New Arcelor Mittal CEO’s baptism of fire
All eyes are on local steelmaker’s sixth boss in 14 years
● Hendrick Kobus Verster has taken over as CEO of ArcelorMittal South Africa, and the steelmaker will be hoping that in him it has finally found the right pair of hands to turn around its fortunes after consecutive years of losses.
Africa’s largest steelmaker has changed executives many times in the past few years, and gains have been elusive for its shareholders. The last profit was R8-million, in 2011.
Will Verster go the distance? His predecessors did not, with the exception of Nkululeko Nyembezi-Heita, who was Amsa’s longest-serving CEO, lasting from March 2008 until February 2014.
Outgoing CEO Wim de Klerk became CEO in 2016. Paul O’Flaherty was CEO from July 2014 until February 2016. He took over from Nyembeze-Heita. Enrico Rick Reato lasted from September 2006 until February 2008, and Davinder Chugh was at the helm from September 2004 until September 2006.
Although Verster is not a stranger to Amsa — he was previously chief financial officer and an executive director from February 2006 until August 2010 — he faces immense pressure to deliver.
And it may be a case of going from the frying pan into the fire.
Under Verster’s watch at construction and engineering group Aveng, the company’s losses widened to a net loss of R6.7-billion in the year to June 2017, following non-cash impairments and write-downs on long-outstanding uncertified revenue of R5.9-billion.
Verster resigned in September last year after Aveng reported a wider full-year loss ending June 2017. Interim Aveng CEO Eric Diack then initiated “a strategic and operational review” aimed at improving liquidity, production efficiencies and returning the business to profitability.
This week, Amsa officials said they would rather look at the positives Verster would bring to the steelmaker.
“He has a good relationship with the shareholder, was previously CFO at Amsa and also understands the steel industry well,” said an Amsa official, who asked to remain anonymous.
Amsa board chairman Mpho Makwana has given Verster a glowing endorsement. He said the criteria used to fill the vacancy of CEO had placed a high premium on a candidate with experience in the steel industry.
“In Kobus we believe we have found such a candidate, who will also provide muchneeded continuity with our strategic turnaround programme. The board is confident that he is well qualified and has the requisite experience and understanding of the steel industry to fulfil the role of chief executive effectively,” Makwana said last month.
The enormous task that lies ahead for Verster is not lost on parent company ArcelorMittal, headquartered in Luxembourg. It owns a 69.22% stake in the South African unit.
Lakshmi Mittal, group chairman and CEO of ArcelorMittal, said he looked forward to working with the new CEO of its South African operations.
“As someone we have worked with previously, we believe he will sustain the momentum of leading our important strategic investment in Africa, restoring the company back to profitability and sustainable performance,” Mittal said in a statement.
The task that lies ahead for Verster is almost certain to kick off with the implementation of cuts in the steel giant’s operations.
In August, the pressures faced by Amsa became apparent when the company put out a notice in terms of section 189 (3) of the Labour Act that it had begun consultations towards a restructuring of the business.
Amsa operates steel plants in Pretoria, Newcastle and Vanderbijlpark. An insider familiar with the process this week said the process of consultation had been concluded and no job losses were expected. Picture: Simphiwe Nkwali
“It’s likely there will be redeployment of the existing skills pool in the company to other areas to ensure no job losses,” said the insider.
The restructuring proposal is expected to be addressed in Amsa’s full-year earnings results for 2017, which will be released at the end of this month.
Observers have warned that job cuts could set the steelmaker on a warpath with metalworking union Numsa.
An analyst said it was difficult to restructure operations given the sheer size of Amsa and its importance to the communities in which it operated.
“Just the operations at Vanderbijlpark affect about 70% of all economic activity in the area. Any attempt to change those has a domino effect and is far reaching. There are massive socioeconomic issues to deal with,” he said.
Much like the rest of South Africa’s steel industry, Amsa has seen a decline in the demand for steel. This has been compounded by South Africa’s stalled infrastructure growth programme and economic slowdown.
At peak output in 2010, the time of the World Cup soccer tournament, Amsa’s carrying capacity was around 7.5 million tons, and 32.5% of production was exported to East and West Africa. These figures have significantly dropped since then.
Percy Takunda, a mining and resources analyst at Momentum Securities, said Verster would have to get tariff protection, get agreements with Eskom and also manage a delicate workforce that is constantly worried about possible job losses.
And while Verster will have to keep an eye on the internal controls he will need to implement to turn around the company, equally important will be the exogenous factors that have affected the steel industry in South Africa, and which are likely to persist.
International steel prices have been depressed and cheap imports from China have put local steelmakers under severe strain.
Last month, Mittal red-flagged “over-capacity and high levels of imports” as the significant challenges facing the global steel company.
“But there is not really much that a CEO can do in terms of the global price of steel. The leverage they have is from within industry from South Africa’s perspective, where they can try and get support from the government,” said Takunda.
Verster could not be reached for comment.
The leverage they have is from within industry . . . to try and get government support Percy Takunda Momentum Securities analyst