Marius Kloppers’ scorecard
Earlier this week I was interviewed on ABC Radio’s PM program about the announcement of Marius Kloppers’ departure from BHP.
Read the transcript below or listen to the interview here.
TIM PALMER: Characterised by some of his staff as something of a control freak, the man in charge of Australia’s biggest company, BHP Billiton, is handing over the reins.
BHP CEO Marius Kloppers today overshadowed his company’s half year profit results by announcing he would step down in May. Andrew Mackenzie, the head of the company’s copper division, will take over.
Mr Kloppers chalked up record profits at the world’s biggest miner, but he also oversaw some spectacular failures, deals that have cost shareholders billions.
Here’s resources reporter, Sue Lannin.
SUE LANNIN: Marius Kloppers has been at the helm of the world’s biggest miner for nearly six years. Today he announced he was moving on.
MARIUS KLOPPERS: Retirement decisions are always difficult and they’re especially difficult when you’ve got one of the best jobs in the world, but after spending time with my family and reflecting on my 20 years plus at the company, including nearly six years as chief executive, now is the time for me to pass the baton and for Andrew to take us to greater heights.
SUE LANNIN: For months there has been speculation that Mr Kloppers would step down amid investor anger at his stewardship of aborted deals including the $150 billion takeover bid for Rio Tinto back in late 2007.
Late last month, pressure mounted on the BHP Billiton boss after Rio Tinto chief executive, Tom Albanese, resigned amid huge write-downs and a net loss.
At a press conference in Sydney today, Mr Kloppers told PM he had no regrets and was not influenced by departure of Tom Albanese.
(To Marius Kloppers)
Did you feel there was more pressure on you to step down after Tom Albanese stepped down?
MARIUS KLOPPERS: The Rio thing – Tom is a good friend – but the Rio thing is completely incidental to the whole thing.
SUE LANNIN: The news of Mr Kloppers’ departure came as BHP Billiton announced its half year profit had fallen by more than half to $US4.2 billion. Lower prices for commodities like iron ore and the high Australian dollar pulled down revenue.
The incoming boss, Andrew Mackenzie, was handpicked by Marius Kloppers. He says his focus will be lowering costs and improving productivity.
ANDREW MACKENZIE: We’ve put an extreme focus, and you’ve seen this and you will see this in today’s results on issues of productivity and capital discipline, which really are very close to my heart. It’s something I have a real passion about.
SUE LANNIN: BHP Billiton’s latest earnings are a far cry from the heady days of 2011, when high commodity prices pushed its annual profit to more than $20 billion – an Australian corporate record.
Last year, Mr Kloppers forfeited his bonus after the company took a $3 billion hit on the value of its shale gas assets in the US.
Still company chairman, Jacques Nasser, says BHP has delivered for shareholders with more than $30 billion in returns over the past five years.
JACQUES NASSER: And in the face of one of the worst economic periods in history, Marius and his team have continued to deliver for shareholders and significantly outperform others in our sector.
SUE LANNIN: Resources analyst Stephen Bartrop from Breakaway Investment fund says Mr Kloppers has done a reasonable job.
STEPHEN BARTROP: Look it could be worse and perhaps ironically that could have reflected some success around some of those acquisitions. Look, alternatively, he has brought in new issues, for example you know the benchmark pricing of iron ore and coal, moving away from the historical 12-month contract prices and clearly producers were getting, taken a bit for a ride by purchases that would, you know, just play off the spot price versus the contract price to their advantage.
SUE LANNIN: And how could it be worse?
STEPHEN BARTROP: Well simply in terms of, you know, if they’d been successful with Potash Corp, we could have a significant write-down associated with that asset. The only thing I would question is to whether Olympic Dam should have gone ahead, because companies like BHP really should look towards long-term copper pricing and margins.
SUE LANNIN: Roger Montgomery from the Montgomery Fund is not recommending that investors buy BHP Billiton. He says the company is in worse shape now than when Marius Kloppers took over.
ROGER MONTGOMERY: Let’s look at the facts. We go back to 2006, the company was generating a profit of $13.6 billion at the start of Mr Kloppers’ reign as CEO of the company. This year, this financial year, BHP is forecast to generate a profit of $13.8 billion. So there’s been no growth in profit between 2006 and 2013.
However, the amount of equity that’s been contributed by investors in that business in the form of retained earnings is $32 billion. So the company started out with $32 billion in 2006, and another $32 billion has been entrusted to management by shareholders.
So there’s now $64 billion of equity and in addition to that, the debt in 2006 was $12.9 billion, 30th of June last year it was $27.6 billion. So you’ve got double the debt, or more than double the debt, double the equity and the profit hasn’t grown.
TIM PALMER: Investment fund manager, Roger Montgomery, ending that story by resources reporter, Sue Lannin. And in trade BHP Billiton shares ended the day down nearly 1 per cent or 35 cents to $38.65.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Liz Barrett
:
My two questions to Marius:
1) “Marius if you were looking at your tenure as CEO from a BHP shareholder perspective – independent of your shareholding – what would be your assessment be?
2) Given your success, in retirement ,do you have any philanthropic intentions? If yes, what will they be?
Gary Rutter
:
Yes, it is very sad the way these CEO’s act. But I geuss they are encouraged to do so. It’s all about making the company bigger, at any cost, so they can get more reward. It’s all about them, not the owners of the company. There needs to be more accountability on the directors, to stop the CEO’s acting like madmen. All this, during a time when there will never be profit margins in Iron ore like there has been in the last 7 years, I personally think, in the future of the human race. If Kloppers just went along as they were 6 years ago, they could have the same size buiseness they had, with the same debt, but $80 Billion in a bank account. Wow, now what amazingly powerful company it would have been today, but that’s just way to boring, isn’t it. Kloppers will leave a very, very wealthy employee, and it is still the biggest company in Australia, and the biggest dirt digger in the world, and that is all that matters, how very sad.
Andrew Legget
:
Hi Roger,
Never got into BHP or mining at all but really like your last point. We have all heard it a number of times but it really is a great way of analysing the management or CEO for a given period.
Oroton is a good example (figures from comsec) that we have talked about on here. In 2007 which is a decent period i think to judge Sally McDonald, they had NPAT of around $9.8 mill and $26.8 mill in equity, in 2012 this has risen to NPAT of around $24.9 mill and equity of $36.3 mill. So an extra $9.5 million in equity resulted in a $15.1 mill rise in net profit or a return on incremental equity of 159%. The only other thing to add is an extra 5 mill in debt over the same period as well which is reducing from its 2010 high during this period.
Another thing I can’t help but think about is all the advisory fees that BHP would have had to pay over the time period you talk about for their attempted and completed take overs during this period. This is as much a loss to shareholders as anything else as well and another reason to avoid acquisiton hungry boards and companies.
Joe Rich
:
Great comment Roger!
Often I find that comments given in the media by equity analysts are often vague, and very deliberately un-opinionated. It is clear the these analysts don’t want to ‘rock the boat’, when it comes to either (A) having an opinion that is very different from everyone else or (B) being overly critical of senior management of company’s that they cover for fear of losing key connections and thus sources of company information.
Its great to see facts-based, compelling judgement that paints a clear picture about management performance.