The Solidarity trade union has attacked 2 000 planned retrenchments at Iscor, pointing out that the company is about to make a controversial payout of R1-billion in shares to its British-based majority shareholder for “cost-cutting advice”.
In October Solidarity commissioned former senior Absa economist and economic consultant Adam Jacobs to investigate the grounds for the planned retrenchments. Last Thursday Solidarity released the findings in a report called A Critical Evaluation of the Retrenchments at Iscor.
Iscor has justified the retrenchments by referring to falling export earnings because of the hardening rand. However, the union says the job cuts are taking place against the background of a massive payout to the London-based global LN Mittal (LNM) group — the world’s second-largest steel producer and 47% owner of Iscor.
The chairperson of this company, Lakshmi Mittal, owns 210-million Iscor shares worth R4,6-billion. According to the Solidarity study, based on Iscor’s 2003 annual report, Mittal is to receive a further R1-billion in shares for “knowledge transfer resulting in savings”.
This is based on the “business assistance agreement” between LNM and Iscor, in terms of which “LNM had to buy a specific number of shares on the market and would then be issued with shares according to savings effected by them over at least a six-month period”. Savings amounting to R700-million would result in the transfer of 10% of Iscor’s shares.
According to Iscor, more than R350-million has been saved this year, leading it to award 5% of shares.
The Solidarity report remarks that it seems “strange” that a group that owns nearly 50% of Iscor’s shares, and has three non-executive directors on the board plus an executive director on full pay as a commercial director, is being lavishly paid for the transfer of knowledge.
Phaldie Kalam, Iscor corporate affairs executive, said Iscor had publicised the benefits of this cost-saving agreement a year ago. “The conclusion was that the cost-benefits far outweigh the remuneration shares paid to LNM.”
Iscor’s profits in the past financial year amounted to R3,74-billion, a net increase of 185% over the R1,3-billion in 2002.
Solidarity also reports that the company’s six executive directors received a 55% salary increase in the last financial year and a 49% increase in other benefits. The total cash remuneration paid to the six directors was R23,7-million compared to R6,4-million the previous year.
The union adds that Iscor’s 2003 financial report shows that R12-million has been paid to staff as “profit-linked bonuses”, but that the directors received 61% of this amount.
“This does not reflect the actions of a company that is serious about cost-cutting”, said Solidarity spokesperson Dirk Hermann.
Kalam lashed back, saying the report lacked company-specific information, which “places a questions mark” over its interpretation of Iscor’s trading environment.
“Using the last financial year’s information as the basis for their conclusions does not take account of the fact that the global steel market has changed considerably since then,” Kalam said.
The report had already been overtaken by the September quarter results, which showed a dramatic 41% reduction in headline earnings on last year due to a collapse in domestic sales demand. This had overshadowed the benefit of better international prices.
Jacobs agreed steel exports had fallen as a result of the strengthening rand, but insisted the slump was temporary. “The other side of the coin is that there is a tremendous upswing in the world economy.”
Iscor’s annual report confirms that “despite the current downturn, which is expected to continue for the remainder of 2003, economic fundamentals in South Africa remain sound”. Steel consumption was expected to maintain the sustainable long-term growth trend that started in 1998.
Figures from the Economist show that world consumption of steel has increased this year by 6,2%. The growing demand in China, which in one year was more than five times Iscor’s total production, is the major contributor to this increase.
In addition, year-on-year steel production figures for South Africa, released this month, showed an increase of 2,8%, up from a 6,6% decline the month before.
Iscor would not give details of the scale of the planned retrenchments. However, a letter in Solidarity’s possession written by Martin van Wijngaarden, Iscor’s head of operations, says the Newcastle and Vereeniging plants will shed 500 workers, Vanderbijlpark and Suprachem 526 and Saldanha Steel 35.
In addition, about 320 people are currently being retrenched as a result of the reorganisation of Iscor’s supporting services and 660 jobs are to be cut as a result of its “ongoing improvement (streamlining) project”.
Currently Iscor employs 13 200 people, of which 3 776 are members of the largely white Solidarity. The National Union of Metalworkers has 3 494 members and the United Association of South Africa 1 536.