OneLogix looking to hedge profit growth in Africa as SA market softens

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OneLogix, the specialised transport, retail and logistics services company with brands like PostNet under its umbrella released a solid set of year-end results today, reiterated by a spike in its share price, which is up at around 3% on the day. The group reported a 25% increase in revenue, with trading profits and headline earnings per share up by 33% and 24% respectively. A relatively small company on the JSE with a market cap of just under R1 billion it, like many other South African companies, is seeking to expand its operations and footprint outside of the borders of South Africa – in an attempt to hedge the anaemic environment in South Africa. Alec Hogg was joined on the CNBC Africa Power Lunch by Ian Lourens, the group's CEO to discuss the group's results, as well as it's profit earning technique in the context of South Africa and Africa. A very interesting look at a trading environment that is under pressure from the perspective of a company on the front line. – LF

ALEC HOGG:  The first set of earnings for you today comes from OneLogix, which has continued to demonstrate an uninterrupted growth – that's what its PR material tells us, anyway – a rising full-year headline earnings per share, revenue, and its profit.  With us in the studio to talk through the numbers and more particularly, the way the South African economy is going is the CEO Ian Lourens.  You heard what Nerina Visser was saying just a moment ago Ian, that South African Inc. that the punters who were only focused in this country are really struggling, whereas the JSE might not be because so much of the investment of JSE-listed companies is now outside of the country.   Your business – your operation: you look at the South African environment almost 100 percent.  Are you finding that entrepreneurs, the people that you deal with, and the people you've brought into your business are finding the going tough?

IAN LOURENS:  Alec, there's no doubt that the market is softening – no question about it.  By the way, we have roughly 17-odd percent of our earnings coming from Southern Africa, so we keep an eye on that as well and we're quite pleased to be there because it's a type of counterbalance to what's happening in South Africa.  The market is getting softer.  There's no doubt about that.

ALEC HOGG:  What about the guys that you deal with?  In our conversations in the past, you say you look for entrepreneurs.  You would buy smaller companies and bring them in, and you've done quite a few of those transactions in this period as well.  Are you finding that the entrepreneurs (the people who should be creating jobs) aren't doing so?

IAN LOURENS:  Look, entrepreneurs by definition, actually try to make something out of nothing so they're always looking for opportunities, whether it's good times or bad times.  I guess the sign of a good entrepreneur is that they can make things happen in difficult times, so that's an element one has to bear in mind all the time.  Even speaking to these guys: it's clear that the market is softening.  It's pretty much across the board now, I suspect.

GUGULETHU MFUPHI:  I was looking at one of your divisions – PostNet.  In your results, you mention that you're looking at new opportunities for growth.  Are you find that that's what the consumer wants?  Are their demands changing?

IAN LOURENS:  They are.  Obviously, technology's becoming much more sophisticated and we have to adapt according to that.  That leads to many opportunities as well.  Just as a matter of interest, in terms of PostNet we're also looking at outside of South Africa, so we're in Namibia but we're going to Swaziland and Mozambique.  We're looking at East Africa.  In fact, we even have feelers out in West Africa, but that hasn't contributed to earnings-to-date.  The fact is that PostNet had some impressive results, in fact.  They serve a good, strong market.  The SME market is…there's a big market there and many people are being driven to that market.  They have to make things happen and we're there to help them make it happen.

ALEC HOGG:  You're being driven through retrenchment or…

IAN LOURENS:  Yes, there are a number of reasons.

ALEC HOGG:  …from big corporates…  Just to dwell on PostNet a bit longer, do they compete or do those outlets compete with the Post Office?

IAN LOURENS:  No, the name would suggest that they do, but in fact, they don't.  Much of the Post Office's domain is protected by law so in effect they have a monopoly.  Certain things that have to go to the Post Office might come through us.  We charge a fee and it's given to the Post Office to do, but that's probably five-odd percent (not even…probably less than our revenue).  The balance is pure product that's developed by PostNet alone, the majority of which, by the way, are courier-related products and that's why it finds itself in the logistics space with us.  It's a very interesting business.  It continues to grow.  It doesn't shoot the lights out.

GUGULETHU MFUPHI:  You say that as though you're surprised, though.

IAN LOURENS:  Well, we're talking now about difficult times and it continues to grow.

ALEC HOGG:  Tough economy and yet, is that through market-share gains?  I'm looking overall; revenues are up by 25 percent in your company.  Headline earnings – 24 percent.  How are you managing to achieve that when times are…?  Well, we've just heard our economy today is smaller than it was at the turn of last year.

IAN LOURENS:  Alec, I think it's a culmination of many things that we got right over the years – the types of decisions that were taken 3/4/5 years ago, that we worked into the fabric of the organisation – that is working.  We have pretty good businesses.  They're well positioned.  They're number one and two, and in certain cases, number three in the market.  They're reasonably well protected markets with comparatively high barriers to entry.  There are nice margins.  I think we've acquired fairly well.  We know what we're looking for, we know how to formulate the transaction, and we know how to bed it down.  Our track record suggests that we're getting that right, so it's a confluence of a number of things and it's a momentum that we've built up over the years.  Not least of which, is the fact that we have very good people on board.  I'm conveying a message here, but thankfully, there's a huge amount of guys behind the scenes.

ALEC HOGG:  The interesting point: you're almost R1bn Company, which in the JSE's terms, is small.  Yet, you are talking about going into other countries.  You're talking about PostNet.  You already have 17 percent outside of South Africa.  Are you finding that there's just not space in South Africa – and you're a small company – 'so there's no space for you: watch out' or are the opportunities just so much better outside the borders?

IAN LOURENS:  Look, there are opportunities there because in a sense, it's a newish market waiting for things to happen.  It's difficult.  There's no question about that.  The infrastructure isn't there.  Many South African companies I've witnessed rushing in there, have come back with a bloodied nose.  It's difficult.  We are, in a sense, lucky.  We've been in Africa since 1988.  VDS, which is the biggest business in our group, in fact, started in Africa.  We've had offices in Zimbabwe since 1988, so literally, anything that's been thrown has landed on our doorstep and we've prevailed.  We understand the kind of nuances and the difficulties around there and even knowing that; it's still difficult to get attraction and get things growing there.  The point is that we're well positioned and I think we're well positioned for when things do start opening up, which they are. 

Growth in the sub-Saharan African is pretty good.  In the Southern African countries, it's pretty good, so we're well positioned.  Once again, I'm hoping that we've started some momentum that we'll be able to surf in on, basically.

GUGULETHU MFUPHI:  Looking at the recent list of directors' dealings: you, your financial directors, and other members of the board have been letting go of the shares in the company.  Why?

IAN LOURENS:  Only two, and in very small amounts.  Simply put its personal financial arrangements.  It's absolutely nothing of any consequence.

GUGULETHU MFUPHI:  No concerns there about the share price going forward then.  The confidence remains.

ALEC HOGG:  Yes, but we always watch directors' dealings.  You watch when the guys are, particularly in a share price that's off its peak…  You've had a good run and then you came back a little.  Times are tough.

IAN LOURENS:  We have to realise some wealth.  It has nothing to do with the future of the company.  I can assure you.

ALEC HOGG:  What about this BEE deal?  Just explain that.  There's many concerns with business owners that 'once empowered, always empowered' is now falling by the wayside.  Now, you've just cashed in with BEE, or the BEE partners have cashed R60/61m.

IAN LOURENS:  That's correct.

ALEC HOGG:  Did they pay a lot of money for those shares?

IAN LOURENS:  Look, they've been on board for eight years.  We bought those shares back, as you know, and it was a very amicable extrication, by the way.  In fact, our old BEE partner still sits as Chair of our board right now and in fact, we have another director on the board as well, so there's no problem in terms of the disengagement.  In fact, 'once empowered, always empowered': there's still a bit of a legacy.  It's not as big as it used to be, but it's still there.  Despite that, we're pretty close to finalising new BEE arrangements, which would deal with what we need.

ALEC HOGG:  My point being that R60m that the shareholders are purchasing the shares back for: what was paid in the first instance?  Alternatively, is that a gift by shareholders, to your partners? 

IAN LOURENS:  Well, it was a fairly complex deal, but it translated to next-to-nothing, in effect.

ALEC HOGG:  So they made R60.00 because they knew you.

IAN LOURENS:  Well, they added value as well, over the years.

ALEC HOGG:  Okay.

GUGULETHU MFUPHI:  Well, thank you so much to Ian Lourens.  We'll doubtless get you back in to unpack that further for us.  He's the Chief Executive of OneLogix.

IAN LOURENS:  Thank you.

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