[TOP STORY] Premier Group announces impending JSE listing

SIMON BROWN: I’m chatting with Kobus Gertenbach, CEO of Premier Group. They’re going to be listing on the JSE shortly. Kobus, I appreciate the time today. Let’s first look at that listing process. Are you doing a traditional IPO? Is this going to be a private placement, a book build?

KOBUS GERTENBACH: That is correct, Simon. Yes. We have announced our intention to float on Monday [November 21], and that’s going to get followed up by a roadshow [where] we will be seeing a lot of the institutional investors in South Africa, the large fund managers – the Allan Grays and the Sanlams and Old Mutuals of the world.

Once that is complete, we hope to actually be trading on the JSE on Thursday, December 8.

SIMON BROWN: Okay. So this is quite quick. There are a number of existing shareholders – because it’s of course coming out of Brait – who will remain in, most notably Christo Wiese, whom I think many folks will know. Are you floating a majority, or are the existing shareholders going to be the majority of the business?

KOBUS GERTENBACH: At this point in time, Simon, we are trying to raise about R3.5 billion in total. The Christo Wiese investment vehicle Titan will be investing R1.4 billion, and so the other R2.2 billion or so is effectively available to anybody that wants to take up the offer for shares in the IPO. But we do believe that a lot of the existing Brait shareholders would potentially look to participate. To the extent that they do, there will be at least some allocation for them.

SIMON BROWN: Got you. And then folks who are interested, chat with your stockbroker. Let’s talk to the business. A lot of folks might not know the Premier Group, but I think they probably know many of your brands. What are some of the major retail consumer brands in the stable?

KOBUS GERTENBACH: Well,we are actually one of the oldest companies in the country. We’ve been around for a very long time. In fact we can probably trace our oldest origins back to 1820, to a bakery in Cape Town. But we are well known today for bread brands that include Blue Ribbon and BB in the KZN area, as well as Star [Bakeries] in the Eastern Cape, And then in a few other areas like Umtata, Mr Bread.

Then on the cake flour side, we have the Snowflake brand countrywide. On the maize meal side, we do Iwisa and Nyala in the KZN market, and then Super Sun more in the northern parts of the country.

Then there are a few other brands – the femcare brand Lil-Lets and we do Dove cotton wool. An there are also a couple of sweet brands like Champion toffees and Manhattan marshmallows, gums and jellies.

SIMON BROWN: Okay. Champion toffees, best toffees ever – just as an aside.

You’ve got fairly good market share. I was reading from the announcement that came out from Brait. In bread, for example, it’s 24%; in flour it’s 32%. You mentioned feminine care, it’s 18%.

You’ve got a fairly good market share. You’re mentioning some of your brands are right up there in terms of being number one or two in their category.

KOBUS GERTENBACH: Yes, definitely. Snowflake is quite an iconic brand in the wheat flour space. On the bread side, because we have multiple brands, none of our brands is actually the biggest brand in the market. But by volume we are the largest baker in the country. Obviously we compete against Tiger Brands with Albany and, especially on the Pioneer [Foods] (PepsiCo) side, with the Sasko brand.

SIMON BROWN: I was again digging in. You mentioned bread there. You deliver to 45 000 customers every single day. Those of course are not the end users. You’re going to supermarkets, to cafes and the like. In a sense a large part of your operation must then be logistics.

KOBUS GERTENBACH: It is a very big logistical operation.

We have around a thousand bread vehicles that are locked and loaded every morning around three o’clock in the morning. And then at first light, they set out and rush off into the market to do all of those deliveries. The average bread truck does around 100 deliveries, so it’s quite an involved logistical operation to do that countrywide.

SIMON BROWN: Do you outsource that, or is that insourced?

KOBUS GERTENBACH: Simon, we do a lot of it ourselves, but we also have a lot of independent distributors, hawkers, vendors. In a number of areas we have very well-established owner-driver schemes. So it’s really a mixed bag of every single model that you can think of.

SIMON BROWN: [In] another mixed bag perhaps, your target LSM, some of them I can see are aiming at lower LSM, but some certainly coming into higher LSM. Your flour is going to be across [all]. Are you more concentrated in a particular LSM market, or is it broadly across the range?

KOBUS GERTENBACH: Well, Simon, if one looks at it from a South African perspective, the large part of our population is by numbers in the lower end of the LSM spectrum, and that is really where a lot of our products get consumed. If one looks at the bread market in particular – but [the same] is true for the flour and the maize side of the business as well – we do approximately 70% of our volume into the informal trade. So it’s a very, very large proportion going directly or very close to the lower LSM-end consumers.

SIMON BROWN: You mentioned the regions internally to Africa that you’re operating in. Do you have any operations beyond our borders?

KOBUS GERTENBACH: Yes. We’ve got a milling and baking operation in Eswatini; a bakery operation in Lesotho; we’ve got one of the largest food producers in Mozambique, located in Matola. And then we also do our femcare products globally through an operation in the UK.

SIMON BROWN: Oh, okay, as far as the UK as well. [Coming] back to some of the fundamentals, has the board sat and given thought to a dividend policy in terms of earnings going forward?

KOBUS GERTENBACH: Yes.

We stated in our pre-listing statement that will be going out next week, that we are targeting between a 30% and a 60% payout ratio.

We’ll probably start towards the lower end of that initially, and then work ourselves up as things progress.

SIMON BROWN: Particularly in raw commodities we’ve seen massive price pressures. Are you seeing in, say, wheat and maize, price pressures coming through? Are you able to pass that on to your customers?

KOBUS GERTENBACH: Yes, Simon.

Certainly in my tenure in over more than a decade at Premier, I’ve never experienced inflationary pressures at this level. We’ve seen a massive run-up in global grain prices, along with oil and fuel and other commodities as well.

We’ve certainly not been spared. Our margins are quite thin. We run very efficient operations and, we’ve been forced in the last year-and-a-half to take quite a significant number of price increases as we try to protect our business and our margins. So I think it has been a very difficult environment, especially for the more vulnerable consumers in our society who have really seen a big increase in their cost of living.

SIMON BROWN: I take your point. It’s across the board. It’s not just you, it’s going to be the competitors, it’s going to be other consumer goods at the same time.

We’ll leave it there. That’s Kobus Gertenbach, CEO of Premier Group. If you are interested, chat to your stockbroker. The IPO will be coming your way soon. Kobus, I appreciate the time.

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