LafargeHolcim targets better growth

LafargeHolcim's CEO, Jan Jenisch, announced this week that the company is writing off its US$4.04bn impairment charge in the 4Q17 and is establishing a five-year strategy up to 2022 'Building for growth' with a reorganised regional leadership to target annual sales growth of 3-5 per cent as well as cash flow improvement at more than 40 per cent of EBITDA and a return on investment of eight per cent.

Body blows
LafargeHolcim has received some large body blows of late. Two thirds of the company's impairment charges were concentrated in Algeria, Malaysia, Iraq, Brazil, Indonesia and Egypt. The company has revealed it has launched a cost savings drive of CHF400m (US$426m) from its administration costs and will close its corporate offices in Singapore and Miami. More divestment can also be expected with the selling of approximately US$2bn of assets and the possible exit of the company from two or three countries – South Africa has already been suggested as a possible exit market.

Furthermore, LafargeHolcim has now scrapped its share buyback scheme and will seek to turn things around by improving its dividend returns while looking for bolt-on acquisitions. The aggregates and ready-mix company, Kendall Group has already been snapped up in the UK while a new cement plant is planned for the subsidiary Ambuja Cement in Rajasthan, even though the planned merger between ACC and Ambuja Cement has been put on hold.

Organisational changes and Strategy 2022 - Building for growth
North Africa is also a market where LafargeHolcim will invest, having seen the cement producer award thyssenkrupp with the order for a new 3500tpd clinker line in Souss Massa. This week also saw the multinational establish a Middle East and Africa region for its four largest markets of Algeria, Egypt, Morocco and Nigeria, all reporting directly to Saâd Sebbar, who will head up LafargeHolcim’s MEA region.

The new 2022 strategic plan targets are designed to get LafargeHolcim back on course following its high-profile merger, by focussing on core markets. Jan Jenisch is particularly bullish on the US market where the group's operations improved turnover by 1.4 per cent to EUR4915m, although shipments fell in 4Q17 by 1.7 per cent to 19.2Mt.

"Our new Strategy 2022 - 'Building for Growth' will allow us to more vigorously capture market opportunities, capitalising on the best assets in a growing building materials market. We have already started to create a leaner more agile organisation, moving considerably closer to our customers through the empowerment of the country management," stated Mr Jenisch.

Actions not words
Perhaps, rather unsurprisingly, the major research analysts are not overly confident of an immediate improvement of fortunes for the super multinational. All this comes on the back of the formal investigation of Eric Olsen, former CEO, for the group’s activities in Syria. The negative attributions now associated with the company will not be easy to shake off and the high-level expectations of the new strategy have not yet registered positive feedback. Halting the loss-making machine will need more than words, as one research house put it.

Two research agencies rated the LafargeHolcim stocks with a sell rating this week, while seven have assigned a hold rating, according to The Enterprise Leader. LafargeHolcim's share price fell more than seven per cent after the new strategy was revealed, reports Reuters. Analysts clearly felt that LafargeHolcim's new goals were less than sufficient to bring investors rushing back into the fold. More positive results will need to be seen first.