Lafarge Cement Uk Business Information, Profile, and History

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History of Lafarge Cement Uk

Lafarge Cement UK, formerly Blue Circle Industries PLC, became in 2001 the U.K. cement division of French construction materials firm Lafarge S.A. Lafarge Cement is the exclusive manufacturer and marketer of Blue Circle cement, an internationally recognized brand. The company is a major supplier to large-scale construction projects throughout the United Kingdom and the world, with an annual production capacity of more than six million tons.

The British Cement Industry in the 19th Century

The U.K. cement industry has its roots in the early 1800s. In 1824, Joseph Aspdin, a Leeds bricklayer, patented Portland cement, although others lay claim to its invention. The early years of the U.K. cement industry were characterized by many small producers operating in small, regionally competitive markets. Exports represented a fair proportion of earnings for such firms, many of which operated along the River Thames and River Medway, and shipped cement to Europe in barges. It was a tough industry in these early years, characterized by long hours and a payment-by-results system for its workforce.

During the last decade of the 19th century, with U.K. cement manufacturers having enjoyed a lengthy period of little or no foreign competition, they finally began to lose their export markets to domestic production both in Europe and the United States. This situation encouraged a spate of mergers within the industry, notably that between Brooks, Shoobridge and Company and Hilton, Anderson and Company, forming Hilton, Anderson, Brooks and Company.

Emergence of a New Player in the U.K. Cement Business: 1900-18

The formation of Associated Portland Cement Manufacturers (APCM) in 1900 was due in large part to the endeavors of Henry Osborne O'Hagan, a financier whose business interests were wide and varied and who principally was involved in share issues and mergers and acquisitions. In this task he was aided by two others, John Bazley White, a cement manufacturer, and his solicitor, H.S. Leonard, whose goal had been to bring about the amalgamation of all the cement manufacturers in the country.

Their task was a difficult one, as the competitive nature of most manufacturers prevented them from divulging necessary information to others in the industry. By July 1900, however, contracts had been drawn up for the amalgamation of 27 cement producers. All of the 27 companies except for three were located in the Thames-Medway area. The others were I.C. Johnson and Company of Gateshead; C. Francis, Son and Company of the Isle of Wight; and the Arlesey Lime and Portland Cement Company of Hitchin. Four other producers who refused to join the amalgamation had reached working agreements with the group, and between these 31 producers, more than 80 percent of the country's production was accounted for.

The flotation involved an agreement between London's main cement merchants, ensuring that all their requirements were supplied by APCM (this was the first attempt by APCM to exert market influence from its dominant position), and the purchase of 3,697 acres of freehold land and 1,058 acres of leasehold land in areas with raw material deposits and suitable dock and wharf facilities. Also involved was the purchase of railways and rolling stock, plant, and river barges.

The new company, Associated Portland Cement Manufacturers (1900) Ltd., had a nominal capital of £8 million, and its board of directors was composed of one member from each company, with the two largest companies able to nominate the chairman and vice-chairman. However, the share issue, intended to raise £7.3 million, did not go smoothly, falling £2 million short. O'Hagan, who had failed to get the issue underwritten, had to return to the vendors, who finally agreed to find another £1.1 million, as did O'Hagan. Further trouble arose when three of the vendor firms broke away from the association, apparently unhappy with the lack of public support for the issue.

APCM attempted to impose a higher level of prices in the market, but the builders' merchants, led by George Wragge, reacted by increasing imports until prices assumed their previous levels. These were difficult times for Frederick White, the first chairman, and his 25-strong board of directors. By 1907, in the face of increasing competition in the domestic market, APCM's share of U.K. output had fallen to three-fifths of its 1900 level, and it was struggling to maintain market share in London.

The association sought a price agreement in its early years, with O'Hagan once again playing a major role, although many agreements were made and broken as competition and the rapid use of new technology caused prices to fall. It was clearly beneficial to APCM to secure such an agreement to enable it to set output levels among its constituent manufacturers and ensure a steady production rate in the medium to long-term.

Over this period, 1906 to 1910, there were changes on the board of directors. Lord St. Davids was offered the post of chairman when it came to light that three-quarters of the ordinary shares were owned by a syndicate headed by this prominent financier and industrialist. It was agreed between O'Hagan and Lord St. Davids that a further £2 million would be found to try to secure a complete amalgamation of the cement industry. This undertaking led to a spate of mergers over the next few years, starting with the takeover of Trechmann, Weekes and Company, and--most notably--G. and T. Earle, a high-quality cement producer operating in Lancashire and Yorkshire.

By December 1911, British Portland Cement Manufacturers was formed as a subsidiary of APCM, with capital of £3.5 million. BPCM contained 33 firms that had been taken over by APCM, and together they controlled around 75 percent of the industry. A.C. Davis of the Saxon and Norman Cement Company was appointed managing director in control of production. Although he was initially opposed to the amalgamation, his experience and knowledge of cement manufacture was unrivaled, and of great value to the newly formed subsidiary.

Consolidation: 1918-39

During World War I, APCM played a small, but significant role, placing its labor and transport resources at the disposal of the Admiralty and promising all its workers their jobs back after the war. At the end of the war, the boards of both APCM and BPCM amalgamated, and thereafter both companies shared a board of directors.

An important development in 1918 was the formation of the Cement Makers Federation (CMF), intended to negotiate on behalf of the industry and promote greater cooperation within it. The CMF's members constituted 90 percent of the industry and it set local prices throughout the United Kingdom. The first two CMFs failed, but the third achieved a small degree of success under an independent chairman, Viscount Woolmer.

After World War I came the slump of the early 1920s, but by the middle of the decade output rose. Over this period, a financial group had been acquiring ordinary shares until APCM was forced to admit Sir Philip Nash of Metropolitan Vickers, and General Critchley, both representatives of the Associated Anglo-Atlantic Corporation, to its board. A young financier by the name of Henry Horne was the head of this corporation; it appears his intent was to gain overall control, although he was bankrupted in the attempt.

In the aftermath, General Critchley pushed for a reduction in the number of executive directors, as APCM was top-heavy, and used the £100,000 annual salaries APCM saved to pay dividends on the ordinary shares. Despite a frosty response this was carried out, leaving only four additional executive directors, namely Sir Malcolm Stewart as chairman, Alfred Stevens as finance director, Harold Anderson as sales director, and A.C. Davis in charge of works. General Critchley stayed on in charge of publicity, transport, and personnel.

An agreement was reached in 1934 covering price and production arrangements, and by December of that year was in operation in the form of a price and quota scheme. This agreement, although shaky at first, in fact lasted until 1987, and helped APCM determine investment levels, production, and sales.

Postwar Expansion: 1940-70

World War II led to a dramatic increase in production as the United Kingdom prepared its coastal defenses beginning in 1940. Most government contracts had been completed by 1944, however, leading to a general decline in sales and a shortage of orders. During the war, two of APCM's most influential figures retired, Alfred Stevens and Charles Davis. Alfred Stevens had been the first secretary of the association, and a managing director since 1906. He had played a vital role in the formation of BPCM.

The first postwar annual meeting, on July 16, 1946, was notable for the retirement of Sir Malcolm Stewart as chairman. He then became president, while the chairmanship went to George Earle, previously of G. and T. Earle. These were difficult times for APCM, which was under threat of nationalization and also facing problems with the Town and Country Planning Act, making it more difficult to develop industrial sites on new land.

The threat of nationalization receded in the 1950s. This was a period of rapid expansion in the cement industry, with large-scale public sector projects in hand. By January 1957, when the new chairman, John Reiss, was appointed, record figures for both domestic production and exports were announced.

Throughout the early years of the next decade, the company was still pursuing the course of expansion through acquisition, the most notable acquisitions being the Midland Gravel Company and Hilton Gravel, both major quarrying firms. These formed the basis of Blue Circle's sand and gravel division.

Throughout the 1950s and 1960s, APCM faced problems in developing new sites as it sought to expand its production facilities. Most of these problems were caused by the Town and Country Planning Act, and a shift in public opinion toward conservation. Despite many hold-ups, however, APCM managed to develop works at Westbury, Wiltshire; a mineral works on the Humber; and cement works at Shoreham in Kent, Dunstable in Bedfordshire, Hope, Cauldon in Staffordshire, and Dunbar in Scotland.

In 1965 John Reiss commissioned the management consultants McKinsey & Company to analyze APCM's management structure and methods and present a report detailing their findings, conclusions, and recommendations. This report was completed by October 1966; it suggested that the existing management structure was inadequate for the future development of the company. The report concluded that there was no visible cohesion between the finance department, the works department, and the sales department, and that this was having an adverse effect on the profitability of the company.

Few of McKinsey's recommendations were acted upon in the late 1960s, however. There was a general feeling that the existing structure had proven itself, and that the proposals for change were too radical. It took a new chairman, Anthony Binny, to recall McKinsey in 1976 and implement these changes in 1977.

A New Name, with New Ambitions: 1970-90

In 1978 APCM became Blue Circle Industries. By now the group had four operating groups, namely Blue Circle Cement UK, the largest, and run by John Duthie; Blue Circle Enterprises, responsible for the sale and manufacture of non-cement products, run by Tom Chesterfield; Blue Circle Technical, responsible for research and development, run by David Stirling; and Blue Circle International, responsible for overseas investments and international consultancy activities. The head of this division, responsible for around half of the group's total profits, was Dr. Gordon Marshall.

The most important event in the company's activities toward the end of the 1960s was the construction of the North-Fleet works, the largest cement works of its type in the world, which finally came on stream in the early 1970s. This new plant provided Blue Circle with the opportunity to shut down some of its older and less economical factories and still gain from a net increase in capacity.

The oil crisis and high inflation of 1973 were unfavorable for the company, but a coal strike added a new dimension to its troubles, with the three-day week and cuts in electricity consumption reducing production levels and creating two million tons of excess capacity by 1975, as exports fell and firms closed down. Sir John Reiss, chairman for 18 years, retired in 1975 and was replaced by Norman Mullins. Sir John Reiss had joined APCM in 1934, succeeded Sir George Earle as chairman in 1957, and was best remembered for his foresight in developing Blue Circle's overseas interests. His replacement, Norman Mullins, died a year after taking over as chairman, leaving Anthony Binny as chairman.

During the last years of the decade and the first years of the 1980s, Blue Circle began expanding once again, through a series of acquisitions both at home and abroad. The most notable investments were an 82 percent stake in the Chilean cement company Fabrica de Cemento El Melan, later raised to 96 percent at a cost of £23 million, and the purchase of Armitage Shanks, a bathroom-fittings manufacturer, in 1980. The purchase of Armitage Shanks showed the extent to which Blue Circle had diversified, and was evidence of its desire to enter the lucrative North American market. Soon Blue Circle had acquired a Texas company, Kilgore Ceramics; expanded its interests in Malaysia and South Africa; and taken over Aberthaw Cement in south Wales.

In the 1980s, Blue Circle's overseas profits dipped dramatically as Chile and Mexico experienced debt problems, affecting sterling values of overseas profits. This was offset, however, by continued expansion in the U.S. market. Blue Circle's special products division was absorbed into Blue Circle Enterprises after it continually failed to produce a significant contribution to group profits.

U.S. expansion continued with the purchase of three cement plants from Martin Marietta, based in Oklahoma, Alabama, and Georgia, at a cost of $100 million. This was followed in 1985 by the purchase of the Atlantic Cement Company in New York State for $145 million. Blue Circle now had around 6 percent of the U.S. market, a considerable achievement in a short time.

Throughout this period of expansion and acquisition, Blue Circle continually upgraded its existing plants. It was not afraid to dispose of parts of the group that failed to realize the required level of profits as was the case with Blue Circle Aggregates, sold in 1981, and two builders' merchants, Macnaughton Blair and Johnson and Patan of Scotland.

The year 1989 saw U.K. cement profits rise by nearly 50 percent, reflecting an increased level of construction activity in the United Kingdom, and the acquisition of Myson, a producer of plumbing and heating equipment. The group also sold its interests in Mexico for £250 million.

New Future for a Cement Giant: 1990-2002

In the early 1990s the British building industry slipped into a serious recession, with demand for new construction dropping nearly 7 percent in 1990. Whereas Blue Circle Industries enjoyed a significant rise in its overseas manufacturing during this same period--particularly in Malaysia, where construction profits doubled from £1.5 billion to £3 billion in 1991--its British and North American operations were hit hard by the downturn at home, and the company's overall profits fell 38 percent in the first half of 1991.

Clearly, the company needed to find new ways to regain its position of dominance in the cement industry. With its U.K.-based cement plants working at merely 75 percent capacity by 1992, Blue Circle was forced to cut more than one-sixth of its domestic production. A series of closures left the company with only 11 manufacturing plants by the mid-1990s, a precipitous decline from its peak production years of the early 1970s, when it operated more than 20 cement factories. The company also was compelled to close 13 of its 23 distribution stations in 1992, resulting in the loss of 550 jobs, or 20 percent of its domestic workforce. The short-term financial results of the cutbacks were positive, and the company was able to claim a 31 percent profit increase by mid-1993. At the same time, the company began investing heavily in the upgrade of its remaining manufacturing plants in the United Kingdom, in the anticipation of an upswing in the construction industry by the end of the decade.

Although the mid-1990s saw Blue Circle streamlining its U.K. operations, it was also a time when the company began looking for new opportunities in overseas markets. In 1998 Blue Circle spent £700 million on developing significant production capacity in the Philippines, Malaysia, and Singapore. Blue Circle was not the only Western cement concern to set its sights on Asia; competitors such as Holderbank of Switzerland and Mexico's Cemex also were seeking to gain a solid foothold in the region. While the battle for strategic acquisitions in Asia drove prices for takeover targets sky-high, Blue Circle hoped that the emerging multinational presence, combined with the high level of competition, would ultimately help the market to expand rapidly.

Blue Circle's ambitious growth strategy was interrupted abruptly in February 2000, however, when French rival Lafarge S.A. launched a hostile bid of £3.4 billion to take over the British cement giant. Blue Circle immediately undertook measures to fend off the bid. By April 2000 it had devised a comprehensive cost-cutting plan, wherein the company proposed to save £110 million per year by 2003, in order to convince shareholders that the company should remain independent. The company's defense was further strengthened by the decline in technology stocks during the time, a trend that drove investors toward more "old-fashioned" businesses such as Blue Circle. Although Lafarge raised its bid to £3.65 billion in May 2000, shareholders believed that even the revised offer undervalued the company, and the takeover was temporarily repelled. While Blue Circle was beginning to show signs of regaining its old strength in 2000, however, the changing face of the cement industry, which was becoming increasingly dominated by multinational conglomerates, made a merger seem inevitable. Recognizing this reality, the company agreed to a friendlier, more lucrative offer from Lafarge in 2001, and by the end of the year it became a wholly owned subsidiary of the French building materials corporation. With the purchase, Lafarge S.A. became the largest cement manufacturer in the world.

Principal Competitors: Heidelberg Cement AG; Holcim Ltd.; RMC Group p.l.c.; Italcementi S.p.A.

Chronology

• Key Dates:
• 1824: Joseph Aspdin patents Portland Cement.
• 1900: Associated Portland Cement Manufacturers (APCM) is formed.
• 1911: British Portland Cement Manufacturers is formed as a subsidiary of APCM.
• 1918: The Cement Makers Federation is formed.
• 1946: Sir Malcolm Stewart retires as chairman of APCM.
• 1978: APCM becomes Blue Circle Industries.
• 1980: Blue Circle acquires bathroom-fittings maker Armitage Shanks.
• 1992: Blue Circle reduces U.K. cement production capacity by one-sixth.
• 2001: Lafarge S.A. acquires Blue Circle Industries, renaming it Lafarge Cement UK; the Blue Circle name is retained for marketing purposes.