Eric Olsen is frank about the changes he has had to implement at LafargeHolcim since its creation last year. “There are different objectives than the two companies had previously — and one is returning value to shareholders,” he says. It is a pretty punchy judgment on the former leaderships of two of the world’s largest cement companies, Lafarge and Holcim, before their €41bn merger in July last year. But it reflects some of the challenges with which the chief executive of the SFr32bn combined company is contending. He inherited a deal which had been dogged — and nearly derailed — by culture clashes between the management of France’s Lafarge, run by Bruno Lafont, and that of Holcim of Switzerland, chaired by Wolfgang Reitzle. Mr Olsen is an old Lafarge hand, having joined the company in 1999, and he acknowledges that his own French and American background has helped him address the cultural issues stemming from the merger. These, though, were not the only problems he faced after taking over 15 months ago. The Zurich-headquartered company has struggled to cut costs and reduce debt amid a global cement glut. LafargeHolcim shares, which were above SFr70 when the merged company started trading, halved to a low of SFr34 in February, and are now at SFr52. Meanwhile, in the aftermath of the deal, Mr Olsen admits pricing suffered at the expense of volume across the company’s operations. Key numbers: LafargeHolcim at a glance Lafarge cement truck in Paris, prior to the merger with Holcim © AFP ● Annual net sales SFr30bn● Geographic reach 2,500 plants in 90 countries● Employees 100,000● Planned disposals SFr5bn by end of 2017 He suggests the former management is partly to blame for the lack of detail on financial performance that contributed to this loss of pricing discipline. “There were some elements of the merger that were not as well prepared as they should have been,” he says in an interview with the Financial Times. “The last six months before closing we had a period where there wasn’t close supervision of our commercial strategy.” Mr Olsen says the “hard choices” consequent on any deal of this size were not taken when they should have been, due to a failure of the companies’ leaderships to work “seamlessly … together”. It was not, he adds with tactful understatement, a “smoothly functioning process”. LafargeHolcim’s latest numbers show some progress has been made on imposing greater pricing discipline, although third-quarter results due out next month will give a better picture of whether this will prove sustainable. Meanwhile, Mr Olsen emphasises the need to rein in the company’s capital expenditure. “We have overinvested,” he says. “We have SFr55bn of capital invested earning a 5 per cent return. That’s not sufficient.” Promised cost savings from the deal are more difficult to track, although Mr Olsen has outstripped the market’s expectations in terms of getting rid of unwanted businesses. LafargeHolcim had promised SFr3.5bn of disposals in 2016, but in August increased the target to SFr5bn by the end of 2017. Mr Olsen says he did not flog off assets on the cheap, but the relative ease with which he achieved the disposal target gives little sense of the size of his task since taking over. He has been running not one, but two companies, and combining operations which spanned 90 countries, 100,000 employees, 2,500 plants, and nearly SFr30bn in annual net sales. Not only was the scale large, but there was operational overlap in countries representing at least a third of LafargeHolcim’s revenues. New hints and tips Read live updates of the latest FT news, the moment the stories are published More tips The integration process, he claims, is now substantially complete. “I would say the work of bringing these two companies together is a big complex task. But it’s done.” If so, it is a significant achievement, particularly given he had never been a chief executive before, and had little of the traditional backing a new top manager should normally expect. Mr Reitzle stepped down as chairman in May, less than a year after the merger, to return to his former employer, Linde, and was replaced by Beat Hess who, although a board member of Holcim since 2010, had no other experience in the cement industry. Meanwhile, Mr Olsen has had the tricky task of keeping his three major shareholders, who all hold board positions, happy. He says Thomas Schmidheiny, of Holcim’s founding family, with an 11 per cent stake, Groupe Bruxelles Lambert with 9 per cent, and Nassef Sawiris with just under 5 per cent, support him and his strategy. Top shareholders in LafargeHolcim © FT Graphic / Getty ● Thomas Schmidheiny (right) 11 per cent stake● Groupe Bruxelles Lambert 9 per cent● Nassef Sawiris (left) 5 per cent One sign of this is that Mr Olsen has been able to replace key members of his executive committee. Some analysts have voiced concerns that he has swept away old Holcim hands and replaced them with his own Lafarge people, but he rebuts the accusation. Some of the problems Mr Olsen faced were not internal but external. LafargeHolcim was created just at a moment when some of its key markets were experiencing sharp slowdowns — notably China and Brazil. There has also been sluggish growth in Europe. At the same time, LafargeHolcim is grappling with an industry that is chronically oversupplied. Mike Betts, analyst at Jefferies, estimates that, outside China, capacity utilisation barely reaches 70 per cent. And LafargeHolcim faces competition not just from the other big global players like Heidelberg and Cemex, but from a plethora of smaller local competitors. Mr Olsen argues that being global — even in a local industry like cement — has its benefits, citing the recent winning of a gold mine contract in Uganda, where LafargeHolcim was able to bring in experts from Canada to clinch the deal. But he knows judgment is very much still pending on the success of the merger. Source link