Air Products entered Europe in 1957 and has rapidly grown its business to reach a reported $2.3 billion dollars in 2005. This month gasworld is privileged to review the career and present the thoughts of one of the company’s leading and probably most passionate characters in Europe, Bernard Guerini. Katri Iivonen reports.
French born, Bernard Guerini celebrated his 30th anniversary with Air Products this year. The 57-year old European president has had a truly international career with the US industrial gas giant and has had the opportunity to live and experience different cultures, both sides of the Atlantic.
\\$quot;My career has been very international. Out of 30 years with Air Products, I have worked a total of 11 years in France, nine in the UK, three in Italy, four in Spain and three years in the US.\\$quot;
Living in different countries and managing various businesses for Air Products has taught the Frenchman about different cultures, work ethics and people.
\\$quot;I have learned a lot, probably enough to write a book about how to work with Germans, the French, Italians, Americans and the English\\$quot;, he laughed, \\$quot;but one of the things that I have noticed more is the difference between the American and European way of life.\\$quot;
The \\$quot;can do, can win – attitude\\$quot;
\\$quot;Americans simply buy and consume more. Americans have the 'can do, can win and believe in the future' attitude that I don't see or feel in Europe. As a result, Americans spend everything they earn, they probably save as a country about one per cent of their income, many of them are in debt or haven't got savings.\\$quot;
\\$quot;Europeans on the other hand save around seven to 15 per cent of their income. However, this is money that doesn't go into the industry or recycle. It's money that is invested and probably goes to the real estate market and stays in there.\\$quot;
Guerini’s management style
\\$quot;Ron Sullam, former Air Products European president believed that customers, employees and technology were an integral part of creating shareholder value and producing results. Manage these right and the results will speak for themselves and shareholder value will be generated. Having worked with Ron for much of my 30 years, I too believe in this and without spending time on these resources you can forget about shareholders and results,\\$quot; the Frenchman preaches.
Guerini makes himself available to both customers and employees.
\\$quot;I like to be at the plants or customer facilities. I don’t like to go to a plant as if I was checking up, reviewing and feeling that nobody was waiting for me but I love to be invited and spend some time with the people who work for us. I spent a part of my career with applied research & Development, which I recall as being the most exciting time in my career because I was able to talk to the people who were at the heart of the business. For example, one morning I was at a customer talking to this guy who was freezing mushrooms and he talked to me about his number one problem in driving profits. It was a perfect opportunity to learn what he does and to get to know what is important to him.\\$quot;
\\$quot;Having the opportunity to have a relationship with a customer which is deep, sound and profound is important, because that is the only way to really learn what makes a customer buy our products. That is very exciting and this is something I have learned from Ron and something I am trying to bring into our operating culture.\\$quot;
How was 2005 for Air Products?
Air Products had a good year in 2005. Global gas sales increased by ten percent, despite of the impact of the three hurricanes, which affected the company’s last quarter results somewhat. An important liquid hydrogen facility outside New Orleans in the US was damaged which resulted in a significant investment in order to rebuilld the plant.
\\$quot;The plant is now on-line and completely repaired and we are really proud of this speedy recovery because in the matter of weeks we managed to rebuild a facility that was flooded.\\$quot;
It was a good year for Air Products in Europe too. Air Products secured several important contracts and new packaged gas business across Europe. Guerini was particularly pleased about a recent win in the UK, related to the homecare business and servicing the homecare needs of the British NHS (National Health Service).
\\$quot;It’s a fantastic contract for us as we were mainly in the (oxygen) concentrator business rather than in the cylinder business. We only used to have two NHS regions but now we have seven out of 11, which means that our patients served will increase from 15 000 to more than 50 000 patients by next year.\\$quot;
Small acquisitions make big business
Air Products’ aim for the medical business in Europe is the same as that in the US, to acquire small business and grow. According to Guerini the company believes that density of customers is a key component to a successful medical business. \\$quot;We don’t want to be national having seven or eight spots in Germany, we want to grow in a region and increase in density. Small acquisitions make big business.\\$quot;
Guerini was also very pleased with Air Product’s packaged gases (cylinder) business in which the company continues to show strong growth in what observers feel is a mature business. \\$quot;We are continuing to grow and develop new product or brand offerings to the market – such as the Maxx product line. It’s a new product that takes into account the heat conductivity of gases and different conductivity rates in order to get a faster and cleaner welds.\\$quot;
In fact, Europe is recognised by Air Products in the US as an important business region for the company as a whole and is reflected in that not only is Europe the centre of excellence for its global medical gases business, but the UK is also a centre of excellence for food and cryogenic applications . Europe also has a very important ASU LNG plant manufacturing facility for the global market as well.
Air Products wins awards
Looking beyond the business successes in 2005, Air Products has been nominated for several years by the Chemical Manufacturers Association as the number one company on safety and was awarded top spot again in 2005. He continued: \\$quot;We are very proud of our good safety record in Europe. For example in the package gas business in the UK, we move thousands of cylinders every day and have had zero recordable incidents. I find that fantastic.\\$quot;
\\$quot;Hot off the press\\$quot; came an announcement at the end of November that the company has been officially recognised by the European Commission to be among 19 companies selected for its superior diversity program. In a report entitled \\$quot;The Business Case for Diversity – Good Practices in the Workplace\\$quot;, Air Products was one of only a few companies to be cited for its excellent working practices concerning diversity of employment.
Guerini believes that these recognitions really highlight the company’s capability to be the best company to work for and invest in.
\\$quot;Our diversity program makes me very proud of the company. Two years ago the European Commission launched its survey on 'Good Practises in the Workplace' - a business case for diversity. They interviewed 3000 companies in Europe and 19 were entered as the business case for good practises and we were among these 19 companies, which also included IBM, Ford, Deutsche Bank, BT, Tesco and Shell. This really shows me that we do care when we say we want to be the best company to work for, buy from and invest in.\\$quot;
Challenges of the European gas business
Guerini feels that there are several major challenges ahead for the industrial gases business as well as business climate in general. The slowdown in the manufacturing base in Europe, higher energy costs, higher pension costs and additional legislation will present problems for many businesses in Europe – including the industrial gases sector.
According to Guerini, the European industrial gases industry has shown growth ranging between two to five per cent in revenues. The major concern and the number one challenge for Air Products is the changing dynamics of the European manufacturing base. It has been low before but the overall rate of growth of the manufacturing has been very low in the past 2 years.
\\$quot;The manufacturing base across Europe does nor vary much from country to country. The drivers for growth include the construction industry, auto manufacturing and heavy and light engineering. This growth has been weak of late due to the internal rate of consumption of Europe which has been on the soft side over the past two and half years.
\\$quot;I believe that the one and half per cent growth we have seen this year, when compared to North American’s four and half per cent and to southeast Asia or China’s seven to nine per cent margin, is very low.
\\$quot;My second concern is the price of energy in Europe which is having a major impact on both our own industry as well as our customer base. The recent drop in the value of the Euro and Pound to the current level has also impacted on the price we pay for energy. We can see that increases in oil have been transferred to the petrol pump and distribution costs. Higher natural gas prices and oil prices have contributed to higher electricity prices and in some countries like to the UK, prices have risen by up to three times faster of late compared with some of the other European countries.\\$quot;
\\$quot;Another concern I have which impacts on Air Products is the rise in raw material costs such as steel and copper which in part is energy related as well. We have an important engineering and plant manufacturing facility in the UK that uses raw materials such as steel, copper and aluminium and higher costs will impact on our costs in plant building.
A third worry for Air Products is the cost of pension provision, particularly in the UK but which is expected to spread to other important European businesses. According to Guerini, pension planning is costing \\$quot;an arm and a leg\\$quot; and has risen significantly in the past few years.
We still contribute significantly to the company pension scheme but our employees have seen some increase in their contribution\\$quot;.
The last element of challenge for Air Products is EU regulations, such as REACH, greenhouse gas reduction, drivers hours related to transport, the climate change levy and CO2 tax. Guerini feels that all these proposed regulations are putting a burden on the industrial gases industry and on the European industry as a whole.
He continued: \\$quot;There is a French saying, too much tax kills tax. So at the end of the day somebody has to ask the question from the European legislator, what do you want to do? Do you want to create competitiveness or do you just want to protect the environment? It’s the question of sustainable development. Which one is the heaviest driver of the regulations: social, environment or economic?\\$quot;
Future of Air Products in Europe
Air Products is well spread across Europe and to counter the challenge of the shift in the manufacturing base in Europe, is beginning to position itself in those markets where the migration is heading – to Eastern Europe. The company recently was awarded its first major on-site contract in Russia and has since set up an office in Moscow to manage all of its business east of Poland and Slovakia. Its company in the Czech Republic has been responsible for Central European activities and its equity affiliate in Italy – Sapio – has also taken on some responsibility for expansion in South East Europe.
\\$quot;We are already in Slovenia, Montenegro and Bulgaria through Sapio but our country of priority is Russia. However, we are also very active in countries like Romania or Hungary. We have people based locally and strongly supported from the European headquarters. The focus on the region is important for us today and our aim is to have a team made up of staff from the company’s different functions of the business such as tonnage and bulk gases.\\$quot;
Air Products is also extending to the Middle East: Kuwait, Oman, Saudi Arabia and Qatar, which is mainly related to energy, chemical and petrochemical business opportunities.
\\$quot;We do have a local presence in the Middle East, in Dubai. We have dedicated people in the Middle East who use Dubai as a platform to sell products that the local companies don’t offer, create relationships and help them. Air Products strategy is not to build a merchant business in the Middle East as the local companies are there for that. We want to have a relationship, get technology agreements and partnerships with them.\\$quot;
Guerini sees Air Products as having an important influence in the Middle East. The company is the number one supplier of LNG plants (heat exchangers) in the world. The future for LNG plants is vast and gasworld has researched that the current demand of 125 million tons in 2004 will grow to 400 million tons by 2020. With a typical future plant able to process almost eight million tons a year, there is ample growth in this market for leading suppliers.
However, Air Products has no intention to set up a regional structure to cater for this market. Guerini continued: \\$quot;You don’t sell LNG plants in Qatar, you sell them in Houston, London and in Holland, for example, and it’s not only Qatar Gas who you sell it to but also to companies such as Exxon.\\$quot;
However, the future goals for Air Products are very clear, says Guerini. \\$quot;We must maintain capital discipline, profitable growth and improve our Return on Capital Employed for the business.\\$quot;
Seasonal thoughts of Guerini?
\\$quot;I have a wish list for Christmas and top of that list is for Brussels (the EU) to focus on the important drivers for a competitive Europe in a global market place.
I would like them to balance the economic, the social and political issues in order for this to be achieved and embrace a more can do, can win attitude.\\$quot;
Seasons greetings to everyone and a prosperous New Year to all!