AS previously state-dominated economies embrace the free market, international companies are lining up to extend their global reach. Switzerland’s Holderbank can comfortably claim to be way ahead of the competition in this regard. With a market capitalisation of $4,922 million and a turnover of more than $7,604 million in 1994, Holderbank is the world’s largest cement producer. The company is active in 35 countries on five continents and about a third of its portfolio of companies is in the developing world.
In the Middle East, Holderbank has majority stakes in cement plants in Morocco and Lebanon, and UMAR, its specialised trading company, has floating terminals in Egypt and Saudi Arabia. Holderbank Management & Consulting also provides consultancy services to cement companies throughout the region.
Although its presence in the region is small compared with its operations in Latin America and east Asia, it could increase as more countries in the region ease restrictions and allow international companies to play a greater role in their economies. There can be few more attractive areas of the world than the Middle East for a company like Holderbank. Per capita cement consumption in the region is only surpassed by that in west and central Europe.
Holderbank is named after a small village 30 kilometres to the west of Zurich, where a cement factory was established in 1912. In 1921, Ernst Schmidheiny became managing director and set the company on a path of rapid expansion. After setting up a network of European holdings during the 1920s, the company made its first move into the Middle East in 1927 when it acquired a controlling interest in a newly established cement plant in Tourah in Egypt. The plant was subsequently nationalised under then president Nasser.
In 1930, the firm was formally established as a holding company, Holderbank Financiere Glaris, under the directorship of Schmidheiny’s son, Ernst Schmidheiny junior. In 1938, the company built its first cement plant in South Africa and during the 1940s and 1950s it entered the Latin and North American markets.
Holderbank, which was transformed into a public corporation in 1958, took over a number of overseas interests from the Swiss Cement Industry Company in 1970. This enabled it to convert a number of minority share packages into majority holdings, giving the company a wide global reach.
The Schmidheiny family has been at the helm throughout Holderbank’s history. In 1978 the sceptre was passed to the third generation when Thomas Schmidheiny was appointed chairman of the company’s executive committee, the position he occupies today. Thomas Schmidheiny is Holderbank’s principal shareholder, with almost 57 per cent of voting rights.
Middle East interests
Holderbank’s principal interests in the Middle East are in Lebanon and Morocco. In Lebanon, it has a 52 per cent stake in Societe des Ciments Libanais (SCL), the country’s first cement company. SCL is currently market leader with a 49 per cent market share. Despite stiff competition from imports and local producers, SCL recorded sales of $91 million in 1994, up from $86.9 million a year earlier. However, profits fell in 1994 to $10.8 million, from $14.7 million in 1993.
‘We have made satisfactory profits for the last five years in Lebanon,’ says Martin Schon, head of Middle East development. To reduce production costs and increase clinker production, SCL has embarked on a $150 million capital expenditure project. France’s Krupp Polysius has the contract to install a complete new clinker production line which will lift annual capacity to 2.2 million tonnes of cement a year by the end of 1997. SCL plans to fund the project through debt financing with local and international banks, supplier credits and by raising its share capital in two stages during 1995 and 1996.
In Morocco, Holderbank bought a 51 per cent state in Les Ciments de l’Oriental (Cior) for $65 million in 1993. Cior currently has a 23 per cent market share. The company has suffered from a flat domestic construction market and was hit by the suspension of $10 million worth of exports to Algeria in October last year after a row between Morocco and Algeria over the murder of two Spanish tourists in Marrakech.
Despite the setbacks, Cior lifted turnover by just under 3 per cent to MD 790 million ($91 million) in 1994. However, as a result of substantial write-offs, the company finished the year with a loss of MD 31 million ($3.6 million). Cior shares on the Casablanca bourse have lost about 20 per cent of their value during the summer and the company’s hopes are now pinned on a government project to build about 200,000 new low-cost housing units. Cior’s current market capitalisation is about $124 million.
Holderbank is constantly looking for ways to expand its operations in the region. ‘We have strong historical relations with the area,’ says Schon. ‘It’s a market we believe in and we are sure that other countries will come up.’ Jordan is one market on which Holderbank has set its sights. Rumours that it has been negotiating to buy the government’s stake in Jordan Cement Factories have been circulating on the Amman stock exchange since the start of the year. Schon confirms that talks have been taking place but says that the Jordanian government has yet to decide what form any co-operation might take. ‘We may have a consulting, management or equity role in Jordan Cement Factories,’ he says.
Although the majority of countries in the Middle East regularly call on Holderbank’s consultancy and management services, the expansion in the number of Holderbank’s own production plants depends largely on the attitude of the region’s governments towards foreign investment. This helps explain why the location of the company’s plants has been restricted to the relatively liberal economic environments of Morocco and Lebanon.
Holderbank is closely watching developments in other parts of the Middle East, notably Egypt and Syria. However, the company says that neither government is prepared to allow foreign companies to buy majority stakes in state-owned plants or offer an acceptable legal framework to enable foreign companies to set up their own plants. Says Schon: ‘Cement is seen by many governments as a vital commodity which should be under their control.’