Holcim CEO sees cost-cutting starting to work

Frenchman Bernard Fontana, CEO of Holcim, who last year became the first outsider to lead the 101-year-old Swiss company, has been implementing a strict cost-cutting regime right through the company that extends even to himself.

Shortly after taking the helm of Holcim, the 52-year-old Fontana launched a cost-cutting programme with the aim of restoring Holcim's return on invested capital (ROIC) to at least eight per cent after tax and boosting operating profit by at least CHF1.5bn (US$1.7bn) by the end of 2014.

Analysts at HSBC estimate that the three biggest European cement companies – Holcim, Lafarge and HeidelbergCement – will have an average ROIC of 7.6 per cent in 2014. They forecast a 2014 ROIC of 8.7 per cent for Holcim.

Holcim's emphasis on cost discipline and higher-margin services comes as the global cement industry tightens its belt to adjust to a construction slump that has hit profit and dampened demand for building materials.

Cost-cutting is starting to get results. Operating profit grew three per cent in the second quarter, despite a 3.3 percent drop in net sales. But a slowdown in its biggest market, India, forced Holcim to rein in its full-year guidance in August.

Sliding currencies in Asia, where Holcim has the biggest exposure among the cement makers, have also hit its shares, which have lagged rivals, as investors fear foreign exchange headwinds will depress profit margins.

Shares in Holcim are up just one per cent so far this year, compared with a 12 per cent rise in Lafarge and a 27 per cent leap in HeidelbergCement, which has benefitted from its bigger exposure to the United States.

Fontana insists Holcim is on track to add up to CHF700m to profit this year, and the company posted strong growth in first-half operating profit in Latin America and Europe.

Holcim still has the best balance sheet in the sector, which should put it in a stronger position to make acquisitions when the time comes, says ZKB analyst Martin Huesler.