South African business icon Brian Joffe was the flagship guest for last night’s BizNews Power Hour, with the Bidvest founder upbeat about the prospects of his latest venture – Long4Life. The investment holding company has some great assets with household names such as Sportsmans Warehouse, Fitch & Leedes and Sorbet. Given the perennial investment holding problem – a large discount to net asset value – Long4Life has outsourced Investec Corporate Finance to extract value via corporate action. This could see Long4Life unbundle one of its crown jewels or even delist from the local bourse. No matter what scenario plays out, shareholders can sleep easy knowing Mr Joffe will be making the final call. – Justin Rowe-Roberts
Brian Joffe on “ROFE (return on funds employed) for Joffe”:
It’s a very important yardstick for us managing our businesses. And you’re right that the calculation – if you use the whole year as your number – of course you’re going to get to that number. But there are two component pieces to that. One is the actual funds employed themselves, which we did a brilliant, brilliant job on during this particular period. We generated about R200 million worth of cash, which is almost 10% of the market cap, out of working capital.
And the other component is, of course, the trading profit, which was significantly down because of the first six months. So if you do the calculation based on the first half of the pre-Covid and the second half of this financial year – you’re going to get a significantly different number.
Joffe’s tips for those who are trying to get cash flows a little bit more aggressive in these difficult times:
I think the one important factor in managing funds employed is that it’s very difficult to do it if you don’t have the right mix. And so it’s one thing to be overstocked, it’s another to be overstocked with the wrong products. And I think fortunately for us, we’ve done a lot of work over the two or three years that we’ve been in the business in making sure that the stock mix was good.
And then, of course, the nature of the business also changed a little bit – and that gave us the opportunity to reduce, on a sustainable basis, the funds employed in that particular business. That’s in the sport and recreation field. And we also had some big wins in the beverage business where we stepped up our efficiencies, which to some degree was forced upon us by Covid. So, yeah, I think we did a good job in that space.
On Long4Life’s share price and investing R100m of his own money into the business in 2017:
I think I’m probably a little into profit at this point in time, but I haven’t really looked for a long time. The issue at the end of the day, for me, is that it’s not a one day game. And if I was a seller, then of course – the share price is important. But if I was a buyer and or a holder – the share prices are really less relevant. It’s maybe better for the share price to be off.
On the underlying value of Long4Life’s businesses:
I think the real issue for me is that I think that we’ve done – over the two, three years or three years of business – a particularly good job in managing the businesses. Each one of the businesses, in my view, are better now than they were when we acquired them, and I think that each one of them has got better growth potential now than what they had at the time that we acquired them too. So, from that point of view, we’ve done well.
Where I think where we’ve fallen short – and it really is to some degree not necessarily in our hands – is that the share price doesn’t reflect, in any shape or form, the underlying value of the business. And there you can see that we’ve got a business which has basically got R600m worth of cash after buying back, over the years, a billion rands worth of shares. So there are 30% less shares in issue from the day that we started. And that, for the purpose of computing what value is being created, has been significant for shareholders.
But having said that, the exercise for us is not that. The exercise for us is; how do we create a structure so that we can continue to find some methodology to grow in going forward? R600m is not really a significant amount of money for deal making – especially if you’re trading at a 40% or 50% discount to what we think the businesses are worth. So, we can’t use the equity to do deals – it’s too diluted. And secondly, I think that we – in trying to do mergers – are finding that there are people who are more interested in focused activities of what we’ve got rather than the general parcel.
So, we’re looking at various of those alternatives and we’re looking at seeing whether they are any better than what we’ve currently got. And who knows, at the end of the day – within the next two to three weeks – we’ll basically know where we’re going. We’ll either stay as we are or make some changes.
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