A leadership journey
In May of this year, Holcim announced its ‘leadership journey’, and on Monday 3 September the company held its biennial investor and analyst day. Using the event as an opportunity to expand on the original announcement, it elaborated on the programme to further strengthen its market and costing leadership. Throughout the day, company representatives used practical examples and detailed growth opportunities in Asia and Latin America’s emerging markets to highlight the steps of this journey.
The Holcim Leadership Journey aims to improve the return on invested capital and increase operating profit by at least CHF1.5 billion by the end of 2014 compared to 2011. More than this, though, a key element of the outline is the sustainably improving returns on capital investment.
The company listed its workforce as a chief asset by drawing attention to occupational health and safety, and the development of talent and leaders as factors important to its journey.
Other core elements of the programme are measures to be taken in the areas of customer service excellence and cost leadership, which were explained last Monday by means of various practical examples.
The organisational streamlining measures that came into effect across the Holcim Group at the beginning of the month can be seen as the first step on the group’s journey, and will no doubt ensure the effective diffusion of last Monday’s measures across the whole group. A leaner organisation will, of course, be able to handle changing commercial processes with a greater degree of efficiency.
Holcim intends to measure progress towards the targets of its journey across six working areas: customer service excellence; energy; alternative fuels and raw materials (AFR); logistics; procurement and fixed costs. Volume, price and other aspects specific to each area will be taken into account. The baseline is the operating profit of 2011, though this excludes that year’s one-off charges of CHF375 million, currency fluctuations and changes in consolidation scope.
Measures to be taken
Value creation through new solutions and innovation
Through measures to strengthen customer value, customer loyalty, sales volumes and prices, Holcim hopes to achieve additional operating profit of at least CHF500 million by the end of 2014. The company intends to continue to differentiate itself through new products, services and integrated solutions that create additional value for both the customer and company alike.
Profit growth through cost leadership
The company intends to achieve profit of more than CHF1 billion by strengthening cost leadership through measures to be undertaken in the areas of energy, AFR, logistics, procurement and fixed costs.
For example, through a specially developed approach, all Holcim Group companies can analyze the business potential of AFR in their respective marketplaces and identify and implement strategies accordingly. The company has also implemented a fast return capital expenditure (CAPEX) programme, with the aim of identifying efficiency improving projects with a strong potential for fast return on investment. Of the 102 projects submitted to date, 47 have fulfilled the criteria and were approved for implementation. Corresponding investments amount to CHF144 million, with a payback period of between 8 months and 4 years. Furthermore, in order to benefit from increased purchasing power, procurement will begin to take place at group level in such situations as this is beneficial. A strategy of utilising the group’s central spending power has the potential to increasing spending from CHF600 million to CHF4 billion.
Several examples of cost optimisation measures currently being deployed were also presented. These included logistical optimisations in Latin America, the standardisation of the group’s European business processes and procurement optimisation in the US. Each of these corresponds to cost savings of more than CHF20 million pa.
Growth in emerging markets
Growing populations and increasing wealth in the Asian and Latin American markets continues to drive demand for infrastructure and housing. For Holcim, these circumstances will naturally provide for continued growth. India and Indonesia, for example, are expected to experience a growth in their GDP of 6 – 8% y/y until 2020. In India alone, infrastructure spending is expected to double to approximately US$1 000 billion. In both countries, the company is significantly expanding its production in order to efficiently meet rapidly growing demand. In addition to this, there are numerous expansion opportunities for the group in other Asian and Latin American markets
Holcim has an excellent strategic footprint in these markets and will be able to profit from this expected growth. Across the whole Group, the Holcim Leadership Journey will be crucial in generating the necessary funds for further growth in the emerging markets of Asia and Latin America.
After Holcim’s positive results for 2Q12 and a strong first half, the group seems already to be standing in a strong position to take the first confident strides along its leadership journey. No doubt the investors in attendance at last Monday’s event will have been encouraged by what they heard, and the group is relishing the prospect of its next hundred years.
Adapted from various sources by Jack Davidson.
Read the article online at: https://www.worldcement.com/europe-cis/10092012/holcim_cement_begins_journey_toward_growth/