LafargeHolcim Ltd.

Primary Credit Analyst: Renato Panichi, Milan (39) 02-72111-215; [email protected]

Secondary Contact: David Matthews, London (44) 20-7176-3611; [email protected]

Table Of Contents

Rationale

Outlook

Standard & Poor's Base-Case Scenario

Company Description

Business Risk

Financial Risk

Liquidity

Covenant Analysis

Other Modifiers

Other Credit Considerations

Reconciliation

Ratings Score Snapshot

Related Criteria And Research

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1624953 | 300052695 LafargeHolcim Ltd.

Business Risk: STRONG CORPORATE CREDIT RATING Vulnerable Excellent bbb bbb bbb

BBB/Stable/A-2 Financial Risk: SIGNIFICANT

Highly leveraged Minimal

Anchor Modifiers Group/Gov't

Rationale

Business Risk: Strong Financial Risk: Significant

• Strong competitive positions in virtually all key • Superior access to global debt markets. markets, with a few exceptions. • Management's willingness to protect credit metrics • Extensive geographic diversification. and liquidity when needed. • Cost-efficient operations. • Ability to generate operating cash flow consistently • Cyclicality, seasonality, and high capital and energy over the business cycle. intensity of the heavy building materials' industry. • Strong liquidity. • Some operations in a competitive and fragmented industry with limited pricing flexibility.

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1624953 | 300052695 LafargeHolcim Ltd.

Outlook: Stable

The stable outlook on Switzerland-based building materials manufacturer LafargeHolcim Ltd. and its core subsidiaries reflects Standard & Poor's Ratings Services' view that the group's leverage metrics will progressively recover in 2016-2017, compared with pro forma 2015 metrics following the merger of France-based Lafarge S.A. into Switzerland-based Holcim Ltd. to form LafargeHolcim. The recovery mainly reflects the completion of Swiss franc (CHF) 3.5 billion of asset disposals and the delivery of operational synergies. Our base-case scenario reflects a tough operating environment in a few emerging markets in terms of both volumes and prices. We also take into account our view that management will continue to protect credit metrics through optimized capital spending and reasonable returns to shareholders.

Downside scenario We could consider a negative rating action if market conditions worsen significantly beyond our base-case scenario. This could happen if the slowdown in China were more severe than we currently anticipate, which would likely affect the group's performance in other regions. Funds from operations (FFO) to debt trending toward 20% for a sustained period of time would put pressure on the ratings. A more aggressive financial policy might also trigger a downgrade in the absence of supportive trading conditions.

Upside scenario We might consider a positive rating action if LafargeHolcim's FFO to debt approached 30% on a sustainable basis. This could result from better-than-expected industry trends or higher-than-expected synergies from the integration of the group's assets. We consider this scenario unlikely in 2016-2017. Furthermore, we consider that the group is likely to use any financial headroom at the current rating by either investing in operations or returning funds to shareholders.

Standard & Poor's Base-Case Scenario

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1624953 | 300052695 LafargeHolcim Ltd.

Assumptions Key Metrics

• A tough environment in a few emerging markets, 2015PF 2016e 2017e mitigated by supportive trading conditions in the EBITDA margin* (%) 17.0 19.5-20.5 21-22 main developed countries. FFO to debt* (%) 15.1 21-24 25-28 • An increase in revenues of 1%-3% on a pro forma Debt to EBITDA* (x) 4.1 2.7-3.0 2.2-2.5 basis, reflecting modest growth in volumes and still-challenging pricing conditions. PF--Pro forma. e--Estimate.*Fully Standard & • A progressive recovery in operating EBITDA over Poor's-adjusted. FFO--Funds from operations. 2016 and 2017, compared with the pro forma 2015 figure, mainly reflecting lower merger implementation costs, the delivery of operational synergies, and some benefit from operating leverage. • The completion of a CHF3.5 billion asset disposal, which will lead to lower reported debt. • Capital expenditures (capex) of about CHF2 billion in 2016 and slightly less in 2017. • Moderate remuneration to shareholders.

Company Description

LafargeHolcim is the world largest producer of heavy building materials, including cement (374 million tons per year of cement capacity at end-2015); aggregates (661 plants at end-2015); and ready-mix and other construction materials (1,577 plants at end-2015). The group has extensive geographic and asset diversification, with production sites in about 90 countries, and operates with a high level of vertical integration.

The company is the result of the merger by incorporation in 2015 of France-based Lafarge S.A. into Switzerland-based Holcim Ltd., which was renamed LafargeHolcim Ltd. Following the completion of a squeeze-out in November 2015, Lafarge S.A. was delisted.

Business Risk: Strong

Global diversified operations, with key positions in emerging countries LafargeHolcim has an unrivalled asset portfolio in terms of size and geographic diversity; a strong competitive position in virtually all its key markets, with a few exceptions, for instance, China; cost-efficient operations; and the ability to generate operating cash flow consistently over the business cycle. Similarly, we believe that LafargeHolcim's portfolio of about 90 countries, with about half of sales coming from developing economies, helps reduce the seasonality and cyclicality that characterizes the building materials industry, and allows for better capacity utilization.

However, our assessment also reflects some key risks, such as the high capital and energy intensity of the heavy building materials industry, and LafargeHolcim's operation in a competitive and fragmented industry with limited

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1624953 | 300052695 LafargeHolcim Ltd. pricing flexibility. In addition, LafargeHolcim's operations in emerging markets expose the group to potential monetary and political risks and heightened economic volatility. Lastly, we see a risk that the integration process following the merger may be slower than the group targets.

We view LafargeHolcim's high degree of vertical integration as a key asset, given the scarcity of well-located quarries, and because the demand for aggregates depends mainly on public sector spending, which may prove countercyclical to private-sector construction.

The group's scale and extensive production and distribution network, and track record of effective cost management contribute to support robust operating margins. The group's Standard & Poor's-adjusted EBITDA margin at about 20% compares favorably with the current industry average, by our estimates. We believe that operating efficiencies resulting from the planned synergies may support margins of 20%-22% over the next couple of years.

S&P Base-Case Operating Scenario

• Revenue growth of 1%-3% in the next couple of years, reflecting a modest contribution from Europe, the Middle East, and Africa, no contribution from Latin America, and moderate growth from Asia Pacific and North America. • Ongoing tough conditions in some countries such as China, Russia, and Brazil, in terms of both volumes and prices. • A moderation in cost inflation in 2016 compared with 2015, reflecting the benefit of low oil prices, but still exceeding the average price increase. • A recovery in EBITDA margins from 2015, with a more pronounced effect visible from 2017. This mainly reflects the benefit of lower merger implementation costs and the achievement of operational synergies. To an extent, it also reflects some operating leverage.

Peer comparison Table 1 LafargeHolcim Ltd. Peer Comparison

Italcementi Compagnie de Wuerth GmbH & Co. LafargeHolcim Ltd. SpA Saint-Gobain CRH plc KG Adolf --Fiscal year ended--

Dec. 31, (Mil. CHF) Dec. 31, 2015* Dec. 31, 2015 Dec. 31, 2015 2015 Dec. 31, 2014 Revenues 23,584.0 4,707.7 43,059.5 25,684.8 12,089.2 EBITDA 3,992.5 617.4 4,500.7 2,990.1 1,232.3 Funds from operations (FFO) 2,324.0 390.7 3,282.8 2,131.7 985.4 EBIT (106.0) 184.9 1,656.9 1,657.6 728.7 Net income from continuing (1,573) (130.4) 406.4 786.8 435.0 operations Working capital changes (232) 148.7 91.3 635.7 (204.1) Cash flow from operations 2,598.0 514.3 3,206.7 2,825.0 879.3 Capital expenditures 2,509.0 385.5 1,602.9 958.5 401.6 Free operating cash flow 89.0 128.8 1,603.8 1,866.5 477.7

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Table 1 LafargeHolcim Ltd. Peer Comparison (cont.) Dividends paid 296.0 117.8 795.5 416.2 79.4 Discretionary cash flow (207.0) 11.0 808.3 1,450.3 398.3 Cash and short-term 4,393.0 583.7 5,846.6 2,736.4 821.3 investments Debt 20,395.9 3,192.1 11,639.0 10,020.8 2,132.5 Equity 35,721.0 4,129.4 21,000.4 14,718.7 4,307.3

Adjusted ratios EBITDA margin (%) 16.9 13.1 10.5 11.6 10.2 Return on capital (%) (0.2) 2.3 4.7 7.2 11.3 EBITDA interest coverage (x) 4.7 3.8 5.8 6.0 7.7 FFO cash interest coverage (x) 2.8 3.8 8.5 8.0 15.5 Debt/EBITDA (x) 5.1 5.2 2.6 3.4 1.7 FFO/debt (%) 11.4 12.2 28.2 21.3 46.2 Cash flow from 12.7 16.1 27.6 28.2 41.2 operations/debt (%) Free operating cash flow/debt 0.4 4.0 13.8 18.6 22.4 (%) Discretionary cash flow/debt (1.0) 0.3 6.9 14.5 18.7 (%)

*LafargeHolcim figures as of end 2015 are reported and not pro forma. As such, they do not reflect full-year consolidation of Lafarge S.A.

Financial Risk: Significant

Willingness to protect credit metrics is a key support to the ratings The willingness of LafargeHolcim's top management to protect credit metrics through reduced capital spending, moderation in shareholder remuneration, and asset disposals is a key support to the ratings. The group has committed to dispose of CHF3.5 billion of assets in 2016, following a CHF6.3 billion net disposal in 2015. Furthermore, LafargeHolcim will keep capital spending in 2016-2017 at relatively low levels of around CHF3.5 billion, compared to historical values for both Holcim and Lafarge. This will significantly help leverage metrics to recover in 2016 and 2017 from rather weak pro forma levels in 2015.

We also believe that, as result of the merger, LafargeHolcim's exposure to the appreciation of the Swiss franc has significantly reduced, although the group's leverage metrics are partly exposed to currency depreciation in emerging countries as most of its financial debt is in hard currencies.

The cement industry's capital intensity is a structural constraint on financial risk, because it translates into hefty capex and large seasonal working capital swings, with a risk of build-up in working capital depending on industry conditions. However, LafargeHolcim has a track record of resilient free operating cash flow generation over the business cycle. Furthermore, heavy materials producers typically see working capital contraction when revenues decline organically.

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S&P Base-Case Cash Flow And Capital Structure Scenario

• A reduction in LafargeHolcim's adjusted net debt to about CHF16 billion-CHF17 billion at end-2016, from CHF20.4 billion at end-2015. This mainly reflects the proceeds from the asset disposal to be completed in 2016. • A progressive recovery of the group's leverage metrics in 2016-2017, compared with pro forma 2015 metrics. The improvement in leverage metrics in 2016, and particularly in 2017, reflects the asset disposal proceeds, as well as improved cash flow generation following the achievement of operational synergies. • Adjusted ratios of FFO to debt of 21%-24% in 2016 and 25%-28% in 2017. • Resilient free operating cash flow over the next two years, reflecting planned low capital spending and almost neutral working capital cash absorption. • Our adjusted debt figure is higher than the company's reported debt figure because we deduct cash that we believe is not immediately available for debt repayment. Furthermore, we add to debt about CHF1.1 billion of operating leases, CHF1.2 billion of pension liabilities, as well as CHF0.7 billion of asset retirement obligations. However, we exclude about CHF0.7 billion of purchase price allocation on Lafarge's debt.

Financial summary Table 2 LafargeHolcim Ltd. Financial Summary --Fiscal year ended Dec. 31--

(Mil. CHF) 2015* 2014 2013 2012 2011 Revenues 23,584.0 19,110.0 19,719.0 21,544.0 20,744.0 EBITDA 3,992.5 3,930.5 4,159.0 4,154.5 4,220.0 Funds from operations (FFO) 2,324.0 2,854.4 2,801.1 2,869.5 2,990.4 Net income from continuing operations (1,573) 1,287.0 1,272.0 622.0 275.0 Cash flow from operations 2,598.0 2,529.4 2,845.1 2,760.5 2,842.4 Capital expenditures 2,509.0 2,199.0 2,430.0 1,897.0 1,978.0 Free operating cash flow 89.0 330.4 415.1 863.5 864.4 Discretionary cash flow (207.0) (390.6) (160.9) 319.5 150.4 Cash and short-term investments 4,393.0 2,149.0 2,244.0 3,146.0 2,950.0 Debt 20,395.9 11,593.2 11,267.6 12,682.6 13,577.3 Equity 35,721.0 20,112.7 18,677.7 19,350.6 19,274.5

Adjusted ratios EBITDA margin (%) 16.9 20.6 21.1 19.3 20.3 Return on capital (%) (0.2) 8.6 8.8 6.6 6.3 EBITDA interest coverage (x) 4.7 6.4 6.1 5.7 5.8 FFO cash int. cov. (x) 2.8 5.3 5.0 4.9 5.0 Debt/EBITDA (x) 5.1 2.9 2.7 3.1 3.2 FFO/debt (%) 11.4 24.6 24.9 22.6 22.0 Cash flow from operations/debt (%) 12.7 21.8 25.2 21.8 20.9 Free operating cash flow/debt (%) 0.4 2.9 3.7 6.8 6.4 Discretionary cash flow/debt (%) (1.0) (3.4) (1.4) 2.5 1.1

*LafargeHolcim figures as of end 2015 are reported and not pro forma. As such, they do not reflect full-year consolidation of Lafarge S.A.

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Liquidity: Strong

Access to global debt markets contributes to reducing foreign exchange risks The short-term rating is 'A-2'. Our view of LafargeHolcim's liquidity as strong reflects a pro forma ratio of liquidity sources to uses of more than 1.5x over the 12 months from Dec. 31, 2015, underpinned by sizable cash balances and committed undrawn bank lines.

Principal Liquidity Sources Principal Liquidity Uses

• An available cash balance in excess of CHF4 billion • Short-term debt maturities of about CHF 6.7 billion; at end-Dec. 2015; • Capex of about CHF2 billion; • Committed, undrawn bank lines totaling about • Seasonal working capital requirement of about CHF6.4 billion, with maturities beyond one year; CHF0.6 billion; and • Proceeds from asset disposals of about CHF3.5 • Dividend payments of about CHF1.1 billion. billion; and • Our forecast of unadjusted FFO of about CHF3.5 billion-CHF3.8 billion.

Debt maturities Table 3 LafargeHolcim Ltd. Debt Maturities Current portion of long-term debt 6,807.0 Debt due in 2nd year 3,233.0 Debt due in 3rd year 2,277.0 Debt due in 4th year 2,224.0 Debt due in 5th year 2,404.0 Debt due after year 5 3,900.0 Total debt 20,845.0

Covenant Analysis

To our knowledge, outstanding corporate debt and committed bank lines are currently free of rating triggers, financial maintenance covenants, and material adverse change clauses.

Other Modifiers

Our strong management and governance assessment, which is neutral for the ratings on LafargeHolcim, reflects the group's cautious balancing of fixed-income and equity investors' interests, together with consistent strategic undertakings and a solid track record of achieving cost efficiencies.

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Other Credit Considerations

We align the ratings on Lafarge S.A. and its subsidiary Lafarge North America with those on LafargeHolcim Ltd. This reflects our view that Lafarge S.A. and Lafarge North America are core subsidiaries of LafargeHolcim. Lafarge S.A. is a sub-holding company that owns operating subsidiaries representing nearly one-half of group assets and revenues.

We also align the ratings on the group financial vehicles (see list in the "Ratings Details" section) with those on LafargeHolcim Ltd. This reflects our view that those vehicles are core subsidiaries of the LafargeHolcim group, as they are legal entities created for the purpose of raising debt on the group's behalf.

We align the senior unsecured debt issue ratings with the long-term corporate credit rating on LafargeHolcim. We estimate that the group's priority liabilities are about 25% of its total liabilities. However, there are significant factors mitigating this proportion of priority liabilities, such as LafargeHolcim's wide geographic diversity and downstream loans from the parent companies to the group's operating subsidiaries.

Reconciliation

Table 3 Reconciliation Of LafargeHolcim Ltd. Reported Amounts With Standard & Poor's Adjusted Amounts* --Fiscal year ended Dec. 31, 2015--

LafargeHolcim Ltd. reported amounts

Cash flow Shareholders' Operating Interest from Capital Debt equity EBITDA income expense EBITDA operations expenditures Reported 21,791 31,364 3,682 (739) 667 3,682 2,465 2,593 Standard & Poor's adjustments Interest expense ------(667) -- -- (reported) Interest income ------129 -- -- (reported) Current tax expense ------(924) -- -- (reported) Operating leases 1,090 -- 229 55 55 174 174 -- Postretirement benefit 1,192 -- (88) (88) 48 (156) 43 -- obligations/deferred compensation Surplus cash (3,575) ------Capitalized interest ------84 (84) (84) (84) Share-based -- -- 14 -- -- 14 -- -- compensation expense Dividends received from -- -- 156 -- -- 156 -- -- equity investments Asset retirement 687 ------obligations

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Table 3 Reconciliation Of LafargeHolcim Ltd. Reported Amounts With Standard & Poor's Adjusted Amounts* (cont.) Non-operating income ------666 ------(expense) Non-controlling -- 4,357 ------Interest/Minority interest Debt - Other (789) ------

Total adjustments (1,395) 4,357 311 633 187 (1,358) 133 (84) Standard & Poor's adjusted amounts

Cash flow Interest Funds from from Capital Debt Equity EBITDA EBIT expense operations operations expenditures Adjusted 20,396 35,721 3,993 (106) 854 2,324 2,598 2,509

*LafargeHolcim figures as of end 2015 are reported and not pro forma. As such, they do not reflect full-year consolidation of Lafarge S.A.

Ratings Score Snapshot

Corporate Credit Rating BBB/Stable/A-2

Business risk: Strong • Country risk: Intermediate • Industry risk: Intermediate • Competitive position: Strong

Financial risk: Significant • Cash flow/Leverage: Significant

Anchor: bbb

Modifiers • Diversification/Portfolio effect: Neutral (no impact) • Capital structure: Neutral (no impact) • Financial policy: Neutral (no impact) • Liquidity: Strong (no impact) • Management and governance: Strong (no impact) • Comparable rating analysis: Neutral (no impact)

Related Criteria And Research

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Related Criteria • Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014 • Key Credit Factors For The Building Materials Industry, Dec. 19, 2013 • Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013 • Corporate Methodology, Nov. 19, 2013 • Methodology: Industry Risk, Nov. 19, 2013 • Group Rating Methodology, Nov. 19, 2013 • Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013 • Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013 • Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 • Use Of CreditWatch And Outlooks, Sept. 14, 2009 • 2008 Corporate Criteria: Rating Each Issue, April 15, 2008

Business And Financial Risk Matrix

Financial Risk Profile Business Risk Profile Minimal Modest Intermediate Significant Aggressive Highly leveraged Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+

Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+ Fair bbb/bbb- bbb- bb+ bb bb- b Weak bb+ bb+ bb bb- b+ b/b- Vulnerable bb- bb- bb-/b+ b+ b b-

Ratings Detail (As Of April 28, 2016) LafargeHolcim Ltd. Corporate Credit Rating BBB/Stable/A-2 Commercial Paper A-2 Senior Secured CaVal (Mexico) National Scale mxAAA Senior Unsecured CaVal (Mexico) National Scale mxA-1+ Senior Unsecured BBB Short-Term Debt A-2 Corporate Credit Ratings History 22-Jan-2009 BBB/Stable/A-2 22-Dec-2008 BBB+/Negative/A-2 01-Apr-2005 BBB+/Stable/A-2 Related Entities Holcim (U.S.) Inc. Issuer Credit Rating BBB/Stable/-- Holcim Capital (Corporation) Ltd. Issuer Credit Rating BBB/Stable/A-2

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Ratings Detail (As Of April 28, 2016) (cont.) Holcim European Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 Holcim Finance (Australia) Pty Ltd Issuer Credit Rating BBB/Stable/A-2 Holcim Finance (Belgium) S.A. Issuer Credit Rating BBB/Stable/A-2 Holcim Finance (Canada) Inc. Issuer Credit Rating BBB/Stable/A-2 Holcim Finance (Luxembourg) S.A. Issuer Credit Rating BBB/Stable/A-2 Holcim GB Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 Holcim Overseas Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 Holcim US Finance S.à r.l. & Cie S.C.S. Issuer Credit Rating BBB/Stable/A-2 Lafarge North America Inc. Issuer Credit Rating BBB/Stable/A-2 Lafarge S.A. Issuer Credit Rating BBB/Stable/A-2 Commercial Paper Local Currency A-2 Senior Unsecured BBB Short-Term Debt A-2 LafargeHolcim Albion Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 LafargeHolcim Continental Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 LafargeHolcim Helvetia Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 LafargeHolcim International Finance Ltd. Issuer Credit Rating BBB/Stable/A-2 LafargeHolcim Sterling Finance (Netherlands) B.V. Issuer Credit Rating BBB/Stable/A-2 *Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.

Additional Contact: Industrial Ratings Europe; [email protected]

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