[miningmx.com] – MARK Cutifani, CEO of Anglo American, steered clear of unveiling profound structural changes at the faultering UK group in favour of first fixing it – a strategy that includes plans for a $1.3bn cash flow uplift by 2016.
Speaking at his inaugural results presentation, Cutifani identified a minimum 15% return on capital employed (ROCE) as the key gauge of success. This compares to the current 11% ROCE which is marginally above the group’s cost of capital.
In pursuit of this target, Cutifani will take the hatchet to low quality projects against which some $300m could be saved, while a further $500m could be extracted in cash by improving the group’s commercial and marketing efforts in a manner Cutifani said would emulate Ivan Glasenburg’s marketing achievements as CEO of Glencore Xstrata.
A further $500m would be saved in other group costs with Cutifani referencing an interest is paring back Anglo’s infamous layers of bureaucracy.
This included cutting back on management: Cutifani has reduced the number of direct reports to 11 from 15 consolidating the group’s operating divisions across commodity types and geographies. By January, Anglo will have fused the management of its Australian metallurgical coal business with its thermal coal business in South Africa.
In addition to scalping some positions, Cutifani also brought long-standing operational wingman, Tony O’Neill, from AngloGold Ashanti to Anglo where he will take up the role of chief technical officer – a crucial and perhaps defining moment for Anglo.
“We have to get our arses into gear,” said Cutifani stamping his own no-nonsense approach on Anglo’s future.
He was withering of Anglo’s lack of discipline in capital allocation: “We’re constipated,’ he said. “There are too many projects being advanced too quickly. Quite frankly, we have to be a lot tougher in letting those projects go,’ he said. “This is not fluffy stuff,’ he added, saying the project pipeline would be cut in half.
Commenting on asset sales, Cutifani said the group would consider divestments opportunistically.
“We will look on fixing assets in an aggressive way, and we will be opportunistic in the way we sell assets. It is a tough market, so we will look at opportunities for sale when it is appropriate,’ he said.
One of the potential asset sales could be a stake in Minas Rio, the Brazilian iron ore project that has suffered severe capital and scheduling overruns.
It has been reported in January that Anglo retained Goldman Sachs, Morgan Stanley and UBS to help if find a joint venture partner for Minas Rio in an effort to recoup capital and lower future development risk.
Said Cutifani: “There’s been alot of interest in Minas Rio, but we will only consider it if there’s value. There are still some risks on execution, but we’re open; we’re in the conversation but it has to be for value. So we’ll see how it goes’.
POOR SHOWING
Cutifani’s comments come amid a poor interim performance in which underlying earnings fell 28% to $1.3bn compared to the interim earnings in the 2012 financial year. At $3.8bn, operating profit was 15% down year-on-year.
Cutifani partly blamed the performance on pricing. “Weaker prices impacted the performance in first half,” he said but in holding the interim dividend at 32 US cents per share the board had “demonstrated confidence”.
Formally, Anglo has a progressive dividend policy but in practice, that hasn’t been the experience for shareholders. Cutifani said the group would “look to continue building our dividend as we improve performance across the business”.
Nearly all of Anglo’s operating divisions posted a decline in operating profits of which the largest declines were in metallurgical coal and copper which were both 38% lower year-on year. The depleting nickel business posted an operating loss while profits in the iron ore and thermal coal business were 10% and 43% lower respectively.
Diamonds, held through Anglo’s 85% stake in De Beers, was a star performer: it more than doubled operating profit to $571m, some 15% of total operating profit. Anglo Platinum American posted a recovery in performance.
For the remainder of the financial year, Cutifani said he wanted to see an improvement in the percentage of business divisions that met its budget. A mere 11% of the business had met operational targets worth $1.4bn to $1.7bn in cash flow contribution. “For us means upside and opportunity,” said Cutifani.
“I’ve looked at 20% of 95 assets under control. We have got a strong platform of assets to work from and quality [of them] has surprised me on the upside.
“There’s alot of things we can do to get to improvement in a very short space of time.” he said.
“It’s not about making radical changes at operating level, but about more discipline in planning and execution. We have a business that is a real cash flow engine,” he said.
