Holcim Ltd. Chief Executive Officer Bernard Fontana is pushing the cement maker to a 1.5 billion-franc ($1.6 billion) earnings boost by the end of 2014 as he streamlines purchases and logistics and puts assets up for sale.
Fontana, who took over in February, announced the plan less than a week after Holcim reported lower quarterly earnings. The savings program, which affects all regions, will cost 200 million francs in one-time expenses to implement, the Jona, Switzerland-based company said in a statement today.
“This appears to be an ambitious set of targets, although it is as yet unclear what proportion of these savings will be permanent in nature,” Michael Morris, an analyst at JPMorgan Cazenove, said in a note.
Holcim joins larger competitor Lafarge SA in seeking to beat sluggish demand in parts of Europe and improve profitability by cutting fuel costs and matching inflation with price increases. Under Fontana, who joined from Aperam, a spin-off from steelmaker ArcelorMittal, Holcim will remain cautious about new investments, it said earlier this month.
Shares of Holcim advanced as much as 1.95 francs, or 3.5 percent, to 57.15 francs in Zurich, and traded at 54.45 francs as of 10:23 a.m., shrugging off wider investors concerns that Greece could exit the single European currency and deepen the region’s economic woes.
Holcim has advanced 12 percent in Zurich this year, prior to today, valuing the business at 18 billion francs. That’s in line with the advance of Lafarge, which under CEO Bruno Lafont has also introduced efficiency targets. HeidelbergCement AG of Germany is up 18 percent.
The world’s second-largest maker of the building material may sell assets under its “Leadership Journey” program, which is targeting 150 million francs in added profit this year. Improving customer focus and the introduction of new materials will help generate 500 million francs in added profit, the company said.
Holcim also plans some “fast-return” investment projects to boost its use of alternative fuels and upgrade kilns and clinker grinding to generate another 300 million francs by 2014.
“After intensive discussions at the senior management level and based on close collaboration with the group companies, I am confident that we will achieve these targets,” Fontana said on a call.
Additionally, Holcim said it will review the entire asset base across all segments with low utilization levels with a view to assessing the size of the local footprint. Any disposals will be carried out for strategic reasons rather than a fire sale designed to generate cash, Fontana said.
“We have a very good strategic footprint and it’s more to say we are open to selective divestments,” Fontana said. “It’s selective, so not going to be a considerable amount. We’re open to that.”
After splurging on acquisitions and rapid expansion into emerging markets, European cement makers are focusing on cost reductions in weaker markets closer to home after a slowdown in construction in countries such as Spain. In the 10 years to 2010, European cement makers notched up $162 billion in deals, including Lafarge’s $15 billion purchase of Orascom’s cement operation and Holcim’s acquisition of Cemex SAB’s Australian unit for $1.6 billion, according to data compiled by Bloomberg.
Holcim reported a 1.1 percent decline in earnings before interest and taxes, depreciation and amortization to 745 million francs in the first quarter. No asset sales will take place if the keeping the facilities would create more value, Chief Financial Officer Thomas Aebischer said on the call.