Stellar interims from Santova

The company ‘has come into its own in the last year or so. We’ve made significant use of technology’: CEO Glen Gerber.

SIMON BROWN: I’m chatting now with Glen Gerber, Santova CEO. Results out late last week for the six months ending August. We saw revenue net interest income, up 32.9%, headline earnings up 120.6% and net asset value coming up at 18.6% at 465.8 [cents] , which is a little ahead of where the share is trading right now.

Glen, I appreciate the time this morning. A stellar set of numbers, and the best in certainly the decade-plus [that] I’ve been watching Santova, I suspect. How much is it picking up new clients versus being able to pass on price increases because of logistic challenges and the surges we’ve seen in container prices and the like?

GLEN GERBER: Thanks very much, Simon. Good morning. I think when one looks at the six months to a year, in fact going back during Covid times, the shipping market has been disrupted if you can call it that. Obviously everyone’s been in a squeeze in so far as pricing is concerned.

But I think if one looks at our results, there’s more to it than the operating margin as a business and the pricing in the markets. I just guess Santova has come into its own in the last year or so. We’ve made significant use of technology. To give an indication, we were 330 staff and we are probably 20 times bigger now in earnings, and we are [now] 250 staff. So it gives you an indication of the direction we’re heading – I guess, the emphasis on technology. So it takes a lot out of the operating cost structure.

SIMON BROWN: And that’s always been Santova, asset-light – in fact asset-zero. You don’t have trucks, you don’t have trains, planes, and ships and all the rest. You are very much technology, sort of helping a client get goods from A to B almost any way that they needed [them] moved.

GLEN GERBER: Remember, your landed cost is also driven by a lot of your work-flow processes, manual tasks and obviously staffing. Your cost structure is predominantly staffing. So if you can automate a significant part of the supply chain there’s a significant reduction in costs that gets passed through to a client.

But it’s not just technology. I guess the group from a leadership point of view has matured over the years, and certainly within the international fold having a presence in China and Asia has obviously assisted us in so far as the capacity constraints are concerned and pricing. I guess it’s enabled us to come with a lot of new clients .

If I look at the group, one of the questions one asks is: can this be repeated next year? It’s a tough question. But, as I said, we have been dealing, transacting in a very much extraordinary market. But with the disruption of the industry as such, it has opened a door for us to compete because of the non-asset-based technology and I guess the working capital we do have, because we’re not talking about disruption of the industry. There is a significant amount more working capital that’s required within the logistics sector. One doesn’t realise the impact of that on a business. And, if you haven’t evolved into technology platforms you going are to struggle from an operating margin point of view.

So our operating margin is sitting at about 30% and [the industry probably ranges] from between 7% and maybe 12%. So that’s obviously enabled us to generate the numbers you’re looking at. But it’s not just the pricing. The business itself seems to be in on a good footing, and it’s enabled us to put on a lot of significant clients. Even the calibre of the staff, the employment, the bar gets raised every year.

If I look at the staffing within the group worldwide today as opposed to staffing going back 10 years, it’s a very different profile individual, very much more of a consultative individual, which obviously engages with clients and drives a quantitative value-add.

SIMON BROWN: I remember the technology rollout. I think it was about four or five years ago, which is really coming into its own here. You mentioned China, you’ve got the Hong Kong hub, which has been really significant. In Europe as well – Rotterdam is benefiting from some increased sort of post-Brexit trade. I suppose when you get dealt some good cards it’s your ability to use them. You had nothing to do with Brexit, but you’re in Rotterdam and able to pick up some clients from that.

GLEN GERBER: We’ve been fortunate, and Hong Kong has been developed out of SA and out of obviously Europe itself. Hong Kong doesn’t develop itself. And we’ve also had some of these between the various 23 offices in the 10 countries, which you don’t typically get on setting up or on that position. You don’t necessarily prevail, but we are seeing them come through now where they’re working collectively as one. Obviously it’s working out of Hong Kong, which we refer to our control tower, and where [it’s used to give over capacity on a lot of the lines at source.

So it does give us an advantage, whereas I guess [as a South African] entity you are confined to buying within the South African borders. But if you’re a global business, you have those opportunities to source capacity, IP globally, depending where the shift is, where the opportunity lies. That flexibility obviously enables you, and that’s also come through in the numbers for the six months.

SIMON BROWN: A last question. Supply chains have been struggling. Supply chains has been one of the stories of the pandemic. Is there any site that you’ve seen [where] some sort of normality is returning, or is it remaining sort of gridlocked and complicated?

GLEN GERBER: Look, I think the shipping industry has struggled over the last 12 years, and I guess the time has come where everything is out of the bottom end of the cycle, and we now moving up. I guess the rates might start easing next year, but [I don’t believe it’ll ever] get back to the rates in the next few years that we’ve seen in the last 10 years. I guess the cycle has changed. The new pricing is now almost becoming a norm within the importers and exporters’ market.

So yeah, it’ll soften, but I don’t believe it’ll soften significantly. My guess is it might be a 20%, 30%.

SIMON BROWN: Okay. That is a telling statement – kind of this is going to be the new normal.

We’ll leave it there. Glen Gerber, Santova CEO. I appreciate the time this morning.

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