Sasha Naryshkine’s expert insights: Famous Brands, Shoprite & Anglo American
Alec Hogg was joined on CNBC Africa's Power Lunch by Vestact's Sasha Naryshkine to get an understanding of the business news making headlines today. Naryshkine adds his expert views to a number of announcements made on the SENS today, focusing on Famous Brands' interim results reporting a 14% increase in revenue, as well as Shoprite's operational update citing an 11.9% increase in turnover from its South African business. Sasha also expresses his views on Anglo American delivering its first shipment from its widely criticised iron ore project, Minas Rio in Brazil and explains his position on global iron ore prices. – LF
ALEC HOGG: Let's get a more in-depth view of that market and how it is trading today. Sasha Naryshkine is a Director at Vestact. Wasn't that a lovely little clip with Christo Wiese? I see he's now 73 years old. You can't teach him much, but what you also can't say is that he likes overpaying for anything, as he even said, himself.
SASHA NARYSHKINE: Well, the whole policy of the company is to be able to deliver the best quality goods at the lowest prices to their customers. You would think the person in charge or is the biggest shareholder in that business would do the same with the Board, and I agree with him.
ALEC HOGG: It is a family relationship there as well. They're brother-in-laws, hey?
SASHA NARYSHKINE: Well, maybe the best person for the job is sometimes someone you know really well.
ALEC HOGG: Yes, well they've been together a long time.
SASHA NARYSHKINE: Exactly.
ALEC HOGG: It's very interesting. In most countries, if Walmart had gone in there for the first time, the local retailers would have… not got wiped out but certainly would have gone on the back foot. Walmart has come into South Africa and Whitey said at the time, "Wal who?" He's kind of proving it.
SASHA NARYSHKINE: Yes, and obviously, also there was a sales update there, so things are going, as they say, a little bit tough for the South African consumer but if this is the toughest of times, and they are able to deliver over 11 percent top-line growth, I mean that's not altogether a bad outcome but back to the…
ALEC HOGG: 'Pay the man R49 million'. That's what he's saying. If he delivers then pay it.
SASHA NARYSHKINE: Exactly, and that's what I'm saying because at the end of the day it is the shareholders who should be deciding and if they don't think that that person is 'value for money', well then they can vote once a year and say 'no thanks'.
ALEC HOGG: And they voted today 'yes please'.
SASHA NARYSHKINE: Exactly.
ALEC HOGG: All right, so end of story. Moving onto the next one, Famous Brands – Kevin Hedderwick was in the studio earlier this morning. Those numbers are strong.
SASHA NARYSHKINE: Yes, I think he sat in that chair over there. Yes, those numbers were excellent. This really is a good business and they've (I know we say this every time) but it was a realisation from the family that they needed a professional to run that business and now they've set up a really professional Board, Santie Botha, Darren Healy, who's now running the underlying business. Kevin is able to focus on a more strategic role, now that's starting to bear fruits. Where the manufacturing and the logistics business and, of course, the people who they refer to as their customers, the franchisees, all starting to work and it's a little bit more fluid, between all of those.
ALEC HOGG: It's a fairly, good point you make there because even from a very, small base and I've gone through this numerous times in my career, when you build a business you need to go to the next level and you need to keep reinventing yourself. You need to cannibalise the structures, if you like, and that's exactly what they've done there, to good effect.
SASHA NARYSHKINE: Yes, they've done that superbly and the store footprint is now going to be over two-and-a-half thousand.
ALEC HOGG: I'm surprised Burger King hasn't made more of an impact there or even with Dominos coming into the country, on the pizza side.
SASHA NARYSHKINE: Still early days. I think it is very competitive but there still is room for growth because there's many underserviced regions in South Africa and that quick restaurant type model works really well in a developing country. Where people with just a little bit more money, it is a luxury spend.
ALEC HOGG: As an anecdotal for you, I did a bit of travelling in the past week, stocked as one does, on the N3 to Durban, at various outlets, Famous Brands, always 'top-class'. The Wimpy's, the Steers…their competitor's taste, they've got a thing called Maxi's, awful. By comparison you'd say 'somebody has their structures right. Somebody has the processes right'. In other words, Hedderwick. I'm not so sure about Taste.
SASHA NARYSHKINE: Yes, I think Carlo and Steve have done a good job at Taste and they've probably been more focused on some of the…
ALEC HOGG: But they're not Famous Brands and that's the point.
SASHA NARYSHKINE: Not yet, and they probably differentiate themselves by being more a 'brand's type' business in the mould of AVI and I think the conversion from Scooter's will go well. It will go well for them because we've seen in the South African context, the consumers are very receptive to the offshore brands, and Dominos is one of the biggest brands, globally.
ALEC HOGG: Yes.
SASHA NARYSHKINE: So I think…
ALEC HOGG: I think what we're saying here, or I'm saying 'hang on, this is a South African made business (Famous Brands). Hedderwick came from SAB Miller. He told us in various interviews that he brought in the structures and the processes and that's what runs that company'. Carlo is bringing in an international brand, he missed out on Burger King, more entrepreneurial, and yet the ratings are similar on the JSE. I would much rather put my money with Famous Brands.
SASHA NARYSHKINE: Plus also, the liquidity with Famous Brands and size and scale is something but I think credit must be given to Carlo and his team, because at the listing process a lot of people were saying 'you know there's this Johnny come lately' to that last listings boom and they've done some good things. Maybe different kinds of people and different kinds of businesses and maybe when and if Taste moves to a level, where they are competing with Famous Brands, or having gotten that much bigger – maybe they need a different person in the business to run it but I think, for the time being, Carlo and both Kevin are the right people for their respective businesses.
ALEC HOGG: Interesting, well we do know that the invitations have been flying around in the media circles, to go to the launch of Dominos, so if you want a pizza I think I can find info out for you or a little bit of pizza anyway, a new Dominos one.
SASHA NARYSHKINE: Oh…thanks so much.
ALEC HOGG: Anglo has shipped its first iron ore from Minas-Rio. Now that has got to be the worst timed introduction into a major market that we've seen for a while.
SASHA NARYSHKINE: So, you know, comfortably over the budget and…
ALEC HOGG: That's polite.
SASHA NARYSHKINE: One of the worst acquisitions at the time somebody…I remember someone writing a few years ago, saying it would have been cheaper to mine iron ore on Mars, at that stage but they've, obviously stuck to their guns and it is what it is. They are going to ramp up to; I think it is 26.5 million tons by the end of 2016, or the first half of 2017. They've gone on with the project and they've shipped their first iron ore to a Chinese customer. I don't think steel demand is going to fall away dramatically. I think, obviously on a steel consumption per capita basis…
ALEC HOGG: But China is a soft market.
SASHA NARYSHKINE: China is somewhere in between where Italy is, so that gives you an idea of the scope, the size, and scale of China relative to some of the developed Asian economies, like South Korea, where steel consumption, per capita, is still much higher. If China were to reach that and be an engine room of global manufacturing, on a scale of South Korea, you could expect iron ore to still, have a good underpin.
ALEC HOGG: But surely, that's the wrong comparison because they are 98th in the world, in GDP per capita. How can you expect 98th in the world GDP per capita, to be up with Italy, which I don't know but they're probably in the top 20, on GDP per capita, when you are talking about GDP per capita. Guys like to use these statistics maybe.
SASHA NARYSHKINE: Well, yes it's interesting because in the 1960's, early 1960's, North Korea had a more favourable economy than South Korea, so it does take a while to kick-in on a developmental plan.
ALEC HOGG: Well, they got all that aid from their partners of the North.
SASHA NARYSHKINE: They did, they got the biggest, interest free loan in, I think, the history of humanity, on a relative basis.
ALEC HOGG: But it's complex. The reality is that you're not that bearish on iron ore.
SASHA NARYSHKINE: I think because it does have a flaw, because of all the smaller, 'itty-bitty' players, who brought on big projects, so if you want to look in that space and say, "Who's the best?" I think you still have to look at the Australian operators and you'd have to say Rio Tinto, and more specifically BHP Billiton, who've gone on a big cost-cutting exercise in that department.
ALEC HOGG: But at least Anglo is now, finally starting to ship its iron ore. What is that going to do the iron ore price? Well, when you have an over-supply already, it tends to reduce the prices still further. We shall see. Thanks to Sasha Naryshkine, he's a Director at Vestact.