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LafargeHolcim CEO plan: Integration, innovation and “growth in the right places”

Lafarge S.A. and Holcim Ltd. executives unveiled a new global leader in heavy building materials in mid July, presenting the merged business—LafargeHolcim Ltd., based in Zurich with major administrative office in Paris—as an operator of 2,500-plus cement, concrete and aggregate plants in 90 countries.

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Eric Olsen’s route to LafargeHolcim Ltd. chief executive officer went through Lafarge North America and Lafarge Group assignments.
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“This day marks our entry into a new era,” affirmed LafargeHolcim CEO Eric Olsen against the backdrop of an LH logo and “A new leader for a new world” tagline. To live up to the promise of a merged business, he outlined an immediate five-point action plan, plus key timelines through 2018 that investors, customers and employees will see from LafargeHolcim:

Synergies. Delivery of €1.4 billion ($1.54 billion) in savings over a three-year period, identifying best practices from both companies and tapping the “huge value creation case embedded in LafargeHolcim.”

Capital allocation. With presence in all relevant markets across the globe, management sees no need for significant capital investment. The LafargeHolcim model will be one of low capital investment and very selective outlays. Underscoring such discipline is a chief LafargeHolcim metric: The company has about 400 million metric tons of cement production capacity, and in 2014 reported utilization at about 70 percent, or 270 million tons. The goal will be “growth in the right places.”

Commercial transformation. Earnings growth through product and service differentiation; leveraging research & development and marketing & sales capabilities; and, an overall mindset of innovation.

Integration. Creation of one new group with the same sets of belonging that existed within Lafarge S.A. and Holcim Ltd.—both companies sharing a deep passion for health, safety and sustainability, and possessing a high level of integrity.

Health & safety. An overarching Lafarge S.A. and Holcim Ltd. value and “the center of our new company.”

The bulk of the savings in the synergies over a three-year horizon will be realized through reductions in target areas including capital expenditures, €400 million ($440 million); procurement, €340 million ($374 million); selling, general and administrative, €250 million ($275 million); and, operations, €200 million ($220 million). Within the 1,000-day synergies window, Olsen cites shorter term goals: structuring activities for each of the five points, 100 days; consummating all regulator-driven asset sales and related transactions, 300 days; and, completing integration process and exhibiting tangible merger results, 500 days.

The executive committee has a clear vision for LafargeHolcim, Olsen notes: A good corporate citizen; one that embraces diversity, values inventiveness and creativity, and is performance driven. Announcements on merger and integration related activities by country or region will be part of a Capital Markets Day for investors in December. Realization of synergies he outlined suggests certain review of the LafargeHolcim North American organization, owing to Holcim (US) Inc. and Lafarge North America headquarters offices in Waltham, Mass., and Chicago, respectively, and Lafarge Canada offices in Montreal and Calgary.