Holcim Ltd. announced a management shake-up under new Chief Executive Officer Bernard Fontana and said the Swiss cement maker may need to further streamline its business in Europe to stem falling demand.
Holcim will introduce a “leaner and more efficient” structure, including a new head of Europe, as of Sept. 1, it said today. The cement maker also cut its outlook for the region as it reported second-quarter earnings, predicting a contraction for 2012 after previously anticipating a stable development.
“When the market goes so low you need to adapt your cost,” Fontana, who took over in February, said on a conference call. Spain, Italy and Bulgaria suffered the steepest volume declines, he said.
Holcim dropped the most in 3 weeks, as its European outlook mirrored that of Dublin-based building-materials maker CRH Plc, which said yesterday that it is advancing a cost-cutting program as European sales drop faster than anticipated. Holcim cut almost a third of employees in Spain in July, as it battles overcapacity in southern Europe.
“Trade unions understand that the economic situation in some parts of Europe is really difficult,” Chief Financial Officer Thomas Aebischer said in an interview, adding that dialog with worker representatives “will continue”. Holcim looks at capacity utilization and the profitability of units when taking decisions on restructuring, Fontana and Aebsicher said.
Holcim fell as much as 3 percent to 58.20 Swiss francs and traded at 59.80 francs as of 1:49 p.m. in Zurich. The drop was the biggest since July 23, valuing Holcim at about 19.51 billion Swiss francs.
A building slump in Europe, which accounted for 29 percent of Holcim’s sales in 2011, means cement makers are in the midst of restructuring their units in that region, including headcount reductions and plant closures.
Second-quarter net income at Holcim rose 9.2 percent from a year earlier to 379 million Swiss francs ($389 million). The gain was Holcim’s first in five consecutive quarters. Sales rose 2 percent to 5.6 billion francs, below the 5.7 billion-franc average estimate of analysts in a Bloomberg survey.
As part of the changes announced today, three managers will leave the executive committee and Urs Bleisch has been promoted to head Fontana’s “Holcim Leadership Journey”.
Holcim will bundle several European divisions into one unit led by Roland Koehler, who is now CEO of Holcim Group Support Ltd. Bernard Terver, who leads Holcim’s U.S. businesses, will join the executive committee. Executive Committee members Benoit-H. Koch, responsible for North America, the U.K., Norway and the Mediterranean, and Patrick Dolberg, responsible for Western and central Europe, will leave the company.
Urs Boehlen, member of the executive Committee and currently responsible for Eastern and Southeastern Europe, CIS, will step down and act as an adviser to Fontana until his retirement in 2013.
“Holcim has taken out a layer of executives in Europe,” Ian Osburn, an analyst at ING Groep NV in Amsterdam, said by phone. “This is Fontana taking much more direct control of the business.”
Holcim will increase operating profit by at least 1.5 billion francs by the end of 2014 by cutting energy consumption, supply chain costs, and introducing measures to improve customer loyalty, Fontana said in May.
The company said today it expects better than previously forecast growth in North America and reiterated its target of total organic growth in operating earnings before interest, taxes, depreciation and amortization this year.
HeidelbergCement AG and Lafarge SA both beat analyst estimates for the second quarter and have followed Holcim in announcing cost cuts, with Lafarge pledging an additional 1 billion euros ($1.2 billion) of asset sales to reduce debt.
The Swiss company is the only major cement maker to have retained its investment grade credit rating. Fontana is seeking to preserve the rating as he faces the risk of antitrust fines from regulators in Brazil and India and the slowdown in Europe.