“Which cowboy did this, then? It’ll be a big job to put that right, mate. You really need a new one. It’ll cost ya. I can make a start today, but I can’t promise nothing. Yeah? OK, mate. Cheers. Three sugars.”
40 minutes later . . .
“Bish, bash, bosh. Sorted. Call it £500 for cash. Sweet. Nah, don’t worry about the paperwork, mate, I’ll do that later . . .”
Fixing the world’s fifth-largest miner, after the worst commodity price falls in a decade, was a doubtless a trickier, costlier and more time consuming job. But the speed with which Anglo American’s chief executive has declared “job done” is not dissimilar to that of an initially pessimistic but surprisingly efficient plumber.
Just a year ago, Mark Cutifani was warning investors that the remedial work would be extensive: “We are taking decisive action to materially reduce net debt . . . We have detailed a series of measures . . . $3bn-$4bn in asset disposal proceeds . . . We are creating the new Anglo American.”
But, suddenly, it’s all fixed. “The decisive and wide-ranging operational, cost, capital and portfolio actions we set out in 2016 . . . have enabled us to reduce net debt by 34 per cent,” he said on Tuesday. “Asset disposals for the purposes of deleveraging are no longer required.”
It seems the commodities price rebound has done for the P&L what polytetrafluoroethylene tape does for quick pipe fixes, while Mr Cutifani appears justified in claiming work to fix the balance sheet is “absolutely done”. Net debt is down to $8.5bn from $11.7bn six months ago, undercutting analysts’ best estimate of $9.6bn.
Everything appears watertight, too. Operations generated $5.8bn of cash inflows, up from $4.2bn last year, while capex was cut from £4bn to $2.5bn. That leaves 2017’s flat capex looking well covered, and dividends set to flow again in 2018 after a two-year blockage.
However, investors have been left with a nagging doubt about one aspect of the job. Last year, Mr Cutifani wanted to get rid of Anglo’s coal, iron ore, manganese and nickel assets as part of his “shrink to survive” strategy.
He said that the new Anglo should be made up of copper, diamonds and platinum. On Tuesday, though, he claimed the job was finished even with coal and nickel unsold, and iron ore under review.
Anglo reckons that, with operational improvements, this matters less. But when something is supposedly fixed, it is disconcerting to find bits left over. Last month, HSBC analysts suggested that half-measures might not wash: “Anglo should come up with a coherent strategy that works through the cycle.”
Wooden delivery
Jack Welch, former boss of General Electric, was a fan of candour, writes Kate Burgess. He believed that it cut costs and time, and could make us rich.
Robin Watson, boss of Wood Group, the Granite City oil services business, is a fan of candour, too. The Scot describes it as being “straightforward”.
Others, however, might describe it differently. The words “challenging” and “challenges” appear a dozen times in Wood’s full-year earnings report. “Cautious” appears three times. Recovery is merely “modest” and “in selected areas”. The North Sea market and subsea services were “tough” and not expected to improve. Outside the US, markets remain “weak”.
As a result, operating profits fell 28 per cent to £244m. Dividends, which have been rising 10 per cent a year for a while, will now be measured against cash flow and earnings. The board debated saying nothing but felt duty bound to explain this dividend policy had changed. “We wanted to be straightforward,” Mr Watson said.
His candour proved unnerving. Wood’s shares dropped nearly 8 per cent as analysts trimmed back forecasts, and muttered about working capital, cash and even dividend cuts.
Executives of a different temperament might have shouted louder that Wood earns 40 per cent of its revenues in the US, where the market is improving. They might have made more of its strong balance sheet and ability to cut costs — headcount is down 36 per cent in two years. They might have pointed out that a small increase in volumes can lift profitability noticeably.
Yet Jack Welch proved that candour pays off. If Wood Group’s “straightforwardness” hasn’t made shareholders rich now, it may later.
Presidential suite(ner)
Holiday Inn owner InterContinental Hotels could be helped by a rival: Donald Trump.
Not because the US president is planning to divest his hotel holdings. Nor because his gilded temples to vulgarity are sending middle-ranking dictators in search of more tasteful decor.
No, simply because analysts think his spending policies could boost US bookings. Intercontinental needs a lift. It may be paying a $400m dividend, but sales are slowing. Morgan Stanley says US room revenue growth will reverse in 2018. Don’t tell POTUS!
Wood Group: kate.burgess@ft.com