Cement Americas' Editor Steven Prokopy is granted an exclusive interview with Lafarge Corp.'s President and CEO John M. Piecuch

Cement Americas: What is your specific role in the Lafarge Group as a whole, aside from what you do for the North American operations?

John Piecuch: I'm the president and chief executive officer of Lafarge Corp., as you know. It is more than 52% owned by Lafarge S.A. In that capacity, I represent Lafarge Corp. and its interests in the Lafarge Group, along with the chairman of Lafarge Corp. [Bertrand Collomb], who is also the chairman of Lafarge S.A., and the vice chairman of Lafarge Corp. [Bernard Kasriel].

As well, I am on the Lafarge S.A. executive committee. We meet 10 times per year to discuss issues of common interest to all companies in the group. This executive committee represents all the product lines and geographical areas that Lafarge S.A. is involved in worldwide. It's a vehicle for us to coordinate business activities on a global scale.

CA: Speaking of things on a global scale, the trend today in the cement industry clearly seems to be smaller cement companies being bought up at premium prices by larger companies. What is the Lafarge agenda in terms of acquisitions?

JP: I'm not in a position where I should be speaking on behalf of Lafarge S.A. The reality is that value is in the eye of the beholder. A company may be of a certain value to one organization, and could be worth more or less to another, depending on the strategic fit and the operational synergies.

You can't use one type of barometer or scale to assess the value of a business. It really is a very particular process.

CA: So in North America, I assume your opinion on a certain acquisition carries some weight with Lafarge S.A. What is your agenda and philosophy when seeking a good match for Lafarge?

JP: We're not going to buy a company if we don't think it adds value to the overall Lafarge organization. Obviously we try to take a lot of things into consideration: the product line, the geographic consideration, the quality of the people, the potential overlap with our existing operations, the economies of scale, synergies, etc.

Frankly, every transaction we look at - and we've completed a lot in the last four to five years, and looked at even more - we look at very specifically. Our going-in position is that we want to understand exactly what the value-creation opportunities are in that business, and more importantly, how you extract the value-creation opportunities. It's one thing to say there are synergies in terms of scale or that we have overlapping operations, but if you don't take the time and have the discipline to identify them and extract them, then what good is the acquisition? If you don't do that, over time those types of projects, where you don't do your homework, do not succeed.

CA: Are there any areas in this part of the world that Lafarge Corp. is looking at?

JP: North America is our priority, for lack of a better term. We believe there are a lot of opportunities in North America, both in Canada and the United States, in all of our product lines. We're in cement, but we're also a major producer of concrete and other types of concrete products, aggregates, and asphalt. We've also been in the gypsum wallboard business since the end of 1996. We're actually expanding that business quite rapidly at this point.

We believe there is opportunity for growth in all three major product lines: cement, construction materials, and gypsum wallboard.

Our intention is to expand in all three areas. We think we can expand our coverage in some of the existing markets we serve, and we believe that in the next three to five years, there will be opportunities to expand geographically, as well, into certain parts of North America that we now don't operate within.

CA: If the Blue Circle deal had worked out, that would have made for a good match in North America, correct?

JP: Just so you understand, Lafarge S.A. was the company that made the offer for Blue Circle plc, which has a substantial amount of assets in North America. The reality is we at Lafarge Corp. were provided with the opportunity to evaluate the assets of Blue Circle and to identify those operations that made sense for Lafarge Corp. We were in the process of doing our due diligence to better understand these assets and to be able to hold preliminary discussions with Lafarge S.A. about the potential opportunities for Lafarge Corp. and the Blue Circle assets when the shareholders of Blue Circle voted not to accept the Lafarge S.A. offer.

So you're right: Blue Circle has some fine assets; they have a lot of very capable people. The potential combination of Lafarge Corp. and some of the Blue Circle operations promised a lot of potential opportunities.

CA: The feeling at Blue Circle seemed to be that the offer was made too soon and that maybe the necessary homework wasn't done to really come up with a fair offer. Regardless of whether it was undervalued, Lafarge obviously thought it was a fair offer...

JP: The reality is that an offer was made and that it wasn't accepted for whatever reason. You can step back now and provide all the hindsight or second guessing, but in actual fact, does anybody really know why things worked out the way they did?

CA: Fair enough. More so than some of the other construction materials giants, Lafarge Corp. has seen growth in recent years as a result of expanding its existing operations rather than through acquisitions. In North America, that seems like a fairly solid policy these days.

JP: The reality is that we believe there are opportunities for growth both from external means (i.e. acquisitions) and internally by taking the existing business we have and further developing and expanding it.

For example in the wallboard business, we started off buying two small wallboard plants at the end of 1996. We've subsequently bought another small gypsum wallboard plant. We've just started up one of the largest single-line wallboard plants in North America in Silver Grove, Ky., and we're almost finished completing a sister plant just outside of Jacksonville, Fla.

We're committing about $200 million to those two plants. We've rebuilt our cement plant in Richmond near Vancouver, B.C., which was more than $100 million. We're in the process of expanding - basically rebuilding - a plant just outside of Kansas City for well over $100 million. We've also expanded aggregate operations, taking the existing base of operations and expanded market areas and production capability. We've opened up some new ready-mix operations as well.

We basically have tried to identify for all of our product lines a coordinated strategy that identifies the potential opportunities in these businesses and establishes how to take advantage of them. From our standpoint, you need both methods if you want to satisfy the type of growth objective we set for ourselves in all our product lines.

CA: One of the product lines you didn't mention is cementitious products. What is Lafarge's history with such products?

JP: Lafarge basically pioneered the use of slag in Ontario. We were running slag there before any other place in North America. All we're doing now is expanding our sphere of influence in that business. We're in the process of putting in place a couple of granulators and a pelletizer to produce cementitious-quality slag in Chicago. That's about 1 million tons of capacity, which is actually larger than the nearby Holnam facility.

We're expanding our operation in Ontario right now, and we've just finished modernizing the finish mill at an old cement plant in Montreal. We'll be taking slag into Quebec and providing slag from Quebec into portions of New England. We're also implementing a slag project for the west coast of Canada and the northwest United States. And we are a major provider of slag cement in Florida.

At the same time, Lafarge is already one of the largest providers of fly ash to the concrete industry for cementitious purposes. We've been in that business since the late 1960s, early 1970s.

Today, when you add it all up - our slag capability and pending capability, and our existing fly ash operations - I think we rank at the very highest level of total cementitious product offered.

CA: Are there any specific markets or types of projects where that material is going?

JP: There is a definite application for slag. You're seeing slag being introduced into the highway market. Certain characteristics of slag make it attractive for concrete. I wouldn't want to pigeonhole it; there are a lot of opportunities for slag and fly ash, but you have to supply the right kind of high-quality product. That's key to us.

We have delayed going into the slag business in certain markets because we wanted to make sure we had access to the highest quality cementitious slag or fly ash materials. We don't want to be in the business just to be in the business. If we can't have the right kind of product, it doesn't make any sense to us.

CA: Earlier you listed some of the North American cement plants where expansion has taken or will take place. Lafarge also expanded the capabilities of your import terminal in Louisiana.

JP: We're in the process of doing a number of things. We are a major construction materials company in the New Orleans area, and we provide a lot of cement into that area, as well as for the gas and oil drilling markets.

Our terminal is essentially an old cement plant in New Orleans, and we have a couple smaller terminals that support our cement-distribution operation at Union, La. farther up the river. We're in the process of expanding our Union terminal so that it facilitates bringing in imports in a more efficient manner. We're also in the process of making final decisions about how we're going to upgrade our New Orleans terminal to facilitate more effective and lower-cost distribution.

CA: By doing that, you're obviously counting on continued and increased importing coming into that location. Let's talk about the role of imports to Lafarge Corp. What will happen to your importing network as your cement-producing operations continue to expand their capacities?

JP: Today, that is one of the big issues facing the cement industry. The reality is that you still have unstable cement markets in certain parts of the world, where supply is much greater than demand. Those countries and those producers would all like to export their excess production, and North America is the most attractive target. It's understandable.

Meanwhile, we had a situation here where demand was much greater than domestic supply, to the tune of more than 25 million tons. Now you have a situation that is changing very dramatically. The U.S. cement industry has had higher profitability, and has re-invested to provide the domestic capacity that is required for the marketplace. Well over 15 million tons of capacity is being added, and obviously that is going to have an impact on reducing imports.

One of the big challenges for the cement industry is that, in some cases, the people that are importing are not the same people building capacity. Eventually, the amount of imports will drop dramatically.

CA: That's the question. If imports are less expensive, will they in fact drop off?

JP: You have to understand that a good portion of the imports coming in are being brought in by the domestic producers themselves to satisfy their domestic market share. So they have the flexibility of cutting those imports off.

You have to take a hard look at the economics of imports. Once you get away from a coastal market and start to incur the substantial freight cost of moving cement into the interior, the economics of imports starts to change dramatically.

Today, just in the last few months, freight charges from certain parts of the world have added $3 to $5 per ton to the price of imported cement because of higher energy costs. When you add all that up and have to unload it and distribute it to the local markets, the economics of imports is not all that attractive. In the last couple of years, companies haven't been making a great deal of money from imports. What they were doing was satisfying customers' requirements.

CA: Is that the case with Lafarge? Is the material you're importing coming from areas that you have a stake in?

JP: We're very fortunate because we're part of the Lafarge Group, and we can take advantage of the Lafarge worldwide network of cement brokerage operations that it has in place. As a result, we are able to buy very effectively in the world markets, not just in terms of price but quality as well.

There are many areas of the world that produce product that is not up to the standards required in the United States. By being a part of the Lafarge Group, we're able to take advantage of not only price but also the right quality and the service levels required. It doesn't do any good to bring in cement if you can't provide it to the customer when he needs it. We have a substantial network of import capabilities that can facilitate imports.

I mentioned the Union, La., expansion earlier. We bring in a lot of cement now and move it up the Mississippi River to support our existing domestic operations. We are expanding our plant in Davenport, Iowa; we're expanding our plant in Joppa, Ill., which is also on the river. But we still believe, given our current position in the marketplace and given the outlook we see for cement demand, that there will be a role for limited amounts of imports. What we're doing is facilitating the importation of that product in a much more cost-effective basis.

CA: Where is Lafarge Corp.'s cement coming from?

JP: It's coming from a variety of places. We import cement from South America, we've taken some from Southeast Asia, and we've taken some from Greece and Turkey. We're able to buy on the world market at a very cost-effective rate, and we can take advantage of bulk buying through the trading operation of Lafarge S.A.

CA: And what is Lafarge Corp.'s current total of announced expansion plans in North America?

JP: We expanded Richmond from 500,000 tpy to more than 1.1 million tpy. We bought a plant from Holnam near Seattle, which was about 400,000 tpy. We think we're going to be able to tweak that plant too just because of the way we can set up production scheduling between that plant and the Richmond operation. We're expanding the plant in Kansas City; it was a 600,000-tpy plant and we're expanding to about 1 million tpy.

The capacity expansion that we've been able to do or planning to finish early next year at Davenport and Joppa will add roughly 250,000 to 300,000 tpy of production capability.

We've also been tweaking our plant at Alpena, Mich., through a combination of raw mix changes and other things. We made those changes because environmentally it made a lot of sense: we can use a variety of waste materials, including waste tailings from nearby iron ore mines as well as some fly ash as part of the raw mix.

The combination of all of these actions will add approximately 2 million tpy of cement production capability. At the same time, we're adding a slag operation in Chicago, which will produce about 1 million tpy. By fine-tuning our other slag operations, we think we can add another 200,000 tpy to the market. We introduced slag into the Florida market a few years ago, supported by excess grinding capabilities. We bring in the raw slag and grind it in Florida to the specifications of the marketplace. We've been tweaking those operations to add another 50,000 to 100,000 tpy of capability.

Since 1997-98 through 2003, Lafarge is going to be adding well over 3 million tpy of cementitious capability.

CA: You mentioned waste fuel just now. How many of your plants are taking advantage of that?

JP: Two. Lafarge is one of the leaders in the area, through a company Lafarge purchased called Systech, a company that pioneered the use of waste fuels in cement plants. And we continue that today. Two of our plants use Systech-supplied bulk fuels as a replacement for coal.

At the same time, we burn tires at a couple of locations: Whitehall, Pa., and St. Constant, Quebec, which we're in the process of expanding to burn more tires. We think there are opportunities at some of our other locations as well, especially as the problem of trying to get rid of these tires continues to grow. It's a real issue for society, and we think we have the best solution. It produces energy, and we remove a solid waste that is very difficult to dispose of otherwise.

CA: On the subject of the environment, is Lafarge prepared for the latest round of EPA restrictions that begin in 2002?

JP: We're as prepared, if not more so, than most of our competitors. The environment is a serious business to us. The reality is that if you don't have an effective and long-range environmental policy, you're not going to survive in this business. In fact, I think a key challenge for Lafarge, as well as the industry, is to become more proactive and less reactive. We have to help set the agenda and make sure people understand the significance of environmental rules and regulations, the impact on industry in general and our industry in particular.

In the last couple of years, we've gone through a lot of soul searching about how we were conducting our communication process with various governments and related officials. We recognized that we weren't doing as good a job as we could have been, and we're in the process of working hard to expand the understanding of the company. We want all our employees to understand that they have a role in maintaining Lafarge's responsibility to the environment. It's good business.

CA: I specifically remember about the Whitehall, Pa., facility what a strong community relations program existed there. They kept everyone up to date about what was going on at the plant, especially with regards to the tire burning.

JP: It just makes sense. You're living in a community and living with people. You have an impact on those people economically, socially, as well as potentially environmentally. So it makes sense to establish the right type of effective dialogue so they understand what you're doing and you understand the mood in the community that you're living/operating within.

CA: One of the biggest concerns industrywide seems to be recruiting new blood into the industry. What is Lafarge doing to bring people in from the college level?

JP: It is one of the very key issues of the cement industry today, to attract and retain qualified human resources. Every industry is going through the same situation, but we have to try and be realistic. We may not be the sexiest business out there, especially compared to the dot-com companies or other high-tech companies. In many respects, we have to work harder in this area.

Within Lafarge, it's one of the main pillars of our strategy. My position is that I don't want to just attract the best people in this industry; I want to attract the best people possible. We're out there competing with the Microsofts, the Intels, the General Electrics, the Citicorps, the Pfizers. That's the approach we take, and that's a pretty ambitious goal, I know. But we're making progress.

I've been with Lafarge for about 14 years, and when I look back and see how we've matured as a company in terms of appreciating and going after the right type of human resources, we've made significant strides. I think that we've probably hired more engineers than any other company in our business, every year. We have an engineer training program, and we recruit heavily from 5 specific universities and we're expanding that all the time. We have ambitions to hire 30 to 50 engineers per year of various types: electrical, mechanical, or chemical.

We're also hiring a lot more business graduates. A few years ago, we decided one of the things we were lacking was a greater diversity in terms of our talent pool of educational backgrounds. I think in the last three or four years, we've hired at least 30 MBAs, some from Northwestern, Wharton, Yale, Chicago, and a lot of other good schools where you might not think a company in our business would be successful.

But we have a lot to offer. When you think of Lafarge Corp., we are a $2.8 billion company. And when some already-announced acquisitions are completed next year, we'll be well over $3 billion. So we're getting to be a fair-sized company by anyone's standards. We actually can offer somebody a career in a large company. Because we have so many local operations, we can provide for the right kind of person, with the right kind of ambition, the opportunity to run a business at a very young age. And by being a part of Lafarge Group, we can offer someone a worldwide career. Today we probably have 30 or 40 people that are working in other parts of the world, such as Poland, the Czech Republic, Brazil, France, England, and Southeast Asia.

CA: Of course the only challenge bigger than getting people into the company is keeping them.

JP: It's the most important challenge. When we started talking about this, I said "attract and retain." We have a lot of good people here. I believe we spend a great deal on internal development and training programs. Just moving people around and giving them different jobs, is an expensive process alone.

Today, we are sending people to Harvard's advanced management program for three months. We're also sending people to Duke and Queens and other schools to enhance their general management skills and broaden their perspective. Every year, we put on a program at Duke, where we send up to 40 people for two weeks at a time, to upgrade their skills and to have them exposed to people from other locations, industries, and with other perspectives on business today.

People want to be with a company that is investing in them. That's a mantra we have at Lafarge. The amount of money we've spent on internal development and training has exponentially increased in the last four years, and will continue to increase. Recently, we put in an entire department within our Human Resources function just covering the issue of leadership training and development. Again, it's good business, and I think our people appreciate it.

CA: What specific things are you doing to attract people right out of college?

JP: For example, we have an engineer training program where we recruit at various universities and explain to the students how we can put them into the organization, and after two or three years, they will have these types of skill sets.

We also package the company itself: where we're located, how we're growing, the potential international career. We encourage people to realize that the world is their domain, and the opportunity to be with a company that can provide them with the chance to work in another country is a very positive experience. You can learn more about yourself when you go to another country and learn another language and customs - even though it's the same business - much more than you realize. We believe that translates into more effective employees, executives, and managers.

CA: You mentioned dot-com companies earlier. It was announced recently that Lafarge was entering an e-business with other construction materials companies.

JP: What you're referring to is that Lafarge, S.A., along with a few other companies in Europe, are looking at the feasibility of establishing an e-business hub to provide an Internet interface with customers who want to buy heavy building materials.

It should come as no surprise that we're looking at the same thing here in North America, because it makes economic sense. We've been working with other companies to possibly establish a similar type of hub for North America. At the same time, we're working on our own Internet and e-business capabilities as well. I can't even tell you how many initiatives we have under way within our various product lines to make sure we're e-business ready.

We believe that by 2005, our industries are going to be very much e-business oriented because all of industry is going that way. We're trying to stay ahead of the curve, so we've put in place targets, milestones we want to achieve, and we're working very hard to get there and do so ahead of our initial targets.

We've also made investments in other companies that have specific e-business capabilities. We're one of the original investors in BuildNet, which is a company that provides software to the home-building industry and is trying to expand their role and presence on the Internet. And we're learning a lot in the process of working with them. We're looking at making other investments in similar business to business portals. As we expand our skill set of knowledge, we will be able to effectively work with our client base in the new type of commerce.

CA: In the North American version of your e-business, will you be working with other construction materials companies?

JP: We're working with other cement, aggregate, and concrete companies, yes.

CA: What's the advantage of doing that?

JP: We think it makes sense because it will provide an efficient way for the customer to be introduced to a broad product offering rather than just to one company. That doesn't mean that we won't fight for the business with the other companies, because we will. But it's a way of making it more convenient for our customers. Eventually, it could lead to some savings for the companies operating the hub in terms of facilitating purchasing, etc.

It's similar to what the auto companies have done or the chemical companies or aircraft manufacturers. They have consolidated and can provide a better service capability to their potential customers and provide cost-saving opportunities for themselves.

CA: What are some of the advantages to doing this type of joint venture as an Internet business?

JP: Because more commerce is going to be done on the Internet. It's more efficient; it takes away the role of paper, the handling, the processing. If you can do it electronically, it's more efficient, and we can provide better customer service.

CA: Besides the Internet, what areas of new technology has Lafarge been focusing its attentions?

JP: We are of a size and breadth where we're able to take advantage of developments in new technologies that other companies cannot. I think that is a real issue today because you have to become more high-tech, not only because it makes good business sense but also you have to take the realistic approach that, if you're trying to attract and retain the best people possible, people want to go to and be with a company that appears to be ahead of the times. Obviously, people relate that type of thinking to high technology.

CA: In what high-tech areas are you involved?

JP: Everything to do with the production process and automation systems. The amount of money we spend on information systems today is substantial and growing every day. You're seeing more and more of it, and the key is trying to translate those applications into our type of business.

If you take a look at the existing wallboard plants, the ones that were built 20 or 30 years ago, and compare that to the one we just put up in Silver Grove, it's like night and day. We're talking about a plant that could produce 1 billion sq ft versus the average plant that is about 300 million sq ft. It has fewer employees, much more sophisticated monitoring and production processes. Everything is more or less done electronically; people are there not so much to do physical work but to monitor and make adjustments. That means a different type of employee, a different quality of work experience, a cleaner environment, a work environment that's more mentally challenging.

One of the things that I talk about within Lafarge Corp. - and I'm very blunt about this - I want people to think, not just do. I also believe that creates the kind of environment that people want as well, because they want to be challenged. I don't care who they are or what type of job they have. Our experience tells us that you have to give people the opportunity to expand themselves; it's a rare individual that doesn't want to improve their capabilities. If they are successful in doing that, we're going to be successful as a company. We're going to be able to provide a richer and more fulfilling experience for the employee, and everybody is going to benefit.

At the same time, it's all easier to say than it is to do. Every day you're working hard to satisfy those objectives. We're trying to be more honest with ourselves about how we manage our business, what our capabilities are, what our weaknesses are.

CA: Has Lafarge been successful at keeping people?

JP: We think so. We take a look at our retention statistics, and compare them to other companies, not so much in our industry, but other companies in general. In terms of our analysis, we rank pretty favorably. And as we reinforce the message that we want to invest in our existing employees and new employees, we'll get more support.

The other key to this is getting people to communicate. We're trying to create an environment where people are prepared to speak up and be part of the process, whether they work on a production line or are a sales person or a senior executive.

Are we totally there yet? No, because we're still going through the adjustment process. But by talking about it every day, we can encourage people to speak out. For example, we have an Innovation Award, as well as an award for people who try to follow our strategic policies and programs; for people who have specifically done something that relates to those objectives. We try to highlight their activities as a way of demonstrating to the whole Lafarge network of employees that this type of behavior is what we're looking for and to reinforce and reward it.

People have to understand that the business model is changing as well. In the past, people would say, "I am with a cement company" or "I am with a ready-mix company" or "I am with a paving company." But that model is now breaking down. I personally don't believe as we go forward that a company can be in only one product. The model is changing not only because of what your competitors are doing, but also the customers themselves are changing, and you have to adjust to the customer base.

At Lafarge, we believe that there's a great deal of strength in the fact that we're a leading cementitious company, that we're a major producer of concrete, aggregates, paving, and asphalt.

The industry is maturing and getting better; the quality of the people is getting better. We are getting more sophisticated, which doesn't mean there won't be some bumps along the way, but I'm optimistic for the industry and the people in it.