Lean Capital Spending
We are in a position to significantly reduce our capital expenditures without affecting our ability to grow our business.
- While completing the projects started before the merger, over the next two years we will strictly manage our capital expenditures in order to reduce them and meet our stated targets.
- This will not impair our ability to grow in the future. We have the headroom to increase the utilization of our asset base, while currently planned projects will add new capacity over the next few years.
- Similarly, we will increase capacity through operational excellence in our plants, and by pursuing capital-light asset models.
- Upon the closing of the merger, we took the immediate decision to restrict capital expenditures in 2015 by approximately CHF 200 million.
- Over the next two years we expect a cumulative capital expenditure of maximum CHF 3.5 billion.
- Thereafter we target a capital expenditure run rate of less than CHF 2 billion per year.
LafargeHolcim is operating in a traditionally capital-intensive industry. We believe that thanks to our global footprint with the already installed capacity, and our know-how in preventive maintenance and capacity optimization, we are in an excellent position to pursue a lean capital spending strategy, significantly reducing our capital investment while retaining our ability to grow our business.
We have already begun implementing this strategy. After the merger, we restricted capital expenditures in 2015 by approximately CHF 200 million. Over the next two years we expect a cumulative capital expenditure of CHF 3.5 billion, and thereafter are targeting a capital expenditure run rate of less than CHF 2 billion per year.
Room to grow
We have the headroom to grow using the capacity we already have or are developing. Average capacity utilization in the countries where we do business is 68 percent. A number of projects that were started before the merger will add to that capacity over the next two years. This means we are in an excellent position to meet growth in demand using the capabilities we already have.
We also have means of growing our business by changing the way we use our existing assets. For example, we have identified significant opportunities to employ asset-light models in our cement business, improve how our companies work together across borders, or better leverage logistics capabilities and our trading network.
Finally, we can grow our business through improving operational excellence in our plants. In all cases, our goal for the future is simple: to analyze critically before we spend and to employ innovative approaches to help us reach our goals in a capital-efficient way.
Ball Mill Initiative: small adjustments, big results
When a team from Holcim examined data from the company’s 450 ball mills back in 2011, they had trouble believing what they were seeing. Some 85 percent of the mills – which are part of every cement plant – were not being optimally run. That meant they were not grinding at optimum efficiency, and using more energy than they needed to.
If on a mill-for-mill basis these efficiency losses were not always readily apparent, looked at in aggregate numbers, they were significant. The team realized that by routinely optimizing the ball mills, the company could increase capacity and reduce power consumption of its mills with marginal investment. Between 2012 and 2014, ball mill optimization at Holcim contributed CHF 100 million in EBITDA growth and cost savings.
Thanks to the merger, the initiative is now being carried over to Lafarge ball mills. Through training and best practice sharing, the company expects to continue to reap significant efficiency gains – a great example of how in the new organization operational excellence can make a big difference, even with little use of resources.