CFOs now need to look beyond survival, says KPMG's Alwyn van der Lith
Times have been tough the last two years in the mining and oil & gas industries, and many CFOs are struggling to get out of survival mode, says KPMG partner and experienced industry expert Alwyn van der Lith. “Great CFOs and their teams now need to look beyond survival and focus on growth, expansion and acquisition that will follow the survival phase. It is a given that CFOs are looked at to maintain controls throughout all the other challenges, with less people and less expenditure on systems and process. In addition, the CEOs are looking for more strategic thinking in CFOs. A challenge indeed.”
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Alwyn leads KPMG's oil & gas go-to-market strategy with dedicated partners and teams in Johannesburg and Cape Town. He also used to manage the audit group that provides services to mines, oil & gas companies and power and utility entities. A big focus of the partners is the 'client for life' principle. CFO South Africa spoke to him about his impressive career, the energy crisis and the role of the CFO in mining and oil & gas.
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Why did you become an auditor?
"At school I always liked maths, probably even more than accounting. The CA qualification is a great stepping stone. I really enjoyed working in audit as you interact with the leaders of companies. Even in my third year of articles I already worked closely with FDs of companies. That rubbed off on me and started my growth curve. One of my sons is doing articles at the moment and the other one also study towards becoming a CA. I would recommend to anyone to go the CA route given the steep learning curve that you are on throughout your articles and beyond."
What is the 'client for life' principle?
"With audit rotation being implemented worldwide, we face huge challenges in our profession. I was the lead partner for the Sasol audit for a number of years and when we rotated off the audit it really challenged our team to look at how we can add as much value to Sasol as possible given our knowledge of their business. Sometimes we have an advisory client, but the global company wants us to propose for the audit as we know their business - which would mean we have to go out of advisory services. Overall the rotation is a great opportunity for us to grow our market share in audit, advisory and tax."
"Our 'client for life' principle means we want to build up lasting relationships with clients, whether we currently do audits or advisory and tax work for them and knowing that the nature of the work we do now might change in the future."
What role do CFOs play in the mining and oil & gas sectors?
"A number of surveys have been done over the last few years to debate the role of the CFO and how the role has changed from a score keeper to a value creator. KPMG's recent survey 'CEO perspective: The evolving role of a CFO in the Energy and Natural Resources sector' is a good summary of where my views are currently. The next challenges for CFOs are beyond cost optimisation and compliance, being more strategic in nature."
"The biggest challenge is that South African companies are competing with international companies in mining and the oil & gas industry. That makes it tough, as we have added local pressures on top of global developments like plummeting commodity prices. There is regulatory uncertainty, which keeps popping up in conversations with executives."
What makes good CFOs stand out in these sectors?
"CFOs have been focussed on survival in the last two years, preserving cash and prioritising expenditure. Great CFOs and their companies now need to look beyond survival and start again looking at expansion, acquisition, technological changes and diversification beyond the current commodity cycle. A lot of companies are struggling to get beyond survival mode, though. They might have thought they had reached rock bottom, only for commodity prices to drop even further. The weak rand has helped some, with gold miners showing good results, for example. In these times, CFOs are looked at to maintain controls throughout all the challenges, with less people and less spending on systems and processes."
"CFOs that want to create value will have to surround themselves with a team of strong commercial, financing and accounting skills to tackle the diverse nature of the strategic challenge. The team that can interpret information, both from internal and external resources, and provide insights that can promote speedy decisions, will be ahead of the pack."
Which CFO have you been most impressed with in 2015 and why?
"In line with the above, I look at where businesses have grown or changed strategy when the rest of the industry has not and I ask myself what was the management team and specifically the CFO's role in this?"
"In this period Sibanye stands out as a company. It started with three South African mines inherited from Gold Fields, but further transactions around land swaps; Cooke operations and Wits Gold are evidence of the team's acquisition appetite. The team also focussed on increasing output and cost containment on existing assets."
"The decision now to acquire platinum assets is a brave move based on views that the commodity cycle will turn soon. In the current climate in South African mining, this team has looked strategically beyond the current commodity cycle and is setting the company up for growth when the commodity cycle turns. The team showed the appetite to be creative in their strategies in difficult times."
What is your take on the energy crisis in South Africa?
"The energy crisis could have been much worse if the economic growth was not so subdued. The low commodity prices have resulted in growth plans of many mining companies being delayed, resulting in lower demand on energy, specifically electricity."
"Eskom is focussing on ensuring coal-fired plants Medupi and Kusile come online in the short term. The debate around the feasibility of nuclear and the way forward are long-term in nature. On the gas front, two open-cycle turbines are being converted to gas and various other gas-fired power stations are being considered. A number of wind and solar projects went operational in the past year and a number of projects are in the pipeline. But is this enough if the economy picks up?"
"The recent decline in oil and gas prices challenges the viability of big developments. As an example, the initial timing of offshore gas developments in Mozambique could have accelerated gas-fired power station potential in South Africa. However, the latest estimate is that this development may only deliver first gas after 2020."
Is integrated reporting and thinking taken seriously?
"People are looking beyond the minimum requirements in integrated reporting. Mining and oil & gas companies were already focussing on this due to the nature of their operations, like safety and social development, even before integrated reporting became a buzz word. If you want to be a responsible business you need to look at the needs of all stakeholders. The focus in the industry is already beyond regulatory compliance and companies see the benefit for all their stakeholders in having an integrated mindset. It is evident through the Integrated Reporting Awards, where energy and natural resources companies are doing well over a number of years. Strikes and unrest in communities have challenged the companies to do better and most companies have made good strides to address stakeholder concerns."
"I do believe that more progress is required. If CFOs unlock this, I think it will differentiate their organisation from the others. Specifically the maximising of the potential impacts of Social and Labour Plans could truly build relationships with communities and labour force."
What is your proudest career achievement to date?
"I have held various leadership positions over the years and the most rewarding feeling is when a new role requires different skills and you realise that the experience, training and development you received to date actually sets you up to tackle the challenge head on and make a success of it. I am currently challenged to ensure we focus as a firm on the companies where we can add the most value and grow our business. This challenge requires skills to motivate people to see the benefit of investing in relationships and business development processes to ensure the business grows in the long term. Challenge is what I thrive on."