A global leader in metal recycling and
Please introduce yourself
Mike: I'm Mike Greulich, Chief Operation Officer and Chief Trading Officer of Scholz-Group. Responsible for International Key Account Management and for identifying synergies with Chiho Environmental Group.
Since end of 2016, Chiho has come in as the sole shareholder and put forward the “New Scholz Strategy” with relevant restructuring measures. By far, what kind of positives have emerged in Scholz under the new strategy? And what are the major differences between the restructuring this time and those from years ago？
Mike: Of course and first of all most positive is the solid finance of Scholz-Group since Chiho became the sole shareholder of Scholz. In the years before all of our employees focused on survival and the management of the tight cash situation. Since Chiho entered Scholz as the sole shareholder, Scholz has been focusing on its core business of scrap metal recycling and trading, to gain back market share and to position itself for further growth. All this goes along with measures to leverage synergies within the Scholz-Group but as well with Chiho. Namely the shift to an operational holding to make better use of the market size of the combined group of companies and to gain cost savings. The focus of our employees is now on efficiency and top-line growth.
We noted that Scholz's business performance has gradually improved since the start of 2017. What do you think was the main driving force?
Mike: Fortunately the steel and metal industry have recovered from the doldrums of the last 7 years and since end of 2016 the demand for steel and metal scrap has recovered significantly. It seems like that the “pig cycle” has been overcome and hopefully we will have some strong years to come in our industry. The restructuring in the recent 7 years had made Scholz more lean and efficient and we can leverage from these efforts to turn around with much better business performance. But in my personal view, the most important success factor is our employees who have been very loyal in the past difficult times. Our people are very experienced, well-educated and highly committed to our company. This makes the difference.
Do you think the insecurity sentiment of employees from the past has gone or not? Do you think our employees are happy or not with our current improvements that have been achieved?
Mike: The sentiment of our employees has definitely changed in a positive manner as the fragile financial situation is gone. Our people are very happy with the completed financial restructuring and this situation obviously helps them to focus on their daily work.
Chiho's intention is not to become a financial investor, but is fully committed to be an industrial investor and to further explore the global recycling industry. With the integration with Scholz, Chiho wants to achieve synergy effects. From your point of view, do you feel such intention of Chiho? What benefits do you think Chiho has already brought to Scholz? And what more Chiho can bring? From your point of view, do you think the above mindset of CEG is perceivable or not? What do you think for the past year CEG has brought to Scholz? What else you would envisage for future from CEG to Scholz?
Mike: Yes, we feel that Chiho is committed to be an industrial investor and to leverage the synergies of the combined group. Chiho has helped Scholz to get a deeper penetration of the Chinese market – the biggest and fastest growing market in the world for steel and metals. However, I feel that we have still room for substantial improvement to cooperate closer on the market strategy with Chiho. Currently Scholz doesn't have advantages over its competitors in Europe and North America in the Chinese market.
Furthermore, we see a substantial change in China's scrap industry – it's scrap generation has grown significantly and this will shift China from a net importer to a net exporter of scrap metals. China needs to build up infrastructure and recycling centers in order to be able to process the fast growing domestic scrap generation. Chiho can leverage on the experience and technology of Scholz to build up successfully a recycling infrastructure in China for the benefit of the combined group of companies.
There are cultural differences between China and Germany. What do you think of these cultural and behavioral differences? Have you ever felt any cultural differences when interacting with your Chinese colleagues? Do you think those differences are manageable?
Mike: German and Chinese people are similar regarding many aspects but obviously there are also cultural differences. The differences may lead from time to time to some tension and irritation on both sides.
I believe these differences are manageable and we can use them to our advantage. We need to understand, respect and learn from each other. We should not try to change the culture of our colleagues but rather seek strength in the differences. But in general our dealings with each other are characterized by respect, acknowledgement and fairness.
In what ways do you think we can capitalize on the Group's enhanced strength now?
Mike: The combined group of Chiho and Scholz has a very unique global positioning with operations in Central Europe, North America and China.
The recycling markets in Central Europe and USA are very mature whereas China is still a fast growing economy with a recycling industry still at its early stage of development. A lot of our industrial clients are global operating OEM's, automotive suppliers and other well-known blue-ship companies with sites in our core markets in Europe, North America and especially China. Scholz has had established business relationship with most of these clients for decades and they recognize Scholz as a very reliable, trusted and professional partner.
While the competition in the mature markets is fierce and the organic growth is limited, we can leverage these existing relationships and the existing outstanding reputation of Scholz for the growth of Chiho in China and Asia. Since Chiho became the sole shareholder of Scholz, we have already got inquiries from these big industrial clients as to whether we can serve them in China for their scrap disposal.
Further, we have ongoing discussions with Chiho's operations in Oss, Netherlands. Both Chiho Netherland and Scholz are operating in the European market. There is a high synergy potential to grow the top-line because both operations have complementary sourcing markets and scrap products.
About our vision, “to be the leader in global recycling business”, do you think you and the team around you share our vision? What could be done in your perspective, from shareholder side and from your scope of responsibility, to push forward the vision?
I believe all group-members understand the desire and support the vision to be the leader in the global recycling business. To push forward the vision it will be essential that the shareholder and the Board of Scholz create and communicate a clear structure and strategy for the way forward as to how we want to accomplish this vision. Strong leadership is required. The strategy needs to address the limits of mature markets and the chances of our combined group in the Chinese and Asian market. To gain support for the vision from our employees, the strategy needs to be operationalized with stretched but achievable targets. The key is to make the structure, vision and strategy tangible and visible for our employees.
To be the leader in the global recycling business does not only mean size and market share. We are ruled by the dynamics of a commodity market, with high volatilities in volumes and prices, full price transparency and limited product differentiation. To outperform as a global leader means also to provide outstanding service to our clients and stakeholders, to design new concepts, being faster than other market participants and to set new standards for the industry. To create a competitive edge, the ambitious goal must be to become the preferred business partner of our customers and suppliers, the preferred employer and an active and responsible corporate civilian to the community.
Are you confident in the Group's future? Are you confident in the recycling business?
Mike: I feel very confident with the relative sound financial situation of Scholz since Chiho became the sole shareholder. The scrap metal recycling market is still consolidating and the steel and metal industry is faced with substantial changes and challenges in the near future. The mere fact that China will shift from a net importer to a net exporter of scrap will change the dynamics of the entire scrap recycling industry. It is the responsibility of the top management of Chiho and Scholz to respond to these challenges with the right strategy in order to meet our vision and to participate successfully in the consolidation.
The cyclicality of our industry requires a sound finance and equity ratio in order to survive unscathed upcoming pig cycles. We need to learn from our recent history not to finance intensive growth mainly with debt. A solid financial foundation based on profitable cash flows, equity and reasonable loan facilities will be the key for future growth.
I believe in the recycling industry. Scrap metal recycling is sustainable. It helps to reduce the burden on landfills, CO2 emissions and the exploitation of non-renewable resources and it also helps save energy.
For the near future China is again the driving force in our industry. China's “One Belt One Road” mega project has the potential for a huge growth cycle of economic development and especially for the steel and metal industry. With Chiho and its routes (roots?) in China we are ideally positioned to participate in the growth
Therefore, I am very confident in the recycling industry and the group's future if growth is financed with a sound equity portion.