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Holcim CEO says austerity means him too as demand lags

Bernard Fontana, chief executive of Swiss cement maker Holcim talks to Reuters during an interview in Zurich September 23, 2013. REUTERS/Rub
Bernard Fontana, chief executive of Swiss cement maker Holcim talks to Reuters during an interview in Zurich September 23, 2013. REUTERS/Rub

By Caroline Copley

ZURICH (Reuters) - If you are taking a short-haul flight from Switzerland, there's a chance you might find yourself 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 to lead the 101-year-old Swiss company last year, has implemented a strict cost-cutting regime that extends right up to himself.

The austerity measures coincide with a difficult business climate for the company, whose shares are lagging behind its competitors in Europe, and a growing distaste for corporate excess.

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

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

Outraged by a proposed $78 million pay-off to former Novartis chairman Daniel Vasella, the Swiss overwhelmingly voted in a referendum in March this year to impose some of the toughest controls on executive pay.

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

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

COST DISCIPLINE

Analysts at HSBC estimate that the three biggest European cement companies - Holcim, Lafarge and HeidelbergCement - will have an average ROIC of 7.6 percent in 2014. They forecast a 2014 ROIC of 8.7 percent for Holcim.

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

Cost cutting is starting to bear fruit. Operating profit grew 3 percent in the second quarter, despite a 3.3 percent drop in 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 biggest exposure among the cement makers, have also hit its shares, which have lagged rivals, as investors fear foreign exchange headwinds 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 leap in HeidelbergCement, which has benefited from its bigger exposure to the United States.

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

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

COOL OPERATOR

Despite being a company outsider, Fontana has spent 27 years working in heavy industry and says his broad experience in the chemicals and steel sectors have given him the resilience needed to operate in the cyclical cement business.

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

After gaining a degree in engineering in Paris, Fontana cut his teeth at Groupe SNPE. He joined ArcelorMittal in 2004 and was global head of Human Resources during the early years of the financial crisis when steelmakers were under pressure to reduce capacity and costs, drawing heat from trade unions.

"He sometimes had really aggressive partners and he kept his cool. He was able to say tough things to his counterparts without raising his voice and remaining courteous," said one former colleague.

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

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

The father of two small children who lives close to Zurich with his British wife is demanding on performance and sets an example through his own behavior: "I have been a hard worker for the past 30 years and I will not change," he said.

Last year he ruffled feathers among the top ranks of Holcim with a decision to bundle several European divisions into one unit 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 can pay its cost of capital and deliver enough from sales to give it options for the future.

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

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

(Additional reporting by Katharina Bart; Editing by Giles Elgood)

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