Libstar CEO confident of growth and is planning to eat the other guy’s lunch

The JSE’s embrace has of late been anything but warm for consumer-focused groups: Consol canned its listing late last month and Libstar, owner of brands such as Denny and Lancewood, didn’t exactly get the reception it wanted on Wednesday.

Business Day asked CEO Andries van Rensburg whether, to begin with, they overpriced their initial public offering (IPO).

No, I disagree. We are at a discount to a Tiger Brands and Rhodes Food and our price:earnings multiple is 14-15 times [theirs]. We were definitely not overpriced and, going forward, we’re confident, being a cash-productive business. We’ve had a good run over the past few years — we’ve seen growth of about 23% and organic growth of about 13%. We are busy with a number of projects for some of our bigger customers that will definitely enhance the bottom line. And the share must find its own place in the market. Of course, we’re a bit disappointed at some of the reporting that we saw but we are confident. Yet the market doesn’t share your view.

Again, the market seems to be quite volatile at the moment. Just look at what’s happening within the sector over the past few months. It’s really difficult to explain. We’ve got, I believe, solid brands. For example, our Lancewood brand has grown from being a R120m turnover cheese business to almost R2bn over eight years. I can say the same for our bakery business, and that’s what we’re all about, not acquisitive growth.

In the early days, of course, we had to make acquisitions to get the business kick-started, we never thought the business would be the size it is today — but things happen. Today we are much more about growing organically and investing in our projects. As a last resort we may acquire companies.

The market seems dubious about why you listed — in other words, not going public to raise cash to do interesting things but to pay off your private equity debt.

We raised R1.5bn and that leaves us with breathing space to invest in new ventures. Our net debt will be reduced by R700m and there will be significant interest savings. There was a pre-IPO dividend (of R800m) which put us further in debt, but [with that] R1.5bn we are well within our ratios. Our debt is 1.1 times ebitda, or R1.3bn.

What’s it been like to have been owned by a private-equity group ... did it do you good or is it something you’d have preferred not to have had? They’re not known for their soft natures.

I agree with you fully, we acquired one or two companies from private equity and I must say it’s a bit different to how I came to know private equity, but both our shareholders (first Lereko Metier, then Abraaj) were highly supportive. They never took any cash out of the company up to now when we did the pre-IPO dividend. Our first private equity grouping helped us establish the company from really nothing, from a white sheet of paper. I think what I would appreciate is to have some other independent expertise on the board. It was very much a closed shop — you and the owners — and you sometimes needed more guidance. We had a board meeting on Wednesday with our new directors and the difficult questions they’re asking were not always asked of us. As you know, these private-equity guys have a fund and [it] comes to an end and they need to monetise. Either we had to do a plain sale of the company or we had to list. We could not go into a third round of private equity.

Who are your new directors and which big institutions have bought into Libstar? In time, it will be public knowledge who are the bigger

owners. Abraaj has 42% still, and they’ve still got two directors on the board. But we’ve appointed Wendy Luhabe from Wiphold, Phumzile Langeni, who is one of the four envoys of the president, and JP Landman, the political and socioeconomic analyst who we’ve known for a very long time. He’s worked very closely with us since the beginning of the company as an adviser.

How does it feel to be on investors’ radar screens after being anonymous for so long?

I would have preferred to stay under the radar for very long but it doesn’t work that way. We’re the fifth-largest food company and if you start stripping the commodities out of the big ones, we’re kind of in the same league and we can’t stand under the radar any longer.

Consumer-goods companies have had a really rough start to 2018, how do you view your future?

Lancewood is the biggest natural cheese brand in SA, we’ve got Denny and Gold Crest, which we think has huge potential in the market, but it’s been undermanaged and undersupplied and we’re working very hard on that. In most of the categories in which we compete we are really small players. If I look at Lancewood, our yoghurt brand, we’re not even 1% of that market and there’s opportunity. In most categories we’re not the leader so, if you ask me if we’re planning to eat the other guy’s lunch ... well, yes.