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Super Group starts revving

Oct 26 2017

With annual revenue of R30bn, a net profit of more than R1.3bn and a market cap of R14.6bn, Super Group ranks as one of SA’s most successful, internationally diversified multifaceted transport groups.

It is a far cry from the Super Group that Peter Mountford encountered when he stepped in as CEO in July 2009. Mountford, the former CEO of Imperial Group’s consumer logistics division, had assumed the daunting role of rescuing Super Group from what seemed like almost certain bankruptcy.

“Super Group was in very bad shape,” says Mountford. “It made a loss of R1.35bn in its year to June 2009.”

The company was being buried by debt — about R4bn of it in June 2009. What further reflected Super Group’s dire situation was that its net tangible asset value had sunk to a negative 58.6c/share, down from 260c just four years earlier, while its market cap had collapsed from R6.2bn in June 2007 to R349m in June 2009.

Super Group, founded by the flamboyant Larry Lipschitz in 1986, was at the time of its listing in 1996 highly successful as a supply chain logistics company. Mountford himself had served as MD of its logistics and transport division until joining Imperial in June 2002.

But Lipschitz hit the acquisition and diversification trail, and many serious blunders were made. On board came a hotchpotch of new business units, including hardware retail franchise group Mica; Powerstar, an assembler of Chinese trucks; specialist short-term insurer Emerald; automotive parts retailer and wholesaler AutoZone; and Super Group Industrial Products (SGIP), a material-handling equipment business. All the while the core supply-chain logistics business was being badly neglected.

The situation demanded urgent action to be taken. Mountford’s first move after his arrival at Super Group was to prop up the balance sheet through a R1bn rights issue executed in November 2009 at a giveaway price of 450c/share. The company now trades at around R40/share.

“The rights issue was not that significant in restoring Super Group to health,” says Mountford. “After the rights issue debt was still at four times equity. It was the sale of noncore businesses that was the most important factor in the company’s recovery.”

Mountford made quick work of the asset clean-up. Out went Emerald in October 2009, followed by Mica a month later. Powerstar and SGIP were terminated as business units in 2009 while AutoZone was sold in June 2010.

In their final year in the Super Group fold Mica chalked up a R237m trading loss, Emerald a R98m loss and SGIP and Powerstar a combined loss of R457m. AutoZone managed a token trading profit of R17.5m.

“Overheads in the business were also very high,” says Mountford. “We were able to take R50m in costs out of the supply chain division alone.”

Three years into Mountford’s tenure — the year to June 2012 — Super Group had zero net debt. Headline EPS came in 63% higher. It was time for Mountford to move Super Group off the back foot.

But he did not race into an acquisition spree. Only in December 2014 was the first big move made, with the acquisition of Allen Ford, the number two independent Ford dealer network in the UK.

Allen Ford was not Super Group’s first foray offshore. While Lipschitz, who bowed out as CEO in April 2009, stands accused of many blunders, he also made a number of astute moves.

The most significant of these came in 2004, when Super Group acquired Australian fleet management group Commonwealth Fleet Lease, which it later rebranded as SG Fleet.

SG Fleet received a boost in 2011 when members of its senior management and private equity firm Champ Ventures teamed up with Super Group to beef up its balance sheet.

This reduced Super group’s stake in SG Fleet to 70%, a level which fell to 52% following SG Fleet’s listing on the Australian securities exchange in March 2014. SG Fleet now has a market cap of A$1.07bn, which values Super Group’s stake at about R5.6bn. SG Fleet has proved to be an incredible asset for Super Group. “It has a fleet of 147,000 leased vehicles,” says Mountford.

It represents a year-on-year net increase of 37,000 vehicles. At the time of its acquisition by Super Group in 2004 its lease fleet stood at 30,000 vehicles.

Profit-wise, SG Fleet is also performing at a high level, upping its pre-tax profit by 21.8% in its year to June to A$90m, while its EPS was up 27%. The dividend rose 31%, bringing the increase over two years to 55%. In Super Group’s year to June it reported a R939m pre-tax profit from SG Fleet, which dwarfed the R129m pre-tax profit from Fleet Africa, its primarily SA fleet management operation.

Even after tax and minority interest deductions, SG Fleet is a major contributor to Super Group’s bottom line. In the latest year its net contribution of about R340m equated to about a third of net profit attributable to Super Group shareholders.

Through SG Fleet Super group is also expanding its own offshore reach. SG Fleet made its first move beyond Australasia in 2016 through the acquisition of UK-based Fleet Hire and Motiva. Their contribution to group revenue in the year to June was already almost 16% of the group total.

Super Group’s own offshore expansion drive received its second big boost in a €137m deal in October 2015, when in its first move into the eurozone it acquired a 75% stake in In Time — since renamed SG In Time. To help fund the deal Super Group turned to the market to raise R900m through a rights issue, which was five times oversubscribed.

SG In Time is a German-based logistics firm providing time-critical component logistics services primarily to vehicle manufacturers such as Volkswagen, BMW, Ford, Porsche and Man.

The acquisition marked an important change in direction for Super Group, away from owning a huge, capital-intensive truck fleet to one in which the application of intellectual property plays the key role. “Our focus today is on tech-driven supply chain solutions,” says Mountford.

Super Group’s next offshore supply chain move could well be into the UK. Mountford says: “We see an opportunity [there].”

Internationalisation of supply chain operations has become something of an imperative at a time when operations in Super Group’s home market are very challenging. “We have seen a big decline in the volume of consumer goods being transported,” says Mountford. The result is that revenue of the group’s Supply Chain Africa division has stagnated at around R8.3bn over the past three financial years, and pre-tax profit contribution has fallen from R457m to R414m.

For now Super Group’s expansion drive in the UK is focused on extending its motor dealership reach through its Allen Ford operation.

There have been two key recent moves in this direction. The first came in March, when Super Group snapped up Essex Auto Group for R407m. The move added five Ford, two Kia and two Fiat outlets.

Super Group struck again in July, when it acquired Slough Motor Company for an as yet to be disclosed sum. The deal added six Ford outlets, taking the total in the UK to 24.

“Allen Ford has been doubled in size by the deals,” says Super Group chief financial officer Colin Brown.

In an interview with UK-based publication Automotive Management Brown noted that on a full 12-month basis Allen Ford’s revenue would rise to £600m-£700m (R10.4bn-R12.1bn). This would be up from R6.84bn in the past financial year, when UK dealerships turned in a pre-tax profit of R117m.

The deals are also set to boost the already high level of importance of foreign profits even further. At the earnings before interest, tax, depreciation and amortisation level in the past year the contribution of offshore operations stood at 61% (R1.4bn) of group total.

Mountford himself has received well-deserved recognition for what he has achieved at Super Group. The high point came in 2016, when he bagged the EY Southern Africa world entrepreneur award in the master category.

Right now, having someone with Mountford’s capabilities at Super Group’s helm is more than a little comforting and makes it a share worth close consideration.

Source: Business Day