Holcim Pursues Latin America Expansion Unworried by Sales Delays

Holcim Ltd., the Swiss cement maker that cut its sales target on sluggish shipments in Brazil, Mexico and India, plans to drive ahead with expansion in Latin America’s two largest markets amid signs demand will recover.

Holcim will look for opportunities to add plants and reenter markets such as Peru, and is prepared to undertake asset swaps with Mexico’s Cemex SAB de CV, Andreas Leu, Holcim’s Latin America head, said in an interview in Zurich on Dec. 6. It’s already planning an exchange of European sites with Cemex.

“If there would be an opportunity to strengthen our position in Mexico, I would take it,” Leu said, adding that large-scale exchanges of assets with Mexico’s largest cement maker are unlikely.

The world’s largest cement maker has built up a 3.4 billion Swiss-franc ($3.8 billion) Latin American business after expanding into nine countries, overtaking European peers HeidelbergCement AG and Lafarge SA. While markets in Mexico and Brazil should grow more than 40 percent this decade, demand fell short this year. Holcim on Nov. 5 abandoned a target to increase sales in 2013.

Mexico’s President Pena Nieto, who took office a year ago, has spent his first year pushing through reforms from privatizing parts of the state-controlled energy industry to raising taxes on high-calorie foods that delayed public spending on building. The proposals absorbed the attention of lawmakers and uncertainty over the impact of the measures hurt investment, Leu said.

Mexican Recovery

“Now the big question is if it’s already bottoming out,” said Leu, referring to the Mexican market. “There’s encouraging signs the bottom has been reached. I wouldn’t go as far as to say it’s turned.”

Leu said he’s “cautiously optimistic” that an upturn may begin as soon as next year. Mexican cement demand is forecast to grow 41 percent to 48 million tons per annum in the nine years through 2020, according to a Holcim investor presentation from 2012. Brazil demand will rise by 46 percent to 95 million tons.

Holcim, the second largest cement maker in Mexico after Cemex, is “lucky” to have such a foothold in the market, said Leu. The barriers to entry are high and France’s Lafarge and Elementia SA, the maker of copper and aluminium products backed by billionaires Carlos Slim and Antonio Del Valle, announced a deal in January to combine their assets in Mexico to bolster their position.

World Cup

Leu, 46, a Swiss national who was born in Peru, began his career with Holcim in 1999 as a consultant, joining the company from an earlier role with the International Committee of the Red Cross in Colombia and Afghanistan.

In Brazil, preparations for the World Cup soccer games haven’t had the impact they could have had, as beyond the stadiums being built, there’s little new infrastructure such as roads and hotels planned by the inaugural soccer game in June, Leu said. Regardless, Holcim is spending $750 million to increase capacity by 2014 and demand for cement may equal the U.S. by 2020, Leu said.

Holcim’s is considering re-establishing operations in Peru, Latin America’s 5th largest market, and is analyzing potential capacity increases in Argentina and Colombia through scaling up existing plants or building greenfield sites, he said. Holcim competes in Colombia with local producer Cementos Argos SA.

Regulatory Review

Holcim faces an in-depth antitrust probe into the European asset swap with Cemex, which will acquire Holcim’s Czech operations in exchange for plants in western Germany to improve profitability. The companies will also combine operations in Spain, with Holcim paying Monterrey, Mexico-based Cemex 70 million euros ($96 million) in cash as part of the transactions.

Regulators said Holcim’s purchase of Cemex’s western German plants may substantially reduce competition. The European Commission said Dec. 4 that it will rule on the deal by March 31.

“There’s still a regulatory approval pending but if the experience in Europe turns out to be successful, I wouldn’t exclude doing an interlinked transaction in other places -- or in a country like Mexico or the U.S,” he said. In Brazil, “somebody has to be willing to sell for us to acquire, or we have to find the opportunities to build. We are looking at both options.”

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