February 28, 2018 / 11:11 AM / 24 days ago

New CEO looks to repair cracks in LafargeHolcim marriage

ZURICH (Reuters) - New LafargeHolcim (LHN.S) Chief Executive Jan Jenisch will unveil his strategy to fix the unhappy marriage that created the world’s biggest cement maker when the company publishes its annual results on Friday.

FILE PHOTO: The logo of LafargeHolcim, the world's largest cement maker, is seen at its headquarters in Zurich, Switzerland March 2, 2017. REUTERS/Arnd Wiegmann/File Photo

The former head of construction chemicals maker Sika (SIK.S) is expected to focus on faster growth, more targeted investment, shaking up headquarters and giving more power to local managers.

Jenisch has been drafting plans since taking charge in September, with investors hoping for a reboot after three difficult years.

The company’s share price has slumped around 20 percent since a “merger of equals” between France’s Lafarge and Switzerland’s Holcim in 2015. Former executives are under investigation in France after the company admitted paying armed groups to keep a factory open amid war in Syria.

The scandal triggered the departure of Jenisch’s predecessor Eric Olsen, who has denied wrongdoing, and the ditching of his targets.

Jenisch’s plans will overshadow LafargeHolcim’s results. Expectations are high for the 51-year-old German who doubled profit during his five years leading Sika, helping the company’s share price to rocket.

“Jenisch is one of the best CEOs in the sector,” said Phil Roseberg, an analyst at Bernstein. “Nobody has really heard him speak yet, people want to know what his plan is.”

Growth is likely to be a priority. Experts expect the executive to try to repeat his success at Sika and have LafargeHolcim’s sales grow faster than the cement industry.


There could also be cost cuts, with a shake-up of headquarters on the cards as Jenisch simplifies the business. It still has separate offices in Paris, Lyon, Zurich and Holderbank in Switzerland carrying out corporate functions.

“He can increase returns though a strong and tough reduction in general and administration costs,” said Albert Chiandetti, a Fidelity International fund manager and LafargeHolcim investor.

“This was a target for the merger, but so far it has been slow to be achieved.”

    There could be more emphasis on increasing sales via concentrated investment in fewer markets, for example rebounding economies in the United States and Europe or developing markets such as China and India.

    Germany’s HeidelbergCement (HEIG.DE) raised its target for synergies from the takeover of Italcementi for the third time in less than a year in February and joined peers in forecasting a rise in construction activity along with economic growth.

    Although LafargeHolcim operates in 80 countries, it generates roughly three quarters of its core operating profit in its 15 biggest markets, Bernstein estimates. The group employs 90,000 people.

    These faster growing areas will likely get the lion’s share of investment, as seen with last week’s decision to spend 200 million francs on a new cement plant in northern India.

    “They could leave small, single markets or countries where the company’s market share is not strong enough to preserve their pricing power, or where they have too much capacity for future demand,” said Fidelity’s Chiandetti.

    Large acquisitions are unlikely, rather a focus on bolt-on deals to add capacity like last week’s accord to buy British aggregates and concrete maker Kendall Group.

    “The merger of Lafarge and Holcim has been very difficult. Now for the first time since the merger was conceived, the company has the best chance of making it work,” said Roseberg.

    Reporting by John Revill; Editing by Keith Weir

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