Business | Construction

Holcim aims to bolster profit by cutting costs

Cement maker faces weak demand in Europe

  • Reuters
  • Published: 00:00 May 15, 2012
  • Gulf News

Zurich: Holcim, the world's second-largest cement maker facing surging energy costs and weak demand in Europe, plans to cut costs and improve efficiency to boost profits by at least 1.5 billion Swiss francs (Dh5.9 billion, $1.62 billion) by the end of 2014.

The Swiss company's cost-cutting drive, which could also include some asset sales, follows a tough first quarter for the world's big cement-makers, which are battling soaring fuel costs and sluggish European markets.

Holcim and rivals Lafarge, HeidelbergCement and Mexico's Cemex have been trying to offset the surge in electricity, coal and oil costs through higher prices for their products.

Holcim is now taking action on costs too.

Under its efficiency programme, the Swiss company plans to cut logistics costs, reduce working capital and improve energy efficiency by increasing the use of alternative fuels.

Holcim also said it could make some selective div-estments.

Chief Executive Bernard Fontana said the programme would add at least 150 million Swiss francs to operating profit in 2012. The company anticipates the savings plan will cost 200 million Swiss francs to complete.

Fontana, who took over the helm in February, is known as a cost-cutter having launched a similar cost savings plan in his former role as head of Luxembourg-based stainless steel maker Aperam.

Strong signal

"With this programme, new CEO Fontana is giving a strong signal, which should shake up the Holcim organisation," ZKB analysts said in a note. They raised their rating on the stock to "overweight."

Shares in Holcim, which have risen almost ten per cent so far this year, were trading 0.4 per cent lower at 55.00 Swiss francs by 0845 GMT yesterday, outperforming a 2.7 per cent weaker European construction sector index. "As the programme is running up to 2014 it hints to an ongoing difficult environment," said Vontobel analyst Serge Rotzer. "This is recurring management work, it's not really an add-on."

The big cement companies are all suffering from weakness in the construction industry, which has struggled to recover from the global economic crisis in more mature markets, such as southern Europe where government austerity measures have held back spending.

They have been pinning their hopes on growth in demand from emerging markets and a recovery in the United States.

France's Lafarge has begun selling non-core assets to concentrate on its core cement and concrete business after saddling itself with debt after a multi-billion euro purchase of Egypt's Orascom Cement in 2007.

Holcim said reducing logistics costs would add an extra 250 million francs to operating profit by 2014, while improving energy efficiency and using alternative fuels should add 300 million francs in savings.

Holcim said the biggest chunk of savings of 500 million francs would come from innovation and measures to manage margin and prices better as well as improvements in marketing and sales.

 

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