Labat is an investment operating company, with a strong track record within South Africa. Labat is currently in the process of repositioning the business, with particular focus being on transport and logistics, including road, rail and associated electronic and engineering components. It aims to be a leading transport and logistics company operating in South Africa and sub-Saharan Africa.
Throughout its history, Labat has been in the business of acquiring businesses and growing them to a stage where they are mature enough to be sold off at a price that allows Labat to make a fair return on its investment. The following are selected past and current investments:
Acme/Dales furniture stores – Sold R60m
Labat Traffic Solutions – Listed R200m
Africard – Master/Visa card – Sold R40m
SAMES – Microchip Manufacture Currently owned
Through its subsidiary, South African Micro-Electronic Systems (Pty) Ltd (“SAMES”), Labat is engaged in the business of design and marketing of integrated circuits. The SAMES business was historically profitable and cash generating. The transfer of manufacturing operations to China which was undertaken between 2010 and 2012 as part of the process of managing costs and improving productivity and efficiency has been very successful. Significant expenditure has been allocated to Research and Development over the years, thus placing the company in a very strong position relative to any competitors or new entrants. Product development is proceeding well and the first new products are scheduled for completion in the second half of this calendar year, and management expect a significant increase in return over the coming years due to this unrealized IP and equity value. SAMES is therefore expected to return to its status as a significant revenue and profit contributor in the coming years, prior to any appropriate further corporate action regarding SAMES. The company has a R400m assessed loss which is a very valuable asset.
Labat has embarked on a platform build up growth strategy, as illustrated below:
It is the intention of the board to position the existing restructured SAMES business aggressively to realise value via trade sale or merger to improve scale and embark on further marketing initiatives now that significant value has been created. In addition, Labat will continue its ongoing acquisition search programme, particularly in the rail and road, and electronics industry sectors with a view to positioning Labat as a major industrial operator in the transport sector. Critical success factors for this vision include:
Select acquisitions and joint ventures in strategic and target countries in Africa
Organic growth extending volume and margin footprint with existing clients increasing capital spend in SA and in SSA
Development of multinational corporations as strategic partners as local partner of choice to access cross border business opportunities;
SAMES – Microchip Manufacture Currently owned
Access to management talent in targeted high growth sectors; and
Access to capital for working capital to fund growth.
The total land freight market in South Africa is estimated to be a minimum of about 734 million tons of cargo shipped based on available 2013 statistics. The total income derived from shipping this cargo amounted to R135 billion or 3.05% of the country’s GDP. Of the 734 million tons of cargo, 521 million tons were shipped by road and 213 million by rail, with the mining industry representing approximately 32% and the manufacturing sector approximately 13% of the cargo transported. According to BMI Research, forecasts for the South African freight transport sector are positive across all modes in 2015 – air, road, rail, and through the country’s ports. It was forecast that the economy will see a partial recovery from 2014’s anaemic growth of 1.4%, and a real expansion of 2.5% was forecast for 2015.
Various corridor initiatives are underway in SADC, some more advanced than others. Corridors serving developed cargo are the Trans Caprivi, Trans Kunene and Trans Kalahari Corridors, stretching inland from Walvis Bay and the Maputo corridor, linking respectively Angola/Namibia and Mozambique with South Africa. Corridors running south from Dar Es Salaam are earmarked as high growth corridors whilst Nacala, Beira, Mtwara, and Lobito corridors will become high growth corridors in the long term in response to the rapid development of mining activities in SADC. All these initiatives present growth opportunities that could spur growth for Labat and its proposed acquisition.
In light of the significant growth opportunities in the transport sector in general, Labat has identified a significant opportunity for consolidating some of the various remaining medium sized suppliers in this industry, through acquisitions, into a formidable integrated supplier, capable of taking on substantial projects and benefiting from the South African Government’s policy initiatives promoting the development of black industrialists.
Labat is of the view that as the South African Government’s industrial initiatives start to bear fruit in the future, market reliance on road based transport and logistics will evolve. It is anticipated that this will lead to development of a symbiotic model where freight (especially commodity type products) will predominantly be transported by rail to and from fixed (albeit growing) nodes, while the logistics beyond the reach of the nodes will be dealt with by way of road based transportation. However, for some products, road will remain the main form of transportation, especially where speed of delivery is of the essence. This convergence will create new opportunities for integrated logistics operators spanning both rail and road transport. Labat sees this convergence as an opportunity to merge RTG and rail investments into a larger, diversified logistics strategy. In this context the RTG investment will provide a cornerstone investment for the larger integrated logistics strategy.
In support of this industry consolidation strategy, Labat Africa management have identified select acquisition targets and developed strategic partnerships and relationships. The strategic intent is to build an industrial transportation group of significant operational scale that will take advantage of, and benefit from, the upsurge in expenditure for infrastructure in South Africa and the rest of Africa. Labat management plans to optimize these partnerships and relationships by undertaking a series of acquisitions and merging these relationships into the group. This, combined with its BEE profile, will position Labat as a preferred supplier to the South African Government’s transport and industrial infrastructure initiatives.
One important step in the South African market is the impact the changing BEE legislation in South Africa is going to have on the growth and further development of the industry amongst black industrialists. The announcement and implementation of the new BEE codes with effect from 1 May 2015 has created a significant opportunity for companies controlled by BEE shareholding, and Labat management attributes this development as a catalyst for its desire to accelerate the building of a well-funded transport and logistics group and portfolio of investments. Current logistics service providers have no option but to adjust their structures and service offerings in line with the new codes. This will result in major industrial entities having to undergo huge structural adjustment if they wish to continue to be competitive in South African market.
Furthermore Labat’s level 1 BEE credentials will add additional potential revenue and margin enhancement opportunities to the RTG business post acquisition as these opportunities were not available previously. Already RTG and Labat have jointly targeted substantial new contracts which require leveraging this essential BEE input.