G/F 650 Lorimer Street
The Smorgon Way has been documented to ensure there is no mystery as to the Smorgon values and management style. These values are all about openness, honesty, group decision making, commitment, and a drive for continuous improvement. The company's way of doing things is characterized by energy, drive, and a sense of urgency. The following values are the cornerstone of The Smorgon Way and so the company's behavior must reflect them: two heads are better than one and therefore key issues will involve consultation and discussion; everyone has a right to be heard in a non-threatening environment and there is an expectation that the truth will be told. These key values are underpinned by the following: our word is our bond; we will demonstrate a high level of personal integrity; we are committed to satisfying customer needs and we expect to grow and develop the business, which in turn will increase shareholder value.
Smorgon Steel Group Ltd. is Australia's second-largest steel and steel products manufacturer and distributor. An offshoot of Smorgon Consolidated Industries, once one of the largest private Australian companies before its breakup in 1995, Smorgon Steel is a vertically integrated company whose operations include one of the country's fastest-growing scrap metal collection and processing businesses. Smorgon's scrap metal division runs 39 facilities throughout Australia, as well as others in New Zealand and China. Smorgon's scrap metals are then recycled as raw materials for its steel production division, which manufactures steel and steel products using the electric-arc mini-mill process. The company's total annual steel production tops 900,000 tons, with an annual capacity of over one million tons. Smorgon Steel Distribution, the company's third core division, operates throughout Australia. Acquisitions have formed a major part of the group's growth in the early years of the 21st century; its purchases include Australian National Industries, Metalcorp Ltd., Sydney-based Chantlers Metal Recyclers, and a 50 percent stake share in Email Ltd. The founding Smorgon family retains a significant stake in the company, which went public in 1999.
Rags to Riches in the 1920s
Brothers Norman, Moses, and Abram Smorgon, along with their families, fled the Soviet Union in the 1920s. After living in conditions of appalling poverty, the Smorgons were determined to start a new life and traveled to Melbourne, Australia, aboard a converted cattle ship. The brothers, who spoke little English, set up a kosher butcher shop in 1927. The shop was a success, prompting the Smorgon to add a number of new butcher shops.
The Australian meat industry, like many of the country's industries at the time, was dominated by a very small number of businesses that held near-monopolies on the wholesale meat market. This did not deter Norman Smorgon's son, Victor, from branching out into a wholesale operation, setting a pattern of challenging monopolies that was to mark the group's rise in the Australian business world. Victor Smorgon's business started small, with a loan of just two pounds from his father, which he used to buy six chickens at the local market. The younger Smorgon quickly sold these chickens for three times his purchase price.
By the end of the 1930s, Smorgon had transformed his business into a small but growing wholesale meat and meat processing group. A decisive moment for the company came during World War II. Soon after the start of the war, Victor Smorgon went to see then Prime Minister Ben Chifley and related the story of how his family had escaped the Soviet Union during Stalin's purges of the middle class in the 1920s. He also told the prime minister of his plans for building his company, asking for a license to export meat to the United Kingdom. Smorgon's tale impressed Chifley, who helped Smorgon gain the export license.
The new market enabled the company to expand rapidly during the war years. In 1941, the Smorgon company, which included Victor's brother Eric, among others, built a new full-scale meat processing plant in West Footscray. The facility provided integrated operations, with a slaughterhouse, cannery, freezers, boilers, and boning rooms. There, the company inaugurated its patented Freezer Chain System, which set a meat industry standard for chain transport systems.
Diversified Conglomerate by the 1970s
At the end of World War II, the Smorgon family began to diversify. At first, the group remained close to its core meat business by extending into other food-processing areas. In the early 1950s, Smorgon added fruit canning and rabbit meat processing. The company now began to export to the United States as well, beginning with processed rabbit meat.
England's involvement in developing the European Common Market set the stage for the next evolution of the Smorgon group. Victor Smorgon recognized that England's participation in the European Common Market meant that the company would soon face intense competition from meat supplier in continental Europe. In response, Smorgon set out to diversify its operations in order to reduce its reliance on meat exports.
The company's diversification, launched at end of the 1950s, also provided the company with new opportunities for challenging some of Australia's other industrial monopolies. Victor Smorgon first focused on the paper and packaging industry, which also provided integration possibilities with the group's food businesses. The company launched production of paper and carton materials, as well as end products such as egg cartons produced from recycled paper. Following the death of his father, Victor Smorgon took over as head of the group's growing interests.
By the mid-1960s, the company had already succeeded in becoming a rising star on Australia's paper and packaging scene, defeating the monopoly long held by Australian Paper Manufacturers. The growth of this operation led the company to exit the fruit cannery business in 1967 in order to focus its growth, on the one hand, on its core meat business, and, on the other, its growing paper interests. This focus did not stop Smorgon from developing other business interests, however. Now known as Smorgon Consolidated Industries, the group continued to branch out in the 1970s and into the 1980s, developing a vast range of operations. Smorgon continued to target monopoly-dominated industries such as the glass industry, long controlled by ACI (Australian Consolidated Industries), which included glass and plastics manufacturing, forestry holdings, paper mills, and other interests such as clothing manufacture, retailing, and computer production.
By the early 1980s, the Smorgon group was Australia's largest diversified family-controlled business. Having successfully carved a place for itself in several formerly monopoly-controlled industries, Smorgon now set out to conquer another: the steel industry.
Australian Steel Magnates in the 1980s
Until the early 1980s, Australia's steel market had been entirely controlled by a single entity, Broken Hill Propriety Co., later known as BHP. Yet BHP had neglected a new and fast-developing steel market, that based on the "mini-mill." Rather than produce steel from raw ore using traditional blast furnace production methods, the new type of mill, which was much less expensive to build and operate, used a new type of electric-arc furnace in order to recycle scrap metals into usable steel products. In the meantime, BHP's control of the market had made it complacent in its relationship with its customers, who had to contend not only with the company's rigid pricing policies but also with its inability to offer flexible production schedules.
The seemingly daunting task of entering an entirely new industry did not dissuade Smorgon. As Victor Smorgon was quoted as saying: "Steel's nothing. It's an industrial process and we're good at processes. It's just like making sausages." In another statement at the time, Smorgon remarked: "The point is that as a family we're natural manufacturers. We understand production. We can get experts to work out the electronics and engineering. And if you ask 'Why steel?' the thinking is simple: go for the monopolies. Fight the monopolies. The bigger they are the better for us. They're easy. They're top heavy."
The lean, mean Smorgon organization began construction of an electric mini-mill in Laverton, near Melbourne, in 1981. Production at the mill was launched in 1983, fed by scrap metal bought from a nearby collector. Smorgon quickly imposed itself on the market, in part by offering lower prices but also by adapting its production schedules to customer needs. In order to maintain margins, the company also skirted the traditional steel distribution market in Australia and began distributing directly to customers. By 1984, the company had already begun to expand its steel operations, purchasing a used rolling mill from Pittsburgh's Jones & Laughlin Steel Corp. The group's initial investment in the steel industry stood at just A$60 million.
Smorgon's success in the steel industry led the company to begin acquiring and developing scrap metal collection and processing operations in the late 1980s and through the 1990s. A major moment in the development of the group's steel business came in 1987, when it agreed to sell its steel operations to Humes Ltd., which operated its own steel products production and distribution operation, called ARC. Humes was also Smorgon's largest customer. In exchange, Smorgon took a 46 percent stake in Humes.
Under Humes, Smorgon's steel interests grew strongly, including a major expansion of its steel mill's production capacity. In 1988, however, Smorgon launched a takeover offer for Humes itself, gaining complete control not only of its own steel interests but Humes's ARC business as well. That purchase set the stage for Smorgon's emergence as a regional steel power.
Steel Focus for the New Century
In 1994, Victor Smorgon, now in his 80s, stepped down as company chairman, turning over the reins of the group to Graham Smorgon, grandson of Moses Smorgon. Under Graham Smorgon, Smorgon Consolidated Industries entered an entirely new phase in the company's history--that of its break up. By the mid-1990s, Smorgon family shareholders had swelled to some 100 family members representing seven distinct family groups. Recognizing that the shareholding structure had become increasingly unwieldy, Smorgon began plans to take the company public.
As part of that process, Smorgon decided to stake its future entirely on its steel business and began selling off and spinning off its other assets. Smorgon Steel Group, as the business was then renamed, became the single common holding among the family shareholders. The process leading to the company's public offering in 1999 offered a first glimpse at the family's financial arrangements and shareholding structure: the descendants of Norman Smorgon, including Victor and Eric Smorgon, controlled 75 percent of the company, compared to the Moses Smorgon wing, at 20 percent, and the Abram Smorgon branch, at 5 percent. Under a shareholder pact, the family agreed to maintain their shares for a two-year period following the public offering and to refrain from launching competing businesses. Family members were also barred from contributing their shares to takeover offers for the company.
The successful public offering put Smorgon on the map as Australia's leading vertically integrated steel business, valuing Smorgon at more than A$1 billion. The company immediately began adding to its scale, buying up rival Australian National Industries (ANI) in 1999. Smorgon next targeted Metalcorp, the leading scrap metal recycler in New South Wales. That acquisition finally succeeded in 2000. The addition of Metalcorp, which processed nearly 600,000 tons of scrap metal each year, meant that Smorgon now covered nearly all of its steel production unit's own raw materials needs.
Smorgon made two more key purchases, buying up Palmer Tube, then joining with OneSteel in a partnership to acquire Email Ltd. in 2001. Smorgon continued looking for bolt-on acquisitions, such as its 2002 purchase of the Albion Steel group, which processed and distributed some 40,000 tons of steel products each year, much of which derived from Smorgon-produced steel. With the drop off in steel demand in Australia following the completion of the 2000 Olympic Games, Smorgon began developing itself as a steel exporter as well, particularly to China but also increasingly to other Southeast Asian markets. This development was followed by a move to extend the company's vertical integration onto the foreign stage as well. As part of that effort, the company acquired a 50 percent stake in Hong Kong-based Hartwell Pacific Ltd., which was then renamed Smorgon Hartwell Recycling in 2003. With operations in Hong Kong, Malaysia, Thailand, and the Philippines, the company's newest addition claimed a leading position in the Southeast Asian scrap market.
Closer to home, the company reached an agreement in September 2003 to buy up Chantlers Metal Recyclers, the second-largest non-ferrous scrap dealer in the Sydney area. In the meantime, parts of the Smorgon family had begun exercising their right to sell shares in the company, reducing their overall shareholding position. Nonetheless, Smorgon's continued leadership position remained a testament to the Smorgon family's heritage as one of Australia's true 20th century rags-to-riches stories.
Principal Subsidiaries: AB Metal Pty Ltd; ANI America Inc. (United States); ANI Ltd; Arnall Poland Sp. z.O.O. (Poland); Tube Mills Pty Ltd; Commonwealth Steel Company Ltd; Email Ltd.; Metalcorp Ltd; MI Steel (NSW) Pty Ltd; Ming Sing Electronics Ltd (Hong Kong); Ampy Holdings Ltd (England); Kelvinator Pty Ltd ; TPS Holdings Pty Ltd.
Principal Divisions: Recycling; Distribution; Reinforcing and Steel Products.
Principal Competitors: Thompsons, Kelly and Lewis Proprietory Ltd.; BHP Steel Ltd.; Consolidated Manufacturing Industries Ltd.; Structural Systems Ltd.; Milnes Holdings Ltd.; National Forge Ltd.; Stokes Australasia Ltd.; United Group Ltd.; Nippon Steel Australia Proprietory Ltd.