Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

The merger of Holcim and Lafarge created a new giant in global cement with 115,000 employees and 33 billion Swiss francs ($32 billion) in net sales. Big has rarely looked less beautiful.

Reporting its maiden earnings as a combined company on Wednesday the Franco-Swiss building material group laid bare foundations that are weaker than investors hoped.

Post-merger blues

Analysts had lowered forecasts ahead of the results to reflect an increasingly gloomy global growth outlook but the company undershot even those diminished expectations. Ebitda, adjusted for merger and restructuring costs, fell 9 per cent to 4.4 billion Swiss francs in the first nine months of the year. The decline was 3 per cent at constant currencies.

The merger has brought market diversification: no one country contributes more than 10 per cent in Ebitda, according to Bernstein Research. But demand in many of those markets -- China and Brazil in particular -- has deteriorated. The Swiss franc's dramatic appreciation and emerging market currency devaluations are also causing pain.

For a merger that was sold on its ability to create scale, deliver savings and therefore generate cash (a larger group will not have to invest so much), LafargeHolcim's recent cash performance has also been poor. Cash flow from operating activities fell 55 per cent to 697 million Swiss francs at constant exchange rates in the first nine months.

That can be blamed in part on merger costs but management also flagged a "disappointing" working capital performance, which it said was being addressed. Year-end adjusted net debt is anticipated to be a higher-than expected 15.5 billion Swiss francs, about 2.7 times estimated Ebitda.

The prospect of shareholder payouts was one positive, helping to explain a 5 percent rise in the stock on Wednesday morning. A dividend of 1.50 Swiss francs is proposed for this year, better than the 1.30 Swiss francs mooted in the summer. In the medium term, LafargeHolcim is targeting a payout ratio of up to 50 per cent, slightly higher than previous guidance. Buybacks are also a possibility.

Some 3.5 billion Swiss francs in disposals are planned for 2016 and thanks to restrained capex the company plans to generate at least 10 billion Swiss francs in cumulative free cash flow in the 2016-2018 period. Management says this will not depend on a market recovery. But the weak operating performance makes it harder to have faith that all that cash will arrive as expected.  

Adding to the uncertainty are lingering worries about culture and integration. The deal -- billed originally as a genuine merger of equals -- came very close to collapse because of battles over leadership and the exchange ratio for the two sides' shares.

And after Lafarge boss Bruno Lafont missed out on the job of CEO, the merged group settled instead on Eric Olsen, another Lafarge executive. Uniting two very different companies to deliver 1.5 billion Swiss francs in synergies over three years will be tough, especially for someone relatively untested. In October, the experienced finance director Thomas Aebischer was replaced, hardly an auspicious start.

The stock has fallen more than 20 per cent since the mid-July merger, but still isn't cheap when compared to German rival HeidelbergCement, which is going through its own acquisition of ItalCementi. LafargeHolcim shares trade on 22 times the next 12 months' expected earnings, according to data compiled by Bloomberg, compared with 15 times at HeidelbergCement. Some of that premium is explained by the Swiss company's global reach. But as its travails in China and Brazil show, that isn't always a blessing.

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