Labat is now currently well positioned for growth in new dispensations with major opportunities now available to BEE companies. We have embarked on a process of identifying companies for acquisition/partnerships that fit the business requirements of Labat in an effort to transform the market place through what we like to call “ Real Economic Transformation” (RET). We will doing this by using the existing Labat Listco as base to create a giant empowerment business with major new partners and shareholders.
Labat has determined that an attractive long-term commercial opportunity exists within the logistics and distribution sector in South Africa. According to a recent Standard Bank equity research report, the African continent requires capital expenditures of at least $800 billion per annum over the next ten years to develop its infrastructure. In order to take advantage of these opportunities,
Labat has already acquired Labat Logistics and is in the process of the acquisition of three additional logistics operators in South Africa to create operational scale. In South Africa, the new logistics and distribution group will benefit incrementally from Labat’s level 2 B-BBEE status. Given the dynamics of the industry, the quality of its management team, superior logistics experience, the strength of its relationships, and operational scale, Labat is positioned for success.
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 logistics 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. The convergence will create new opportunities for integrated logistics operators spanning both rail and road transport. Labat sees this convergence as an opportunity to consolidate several businesses to create significant operational scale and implement a diversified logistics strategy.
In support of this consolidation strategy, Labat Africa management have identified select logistics business acquisition targets and developed strategic partnerships and relationships. The strategic intent is to build an industrial logistics 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 2016 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 2 BEE credentials will add additional potential revenue and margin enhancement opportunities to the businesses post acquisition as these opportunities were not available previously.