Eric Olsen is frank concerning the modifications he has needed to implement at LafargeHolcim since its creation final yr. “There are totally different aims than the 2 corporations had beforehand — and one is returning worth to shareholders,” he says.
It’s a fairly punchy judgment on the previous leaderships of two of the world’s largest cement corporations, Lafarge and Holcim, earlier than their €41bn merger in July final yr. However it displays a number of the challenges with which the chief government of the SFr32bn mixed firm is contending.
He inherited a deal which had been dogged — and almost derailed — by tradition clashes between the administration of France’s Lafarge, run by Bruno Lafont, and that of Holcim of Switzerland, chaired by Wolfgang Reitzle.
Mr Olsen is an previous Lafarge hand, having joined the corporate in 1999, and he acknowledges that his personal French and American background has helped him tackle the cultural points stemming from the merger. These, although, weren’t the one issues he confronted after taking up 15 months in the past.
The Zurich-headquartered firm has struggled to chop prices and scale back debt amid a worldwide cement glut. LafargeHolcim shares, which have been above SFr70 when the merged firm began buying and selling, halved to a low of SFr34 in February, and at the moment are at SFr52. In the meantime, within the aftermath of the deal, Mr Olsen admits pricing suffered on the expense of quantity throughout the corporate’s operations.
Key numbers: LafargeHolcim at a look
● Annual internet gross sales SFr30bn
● Geographic attain 2,500 crops in ninety nations
● Staff one hundred,000
● Deliberate disposals SFr5bn by finish of 2017
He suggests the previous administration is partly in charge for the shortage of element on monetary efficiency that contributed to this lack of pricing self-discipline.
“There have been some parts of the merger that weren’t as nicely ready as they need to have been,” he says in an interview with the Monetary Occasions. “The final six months earlier than closing we had a interval the place there wasn’t shut supervision of our business technique.”
Mr Olsen says the “onerous decisions” consequent on any deal of this measurement weren’t taken when they need to have been, as a consequence of a failure of the businesses’ leaderships to work “seamlessly … collectively”. It was not, he provides with tactful understatement, a “easily functioning course of”.
LafargeHolcim’s newest numbers present some progress has been made on imposing higher pricing self-discipline, though third-quarter outcomes due out subsequent month will give a greater image of whether or not this can show sustainable. In the meantime, Mr Olsen emphasises the necessity to rein within the firm’s capital expenditure.
“We now have overinvested,” he says. “We’ve SFr55bn of capital invested incomes a 5 per cent return. That’s not enough.”
Promised value financial savings from the deal are harder to trace, though Mr Olsen has outstripped the market’s expectations when it comes to eliminating undesirable companies. LafargeHolcim had promised SFr3.5bn of disposals in 2016, however in August elevated the goal to SFr5bn by the top of 2017.
Mr Olsen says he didn’t flog off belongings on a budget, however the relative ease with which he achieved the disposal goal provides little sense of the dimensions of his activity since taking up.
He has been operating not one, however two corporations, and mixing operations which spanned ninety nations, one hundred,000 staff, 2,500 crops, and almost SFr30bn in annual internet gross sales. Not solely was the size giant, however there was operational overlap in nations representing no less than a 3rd of LafargeHolcim’s revenues.
The mixing course of, he claims, is now considerably full. “I might say the work of bringing these two corporations collectively is an enormous complicated process. However it’s completed.”
In that case, it’s a vital achievement, notably given he had by no means been a chief government earlier than, and had little of the normal backing a brand new prime supervisor ought to usually anticipate.
Mr Reitzle stepped down as chairman in Might, lower than a yr after the merger, to return to his former employer, Linde, and was changed by Beat Hess who, though a board member of Holcim since 2010, had no different expertise within the cement business.
In the meantime, Mr Olsen has had the tough activity of retaining his three main shareholders, who all maintain board positions, completely satisfied. He says Thomas Schmidheiny, of Holcim’s founding household, with an eleven per cent stake, Groupe Bruxelles Lambert with 9 per cent, and Nassef Sawiris with slightly below 5 per cent, help him and his technique.
Prime shareholders in LafargeHolcim
● Thomas Schmidheiny (proper) eleven per cent stake
● Groupe Bruxelles Lambert 9 per cent
● Nassef Sawiris (left) 5 per cent
One signal of that is that Mr Olsen has been capable of substitute key members of his government committee. Some analysts have voiced considerations that he has swept away previous Holcim arms and changed them together with his personal Lafarge individuals, however he rebuts the accusation.
A number of the issues Mr Olsen confronted weren’t inner however exterior. LafargeHolcim was created simply at a second when a few of its key markets have been experiencing sharp slowdowns — notably China and Brazil. There has additionally been sluggish progress in Europe.
On the similar time, LafargeHolcim is grappling with an business that’s chronically oversupplied. Mike Betts, analyst at Jefferies, estimates that, outdoors China, capability utilisation barely reaches 70 per cent. And LafargeHolcim faces competitors not simply from the opposite massive international gamers like Heidelberg and Cemex, however from a plethora of smaller native rivals.
Mr Olsen argues that being international — even in an area business like cement — has its advantages, citing the current profitable of a gold mine contract in Uganda, the place LafargeHolcim was in a position to usher in specialists from Canada to clinch the deal.
However he is aware of judgment could be very a lot nonetheless pending on the success of the merger.