Family-run companies have the edge
The Liechtenstein-based firm Hoval has faced similar economic challenges as Swiss companies. Peter Gerner, CEO Heating Technology at the Hoval Group, explains what measures were taken to counteract them.
Haustech: Hoval sees itself as a “technology-driven premium provider” in the field of heating, ventilation and cooling. How difficult is it to maintain exacting standards in today's economic environment?
Peter Gerner: Of course, because of the sheer breadth of our product range, it is challenging to remain one step ahead in terms of technology. Over recent years, we have demonstrated how far we've progressed technologically, and we want to continue down that path. Our vision is to offer our customers added value for the lifecycle of our products and beyond.
When it comes to being a premium provider, it's not just about the individual product. We generate added value primarily by means of an intelligent system solution. This requires intelligent control and feedback control technology – something in which we have invested huge sums over recent years. We have developed a platform which will open up many possibilities in the future.
In addition to intelligent developments, a premium provider must have a high level of consulting expertise. Our team is able to solve even the most complex problems, and it's not least because of our expert and comprehensive service that we are in such a good position. In my view, all of these components are what separates a premium provider from a supplier in a lower price segment.
A heating or ventilation system is also a long-term investment, is it not?
Buyers want quality and security. These are both typically Swiss values, and are what shapes our business. Ultimately, we believe that Swiss customers want a product that offers added value over a certain period of time, regardless of price sensitivity.
Is it easier for family-run companies to overcome adverse economic circumstances?
I think that's true, because family-run companies strive for long-term success. So unlike a company listed on the stock exchange, the focus is less on making short-term profits. We also have a sound financial base: Hoval, for example, has an equity ratio of over 50 per cent, which allows us to set our sights on new horizons. Our company strives to achieve long-term and sustainable success.
Do you think it's possible to survive such a weak economy?
Definitely. To take the president of our board of directors, Peter Frick, as an example, he has been at the company for over 50 years and has most certainly seen it through quite a few periods of economic instability. The great thing is that many members of staff have been employed at the company for a long time. I myself have been at Hoval for nearly 20 years. So I think this argues that a short-term approach is not the right way to go forward.
The employees will also do their best for the employer when times are hard, because they know that the company will not leave them behind.
That's a very important point. I always say that we are a great big family, as opposed to a huge corporation. And I think that's really significant. The values embodied by our president of the board of directors are enormously important. As a company, therefore, we by no means ask nothing of our employees; we actually ask a lot from them. On the other hand, we have a very fair way of dealing with people. In this context, taking this approach is absolutely key. Of course, the events of 15th January 2015, in which the Swiss National Bank uncapped the franc's value against the euro, meant that we had to make major changes. But in our company culture, we talk with people to find common solutions.
The headquarters of Hoval is in Liechtenstein. Is it still competitive for a firm to produce goods in Europe?
The circumstances vary a lot across European countries. For example, Hoval has owned a production plant in Slovakia for over 10 years and in Austria we manufacture heat pumps, while we are also producing goods in Germany and the United Kingdom. In addition, we also have a production plant in China which we are investing in and moving to expand. This Chinese plant will exclusively cater to the Asian market. There are no plans to manufacture products in China for the European market.
But coming back to the point about Liechtenstein, our decision to build a production plant in Slovakia at the time was nothing to do with currency-related pressure. Rather, a key motivation was of course a price advantage, coupled with the fact that we were struggling to find enough qualified personnel for manual welding. We also made a conscious decision to produce goods in Liechtenstein, but using a high degree of automation. These automated processes, combined with a motivated, quality-focused and flexible workforce, ensure that we can also remain competitive in Liechtenstein's capital, Vaduz.
Hoval has branches all over the world. In which countries is demand rising or falling?
Generally speaking, the construction industry in European countries like Italy and the United Kingdom has been in difficult times over recent years. In Switzerland, however, the situation has been very good, though this now seems to have weakened to some extent.
Over the coming years we predict that overall demand will increase in Europe, with the majority of this growth coming from Germany. We have also noticed increasing
demand in both Eastern Europe and China. For the latter in particular, the market potential is incredibly huge, even despite concerns over slow growth. Moreover,
we expect the price of natural gas to rise over the coming years. This will mean that innovative solutions, such as our condensing technologies, will have a bigger
part to play, which is an interesting prospect for us.
China is generally more associated with cheaper products. Is it not therefore difficult for Hoval to be successful there?
What you have to realise is that in China, a niche can be a huge market. We can't expect to supply the entire market but there are certainly plenty of opportunities for us. We don't offer small boilers on the Chinese market, but rather make use of our expertise in large systems. There is simply more scope for efficiency here than in the smaller output ranges. Further, there are also clients spread internationally who value using a product which is international and partially imported. Our Chinese firm, however, is subject to the same quality standards as those in Europe.
Were there difficulties for Hoval in establishing its company in China?
Hoval has operated in China for almost 30 years. Our Swiss exports manager Walter Tschanz has spent lots of time working in development and has trained many new members of staff. Prior to that, we simply imported products and cooperated with our partners. For over 10 years now, we have manufactured products partially on-site and gradually expanded production with Chinese staff and a Chinese managing director. Development is positive so far and we expect it to stay that way.
Hoval has 16 branches located around the world. To what extent do these operate independently?
Our group management consists of three key people: Richard Senti as the head of Finance, Fabian Frick as the head of Climate Technologies and Development of New Markets, and myself – responsible for Heating Technology and the five traditional markets of Switzerland, Austria, Germany, Italy and the United Kingdom. Group management coordinates the markets, while sales managers of these traditional markets meet together in Vaduz every six weeks. However, our market position in these different countries is varied. In Switzerland, Austria and, to a certain extent, Germany, we are heavily involved in the residential and small-boiler sector, while in other countries we are only active in the larger output range.
Is the Swiss market also a kind of test market for other countries?
The Swiss market is a very important market for us. While it is our largest market and our home market, Switzerland is also the source of numerous innovations. For example, if we look back 40 years, when the first heat pumps were used in Switzerland, their uses in other countries were still few and far between. This provided us with a wealth of new experience which stood us in good stead in other countries. Another key market for us is Austria, where the use of biomass has played an essential role for many years now.
Over recent years, Hoval has taken over a number of companies. What are the key criteria for acquisition?
In general, the companies must fit into our objectives and either contribute to our growth strategy or offer substantial capacity for synergy. Furthermore, the financial indicators for such a takeover would have to make economic sense. We also think that cultural attitude matters; a company must not be at odds with our company culture. And this is not always clear at first glance, so many mergers fall at this hurdle.
How do you know when their culture fits into your own?
An acquisition is a process. You can find out what makes a company tick by simply holding joint discussions with them. At Hoval we have a special company culture that represents one of our core values. If a company appears cold and anonymous, it'll probably be difficult for it to integrate into our family-oriented culture.
Hoval boasts references such as Buckingham Palace, Vatican City's Apostolic Palace and the world's tallest building, the Burj Khalifa. How did you secure these kinds of projects?
It has to be said that these are the greatest honours a company can receive. In these projects, everything must fit together perfectly. The price is certainly an important factor, but it is essential to have 100 per cent confidence, the very best advisors, a top-class service and a product I feel I could personally rely on. We have a list of renowned references from around the world, and that is the best demonstration of our expertise.
With these references, you could be forgiven for appearing smug, yet your public image seems to be less strident than expected.
Generally speaking, a little modesty goes a long way, which all goes back to our mind-set here in the Alps.
And how do these projects actually materialise?
A great example is with the British arm of the business, Hoval Limited, which holds a substantial market share in the high output range sector, and which is top of the line when it comes to the field of consulting.
When a challenging project comes along, it is fairly likely that the people commissioning the work will contact us first. Hoval has been represented in the United Kingdom since the 1960s, and over this long period of time has built up a formidable reputation.
We also think it's right that Hoval operates as a local company in every country in which it's represented. In the UK, for example, Hoval is a British firm and is perceived as such. That's why we hold the Royal Warrant to HM The Queen, which is only issued once for each industry. We have also been commissioned to install heating in Wembley stadium – an attraction which garners high prestige among Brits.
You mentioned the electronics which have been developed at Hoval. Has this expertise been developed internally?
Over recent years, we have invested most in the field of control and feedback control systems. A number of years ago we decided to build up our competencies in this area. By our standards, the sums we invested in order to develop the “TopTronic E” platform have been huge.
At the same time, we have developed a complete range of control system technology for district heating, which has also been designed in-house. Of course, we also enlisted the help of external partners for support, but the actual intelligent developments came from Hoval.
Where are these systems manufactured?
The manufacturing of control and feedback control system components is not within our expertise, which focuses more on developing hardware and software. With the heat pumps, for example, a lot of intelligence is needed. You have to know exactly how a heat pump behaves, and this is where our know-how comes in.
For the “TopTronic E”, which is our newest development, we have an end-to-end system equipped with a CAN bus connecting all components together in a network. The same control and feedback technology can be found in all heat generators. They exchange data with each other, including via the cloud, and are online-enabled. Weather forecasts are integrated, ensuring that a heat generator can respond to changes in weather in good time, which is important especially in terms of efficiency and convenience. And this is only the start of the process in a digital future.
So Hoval is no exception to the steady progress of digitalisation?
If you take our gas or oil-condensing boiler, for example, the efficiency of these products physically cannot be meaningfully increased any further. At best, some improvements can be made to systems by making them compact or looking at their integration into a system, but the real area of potential is still in the field of intelligence.
The use of fossil fuels is coming under increasing criticism. As a manufacturer, how do you respond to this?
Hoval has a very wide range of products. I think you'll struggle to find any manufacturer around the world that has achieved such a high share of sales attributed to alternative-energy heat generators as Hoval. But the fact is that these generators are more expensive than those using conventional fossil fuels. And given the current price of oil, it isn't easy to maintain cost-effectiveness. Sadly, this is not a trend that we have any control over, and it is very often on the basis of cost-effectiveness that the customer decides whether or not to use alternative energy.
On a political level, there has been some progress, especially in Germany and Switzerland, with the “Model regulations of the Swiss cantons in the energy sector”
or MuKEn. I think that these initiatives will mark a more concerted trend towards alternative energies. However, I am a little concerned that the overall
willingness of people to upgrade to these alternative solutions is thinning out. For the most part, there is no obligation for upgrading, yet it's becoming more
expensive to do so. This could have a negative impact on the renovations sector. From an international standpoint, gas-condensing technology looks set to dominate
for a while yet. And even then things are far from certain. I've heard from German energy companies that they want to introduce a high proportion of biogas into
the network, which will mean that a normal gas boiler can again meet the new regulations in Germany.
The use of oil will gradually decline. When we look at the costs involved in the renovations sector, it may be that oil still has its uses, for example in combination with solar power.
Isn't price also a decisive factor for customers?
Particularly given the current price of oil, property owners often resort to using an oil-fired heating system when renovating, while renovations represent 75% of all of our business. It's almost a little naïve to assume that everyone will switch to alternative energy. And upon closer reading of MuKEn, it seems that there would still be no obligations for people to do so. I'm really excited about how developments are progressing in this area. But ultimately, we must ask whether it's better if the customer either does nothing at all or installs a condensing boiler combined with a solar array.
What opportunities are there in the field of district heating?
Seven years ago, we took a strategic decision to enter this field. District heating is a project-based industry and requires a high level of expertise. We have been able to gather a lot of experience and have had to invest a lot of money to reach our current position. In production we have set up a joint venture and can therefore build any kind of transfer station. On the other hand, selling district heating is a different business entirely than selling boilers; it is a project-based industry with completely different requirements. I believe that, with our present range of products and services as key components, we will be successful.
In your company, you place a lot of importance on innovation. What can customers still expect, especially given the recent energy revolution?
I think smart systems have become the new trend. These are intelligent systems which respond to the weather, energy prices and individual requirement in a resource-efficient manner. These ensure that various types of heat generator are able to communicate with each other.
Control and feedback technology is set to increase in importance. I think that it’s crucial for us as manufacturers to offer systems that meet the plumbers’
requirements. In other words, the plumber shouldn’t have to become an electrician. Our standard is that installation at the customer’s location must be very
*Interview Monika Schläppi
**Source Haustech 5/2016