LH faces spectre of a lost year

The shock announcement on Monday that Eric Olsen, CEO of LafargeHolcim, has resigned in the wake of revelations of a probe into operations in Syria, leaves the world's biggest cement company without a leader and concerns are mounting that the time needed to find a successor could delay further improvements in performance.

Mr Olsen's departure follows the conclusion of an internal review by LafargeHolcim into the operations of the Jalabiya plant in Syria as the country's civil war intensified in 2013 and until the plant was evacuated in September 2014. Human rights groups have alleged that the company helped finance terrorism. The multinational admitted to 'unacceptable' activity, acknowledging that its branch in northern Syria had struck deals with armed groups, including Islamic State, to protect its staff and business interests. The board said that Mr Olsen had no connection or even awareness of the misconduct. However, he has decided to stand down anyway in a bid to bring back "serenity" to the company.

The search is on...
Mr Olsen is set to depart on 15 July 2017, two years after becoming chief executive and taking responsibility for the implementing the mega-merger between France’s Lafarge and Switzerland’s Holcim. He was promoted to CEO at the time and on Monday was praised by the company for his "invaluable" contribution in overseeing the merger. The group said that a search for Mr Olsen's replacement will be launched immediately and in the meantime, Chairman Beat Hess has been named interim CEO. However, Mr Olsen's resignation is being viewed as a possible setback to the global building materials giant as it could take some time for a successor to be appointed, and once in place, for them to set up their stall.

After a difficult start, analysts have noted that Mr Olsen has gained momentum throughout the last year and confidence in management had started to improve. He has pushed through a substantial disposal programme and slashed capital expenditure (although some argue to an unsustainable level). Moreover, last year, adjusted pretax operating profits rose almost nine per cent on a like-for-like basis to CHF5.8bn (US$5.83bn), in line with its target and he has pointed to double-digit like-for-like adjusted operating EBITDA growth expected in 2017. He has also recently signalled optimism about growth in some markets including the US, India, Nigeria and some European countries.

Facing a lost 12 months?
With Mr Olsen beginning to build his reputation and with no obvious successor, analysts at Bernstein consider the news as negative, particularly given the unfortunate timing of the announcement. Having been critical of Olsen’s “near-sighted” agenda, the research house notes that the company has gained traction and the CEO has been driving results, albeit through "micro-management and fire-fighting". While it believes that Mr Olsen had to go anyway and that the change is good, it is of the view that a more orderly transition with continuity of strategy and targets was needed.

In a note following the announcement, Bernstein stated: “LafargeHolcim now faces a lost 12 months. It will take time for a new CEO to be found, for them to learn the business, build their team and set their strategy. One of the reasons that Olsen struggled was a dysfunctional Board, where big shareholders were not aligned and some interfered directly with management. This will remain an obstacle to recruiting a topflight CEO if further changes are not made at the Board level first.” With no immediate successor in sight and some fresh uncertainty over the group's strategy and performance, the concern is that any momentum Mr Olsen had built up may be lost, and that efforts to restore serenity could be some way off.