Holcim CEO says austerity means him too as demand lags

Reuters

By Caroline Copley

ZURICH, Oct 2 (Reuters) - If you are taking a short-haulflight from Switzerland, there's a chance you might findyourself sitting next to the Chief Executive of Holcim, the world's largest cement maker - in economy class.

The unassuming Frenchman, who became the first outsider tolead the 101-year-old Swiss company last year, has implemented astrict cost-cutting regime that extends right up to himself.

The austerity measures coincide with a difficult businessclimate for the company, whose shares are lagging behind itscompetitors in Europe, and a growing distaste for corporateexcess.

"I respect the policy which we set, which is (a flight of)more than five hours is business, less than five hours iseconomy, and I apply the same policy to myself as to everybody,"Bernard Fontana said in an interview at the firm's Zurichheadquarters.

This attitude goes down particularly well with a Swisspublic fed up with a seemingly self-serving culture among executives who have awarded themselves lavish bonuses despitepoor performances.

Outraged by a proposed $78 million pay-off to formerNovartis chairman Daniel Vasella, the Swissoverwhelmingly voted in a referendum in March this year toimpose some of the toughest controls on executive pay.

Fontana, by contrast, is keen to cultivate an image ofpropriety: "Is this compliant?" he asked when receiving a bottleof wine for speaking at a lunch in Zurich in August.

Last year, the 52-year-old Fontana launched a cost-cuttingprogramme with the aim of restoring Holcim's return on investedcapital (ROIC) to at least 8 percent after tax and boostingoperating profit by at least 1.5 billion Swiss francs ($1.7billion) by the end of 2014.

COST DISCIPLINE

Analysts at HSBC estimate that the three biggest Europeancement companies - Holcim, Lafarge andHeidelbergCement - will have an average ROIC of 7.6percent in 2014. They forecast a 2014 ROIC of 8.7 percent forHolcim.

Holcim's emphasis on cost discipline and higher-marginservices comes as the global cement industry tightens its beltto adjust to a construction slump that has hit profit anddampened demand for building materials.

Cost cutting is starting to bear fruit. Operating profitgrew 3 percent in the second quarter, despite a 3.3 percent dropin net sales. But a slowdown in its biggest market, India,forced Holcim to rein in its full-year guidance in August.

Sliding currencies in Asia, where Holcim has the biggestexposure among the cement makers, have also hit its shares,which have lagged rivals, as investors fear foreign exchangeheadwinds will depress profit margins.

Shares in Holcim are up just 1 percent so far this year,compared with a 12 percent rise in Lafarge and a 27 percent leapin HeidelbergCement, which has benefited from its biggerexposure to the United States.

Fontana insists Holcim is on track to add up to 700 millionfrancs to profit this year, and the company posted strong growthin first-half operating profit in Latin America and Europe.

Holcim still has the best balance sheet in the sector, whichshould put it in a stronger position to make acquisitions whenthe time comes, says ZKB analyst Martin Huesler.

COOL OPERATOR

Despite being a company outsider, Fontana has spent 27 yearsworking in heavy industry and says his broad experience in thechemicals and steel sectors have given him the resilience neededto operate in the cyclical cement business.

He says he had no qualms about taking over the job fromMarkus Akermann, who was CEO for 10 years after spending themajority of his career at the firm.

After gaining a degree in engineering in Paris, Fontana cuthis teeth at Groupe SNPE. He joined ArcelorMittal in2004 and was global head of Human Resources during the earlyyears of the financial crisis when steelmakers were underpressure to reduce capacity and costs, drawing heat from tradeunions.

"He sometimes had really aggressive partners and he kept hiscool. He was able to say tough things to his counterpartswithout raising his voice and remaining courteous," said oneformer colleague.

Most recently, he was CEO of stainless steel producer Aperam, which was spun off from ArcelorMittal in 2011. Therehe earned a reputation as a cost-cutter, launching a savingsprogramme that bears the same name as the one he has implementedat Holcim: Leadership Journey.

Referring to tables of figures during a recent interview ina bare-walled meeting room, Fontana comes across as a numbersman with a firm grasp of the details. But his soft-spoken manneris a veil for a hard taskmaster.

The father of two small children who lives close to Zurichwith his British wife is demanding on performance and sets anexample through his own behaviour: "I have been a hard workerfor the past 30 years and I will not change," he said.

Last year he ruffled feathers among the top ranks of Holcimwith a decision to bundle several European divisions into oneunit in a move seen as an attack on managers' autonomy,according to one source close to the company.

Fontana sees his main challenge as making sure Holcim canpay its cost of capital and deliver enough from sales to give itoptions for the future.

Asked about his role models, he said he was fortunate tohave worked with strong CEOs throughout his career.

"One day, one of them told me that he didn't admire me, headmired performance, and since that time, I am demanding onperformance."

View Comments