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Interview Home > Interview

Interview with Mr. Gustavo Franco, CSO of RHI Magnesita

2020-10-30

Mr. Gustavo Franco, Chief Sales Officer RHI Magnesita


Since February 2019, Mr. Gustavo Franco holds the position as Chief Sales Officer at RHI Magnesita. Before joining RHI Magnesita’s Executive Management Team, he held various positions in the company since 2001. Prior to his role as CSO, Gustavo was amongst others Head of Business Unit Processes Industries & Minerals and Vice President Global Sales & Marketing. Gustavo’s career is built on a proven track record in leading turnaround processes, promoting sales growth and exceeding targets. With many years of experience in managing large multi-cultural teams in a global and complex environment, he leads with a focus on developing sustainable and profitable businesses.


Video of Interview: https://www.youtube.com/watch?v=qTfSiDbh81A


Refwin: Mr. Gustavo Franco, you were appointed as CSO of RHI Magnesita in early 2019, one year after the merger of RHI and Magnesita. How did you manage to integrate the two existing Sales organizations and what was the biggest challenge? Which approach did you take to maximize the effectiveness and efficiency of the new Sales organization? 


Mr. Franco: The first phase of the integration plan of RHI and Magnesita already started in early 2017, nine months before the actual merger. Both companies assigned senior leaders to analyze the potential synergies, design the new organization, perform a selection and nomination process, and having everything ready for the launch of the combined company without any disruption for our customers. On day 1 of RHI Magnesita, every customer in the world had a responsible Sales manager assigned. This preparatory phase was crucial to guarantee business continuity and we were able to manage it successfully.


The second phase started at the beginning of 2019 with the transformation of the entire Sales organization. We focused on topics such as process efficiency, Integrated Business Services and Customer Relationship Management. Also, our industry traditionally is not an “early adopter” of new technologies. Therefore, another important focus was put on Industry 4.0 and Digitalization. This year was dedicated to the acceleration and implementation of all these projects. In addition, we now have a strong focus on adjusting to the business environment we will be facing post-COVID-19.


Refwin: Mr. Franco, as the largest refractories supplier in the world, RHI Magnesita has to have a 100% efficient Sales network. Can you give us some insights into the structure and set-up of your global Sales organization?


Mr. Franco: The Sales organization of RHI Magnesita was recently reshaped, considering some mega trends and market segmentation as a basis for the new setup, allowing the team to excel in the time post-COVID-19. We have decentralized some global functions and redesigned our Steel Business Units, bringing them closer to the customer while delegating also more power and autonomy to the regions. The Business Unit “Flow Control” collaborates cross-functionally with all regions, developing technologies and tailoring solutions to this specialized niche. The Sales to all other Industrial areas were grouped into a solid and comprehensive Business Unit responsible for cement, glass, non-ferrous metals, energy and chemicals. This group is led globally, having a strong regional presence too. The minerals’ Sales complements our market coverage, developing markets to all products and biproducts of our raw material sites. All Business Units are fully supported by three main areas: Marketing & Digital Solutions, Services and Circular Economy. These three areas were refocused recently, with the respective teams fully dedicated to the development of innovative solutions for our customers, taking RHI Magnesita to a unique spot in our Industry.


Refwin: This year, global economy and especially industrial production sectors have severely been affected by the COVID-19 pandemic. We saw a reduction of 22.7% of RHI Magnesita’s revenue for H1 2020, according to your report (on a constant currency basis). How do you interpret this figure? Are there any other reasons, except COVID-19, that you think could have caused the reduction?


Mr. Franco: This has been an unprecedented year for all businesses globally. We recorded 22.7% lower revenue at the half year, given an overall weak market compared to a strong first half 2019, a sharp deterioration of demand due to COVID-19 during the second quarter and falling raw material prices, which directly impact the price of some of our refractories products. However, we have responded resiliently to the downturn to preserve profitability, through putting mitigating actions in place including the production optimization plan and SG&A reduction and are confident we can achieve a double-digit margin for the full year 2020. 


The business performance was very different by market segment, industry and region. In a nutshell, I would summarize as follows:


-       Industrial projects had a weaker performance mainly driving by postponements of shipments, as customers delay their capital expenditure projects.

-       Cement & Lime had a strong first quarter reaching record results, followed by a weak second quarter due to normal seasonality intensified by COVID-19.

-       Steel North America, our most profitable region, also had a strong performance in the first quarter, followed by a weak second quarter heavily impacted by COVID-19.

-       Steel South America was mostly affected by significant currency movement of the BRL, which brought an additional challenge for price management in Brazil, the largest market of the region, in addition to the local restrictions from the pandemic.

-       Steel Europe has been challenged due to overcapacity and a high cost base, intensified by the effects of COVID-19 which is in an L shape recovery, as well unfavorable DBM prices. Issues are being resolved through our production optimization plan, and our raw material strategy.

-       Steel India & West Asia reported a solid performance during first quarter followed by a sharp drop during second quarter, mainly in India. However, some markets in this region outperformed during the period.

-       Steel China & East Asia performed well thanks to market share gains in China, as we drive business expansion in the country, notably a Full Line Service contract with a greenfield EAF plant.


Refwin: What is the biggest challenge you are facing this year and which measures have been taken to minimize the impact of the COVID-19 crisis on your Sales revenues? When do you forecast RHI Magnesita’s revenue to recover to the same level as in 2019?


Mr. Franco: Naturally, it is our top priority to ensure the health and safety of our employees and customers. At the same time, we have to keep production running because refractories are critical for our customers’ supply chains. In general, we see the following challenges in a post-COVID-19 environment, where we have to adapt and lead the transformation in our industry:


-       Volatility is higher than before: our various market segments will develop differently, thus requiring individual actions. Also, regionalization is boosted at the detriment of free-reigning globalization. We reacted quickly, reshaped our organization, moved to a regional set-up, and got closer to our customers.

-       Connectivity in business environments, characterized by increasing data interfaces and higher readiness to adapt to a digitalized business world. We are investing heavily in our digital capabilities, bringing new digital products and solutions. For example, we launched remote assist solutions based on augmented reality, and now our customers can connect with our experts to solve incidents on the shop floor or collaborate remotely — even at times of restricted travelling.

-       Sustainability is much more on the global agenda than it was a year ago. We expect a significant technology shift in the next 20 years. For our customers we want to be the first mover in carbon-free offerings and are investing a lot in new technologies for CO2 capture and usage.


Considering the given market dynamics, we believe that visibility in our industry will continue to be limited for a longer period. However, there are significant differences region by region – China for example recovered much quicker than Western markets.


Refwin: Looking at your financial highlights, your revenue is mainly composed by earnings from the steel and industrial sectors. What is your Sales strategy and Sales model for those segments concerning your biggest markets?


Mr. Franco: Providing the greatest possible value to our customers is our priority. In a post-COVID-19 environment, our customers will pay more attention to automation, digitalization and robotics to improve their production efficiencies and RHI Magnesita is investing NOW to make this possible. We are strategically working on offering our 4.0 solutions in all regions. In addition, we have strong production facilities and solid Sales channels globally.


In the Americas, we are focusing on selling solutions. Our unique value proposition has been established by our ability to adapt our commercial, technical, service, and digital offering to fit the specific needs of each customer, while achieving a revenue per ton commensurate of the value we provide.


In Europe, we are focused on accelerating the tepid market recovery across the European steel market. We have a clear emphasis on expanding our offerings in digitalization, for instance by introducing our 4.0 solutions at our customers. In addition, we are committed to sustainability and circular economy, offering on-site recycling solutions to reduce landfills.


In China and East Asia, we have strong production facilities and integrated Sales channels. Combined with local R&D support we can offer tailor-made refractory products. Additionally, we focus on game-changing projects such as the Integrated Cement Refractory App to offer real-time digital inventory management for consignment stocks. 


In India, West Asia and Africa we are aiming to gain market share in the steel-making sector. Since the government urges to reduce imports, we are localizing our production capacities. We will expand our capacity at our plant in Cuttack and are establishing a regional R&D centre. This will enable us to provide our customers with products and solutions faster than ever before.


Refwin: Building on the previous question, what is the composition of your industrial revenue? For the past years, RHI Magnesita has proved to be active in the cement industry. Would you please introduce the current situation in this field? What are the future plans for the cement industry? 


Mr. Franco: Our industrial business in the first half-year 2020 contributed revenues of 351 million Euros. It is comprised of the segments of Cement & Lime with revenue contribution of 45% and Industrial Projects with 54% and Minerals. Industrial Projects consist of non-ferrous metals, glass, environment, energy, chemicals and aluminum industry business.


We have a leading market position in the technology we offer to our glass customers, and we are world leader in Cement & Lime as well as in non-ferrous metals due to our focus on quality, reliability, unrivaled technical expertise and service/solution orientation for these markets. We strive to be partners to our customers where they need us most.


Let me share two examples with you, both for the cement industry, showing our commitment to increase our customer’s productivity and sustainability:


-       Sustainability: the concerns of our customers such as regarding environmental matters need to be addressed. Therefore, we have launched a new product series called Ankral LC. LC stands for low carbon, meaning that the series has a reduced environmental footprint using a patent in the process.

-       Productivity: we have launched the Ankral X series based on our Spinosphere technology. This gives customers unrivaled options to combine clinker melt resistance with flexibility.


These products are showing great traction in the market, confirming the interest of the market in such a comprehensive and looking forward approach.


Refwin: As CSO of the largest refractories supplier in the world, do you see any new trends for the sales of refractories in the upcoming years? What are new changes or developments concerning refractories supplier in relation to end users?


Mr. Franco: When the crisis began, we acted quickly, decisively and developed different scenarios. Companies must adapt now to meet future market demands and customer needs. There are at least two mega trends that we see impacting our industry during the next years: regionalization and digitalization.


In critical situations, we can only secure our supply chain and Sales network by strengthening regional structures. We have implemented a new structure with great agility and exceptional involvement of all teams. Cross-functional work was a main driver and proved to have a unique strength to increase execution capacity especially in combination with an agile mindset. To be flexible on a regional level, quick decision-making is a prerequisite. Accordingly, we decentralized decision-making structures. We have built a new Sales organization with more autonomy and accountability. This approach led to an even closer relationship with our customers.


And lastly, we deliberately decided to invest in our future. Projects on new digital solutions have been prioritized at RHI Magnesita. The goal is clear: Not only are we securing our market leadership position with our investments in digitalization, automatization and innovation. We are also enhancing our offerings for our customers. Together with them, we are exploring and developing new solutions based on high-end technologies – so we can be the reliable business partner our customers deserve.

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