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Author: vtpete Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 40  
Subject: Re: Looking at Lafarge Date: 7/21/2003 9:45 PM
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I thought this was an excellent business strategy section so thought I'd post the whole darn thing (2002 annual report). They also have a very nice summary describing their capital expenditures. Most of their cap ex is devoted towards maintinaing or improving their plants. I think its clear though they are very focused on improving/streamlining versus simply replacing. Their acquisitions (there have been many of these) are not included in the cap ex numbers shown on valueline. Between the acquisitions and cap ex, they really find places for most of their cash. Anyway, this is the section from the annual report.
pete

What is our business strategy?

Our ambition is to lead the industry, set new standards and be a step ahead of the competition. Leading requires a continued advance into new territory, building bridges between people, projects and possibilities.

Our core business strategy is defined by four fundamental elements — growth and development, performance, commitment to change and leveraging our size.

• Growth and Development, both through acquisitions and internal development, is one of our highest priorities. We actively pursue acquisitions that create value for our shareholders and leverage our operational excellence. In 2002, we strengthened our competitive position through acquisitions and capital improvements in each of our three segments: construction materials, cement and cement-related products, and gypsum. These acquisitions and capital improvements are discussed previously in this Annual Report under “What were our acquisitions and capital improvements in 2002?” Further, in 2001 we obtained an option to acquire specific cement and construction materials businesses in the U.S. from Lafarge S.A., who obtained these assets in the acquisition of Blue Circle Industries PLC. We managed and operated these assets during 2002 (for an annual fee of $12 million).

Our strategy is to maintain a strong balance sheet with sufficient flexibility to fund our operating plan in any economic environment and to capitalize on opportunities when they arise. Our ratio of long-term debt to total capitalization has decreased from 21.7 percent at the end of 2000 to 20.6 percent in 2001 and 18.8 percent in 2002, levels well within our internal target range. We continue to pursue opportunities, particularly in the highly fragmented aggregate market where we are poised to be a major strategic player in this consolidating industry. In fact, we have become one of North America's top four aggregate producers as our sales reached 117.1 million tons in 2002, almost three times the production level reached just six years earlier.

We blend market opportunity with environmental sustainability and partner with other industries to minimize waste. Sustainability is a major focus for Lafarge.

• Performance encompasses the range of programs we have established for manufacturing efficiency, cost control and continuous improvement.

Our vision of operational excellence includes common operating models, the rigorous application of best business practices and the implementation of management information systems to improve our operating performance. These types of programs remain priorities for all of our product lines and are supported at the corporate level through our corporate technical services and our marketing departments for the cement and cement-related products segment and our aggregate, concrete and asphalt and paving performance departments in the construction materials segment.

Our commitment to operational excellence was demonstrated through our ability to manage the assets of Blue Circle as we agreed to do in 2001. Throughout 2002, both organizations have worked on achieving savings and synergies that could be captured by networking our manufacturing, distribution and sales systems and applying the best practices of both companies. Further, our cement operations saw a decline in fixed manufacturing costs, particularly maintenance costs, as a result of cost reduction initiatives put into place at the plant level. In 2003, a continued focus on cement performance is evidenced by the launch of the “Advance” performance program. Additionally, our construction materials operations are getting positive results from the across-the-board application of standardized operating models, focused both on revenue enhancement and cost reduction, in our nearly 1,000 locations. An example is the significant cost improvement in the aggregate product line, due to the full implementation of the “Rock 2002” performance program. Finally, in our gypsum operations we have launched a program to improve manufacturing performance, making significant inroads by reducing fixed costs and raw material costs, increasing line productivity, and supplying paper from our joint venture.

We have also developed a company-wide employee recognition program, the President's Award for Commitment to Excellence (“PACE”), to reward those who are leading the charge on innovation. In 2002, PACE awards were presented to individual employees and teams from around the company in recognition of their contributions that created value for the company and supported the strategic objectives of our business. The winning ideas captured a range of process improvements, ways to maintain and grow market share, and projects to capture savings through relatively simple, cost-effective fixes. In due course, we believe many of these ideas will be incorporated into best practices.

• Commitment to Change provides a third pathway to superior performance.

Effective January 1, 2002, we launched a new organizational structure for the cement and cement-related products operations with the creation of five smaller regions in the U.S. and Canada, compared to two larger ones as before. We believe that this move to a more decentralized organization enables our employees to be much closer to their regional markets and customer base. In addition, this new organization allowed us to leverage efficiencies from our agreement to manage Blue Circle's U.S. assets. Similarly, in 2002, to leverage efficiencies and best practices across our enlarged operational landscape, we have restructured our construction materials business with a product line focus — aggregates, concrete and asphalt and paving.

We continue to build on the launch of our Lafarge Leadership profile and related Performance Management programs to reinforce the development of our leadership capabilities. These actions complemented the acceleration of specific product line global approaches to improving operational performance. Our corporate leadership development programs, delivered across the range of management levels, are complimentary to the performance initiatives and associated training programs including “Constructing our Future”, the “Profit Specialist” (value creation), and Performance Management. The goal of these programs is to develop a deeper knowledge of our business, drive performance and reinforce the understanding of performance based recognition programs for our employees.

Development of advanced career management processes and tools, including utilizing new technology for recruiting, job posting, and on-line coaching, were further developed in 2002. These processes have promoted transfer of knowledge between sites and business lines — in some cases broadening career opportunities for employees by exposing them to other businesses, and increasingly more individual transfers between business lines. In addition to providing motivational and interesting careers for our managerial and professional employees, we see this knowledge transfer as a critical component of the development of our future leaders.

Our approach with our employees is led by our management philosophy, the Lafarge Way. This approach strives to maintain and develop a workplace where employees are challenged, recognized for their performance, and provided an environment that encourages personal and career growth.

• Leveraging our size is the final element that guides how we will plan and execute our core business strategy.

There is a clear competitive advantage associated with being a large company, but only if we can capitalize on synergies between our three operating segments. This requires communications, collaboration and teamwork. For example, purchasing activities that were once highly decentralized are now coordinated across product lines, leveraging the buying power of a $3.3 billion company so we can achieve substantial, permanent savings

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