Patrick Winters
Holcim chief executive Bernard Fontana is turning waste into profit at the world’s largest maker of cement by burning toxic baby dolls, contraband cigarettes and old sunglasses.
Fontana, who last year became the first outsider to run Switzerland-based Holcim in its 101-year history, is ramping up the use of waste materials, instead of coal, to heat cement kilns from India to Vietnam and cut costs.
The expansion into waste management was generating revenue as companies such as cigarette makers paid to burn copycat and expired goods, said Aidan Lynam, an area manager for Holcim in south Asia.
“They watch to make sure every last cigarette goes into our kiln,” he said, referring to manufacturers in Vietnam that paid to cremate contraband.
Following more than $10 billion (R98.5bn) of acquisitions in the decade through 2011, Fontana began a cost-cutting programme last year to boost operating profit by Sf1.5bn (R16.2bn) and adjust for declining demand amid the European debt crisis. Burning waste may make some cement plants in Asia as energy efficient as in Europe, helping Holcim to free up cash and compete with rivals Lafarge and Cemex.
“Short term, it’s a massive saving; over time it will slow down,” said Ian Osburn, an analyst at Cantor Fitzgerald in London, adding that energy was about one third of the cost of making cement. “Holcim clearly have been leaders for this and early thinkers, but all the cement manufacturers move quickly to copy each other.”
Alternative fuels contributed about 20 percent of energy used at European cement plants, said Philippe Fonta of the WBCSD cement sustainability initiative, consisting of manufacturers representing about 30 percent of world production. Alternative fuels represented less than 1 percent in markets such as India, he said.
“There’s huge potential, particularly with the use of municipal solid waste in fast-growing emerging countries,” he said. Countries such as India could boost the use of alternative fuels to 25 percent over the next decades, he said.
Cement makers are seeking to cut fuel costs after a slump in demand following the debt crisis and expensive acquisitions.
Cemex, the biggest cement maker in the Americas, has posted net losses for 15 quarters in a row as the US construction market slumped after its $14.2bn acquisition in 2007 of Rinker Group. In September last year, Cemex agreed on a debt restructuring with creditors to extend the maturity of bank loans by three years.
France’s Lafarge, which acquired Orascom Cement for e10.2bn (about R136bn at current rates) in 2008, is seeking to reduce borrowings to below e10bn this year to regain an investment grade rating. It has announced e1.7bn of asset sales since the start of last year.
Holcim, which paid $4.1bn for Aggregate Industries in 2005, has avoided a drop to junk status. Holcim’s stock has dropped 38 percent in the past six years in Zurich, while Lafarge has declined 45 percent in Paris and Cemex has lost 48 percent in Mexico City.
Holcim’s Untervaz plant in a Swiss valley above the river Rhine is a model for what the cement maker wants to achieve at its emerging market operations. The plant, founded in 1957 by Max Schmidheiny, whose descendant Thomas Schmidheiny is Holcim’s largest shareholder, already uses up to 40 percent alternative fuels to fire up the kilns.
At one point fuel included sick cattle at the height of the European bovine spongiform encephalopathy crisis. Now the plant burned mainly tyre chips and plastics as substitutes for coal or petcoke, site manager Markus Hepberger said.
Holcim’s Wadi plant in India could produce six times as much cement as the average Swiss plant in a year, and had a correspondingly big energy bill, Lynam said. Holcim wanted to bring Asian plants, especially in India, up to the same level of efficiency as those in Europe, he said. – Bloomberg