LafargeHolcim launched its new Strategy 2022 – ‘Building for Growth,’ aiming to drive profitable growth and simplify the business to deliver resilient returns and attractive value to stakeholders.
The new strategy will shift gears toward growth of the top and bottom line over the next five years. Over this period, the company commits to the following targets:
- Annual Net Sales growth of 3 to 5 percent.
- Annual Recurring EBITDA growth of at least 5 percent.
- Improvement in Free Cash Flow to over 40 percent of Recurring EBITDA.
- Improvement in ROIC to more than 8 percent.
“Our new Strategy 2022 – ‘Building for Growth’ will allow us to more vigorously capture market opportunities, capitalizing on the best assets in a growing building materials market. We have already started to create a leaner more agile organization, moving considerably closer to our customers through the empowerment of the country management,” said Jan Jenisch, LafargeHolcim chief executive officer.
“The strategy is underpinned by a new set of targets that centers on growth, improving profitability, increasing cash generation and producing more attractive and sustainable returns for shareholders. Our vision is to be a global blue chip company in the attractive and growing building materials market,” he concluded.
The strategy is based on the four value drivers of Growth, Simplification & Performance, Financial Strength and Vision & People.
The building materials market is forecast to grow 2 to 3 percent per annum. Through the value driver Growth, LafargeHolcim will aim to capitalize on this underlying growth, seeking to deliver above-market performance. The company will utilize its strong asset base to invest in markets where greater opportunities exist while being more selective in other markets.
LafargeHolcim will execute more aggressive strategies for Aggregates and Ready-mixed Concrete alongside its existing strong Cement business. The group will build a fourth business segment, Solutions & Products, to take advantage of products and applications that are closer to the customer. This segment, which currently includes precast, concrete products, asphalt, mortars, and contracting and services, already generates annual Net Sales of CHF 2.1 billion ($2.2 billion). The agile, country-based growth strategies will target value-enhancing bolt-on acquisitions to leverage scale and margins.
The value driver Simplification & Performance will create a cost disciplined operating model and a corporate-light structure. There will be a greater focus on countries, with local markets empowered and fully profit and loss accountable. The 35 biggest markets will report directly to group management and local profit and loss leaders will be assigned for all four business segments.
The two corporate business functions Performance & Cost and Growth & Innovation have been merged and management reduced to nine members. The simplification will allow LafargeHolcim to improve its cost efficiency considerably. This is expected to create an SG&A cost saving of CHF 400 million ($423 million) per annum with the related program expected to be completed by Q1 2019. As part of this program, the corporate offices in Singapore and Miami will be closed by mid-year.
Financial Strength will ensure disciplined value creation through maintaining an investment grade credit rating. Growth will be funded through divestment of selected assets during the course of 2019 worth at least CHF 2 billion ($2.1 billion). Capex investment will be kept below $2.1 billion per annum and excess free cash flow will be used to pay an attractive dividend.
The value driver Vision & People further develops the values of trust and integrity, the commitment to Health & Safety and the desire to be at the forefront of sustainable construction solutions and innovation.