Holdsport’s evasive CEO bristles at suggestion of cashing in his R250m stake

I’ve now had a couple of interesting interviews with Holdsport’s CEO Kevin Hodgson. The business was delisted in 1998 at a low point in the market, then re-listed again in 2011 at a substantial premium. Our radio interview at the time of the relisting was feisty. I suggested Hodgson and his partners were taking advantage of market swings. He strongly disputed it. Today’s interview on CNBC Africa was in a similar vein. In particular, Hodgson was clearly uncomfortable talking about his personal stake in the business, worth R250m at the current market price. But as this is a public company and supposedly “in play”, a CEO who owns 12.3%  of the equity doesn’t really have the luxury of avoiding questions about a potential sale. At least I don’t think so. Holdsport’s share price softened 5% today. – AH  

To watch the interview with Kevin Hodgson on CNBC Africa Power Lunch click here. 

ALEC HOGG:  In company news, Holdsport released its first half results – that was at the end of August – last Friday.  The sporting goods retailer posted a modest five percent rise in sales and declared a dividend, up from 70 cents to 75 cents.  The company said it expects trading conditions to remain challenging for the remainder of the year, but despite this, it still plans to open two new stores in the next financial year.  Joining us now to take a deeper look at those results that came out a little late for us on Friday, and the way ahead, is the Chief Executive Kevin Hodgson.  Well Kevin, it has been a couple of years since you people re-listed on the Johannesburg Stock Exchange.  It has been steady rather than spectacular.  I was just looking back to 2009.  Your prime operation, Sportsmans Warehouse had 32 stores.  You have only increased that by three in the last five years.  Has this been part of the plan?

KEVIN HODGSON:  Yes.  Good afternoon, Alec.  When we came to the market we indicated that two to three stores per annum for the next three to five years was broadly our objective and we’ve been able to achieve that in the last two periods. We are on track to continue with that over the next period.  I think, within that though, is the concept of making some of our big stores bigger and also relocating some of our stores to bigger and better locations. So for us, expansion is a threefold approach.  Probably worth commenting on, is one of those stores that we indicated we would open in the next financial period was opened in September, in Rondebosch.  That has resulted in us having almost 3500m² of sporting and outdoor goods in the form of a precinct trading through Outdoor Warehouse and Sportsmans Warehouse.  There are many exciting things taking place within our expansion that we believe will assist in further differentiating the business in what is quite a competitive market.

ALEC HOGG:  You have never really gotten sexy.  You have never really gotten into investors’ minds as ‘wow’.  This is a sporting nation.  They are a sporting retailer’.  Why do you think that is?

KEVIN HODGSON:  Well I can only really comment on what we are trying to achieve.  I cannot really comment on what our investors’ perceptions are about, but I think we undertook to portray an image of being conservative in the way we run the business in trying to under-promise and over-deliver.  That has been, very much, a cornerstone of how we run this business.  We have been very fortunate that we have never had a financial year where we made less profit than the preceding year and we have had no injection of capital in the business since we really commenced this chapter in our lives in 1998, so that’s our formula and we intend to stick with it.

ALEC HOGG:  You are one of the cheapest of the retail stocks. Maybe you can give us some insight into what your foreign shareholding is.  We do know that international investors like them, or liking a slice of them have boosted many South African stocks.

KEVIN HODGSON:  Ja.  We came to the market round about the time of some of those foreign shareholders perhaps starting to take a slightly different view on South African retail.  At one stage, we were probably in the late teens of almost 20 percent or just slightly below that foreign shareholding base.  That has come off substantially into essentially a single-digit level.  Therefore, we have never really gotten above 20, and are in a position where we are slightly less than that.  As to exactly what their views are right now on South African retail, we are a bit unsure.  We have not really been interacting with too many foreign shareholders for probably a year now.

ALEC HOGG:  But Coronation really likes you.

KEVIN HODGSON:  Yes, they are a big shareholder.  I think that Coronation participated at the initial listing stage and we like the fact that they understand our business and clearly see a future.  They have been with us since the beginning and we are very comfortable with that.

ALEC HOGG:  But as an asset manager, they like to cash in their chips from time to time.  The Financial Mail had a story about your business in June, saying that you are ripe for takeover.  There was a possible deal some years ago – that was blocked by the Competition Commission.  How do you react, from where you are sitting, to that kind of speculation?

KEVIN HODGSON:  We have been around for quite some time and we have experienced a bit of corporate activity and a couple of approaches over the years. Certain people view our business as trading at a slight discount.  To some of our peers, I guess, it is always going to be a topic of conversation.  From a management perspective, it really is not our job to become distracted by any of that and really, it is a question of maintaining focus on our strategy and trying to deliver the goals that we have set ourselves.  Whatever happens at a shareholder level or at a corporate level, really, is kind of out of our control but we will deal with it appropriately if we are presented with something tangible.

ALEC HOGG:  Do you still have 12.5 percent of the equity?

KEVIN HODGSON:  In a personal capacity?

ALEC HOGG:  Yes.

KEVIN HODGSON:  Approximately – yes.

ALEC HOGG:  That is R250M.  I mean you are being very coy for somebody who has R250M tied up in one business, Kevin.  Surely, you would have some view on whether you would like to cash in some of those chips of whether you are actually sticking with this one for the long term.

KEVIN HODGSON:  Look, I think that is me.  We have a management consortium that has a significant stake in the business, and we also have a significant number of other shareholders who have significant positions and then there is the public-at-large.  I think it is a question of making sure that shareholders as a group are satisfied with the returns of the business.  I do not think it is a question of using this as a platform to pursue your own personal goals.  It has never been quite the way we run the business.  I think that whatever speculation takes place out there is, I guess, always going to happen when you are in the public domain.  It is very difficult for me.  I do not think this is quite the forum to comment on my personal aspirations in terms of what I intend doing, but I am comfortable.  I am happy.  It is a business that has been very good to me.  We have a great management team.  We have depth, we have succession, and we have all of those things in place.  I think that as long as you are satisfying shareholders and making appropriate decisions in the context of the business – I think everybody will come out on the right side of the equation.

ALEC HOGG:  No, I think this is, very much, the forum where you have to discuss these things.  There is much speculation, as we discussed earlier, about a takeover.  You are a significant player, one way, or the other.  You have told us that you are not prepared to comment on it.  Fair enough.  As far as the results for the six months to end August were concerned…again, looking at the numbers on face value: five percent growth in the top line, operating profit only up by three and half percent.  That is disappointing in a broader sense, but you need to tell us what the environment was like.

KEVIN HODGSON:  Ja, I think one needs to perhaps contextualise these last six months against the backdrop of the last couple of years.  Whereas in the last preceding period we experienced periods of good trading and periods of weak trading, there is no doubt that the last six months was consistently weak.  I think it is a function of the macro environment that we are trading in.  The other thing that is worth noting, is that we sell discretionary goods to typically affluent customers and we trade best when our customers are in a very positive frame of mind.  When what they are reading in the newspaper and what they are experiencing themselves is positive, they tend to spend a little bit more freely, so it was a tough period economically.  It is a competitive market, we found it very challenging and I think if one looks to the next six months, I do not believe that there is much out there to suggest that things are going to be any different in the second six months of the year.

ALEC HOGG:  And as far as the online alternative is, to what you are selling?

KEVIN HODGSON:  Ja, we are very excited about the Internet.  If you look at what is taking place around the world, there is no doubt it is growing at an exponential rate.  I think it is still a very, very low base, but we have embraced it and are very excited about it.  In fact, we have gone live today with an online proposition for the Outdoor Warehouse and have been trading online for our Sportsmans Warehouse customers for almost 12 months now.  Whilst it is off a very, very low base, we are heartened by what we see and are believers in the prospects of what the Internet offers your traditional business.  For us, it is a very real part of our strategy and an area into which we are putting a lot of effort.

ALEC HOGG:  Indeed, it is a great opportunity, the online/offline combination.  That was Holdsport Chief Executive Kevin Hodgson.