Holcim announces plan to boost operating margin

HOLCIM, THE world’s biggest cement company by sales, revealed plans yesterday to boost its hard-pressed operating margin to levels last seen at the peak of the cycle in 2007.

In his first big initiative since taking over as chief executive in February, Bernard Fontana announced steps to increase operating profits by more than half by the end of 2015.

The scheme, thrashed out behind the scenes since Mr Fontana’s arrival and presented to the Swiss group’s top management last Friday, involves cost savings and revenue boosts to increase operating profits by 1.5 billion Swiss francs – more than half the SFr2.3 billion in earnings before interest, tax, depreciation and amortisation it reported in 2011.

That would restore operating margins to the 18.4 per cent last seen at the top of the cement cycle in 2007 and progressively eroded since amid unremitting raw material price rises, collapsing demand in the US and extremely tough conditions in much of Europe.

Holcim shares jumped more than 2.5 per cent on the news, against a sharply lower market, but later slipped to trade down 1.72 per cent at SFr54.25.

Mr Fontana, who formerly ran stainless steel group Aperam and was a surprise choice as chief executive given his lack of experience in the cement industry, amplified concerns about low-margin investment in recent years, which he flagged at Holcim’s annual results presentation in February.

The margin improvement plan includes steps to boost return on invested capital by 20 per cent, though this will barely affect the SFr3 billion of new investment already committed to lift production by almost 15 million tonnes.

The productivity boost, expected to involve one-off costs of up to SFr200 million, comes through measures to expand sales and cut costs. Some SFr500 million of operational profit is forecast to be achieved through improved customer management, including price rises. A further SFr1 billion should come through cost savings, including more than SFr300 million through greater energy efficiency, more than SFr250 million each from improved logistics and purchasing and SFr200 million from fixed-cost savings. – (Copyright The Financial Times Limited 2012)