Noble Ambitions

9 December 2009 Richard Elman

From mid-market origins to Fortune Global 500, the story of Noble's rise is equal to that of its founder, Richard Elman. Phin Foster talks to the man who, after 40 years in business, is showing no signs of retiring quite yet.

When the leader of a Fortune 500 company tells you that his business is "about as close to recession proof as you can get", it is tempting to recall the countless executives for whom public pronouncements of bullish optimism have done little to assuage the realities of a market in freefall.

Richard Elman, however, is not a man who goes in for overstatement. The chief executive of the Noble Group is about as no-nonsense as they come. Besides, he has the figures to back him up.

It is difficult to tell the story of Noble's rise, and Elman's for that matter, without resorting to overstatement. The Hong Kong-based company has gone from being a mid-size player in the Asian market to a commodities behemoth boasting a diversified portfolio across an array of geographies, with a turnover last year of $36bn. Ranked 218th on the Fortune Global 500, the group has been listed on the MSCI Singapore Index since 2005.

"The mindset is that we don't have to be the biggest player in any particular sector, just the most profitable."

The business is divided into three product divisions: agriculture, energy and metals; minerals and ore; and logistics. What was once an asset-light organisation now owns coal mines in Australia, ports in Argentina, soya-bean plants in China and sugar mills in Brazil. The Noble Group plans to double its profits over the next three to five years. It comes as no surprise to discover that the company takes its name from a James Clavell novel; this has been an Asian saga played out on an epic scale.

The company's strategy is to control the pipeline for a select group of essential goods, sourcing from low-cost producers and supplying to high-growth demand markets. All are bulk commodities, from cotton to iron ore, but the sheer diversity of the group's interests can make it difficult to compartmentalise. Elman likes it that way, but insists that the structure is quite simple.

"This is a global niche business," he explains. "We have unique supply chains covering different parts of the globe. Some niche interests are more extensive than others, but the mindset is that we don't have to be the biggest player in any particular sector, just the most profitable."

Elman's approach demands an opportunist streak and the ability to move extremely quickly. It is easy to imagine that this becomes increasingly difficult as Noble grows in size, but Elman's straightforward business philosophy, and the way in which he has structured the business along those lines, simplifies these matters.

"We try to keep everything down to one page," he says. "People can make the simple complicated, but I don't want to read an email that goes beyond the main bullet points. The guy presenting you with the information is meant to have gone through all the complicated stuff and boiled it down to the essentials. If that person has credibility and you trust him, you'll believe the results and base any decision upon that."

Elman returns to the notion of trust time and again and is committed to fostering the same entrepreneurial spirit within the company that has seen him go from being a 15-year-old school leaver working in a scrap yard in the north of England to one of Asia's most feted captains of industry. Noble's emergence as a global powerhouse has enabled him to import board-level executives from leading firms such as HSBC and Goldman Sachs, and the level of trust he places in people further down the chain of command is atypical of somebody who has grown his business from scratch.

"You must be prepared to employ people who will challenge you, even know more than you do."

"You must be prepared to employ people who will challenge you, even know more than you do," Elman says. "Look at our coffee business. I brought in two people from that industry who had nothing in common with anyone else working here and entrusted them to develop that interest as a vertical. I gave those guys full responsibility and made it their business to run. That level of faith has been rewarded in a way that is good for them and us. It's a question of attitude."

Noble has continued hiring during the downturn. "We've brought in over 150 executives this year. A lot of things are counter-cyclical and that's certainly true when it comes to acquiring good people. You always want to be in the market when the talent pool is at its deepest. That's been the case recently and we've taken full advantage."

Balancing risk

Such an ability to recruit is indicative of an organisation that has done more than merely weather the storm. The first nine months of 2009 saw the group handle more than 133 million metric tons, an increase of 23% over the previous year, and post its highest net profit margin since 2005. The third quarter net profit of $132m was the highest quarterly profit in the group's history.

"The businesses we're involved in are about as recession proof as you can get," Elman notes. "People will still need to eat, regardless of what else is going on in the world, and they'll always need energy. Even raw materials in metals have remained in high demand. With the world's population growing by some 6% each year, it's not wishful thinking to believe this will remain the case for some time."

Even if not all sectors perform well simultaneously, Noble's three commodity types are at the mercy of separate market cycles, enabling a balanced exposure across the board.

"Diversification acts as a risk management tool," Elman explains. "In a single-industry business you're subject to a single set of economic forces. Under the assumption that not everything will be at the top or bottom of the curve simultaneously, striking an average between the two creates a sustainable business model."

Noble uses Value at Risk to measure exposure on a daily basis. It stands on average at less than 1% of book value of equity. Each business unit has a risk manager and a flat management structure that makes access to information a more straightforward process than is often found in organisations of such size. These tools are essential when so much of Noble's activity rests upon an ability to buy and sell risk, managing it throughout the journey from supplier to buyer, and the forecasting of where further opportunities might develop over the next five to ten years.

"The first nine months of 2009 saw the group post its highest net profit margin since 2005."

The Chinese in particular have been impressed by Noble's ability in this regard. In September, sovereign wealth fund China Investment Corp (CIC) bought a 15% stake in the group for $1bn, including 135 million shares held by Elman, releasing $654m that will be used to expand Noble's investment in global agricultural commodities. It is an excellent fit. The world's biggest buyer of commodities investing in an organisation that helps provide the materials it so desperately needs. And for Elman, his new investors "evaluate the evolution and success of a company over decades as opposed to merely fiscal quarters".

Discussing the opportunities continuing Chinese demand might bring, Elman cites another business visionary: "Mr Gillette once said that there are one billion Chinese, and if only every one of them shaved, what a business he might have. I like that: it's simplistic, to the point and fundamentally right."

Standing firm

Having launched the company in 1986, witnessing such seismic events as Hong Kong's integration into the Chinese mainland and the 1997 Asian crisis along the way, the CIC deal seems a confirmation of Noble's arrival. While Elman refers to his group as a "global company", there is a discernible sense of pride that he has managed to build it from an Asian headquarters.

"I set out to prove I could run a global company from Hong Kong and there's no argument on that score," he says. "The spirit here is extremely entrepreneurial. It's a disciplined place with a high degree of sophistication and a good and honest legal system. Its main resource is its people. That's how we feel as well, so it is a natural home for us."

Past experiences as an Asian business certainly stood it in good stead as the global economic crisis took hold. Having survived the difficulties of 1997, Elman felt ready for anything.

"I set out to prove I could run a global company from Hong Kong and there’s no argument on that score."

"We learnt from that experience that cash is king. We also came to appreciate what credit means and put extremely stringent credit controls in place. Prior to 1997, if someone had been your friend for ten years, you tended not to pry too closely into their financial situation. That had to change."

Elman believes that Noble was not alone in putting such lessons into practice. "In Asia, the companies that were hit hard in 1997 have not been severely stretched this time around," he says. "It changed the culture of business completely."

After four decades in the commodities business, one might interpret recent success, and the fact that the CIC deal even involved some of his own shares, as a sign that the 69-year-old Elman is getting ready to hand over the reins and enjoy a well-earned retirement. Not a bit of it.

"When we opened our first international office, in Stamford, Connecticut, US, I freaked out a little because somebody else suddenly had access to the cheque book and was in a position to spend 'my' money," he chuckles. "I've got far better in that regard and one does have to realise that you can't do everything all of the time if you want to reach that next level. Others have to be encouraged to take responsibility and lead.

"Having said that, I've no plans to step aside while I believe I'm still the best person for the post. People say I'm different, but I work just the same as they do. It might be a little more difficult to fire me, but you can. We're all answerable to our shareholders and there are no guarantees. While I remain here it will be on merit."

With Elman at the helm, there are still quite a few chapters of this epic yet to be written.