Highlights spoke with FLSmidth CEO Thomas Schulz to gauge his views on the challenges and opportunities facing the cement industry and FLSmidth.
How do you see the current state of the cement production industry?
The cement production industry is a local and cyclical business. Over time, the business environment tends to fluctuate, such that a period of increased business activity and investments is always followed by a decline. A general characteristic of the industry is that it is more positive for two thirds of the total cycle. Currently, the cement industry is coming out of its recession.
In addition to the cyclical nature, the market has changed over the last 10 years with the emergence of a new ‘mid-market’. This has been created by a change in customer buying behaviour and low price-tag equipment suppliers entering the market offering reasonably good equipment quality, but with fewer options and lower performance. Previously, the entire market was accessible to FLSmidth. Now, we focus mainly on customers who want a premium offering.
Another important factor is the growing political uncertainty that has made global business more complex. In recent years, we have seen a trend towards increased nationalism, which may lead to more virtual borders against global business. This emphasises the importance of having local setups going forward.
What implications does this have for FLSmidth?
The cyclical nature of the industry actually has a lot to offer. The opportunity is to make the most of the challenges by acting early in the downturn to be ahead of the market when it recovers.
Just to mention one example, we must be cost-sensitive in the upturn so that we are ready for the downturn. Then in the downturn, we invest in the future business. It’s about maintaining the right mentality wherever we are in the cycle.
In the recession, it is especially important to maintain and invest in relations with customers, suppliers and employees to be prepared for the upturn. Honesty, transparency and consistency are in our DNA. We need to tell it as it is. For example, when we invested in education, we communicated openly about it to our employees, so they knew where we stood and why.
Also, we shouldn’t forget that we have a role in the wider construction and infrastructure industry. The cement plants we contribute to are needed to build schools, infrastructure and housing to improve people's lives. I find this hugely motivating. At FLSmidth, we are often the first to do business in some countries, whether through construction or mining. We can actually claim that we helped to build certain countries, because we supplied most of the countries’ cement plants. It is business that drives infrastructure development, but we can help to guide the business in the right direction, for example, by offering equipment with less impact on the environment.
Can you give some examples of FLSmidth’s contribution to the industry?
I believe we can expect a lot more from the cement industry - not only in automation or big data, but in terms of technology, we can and do help to advance the industry. We innovate to improve productivity, while also ensuring that resources – labour, raw material, energy and air – are used more efficiently. But improvements have to be made for sound business reasons.
Both mining and cement have all the right parameters to be outsourcing industries, implicitly, leaving the operation and maintenance of the plant to a provider like us. This is mainly because there will likely be a lack of engineers in the future, while operational knowledge within cement plants will become more specialised. At the same time, digitalisation and automation are reducing learning cycles. So in the long term, more specialist expertise will be needed. This means that fewer owners will operate their own sites; instead, they will outsource to experts.
Today, we are seeing early signs of this in our operations and maintenance business, but it is an evolution. A good example of outsourcing is facility management, which has proven itself over the last 30 years.
Are you satisfied with FLSmidth's recent performance?
Remembering of course that we are in a cyclical business, the question is whether we are where we want to be. Fortunately, we are, and I am satisfied with our performance, especially that of our staff around the world.
Not only have we created very competitive offerings; we have also created concepts such as Design, Build and Operate (DBO). Our ability to offer this is extremely important because it signals a powerful capability and reassurance to our customers. DBO provides far more than the actual construction of the plant; it's the competency, knowledge and capability to support customers in all different situations. This lifts the customer relationship to a completely different level. We don’t expect every customer to buy it, but they know we can do it.
It’s also about how we act, not just achieving the best figures. It starts with how you pick up the phone when the customer calls, how you support, how you take ownership, and whether you feel accountable towards the customer. Historically, we have done well in these areas of our business and it will always be a part of our promise to the customer.
Why do you think investors have been reasonably positive about FLSmidth in recent months?
There are of course many factors, but the market has recognised that our cement business has performed well within the prevailing market environment. This is partly because we have delivered on our promises in several ways. For example, we have pursued an effective productivity improvement strategy and we have invested in people and technologies, while following a stringent cost control strategy.
Recognising that some aspects of the market are out of our control, we have also been careful to manage what is within our control. That’s why we have put considerable focus on preparation and execution within areas such as investments, innovation and cost control, as well as leadership development.
What stories stand out for you about FLSmidth?
I can’t help but go back to how the company was founded, particularly given the risks, time and expenses associated with travel 135 years ago. Our founder showed great vision by going to the US and eventually discovering technology that would be the foundation of FLSmidth’s future – a horizontal kiln for Portland cement, which he further developed to the needs of the world.
He developed a sound business model and then immediately took it overseas. This was the key: the combination of developing a technology for creating infrastructure and the ability to take it global. To be Danish and being global is still a part of our DNA.
Why is FLSmidth’s past important for its future?
The stories of our past not only illustrate our value set, but they are also the foundation of our long-term vision. Technology, people's attitudes, the business environment, regulation and much else will change over time, but our value set must remain – because it’s part of our uniqueness and our ability to compete in the future.
As a global company rooted in Danish values, we have a role to play. Our values encourage us to behave appropriately, and, at the same time, we can encourage suppliers and customers to work with a sound value set. I find it easier to do this from Denmark, which is respected around the world for its transparency and compliance.
Being mindful of the role our values play in the big picture is important for our future. With the right value set, we can be around for another 135 years challenging conventions and exploring opportunities.