Heavy Building Materials

Heavy materials face weighty challenges in stagnation and consolidation.

Heavy materials face stagnating European markets, slowing emerging economies, and rising input prices. Large international players have been consolidating and restructuring. These established players have to defend against rising regional competitors and well-funded entrants, as the sector has become attractive to private equity players.

The cement industry in Europe in particular is under pressure due to rising energy prices and the lack of a consistent regulatory framework that would allow for long-term investment planning. The sector is no longer achieving hoped-for returns—the average return on capital over the last four years has been about 5% below the cost of capital.

Other parts of the world, including Latin America, Africa, and Asia, have grown much faster in recent years. That’s forced heavy-side materials producers to be more focused about where they deploy their resources—and how. Successful companies are making the best use of their geographic footprint and tightening vertical integration through asset swaps, divestments, and comprehensive cost programs.

Heavy Asset Assessment

How can a heavy building materials company navigate an increasingly complex market and make an accurate assessment of its assets? A reliable asset analysis should look at three major areas.

Three Levers for Better Asset Assessment

  1. Market-Level Structural Factors. Companies must assess the supply and demand balance, the relative positions of costs and market shares, and the likelihood of damaging price wars.
  2. Top-Line Value Creation Levers. The ability of an asset to drive revenue growth depends on how well it can respond to efforts to increase production throughput, add valuable products and services, maintain pricing discipline, and boost sales force effectiveness.
  3. Cost Value Creation Levers. Energy management, strategic raw materials sourcing, lean manufacturing, and efficient procurement and administration practices all have a major impact on keeping expenses from draining profits.
Process Industries & Building Materials