Holcim Costa Rica: investing in the circular economy

Learning outcomes The case aims at achieving the following learning objectives: Case overview/synopsis At the end of 2023 Julián Montero CFO of Holcim Costa Rica had to complete the financial analysis of an investment of nearly 8.975m of Costa Rican Colones (CRC), or about US$16.5m, at the company′s site in Cartago. The investment was aimed at substituting fossil fuels (Petcoke) used in the production of cement for residential residues (Municipal Solid Waste or MSW) to be sourced from a landfill site 30 km away. If implemented, the Cartago site would become the Holcim cement plant in the region with the highest proportion of alternative fuels employed as an energy source in the production cement. The environmental and social benefits of the so-called Thermal Substitution Rate (TSR) project were quite strong. The project was also aligned with Holcim’s goal of reaching a net zero target of CO2 emissions by 2050. However, the financial desirability of the investment had not been established yet. In particular, the returns from the TSR investment depended crucially upon the humidity content of the Municipal Solid Waste (MSW) that could be achieved, as well as on the prevailing price of Petcoke in international markets, among other variables. With only a few days left to submit the 2024 CAPEX budget for approval to headquarters in Switzerland, Julián was eager to determine the expected return from the TSR investment. Complexity academic level The case can be used in corporate finance courses, courses on the analysis of investment projects, capital budgeting, as well as in sustainability and ESG-related courses. The case is suitable for both degree-granting programs (graduate or undergraduate) and executive education programs. It is best suited for an audience familiar with scenario analysis and Montecarlo simulation, as it involves applying these techniques to assess the potential returns from a CAPEX investment. Subject code CSS 1: Accounting and Finance.