Holcim has completed its 100 years of existence since it was founded under the name of “Holderbank” in Argau, Switzerland. Holcim is the largest producer and distributor of Cement in the world.
As my series on finding value in Cement (see Value in Cement - Financial Strength), I am looking at Holcim in more detail. We already saw that Holcim has the best balance sheet in the group of companies we discussed in the article.
Holcim just declared its full year results for 2011. The plan is to look a bit at the financial report and the management. We will delve deeper into Holcim as we go.
Holcim reports its income in Swiss Francs (CHF). The recent appreciation of CHF against almost all currencies has severely effected the results of corporations in Switzerland. For example, even though Holcim sold more Cement and Aggregates (in volume) it has lower sales in CHF. The key figures from 2011 annual report show a drop of 4.2% sales in CHF.
Holcim’s loss in sales seems to have directly effected the income. Reading the shareholder letter the management offers the following reasons
Holcim is very geographically diversified. What I like about is its willingness to buy stakes in already entrenched businesses instead of competing with them directly. For example, it bought 50% stakes in Ambuja Cement and ACC (both from India) quite a long time back from the families that owned majority stakes in them.
Holcim sold more cement, aggregates, and ready-mix concretes; only asphalt was a bit down. The sales according to the segment as well as geography is given below.
Holcim expanded its capacity in some of the markets.
Holcim has recently made a change at the top. Markus Akermann the CEO retired on Jan 31, 2012 and has been replaced by Bernard Fontana. Bernard has a lot of experience in the steel industry as he was working for ArcelorMittal since 2004. He was the
CEO of Aperam, a spinoff of ArcelorMittal since 2010. His career there is too short to be judged very convincingly. With the previous CEO working since 1978 for Holcim when he became the CEO in 2002, the current short tenure of Fontana is a bit worrying to me. He is an outsider to Holcim and only time will tell if he can lead it as well as the departing CEO.
The Board of director hold 65.9 million shares at the end of 2011, this is up from 59.7 million share from last year. This is more than 20% of the shares outstanding. Most of these shares are held by the board member Thomas Schmidheiny. He is the member of a fourth-generation of Swiss-German family fortune.
The senior management hold 296.8 k shares and 924.3 k options. The share options outstanding at the end of 2011 including former members is in the table.
With the current price of Holcim around 60CHF, a large number of these options are under-water. Only the options granted in 2003 and 2009 (together 435k, 30% of total options outstanding) are showing profit.
As my series on finding value in Cement (see Value in Cement - Financial Strength), I am looking at Holcim in more detail. We already saw that Holcim has the best balance sheet in the group of companies we discussed in the article.
Holcim just declared its full year results for 2011. The plan is to look a bit at the financial report and the management. We will delve deeper into Holcim as we go.
Holcim reports its income in Swiss Francs (CHF). The recent appreciation of CHF against almost all currencies has severely effected the results of corporations in Switzerland. For example, even though Holcim sold more Cement and Aggregates (in volume) it has lower sales in CHF. The key figures from 2011 annual report show a drop of 4.2% sales in CHF.
2011: Annual report
Holcim: key figures
| Items (in mCHF) | 2011 | 2010 | Change % |
| Sales | 20,744 | 21,653 | -4.2 |
| EBITDA | 4,264 | 4,988 | -14.5 |
| Op margin | 9.3 | 12.1 | |
| Op CF | 2,753 | 3,659 | -24.8 |
| Net income - shareholders | 275 | 1,182 | -76.7 |
| Net financial debt | 11,549 | 11,563 | +1.6 |
| Equity | 19,656 | 21,121 | -6.9 |
| EPS | 0.86 CHF | 3.69 | -76.7 |
| Dividend | 1 CHF | 1.5 CHF | -33.3 |
Holcim’s loss in sales seems to have directly effected the income. Reading the shareholder letter the management offers the following reasons
In many markets higher costs for raw materials and energy could not immediately be passed on in full. This is one of the factors that impaired financial performance in the Philippines, India, North America, and the UK. Only in the fourth quarter of the year did this situation show signs of easing.
In 2007, Holcim responded to the South African policy of promoting Black Economic Empowerment (BEE) by selling a majority interest in AfriSam (formerly Holcim South Africa) to a BEE-compliant consortium; the Holcim Group retained a 15 percent stake in the company. Following a sharp decline in demand for building materials since 2010, AfriSam was forced to undertake a far-reaching financial restructuring. For Holcim this meant write-offs of CHF 415 million on issued notes, accrued interest, and foreign currency movements. It now holds a 2 percent stake in AfriSam. Because of the weakness in demand, impairments totaling CHF 360
million on property, plant and equipment, and goodwill impairment also had to be made in Spain, Eastern Europe and the USA. The impairments, totaling CHF 775 million, are cash-neutral. However, they have to be taken into account in the annual financial statements. As a result, consolidated net income fell by 57.9 percent to CHF 682 million and the proportion attributable to shareholders of Holcim Ltd decreased to CHF 275 million.
Sales analysis
Holcim is very geographically diversified. What I like about is its willingness to buy stakes in already entrenched businesses instead of competing with them directly. For example, it bought 50% stakes in Ambuja Cement and ACC (both from India) quite a long time back from the families that owned majority stakes in them.
Holcim sold more cement, aggregates, and ready-mix concretes; only asphalt was a bit down. The sales according to the segment as well as geography is given below.
Holcim expanded its capacity in some of the markets.
In Russia the new Shurovo plant was commissioned. Probably the most modern plant
in the country, it supplies the booming Moscow market with building materials. Shortly before the end of the year the first clinker was produced at Garadagh Cement in Azerbaijan; this new kiln line will strengthen the Group company’s position in this attractive market. As is well known, in Asia the shortfalls in housing and infrastructure are still enormous. Holcim is making great efforts to adjust existing capacity to the growth in demand. In India, ACC commissioned the world’s largest clinker kiln at its Wadi plant; the Chanda plant was also expanded considerably; Ambuja Cements commissioned additional clinker capacity in Rauri and Bhatapara as well as two new grinding facilities; and in 2013 the Tuban plant in Indonesia, a market with huge potential, will come on stream. In Latin America, cement capacity was significantly increased in Ecuador,
and in 2014 Holcim will go on stream with a new kiln line in the Barroso plant in Brazil.
Management
Holcim has recently made a change at the top. Markus Akermann the CEO retired on Jan 31, 2012 and has been replaced by Bernard Fontana. Bernard has a lot of experience in the steel industry as he was working for ArcelorMittal since 2004. He was the
CEO of Aperam, a spinoff of ArcelorMittal since 2010. His career there is too short to be judged very convincingly. With the previous CEO working since 1978 for Holcim when he became the CEO in 2002, the current short tenure of Fontana is a bit worrying to me. He is an outsider to Holcim and only time will tell if he can lead it as well as the departing CEO.
Compensation
The contracts of employment of senior management are concluded for an indefinite period of time and may be terminated with one year’s notice. Depending on the length of tenure with the Group, contracts concluded before 2004 include severance compensation amounting to one annual salary or two annual salaries in the event of notice being given by the company. More recent contracts of employment no longer include severance compensation.In 2011, twelve non-executive members of the Board of Directors received a totalremuneration of CHF 3.1 million (2010: 2.9) in the form of short-term employee benefits of CHF 2.0 million (2010: 1.8), post-employment benefits of CHF 0.1 million (2010: 0.1), sharebased payments of CHF 0.9 million (2010: 0.9) and other compensation of CHF 0.2 million (2010: 0.1)
The total annual compensation for the 14 members of senior management (including CEO) amounted to CHF 31.6 million (2010: 36.7). This amount comprises
a base salary and a variable cash compensation of CHF 18.2 million (2010: 18.2), share-based compensations of CHF 4.4 million (2010: 4.4), employer contributions to pension plans of CHF 5.1 million (2010: 5.3) and “Others” compensation of CHF 4.0 million (2010:8.8)
Shareholding
The Board of director hold 65.9 million shares at the end of 2011, this is up from 59.7 million share from last year. This is more than 20% of the shares outstanding. Most of these shares are held by the board member Thomas Schmidheiny. He is the member of a fourth-generation of Swiss-German family fortune.
The senior management hold 296.8 k shares and 924.3 k options. The share options outstanding at the end of 2011 including former members is in the table.
With the current price of Holcim around 60CHF, a large number of these options are under-water. Only the options granted in 2003 and 2009 (together 435k, 30% of total options outstanding) are showing profit.
