Friday, 14 May, 2021

LafargeHolcim in loss, but in battle for its shareholders

The new cement giant has announced heavy losses but its new boss, Eric Olsen, has a plan to keep shareholders happy.


Appointed in April to lead the new European cement giant LafargeHolcim, merged in July, Eric Olsen presented this morning the first results of the group for 2015. A very difficult year since turnover is down by 6 %, to 30 billion Swiss francs, and operating income fell by 10%. This is due to the sudden brake on growth in emerging countries, where LafargeHolcim carries out more than 60% of its activities. Worse still, LafargeHolcim shows a net loss of 1.4 billion Swiss francs, due to a massive asset depreciation of more than three billion!

Happened by accident

The communication exercise this morning was therefore not the most comfortable for the new boss, who arrived at the head of the group somewhat by accident. This 52-year-old American, who took French nationality only a few months before his surprise appointment, in April took the place that was to fail Bruno Lafont, CEO of Lafarge. Removed from operations in March 2015, to be content with an honorary position of “co-chairman” of the board of directors, Lafont then paid the price for a memorable showdown between the shareholders of Holcim, mainly the Swiss Thomas Schmidheiny, and those of Lafarge, the Belgian Albert Frère and his Egyptian partner Nassef Sawiris. The three parties to the negotiation having agreed on a new parity of share exchange, favorable to Switzerland, they then found a new consensual leader: Eric Olsen, from the ranks of Lafarge but with American culture. more “Swiss-compatible”. They will not be disappointed. Despite very poor results this year, the dividend distributed to shareholders, of 1.50 Swiss francs, marks a sharp increase compared to previous years. This is 8% better than last year for Lafarge shareholders and 15% for those of Holcim. And if Eric Olsen seemed a little stuck to his notes this morning in front of journalists and analysts, he nonetheless remains determined in his strategy of installation in power. Around two axes: gain legitimacy and satisfy shareholders.

He asserts his authority

To establish his authority, the new general manager did not go all the way. Two weeks after his appointment, he brought together his entire executive committee to pass the message: no more games and trickery of ex-Holcim against ex-Lafarge and vice versa. “I warned everyone”, says the boss: everyone must row in the same direction, under penalty of dismissal. In October, having acquired the conviction that the financial director, Thomas Aebischer, an ex-Holcim, who had also helped to soap the board of Bruno Lafont, would not play the game, Eric Olsen did not bat an eyelid: “He obtained the head of what was thought to be unbeatable and with the approval of the board of directors”, relates a relative of the boss. Too bad for the perfect parity of the comex, which will therefore have one Lafarge more than Holcim: Aebischer is replaced by an external manager, Ron Wirahadiraksa, from Philips. “He wants new blood. And it’s not over ! “ warns this close. The headquarters of the two historic companies have also been seriously downsized: 166 people in France and 120 in Switzerland.

Everything for shareholders

From now on, it is 100% dedicated to the satisfaction of its shareholders. He’s not shy about it : “We are orienting ourselves to free up cash. “ And is explained: “The two groups have invested too much in recent years, ensuring shareholders a return on capital employed of only 5%. It is insufficient. “ He therefore established his roadmap with this ultimate goal: to release 10 billion euros in cash flow by 2018 to give them more back. To achieve this, the plan is clear: 3.5 billion euros in asset disposals from 2016, costs revised to a minimum ensuring 1.850 billion synergies by 2018 and the closure of around ten countries (out of 90 where the group is present). This morning, he announced the start of negotiations to sell the subsidiaries in Morocco, South Korea and Saudi Arabia. Eric Olsen also describes LafargeHolcim’s new profile: “We are becoming asset light”. The group will now spend less than two billion capex. Instead of investing in new all-round capabilities, Eric Olsen wants to optimize his existing global platform. As in New Zealand where he preferred to open two reception terminals for cement from elsewhere, for 50 million euros, rather than building a new factory at 500 million.

With this program, Eric Olsen hopes to gain the confidence of the markets to succeed in the ultimate challenge that the shareholders have certainly thrown at him: to increase the value of the LafargeHolcim share. Since the merger, it has been halved …

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