Upper Echelon: Justin Williamson - CEO, Foodcorp
HILTON TARRANT: Upper Echelon is brought to you by Deloitte – for innovative thinking and thorough strategic planning turn to Deloitte. Out guest in Upper Echelon this week is Justin Williamson, chief executive of Foodcorp, the third largest food company in South Africa and, Justin, one that most people don’t know too much about.
JUSTIN WILLIAMSON: Ja, Hilton, we’ve been private for many years now, we used to be part of the Malbak Group until it was delisted in 1998 when Ethos primarily drove a private equity transaction and since then it’s really been in private equity hands. So apart from some of our brands being visible to some of our consumers, the corporate brand has been relatively quiet and we have not made great attempts over those years to promote it because we felt promoting our brands was where our money would be better spent.
HILTON TARRANT: Just looking at some of those brands that many South Africans would be very familiar with Yum Yum Peanut Butter, Nola Mayonnaise, Bobtail, Pieman’s Pies, it’s hard to eat a garage pie these days without it being a Pieman’s Pie.
JUSTIN WILLIAMSON: Ja, we sell a lot of pies, we produce over 500 000 pies a day and if you think we have round about a third of the market that means South Africa eats 1.5m pies a day, a statistic not many people would find easy to believe. We’re big players in the pet food market as well, we’re the largest producer of pet food in South Africa, way bigger than any of the other internationals and our Ouma Rusks are obviously legendary and have been around for about 70 or 80 years. The other sectors we have pretty dominant market shares in most of the products we produce and the space in which we play.
HILTON TARRANT: You also distribute Weber products in the country.
JUSTIN WILLIAMSON: Ja that came about through the acquisition of the First Lifestyle Group, they used to at one point in time have quite a leisure part of their business and they had still retained the Weber agency when we acquired them and we have continued with that. Obviously it’s an iconic brand, it’s an international brand, the product is simply…there’s nothing that comes close to the quality of the product and we thoroughly enjoy having such a quality brand in our brand portfolio.
HILTON TARRANT: Beyond the kind of food products, and obviously Weber, you’re also involved in prepared foods, a large supplier there of prepared foods to Woolies.
JUSTIN WILLIAMSON: Ja, we’re the largest supplier in South Africa of prepared foods to Woolworths. We do an enormous amount of individual skews with them, we supply close to R1bn worth of food a year to Woolies. In the sandwich category, baking category, cakes, we do all their dairy desserts nationally, muffins, a variety of different things. It’s been a very good relationship, Woolworths is a wonderful customer and we have an extremely good relationship with them and they continue to perform extremely well despite the tough economic conditions. I think the LSM 9 and 10, which is their target market, have been less affected by the many crises that are going on in the world and in our country today.
HILTON TARRANT: Justin, speaking of crises, a couple of weeks ago the big horse meat scandal in Britain, here in South Africa evidence of some donkey meat found in certain meat products. Being chief executive of a food company that prepares a lot of food, waking up to that kind of news I’m guessing is not great?
JUSTIN WILLIAMSON: No, it’s absolutely shocking. I find it hard to believe that these reputable companies in Europe, reputable names, have been sucked into this. We have instituted a variety of tests on all our products, as is every other manufacturer in South Africa that uses meat products, consequently there’s quite a queue of people joining the queue at these different laboratories to do the appropriate testing. We have already in conjunction with Woolworths completed all the Woolworths analyses and it’s absolutely perfect there. Fortunately in most of our businesses we use full muscle cuts and obviously you can identify the muscle cut. It’s when you get into minced products that there’s more risk that something else has been added to it. However, I think South Africa also isn’t big on alternative forms of protein other than beef, lamb and chicken, and obviously pigs. So there’s not a high donkey population or there’s not a high horse population and it’s not common practice in South Africa for those types of animals to be culled for human consumption at all, as opposed to in Europe there seems to be a reasonable prevalence of that taking place and I think that’s how they’ve got mixed up into the other categories.
HILTON TARRANT: Justin, how has trading been in the market? You spoke earlier about the resilience of those LSM 9 and 10 consumers with regard to specifically Woolworths, broadly we obviously see numbers from Tiger and from Pioneer as they report to the market, things looking quite tough out there.
JUSTIN WILLIAMSON: It’s extremely tough, make no mistake, we had a very good run until the end of December and January and February has been markedly more difficult to trade in. I think the consumer simply has no money at the moment and I think we are very reflective of what the real average South African is about because we supply products from LSM 1 right through to LSM 9 and 10 and there has been a noticeable lack of funds available. I think it was supported by the fact that I saw unsecured loans were down last month and I think people had been living on borrowed money more and more, right down to milling, the SAGIS milling numbers in South Africa for wheat last month were 12% lower than a year ago. Now, wheat is such a basic product, primarily obviously to produce flour and going primarily into bread, so if people aren’t buying bread then you know that we have a problem. We’ve also seen, for example, in the bread game that people are moving to a 600 gram loaf from a 700 gram loaf simply because of the price point being where it is makes it unaffordable. It’s a very, very challenging thing for us as manufacturers, it’s not that the manufacturers are making a great deal of money out of bread it’s simply the price of wheat that has gone through the roof, coupled with enormous fuel prices, fuel and wheat are the two biggest costs when you produce a loaf of bread. If you consider the logistics involved in getting bread out to various suppliers, you’re driving between ten a 15 ton trucks all over the country every day, consuming inordinate amounts of fuel and that is really affecting the whole bread market dramatically.
HILTON TARRANT: Late last year the announcement of a deal by Rainbow Chicken to buy 76% of your business, a R1bn-plus deal, and ultimately Remgro being the controlling shareholder of Rainbow Chicken will be a majority shareholder in Foodcorp. They’ve had their eye on your business for quite some time.
JUSTIN WILLIAMSON: Ja, when Pamodzi looked at exiting the business a couple of years ago they had a look in and they felt – as I understand it, I can’t speak for them – but was they felt with the uncertainty in the world at that point in time they should just batten down the hatches and wait to see what happens. That being the case, when our British shareholder, called BlueBay, who owns 45% of the company, wished to exit the business recently, late last year, they showed an interest again and as the management team of Foodcorp we are absolutely delighted with the transaction that’s taken place with Rainbow, with Remgro as their primary shareholder.
HILTON TARRANT: Presumably some big plans and a number of synergies, given that Rainbow is involved in the food business already?
JUSTIN WILLIAMSON: Yes and no, we don’t know what they are fully yet. We have been cognizant of the fact that the Competition Commission has not given approval yet, we don’t believe there are any obstacles to it. However, it is a large merger notification and that does take time. Secondly, we lodged only in late November and with the Christmas period coming on immediately following the lodging they are currently working on it right now, we’ve had a few meetings with Comp Com and at this point in time we do not foresee any challenges. So I think once that’s behind us we’ll be happy to engage in more detailed discussions but I think it would be inappropriate to do so beforehand.
HILTON TARRANT: Just in terms of the transaction, employees also benefitting, there is an employee empowerment trust, which owns 22.5% of the business, and they would exit in this deal?
JUSTIN WILLIAMSON: Yes, it’s one thing having empowerment shareholders, which give you a lot of credence and legitimacy, however, I think people want to own shares to ultimately make money out of them. That’s a bit of a dichotomy because suddenly you pay your staff out for their shares and then you don’t have black shareholders and then you’re seen in a different light. However, the good news is I have 5000 fulltime staff, 5129 to be exact, and they will be sharing in approximately R337m. I’ve got guys who drive forklifts who’ll be getting R250 000 to R300 000. I’ve got guys doing very menial work who’ll be getting in excess of R50 000 or R60 000. I just think it’s the most fantastic illustration of what empowerment can be. I’ve always been a proponent of empowering your staff rather than external investors because they’re the people who make the products and should stand to gain the most from their efforts and in this case that’s been done. It’s a wonderful deal I think, absolutely fantastic.
HILTON TARRANT: Just looking back a couple of years, you did consider coming back to the market in 2008, obviously the timing was horrendously wrong there. I’m guessing that led you to close up the files and put them away?
JUSTIN WILLIAMSON: Look, I think for us, certainly for me, my personal view was the last option would always be an IPO again for Foodcorp, I felt there were better options elsewhere. We anticipated either an international private equity fund becoming a future shareholder in Foodcorp or alternatively a trade buyer from within the South African environment. So that’s why we find our new home with Rainbow and Remgro absolutely wonderful because it represents a South African as opposed to an international investor. An advantage of the deal is that Foodcorp is now fully South African owned again, which I think is a plus and we’re with an iconic investor in the form of Remgro.
HILTON TARRANT: Just to look back at your career, a decade ago you were acting chief executive at ACSA and before that chief financial officer of ACSA. A chartered accountant by training, looking at that career, that part of your career at the Airports Company of South Africa it must be amazing to see the progress made from the early ‘90s when ACSA was turned into a private company, when the airports were pretty much inherited by ACSA, to today where we have some of the most beautiful airports in the world.?
JUSTIN WILLIAMSON: Ja, my time at ACSA I absolutely loved, it’s got a real heartbeat that whole aeronautical industry, far more so than the FMCG industry and probably all my FMCG colleagues will whinge about me saying that but the Airports Company was enormous fun. Dirk Ackerman was the CEO for most of my tenure and then he left and I took over from him for a short while as the acting CEO. But we really…we were involved in the privatisation process, we went through the whole sale process to Aeroporti di Roma, which subsequently government bought their shares back. We got involved in really rejigging the entire financial model to bring in more retail and property revenues and I think we were quite successful in that. Probably some of the most fun years of my life was working for ACSA. Worked very, very hard there, it’s probably the hardest we’ve ever worked and I think we delivered some nice stuff. It’s beautiful what the team, Monhla Hlahla, who took over, has done, I know she’s recently left the business but during her tenure the advancement on all the facilities and terminals and La Mercy for example is just fantastic. Very proud of it, ja.
HILTON TARRANT: Justin, aside from work, outside work, a keen mountain climber, you’ve climbed five fairly significant mountains, four of the seven summits, still Everest to go?
JUSTIN WILLIAMSON: No, no, no, let’s not get carried away here. Everest is for the real die-hards, I do this because I enjoy it. My next one will probably be McKinley in Alaska but I just love being out there, I find it brings a balance to my life. It’s quite hard out there, it’s tough, it’s cold, you carry your own stuff around and it’s a very different environment to my average daily life in Johannesburg. So for me it’s a form of release and an enormous sense of enjoyment out there.
HILTON TARRANT: Justin, what keeps you awake at night, if anything?
JUSTIN WILLIAMSON: Well, I suppose quite a few, I’m not a good sleeper. Ja, I think where we sit at the moment I think South Africa is in a fairly tenuous position at the moment, I think it’s a time for strong leadership from government to be shown and I think that would bring about more confidence. I don’t think business is confident at the moment across all spheres and I think with some strong leadership this country has such potential that it’s not really being released at the moment, I don’t see it in that way. There’s not a lot that needs to be done, simple things need to be done well and if we are able to achieve some of those things through, as I say, it cannot happen without strong leadership and we should be bold and we should be brave rather than trying to take the middle ground most of the time. So I do worry about jobs in this country, I worry about our economy, I worry about our exchange rate. Those who propose a weak rand I think are completely misled. My view is we should have a strong rand, a strong rand benefits the poor instantly, a weak rand may benefit manufacturers in the long term but at the expense of the poor. Every time the rand depreciates the price of bread goes up and I can’t see the logic in that. There are too many people who aren’t being accommodated. I said to somebody the other day we should have a minister of the unemployed, in my view, in this country because that’s a bigger constituency almost now than the minister of the employed, the Minister of Labour. But it’s not insurmountable problems at all but I think that’s probably what keeps me awake more than anything is just the precarious nature of where we are as a nation at the moment.
HILTON TARRANT: Final question and I ask all our guests in the Upper Echelon this question, what motivates you?
JUSTIN WILLIAMSON: Not money that’s for sure. I think trying to do things well, I’m a bit of a perfectionist, I love my team, I work strongly for my team, I see myself as my role is to make them successful and I think that’s probably really it. I like to do things well, I like to do things properly, I always try to make sure I understand the difference between good and bad, and right and wrong. I always try and do what’s right and not what’s good. That costs you every now and again but in the long run you’ll sleep far better with that.
HILTON TARRANT: Justin Williamson is chief executive of Foodcorp. Upper Echelon was brought to you by Deloitte – for innovative thinking and thorough strategic planning turn to Deloitte.
And the term ‘golden years’ banned.