Holcim Aims To Raise Profit By Cutting Costs
05/14/2012| 02:34am US/Eastern
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--Holcim launching measures to generate additional operating profit of at least CHF 1.5 billion by end-2014
--Measures include costs reductions and efficiency improvements
--At least CHF150 million positive impact to be achieved in 2012
(Updates throughout with details, adds background.)
By Marta Falconi and John Revill
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Holcim Ltd (HOLN.VX) Monday said it's launching measures to increase operating profit by at least 1.5 billion Swiss francs by the end of 2014, in the face of rising costs and weakening demand in Europe.
The Swiss company, which is the world's largest cement maker by sales, said its program includes measures such as reducing logistics costs, increasing energy efficiency and the use of alternative fuels and raw materials and a further reduction of net working capital. The company, which expects the program to cost less than CHF200 million, also cited increasing fixed costs savings and added that it may make selective divestments.
"After intensive discussions at the senior management level and based on close collaboration with the group companies, I am confident that we will achieve these targets. At least CHF150 million positive impact will be achieved in 2012," Chief Executive Bernard Fontana said in a statement.
Cost-cutting has been a feature of the building supplies industry which has been fighting rising raw material and fuel costs, while demand in Europe has been falling as infrastructure projects have been put on hold and the housing market in many countries stalled.
French rival Lafarge SA (>> LAFARGE) cut EUR70 million in the first quarter towards its EUR400 million cost reduction target in 2012, while HeidelbergCement AG (>> HeidelbergCement AG), cut almost EUR184 million more in annual costs than it planned in 2011 and increased its savings program to EUR1 billion by 2014 compared with its 2010 cost base.
Holcim has been battling with energy costs, which have risen by around 6% to CHF17 per ton of cement from CHF16 last year. Cold weather also hit demand in Europe, Holcim's second largest market, while southern and eastern Europe in particular suffered lower sales due to a dearth of public and private sector projects. Although Holcim managed to increase its prices in various markets during the first three months of 2012, that wasn't enough to compensate.
Last week, Holcim reported lower-than-expected net profit for the first three months of 2012. Net profit was flat at CHF10 million, lower than analyst forecasts of CHF38 million. Sales were slightly above expectations, rising 2.2% to CHF4.76 billion.
The "Holcim Leadership Journey" program is aimed at increasing the company's return on capital invested back to its minimum target of 8% after tax.
-By Marta Falconi, Dow Jones Newswires; +41 43 443 8043; marta.falconi@dowjones.com
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