BUSINESS DAY TV: IFC due diligence ‘means showing them your underpants’ – bdlive.co.zaBy BUSINESS DAY LIVE | June 13, 2017
Stefan Rabe is the CEO of Bounty Brands.
BUSINESS DAY TV:The IFC (International Finance Corporation) has put its weight behind Bounty Brands in the form of a $22m investment, and that’s to assist the consumer goods company in the execution of its growth strategy, as well as its planned listings in Johannesburg and London.
Bounty Brands CEO Stefan Rabe joins us now in the News Leader studio.
Stefan… $22m investment from the World Bank’s IFC, that’s what we’re looking at, it’s to help you execute your growth strategy. What is your strategy right now?
STEFAN RABE:We’ve been around for about three years. Our strategy has been pretty consistent. We invest in market-leading brands in specific sectors — food is big for us, home and personal care, and we look at buying businesses with strong brands both in SA and Poland and build platforms around these. So, in essence, put businesses together, extract some value, help the brands grow and ultimately find a way to get these brands become bigger and better than they already are.
BDTV:That’s a tough feat in the current economic climate, especially if you’re looking at a consumer-facing company within the South African context. How nervous does the current climate make you and how much of a dent do you see it putting to your growth targets?
STEFAN RABE:It depends on what business you’re asking me about. The nice thing about Bounty Brands is that we’re quite diversified. So what’s happening in SA is not necessarily happening in central eastern Europe — in some of our brands we’re seeing an uptick in volumes, some of our personal-care brands that featured lower down in the value chain are seeing a growth in volumes. Some of our home-care brands like the Tuffy brand is doing exceptionally well. The fact that it is recyclable, made from recycled materials resonates not only with the retailer but also with the consumer. So we’re seeing volume growth there.
If you ask me about some of the brands that are possibly not as strong, there we’re seeing the consumer voting for what they know better and steering clear of the more expensive brands. So there is a mixed bag but we’re generally steering towards a 10% revenue growth and that comes with some volume as well.
BDTV:And you do, of course, highlight how your product offering brings you diversification and some cushion against a very volatile and very depressed economic climate right now. What about that geographic diversification? Does exposure to central eastern European territories therefore become even more of an imperative?
STEFAN RABE:Absolutely. We started with an SA-Africa strategy. That’s how Bounty Brands was conceived, the traditional gateway into Africa kind of debate. And we found that as the growth in Africa and SA was falling away, we were looking at other markets where we could find that and certainly central eastern Europe, and, when I say central eastern Europe, I mean EU part of central eastern Europe, is seeing strong growth rates of 2%-3.5%, very educated, very driven people. So we’re seeing a great opportunity there and also as international investors not just African investors we should be able to make investments where we see the value. And we absolutely see the value in central eastern Europe.
BDTV:And you’ve just seen acquisitions being made in that territory, so talk us through what these latest acquisitions now bring to your stable.
STEFAN RABE:We are in the final stages of signing agreements and will probably pay away by the end of this month, June. In Poland, we found a business that’s very similar to Tuffy’s so it does make products from recycled materials and it makes black bags and other things. So we’ve been consistent in the view that what we have here in Tuffy’s is a fantastic business with a great IP (intellectual property) and we’re looking to leverage that elsewhere.
Some of the funds that we’ll be getting we’re looking at deploying over there and then we’re also adding a gluten-free business to our already relatively strong, better-for-you food platform. We obviously want to grow, we’re a fast-growing business so we have to find a space in which to grow and the healthier better-for-you food space is quite a nice one. Again its fast-growing, its topical, the big guys battle to get into it because they have to then make an excuse on what they’ve already been selling. So for us gluten-free, our rice cakes, these are all things that work for us and help us grow.
BDTV:And that is some of what IFC’s investment is going towards. Capital aside though, does that IFC investment bring with it added leverage? Because you talk about hands-on support coming from that end. How hands-on is hands-on?
STEFAN RABE:We had a dinner last night and I used the phrase, "when the IFC does its due diligence, you have to show them your underpants"…
BDTV:… so pretty hands-on!
STEFAN RABE:Not literally, obviously, but the IFC is an extremely powerful entity, they have specialists in every field, so they sent to us their consumer specialist, their environmental health and safety specialist, their corporate governance specialist, their financial team. So we sent them across our businesses into our own teams as well and they did a very thorough exercise on us. And for us, we see it as a vote of confidence, ahead of our listing as a reference investor, that we have people looking to invest, they have someone they can look at and say these guys have done the hard yards.
BDTV:You talk about that listing, a listing on both the JSE and LSE (London Stock Exchange), talk us through the rationale, why you’re going the double route.
STEFAN RABE:We’ve always wanted to list overseas as well since it helps us to have some international currency when we do acquisitions. Obviously the rand is relatively volatile and the average European seller of their assets doesn’t look that kindly on being offered a rand-based share or rand-based guarantees, so it helps us to earn some foreign currency. The LSE is still where emerging-market money is largely kept. So if you wanted to find investors or buyers of our shares, London is pretty much where it’s at.
Initially we were quite ambitious and we wanted to look at a primary listing in London, and we’ve done a few preliminary roadshows and we felt that the demand here, because of our exposure to foreign earnings, is significantly higher. We have a much better investment story for the average investor here than we have in London. So we are now increasingly looking at a primary listing on the JSE with a secondary listing on the London AIM.
BDTV:We’ll watch out for that…
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