Along with most of the other multinational cement producers the weather and a shorter reporting period has given LafargeHolcim an easy target to blame its first quarter troubles on. Cement and overall sales both grew by over 3% year-on-year on a like-for-like basis but its earnings have fallen.
The problem appears to have arisen from falling earnings in Europe and its Middle East African regions. The decline in Europe was pinned on the weather, less working days and a disproportionate impact of maintenance shutdowns despite positive market trends in most countries. However, in Middle East Africa the finger was pointed squarely at ‘challenging’ conditions in key markets. If the trends from late 2017 continued then the hotspots causing LafargeHolcim trouble were likely to be Algeria, Egypt and Nigeria. That reliance on key markets is contrasted in Asia Pacific where markets in Indian and China have provided sufficient sales and profit growth to overcome problems in South East Asia. HeidelbergCement, its nearest multinational competitor with first quarter results out today, seemed to cope better with increased sales volumes of cement driven particularly by Indonesia and India.
Graphs 1: First quarter cement sales volumes and sales revenue for LafarageHolcim, 2015 – 2018. Source: Company reports.
The graph above doesn’t seem to show the benefits the merger between Lafarge and Holcim promised back in 2015. Remember though that LafargeHolcim has been steadily reducing in size. Like-for-like sales generally show a much better situation.
In the latest results chief executive Jan Jenisch was keen to move on and focus on the group’s reorganisation plan, Strategy 2022. It has targeted net sales growth of 3 – 5% and recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) of at least 5%. Both look achievable based on previous quarterly and annual reports although the switch to recurring EBITDA from operating EBITDA makes it harder compare the first quarter of 2018 with the one in 2017.
The other notable change in recent months has been the decision by Thomas Schmidheiny to leave the board of LafargeHolcim. He has been named as the group’s honorary chairman and he will remain as a major shareholder of the group. During the negotiations to merge Lafarge and Holcim in 2015, Schmidheiny held out to get a better deal leading to Lafarge’s Bruno Lafont losing out on the chief executive role. Instead, that position went to Lafarge’s Eric Olsen who was succeeded by Jenisch in October 2017. Lafont and Olsen have since been enveloped by the French legal investigation into Lafarge Syria’s conduct during the Syrian Civil War.
How much of a difference Schmidheiny’s departure from the board of LafargeHolcim will make remains to be seen. However, the sense that Jan Jenisch is making changes to the group is palpable with changes made to its corporate structure in December 2017 followed by the introduction of the wider Strategy 2022 initiative. With the bad weather hopefully ended for the year all eyes will be on the half-year results.