INSIGHT: Air Liquide faces the challenge of growth

15 February 2008 17:26  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The pursuit of growth is one thing, the achievement of profitable growth another. The world may be full of opportunists: new markets, technologies and regions beckon. But the clever company has to have well laid plans to understand how it is going to prosper and, indeed, tell the world about it.

Air Liquide chief executive Benoit Potier on Friday outlined some of the challenges.

His company got bigger last year when it bought engineering group Lurgi.

In recent years it has pushed hard into the fast growing developing world economies and at the same time even strengthened in important added value sectors like healthcare.

But it wants to move from the 5-6% annual average growth level to 8-10%. That will take capital investment, certainly, but also considerable investment in processes and people.

If Air Liquide revenues grow at the 8-10% a year rates this $17bn sales company will be twice the size in seven years. Top line growth is, of course, not everything and the company is targeting a tough €600m in additional costs savings over the next year and to maintain its return on capital employed (ROCE) – this is an asset intensive business – to between 11% and 13%.

Yet if it is to achieve these goals then it will have to add people – Potier said between 25,000 and 30,000 additional employees. It will need to source talent and develop the business structures that will allow that talent to flourish.

Air Liquide’s mid-term objectives are based largely on expected growth in the electronics and large industries markets. Asia and to a lesser extent the Middle East will drive both segments.

The company has made decent project wins in heavy industries in China, including chemicals. Most recently it secured a project to supply two 3,000 tonne/day oxygen plants to the world’s largest coal producer Shenhua for expected to use in a coal-to-chemicals project.

There will probably be a series of oxygen investments by such coal customers over the years as coal-to-chemicals projects are developed. Producers like Air Liquide will be involved either as equipments suppliers or sellers of the gas.

Potier said on Friday that he wants Air Liquide to be recognised as the gas industry leader. It has been a front runner in developing new geographies and a pretty close second in some of the newer markets. It will need to at least match its cost saving objectives to please the financial community and its shareholders which see other producers snapping at its heels.

And it is the organisational and some of the softer management issues that will be all important in helping the company achieve its goals.

Potier admitted that Air Liquide will have to redefine some of its business models and work out where true value lies. Currently it operates across 72 countries and if it adds personnel at the rate required its corporate culture will have to adapt.

The challenge is to change methodologies, such as those in project management, to accelerate business processes. It operates in a competitive world where new project wins are all important. It not only needs talented individuals to help run its operations but the management process that help them delver streamlined results.

And Potier stressed that communicating with the financial markets has to become clearer and better. As it ramps up growth, Air Liquide has to explain that investments are sound and that cash is being spent wisely.

As this industrial gases player goes for growth it needs to resources to do so effectively and the wherewithal to tell the world that is doing a good job.

By: Nigel Davis
+44 20 8652 3214

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