in this issue
New Air Products CEO says emphasis on cash and capital allocation to guide strategy
7:55 PM MDT | July 23, 2014 | Robert Westervelt
Air Products chairman and CEO Seifi Ghasemi says that a focus on cash generation and improved capital allocation will drive Air Products strategy in his first public comments since taking over the company on 1 July.
Ghasemi told investors on the company's 23 July quarterly earnings call that Air Products will provide more detail on strategy by mid-September and host an investor conference by early 2015 to outline how it plans to close the gap in key performance measures such as operating margins and return on capital relative to peers such as US rival Praxair. “I [took] this job ... because I believe that Air Products has the people, technologies and the geographic footprint to significantly improve its performance,” Ghasemi says.
Ghasemi, 69, had served as chairman and CEO of Rockwood Holdings since 2001, and was previously with BOC Group for 18 years, holding senior positions including president of BOC Gases Americas. “During the 1980s and early 1990s, I worked at another industrial gas company,” Ghasemi says. “During that time, we always compared ourselves to Air Products since Air Products was the best industrial gas company in the world. I had during that time a great deal of respect for Air Products people and its leadership. I believe Air Products has the potential to regain its leadership position.”
Ghasemi joined Air Products’ board as an independent director in September 2013 as part of an agreement on board and management changes reached with hedge fund Pershing Square (New York), the company’s largest shareholder. A nine-month search for a new CEO ended last month with the announcement that Ghasemi, who was on the board's CEO search committee, would succeed John McGlade as chairman and CEO.
An emphasis on cash generation, improved capital allocation, improving per share stock value, and decentralization will guide overall strategy, Ghasemi says.
Cash flow generation, rather than reported earnings, is what determines a company’s long-term value, Ghasemi says. “We believe that cash in king,” Ghasemi says. “We will focus our efforts to generate cash.” The company will start using Ebitda to present results and measure performance, he adds.
Ghasemi indicates that the company will look closely at project hurdle rates and how they are set for new investments. “I consider capital allocation to be a very significant part of my responsibility,” Ghasemi says. “We will only allocate capital to projects and activities that will create significant value for our shareholders.”
Growth in the per share value of stock, a belief Ghasemi emphasized in recent years at Rockwood, will be the true measure of performance, he adds. “Sales growth and corporate size is of no value if it does not result in an increase in the per share value of our company stock,” Ghasemi says.
Company decision making will also be decentralized, Ghasemi says. “We believe high-performance people want to be given clear goals and be empowered to make decisions,” Ghasemi says. “A decentralized organization with clear lines of responsibility and accountability is the best way to unleash our best people to lead at all levels of the organization and deliver results.”
Ghasemi's says a reorientation of the company's culture around core principles such as “safety, simplicity, speed, and self-confidence” will be an essential part of implementing strategy. “Our goal is nothing less than zero accidents and incidents,” Ghasemi says. “We will simplify our organization and will focus every day on simplifying our work processes so that we can eliminate unnecessary work and make it easier for customers to do business with us,” Ghasemi says. “We will perform our jobs with a sense of urgency. We believe that speed of execution is a competitive advantage.”
Ghasemi also tamped down speculation around divestitures. “The entire portfolio of Air Products right now has room for improvement,” Ghasemi says. “We are going to ... push for improvement. Once we have improved everything, then we will have options to take a look at. Nothing is for sale right now. We are all focused on improving the performance of all of our businesses.”