Zeder looking to rebalance portfolio, says CEO

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Business Day TV: Zeder has reported a 13% rise in a sum of the parts value for the half year ended August, to R10.37 a share that helped give its stock a bit of a kicker today. Its biggest investment is still Pioneer Foods at 71.7% of its portfolio. Joining me now on the line is Norman Celliers, Zeder's CEO.

Norman... is it correct then to say that the increase in the sum of the parts value that you've experienced over the first half is largely due to your investment in Pioneer Foods?

Norman Celliers: That's partially true. There's no doubt that with 71%, 72% of our portfolio, anything that happens in Pioneer will affect us and it's been a fantastic run for Pioneer. The company is doing very well and margins are improving and they've reported wonderful results. So yes, it has led to the increase. On an aggregate basis what's also raised our position is our increased acquisition of 25% share in Capespan, roughly about R500m that we've added. And then most of our portfolio companies have delivered satisfactory results, so definitely Pioneer explains the bulk of it, but everyone made a contribution.

BDTV: Okay... they're satisfactory and this will lead me to the increase in your management fee which was up 219% over the period, so it's gone from R37m to R118m. I know Pioneer has been a great investment, Capespan is obviously a good deal for you, but how can you possibly justify that increase in the management fee?

NC: Firstly, maybe just note it's from R37m to R81m of the comparable period...R118m was last year's full-year figure. But it is a substantial increase, you're 100% right. The market expected this... this was based on the new management fee agreement that came into play about two years ago and with the acquisition of the Agri Voedsel transaction last year and the increase in our market cap, it was largely expected.

You must just understand that the new management fee arrangement is a performance-based fee structure, so if the share price does well and the market cap increases, then the shareholders benefit and the fees are also higher. So it's a bit of a double-edged sword... performance leading to large fees. It's been a good year for Zeder, therefore the fees are very high.

BDTV: Yes, but having said that and apologies for getting that wrong, I was looking at the wrong side of the column there... having said that, Zeder's own share price is down 1.5% for the year so for the period of your results, Zeder itself hasn't actually done very well.

NC: Yes, but you must remember that the fees you're looking at are on a comparable period. So the first six months of the previous year we had not done the Agri Voedsel transaction so in absolute terms the fee still had to be adjusted from a comparable period point of view. You're 100% right that our share price has been down this period and I don't know, it will probably be a market perception of the fees or maybe it's the market at large.

Our underlying companies are doing well, and you also have to remember that when Zeder listed way back in 2006 it was listed with a management fee arrangement attached to the entity and that is what it is. We try and perform and the better we do the higher the fees unfortunately.

BDTV: Okay, so let's talk about some of the other divisions apart from Capespan and Pioneer Foods. Kaap Agri, the HEPS were up 6% there, Zaad, the HEPS were flat and Agrivision is making a loss of R50m for the period under review. At what point do we start seeing better than inflation performances from these companies and also even break even from Agrivision?

NC: Yes, let me just start... all three companies that you refer to are agricultural companies so they've started the agricultural cycle. The first six months is most of the time a loss-making period for these companies, it's an input cycle in terms of the agricultural cropping side and the revenues are only generated in the second half of the year, so one just has to keep that in mind that there's a cyclicality to every season from that regard.

So from Agrivision's point of view, the revenues haven't come through yet, on the Capespan side there's a lot of revenue still to come through, and on the Kaap Agri side a lot of the cropping revenues are still to come through in the second half in our reporting.

It is a tough cycle for agriculture but most of our companies are definitely outperforming their immediate comparable competitors and in Agrivision's case we're completing the first phase of the J-curve period and we are quite confident that in the next year, 2016 calendar year, Agrivision will start turning the corner and we're hoping to see improvements from then on.

BDTV: Right, Agrivision, of course, operates in Zambia, which as a country is going through a bit of a tough time. It's been downgraded, the copper industry is under huge amounts of pressure, Glencore is mothballing some of its operations there. Is this going to have a knock-on effect on agriculture and therefore on Zeder, or are you quite removed from some of the other issues that the country is experiencing?

NC: I'll be honest with you... anyone that thinks emerging markets, especially commodity-based countries will not find it difficult will be lagging... we fully expect Zambia to go through quite a tough period. There's no doubt that the copper and the turn on copper will have an effect there, but one of the reasons why we went into Zambia was because of staple foods and the demand for staple foods. And one advantage of staple foods is it's usually the last product and the last disposable income that is cut. So we think the country is going to struggle but we believe that staple foods, maize, bread, all those basic essentials in tough times are actually quite resilient so yes, we are expecting tough times but we think we're reasonably well positioned to be able to weather that.

BDTV: Is there any intention to adjust the holding that you have in Pioneer... so you own just over 27% of Pioneer Foods, as we said at the beginning it's almost 72% of the company... any plans to change that, either to increase it or cut it?

NC: Firstly, we love Pioneer, we think it's a fantastic company and we would like to stay invested so that's our primary objective at the moment. To rebalance our portfolio our focus will be to try and grow the rest of our portfolio and also to add one or two new additional investments. So we'd rather think of the rebalancing in the sense of growing the other investments and finding new opportunities"¦ getting rid of Pioneer.

BDTV: So then where would you say realistically over the next six to 18 months is the growth in your other investments going to come through, especially having sketched out the difficulties in Zambia and also of course the drought situation that we've had in SA?

NC: Yes. Growth in six to 18 months is always quite tricky. From our point of view, each of our companies have got strategic plans that have been implemented. We have budgets that we try and prep for and stick to and at the moment I have to be honest with you, our management teams are quite resilient and we've adapted. I see tough times but I believe our companies will perform reasonably well.

Longer term I'm very passionate or opportunistic rather... longer-term agriculture, especially food and beverage, especially on the staple side is very sensible and we think we're well positioned for that. So short term not always that easy to predict, but medium to long term I'm very optimistic.

Source: BDpro