Investing in Sustainable Housing: Lafarge

Lafarge Cement Plant

With an illustrious history dating back to France in 1833, Lafarge is currently the world’s largest cement manufacturer on a mission to deliver shareholder value by providing innovative solutions for one of mankind’s big worries this century – sustainable housing. As the world’s largest company within the building materials industry, Lafarge focuses on four major products: cement, construction aggregates, concrete and gypsum wallboard. Lafarge conducts its operations through over 1,000 subsidiaries, of which 82% are consolidated. Over the past 10 years, sales have remained strong  UR16 billion whilst their number of employees has decreased from 83,000 in 2001 to 65,000 currently, highlighting Lafarge’s successful push to increase worker productivity. Last year saw revenues of EUR15.816 billion and profits of EUR432 million. The company has marketed themselves as contributing to “building better cities” by addressing some of the key challenges of urbanization by helping to make more compact cities, more durable cities, more connected cities, and more beautiful cities. Lafarge have also had a knack for knowing when to sell struggling businesses in order to concentrate on its core businesses of cement, aggregates and concrete; in 2007 it divested its roofing division to a private equity group and also recently sold its European, South American and Asian gypsum operations. This ability will only enable the company to accelerate growth and innovation.

Lafarge Project: Two Towers in Marseille, France

Innovation runs through the company’s veins – its first international contract was for the delivery of 110,000 tonnes of lime to help construct the Suez Canal and it was an early pioneer of white Portland cement. Innovation remains at the core of Lafarge’s businesses as they see it enabling them to turn into a supplier of solutions and value-added products and services as well as building materials for the construction industry. The manifestation of this principle of innovation is the Lafarge Research Center, the world’s leading research facility in building materials, which utilizes EUR115 million per year. In the building sphere, the Lafarge Research Center have invented Agilia (a self-placing and self-levelling concrete which is fast to implement, very fluid and spreads effortlessly – it significantly improves working conditions on building sites), Chronolia (used in the same way as a conventional ready-mix concrete but it rapidly develops very high mechanical strength meaning that formwork can be removed just four hours after manufacture, allowing considerable productivity gains on the worksite), extensia (concrete specially designed for laying slabs and industrial floors subject to heavy loads due to traffic or storage – faster to implement and makes it possible to achieve high resistance to wear without adding a surface hardener), earth cement (a new binder for construction of earth houses which significantly extends their lifespan while retaining thermal comfort properties). The Research Center has also developed a new class of cements producing using less limestone manufactured at lower temperatures and requiring less energy than traditional Portland cement – means a 30% reduction in CO2 emissions during manufacture, developed thermedia range of concretes designed to reduce heat loss in buildings while retaining the same mechanical strength as standard concrete, and examined the main component of cement – clinker – to see if new binders with a different chemical composition can reduce CO2 emissions linked to cement manufacturing. On the preservation side, Lafarge Research Center has innovated by recycling old roads to recover the bitumen and aggregated in order to make new asphalt surfacing materials with better performance than traditional asphalt, creating hydromedia concrete to absorb rainwater and facilitate its natural runoff into the soil to allow natural groundwater to recharge and avoid saturation of stormwater management systems to reduce flooding risk, creating Ductal ultra-high performance concrete with a compressive strength eight times greater than that of standard concrete which gives it high resistance to external attack from abrasion and pollution and harsh weather conditions, and creating manufactured sand produced from crushing rocks as an alternative solution to natural alluvial sand which is becoming an increasingly rare and difficult-to-access resource. With a portfolio of over 1,000 patents, which has doubled since 2005, the Lafarge Research Center is an illustration of Lafarge’s focus on innovation as a competitive advantage.

Building Houses in One Day in Yaounde, Cameroon

 

Looking more closely at Lafarge’s major businesses, they are organised by product type. Lafarge orients the development of its businesses towards fast-growing markets, particularly in Asia the Middle-East. Fast-growing emerging markets account for 59% of Lafarge Group sales in 2012, compared to 32% in 2005. Moreover the geographic spread ensures limited risk as no emerging country represents more than 5% of total sales. Lafarge see innovation and performance as their two major drivers of growth. In total, they estimate that innovation contributed EUR150 million of EBITDA to their profit in 2012. On the performance side, Lafarge have reduced their expenditure by EUR1.5 billion between 2006 and 2012 and are aiming to produce the same quality at a cheaper price by using more alternative fuels in order to reduce their energy bill, producing an additional 15 million tonnes by 2015 with a minimum level of investment in their existing plants, and further developing a performance culture and accelerating transfer of know-how.

Lafarge Cement has 161 plants in 58 countries and is the world’s number one cement supplier. The cement business produces a wide range of cements, hydraulic binders and limes for construction and renovation. The cement business has 161 production sites including 116 cement plants and accounted for 66% of Lafarge’s 2012 turnover. 22% of cement sales in 2012 were in Asia, 34% from the Middle-East and Africa, 15% from Western Europe, 12% from North America, 9% from Central and Eastern Europe, and 8% in Latin America. Cement is key to development in emerging countries – for 20 years the annual average growth for global cement demand has been 5%, the equivalent of 100 million additional tons of cement consumed per year. Despite the global financial crisis, global cement demand grew by 8% last year, supported by demand from large emerging markets such as China, Brazil, India and Sub-Saharan Africa where demography, urbanization and economic growth are propelling the need for housing and infrastructure. The building materials industry is a non-cyclical industry, which bodes well for the world’s largest operator, Lafarge.

Building on Sand in Vietnam

Lafarge is the world’s second largest aggregates supplier. Aggregates are fragments of rock measuring from 0.08 to 80 millimeters in diameter. They can be mixed with a binder – either cement to make concrete or tar to make asphalt – and used in the manufacture of houses, structures and bridges. They have three main functions: aggregates make a vital contribution as support to the strength of materials such as concrete, filling - aggregates make mixtures more compact and facilitate specific applications including drainage and heat retention, embellishment – aggregates have aesthetic qualities too. The aggregates business is essential for the manufacture of concrete, meaning that the two businesses are quite closely linked. Aggregates are also the most consumed natural substance in the world. For Lafarge’s aggregates business, they currently posseess 386 quarries and sold 188 million tons of aggregates worldwide in 2012. 54% of aggregates sales in 2012 were in North America, 31% from Western Europe, 10% from Central & Eastern Europe, 3.4% from Middle-East and Africa, 1.5% from Asia, and 1.1% from Latin America. Lafarge is seeking to consolidate its strengths in the aggregates business by developing business in emerging countries and pursuing sustainable quarry management. The aggregates market remains very fragmented with many independent operators and local producers. Lafarge therefore possesses several strong competitive advantages that could enable it to outcompete and acquire several of these independent operators including expertise throughout the value chain, cost reduction through economies of scale, experience and knowledge of local markets, proven quarry rehabilitation practices, and a global presence allowing sharing of best practices. Lafarge is also the only building materials company to conduct research into aggregates.

            Both the Lafarge Aggregates and Concrete businesses together have more than 1,400 production facilities and sales offices in 36 countries. Just the concrete business has 1,011 concrete plants, fitting for the world’s fourth largest concrete supplier. In 2012, Lafarge manufactured 31.8 million metric tons of concrete products. In the same year, 35% of concrete sales were from Western Europe, 31.4% from North America, 16.4% from the Middle-East and Africa, 10.2% from Asia, 3.9% from Latin America and 3.1% from Central and Eastern Europe. Here there is also clearly room to grow emerging market sales.

Casablanca's New Tram

The world’s socioeconomic dynamics are making Lafarge an excellent investment as they have a key role to play in meeting the world’s future construction needs and also have the means to meet these needs in emerging markets by leveraging their existing cement sales networks. The world population will exceed 9 billion people by 2050, which will challenge the world to provide efficient and sustainable housing and infrastructure for everyone. Today an estimated one billion people live in slums and two billion people lack access to electrical power. Lafarge has national initiatives providing affordable and efficient housing in India, Indonesia, Honduras and France. By 2025, half the world’s population will live in cities of between 100,000 and 500,000 inhabitants. Moreover by 2025, 50% of the world’s megacities will be located in Asia and two new ones will have developed in Africa. Over 4 billion people (including 150 million in developed countries) also currently do not have access to decent housing – therefore there is a need for affordable housing solutions which can be adapted to a variety of different geographies and that can be built quickly. Lafarge see a variety of action areas as able to facilitate affordable housing including microcredit programs, rehabilitation of slums in situ, a new generation social housing project in developed countries, and programs with real-estate developers. Lafarge projects include improving housing in the slum of Dharavi in central Mumbai by building solid and watertight concrete houses, with the concrete delivered in buckets by motorized tricycles. Previously a million people lived in Dharavi in shacks made of corrugated metal and other recovered materials. By 2030, India will need 10 million new homes every year and the solution used in Dharavi means there is a prospect of being able to replicate affordable and quick housing to meet this need. Another Lafarge project is building houses in Yaounde in just one day by using innovative stay-in-place formwork in combination with concrete. Every year 100,000 people arrive in Yaounde and Douala looking for housing.

Dharavi Slum in Mumbai

A twin concern is the need to improve the world’s energy efficiency as aresponse to greater population demanding energy and global warming. Also, buildings represent nearly 38% of global energy consumed, more than transport or industry. This is a twofold issue concerning both reducing the energy consumed during the manufacturing of its products, and developing products which can improve the energy efficiency of buildings over their entire lifecycle. The buildings’ construction and material manufacturing stages are responsible for 10% of the total CO2 emissions over the buildings’ entire lifespan – Lafarge’s solutions are reduced carbon cements and concretes and high-performance concretes requiring less volume to be used. In addition, occupancy of a building is responsible for 80% of its total energy consumption over its lifespan – Lafarge has designed concrete-based building solutions. The constructions’ end of life represents 7% of its total energy impact over its lifespan and here Lafarge offers high value second life solutions for concrete wastes such as being re-used in sub-layers for roads.

Linked is environmental preservation which requires reduction of the carbon footprint during cement manufacturing, optimizing the use of natural resources, and reducing water consumption during production. The building and the building sector’s final energy demand equals 31% of the world’s man-made energy related CO2 emissions. Additionally, the cement industry generates around 5% of the world’s CO2 emissions. Lafarge have committed to reducing the emissions from its cement business by improving the performance of its cement kilns, substituting some of the clinker with industrial residues, and controlled use of non fossil fuels.

With the rise of global warming and more extreme weather, more durable cities with longer-lasting buildings and infrastructure are needed. Lafarge solutions include ultra-high performance concrete Ductal and Thermedia as well as Hydromedia. Lafarge have solved a problem in Vietnam of building on the loose ground of river deltas and along coastlines by using a special cement called Soilcrete which incorporates 60% slag (steel mill waste with properties of a hydraulic binder) which is injected directly into the sand to ensure stability. As a strip of land along the South China Sea, Vietnam has many rivers and deltas which makes the ground loose and unstable and therefore constructions are fragile. Soilcrete reduces cracks in massive structures and helps Vietnam build stronger housing, a necessity as each year they gain another million inhabitants.

Lafarge helping renovate Erbil in Iraqi Kurdistan

The world is also seeing a shift towards more compact cities, particularly in developing countries. To help limit urban sprawl, vertical buildings are more commonplace now and older buildings are being renovated to save ground space, keep cities compact, preserve quality of life and provide fluid transportation. There will be a 70% urbanisation rate globally by 2050. Different concrete is needed for different parts of vertical construction: very high strength concrete for foundations and lower parts, lightweight concrete for the upper parts, and insulating concrete for partitions at each level. Lafarge supplies these needs.

Urban dwellers increasingly expect to travel easily and swiftly around their own cities and between cities. By 2025, there will be a 52% increase in city travel worldwide. Lafarge’s cements, aggregates and concretes help make cities better connected as they are used for building train and metro lines, highways and railways, bridges and tunnels, ports, stations, and airports. Lafarge has helped build a new tram line in Casablanca in 2012 which is enabling better transportation for its 3.6 million inhabitants. Lafarge are also involved in building Cairo’s third metro line, to open in 2019.

There will be around 2 billion new urban dwellers by 2050, which increases the importance of beautiful cities. Lafarge have played a role in renovating and preserving one of the world’s oldest continuously inhabited settlements, the citadel of Erbil in Iraqi Kurdistan, which was constructed 8,000 years ago. Lafarge was also involved in building terminal 4 at Madrid-Barajas airport, which uses concrete shaped into particularly bold forms and bright colours in order to provide a mirror of the city of Madrid and attract travellers stopping over to venture into the city. Madrid’s new terminal doubles the capacity of the airport from 35 million to 70 million passengers per year, positioning it as the main hub for traffic between Europe and South America.