OPI: I guess most people know about Waltons, but for those that don’t from our readership, just take me through everything that Waltons does.
JF: Nowadays we’re mainly a commercial contract stationer dealing on a B2B basis, delivering to all businesses, from small firms right up to the large corporate ones. We supply general stationery, we’ve got a scholastic division, computer consumables, office furniture; we’re into office automation and also promotional gifts and a sprinkling of jan/san.
OPI: So it’s just about everything.
JF: Yes. Promotional gifts and office automation are pretty new and we do have two other companies within our stable in a publishing capacity. One is called South African Diaries – which is a diary publisher and sells diaries to the general trade as well as to ourselves. So it’s a publisher of diaries and it’s not just commercial diaries, but quite a range of diaries these days with all the different types.
Then there’s another company called Hortors which I think is most probably one of the oldest names in stationery in South Africa, but nowadays it’s purely a legal stationer. It does all the stuff for the legal fraternity. It’s even gone into the e-diaries on the legal side. A lot of legal forms are electronic-based now, so Hortors does maintenance with the attorneys and updating.
We’ve got a network of 88 branches covering the main cities and the outlying areas all over South Africa. So we deliver to almost everywhere in the country. We’ve got three different models. We’ve got a distribution model in some of the big centres which only does purely commercial distribution. We have a couple of standalone retail stores. And then our main model, which we call a combo-store, which is a combination of a retail front and a distribution engine room at the back-end delivering to the end-user.
OPI: I’d hate to think you did leave anything out, because there is certainly quite a lot. What are Waltons’ annual revenues? Can you tell me a bit about where they stand at the moment?
JF: Obviously with Waltons’ annual revenue, we’re not allowed to report that because we report as part of Bidoffice. This incorporates the Konica Minolta South African agents and Kolok, which is the importer of Hewlett-Packard products and various consumables and supplier to the markets here. There’s also a continuous printing operation and a lot of office furniture – there’s a chair factory, there’s a desk factory, there’s a retail component. Cecil Nurse, as it’s called, is probably the biggest office furniture supplier in South Africa. I think we would be second to it as far as office furniture goes. So that all sits in Bidoffice.
For the year end June 2005, the Bidoffice revenue was R5.3 billion. The trading income part of that was R440 million.
OPI: Is there an approximate size at the moment of the OP market in South Africa?
JF: There are no readily available figures. If I had to include furniture, stationery, paper, computer consumables and all those things that are part of Bidoffice, maybe I’d have a guestimate of R11 billion ($1.63 billion) to R12 billion or something like that.
OPI: How is business growing – if it is growing?
JF: On the commercial side it’s pretty difficult. From our point of view we’ve got to put up with black economic empowerment and a lot of those issues which hamstring us a bit as far as doing business with government and those sorts of places is concerned.
From a revenue point of view, over the last few years, the Rand has been a problem – if I go back to November 2002, the rand to the dollar was R10.60. This year in November, it’s R6.50. So, prices of computer consumables and a lot of imported sundry stationery lines have reduced considerably because obviously prices have been pushed down in the market. Everybody’s cutting prices against each other.
So revenues have been driven down, although units are up some 15 per cent to 25 per cent in some categories. I’d say our revenues have most probably only grown about 6 per cent year-on-year.
OPI: How is the office furniture market in South Africa?
JF: It’s a pretty mature market with a range of manufacturers producing goods that are modern and up to date with the latest trends. There have always been office furniture specialists and the stationers have just dabbled in it, but it’s not huge. You’re talking about the largest company most probably being a R400 million-a-year player. We’ve furniture specialised more in the last few years so it’s grown for us and become quite a large part of our business.
OPI: What is the size of Waltons’ retail operation?
JF: Maybe about 12 per cent to 15 per cent. But what happens on the retail front, you’ve got to understand, is that there are only about 8 million individual tax payers in South Africa out of the population of 48 million. I’m talking about the man in the street with a disposable income.
You may remember we took over a big company – Office Mart – a few years ago, which was modelled on the American superstore system, and there was no way that we could have those size stores. It just doesn’t work for us.
So what happens is that quite a bit of stationery product is sold through your general supermarket chains like Tesco’s and those sort of guys. We’ve got a few of those chain stores here and they cater for quite a bit of the retail market in a way.
OPI: So those mass market retailers are selling a lot of your products.
JF: They’ve been involved in stationery for quite a while and they’re doing quite nicely.
OPI: That seems to be the case all over the world at the moment. It’s that one-stop-shop thing, isn’t it?
JF: Yes, but it’s been like that for quite a while, also because we’ve got a chain store called Makro. They started a Makro Office a few years ago which was an independent office supplies company. I can’t remember whether it was six or eight or ten years ago. It didn’t work. It was closed eventually and Makro just incorporated it into its mass stores. So that’s what I’m saying, it’s not really a standalone. That’s why it’s only a small part of our business really, we couldn’t rely on that.
OPI: Is there any sort of independent dealer channel in South Africa?
JF: There is. There are a lot. I think it’s supposed to have doubled in size over the last few years. I’d say there are most probably 3,000 independents here.
OPI: So independent dealers are growing in South Africa.
JF: Yes, but that could be anything from cell phone car boot operators, to small stationers, to medium-sized stationers. We would be the power channel as you guys would call it. So the largest of the medium-sized businesses, I would say, would most probably be a company that’s doing maybe R4 million to R5 million a month turnover. That would be pretty large.
The industry is very fragmented here. It’s very different. In world markets you’ll get a manufacturer sell to a wholesaler, it’ll go to a dealer into the end-user.
Here it’s very unstructured. You’ll find at times manufacturers selling direct to the end-user. You’ll find a stationer, no matter what size, can source from a manufacturer. Car boot operators that only operate out of their car with a cell phone, they get orders, they go to a wholesaler or a manufacturer, pick it up and sell it on. So that’s really the mix you get here.
OPI: I’m going to move on to acquisitions. Are you exercising an acquisition strategy?
JF: It’s a bit of a difficult one here because in the stationery industry itself there are a lot of very small players. For us to buy small players, there would be no impact on our business.
OPI: So you’re looking at more vertical markets?
JF: Yes, more vertical. We’ve bought a promotional gifts company and we’re now looking at a rather large company to acquire and grow that new area of our business, called Waltons Promotional Gifts.
OPI: Has this unit been performing as well as you would have hoped?
JF: Well, the first year wasn’t too good, but obviously we were establishing it and now it has started being profitable. But we obviously haven’t used it in our whole Waltons infrastructure as yet because it’s only small. That’s why we need a bigger player that can handle our infrastructure. So we are looking to go big in that sort of area of the business.
OPI: Other types of companies you might look to acquire – jan/san maybe?
JF: Yes, you know the world trend today, a lot of it is jan/san and we would like that kind of company. However, there is a bit of a problem within the Bidvest group, in terms of acquiring a jan/san company, as Bidvest itself has some of the biggest janitorial suppliers and there are canteen and coffee type operators within the group. So there are jan/san type companies already, it’s a bit of a conflict for us. Although we’re slowly getting into it, I don’t think it would be a situation where we would acquire companies in that respect. We may try and acquire a bit of expertise to help us grow it.
OPI: So you might tap into the knowledge that’s already in Bidvest?
JF: Yes, and at the moment we’ve tied up some supply agreements with some of the companies within the Bidvest group to get us going on the jan/san and coffee front.
OPI: Would you say that you’re principally focused on organic growth, and acquisitions are a strategy just to complement that?
JF: Yes, I’d say organic growth is what we’re really looking at most of the time. There are not a lot of acquisitions. We just acquired a medium-sized stationer in the Johannesburg area. When I say "medium-sized", that’s the type of size you get here, about a R3 million-a-month operator.
What we did there was, we didn’t bring it into Waltons, we’ve taken a 60 per cent black empowered partner, so that we have a company that’s black-owned as a partner because that’s quite a big issue here today.
OPI: The issue of the black economic empowerment programme seems to be similar to the quota system that exists in cricket?
JF: Yes. It’s black ownership, there are various other programmes – black equity employment and others. We’ve got to get to certain figure that the government dictates, almost like a quota. Yes, we’ve got to get the figures according to the demographics.
OPI: I suppose the thing that becomes problematic for someone like yourself is that, if you have to meet the quotas, you have a scenario in your business – shall we call it the Kevin Pietersen scenario? – whereby you end up losing someone that maybe you would want to have in your team, but you can’t fit him/her into the quota system?
JF: Yes. Obviously our managerial and our higher levels have got to have a bigger representation of black people. That’s why we’ve got quotas to strive towards. We’ve got our target figures to meet year-on-year, and we have to get better and better in what we’re doing. So it’s quite prescriptive.
OPI: How do businesses view this system. Do they say "this is absolutely right and the quota figure that is set is absolutely right" and everyone’s fully behind it, or is there a little bit of frustration with it among South African businesses?
JF: I think there is frustration, but it’s a fact of life, so I think we all support what’s got to happen, and I think it’s a process and it will most probably be there for a period of time. Once things settle down and there’s a bit more equality with the people and the races, everything will most probably get back to normal. I think it is necessary because obviously if government didn’t do anything about it, nobody would do anything about it.
We are also putting money into skills development and social upliftment, as these are areas which give you points on what they call the broad-based empowerment score card that we have to adhere to and are rated by.
OPI: That’s pretty interesting. I guess this issue is one of the key areas that make the South African market unique.
JF: That is a big issue here and it’s becoming bigger. There are more charters like mining charters, financial charters. The mining business has to be 25 per cent black-owned within so many years. The financial businesses have a similar goal. So there are a lot of those things in place as well. That’s a topic on its own to be quite honest.
OPI: It certainly sounds it. Just stepping back a little bit, what countries are you in, apart from South Africa?
JF: We were in Namibia before Namibia gained its independence from South Africa, we had a small operation there. But we’ve actually expanded that. We’ve got a 10-branch operation in Namibia stretching from north to south, west to east – right across the whole country.
But Namibia is a very sparse country. You can drive hundreds of kilometres from one town before you see the next one, or anything besides open land and bush. Believe it or not, the total population of Namibia is only about 1.8 million. So it’s not huge, but it’s a nice market for us.
The Namibian market is very dependent on South Africa anyhow because it doesn’t have much in the way of manufacturing capabilities and that sort of thing, so it relies a lot on supplies from South Africa.
OPI: Would you anticipate moving into any other neighbouring countries?
JF: We have opened an operation in Mozambique, a joint venture with a local company there. It’s about six months ago now – it’s really new. I went to Angola and had a look, but we decided it was a bit premature to get involved there.
At the moment I’m talking to people from Malawi and Zambia, so yes, we are looking, but it’s not an area where we would go and just set up 100 per cent ourselves. We’re obviously doing them as joint ventures with local businesses that are there. It’s a bit difficult going on your own in Africa.
OPI: I guess you get bored of hearing this question, but I’ll ask it again. People always think about South Africa having massive crime problems. Is it getting better? Is the crime factor overplayed?
JF: Crime is still high and it’s because of the high unemployment. There’s a lot of unemployment here which is not so good.
There are a lot of illegal immigrants coming across the borders from neighbouring countries looking for better things to do.
So yes, it is quite an issue. Even a company like Kolok, if it’s got a huge shipment that’s really valuable, it would get an armed escort to bring it to our warehouse because it has its trucks hijacked for stock. Paper and consumables seem to be a commodity that can be sold quite quickly. It’s in demand.
OPI: And I guess this sort of crime costs you money in terms of preventative measures?
JF: Yes. One of the big expenses in South Africa, which I do not find when I go to visit other stationers in different parts of the world, is that a large proportion of our expenses is security, a cost some of the other countries don’t have. It’s another problem that is particularly to do with the South African market.
OPI: You’ve been with Waltons prior to Bidvest taking it on and obviously afterwards. What’s the major difference?
JF: Bidvest is the holding company and the companies within the group are pretty autonomous. Bidvest gives you autonomy. It’s the Big Daddy that puts a lot of things in place and it’s nice to have that kind of muscle on your side. They negotiate a lot of things for us that we can tap into and benefit from.
I think a couple of the big things it’s taught us since we’ve joined Bidvest is that in the old days you would just sell goods, make some profit, have an operating profit and say "we’re doing well". I remember the first meeting I had with the CEO of Bidvest, Brian Joffe, and I said to him, "we’re making operating profit" and he said, "well, I’ve seen a lot of companies with a good bottom line but they make no money". I thought, "well, that’s interesting."
It’s taught us a lot about cash generation, which is important. I think good asset management is among the lessons Bidvest has taught us. We were only traders before we got involved in a proper corporate company structure.
OPI: So you would say you’re slightly more sophisticated?
JF: Yes, now our asset management is good, we’ve got to report properly. We’ve got internal audits. Our cash generation is now good. It’s all about generating cash. Bidvest has got a key ratio called ROFE – return on funds employed. This ratio measures the percentage return on your net funds employed. I think it’s also developed a lot of the entrepreneurial spirit and helped the guys to become more rounded businesspeople. So I think it’s definitely been a very big plus for us from that aspect.
OPI: So after 30 years at Waltons, what do you like about the OP industry in South Africa?
JF: Well, I don’t know. I suppose it’s something that I’ve been in for 30 years and it grows on you. What else can I say? Especially with Waltons, I think it’s got a unique culture in the industry. There are a lot of loyal people. All our guys have been together a hell of a long time. There’s not a big turnover of staff. Guys have been here 15, 20, 25 years.
OPI: So it’s quite an experienced group and it’s a fairly stable group.
JF: Yes, very much so. There’s a lot of knowledge, a lot of expertise. That makes it exciting. In the market there are a lot of changes taking place – especially with these additional ranges of products that we are bringing on board as office products.
What’s also exciting is that we’re not just retailers, we’re actually traders in that most deals are subject to negotiation, so you spend your day trading as opposed to just taking an order and selling it on. I think that’s where a lot of excitement comes into this sort of game.
OPI: Plenty to contend with.
JF: Yes. It’s fun. That’s what makes it interesting. Never a dull moment, I promise you.
