Holcim, the Swiss cement giant, is known for its massive scale and traditional building materials business. However, a closer look at their recent earnings transcripts reveals a fascinating trend: the emergence of a potential cashflow powerhouse in Latin America. While analysts focus on Holcim's strategic shift toward roofing systems and the potential US listing of its North American business, a compelling story is unfolding south of the border that might be even more significant for the company's long-term value.

Latin America, often associated with volatile economies and political uncertainty, seems an unlikely candidate for such a pivotal role. Yet, Holcim's recent performance in the region paints a different picture. Currently, Latin America contributes around 11% of Holcim's total sales. However, it generates a staggering 21% of the group's EBIT, meaning double the EBIT margins of the company average.

Holcim's CEO, Jan Jenisch, attributes this success to their "performance culture," a system emphasizing local empowerment, rigorous performance management, and a disciplined approach to M&A.

Latin America: A Cashflow Fortress?

Several factors point to the potential of Latin America becoming a cashflow fortress for Holcim:

- Strong EBIT Margins: Consistently delivering double the EBIT margins of the company average.

- Effective Cash Repatriation: Holcim has a strong track record of repatriating cash from Latin America.

- Favorable Economic Trends: Government spending on infrastructure and nearshoring are driving demand for building materials in countries like Mexico.

- Shift Towards Higher-Margin Products: Transitioning from bag cement to bulk cement and ready-mix concrete, along with investments in specialized aggregate quarries, are boosting profitability.

EBIT Contribution by Region

The Future of Holcim

With a strong cashflow stream from Latin America, Holcim can continue its aggressive M&A strategy, focusing on acquisitions that have proven to be highly accretive to earnings. This will further diversify their business, boost profitability, and potentially fuel even higher returns for shareholders.

"Fun Fact: Cement is the most widely used man-made material on Earth, second only to water. The global cement industry produces over 4 billion tons of cement annually, enough to build a wall 27 meters high and 27 meters wide around the equator."