Looking for a Noble leader
The founder of Asia’s largest commodity supplier by sales faces tough hunt for an executive skilled not only in trading, but in industrial operations
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The founder of Asia’s largest commodity supplier by sales faces tough hunt for an executive skilled not only in trading, but in industrial operations
Agencies in Singapore and Tokyo
12 November 2011
Richard Elman, a former scrapyard worker who created Asia’s largest commodity supplier by sales, is looking for a successor for at least the second time in as many years.
As Noble Group transforms from a trader to a producer of food, metals and energy commodities, the 71-year-old has to look for an executive skilled not only in trading, but also in industrial operations.
In the past 12 months, Noble has lost executive chairman Tobias Brown, senior executive vice-president Peter James O’Donnell, chief financial officer Stephen Marzo, and chief executive Ricardo Leiman. Leiman quit this week for “personal reasons” after Noble reported its first quarterly loss in 14 years.
“For Elman to pick a successor is maybe as tough as for Warren Buffett,” said James Koh, an analyst with Kim Eng Securities in Singapore, referring to Berkshire Hathaway’s chief executive. “Elman is the single-biggest reason why Noble is where it is. The company has 20 divisions across 30 markets. It’s not easy to pick someone to steer this ship.”
A third-quarter loss of US$17.5 million has thrown the 24- year-old firm into a “major review” of its businesses to improve profitability, it said. Noble would need to raise margins instead of chasing greater procurement volumes, IIFL brokerage analyst Zuo Li said.
Elman, in addition to being chairman, would be acting chief until talks with Leiman’s unidentified replacement were completed, the firm said late on Wednesday. Noble fell 26 per cent to close at S$1.18 on Thursday, cutting its market value to S$7.6 billion (HK$45.8 billion). Elman is Noble’s biggest shareholder with a 21.5 per cent stake.
Elman said yesterday that the firm thought it would be better to announce Leiman’s departure before the planned listing of its agricultural unit Noble Agri. “It was planned for some time and we thought it would be better to get this out of the way since he will not be on the board of the new company,” Elman said. “It was coincidence” that the news came a few hours after Noble reported its poor quarterly results, he said.
Analysts said finding a successor was a major challenge.
“It’s a tough life, you have to be totally dedicated to it,” John Meyer, an analyst at Fairfax IS in London, said by phone. Noble could hire from rival Glencore International. “There a lot of parts of the business that you need to know but not many people have that broad range of knowledge of how to trade bulk commodities.”
UOB Kay Hian Research slashed its earnings estimates for Noble by 39 per cent for this year and 32 per cent for next year, and cut its rating to “sell” after describing the loss as a wipe-out. Credit Suisse reduced its rating to “neutral”, saying the company may report net income of US$504 million this year. That would be a 17 per cent decline from last year and the lowest in four years.
Elman joins other company founders in seeking the right successor. Buffett, who remains Berkshire Hathaway’s chairman, chief executive and head of investments, said in a shareholder letter that a successor should be picked “upon my death or disability, or when I begin to lose my marbles”. Apple co-founder and chief executive Steve Jobs stepped down to take the chairman role two months before dying.
A school drop-out at 15, Elman went to work in a scrap yard, and later joined commodity trader Phibro, the same company where Glencore founder Marc Rich got his start. Glencore said in marketing material before its IPO this year that Noble was its closest comparable competitor.
Elman started Noble with US$100,000 in savings, a desk and two phones in a small Hong Kong office. Its size was transformed with the 2001 purchase of Andre & Cie’s commodity trading unit in Asia.
Noble’s revenue jumped to US$57 billion last year from US$11.7 billion in 2005 and profit almost tripled to US$606 million.
Elman wants to double the company in size every five years. “It’s my vision, it’s my aim, and I don’t like to fail,” Elman told the South China Morning Post in 2009.
China’s sovereign wealth fund holds 14.7 per cent of Noble and Korea Investment Corp bought a 0.9 per cent stake in May, according to Bloomberg and company filings.
“We are concerned that the company may have expanded too rapidly and that management bandwidth at Noble has been stretched,” CreditSights analyst Diya Sawhny said this week.
Noble’s explanation of the losses as one-time events did not allay concern that the same may not occur next quarter and in future periods, Sawhny said.
The third-quarter loss was due to a systematic default of mostly US farmers to deliver cotton, and Noble’s need to buy the material in the spot market, and a plunge in the price of carbon credits, the company said on November 9. Noble has written down the value of its carbon-credits trading to a “negligible” level after prices fell by half this year, Leiman said this week, hours before stepping down.
“We don’t have any specific plans for it other than lending and hedging and continue to run it as its normal course of business,” he said.
Leiman, a Brazilian Dutchman who has a degree in economics from the University of Sao Paulo, became chief executive in December 2009, replacing Elman. He joined from Louis Dreyfus in London, where he was credited with turning around the group’s commodity business.
For Lee King Fuei, a Singapore-based fund manager at Schroders, the mere fact that so many top executives have walked out from Noble in the last year sends a warning signal. “News of senior management people leaving the company is a classic sign that things are not going well in the company,” Lee said.