Sanjeev Gupta, Founder of Liberty House and Executive Chairman of GFG Alliance, shares the vision of a circular economy. Online publishing of an interview with Sanjeev Gupta, Executive Chairman of Liberty House.
When you founded Liberty House as a trading company in 1992, did you ever imagine saving the UK steel industry, Australian mining and steel industry, Georgetown and thousands of jobs? Was it destiny, opportunity or part of the plan?
It’s fair to say that industry and enterprise were in my blood because both my father and grandfather were successful industrialists and they encouraged me as a young child by taking me to see steel mills in action. It certainly captured my imagination and gave me a big view of what is possible in the industry. In founding my first company, Liberty, while still at university back in 1992, I can’t say I’d set out a clear plan to build or acquire all the assets that GFG companies have today, but I’ve always had an appetite to go for the big opportunities when they presented themselves. Initially, this allowed us to build a global trading company over two decades and lay the groundwork to build the industrial and energy side of the business over the past four years when there has been an enormous number of opportunities as the world economy has gone through an extensive change.
In the acquisition of distressed steel plants, what do you see that the sellers don’t? How does your business model differ from other steel producers? You are able to cut costs, but not jobs. What are the pillars of a successful turnaround strategy?
We feel we can achieve success with businesses where others have tasted failure because we’re willing to embrace change, do things differently and to engender a fresh enterprising mindset among the people working in those businesses. We’re natural disruptors and champions of change. An example of this is our GREENSTEEL model for sustainable production. In certain countries, particularly developed countries, where there is an abundance of scrap this will mean more metal recycling. It also means integrating both upstream into energy and mining and downstream into engineering and manufacturing in order to capture as much of a value chain as possible. We also look at where we can add value by integrating horizontally into things like financial services.
When we acquire new businesses we have the ability to make a fresh start, unshackled by past legacies which might be old debt, a bloated management structure or just an outdated mindset that we can help to change. Where possible, we reduce energy costs by developing renewable sources of supply. Even with primary steel making, we look to newer technologies to reduce our carbon footprint.
We find synergies and savings through integration. For example, we integrate metal-making into downstream manufacturing to create higher-value products for diverse sectors, including long-term contracts with big-name OEMs in fields like automotive. This not only improves margins but makes our business more resilient in the face of the inevitable economic cycles.
Collocation of metal and downstream assets is another approach – for example, our planned wheels factory at Fort William will cast liquid aluminum from the adjacent smelter directly into finished product. That approach gives us great agility which is needed because everything moves so quickly in the market.
We also believe economic and environmental sustainability go hand in hand and that a circular economy is the way forward. A good example of the circular economy is the plan we’ve got to make plate steel from scrap in Scotland using wind energy to power our furnaces and mills. Then, in our own fabrication plant, we turn that steel into towers for our wind farms in the Highlands which will generate more green power for our steel mills. If that sounds a bit cozy, then trust me it isn’t. Our integration model doesn’t allow individual businesses to rest easily within a big group. We pursue ‘decoupled integration’ and that obliges each part of the business to build a strong external customer base as well as service its ‘internal’ customers within the group. There’s no featherbedding. We’re always looking for efficiencies and increased competitiveness.
We believe economic and environmental sustainability go hand in hand and that a circular economy is the way forward. For example, we plan to make plate steel from scrap in Scotland using wind energy to power our furnaces and mills. We then turn that steel into towers for our wind farms in the Highlands which will generate more green power for our steel mills.
Sanjeev Gupta, Founder of Liberty House and Executive Chairman of GFG Alliance
Steel is a cyclical business. In a downturn economy will the diversification of your vertically integrated business portfolio help weather the storms of price pressures and production costs? What are the main competitive advantages of your vertical integration strategy?
Yes; nearly three decades of trading metals worldwide have shown us how cyclical the metals industry can be, and how reliance on upstream production alone leaves you exposed during the downcycles. Plugging our metals businesses firmly into downstream manufacturing, and ensuring we serve diverse sectors, enables us to manage our own destiny to a much greater extent. We are naturally gravitating towards the sectors and sub-sectors where we can add the most value. For example, in automotive we’ve established good income streams from supplying volume tubular components to mainstream car-makers, but we also earn excellent returns from making low-volume high-end braking systems for performance cars including Formula 1 and NASCAR.
Our aim is to maximize the raw material cost advantages and security of supply that come from being part of a global group – for example supplying competitively priced slab from Australia to our rolling mill in Wales, – but making sure at the same time that we’re sufficiently differentiated to protect margins during all phases of the economic cycle. That means applying innovation and enterprise wherever we can, along with the value chain.
Now GFC Alliance business ventures range from steel, power, car wheels, commodities trading to financial services. How do you leverage the synergies without losing focus on each business unit?
As I’ve said, each strand of the business must stand on its own two feet and we put top class highly-experienced directors in place to ensure that’s exactly what happens. Each unit leader is accountable for the financial sustainability of their own operation but can draw cost and operational advantages from being part of a global group.
All of the directors we’ve put in place have impressive track records in the industry and a clear focus on what they need to achieve. We ensure they all have a clear vision of the Group’s overarching philosophy and plenty of opportunities to interact with each other, so those synergies grow naturally.
We’ve got four pillars to the Group – industrial, infrastructure and resources, financial services and property. They all work together towards a common industrial strategy based on long-term economic and environmental sustainability. Whenever we enter a new territory all four pillars come with us.
Sanjeev Gupta, Founder of Liberty House and Executive Chairman of GFG Alliance
What is your growth strategy based on? Geographical expansion, the right opportunity, business diversification?
Certainly, it means geographical expansion and grasping opportunities. Right now, we’re expanding into the USA, India and continental Europe; all of these are economies full of opportunity; particularly India which is set to grow at an extraordinary rate.
Yes; we are always on the lookout for acquisition opportunities that fit with our integrated vision and that align with emerging market opportunities. For example, we’re growing rapidly in the aluminum space having had the opportunity to acquire the UK’s last smelter in Scotland and Europe’s largest smelter at Dunkirk in France. This fits well with the automotive industry’s move towards lighter weight materials to optimize fuel consumption. We’ve staked our claim to a share of that automotive market too as we’ve acquired an existing aluminum wheels plant in France and secured planning permission to build a new wheels plant next to our smelter in Scotland, which will supply the UK car market. Diversification is always on our agenda, but it must be a strong fit with our existing business and blend with our vision for sustainable industry.
Where do you see the alliance in 10 years? Selling electric cars?
It’s ironic that some people have accused us of obsessing over what they would see as sunset industries such as metal manufacturing in Western economies. The reality is that we have our eyes very firmly fixed on the future; the new technologies and the big emerging market opportunities. Applying new technologies to generate and distribute green power is a growing area for us. We’re already heavily invested in solar, hydro and wind and we’re taking forward projects both in the tidal power sphere and in generating energy from waste. Electric cars are a huge opportunity.
Governments want traditional petrol and diesel vehicles off the road within the next 25 years so the pressure to deliver affordable electric vehicles and the infrastructure to go with them is rising. We’re already in the automotive market as a metal and component manufacturer and we’re investing significantly in the application of battery technology, so it should be no surprise that we would be looking closely at electric car production as an opportunity we could take forward with partners. One thing that the last 25 years, and particularly the last four years, have shown is that the GFG Alliance doesn’t stand still.
What technology developments look the most promising in the future?
Batteries are the great disruptor. With the advent of batteries and solar power, we will see generators becoming smaller and more local to the consumer. As the cost of batteries gets cheaper everyone will have the potential to become a generator as well as a consumer. That will change the way we think about life. It will be a different world. If we look at large-scale generation; tidal is an area that is still under-developed.
Of all the renewable energy technologies, wind, wave, sun, hydro, which is the most efficient and sustainable?
This will vary from place to place across the world. It depends on available natural resources. For example, in the UK, onshore wind is probably the most cost-effective source of green energy at the moment so we’re investing around £150m in a 168 MW wind farm in Scotland, whereas in Australia we’re investing in a 280MW solar farm at Cultana near our Whyalla steelworks as part of a $1billion green energy programme there.
How do you anticipate Brexit will impact the UK steel operations?
Europe is still a very significant market for UK steel so it’s important we can negotiate a good trade deal that allows that to continue and to grow. At the same time, we at GFG aim to build our share of the domestic market for steel and steel products so, in some respects, Brexit may help us by encouraging UK manufacturers to buy more British-made materials and components. Like everyone else, we’re watching the negotiations very closely.
What percentage of the power consumed by your steel plants comes from renewable energy sources?
Because we produce more renewable energy overall than we consume we can argue that all of the power consumed by our steel plants comes from renewable sources, though not directly in all cases.
What are your expansion plans in the NAFTA and Latin America?
At present, our focus is on North America, though we see Latin America as a longer-term opportunity. In the US and Canada, we’re looking to replicate what we’ve done in other global hubs; create a robust business with metals-making at its core, that is sustainable through business cycles. In the shorter term, we’re looking to increase our position in the metals-making space by adding to our output from Liberty Steel Georgetown South Carolina and getting into aluminum production as well. Once we have critical mass we are looking to add raw materials – scrap, mining, and power – to the programme as well. Additionally, we will look to invest in downstream activities that fit with our investments to help us get closer to the end customer and add more value.
What opportunities do you see in Africa?
Much of our family’s earlier business success was based out of Africa so inevitably it is on our radar for the future but right now our focus is on USA, Europe, India, and Australia.
GFG Alliance has been very active in India recently in a bid to acquire bankrupt steel companies under NCLT proceedings. Do you see a good opportunity in the near future in the Indian steel sector?
Yes. We’ve already had our bid accepted for Adhunik Metaliks at Chadrihariharpur which makes specialty steels for automotive and numerous other sectors. We’re also bidding for other steel assets.
India’s industrial economy is growing substantially, driven by demographics, rising educational standards, and a growing consumer market. Steel as a foundation sector will be an essential component in this expansion and we want to be part of that, particularly in the downstream activities where we’re already investing in the automotive sector through our acquisition of Amtek Auto. A strong steel footprint in India will underpin our stake in India’s burgeoning economy.
When do you predict that the sleeping tiger of India will wake up? Will the tiger’s voracious appetite in steel consumption reach the levels of the Chinese dragon? What are the challenges in leading local businesses, globally?
We only need to look at the demographic projections to realize that the pace of growth is going to accelerate rapidly over the next decade. India’s working age population will exceed 1 billion by 2030. By then, India’s median age will be 32 compared to 42 in China. A big proportion will be well-educated aspirational people with a big appetite for consumer goods such as cars and white goods. Indian industry needs to grow rapidly both to satisfy that demand and provide jobs for its growing population. There are currently constraints on investment by Indian businesses, so I believe foreign direct investment by companies such as ours will provide a significant part of the answer. There’s no doubt that working within the Indian system currently presents challenges, but we have a talented team on the ground well capable of navigating their way through this.
With this rapid pace of acquisitions, how do you manage a healthy life/work balance?
Fortunately, we’ve got many very high-caliber people across GFG worldwide – some who came in through acquisitions and others we’ve recruited from elsewhere. Their talents and commitment have lessened the burden and given me the confidence that our new acquisitions are being nurtured and integrated properly. Nevertheless, the pace of growth makes work very demanding so thankfully I have a very understanding family who gets involved in GFG events and activities and that enables me to balance work and family life a bit better.
In the name of the GFG Alliance, you have welcomed the newly acquired steel companies as joining the family. Russula is also a family owned and oriented business. How does family orientation filter into the corporate culture? What are the core elements of your management approach?
Yes, we refer frequently to the GFG Family, not just because it’s a family-owned company but because we regard everyone within the business globally as part of a family with shared experiences and objectives and hopefully a strong commitment to each other. When a business becomes part of the group we hold an inauguration celebration on site to mark the occasion and involve as many people as possible. We ensure people in all parts of the group are kept informed of developments through regular communications and that they have regular opportunities to share their views with management. We regard trade unions as partners who have a commitment to the future of the industry and we work closely with them to build that future.
If GFG Alliance were to become a partially listed company in the future how would your management approach change?
We are already moving in that direction because a listing of parts of the group is something we’re considering. In advance of that, our aim is to increase transparency and strength of governance but at the same time combine that with an entrepreneurial spirit and flair. We have one listed entity within the alliance – the renewable power company SIMEC Atlantis Energy PLC in which we hold a 49.99% share. Moreover, Wyelands Bank, which is owned by a Gupta Family trust, is overseen by the UK’s Prudential Regulation Authority. We’re conscious of the possibility that other parts of the GFG could be floated at some point in the future so, while we want to preserve and encourage entrepreneurial flair across the Group, we are already moving towards levels of reporting and transparency that are more in line with the culture of a listed entity.
What advice can you give to the future generations?
Embrace change and be persistent. They should remember that life is all about evolution and moving forward so be prepared always to embrace change or to be the agent of change. At the same time, be persistent because sometimes things take a bit longer than you expect.
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