Ad­corp’s new start (again)

Financial Mail - - THE G SPOT - @Gtalevi Gi­uli­etta@bdtv.co.za by Gi­uli­etta Talevi

PR: It’s al­ways dif­fi­cult to pro­nounce too early but there are some glar­ingly ob­vi­ous things that have gone wrong. Im­por­tantly, struc­tural changes: when [labour] leg­is­la­tion kicked in [it] cre­ated havoc in the in­dus­try per se and not only here.

So the knee­jerk re­ac­tion of cor­po­rates, the clients that Ad­corp would serve, was to rush into “per­ma­nen­ti­sa­tion” — that is, where you rush to make peo­ple per­ma­nent. Al­ter­na­tively, you’d find ways to evade the leg­is­la­tion … so com­pa­nies were toy­ing around with how to ame­lio­rate the sit­u­a­tion and the peo­ple that felt the brunt of this were com­pa­nies like Ad­corp. And it’s taken re­ally a long time to wash out, and I would say only now are you start­ing to see a level of sta­bil­ity, but then along comes Covid.

Even when I was Pioneer CEO, none of us un­der­stood what this sec­tor’s propo­si­tion was other than a pur­veyor of warm bod­ies. Now that I’m closer to it and have seen the ex­tent of Ad­corp’s brand ta­pes­try, as I put it, and how those roll up into a parental value propo­si­tion is quite un­be­liev­able. Yet as a CEO in a fast-mov­ing con­sumer goods firm, noone ever came to ex­plain this to me.

What else went wrong?

PR: [Be­sides] the struc­tural el­e­ment, you’ve seen the re­cur­ring theme of changes of lead­er­ship and cost sav­ings and re­or­gan­i­sa­tion and it leads to such dis­con­nect in a com­pany and you be­come in­ward-look­ing. Also, the wrong busi­ness model was im­posed — the right think­ing, but the or­gan­i­sa­tion wasn't ready for [it]. And then just mis­man­age­ment in any num­ber of ar­eas. I turn over stones ev­ery day and find worms un­der­neath and then there are also some boul­ders on my way, so of all the transforma­tional work I’ve done it’s been by far the most chal­leng­ing.

It’s a shift from man­ag­ing Pioneer Foods to this. Has it been doable?

PR: Ini­tially I found it quite daunt­ing and I was re­luc­tant to take on the po­si­tion. But there are uni­ver­sal busi­ness truths that kind of tran­scend in­dus­tries and whether you’re a pur­veyor of Weet-bix or Black Cat peanut but­ter or peo­ple, for that mat­ter, the nuts and bolts of run­ning an or­gan­i­sa­tion are con­sis­tent. I’ve iden­ti­fied eight value driv­ers and I’m go­ing to man­age the hell out of those over the next 12 months. It’s un­for­tu­nate that we’ll do all of this in a very, very dif­fi­cult en­vi­ron­ment.

Is it ac­tu­ally pos­si­ble to right Ad­corp, given the tra­jec­tory that SA is on?

PR: The com­pany’s got a sig­nif­i­cant debt bur­den, so the di­vesti­tures will go a long way to cre­at­ing more balance sheet re­prieve. And then if you cou­ple the cost-cut­ting I’m in­volved with, a mar­gin up­lift­ment pro­gramme, and you erad­i­cate th­ese in­ef­fi­cien­cies that re­side in the com­pany — of which there are plenty — you cer­tainly will have an or­gan­i­sa­tion 12 months from to­day that looks fun­da­men­tally dif­fer­ent, not­with­stand­ing the dou­ble jeop­ardy ef­fect of a con­tract­ing econ­omy and Covid.

I don’t want to over­sell it but if you can’t look fun­da­men­tally dif­fer­ent based on what I’ve en­coun­tered, then we must pack it in com­pletely.

And are you hav­ing to sell off de­cent as­sets just to set­tle debt, or are they re­ally non­core — like the fi­nan­cial ser­vices busi­ness, or the Aus­tralian group Dare?

PR: Well, there’s a case to be made that if some­thing’s mak­ing money and it’s non­core then, so what, maybe keep it. But the re­al­ity is that the fi­nan­cial ser­vices busi­ness in SA is re­ally un­re­lated to any­thing that we do and it also meets the twin ob­jec­tive of bring­ing cash in.

Aus­tralia is re­ally a com­mod­ity sort of driven en­tity, it hasn’t ma­tured at the rate that SA has in the sec­tor, and again it’s not a fire­sale. We’re try­ing to sell the en­tire en­tity, in ad­di­tion to Dare. If we don’t get the right mul­ti­ple we’ll truck on with it, and just run the busi­ness better, though it would be help­ful if, in ad­di­tion to Dare, we do get the whole of Aus­tralia off­loaded.

Then we’d have prac­ti­cally an ungeared balance sheet this time next year and that gives you great de­grees of free­dom; whether you do a share buy­back at this kind of price or sim­ply keep a lazy balance sheet for a bit, while we con­sol­i­date our po­si­tion in SA.

I have iden­ti­fied eight value driv­ers and I’m go­ing to man­age the hell out of those over the next 12 months

PR: Aus­tralia has been con­tribut­ing a third of the profit to date but I can’t see the growth prospects … it’s quite ster­ile and very com­mod­ity driven.

It seems coun­ter­in­tu­itive only un­til you re­ally look at the qual­ity of the earn­ings in Oz.

So you’d be happy to exit Aus­tralia and put all your eggs into frag­ile SA?

he past five years have been pretty aw­ful for staffing and train­ing group Ad­corp. Re­lent­lessly high un­em­ploy­ment in SA, a bad call on a ma­jor Aus­tralian deal and per­sis­tent man­age­ment tur­moil have com­bined to knock Ad­corp’s shares down 89% over the pe­riod. We asked newly in­stalled CEO Phil Roux, for­mer head of Pioneer Foods, what ex­actly needs fix­ing now.

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