This week, LafargeHolcim reported "very good market demand globally", according to Reuters, beating sales and profit expectations during its first quarter, with cement demand forecast to increase by 2 to 3 percent this year. LafargeHolcim’s CEO Chief Executive Jan Jenisch told reporters:
"In Europe we have very good order books in most of the countries. Germany continues to have very strong construction activities, so does France, so does eastern Europe. The formerly more difficult markets in the south are all growing again."
However:
Britain, in the midst of a messy exit from the European Union, was the exception in Europe, Jenisch said, adding he expected a 2% volume decline there this year.
LafargeHolcim’s subsidiary in Britain is of course Aggregate Industries.
So, is LafargeHolcim financially back on track after the €42bn merger of France’s Lafarge and Switzerland’s Holcim in 2015?
This month, the company pulled out of the Philippines, and, following divestments in Indonesia, Malaysia, and Singapore, will now no longer have a foothold in Southeast Asia. Proceeds of $4.9 billion "will be used to pay down debt." As Global Cement puts it:
when the world’s largest cement producer leaves an entire sub-continental market it deserves mention... That’s a region with 651 million inhabitants or around 8% of the world’s total population. All of those people need cement and other building products as their nations build houses, infrastructure and so on. And LafargeHolcim is no longer there.
Our strategic decision to divest South East Asia was executed with very attractive valuations allowing us to achieve a new level of financial strength.
However, The Manila Times paints another picture in the articles "Issue-plagued Holcim calls it quits" and "The mess Holcim leaves behind". It uses phrases such as "controversy-plagued" and "scandal-ridden", and talks about non-compliance of Environmental Compliance Certificates, numerous complaints about noise and dust, about dust-related allergies and respiratory problems, about officials accusing Holcim Philippines of damaging corals and other marine life:
For LafargeHolcim, the end of its Philippine sojourn represents a double loss, for which it only has itself to blame. Having bailed out the Indonesian market due to a huge overcapacity in that country’s cement industry, the company could have made great strides here where demand far outstrips demand [sic]. Instead, it cut corners and generally behaved as though the market situation obviated the need to follow any rules, and for that, it has been penalized with a diminished reputation, the loss of a strong foothold in a lucrative market, and the dubious honor of being a case study in bad strategy.
According to The FT's Lex column, LafargeHolcim still has some way to go, the merger of Lafarge and Holcim having "failed on its own metrics":
Since the deal, LafargeHolcim has sold businesses with an enterprise value of SFr8.4bn ($8.3bn). Sales have suffered from sluggish economies.
Returns on invested capital were meant to improve by 3 percentage points by 2018. Mysteriously, no 2015 group figure was published. Less surprisingly, economies of scale did not emerge.
Annual reports show ROIC of just 5.2 per cent in 2016, rising to 6.5 per cent last year, barely more than its cost of capital.
LafargeHolcim’s shares have fallen a quarter since the merger, trailing global building material stocks by a third. Jan Jenisch, the chief executive since September 2017, has cut central costs, risking French ire by closing the prestigious Paris offices. He aims to lift group ROIC above 8 per cent by 2022.
LafargeHolcim: weak foundations https://t.co/HiAZoRhkuE— Financial Times (@FT) May 15, 2019
