But he had 20-plus years’ experience in the metals industry, had brought two companies out of bankruptcy and had experience with a third. It was the perfect resume for the top position at Horsehead.
With the market price of its basic product in the basement, lopsided vendor agreements, a dismal worker safety record and a dysfunctional organizational structure, the turnaround job at Horsehead Corp. wasn’t one tailored for an average executive. Pile on the jolt of a run-up in energy costs on a big user of electricity and other fuels in its processes, and the task seemed even more daunting.
Horsehead, the largest zinc producer in the United States and the biggest producer of zinc oxide in the world, had been driven into bankruptcy in late 2002, primarily because of a steep drop in the price of zinc. Certain assets of Horsehead Inc. were acquired out of bankruptcy in 2003 by Sun Capital Partners, an equity firm that buys up distressed companies, to form Horsehead Corp.
It was up to Hensler to find a way to get the company back to profitability.
Reorganizing for efficiency
Hensler would need all of the skills he had acquired to engineer the turnaround at Horsehead, and one of the first that he applied was his nose for sniffing out exactly where the company stood.
“Every time I’ve been involved in a new business situation, I go around just talking to people to understand what the issues are and look at what the numbers are saying about where the business is and try to understand where the opportunities are for improvement,” Hensler says.
In his early walkarounds at the 950-employee company, Hensler found that one of the first things that needed fixing was the organization of the company. Horsehead has two principal businesses, zinc production and the recycling of electric arc furnace dust, which extracts zinc and zinc oxide. The two units culturally and organizationally were operating as separate businesses, so each had vice presidents of sales, purchasing and manufacturing groups. There were even executives at each unit that operated nearly as CEOs.
“So even though it was operating as an integrated business, it was behaving like two separate businesses, and so from the standpoint of doing things effectively but also from a cost standpoint, we had a number of functions that could be better served by collapsing a lot of that,” says Hensler. “The first step that I took was getting the organization right and taking care of those things that weren’t working well and also try to bring the right people into the right slots.”
Hensler says he made few personnel changes in the upper ranks. One of those was to bring in a CFO with greater operations knowledge, as opposed to simply financial reporting skills, and a new human resources director.
“I feel that it’s not the best approach when you come into a new situation just to say, ‘I’m going to replace everybody and start from scratch,’ because you lose a lot of institutional knowledge,” Hensler says.
Horsehead Inc. had negotiated a number of unfavorable contracts, likely out of desperation, says Hensler, given that it was in bankruptcy. The agreements had driven up costs and hurt the company’s finances.
“They were trying to hang on to business, and quite often, what happens in a bankruptcy situation, your vendors get hurt by that and then they try to recover that by raising prices,” Hensler says. “There were a number of situations where we were just paying too much. So I went about trying to change those things, getting more of a cost-reduction focus.”
Hensler also focused on a number of Horsehead’s vendor relationships from a purchasing management standpoint to try to get those costs under control. He renegotiated a number of its commercial contracts and took advantage of what was a stronger steel industry and higher zinc prices to get better contracts in place.
“We brought in a consultant to systematically go through the supply side, all of our major suppliers and services agreements, and one by one, open them up for rebidding. (We) actually wrung out quite a bit of cost because we found out we were being taken advantage of in some cases and didn’t understand where the real market was,” says Hensler.
Improving sales, cutting costs
With the metals business gaining strength, it made sense to increase volume and production, particularly of zinc oxide, a higher margin product.
“A big part of our business is the recycling business, and it’s also a source of low-cost zinc units for us,” says Hensler. “We set about drastically increasing the amount of electric arc furnace dust we were bringing in and we were able to get that moving pretty successfully last year.”
Horsehead increased its recycling of electric arc furnace dust by 15 percent from 2003 to 2004, and by another 6 percent from 2004 to 2005, resulting in an increase in revenue of $7.5 million a year, he says.
Hensler also made use of outsourcing where it made sense to do so. The company owns an electricity generating facility at the Monaca plant, for instance, and Hensler handed the maintenance of the plant over to a vendor, saving Horsehead $10 million a year.
In retrospect, the value of the savings realized by that action came into sharp perspective when energy prices spiked last year.
“One thing we didn’t plan on was the rapid increase in energy prices,” says Hensler. “Total energy costs in this business have grown about $20 million since 2003. That’s pretty significant for a business with $250 million in revenue. We could see the trend heading in that direction, and so to mitigate that, we’ve done a number of things in the area of energy conservation to try to reduce energy costs.”
Some of Horsehead’s recycling operations have processes that use natural gas-fired burners in its furnaces. Hensler says the company is in the process of converting those burners from natural gas to less expensive coke-fired burners. Horsehead is also recovering carbon monoxide gas from some of its processes to be burned as fuel in some of its facilities and has taken other measures, such as insulating furnaces to conserve fuel consumption.
“On a corporatewide basis, we have reduced the amount of natural gas consumed per ton of zinc produced by 14 percent over the past 12 months,” Hensler says. “This equates to an annual savings of about $2.5 million.”
Hensler brought into one of its plants a consulting group that operates on a gainsharing basis. For every dollar of energy costs reduced, the consultant shares in the savings.
The consultant has helped Horsehead put in monitoring systems that allow the plant operator know in real time whether the process has changed and if consumption has increased.
“We can take immediate corrective action rather than waiting until we get the fuel bill to see that we’ve used a lot more natural gas this month,” says Hensler.
Logistics was another area where Hensler squeezed out savings.
“We also outsourced things like our traffic function,” says Hensler. “We thought we’d be able to do a better job with third-party logistics providers. That allowed us to reduce staff internally and get better freight rates and better availability of trucks.”
Hensler says there have also been significant improvements in the company’s safety performance, a record that he says was “appalling” when he arrived.
“We’ve seen a 50 percent reduction in lost time injuries, and we’ve seen comparable reductions in other injury statistics,” Hensler says. “I think those are good leading indicators that things are moving in the right direction, and I think we’ve got effective processes in place to solve problems as we see them come up.”
Horsehead has taken a proactive approach to safety, working collaboratively with its union through a labor-management safety committee to address safety issues, analyzing each accident for its root cause and taking immediate corrective action to prevent its recurrence.
Horsehead requires each first-line supervisor to make several safety contacts each month with its work force to reinforce safe job procedures, and has introduced a communication and incentive program to improve safety awareness and a return-to-work program for people who are injured.
“We also analyze accident trends to identify the types, locations and work performed that leads to accidents and injuries so we can identify ways to redesign the work or use different tools and equipment to do the work more safely,” Hensler says. “For example, we recently identified that the use of an arm hammer at the Monaca plant has been a source of frequent injuries. We brought in an ergonomic consultant to help us look at alternative methods to perform the same job.”
The safety initiatives have resulted in a 30 percent reduction in the total number of accidents from 2004 to 2005.
While it’s clear that Hensler has implemented some significant improvements at Horsehead, he acknowledges that some factors, such as market prices and energy costs, are largely beyond control and thus can have a critical impact on any business.
Says Hensler: “One of the things we’re benefiting from is a strong market for our products. You can do a lot of good things for a business, but it also helps when the market is in your favor.”
Since Hensler took the helm of Horsehead, the company’s performance has rebounded substantially. Revenue has increased 49 percent, or about $87 million, since 2003, and sales, general and administrative expenses were reduced by 35 percent over the same period. Net income increased $27 million, from a significant loss in 2003 to a positive in 2005.
“The business has turned the corner, but there is still significant opportunity for improvement to the bottom line,” Hensler says. “We are past the turnaround stage and now are focusing more attention on how we can enhance the long-term value of the business.”
How to reach: Horsehead Corp., www.horseheadcorp.com