Lafarge-Holcim: The making of a global cement giant

LafargeHolcim was born out of the merger of equals by Lafarge and Holcim in 2015.

The united Group which has over 180 years of combined experience aims to usher in a new era of cutting-edge technologies and innovations in the building materials industry to address the challenges of the 21st century, including growing urbanisation and the associated demand for houses and infrastructure.

The new company with a combined global capacity of 386 million tons per annum (mtpa) will have a major focus on emerging markets in Africa and Asia where cement demand is growing fast. The firm has a local presence in 90 countries, including 73 emerging markets. LafargeHolcim is thus uniquely placed to adapt and deploy the innovation behind its cement, concrete, and aggregates offerings in meeting the unique needs of developing economies like Nigeria. The merger of Lafarge and Holcim has brought together 13 product Research and Development laboratories and 1,300 construction materials research experts. Both parties to the merger have a strong track record, especially Lafarge, of bringing products that are comparable in quality to their offerings in Europe and America to developing countries. As these Latin American and African markets grow richer, quality will become more of a concern to builders, citizens and governments. Many analysts argue that the LafargeHolcim has been created to capture the opportunity this presents.

Overview of global cement sector trends

The global construction materials market has changed significantly over the past five years, driven by rising demand, and increased investment on the back of global economic growth especially in emerging markets. Cement is a vital commodity to fast-growing economies for building houses, roads, bridges and other large infrastructure and in 2014 the global cement-makers had revenues in excess of $250 billion a year.

Global cement volumes doubled in the 2002 to 2012 decade to 3.7 billion tons from 1.8 billion tons, equivalent to a compound annual growth rate (CAGR) of 7.4 percent for the period.

This compares to a CAGR of 4.3 percent in the previous decade (1992-2002).

Global majors where however hit by collapse of demand in key markets between 2008 and 2010 as a result of the global financial crises.

The industry suffered from high debt levels and financial inflexibility resulting in a severe slowdown in capital expenditure.

Companies are now readjusting to new economic realities and firms like Lafarge Holcim are uniquely positioned to capitalise on the rapidly evolving cement industry.

Future cement demand will be hinged mainly on urbanisation and increasing demand for value-added products and services from building materials companies.

By 2020, it is projected that the global population will reach approximately 7.7 billion and the number of people who live in or around urbanized areas will rise by 1 billion from today’s levels.

Merger an attractive proposition for investors

LafargeHolcim Ltd was launched after making its debut on the Swiss and Paris stock exchanges on July 14, with a market capitalization of roughly 41 billion Swiss francs, and domiciled in Switzerland.

The merger created a company with combined sales of 33 billion francs and operations in 90 countries.

“By the end of 2016 we will have completed the integration,” LafargeHolcim Chief Executive Eric Olsen said in a conference call in Zurich. “Within 1,000 days we will realise the full synergy potential.”

The global dimension of the merger means the new Group will fully benefit from the size of its industrial network, which will facilitate optimizations and avoid the need for large acquisitions or heavy investments.

Similarly, its capacity for implementing an innovation strategy on a very large scale will be a key advantage for generating a strong growth dynamic at low cost.

About 60 percent of the new firms 2014 pro forma sales came from Emerging Markets.

All competition approvals necessary for closing of the merger were received from 17 jurisdictions including from the European Commission).

Lafarge and Holcim had to sell businesses in markets where the merger would have created a monopoly.

For the deal to close there was the need to dispose of some assets with an enterprise value EV of €6.5bn

The transaction was concluded on a multiple of 8.7x 2014 operating EBITDA.

For investors the merger offers the chance to own a firm with best in class balanced global portfolio and benefit from long term growth potential of emerging countries as well as cyclical recovery in developed markets.

Ian Osburn, an analyst at Cantor Fitzgerald, who declared the cement sector “open” for mergers and acquisitions, said:

“This is normally the most attractive time to do it at the start of the upswing and some of the other global majors may be feeling in a weakened position trying to compete with a combined Lafarge/Holcim.”

A team of 10 managers actively engaged in integration planning and about €1.4bn in targeted synergies from the merger has already been confirmed.

There would also be a significant reduction in net debt of the combined company through divestitures, target for solid Investment Grade credit ratings, solid margins (c.24 percent post synergies) and an attractive dividend policy.

The firm’s Board of Directors consists of 14 members, 13 of whom are independent directors in compliance with the Swiss Code of Best Practice for Corporate Governance.

LafargeHolcim: The most advanced global cement firm

Cement, aggregates, and concrete are essential parts of the constructed environment nearly everywhere worldwide – be it residential, commercial, or within infrastructure.

The product variations gotten from cement are used in a plethora of types of projects and applications, from affordable housing to roads, railways, bridges, tunnels, or high-rise towers.

For all those needs, LafargeHolcim has built the most extensive and innovative product, service, and solution offering on the market.

Lafarge Holcim currently operates the world’s largest R&D center for building materials, with a central research centre based in Lyon, France and a network of Regional Development Labs in Rio, Beijing, Cairo, Montreal and Mumbai amongst others.

LafargeHolcim wide range of products mean the firm provides solutions in mining, transport, roads, energy, industrial and commercial buildings, oil and gas, ready mix – concrete, asphalt, and aggregates.

An example of the product offerings of LafargeHolcims is in the energy space where through its unique knowledge of thermal and mechanical properties of concrete, the firm has developed a new generation of insulating concretes for improving energy efficiency of buildings.

Some of the most iconic global projects like the new Philharmonie de Paris, Singapore’s reflections at Keppel Bay residential, the Gotthard base tunnel in Switzerland, and the citadel of Erbil, Iraq are made from LafargeHolcim products.

LafargeHolcim thrives on understanding of its customers (small scale to industrial) along the value chain. There is a strong focus on brand management and customer loyalty.

In many developing markets where individuals and construction professionals lack funds to complete their building projects, LafargeHolcim has developed a specific affordable housing microcredit offer available in several countries, such as Serbia and Indonesia.

The firm partner’s with banks and microcredit institutions to offer lower credit rates to customers, so they can buy materials for home completion, extension, or renovation.

LafargeHolcim also offers solid inventory management and optimised supply chain and logistic efficiency to ensure availability of products with advanced software solutions that ensure customers will always find the right product and the right quality in stores or depots.

One of LafargeHolcims major strength which is rarely present in other competitors is the capacity to disseminate best practices (consistency, quality, and innovation of our cement, concrete, and aggregates solutions) over a larger number of countries.

LafargeHolcim currently employs 115,000 people in professional, operational and functional roles who create value for clients, customers and stakeholders.

PATRICK ATUANYA