, 2015–2025 0.38% fixed, Bond, 2015–2021 Total 31.12.2017 31.12.2016 0 450 250 150 250 450 450 250 150 250 1,100 1,550 12 . M OV EMENT I N TREAS URY S HARES Number held by LafargeHolcim Ltd Million CHF Price per share in CHF Number held by subsidiaries Reserve for treasury shares held by subsidiaries in Million CHF Price per share in CHF 01.01.2017 Opening 1,152,327 75 64.7 2017 2017 2017 31.12.2017 01.01.2016 2016 2016 31.12.2016 Purchases share buyback program Other purchases Sales Closing Opening Purchases Sales Closing 8,841,454 11 (295,643) 9,698,149 1,119,339 289,544 (256,556) 1,152,327 500 0 (16) 559 73 12 (10) 75 56.6 55.3 53.5 57.6 65.3 40.3 40.0 64.7 0 0 0 0 0 219,155 150,000 (369,155) 0 0 0 0 0 0 13 7 (20) 0 0.0 0.0 0.0 0.0 0.0 58.1 46.2 53.2 0.0 In 2017, the Group initiated a share buyback program for a total up to a maximum amount of CHF 1 billion over the period 2017 and 2018. The program started on June 1, 2017 and 8,841,454 shares were purchased in 2017 for an average price of CHF 56.56. LAFARGEHOLCIM ANNUAL REPORT 2017237238 13 . CON TINGENT LIAB ILITIE S Million CHF 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 7.78% MXN 2,000 million bonds due in 2018 7.00% MXN 1,700 million bonds due in 2019 8.01% 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 3.50% AUD 300 million bonds due in 2022 Holcim Finance (Belgium) S.A. Commercial Paper Program, guarantee based on utilization, EUR 3,500 million maximum Holcim Finance (Luxembourg) S.A. – Guarantees in respect of holders of 6.35% EUR 200 million bonds due in 2017 0.72% EUR 209 million Schuldschein loans due in 2021 1.04% EUR 413 million Schuldschein loans due in 2021 0.92% 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 1.75% EUR 750 million bonds due in 2029 31.12.2017 31.12.2016 77 269 269 109 93 93 0 168 210 252 0 0 269 531 32 1,478 195 643 42 1,478 964 81 281 281 109 92 92 203 162 203 0 215 236 247 488 30 1,359 180 591 39 1,359 0 LAFARGEHOLCIMHOLDING COMPANY RESULTSMillion CHF 31.12.2017 31.12.2016 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. – Guarantees in respect of holders of 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 3.01% USD 121 million Schuldschein loans due in 2021 2.80% USD 40 million Schuldschein loans due in 2021 3.21% 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 LafargeHolcim Sterling Finance (Netherlands) B.V. 3.00% GBP 300 million bonds due in 2032 Guarantees for committed credit lines, utilization CHF 0 million (2016: CHF 0 million) Other guarantees 0 468 195 806 643 54 537 130 43 27 16 430 645 435 6,229 0 414 468 204 843 591 56 562 136 45 28 17 450 674 0 5,619 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. LAFARGEHOLCIM ANNUAL REPORT 2017239240 14. SHARE INTERESTS OF BOARD OF DIRECTOR S A ND SENIOR MANAG EM EN T Shares and options owned by Board of Directors As of December 31, 2017, the members of the Board of Directors of LafargeHolcim Ltd held directly and indirectly in the aggregate 94,528,975 registered shares (2016: 98,323,773 registered shares) and no rights to acquire further registered shares and 10,000,000 call options on registered shares (2016: 443,086 call options on registered shares). Number of shares and options held by the Board of Directors as of December 31, 2017 1 Name Beat Hess Position Chairman Oscar Fanjul Vice-Chairman Bertrand Collomb Paul Desmarais, Jr. Patrick Kron Gérard Lamarche Adrian Loader Jürg Oleas Nassef Sawiris Thomas Schmidheiny Hanne Sørensen Dieter Spälti Total Board of Directors Member Member Member Member Member Member Member Member Member Member Number of shares and options held by the Board of Directors as of December 31, 2016 1 Name Beat Hess Position Chairman Bruno Lafont Co-Chairman Bertrand Collomb Philippe Dauman Paul Desmarais, Jr. Oscar Fanjul Alexander Gut Member Member Member Member Member Gérard Lamarche Member, Finance and Audit Committee Chairman Adrian Loader Jürg Oleas Member Member Total number of shares 2017 Total number of call options 2017 17,419 7,758 116,065 38,943 0 4,066 16,739 3,397 25,180,203 10,000,000 69,072,527 6,776 65,082 94,528,975 10,000,000 Total number of shares 2016 Total number of call options 2016 443,086 8,792 44,939 121,673 1,129 37,086 5,901 8,161 2,209 14,882 2,314 Nassef Sawiris Member, Nomination, Compensation & Governance Committee Chairman 28,938,346 Thomas Schmidheiny Hanne Sørensen Member Member Dieter Spälti Member, Strategy and Sustainable Development Committee Chairman 69,070,670 4,920 62,751 Total Board of Directors 98,323,773 443,086 1 From allocation, shares are subject to a five-year sale and pledge restriction period. LAFARGEHOLCIMHOLDING COMPANY RESULTSShares and options owned by Senior Management As of December 31, 2017, members of Senior Management held a total of 209,225 registered shares (2016: 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 2017, Senior Management held a total of 919,834 share options (2016: 1,018,088 share options) and 605,372 performance shares (2016: 393,825 performance shares); both of 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, 2017 Name Jan Jenisch 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 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 2017 120,000 5,649 13,116 8,057 39,288 4,094 11,240 1,474 1,784 4,523 Total number of call options 2017 80,000 113,217 122,115 86,574 195,927 52,353 140,614 36,410 27,308 65,316 Total number of performance shares 2017 126,868 77,655 49,416 56,351 67,655 38,026 76,760 40,009 27,231 45,401 Total Senior Management 209,225 919,834 605,372 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 Total number of call options 2016 Total number of performance shares 2016 23,499 2,101 10,399 4,857 34,581 3,100 8,222 0 887 5,072 92,718 262,054 113,217 122,115 70,857 198,208 45,410 77,193 36,410 27,308 65,316 117,924 50,543 32,163 31,632 40,543 20,354 34,460 22,756 14,291 29,159 1,018,088 393,825 LAFARGEHOLCIM ANNUAL REPORT 2017241242 15. SIGNIFICANT SHAR EHOL DERS 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 69,072,527 shares or 11.4 percent as per December 31, 2017 (2016: 69,070,670 shares or 11.4 percent)¹; – Groupe Bruxelles Lambert holds 57,238,551 shares or 9.4 percent as per December 31, 2017 (2016: 57,238,551 shares or 9.4 percent); – NNS Jersey Trust holds 25,180,203 shares or 4.1 percent and additionally 10,000,000 options or 1.7 percent, total of 5.8 percent as per December 31, 2017 (2016: 28,938,346 shares or 4.8 percent)²; – Harris Associates L.P. declared holdings of 30,446,532 shares or 5.0 percent on October 25, 2017 (August 15, 2016: 30,285,539 shares or 5.0 percent). Harris Associates Investment Trust declared holdings of 18,332,272 shares or 3.0 percent on October 6, 2017; – BlackRock Inc. declared holdings of 18,725,934 shares or 3.1 percent on May 12, 2017 (January 6, 2017: 18,343,270 shares or 3.0 percent). 1 Included in share interest of Board of Directors. 2 Included in share interest of Board of Directors, ultimate beneficial owner Nassef Sawiris. LAFARGEHOLCIMHOLDING COMPANY RESULTS16. SHARE CAPITAL Shares Number Million CHF Number Million CHF 2017 2016 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 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 11,222 428 11,650 1,214 1,214 11,102 120 11,222 Balance to be carried forward 11,650 11,222 Payout from capital contribution reserves The Board of Directors proposes to the annual general meeting of shareholders an appropriation from statutory capital reserves to voluntary retained earnings and payout of CHF 2.00 per registered share up to an amount of CHF 1,196 million¹. Payout per share, gross Less withholding tax Payout per share, net 2017 2016 Cash payout CHF Cash payout CHF 2.00 0 2.00 2.00 0 2.00 1 There is no payout on treasury shares held by LafargeHolcim. On January 1, 2018 treasury holdings amounted to 9,698,149 registered shares of which 8,841,454 shares have been acquired within the share buyback program. LAFARGEHOLCIM ANNUAL REPORT 2017243244 TO THE GENER AL MEETING OF LAFARGEHOLCIM LTD, R APPERSWIL-JONA Zurich, March 1, 2018 REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of LafargeHolcim Ltd, which comprise the balance sheet as at as at 31 December 2017 and the income statement and notes for the year then ended, including a summary of significant accounting policies. In our opinion the financial statements as at 31 December 2017, presented on pages 231 to 243 comply with Swiss law and the company’s articles of incorporation. Basis for opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are inde- pendent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession 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. 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 sig- nificance 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. LAFARGEHOLCIMHOLDING COMPANY RESULTSFinancial investments – Group companies Key audit matter As described in Note 8 to the financial statements, the Group holds investments in LafargeHolcim Group companies with a carrying value of CHF 36,875 million as of 31 December 2017, representing 92.1% of total assets. How the scope of our audit responded to the key audit matter In accordance with Article 960 CO, each investment held is usually valued individually and reviewed annually for impairment indicators. Each investment showing impairment indicators must be tested for impairment and an impairment would need to be recorded if the recoverable amount is lower than the carrying amount. The impairment test performed by management is subject to judgement around the valuation method and key valuation assumptions. Accordingly, for the purposes of our audit, we identified the impairment assessment and judgement applied by management on the valuation of these investments as representing a key audit matter. We discussed with management the adequate implementation of accounting policies and controls regarding the valuation of investments in group companies. We tested the design and implementation of controls around the valuation of investments to determine whether appropriate controls are in place. We challenged the assessment of impairment indicators by the Company. We tested the valuations by critically assessing the methodology applied and the reasonableness of the underlying assumptions and judgements. We assessed the impairment testing models and calculations by: – Checking the mechanical accuracy of the impairment models and the extraction of inputs from source documents; and – Challenging the significant inputs and assumptions used in impairment for investments in LafargeHolcim Group companies. We validated the appropriateness and completeness of the related disclosures in Notes 6 and 8 to the financial statements. LAFARGEHOLCIM ANNUAL REPORT 2017245246 Other matters The financial statements of the company for the year ended 31 December 2016 were audited by another auditor whose report, dated 1 March 2017, expressed an unqualified opinion on those financial statements. Responsibility of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of the financial statements in ac- cordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the entity’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 entity or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial 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 and Swiss Auditing Standards will always detect a material misstatement 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 financial statements. LAFARGEHOLCIMHOLDING COMPANY RESULTSA further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report. Report on Other Legal and Regulatory Requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation 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. Deloitte AG David Quinlin Licensed Audit Expert Auditor in charge Frédéric Gourd LAFARGEHOLCIM ANNUAL REPORT 2017247 248 5-YEAR-REVIEW LAFARGEHOLCIM GROUP LAFARGEHOLCIMHOLDING COMPANY RESULTS5- Y EAR -REVIEW LAFARGEHOLCIM GROUP Statement of income Net sales Gross profit Recurring EBITDA Recurring EBITDA margin Operating (loss) profit Operating (loss) profit margin Depreciation, amortization and impairment of operating assets Income taxes Tax rate Net (loss) income Net (loss) income – shareholders of LafargeHolcim Ltd Statement of cash flows 2017 2016 1 2015 2014 1 2013 2 million CHF million CHF million CHF % million CHF % million CHF million CHF % million CHF 26,129 7,781 5,990 22.9 (478) (1.8) 6,007 536 (45) (1,716) 26,904 11,272 5,950 22.1 2,963 11.0 2,405 835 29 2,090 23,584 7,093 n/a n/a (739) (3.1) 4,421 781 (114) (1,361) 18,825 8,365 n/a n/a 2,244 11.9 1,402 581 26 1,619 19,719 8,632 n/a n/a 2,357 12.0 1,538 533 25 1,596 million CHF (1,675) 1,791 (1,469) 1,287 1,272 Cash flow from operating activities million CHF 3,040 3,295 2,465 2,484 2,787 Investments in property, plant and equipment for maintenance net Investments in property, plant and equipment for expansion Disposal of financial assets, intangible and other assets and businesses net Statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current 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 million CHF (881) (474) (997) (638) (981) (732) (719) (1,007) (1,005) (1,282) million CHF 680 2,342 7,222 35 336 million CHF million CHF million CHF million CHF million CHF million CHF % million CHF million CHF million t million t million t million m3 12,618 51,061 63,679 11,519 21,185 30,975 48.6 3,188 14,346 318.4 209.5 278.7 50.6 81,960 14,435 55,182 69,617 12,509 22,361 34,747 49.9 3,925 14,724 353.3 233.2 282.7 55.0 13,331 59,967 73,298 14,832 22,744 35,722 48.7 4,357 17,266 374.0 193.1 231.5 47.6 90,903 100,956 7,231 32,259 39,490 6,847 12,531 20,112 50.9 2,682 9,520 208.8 138.2 153.1 37.0 67,137 7,590 30,355 37,944 7,461 11,807 18,677 49.2 2,471 9,461 206.2 138.9 154.5 39.5 70,857 1 Restated due to changes in presentation or in accounting policies. 2 As reported in the respective years, not restated due to changes in accounting policies. LAFARGEHOLCIM ANNUAL REPORT 2017249250 L A F A R G E H O L C I M 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 2018 Annual General Meeting of shareholders Ex date Payout Date May 8, 2018 May 8, 2018 May 11, 2018 May 16, 2018 Definition of Non-GAAP Measures used in this report Like-for-like Restructuring, litigation, implementation and other non recurring costs Like-for-like information is information factoring out changes in the scope of consolidation (such as divestments and acquisitions occurring in 2017 and 2016) and currency translation effects (2017 figures are converted with 2016 exchange rates in order to calculate the currency effects). Restructuring, litigation, implementation and other non recurring costs comprise significant items that, because of their exceptional nature, cannot be viewed as inherent to the Group’s ongoing performance, such as strategic restructuring, major items relating to antitrust fines and other business related litigation cases. In 2017 and 2016, they also included costs directly related to the merger such as legal, banking fees and advisory costs, employee costs related to redundancy plans and IT implementation costs. Profit/Loss on disposals and other non-operating items Profit/Loss on disposals and non-operating items comprise capital gains or losses on the sale of Group companies and of property, plant and equipment and other non- operating items that are not directly related to the Group’s normal operating activities such as revaluation gains or losses on previously held equity interests, disputes with non-controlling interests and other major lawsuits. Recurring EBITDA (previously named “Operating EBITDA adjusted”) Recurring EBITDA margin (previously named “Operating EBITDA margin adjusted”) Net income before impairment and divestments The recurring EBITDA is an indicator to measure the performance of the Group excluding the impacts of non recurring items. It is defined as: +/– Operating profit; – depreciation, amortization and impairment of operating assets; and – restructuring, litigation, implementation and other non recurring costs. The recurring EBITDA margin is an indicator to measure the profitability of the Group excluding the impacts of non recurring items. It is defined as the recurrring EBITDA divided by the net sales. Net income before impairment and divestments excludes impairment charges and capital gains and losses arising on disposals of investments which, because of their exceptional nature, cannot be viewed as inherent to the Group’s ongoing activities. It is defined as: +/– Net income (loss) – gains/ losses on disposals of Group companies; and – impairments of goodwill and assets. Earnings Per Share (EPS) before impairment and divestments The Earnings Per Share (EPS) before impairment and divestments is a indicator that measures the theoretical profitability per share of stock outstanding based on a net income before impairment and divestments. It is defined as: – net income before impairment and divestments attributable to the shareholders of LafargeHolcim Ltd divided by the weighted average number of shares outstanding. Net Maintenance and Expansion Capex (“Capex” or “Capex Net”) Free Cash Flow (previously named “Operating Free Cash Flow”) Net financial debt (“Net debt”) 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 produce, 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 component, 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 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 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. LAFARGEHOLCIM ANNUAL REPORT 2017251252 L A F A R G E H O L C I M Net working capital Invested Capital Net Operating Profit After Tax (“NOPAT”) Return On Invested Capital (“ROIC”) The net working capital is an indicator that indicates whether the Group has enough short-term assets to cover its short-term liabilities. It is defined as: + Trade accounts receivable; + Inventories; + Prepaid expenses and other current assets; – Trade accounts payable; – Current income tax liabilities; – Long-term income tax liabilities; and – Other current liabilities. The Invested Capital is an indicator that measures total funds invested by shareholders, lenders and any other financing sources. It is defined as: + Net working capital; + Investments in associates and joint ventures; + Property, plant and equipment; + Goodwill; + Intangible assets; + Deferred tax assets; + Pension assets; – Short-term provisions; – Defined benefit obligations; – Deferred tax liabilities; and – Long-term provisions. 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 recurring EBITDA, adjusted for depreciation and amortization of operating assets but excluding impairment of operating assets); and – Standard Taxes (being the taxes applying the Group’s tax rate to the Net Operating Profit as defined above). The ROIC (Return On Invested Capital) measures the Group’s ability to efficiently use invested capital. 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). Cash conversion The cash conversion is an indicator that measures the Group’s ability to convert profits into available cash. It is defined as Free Cash Flow divided by recurring EBITDA. This set of definitions can be found on our website: www.lafargeholcim.com/non-gaap-measures Cover photograph: Two employees at our Királyegyháza cement plant in Hungary, which received the World Prix d’Excellence 2017 from the International Real Estate Federation (FIABCI). The plant was awarded the World Gold Winner prize in the industrial buildings category for its outstanding environmental performance and the high architectural quality of the plant buildings. LafargeHolcim Ltd Zurcherstrasse 156 CH-8645 Jona/Switzerland Phone +41 58 858 86 00 communications@lafargeholcim.com www.lafargeholcim.com Concept and design: Salterbaxter MSL Group © 2018 LafargeHolcim Ltd

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