This interview took place on 4th September, with Jan Jenisch, CEO of Lafarge Holcim at the company’s headquarters in Zug, Switzerland. Mr. Jenisch touched upon the following eleven issues:
1) Main issues and current challenges
The CO2 emission issue (see item 4 below).
Develop new businesses to grow and further strengthen Lafarge Holcim’s (LH) stock price.
To further reinforce the cost efficiency side and a flat and empowered leadership style, including completing restructuring after the merger between Lafarge and Holcim, which took place in 2014. For instance, both two former headquarters, in Paris and in a suburb of Zurich were closed down in 2018, and LH established a new headquarter in rented facilities in Zug, Switzerland – more modern, with more light and open space. Headquarter space was reduced from more than 15,000 m2 to around 2,500 m2.
To deleverage and strengthen LH’s financial position, net debt was reduced by more than CHF 5 billion in the past two years.
2) LH’s stock price
This has fallen almost 30% in the last two and a half years. Reasons for this include:
LH’s revenue is heavily dependent on the level of construction activities. This fell around 40% during the first part of the COVID-19 pandemic, but construction activities are now picking up again surprisingly fast. LH’s revenue for 2020 is not expected to be as high as last year though.
LH’s image as a “polluter”, especially when it comes to CO2 emissions.
LH’s image as relatively low-tech.
LH’s fairly low growth.
Jan Jenisch (JJ) believes that a CEO should not complain about the stock price but rather be motivated to improve it, e.g. aim for higher efficiency, as well as a strengthening of one’s financial structure (less debt, more cash reserves). So far, however, these measures have not resulted in a significantly higher stock price.
3) The CO2 issue
Cement producers are traditionally high on emissions. There are at least four issues that might ameliorate this:
The low price of cement. There is simply too little to no room for expensive CO2 reduction measures. Cement makers need further regulations and incentives to accelerate sustainability.
Differences in legislation in various major geographic regions:
Europe: There seems to be a political willingness to, at least to some extent, pay for the added costs from tighter legislation regarding CO2 emissions.
US: Not realistic with tighter regulation on CO2 emission, perhaps largely due to an expected unwillingness to curtail oil production, and face the consequential employment lay-offs, and emerging price increases.
India: No legislation.
China: Around 20% of this country’s cement capacity has been reduced, through closing down of older, more heavily polluting plants, thereby significantly reducing CO2 emissions.
Technological approaches, such as producing cement with lower temperature in the rotating kilns, and/or capturing emissions through scrubber-type filters. These measures are however expensive, this making them currently unrealistic.
More use of “old” building materials, which have been ground down, and added into new cement. Thus, CO2 emission is reduced, due to the reduced need to produce “new” cement, indeed an example of LH being part of the circular economy. LH is one of the world’s largest users of recirculated materials, measured in tons. The leading country regarding this is Switzerland, with strict legislation in effect. 7% of LH’s cement production output is recirculation based.
4) Effects from COVID-19 pandemic on work at LH
There is a general travel ban, from now until the end of 2020. This means that web-based conferencing (i.e. zoom) is being used extensively, and this seems to work well. One key here is the fact that each cement plant is relatively autonomous and tends to operate largely within the local market (cement is expensive to transport!). Monitoring of operating performance from the headquarters is largely done virtually.
Jan Jenisch is relatively comfortable with this way of working, especially because of significant timesaving due to the lower level of travel for him. He knows all of the various LH country managers personally, an important aspect that allows this“remote” working approach to work smoothly. Hypothetically, Jan Jenisch observes that if the Coronavirus pandemic had taken place three years earlier, when he was new in the job and has not yet established a set of country-manager relationships, then this no-travel approach might have been harder to pull off.
5) Innovations
The main project here is the development of building material, through grinding and re-use. As already noted, this also has the effect of reducing emissions. Incidentally, new investments are needed for grinding mills to serve this special purpose. Little additional investments are needed beyond this.
Other projects include:
Producing cement within lower temperatures in the rotating machinery.
Capturing CO2 .
Use of “new” materials in the construction industry, such as carbon filters, and/or glass, as well as coming up with construction of buildings with relatively more efficient use of cement/concrete. In general, advances in material science are likely to play roles, but the construction industry is conservative.
6) Acquisitions
LH has adopted a bolt on acquisition strategy with various smaller deals each year. They are fast in integration and usually of higher synergies compared to multinational, larger acquisitions.
7) Cultural issues
The merger between Lafarge and Holcim revealed that there were significant cultural hurdles when attempting to combine the French side and the Swiss side, as least initially. Thus, decisions were taken largely based on the perspective of either Lafarge or Holcim, rather than pragmatically addressing key issues critical to the success of the combined LH. The abandonment of both old headquarters and establishment of a “new” one, seen as neutral, seems to have contributed to a more unified LH culture.
8) Executive development
Jan Jenisch is a strong believer in executive development, and sees this as a key to the development of a stronger LH:
He has taken several programs at IMD and co developed customized programs for the Senior Managers of the company.
LH has run several in-company programs, both at IMD as well as at more convenient locations in the Zurich region.
Jenisch has made it a “rule” to attend each of these, say for half a day. The time-consuming travel for him to Lausanne (IMD) was a major reason for relocating the in-company programs to the Zurich region.
The COVID-19 pandemic has brought all executive development activities to a halt. However, web based trainings will start in November.
9) Reinventing
For Jan Jenisch, a key issue is that a successful company must re-invent itself. Holcim started out as a primarily Swiss company, family dominated (Schmidheiny), became global (Thomas Schmidheiny), diversified (concrete, aggregates, building materials), then merged with Lafarge, then …
It is key that old/established corporate strengths do not stand in the way of evolutions of this type. But there are many examples of reinvention failures. Thyssen-Krupp and Deutsche Bank come to mind. And what about the German automobile industry? Traditionally, this industry’s success has been built on fossil fuel-based engine technologies, and with a heavy focus on optimizing production processes around this. It may be hard, with such an ingrained focus, to successfully shift to an electric engine-based reality, however. Time will tell!
10) The family Bbusiness dimension
A properly functioning family business might have definite advantages, above all though allowing for more long-term thinking, as well as for a corporate culture which directly reflects the core values of the owning family. This was, for instance, the case both for Holcim as well as for SIKA.
But, when a family’s financial/ownership position is diluted, say when some family members from the next generation might sell out, then it may no longer be positive that a family continues to hold control through special voting rights.
And, as always, an engaged commitment of family members is key!
Kommentare