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Brian Joffe is the closest thing South Africa has to Berkshire Hathaway’s Warren Buffett. In a quarter century, Joffe has built Bidvest from scratch into an SA-headquartered global conglomerate with revenues exceeding R150bn and EBITDA of almost R10bn. His genius, like Buffett’s, lies in the ability to efficiently allocate capital. This is part of the group’s DNA, reflected in the well used internal term ROFE for JOFFE – a reminder to the highly decrentralised management corps to always consider the Return on Funds Employed when making decisions. A chartered accountant, Joffe is a master in the language of business. Our discussions have always been special. This was another in that vein, despite Joffe arriving 35 minutes late – very unusual for him. This was a result of his earlier interviews running longer than usual, a consequence of the intense interest in Bidvest’s hostile bid for pharma group Adcock Ingram. We spoke about that. And the gap in Bidvest’s global operations – North America. Where a deal with Natie Kirsh’s Jetro could be a long-term possibility, I asked? The businesses would fit perfectly together and with Kirsh now 81, he is surely looking to slow down. That part of the chat, and Joffe’s disclosure he’d be comfortable with four times the group’s R4.5bn debt – ie he’d happily spend R14bn if an acquisition were attractive enough – were highlights. The transcript is below. It starts with his answer to my question on how big an impact the weaker rand had in boosting Bidvest’s numbers in a year when it reported a 15% improvement in both headline earnings and dividends. – AH
BRIAN JOFFE: About 35% of our earnings are foreign, which is pretty much in line with the prior years. A 3% difference in the
currencies, not that I agree with the way the accountants do the work, I think it’s less. But in maximum 3%.
ALEC HOGG: That’s not much Brian, given that the Rand was weaker over this period. Would its fall have come in a little bit late?
BRIAN JOFFE: Well as I said its 3% of the total, so it’s probably about 10% from subsidiaries.
ALEC HOGG: The South African operation’s profits are up 10%. In the climate that we’re seeing in South Africa, that is an achievement.
BRIAN JOFFE: That’s an average again. Some of the guys did better than 20% and some did some minus numbers. But for me it’s all work in progress and I’m very, very happy with what we’ve achieved in the environment in which we operate. Coming off a high base, I think we’ve done really, really well.
ALEC HOGG: The one area that you aren’t invested in globally is in the United States and it was interesting to talk to Grant Patterson last week, who said that South African retailers are 15 to 20 years behind Wal-Mart. Is that one of the reasons? Are they just too good in America for you to go and play with them?
BRIAN JOFFE: No. In our field, there’s no doubt that we’re as good as them, maybe even better. I mean our returns are as good as Sysco in the US. It’s an expensive place to go and it’s a vast country. So unless you can make a sizeable acquisition to start off with, it’s very difficult to build, especially in our field. We haven’t got any new technologies as such and we’re a basic provider of services and food products by and large. So, yes, it’s just one of those spaces that eluded us. But we’ll get there one day – we’ve got some plans.
ALEC HOGG: I ask this because another South African, Natie Kirsh has done very well in your line of business in the US. The question must be, perhaps because you’re both South Africans, would you ever talk?
BRIAN JOFFE: Look I know Natie well and who knows? He’s done particularly well in the food service business there, had a very good start with Jetro which was a cash and carry business originally. They’ve got a very good management team and have done very well. Their concepts are a little different from ours, but yes, who knows?
ALEC HOGG: Warren Buffett would call you a spring chicken (Joffe is 66), but like he knows, succession is uppermost in investor minds? This is a company you started 25 years ago. Are you comfortable that you have a succession plan in place?
BRIAN JOFFE: The business is already operating under succession management. I’m there but I’m doing less than I was doing before, concentrating on more strategic issues. The executive management of Bidvest is new and they’re running the business.
ALEC HOGG: Brian are you going to be like Buffett? He’s 83 this month – you’re still a long way away from that – are you going to be around for the next 20 years?
BRIAN JOFFE: I’m a firm believer in being around as long as you can add value and people want you around. So I’m here, I don’t want to go anywhere particularly. I’m very happy and very optimistic about what’s going to happen in the next while, 25 years I guess. I’ve indicated to the board, and I think to the market generally, that I am at least committed as an executive for the next three years. Time will tell. If my health is good and my mind still sound, and the executive and board still wants me, of course I’ll be around.
ALEC HOGG: You’ve brought (recently acquired) AMAP into the group in this period, for the first time they’ll be part of the results. Nothing special from them yet as it’s too early. You do say that in your numbers. But as far as acquisitions are concerned, we’re all looking at Adcock Ingram; you fired the first shot – where are you on that now?
BRIAN JOFFE: You know in business one gets a limited number of bullets and you’ve got to fire them at the right time. All I can say is this: we obviously remain interested for reasons that probably most people wouldn’t know, and not that they should know. In the final analysis, it’s not going to be the board of Adcock that decides. They may be disappointed to hear this, but it’s not going to be them that’s going to make the final call as to where this company eventually goes. It will be the shareholders. Who knows at the end of the day what the structure will be? So far nobody’s put an offer on the table. We will see if somebody makes a move. We originally did make an offer, the board didn’t see fit to give that to their shareholders which I think was wrong. We will now have to see how the game develops.
ALEC HOGG: But you’ve never gone hostile before?
BRIAN JOFFE: Well I actually don’t understand why it went hostile because all that we really wanted to do was to give the shareholders an opportunity to vote. The Chief Executive of Adcock in his own presentation, before we even made an offer, said that the company was in play. I’m surprised that they didn’t take our offer to shareholders.
ALEC HOGG: Brian, just looking on a different topic, you’ve been very conservative on your debt, even though you’ve got R4.5 billion worth of debt. It’s so well covered (10 times interest cover) and it’s only half of your annual operating cash flow. Why have you been so light? Are you concerned that interest rates globally might start picking up?
BRIAN JOFFE: I think interest rates in South Africa are probably likely to pick up a bit. International rates probably won’t for a while. But that really hasn’t been the driver. The issue at the end of the day, is making acquisitions. I don’t want to call it a science but one doesn’t want to rush it. You have to buy by doing the right deals at the right price at the right time. We’ve got two or three things running currently. As you say we bought AMAP, we’re in the process of trying to get 100% of Mvelaserve, hopefully that will come to fruition, Were looking at some other stuff. Who knows what will happen with Adcock? But at the end of the day the money’s there for the right kind of deals. If we can’t get to a point that we are clever enough to make these deals, we’ll obviously have to look at some other strategies to reimburse the Bidvest shareholders, potentially with some of the wealth that we’ve created over these years.
ALEC HOGG: But the low debt, is that a function then of not being able to find the right acquisition rather than concern that interest rates might start rising?
BRIAN JOFFE: Yes, whilst I think you mentioned that we are probably half,
our capacity to borrow is probably four times what we’ve currently got. So I think it’s more driven by our inability, I guess, at this point in time to spend it wisely.
ALEC HOGG: And here at home, a 10% improvement in your South African operations in the last year was helped along by your automotive side that did particularly well. How are you seeing the next 12 months?
BRIAN JOFFE: We’ve had a particularly good July and August as it so happens, much better than we’ve had in the previous year. We had a relatively very poor third week, or last week of May and the month of June, not only in South Africa but all over the world. We were tracking much higher growth rates up until then and I think, for whatever reason, there was a blip in Europe. We had a very late start to the summer and maybe some of the background strikes and negative perceptions in South Africa impacted on June. It was only one and a bit months in the whole year. So if those months had come good I think our growth rate would have been significantly more.
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