Fortescue boss Elizabeth Gaines talks a lot about culture. But some in the market wonder whether the heads which were rolled this week really deserved it, or whether they just got the chop as the result of a temper tantrum from company founder and one-third owner Andrew Forrest.
Thursday’s presentation will have to be explicit about the nature of the cost overrun at its Ironbridge magnetite project to satisfy the naysayers.
Wednesday’s stock price has recovered most of Tuesday’s losses which takes some pressure from Gaines.
But her former chief operating officer Greg Lilleyman is highly regarded in the industry. And let’s face it, Gaines will report a record profit of just over $4bn for the latest half. So cost overrun aside, you would have to say Lilleyman has done his job.
Magnetite projects are more complex than digging up iron ore to ship to China so the fact there is a circa 30 per cent cost overrun on a $2.6 billion project is in some eyes evidence that the punishment did not fit the time.
The market consensus says the project cost estimates were too optimistic from day one. Then when problems emerged the project team kept it quiet, and if Lilleyman didn’t know about it, he should have.
Inevitably Forrest will come under the spotlight because while the costs were blowing out he was on a global tour with deputy chief Julie Shuttleworth and others looking at Fortescue Future Industries as the next growth leg.
FMG has ridden the China boom to perfection but Forrest has hit a speed bump.
Quality managers like Lilleyman are not too easy to find, particularly at this stage of the cycle.
Shuttleworth is a potential replacement for Lilleyman but then again she is meant to be working on the future, so what would that tell us about what has happened.
Some say FMG is really a private company. Despite its boasts about culture, like any company controlled by a dominant boss, its staff tend not to report the bad news up the management line.’
They do, however, tell the boss good news.
Wednesday’s board meeting would also be fascinating to watch given the perception it just ticks Forrest’s boxes. Thursday’s dividend decision will be worth watching in the view of the cost overrun’
Is this the right time to be paying out $4.4bn in dividends, of which one third goes to the founder?
The market is topping $1.33 a share in dividends but UBS is predicting up to $1.45 a share.
The payout could be spun as a sign of confidence in the future despite the blowout and Thursday’s presentation will be crucial for Gaines in settling the market’s questions on the company.
It is easy to look clever while China churns out one billion tonnes of steel a year, but not so when the market turns down.
Forrest’s success has been all about over promising and over delivering but that too works better in a bull market. To his credit he has also worked through the down times.
Thursday’s presentation has also taken on a lot more significance for Gaines and Forrest because it is no longer a bull market review. Its now very much a market sounding on just what culture does mean at FMG.
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