Cement Americas' Editor Steven Prokopy talks one-on-one in this exclusive interview with Blue Circle North America's President and CEO Gary Gentles

Cement Americas: As an old Lafarge man, did you have mixed feelings about the hostile takeover attempt that Lafarge waged against Blue Circle?

Gary Gentles: I'm not sure it was any stranger for me than it was for anybody else. Having never been through a hostile takeover, it's quite a drain on any organization. And obviously nobody knew what the outcome was going tobe because there was no dialogue between the two companies. But we were pleased and we were able to keep the morale of our people up. Often in that situation you probably start to lose people, but fortunately we were able to retain our people throughout the ordeal.

CA: I saw some of the literature that went out to employees and stockholders, and it read like a rallying cry. I've never seen anything like it before.

GG: Well everyone responded well to that approach. As you saw in those documents, we made some pretty strong commitments in terms of what we're going to do in the next six months to two years. And people really rallied around that. Sometimes going through a crisis is helpful; it rallies people around a particular cause.

CA: When you first came to Blue Circle, what were your immediate goals? What did you want to establish right away at the company?

GG: I was a strong believer in the future of the U.S. construction materials business. We are involved with cement, ready-mix, and aggregates. We wanted to develop each of these businesses. Blue Circle had a very strong balance sheet and the financial resources to be able to grow but it really hadn't been heading in that direction in terms of aggressive growth.

The company also had a strong focus on costs; I think the term "sweating the assets" was used at that point. That had been quite successful, but the economy started a turn toward the better at the time. So my initial focus was to develop plans to improve our existing asset base.

We embarked on a very aggressive capital expenditure program. And we also looked at potential acquisitions. The last acquisition Blue Circle had done in North America had been six years before I joined, with the acquisition of the Harleyville, S.C. plant.

There was a real expectation on the part of the employees. We were able to successfully acquire St. Marys Cement in 1997, which was a major step for us. It essentially increased our size 40% overnight. But it was a somewhat unique acquisition since we expanded all three of our major businesses lines - cement, ready-mix, and aggregate - at the same time.

And the added bonus was that there were no market conflicts; St. Marys fell just outside of our market area. They were focused primarily around the Great Lakes. I did the acquisition for Lafarge of Huron Cement, so I was pretty familiar with that market area.

CA: What is your role in Blue Circle outside the scope of North America?

GG: Actually, I'm on the executive committee of Blue Circle Industries. In that role, we have scheduled monthly executive committee meetings, which we try to rotate the location of around the world. In the last six months, I've been over in the UK quite extensively.

The world is getting smaller. The large cement companies all see themselves as international players, so everybody is looking at expanding their base and becoming strong, efficient international players where it makes sense. And that's our strategy too. We can continue to grow, but we don't have a particular objective on size of our operation. We put in more in the context of profitability.

I don't think you have to be everywhere in the world. Where we go, we'd really like to have the number one or number two position in a given market area.

CA: A lot of the anti-takeover literature focused on what Blue Circle is doing in the Asian markets. There were some fairly bold promises made there about the future of the company's operations in that region.

GG: I'm not an expert on that area, but to put it into context: we had been involved in Malaysia for some years, but we really started to get involved in Asia when it turned down.

There were some opportunities to make some acquisitions at more attractive prices than had existed before. And the attractiveness of the Far East is the potential for growth. They have extremely high population, and if you look at cement consumption per capita, it looks like in the long term they are going to grow at significantly higher growth rates than North America will. We talk about 3% to 4% as normal growth, but in parts of the Far East, you see two or three times that.

Unfortunately, our timing was a little off. We spent just over ???900 million (US$1.37 billion) on acquisitions in Malaysia and the Philippines at a time when the market turned down and did so in a fairly significant way. In the first year of operations, we didn't make any money in Malaysia or the Philippines. When we talk about our ability to come back, it's coming back from a very low base. Ours is an industry that is extremely volume sensitive and that tends to affect prices quite materially.

In our plan for this year, we had hoped that the Malaysian and Philippine markets had bottomed, and we were looking for 10% growth in 2000. We have the numbers now through April, and if you go back over the last six months, the growth in Malaysia has been more than 30% in each of those months.

So the recovery is even stronger than we had expected when we made the plan. In the defense literature, we talked about 20%, but actually the improvement has been even stronger than that.

CA: Is most of that material being exported?

GG: No, most of it is being used internally. The Far East nations are major exporters, but in our particular case as the domestic economy recovers, it reduces the amount of exports. Domestic sales are significantly more profitable than export sales.

CA: Let's talk about Blue Circle's import strategy. I know that your new Port of Charleston terminal is nearing completion.

GG: We import into different areas, but one of our major manufacturing facilities is our Ravena, N.Y. plant. It produces 2 million tons of cement per year, and was designed and built to serve the east coast. So only about 10% of the volume from that facility is shipped by truck from the plant to the local market. But it was designed to be a water shed, water terminal-based system along the east coast. I think we have eight deep-water facilities along the eastern coast of the United States. We go all the way from Connecticut down to Florida.

We have an extremely efficient marine distribution system, which is based on large-capacity pneumatic barges. Over the years as demand grew, we began to import into these same facilities. Over the last 10 years, we have been an importer of product, with a minimum of 500,000 tons to well over 1 million tons at times.

Based on that, the terminal network we have in some locations restricted us to bring in pneumatic vessels. In some cases, we were restricted by draft. That was the concept behind building Charleston, which is a deep-water terminal that will have significant storage, close to 100,000 tons. We'll be able to bring in large vessels. In addition, we'll have two rail lines there with the idea of distributing from Charleston to our Southeast market, where we are the market leader.

The other advantage of Charleston is that it's designed so that we can load back on to our barge system. Our sales are so strong that we may actually have the need to load the cement back on our barges and move it up the terminal system toward Boston. It gives us tremendous flexibility and enables us to import in the most economic way since we can bring the largest vessels from a number of different locations.

We also have an extensive water distribution system on the Great Lakes, and although our two main manufacturing plants are in Canada, 65% of their production is shipped into the states.

CA: Back to the Lafarge situation for a minute: is the company taking any steps to make sure that the situation with Lafarge isn't repeated by them or another possible buyer in the near future?

GG: I don't think we're taking any particular steps to prevent somebody from coming in if they're prepared to pay a realistic price for the company, and that was our concern with Lafarge. They were really trying to steal the company at a very low price.

I think our major defense is outlined in those defense documents, beginning with the recovery in Malaysia. We talked about a fairly significant cost-reduction program, and we're just about to enter the first leg of the share buyback program, which involves ???400 million [US$600 million] of shares. At the end of the year, we've scheduled another ???400 million share buyback.

Lafarge came in at an opportunistic time when we'd just announced an earnings warning because of the Malaysian situation, which resulted in a dip in our stock, and they thought was an opportunity to buy at an unreasonable price. Obviously, we're very focused on making sure we keep our stock price up by delivering results and we don't end up in a situation ever again where we have to issue an earnings warning.

CA: I read one industry analyst's report that speculated that some of Blue Circle shareholders might have found the Lafarge offer attractive because Blue Circle wasn't being aggressive enough in terms of acquisitions, and that your discussions with Southdown may have been triggered by such talk. Is there any truth to that?

GG: That's a bit of a misperception. Remember that Rick Haythornthwaite, who is Blue Circle Industries CEO now, just took over in July 1999, with his appointment being announced the previous December. He spent six months reviewing our overall world strategy and looked at the concept of our operational improvement program.

In his strategy, it outlined the focus, which was to be the top league of the world construction materials companies. To do that would require pretty significant growth. He very actively tried to move quickly. Blue Circle had been in other businesses, including the heating business and sanitary wear business, and he moved quickly to get us out of those andfocus on cement and made substantial acquisitions in the Philippines and Malaysia.

We have probably done as much in the name of growth as other companies. The current discussion on Southdown preceded any move by Lafarge. In fact, one might think that perhaps Lafarge found out that we were interested in Southdown and might have been concerned that if we completed that deal, it would put Blue Circle out of its reach. If you remember in January, when they moved, they seemed to move somewhat precipitously and weren't totally organized.

So we have been quietly aggressive; we just don't tend to broadcast it too much. Even in terms of North America in the last five years, we've grown at an average rate of 38% per year and a lot of people don't realize that.

CA: Are there any markets in North America or possibly the world that Blue Circle is looking at as prime candidates for expansion?

GG: Right now, we've got a good geographic spread. We have significant operations in the Far East. We have a position in South America, which isn't large but it is efficient. We have operations in Africa and recently made an acquisition in Greece. And obviously we're covering North America and the UK.

I think the priority now is to build on those positions where we have some synergies that we can build onto. It goes back to our concept of being the number one or number two company in those areas. We really want to build onto strong positions and not necessarily dilute yourself too much. Rick refers to it as a micro-market strategy. Over time you want to balance your portfolio too, so that you're not too dependent in one area. I think we've got a good spread, but I think we would actively look at expanding in any of the markets we're currently in and probably still look at some new markets adjacent to ones that we're in.

CA: Along the lines of building up markets where you already are, Blue Circle and Southdown make a decent match with only a few conflicting markets. Such a combination would certainly put you in that number one or number two position in the United States.

GG: Again, we're not really looking for size. We just ask what it does for us as a total company. The cement business is primarily a manufacturing business, but it's very dependent on distribution and strong distribution networks. Southdown represents a company with leading positions in certain markets and has been focused on running very efficient cement plants. They have good cost positions and modern technology. And if you looked at our combined plant terminal networks, it's a very impressive combination.

CA: Late last year, Southdown dropped out of the Southern Tier Cement Producers [which led several successful dumping suits against Mexico, Venezuela, and Japan in the early 1990s]. What do you think about the statements that company made when they did that? And what is Blue Circle's feeling on the issue of dumping in an environment where imports have become so necessary?

GG: I don't remember their exact statements at the time, but we are still an active participant in that group. I think it's based on the premise that you have certain laws in each of the countries, and people should respect those laws. We don't have an objections to the Mexicans shipping into the United States as long as they respect our laws.

The fact is, when you see the calculations of the dumping margins, it shows that they are shipping cement into the United States at significantly lower prices than they're selling it for in Mexico, and that's against the law. I think it's important that people respect the law.

A situation could develop where it was less of a concern, and it may be less of a concern to the importers. Cemex, which has been the major opponent on the other side of the dumping issue, has a worldwide organization and can ship into the United States from other markets where they are not dumping cement.

The Southern Tier group has always had the position that they would be willing to sit down - and we actually have sat down - to try and negotiate an agreement to resolve this in a way that would be acceptable to both groups, and those talks seem to be proceeding.

On the other hand, one of the issues in the original suit was that you had to prove that they were shipping at margins that were unfair, but you also had to prove injury to the industry. We have been through a substantial upturn lately, but it was pretty sad what was happening to the U.S. industry. Companies were not reinvesting in their capacity and building new plants.

We went through years where there were no greenfield plants announced, and the only expansions under way were fairly modest in scale. This is the first time in years where we're reading about significant domestic capacity coming onstream, based on the fact that the economy has improved. And people will continue to invest if they have the confidence that the market is there. The reason they didn't before was that dumping resulted in prices dropping to the point where you couldn't afford to reinvest in your capacity. I don't think that our customers should be concerned about not being well serviced in the future. There are substantial expansions under way, and many companies have geared up to import and there's a lot of product available in the world market.

CA: What are Blue Circle North America's expansion plans for the next few years?

GG: In terms of our expansion, we've been doing modest increases at all of our plants. We've brought the Ravena, N.Y. plant from about 1.4 million-tpy capacity, which is what it was when we acquired it, to more than 2 million tpy. Harleyville, S.C. was an upgrade where we took it from just over 650,000 tpy to more than 1 million tpy, which was completed last year. The Charleston terminal is part of the expansion in terms of imports.

We've announced modernization of our Roberta plant in Calera, Ala., which should come on stream in about two years. We've been very active in Canada as well. We acquire two plants there: the Bowmanville plant and the St. Marys plant, both in Ontario. We've increased production at both, but we're just completing the latest expansion at Bowmanville, which will bring our production up to an average of 5,800 tpd, about a 30% increase since we acquired it.

At some of the other plants that I didn't mention, we have what I'd call "tweaking" work being done, where we can bring production up as much as 10% through fairly minor investments. I would consider tweaking anything below a $10 million investment.

We also announced and brought onstream our converted Detroit plant, which is used as a grinding plant but used to be a full cement plant. We converted one of its previous raw mills to a finish mill and we're producing slag cement.

CA: Is that part of Blue Circle's specialty cement industry?

GG: We have a plant in Sparrows Point, Md., which is right in the middle of one of Bethlehem Steel's steel plants. Blue Circle acquired Atlantic Cement, which owned both Ravena and Sparrows Point, so we've been in the slag business for 10 or 11 years.

One of our focuses as a cement company has been on special cements. Ours is called NewCem, and it's one of the best quality slag cement produced in the United States. We obviously have the distribution network, and we're able to ship it by water all the way to Florida. We produce just under 900,000 tpy at the Sparrows Point facility.

You hear about a lot of people starting up in the slag business these days, and we have some new competitors starting up. A lot of them are basing it on importing the pelletized slag and grinding it. We have the advantage of being right in the steel works and we produce the pelletized slag.

CA: How are the non-cement divisions of Blue Circle doing?

GG: As a result of our acquisitions, we've actually been able to develop our aggregate and ready-mix businesses. With the St. Marys acquisition, we ended up in the precast business. When we acquired it, St. Marys was processing about 2.5 million tons of aggregates in Ontario. Basically, they were using it as a source to feed their ready-mix operations. We wanted to develop a stand-alone aggregate business like we have in Georgia, and we've done three acquisitions since St. Marys, which has created a 13 million-tpy aggregate producer making it the second-largest aggregate company in Ontario.

The Canadian operation in terms of tonnage is slightly larger than our Georgia facility, where we produce around 11 million tpy.

CA: One issue that's come up recently has been the lack of new blood in the industry, that the hiring process has become almost cannibalistic with companies hiring from other companies. Has Blue Circle addressed this issue at all?

GG: We work in an industry where people's first reaction when there's a vacancy is to hire from within the industry. That policy potentially has negative repercussions because whoever you hire from will probably retaliate and hire back. Also, you're dealing with a limited pool.

Our main focus has been to expand that pool. We've been pretty active in recruiting and finding new people from similar industries but not our industry. And we've been very successful in recruiting people from the mining industry, which is even more focused than we are in terms of movement of materials. Those people are very efficient and have brought us some ideas from that standpoint. We've also gone to the petroleum industry.

Even on a worldwide basis, because of our global expansion, we've had a special hiring emphasis in the UK, hiring people from these different industries that are prepared to progress nationally and internationally. We've also had an emphasis on four or five universities, and we've found it's an effective recruiting practice to send back graduates to do the recruiting on campuses, especially if those graduates have been successful. They tend to give the best sales pitch for the company.

I went through it myself in 1972. I didn't set out to join the cement industry, but I went to an on-campus recruiting session and I found it interesting. I have to admit, I never expected to make an international career out of it at the time.

CA: How do you view the future of the North American cement industry?

GG: When I came to Blue Circle, I was a tremendous optimist in terms of where the industry was going in North America. That was based on the macroeconomic situation, where we'd had fairly uneven demand over the years and when demand dropped, it dropped below the productive capacity of the cement plants.

If you look into the future, the industry has done an extremely good job at refocusing its marketing efforts. We've made great strides in terms of the promotion of our products, particularly in highways and home construction.

And I think in our forecast, we haven't reflected the impact that that will have over time. I think the fundamentals are stronger than the Portland Cement Association shows if we stay focused and continue to develop those markets.

Gary Gentles began his career in the cement industry at Lafarge in 1972 as a marketing analyst in Canada. After briefly working in the company's French headquarters in the early 1980s, Gentles came back to Canada in 1982 to run Lafarge Canada's Atlantic Region. In late 1983, he negotiated the company's acquisition of Huron Cement and moved to Detroit to oversee the transition.

Shortly after this acquisition, Lafarge merged its U.S. and Canadian operations, and Gentles was made vice president/general manager in charge of the newly formed Northeast Region. After another brief stay in France to run Lafarge's wallboard and gypsum operation in 1990, Gentles returned to the United States in 1992 as president of Lafarge's U.S. Cement Division based in Reston, Va.

In January 1995, he joined Blue Circle North America as President and Chief Operating Officer (later changed to Chief Executive Officer, his current title).