François Jackow CEO of Air Liquide

Hi everyone and welcome to our podcast In good company. I'm Nicola Tangen, the CEO of the Norwegian Samoan Wealth Fund. In this podcast, I talk to the leaders of some of the largest companies we are invested in so that you can learn what we own and meet these impressive leaders. Today, I'm speaking to Francois Jacob, CEO of Elikid. Elikid is a French multinational company that sells industrial gases across the world.

Well, thank you very much Nicola. thank you for the opportunity. It's great to be here today.

My first question is a bit of a naive question How is it possible to make money out of thin air?

Well, that's maybe a part of the recipe of Elikid, you know, we are working with very simple molecules that we have not even invented ourselves. Somebody else did that a billion of years ago. So it's mostly working with oxygen, nitrogen, hydrogen, CO2, argon, xenon, air gases. But I think the key is to really focus on our business. Not only on how to produce, extract those gases who have unique properties, but also to find ways for our customers to use them. Either for safety, for productivity, for health, many, many, many applications.

But how many times can you split air into how many products?

Well, I think basically you can extract them in the main components, so the main one is nitrogen. Nitrogen is a great gas to inert to avoid explosion, for example, in refinery, but also to protect any kind of oxidation in the food, for example, industry. They're using a lot of very pure nitrogen, but also when you are making semiconductors to make sure that the atmosphere is super pure.

Now, what is your personal favorite gas?

My personal favorite gas, I think it's probably oxygen, because, as I mentioned, oxygen is the gas of life, it helps us to breathe. And unfortunately, I mean, we all have seen the importance of oxygen during the Covid time, where oxygen helped to save millions of lives. But also oxygen is the gas which is helping high temperature. For, as I mentioned, oxidation processes, but also cutting, welding, so probably oxygen, which has been at the roots of the liquid, is one of my favorites.

Yeah, and we will come back to that very important question. But in the meantime, not many people know that. You are one of the best performing companies in Europe. You delivered some 12 return over the last 10 years, which is kind of incredible in a market which has been difficult. So why are you so successful as a company?

Well, I think maybe part of the recipe is that we managed to have a mix of resilience and growth capabilities. I think the resilience is based on the big mix of our businesses being in manufacturing, but being also in health care. For example, having a footprint, which is a global footprint in the different geographies, but also the resilience comes from the business model. We are part of our activity, especially when we are dealing with the largest customer. When we build, own and operate a plant which is dedicated for a customer or for an industrial basin, we have long-term contracts.

So if we dive in a bit to the contracts, because they are quite different from any other industries, right? So if I have a car company or a steel company or a brewery, you make a small little plant next to my plant, right?

Yes.

And then you put some pipes in and you deliver everything I need in terms of gases for a long period of time. So these contracts, how long are they typically for?

Well, typically, I mean, for those large customers, they are 15 or 20-year contracts. What is very important is that we design ourselves the plant because we have our own engineering capabilities, which is part of the recipe. Because not only we design the plant, we build and we own and operate the plant. But we are feeding back the engineering and the technology team with the experience of an operator, which is making a huge difference between somebody who is just an engineering company or somebody who is just an operator. We have a full circle, basically, where we can improve the plants, the design, the performance based on the operation, and we have the technical capabilities to do that.

And take-or-pay contracts means that I have to pay whether I need your gas or not, right? the long-term contract I pay.

Typically, you have an obligation to take part of the volume, which could be 70, 80, sometimes 100 of the nameplate capacity of the unit. But what we are doing also, which is very important, is we are taking, of course, the full responsibility and the full risk for the investment and for the operation.

So you kind of split the world in a way in so-called basins, isn't that right? There were areas where you have delivered to a lot of different companies and in a way control that area. Is that right?

Yes, absolutely, I think. One of the key strengths of air liquide is to be present in some key industrial basins where you have a high concentration of manufacturing industries, refining, chemical, steel industry. By being present there, we can oversize some of the units and supply multiple customers from a single plant or a series of plants. Then we build our own network in terms of pipelines that we own and operate ourselves, and we can optimize the production, which provides some benefit in terms of cost because of the economies of scale. But also provide a much increased reliability, which is absolutely key for our customers because those kinds of industries, refinery or steel plant can never stop.

Do you split the world between you and your competitors, then?

No, absolutely not, I think. The industrial gas industry for the very large plants are shared between a few competitors who have the technical capabilities to build these kind of units and to operate them. But we are competing everywhere in the world, where, of course, it makes sense for each of us. So in some places we are very strong, in others it's more challenging.

Now your gases go into all kinds of industries semiconductors, frozen pizza, beer. I mean, hey, everything. What do you think is the most fascinating industry that you support?

Well, I think indeed. We are extremely fortunate to have a fascinating customer and we are at the leading edge of the transformation and the innovation of industry. Probably one of the most demanding customers are the customers in the semiconductor industry in the fabs, because the fabs are becoming bigger and bigger and more and more advanced. And the level of purity which is required for our gases is just amazing. Here we are talking about the level of impurity in nitrogen, for example, which is used in a fab. At the level of one part per trillion, so really, really nothing in terms of impurity.

So here you deliver to the likes of Nvidia, AMD and so on.

Absolutely, I mean, we supply to many of the chip makers or the memory maker in the world, either the original maker or the foundries.

That's good now. You also supply to the Space Exploration program. What do you do here?

Space is a very interesting area indeed, and that's another application we have been involved in the space program in Europe since the 60s. The beginning of the Ariane Rocket, because when you look at the Ariane, and since then, we have worked on all the versions of Ariane. Basically, what you see from the outside is a very large liquid hydrogen tank and a very large liquid oxygen tank.

Really, really fascinating. Now you mentioned briefly hydrogen. what do you see your role being in the energy transition?

Well, clearly, in the energy transition, we see ourselves as being what we call a climate champion. We should be an enabler to help our customers to reduce their carbon footprint, to improve their energy efficiency. And we have many tools for that, and the thing is that we are in a position today to offer concrete solutions. If I take one example around oxygen, because we talk a lot about hydrogen, but oxygen can be also very helpful in the energy transition.

We see that industrial gases companies have high scope one and two emissions. How should we as investors look at that?

Well, I think. We have indirect emission because we are using electricity to produce oxygen and nitrogen, and we have direct emission, mostly because we produce hydrogen today from natural gas and fossil fuels. So if you just stop that and you look at the absolute value, then you may say, well. A company like Air Liquide has indeed 40 million tons of CO2 between Scope one and Scope two, so it's a lot. But I think what you need to do is to look at two things first, how our gases and products and services are used by our customers.

There's been some discussion that the hydrogen that you produce may not be as green as.

Well, I think we have been always very clear on the way we are producing hydrogen. And this, by the way, is being audited by third parties. So I don't think there is any misunderstanding on this. Most of the hydrogen that we are producing today is coming from natural gas, so it has a carbon footprint, for sure.

Francois, I'd love to talk about the Elikid copper culture now. You've been breathing elikid gas since, well, nearly since you were born, right? You worked in elikid the whole life.

And I've been with Elikid for 30 years.

That's amazing. What are the benefits of spending the whole life in one company?

Well, I think there are many, many benefits. Clearly the fact that I've been around quite a bit in many countries. I've lived in several countries. I have been involved managing a lot of businesses. I know our teams.

Now, as a company, you don't hire much from the outside. What is the thinking here?

Well, I think we do hire people more than 10,000 every year, basically, but this is true that typically we don't hire so much mid-career people. Because we have a culture of developing people, providing opportunities to work and to get experience in different parts of the world, in different businesses, we are, I don't think, working within silos. We give opportunities. You can be working in a technical field, then moving to commercial, then moving to HR, then moving to finance.

I absolutely love this thinking and we are working hard on it in this fund as well. So let's take you, for instance, what are the skill sets that you have acquired over the years in aliquid?

Well, I think the first one, probably I myself have more, I would say, a technology background, because I am a chemist. I studied in France and in the U.S. then I did an MBA. But I really wanted to start with the commercial and business development function. And for me, it's one of the key elements in any personal development to be in front of the customer.

What's the most important thing you can tell us about crisis management?

Probably one of the crises, which for me was a really challenging one, was that I was the CEO of a Japanese operation in 2011 during the Fukushima crisis. So, I mean, first, physically, when you are in the middle of this. The air Liquide in Japan is quite a large subsidiary. I mean, you physically go through the earthquake and the tsunami and everything, then you need to have to take care of your almost 4,000 employees that you have there. And then suddenly, I mean, a few hours after the beginning of the earthquake. You've got a call from the plant manager of the Fukushima nuclear plant, which is asking you to deliver a nitrogen to the plant. To inert some of the processes to prevent explosion.

So what did you do? I think for me? What did you do?

In this case, well, basically, in this case. In spite of the insistence of some of the employees to drive the truck there, I asked to make a deal with the army. Where we supplied the nitrogen 50 kilometers away from the plant, from the nuclear plant, and then they came and took the nitrogen, delivered that to the nuclear plant and then came back. Because they were equipped to be close to the radiation. But that's just one example among, I mean, almost hundreds that I had to take for the past, for the few months during the crisis. And probably one of the things that I realized is that when you are leading a company, you are making decisions which impact the life of people. But very often, you don't see that directly because it's kind of diluted in time.

What are your most important personal values?

Well, I think I'm probably pretty close to the values of air liquide. For me. There are two things which are very important. The first one is respect. Respect of people, which means respect of employees, respect of customers, respect of shareholders, of stakeholders. And that's really a fundamental value.

So if I joined Air Liquide, in what way would I feel that it's a French company?

Well, probably if you listen to me, you'll get my French accent.

Some French companies have quite a lot of hierarchy and quite a bit of power distance between the layers. How do you see air liquide in that respect?

I don't believe that we are that way, but maybe you should ask our team members. I think we have a culture where we are strategically centralized, but clearly we are decentralized in terms of empowerment and responsibilities, and that's very important.

Who is the CEO in the world you admire the most?

That's a good question. I think there are CEOs that I think are quite amazing. Recently, I was talking to Guillaume Fauré from Airbus and I think he's doing an amazing job and he's got a clear vision.

And how do you learn?

How do I learn? That's a great question because I had this discussion this morning. I had breakfast with a team of employees and I was insisting on the fact that curiosity and learning is absolutely key.

Well, you're French, so you probably read philosophy or something really difficult, no?

Sorry, sometimes I do, but I probably have always a book that I'm reading and the books that I like. I like very much biographies, for example, there is one that I like very much, which is Magellan by Stephen Spey.

Good sport.

Absolutely a lot of fun and a good way also to see the world from a different angle. So the story of Magellan is just amazing in terms also of leadership skills, in terms of adventure, in terms of what he discovered. It's very well written, so I like things which are well written.

When you look at your life, what are the biggest setbacks you've had?

Well, I think, of course, I mean, I had failures, professional failures in some of the things that I wanted to achieve, probably.

So what do you think is the key to overcome setbacks?

Well, when I think about what I've been doing in my career, I realized that at the beginning of my career, I spent a lot of time working and doing things professionally. Maybe I did not spend enough time with my family, with my wife, with my friends. And for me, it's to some extent a failure to be able to listen to my friends, my wife, my children talking about that and trying to help me. To overcome that is quite important.

And so, who is telling you the truth and the gospel? Is that your wife?

I think professionally, I've got a few people that I trust who are telling me things that are really true. Feedback, and I appreciate that very much. The limited number of people, but I go and seek their feedback and they feel comfortable enough to provide this kind of feedback. So I try to cultivate that, because if you don't push for that, you will not get it. My wife, of course, but our children are great for that.

Yeah, same here. So we normally ask people at the end advice for young people. We have tens of thousands of young people listening to this podcast. What kind of advice would you give them?

Well, I think probably the advice that we would give is make a difference, really. Think about how you can contribute, and this could be in your neighbor, that could be in a large company. But I really push the younger generation to think in their inner resources, what they can bring to this world, because the world clearly needs them. And what I think is really sad, and it's really discouraging is when I see the younger generation. Who don't want to fight, who don't want to bring progress to this world, who don't want to invent, who don't want to fight to get a better world.

Well, Francois, you run an amazing company in a fantastic business and your values are coming through so clear. So thank you so much for sharing all this with you and all the best of luck.

Thank you very much Nicolas. I enjoyed that. thank you for the opportunity.

Thank you, bye-bye.