Financial ExpertSpeak: Dynamism and Responsiveness are GML’s success mantra
Jean-Claude Béga, the Chief Financial Officer of Mauritius’ largest conglomerate, GML, spoke to AfricaMoney on how the arbitrage between existing operations and new opportunities sets apart a great company from a good one.
AfricaMoney spoke to Jean-Claude Béga, the Chief Financial Officer of Mauritius’ largest conglomerate, GML, on how astute financial management is key to the group’s success. Our financial expert took us through the challenges of being a CFO at such a highly diversified organization, the journey through last year’s robust results and the way forward in the current financial year. Commenting on rationalization and consolidation being the current strategy at GML, the unflappable CFO explained how the arbitrage between existing operations and new opportunities is what ultimately sets apart a great company from a good one.
Edited excerpts from an interview:
What are the biggest challenges you face as the CFO of a highly diversified conglomerate like GML which cuts across sectors such as hospitality, banking, fisheries, real estate and sugar, besides operating across multiple geographies?
GML is a highly diversified group, which deals with many different sectors. As such, shifting from one file dealing with one sector to another file dealing with a totally different sector several times in a day is one of the biggest challenges I face as the CFO of this vast conglomerate. One must be ‘mentally agile’ to manage the switch between different sectors. Also, setting priorities and managing my time between family and work is an important agenda for me, as I am extremely invested in my family and believe in taking out time for them at all costs. Besides, taking time out to think of important strategies, and not only using my time to get things going, is an important challenge that I face, since there are enough tasks to keep me occupied through the day, unless I actively make time for more important, but less urgent, strategic matters. Finally, staying abreast of challenges in the environment and keeping an eye out for possible opportunities for GML is another key area for me. After all, since GML is present in so many sectors and geographies, I need to keep tabs on any news coming across industry sectors all the time to be able to filter through the clutter of data and zoom in on its potential impact on the group.
GML achieved a 27% rise in net profits at Rs 1.05 billion for the year ended 30 June 13, while group turnover grew 7.1% to Rs 29.0 billion. To what factors do you attribute the robust results?
Proper portfolio management in terms of deciding which sectors to continue with and which ones to trim away, is what has really played a key role in our achieving a robust financial performance. The arbitrage between existing operations and new opportunities is what ultimately sets apart a great company from a good one. Accordingly, rationalization and consolidation of our operations was a key determinant of our success last year, and continues to be important to the group operations this year. In October 2012, GML sold Robert Le Maire Ltd to Ireland Blyth Limited, as RLM was a better fit within IBL’s operations and allowed GML to focus on its key sectors. Again, in February 2013, the merger of DRBC and FUEL entities to consolidate the group’s sugar operations really helped us to achieve value-add for the shareholders of both companies.
Additionally, GML places emphasis on aligning the strategy at a group level with those of its affiliates and associates. We have a value-creation and profit focus and we strive to ensure that this focus is replicated across our associated companies. Our group top management participate in boards across affiliates and associates to make sure that the profitability and value-add objective is met across the board.
Finally, GML ensures it has the right people at the right place. We do not hesitate to deploy foreign talent, if mandated for the job, and go the extra mile to ensure employee motivation and retention.
What is the financial target for 2014 and is the group on track to achieve the same? What have been some key milestones in the group’s operations this year to date?
At a group level, the target is to grow the equity attributable to the owners of the company by at least 8.5% annually, and we are very much on track to achieve the same. As I mentioned, rationalization and consolidation was a crucial pillar of the group’s robust results in 2012-13, and continues to be so in 2013-14 as well. For this financial year, a key milestone is the recent amalgamation between Indian Ocean Real Estate Company (IOREC) and Blue Life Limited. Both companies are involved in real estate sector and their merger has allowed their shareholders to exploit synergies between the two businesses, instead of wasting resources by dividing them between the related entities.
Your comments on the financial and accounting aspects of restructuring the group’s sugar operations with the merger of Deep River Beau Champ (DRBC) and Flacq United Estates Limited (FUEL) , culminating in the listing of Alteo Ltd on the stock exchange.
It was a very big and exceedingly ambitious project indeed. Our vision was to create value for our shareholders and that was doubtless realized as the quoted value of shares in DRBC went up exponentially after the merger. Since both DBRC and FUEL were undertaking the same activities, it made perfect sense to get their operations under one roof. Now, the way forward lies in the closure of the DRBC sugar mill, which is currently under application with the ministry of agro industry, and relocating all its activities to the FUEL sugar plant. Both crushing of canes for milling operations and burning of bagasse for power generation will henceforth be undertaken under the same roof. As we believe at GML, big is beautiful, and there is no doubt that the synergies realized by combining both companies will ensure that the merged entity, Alteo Ltd, has adequate resources to carry out its operations efficiently.
Will the closure of the DRBC sugar mill result in lay-offs or will all employees be adjusted in the merged entity?
Well, it is inevitable that the closure of the plant would result in lay-offs, as all employees cannot be accommodated in the merged entity. However, all lay-offs will be done in strict compliance with the Blue Print for the Sugar Sector and labour laws.
GML owns 75% of the MSM group, which is facing bankruptcy with debts exceeding Rs 400 million. How is the imminent insolvency expected to impact GML’s books?
GML has, over the years, been extremely prudent on the accounting treatment of its support to MSM in view of the difficulties encountered by the company. Hence, given the provisions that have been created in the books of GML, the impact on our financial results will not be significant in 2013-14.
Banking arm AfrAsia contributed less to group profits last year. Could you please elaborate on the reasons for the same?
AfrAsia contributed less to group profits last year because we were negatively impacted by the Zimbabwe associate which had to write down one of its biggest debts. The bank in Zimbabwe was earlier an associate and turned into a subsidiary this year by AfrAsia buying majority stake in the entity through an increase in capital.
Are there any plans to turn the Zimbabwe entity into a wholly owned subsidiary?
Regarding the status of the Zimbabwe bank, we are happy with our majority stake in the entity. We have no plans currently of turning it into a wholly owned subsidiary since local partners are needed as well and we believe we can grow better with on-the-ground support from existing players.
What is the ideal debt equity ratio that GML is targeting on consolidated basis? What are the plans to achieve the same?
On a consolidated basis, the shareholder’s equity (inclusive of minority stake) stood at Rs 20.2 billion as on 30 June 2013. On the other hand, the consolidated debt stood at Rs 14.2 billion on the same date. This brings us to a debt to equity ratio of 41:59 at the end of financial year 2012-13, which was a slight deterioration over the previous financial year, when it stood at 37:63. The rising debt was partly attributable to IBL which has grown larger with bigger and more ambitious projects lined up last year. However, the increase in debt is linked to a corresponding rise in productivity, causing us no concerns on any count. Regarding the ideal debt to equity ratio, since GML is multi-sectoral, it is not possible to comment on the same at a group level, as each individual entity would be targeting a different gearing depending on its industry.
With a Sustainability Index in the pipeline on the Stock Exchange of Mauritius in line with Maurice Ile Durable, how does GML plan to showcase its sustainability reporting? Do you perceive there will be greater focus among Mauritian entities on green accounting, going forward?
GML is already following an eco-friendly approach with its ‘Go Green’ initiatives. Further, on green accounting, we are complying with Green Index Sustainability Reporting at a holding company level and are poised to take it forward with our affiliate LUX next year. Regarding the Sustainability Index planned by the Stock Exchange of Mauritius, we strongly support this initiative and firmly believe that many other companies in Mauritius will follow suit with great accounting practices.
You mentioned that LUX, an affiliate, will be following the Green Index Sustainability Reporting that has been instituted at a group level in GML. Is there any pressure on associates/affiliates to ‘follow the leader’?
It is important to note that while GML is a majority stakeholder in affiliates and associates, it is not the 100% owner of these companies. Each company has an independent management and board of directors. We follow sound corporate governance practices and do not interfere in the day-to-day decisions of these companies. So, while we encourage our group companies to follow certain guidelines and strategies, each board ultimately makes all the decisions in the best interest of the company at stake.
Finally, your views on the sector of the economy that you are most bullish on, and how you see GML leveraging on opportunities in that sector.
In my opinion, the financial services sector is driving the island economy and will continue to play an ever increasing role in the growth of Mauritius industry. GML can leverage on opportunities in this sector by structuring investments into Africa via Mauritius on the back of the Double Tax Avoidance Agreements (DTAAs) in place with various countries in the continent. And, strictly in a personal capacity, I believe that it is Africa and not India which is the way forward for Mauritius-routed investments, given the uncertainty over the tax treaty with India on one hand, and the growing potential of the African continent on the other.