Andrew Forrest needs Guy Debelle’s credibility to sell green vision at Fortescue Future Industries
The lure of Andrew Forrest’s green vision became too much for the Reserve Bank governor- in-waiting, marking one of the biggest switches to the private sector of a senior central banker mid-tenure.
Forrest is in desperate need of the massive market credibility that Debelle brings to help sell his green revolution to an increasingly sceptical investor base.
In the appointment as chief financial officer of Fortescue Future Industries, Debelle’s first job will be to bring discipline to a sprawling cash pit that is long on vision but short on detail.
Big investors have been increasingly frustrated at the growth of Fortescue Future Industries, which consumes management focus, adds costs and is putting a new strategy on the back of a miner that requires intense operational focus.
Investors are in Fortescue for exposure to a low-cost iron ore miner, not for a green hydrogen moonshot. However they also know they are riding back seat to multi-billionaire founder Forrest, who has a 30 per cent stake.
Fortescue Future Industries has a goal to produce 15 million tonnes of green hydrogen per year by 2030 for global market distribution. And in the past six months Forrest has been leading the charge, busy signing up prospective partners and possible customers. But most of these are through memorandums of understanding with little more.
But to show how serious the hydrogen commitment is, the planned spending on Fortescue Future Industries this financial year is expected to come in between $US400m ($546m) to $US600m. The bulk of this budget will be in operating expenditure and that means a recurring cost for Fortescue investors.
The appointment of Debelle also comes as Fortescue is facing its own leadership shake-up; chief executive Elizabeth Gaines has outlined plans to step down, with a global search underway for a new boss who can straddle both hard rock mining and the renewables business.
While the financial benefits for Debelle will be bigger than what the RBA can offer, it brings forward a post-central banking career for the 54-year-old.
Current governor Philip Lowe’s present term ends in September 2023, after being appointed in 2016. It is entirely probable the 61-year-old would seek an extension to his term, following in the footsteps of the previous two governors who have each held the role for 10 years. This could put Debelle closer to 60 before he gets to chair his first interest rate-setting board meeting.
For the RBA this is a blow to its three multi-decade internal succession planning but puts assistant governor Luci Ellis in the box seat. Ellis oversees the RBA’s economic and research department and is the chief economic adviser to the board. She previously headed up the financial stability department at the RBA, taking charge as the global financial crisis continued.
The Debelle move underscores the weight of global money and talent moving to the renewables revolution – even as the Russia-Ukraine conflict triggers an oil shock not seen in decades.
With former Bank of England governor Mark Carney moving over to head up Brookfield’s specialist Transition Investing Fund, central bankers are taking on the green challenge.
It is also a shift from Reserve Bank governors moving into banking.
The most recent RBA governor Glenn Stevens now sits on the board of Macquarie and Ian McFarlane before him sat on the board of ANZ. Even Bernie Fraser has had long involvement with industry super funds in his post-banking career.
After more than two-and-a-half decades with the RBA, Debelle on Thursday told The Australian that he had a lot to weigh up, including the possibility of being in contention for the top RBA job. But he felt Fortescue Future Industries has got “substantial capacity” to help make a difference towards addressing climate change.
“If I look at what FFI has done and is doing, then I think that’s doing more than anyone else in this country in that space. I think there are really exciting prospects in front of it and that’s what it boils down to.”
Debelle wants to draw on his experience to bring “financial solutions” to the bigger problem of climate change.
He points to the record price in oil and gas around the world as a result of the Russian invasion of Ukraine shows the world needs to speed up the renewables transition as well as becoming more energy self sufficient.
“If you think about Europe, if they got on to this earlier and faster, they would have less of an issue with Russian oil and gas. And actually, in my mind, this potentially means that the world needs to accept you should be accelerating change.”
Myer’s digital makeover
Within a year Myer could be generating more than $1bn in annual sales from its online site, a figure dwarfing the just $200m in online sales it was doing as part of a side hustle three years ago.
More than ever under chief executive John King, Myer is undergoing a reinvention around its online business. This is coming while maintaining a presence – albeit smaller – in shopping malls across the suburbs and CBDs.
Even after the worst of the Covid lockdowns, King is starting to forcefully shift the conversation around Myer from a question of survival for an old business model to one that is again talking about growth. To emphasise this point, Myer is paying (modest) dividends for the first time since 2017 while it is sitting on more than $217m of cash.
Digital is at the centre of this plan and where Covid worked squarely into Myer’s favour when lockdowns put its online store front and centre, King is keeping the momentum.
He maintains that Covid accelerated the rebuilding plan for Myer rather than triggering it. He points to same strategy document he developed with his new management team pre-Covid, which was still being used during the pandemic.
“What the crisis did was probably put our online business on the map more than it was because people probably didn’t realise how big and how much choice we had in our online business,” he says.
“And certainly when we were all in lockdown mode, everything was shut, it really did resonate with customers and we saw massive pickup during that period. And also underpinning all that is this loyalty program which is very valuable to the customer and to us.
“We didn’t need a crisis because we already had a plan. And as a team we came together and put the right plan in place in 2018. We launched the customer-first plan, around key principles: Driving online sales; refocusing stores and making them more productive by downsizing the space and managing the balance sheet.
“I think within all of that is to make sure we have products that people want,” he says.
His comments came as Myer delivered sales growth of 8.5 per cent during the December half to just over $1.5bn. Online sales were up 48.4 per cent to $424m.
Nearly $1 in $3 spent at Myer is online, although that figure has been distorted by last year’s lockdowns, which forced the big stores to close.
The additional value centre for Myer is its MyerOne loyalty scheme that has more than three million active members, putting it in the top five of the nation’s loyalty programs. This is used as operating leverage with Myer’s suppliers to refine the marketing message.
“What (MyerOne) does is give them much greater insight into who’s buying, when they’re buying and how often they buy,” King says.
Online is expected to get an additional boost with a new distribution centre about to open, where the aim is to further centralise deliveries with the ultimate target of 70 per cent of online orders being fulfilled at the warehouse and 30 per cent from the stores, further bringing down costs.
King says Myer’s shares are still not reflecting the value of digital sales or MyerOne, but he is not planning on a partial spin out or sale of the businesses to capitalise on the value.
“We think our job is to show what value they should be and therefore the value of the company. The sum of the parts is bigger than the whole,” King says.
Today’s Myer is still 20 per cent too big in terms of floor space, with some more painful store closures still to come. Just last month, Myer flagged the closure of the Blacktown store in Sydney’s west.
Other stores are seeing their footprints being reduced but King maintains that following the Covid lockdowns, big shopping centre landlords are now more receptive to the conversation. This shows some cooling in tensions with retailers and landlords finally working together to find a solution to the bigger forces reshaping retail.
Indeed some landlords have found if Myer reduces its tenancy from three floors to two, the shopping centre owner can then rent out the empty space to multiple tenants often at a higher rent. Myer is also finding the remaining smaller space becomes more productive with more sales per square feet, which is reinvested back into the store.
“I was having a conversation with a landlord at a regional Sydney store. They’re going to take the top floor of the store, but they’re going to pay for us to refurbish the rest of the store and take some space back from stockrooms, which allows us to save the same amount of money and with less cost per metre, so it means to increase the profitability of the store,” King says.
“These are the sort of productive conversations that we’re having with most of the landlords,” he adds.
johnstone@theaustralian.com.au
Government must focus on serious productivity growth
How does a nation as rich in minerals, energy and skills as Australia lose its standing as a global resources hotspot?
Federal Labor on a collision course with miners over green push
The federal government has made a powerful enemy for itself in the west after the Chamber of Minerals and Energy WA said it would fight Labor’s push for so-called nature-positive laws.