LafargeHolcim is moving back towards its roots

LafargeHolcim is moving back towards its roots
09 April 2021

LafargeHolcim recently acquired Firestone Building Products as the next move in its restructured building materials portfolio. The US$3.4bn purchase is considered an acquisition to help reduce the company's exposure to emerging markets while bolstering the finishing products arm of its business.

Following the drive towards urban markets
Leading building material companies have been on a restructuring pathway since the global financial crisis in 2008. The main directive of this trend for LafargeHolcim has been to lower its dependence on emerging market countries. As a result, emerging markets now represent a reduced 38 per cent of total company revenues. A further element was the need to improve LafargeHolcim's finishing products division, including roofing products. This area is less affected by tightening climate regulations and is seen as an area of growth which will benefit from the sustainable building trend. Urbanisation trends are accelerating the development of the flat-roof market, currently estimated at around US$50bn globally. By entering this attractive new business, LafargeHolcim will deliver above-market growth, driven by innovative technologies and branding.

Jan Jenisch, LafargeHolcim CEO, said: "I am excited to be entering the highly attractive roofing business. With Firestone Building Products we are strengthening our biggest market, the US, while also building a global growth and innovation platform for the company. Today's milestone is a strategic leap on our journey to become the global leader in innovative and sustainable building solutions, to build a world that works for people and the planet."

With the acquisition, LafargeHolcim has expanded its reach into waterproof flat roofing membranes. Seen as a first step, it gives the company a net debt of CHF10.3bn (US$11.1bn) (with a leverage ratio of 1.67x) while other deals are expected further down the line, according to CIC Market Solutions.

LafargeHolcim's free cash flow is now at CHF3.5bn (EUR3.2bn after repayment of rental lease debt). With further disposals of cement-related assets and a need to reduce its carbon footprint to become more sustainable, it can build on the Firestone acquisition with similar acquisitions of higher value-added products. 

Restructuring a cement-led portfolio
CIC Market Solutions claims that the Firestone Building Products transaction "completes the first step in the change of strategy led by its new boss [Jan Jenisch] and clearly perceptible since the end of 2018." It is a return to the company's roots when it operated as Lafarge and had a 'Speciality Materials' arm for roofing, gypsum and finishing products, in addition to its main cement and ready-mix divisions. 

The new strategy is defined as portfolio rotation, selling and buying assets that match the new strategic direction of the company, which will increasingly seek to position itself outside of the cement segment. Meanwhile, disposals are needed to create the financial firepower to make new acquisitions. For example, the sale of cement assets in Malaysia and Indonesia added CHF2.1bn over two years to the company. Further disposals are expected in South Africa, the Philippines and Brazil, while acquisitions are likely in mortars, adhesives and coatings to complement the growth in roofing products.

What Jan Jenisch has seen is the centre of gravity for cement markets transfer from Europe and North America to Asia. The Chinese cement players have grown and are expanding out of China, while Turkish and other cement producers have made inroads into the historical supremacy of what was the Big Five (LafargeHolcim, HeidelbergCement, Cemex, Buzzi Unicem and Italcementi). On top of this, the impending Phase 4 of the EU-ETS will place huge disadvantages on the European cement sector. 

Therefore, CIC Market Solutions notes that: "LafargeHolcim North America's strategic direction has changed irrevocably, implying: the abandonment of the all-cement strategy, the drastic reduction of the emerging footprint, particularly in Asia and no doubt in the future in Africa where the Chinese have taken too much market share."

Published under Cement News