Lots to mull over in LafargeHolcim’s third quarter results this week. Not least that the new guy is now in charge. Former Sika boss Jan Jenisch took over officially in September 2017. In his first financial statement, he said that the results did not represent the company’s ‘full potential.’ He then said that he had hit the reboot button to reset the group’s expectations to reflect the current market.
The group’s forecast for cement demand globally remains at an increase by 1 – 3% on average for 2017. This is no change from LafargeHolcim’s forecast in mid-2017. What has changed though is the anticipated growth in operating earnings in 2017 revised down to 5 – 7% year-on-year from 10% or higher. Expected measures of earnings per share and leverage have also been reduced. Underpinning this is a change to some of the volume and pricing assumptions for 2018. The group also said it was conducting a business review, including country strategies and a focus on simplification, cost discipline and performance management.
As any IT manager will tell you, when you have a problem with a computer you reboot the machine in the first instance as an easy fix. Jenisch’s version of this strategy will hopefully buy him some time to try and take charge of the company.
Previous chief executive officer (CEO) Eric Olsen was doing similar things since the formation of LafargeHolcim in 2015 to downsize the company into profitability whilst coping with too much cement production capacity worldwide. However, the on going Syria legal investigation forced the company to publicly accept some level of wrongdoing and it cost Olsen his job despite him having zero involvement or even knowledge of the affair. Meanwhile, rumours of continued boardroom clashes between major shareholders that have existed since even before the formation of the company resurfaced with the announcement in mid-October 2017 that chief financial officer (CFO) Ron Wirahadiraksa was leaving after less than two years in the role. As this column noted in May 2017 Jenisch might be exactly the right man for this particular job given his battles at Sika with that company’s controlling family’s wish to sell its stake and majority voting rights to Saint-Gobain.
Moving on, the group’s cement market outlook makes for sobering reading with growth above 2% only expected for Latin America and Asia Pacific regions in 2017. Even North America, the great white hope of cement industry growth in recent years, only has a forecast of 0 - 2%. Actual cement sales volumes in this region fell by 1.6% to 5.9Mt on a like-for-like basis so far in 2017 due to hurricanes and other bad weather events, with ‘cautious’ private and public investment giving an effect too. Incidentally, the Portland Cement Association (PCA) downgraded its assessment of US growth this week too in its latest forecast. Worse still the Middle East Africa region is expected to drop by 2 – 4% due to poor economies in various local markets, notably in Algeria and Egypt. All of this pretty much fits the like-for-like growth of cement sales of 1.8% to 156Mt in the first nine months of 2017 that LafargeHolcim has reported. The surprise though is that Latin America is growing despite on-going problems in Brazil.
This then leaves the surprise message on the same day as the third quarter results release that LafargeHolcim is in talks with the board of South Africa’s PPC. Buying a major African cement producer like PPC doesn’t quite sit with the image of a company whittling itself down into profitability. Instead, it gives the impression that LafargeHolcim wants to dominate the African market ahead of the anticipated demographic cement consumption wave. PPC for its part, after flirtations with other bidders such as Dangote Cement, may simply be trying to raise its price in a bidding war.
Boardroom battles, sluggish global cement consumption, the Syrian legal probe, potential expansion plans in Sub-Saharan Africa and efficiency drives. And these are just the issues we know about! Jan Jenisch has a lot on his plate whatever happens next. Let’s just hope that when the reboot process finishes he doesn’t find himself looking at the construction company version of the ‘blue screen of death.’
