Eqstra’s Walter Hill: Exposing dirty secret about strikes and their agent provocateurs
Eqstra CEO Walter Hill often comes across as a dour, conservative man. Much as you might expect of the CEO of a JSE-listed industrial group. But once he relaxes, as he did in this interview, the real Hill emerges. An extremely well informed executive who doesn't know how to pull punches. This discussion exposes a dirty little secret of strikes – that agitators are often unemployed people with their own agenda. Hill is feeling pretty sore about it as an extended industry strike knocked his group's interim profits from the probable 60c a share down to 35c. He also shares a disturbing update on a leading economic indicator, the sale of forklifts. Fresh insights from an engaging corporate leader. – AH
WALTER HILL: In our contract mining business we did have a three-week strike that effectively cost us in the region of about 30 cents per share. I think the reality in South Africa is that we have to realise strikes are something to contend with and we have to work our way around it. We have to get closer to our labour force and get out of this continuous striking. We've done it in other areas and I believe in contract mining, we have to become smarter in dealing with our labour force.
ALEC HOGG: Because that's the one area where you really are bleeding.
WALTER HILL: It has cost us. Our headline earnings per share would have been 30 percent up. We would have hit 60 cents per share had we not had that three-week strike. I'm happy to say that the current strike in the platinum fields is not affecting us. Our labour has been asked to go out on strike and they've declined. They say they're continuing to work.
ALEC HOGG: That's interesting. What has caused that?
WALTER HILL: I think the reality…when they went out on strike the last time, they realised what we had done for them and what we had offered. They went into a collective bargaining situation, they called a strike, and they actually got less than what we had put on the table and offered and it's sad. We lost. They lost. They don't get the income for the three weeks, their families are impacted, and they can never recover. It's the same on our side. We can never recover that 135 million loss. I think we have to work closer with the shop stewards and the trade unions, because I'd say to my team, there are other companies that are managing to go through these periods of industrial action and they're not going out on strike. Of the other divisions are unaffected by the strikes. They are called to go out. The people continue working. So I think, on the contract mining side we have to get closer to our labour force because we're finding a lot of underlying socio issues that are driving this, and the trade unions are exploiting the salaries. It's not only salaries. There are deeper-rooted things that are affecting the people.
ALEC HOGG: Where do you do contract mining?
WALTER HILL: We're all over. Contract mining: we are in the Rustenburg/Pilanesberg area. We are in the Brits area. We are in the Bakplaas area and in Umkomati – we have a project there
ALEC HOGG: All platinum?
WALTER HILL: No, we have about a 30 percent exposure to platinum, 41 percent into the coal industry, and then other exposures. We used to be 100 percent platinum. We've moved that down to below 30 percent now.
ALEC HOGG: That's still a tough place to be in contract mining. If you could get out of it…if someone came along with a big cheque, would you sell?
WALTER HILL: I think certainly, from a shareholder's perspective, I would put my pride in my pocket and I'd certainly consider selling. The reality is just…the pressure that labour is putting on it…there are no ready buyers, so it's difficult. I think we have to work our way through it, otherwise, one has to disinvest. I think our board has already taken a position that contract mining will not be more than 30 percent of our company, going forward, so we have to grow our other divisions – it's currently 50 percent of our company. We have to grow our other divisions to overtake our contract mining. We've also taken the decision to have no more than 50 percent of that 30 percent invested outside South Africa. That's not good, you know. We employ in the region of 4000 people in contract mining. The majority are employed in South Africa. The others are in Mozambique – on the Cold project in Mozambique – and it's sad to see those jobs will be lost to South Africa.
ALEC HOGG: Just before we move on there – because it is a fascinating area to explore deeper – have you had labour problems in Mozambique?
WALTER HILL: No labour problems in Mozambique. Labour is fairly stable, very little unionisation and I think it's a different environment. We're finding the work ethic much better there and there's a very strong commitment to work. We do have the problem…anywhere that a mine site opens, people flock to that area to get jobs. They get there and there are no more jobs, so the crime starts picking up. They start robberies and things start picking up, so crime does pick up. It's no different to Marikana and these areas. People flock there, hoping to get a job and it becomes informal settlements, and many socio issues start developing in that environment.
ALEC HOGG: You're telling it straight…as it is. Surely, there's a message in this for government – the South African government I'm talking about now.
WALTER HILL: What we've banned effectively, is migrant labour. Migrant labour is going to follow poverty throughout the world. People are sitting way out in the sticks. They want jobs. They will move whether you make it legal or illegal: migrant labour is here to stay. People will migrate to where there's a potential job, the squatter settlements will go up overnight, and I think if the migrant labour system is managed properly, and it's a reality. People need…they're not going to relocate their families. They've been involved in migrant labour for decades.
ALEC HOGG: Don't wish it away.
WALTER HILL: You can't wish it away. We've seen it throughout Africa. I think it's throughout the world. It will develop. I think it's the managing of that migrant labour influx into an area, because what happens is that they're sitting without a job. When the trade unions call for a strike, these unemployed people get on the picket lines and they're inciting violence because they know if it goes into an illegal industrial action, that bunch of workers are going to be fired. There's a chance that they're in the queue to get a job. A lot of the violence and a lot of the underlying tension are actually provoked by unemployed people that are inciting the current workers because they know; if they can get the guys fired, they have a chance to get the job.
ALEC HOGG: What about logic and incentives? In fact, that was the case in Marikana.
WALTER HILL: Very much so. I think Marikana was driven by many unemployed people who were not employed by Lonmin, and that drove them to that tension there.
ALEC HOGG: Fascinating insights. The other point in our interview this morning that I'd like to explore a little further with you, is the leading indicator that you get in your business. Now, we're leaving mining one side because the other sides of your business are going pretty well, but the sale of forklifts – you were telling us – is down by 25 percent.
WALTER HILL: Yes Alec, the six month on six month sale of forklifts – and this is not an Eqstra indicator; this is the total South African market – is down for the past six months on the previous six months, by 26 percent. That to us is very much a lead indicator. What people must understand is that forklift track things before they reach income statements and balance sheet. Forklifts are moving things. It can be any type: groceries, commodities, or raw materials. They move them before they are manufactured, during manufacture, after manufacture, on the way to being consumed and after they've been consumed. Forklifts move things around. The reduction in forklift sales implies that the things they are moving are reducing – whatever it is groceries, raw materials, and metals.
ALEC HOGG: Economic activity.
WALTER HILL: Economic activity is slowing down. Before statistics start picking it up, forklift sales start and this has been an indicator that we've used for many years.
ALEC HOGG: What's the lag?
WALTER HILL: I would say the lag is in the region of six to nine months from when we detect it. Now, we detected this in June last year. In June last year, we came out of record sales in the forklift business. It recovered from the sub-prime crisis and we hit record sales in South Africa. We then picked up in August an immediate turnaround. It was slowing down. We looked at it and we started pulling back. The turnaround continued and it has declined by 26 percent. Whether it's something to overreact to, I think one must be careful when reading into it, but the month-on-month, January-on-January is 55 percent down. That could be an overreaction of people that are overstocked now, and they're just panicking. February is going to be an indication of stabilisation, but just a scary number…January was 55 percent down on basic forklifts.
ALEC HOGG: Could it be that people are postponing their purchases?
WALTER HILL: Postponing purchases is because of economic activity. Again, forklifts move things that drive economic activity. If that activity is not there, they're going to postpone. They're unsure, so operationally on the ground…diverse…we have a wide diversity. We cover all industries. We are 35 percent of the South African market share in forklift and materials handling. It says to me that overall market sector is in limbo. They are looking at things. Yes, they are delaying things. Why are they delaying? There's uncertainty in the consumer, the retail sectors and the manufacturing sectors. There are delays and they're delaying.
ALEC HOGG: It's a wonderful indicator. Just to close off with, Eqstra itself…you look to be set fair, you have a good business in the UK, which is growing from a small basis – quite aggressively. The other part of your businesses – non-mining – is doing fine. With the strike out of the way, are you comfortable that you'll be able to get to that 60 cents that you might have made in the second half of the year?
WALTER HILL: I think our second half invariably, is better than what the first half has been. Its been our traditional way of a better second half, and one of the nice things of the business is it's an annuity-drawn business. If I do nothing, I can go to bed at night and just go on my knees and pray there's not going to be any industrial action. It should get there – why – not because I'm pre-empting the market. The reality is that it's an annuity business. We have ten billion Rands of revenue generating assets. When I go to bed at night, those revenues are going to come in, those accounts are going to be paid, and it's with blue-chip corporate South Africa. It is not a retail-type business. We do very little retail. The majority of our business is contractual revenue generating business. To say what the second half would look like… There should be fundamentally, in terms of the nature of the business – it's committed. The contracts are in place. Unless something big happens, that we'll tell the market about, it's a fait accompli. It's going to happen. The second half: we have a fruit business where we rent forklifts to the fruit industry in the Western Cape. That occurs in the second half of the year and that invariably gives us exceptional margins in the second halves. We have a very good second half.
ALEC HOGG: Walter Hill is the Chief Executive of Eqstra.