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About Long4Life
So what are L4L all about? What do they do, what do they aim to achieve in the long run? According to the company's website this is what they are all about.
WHO WE ARE
CORE INVESTMENT FOCUS
OUR GROWTH AGENDA
But what this does not tell you is the fact that they own Holdsport. And Holdsport owns well known brands such as Sportsmans Warehouse and Outdoor Warehouse. L4L also owns Performance Brands. They are also active in the beverages space with brands such as Chill beverages, which owns popular Tonic water brand Fitch & Leedes. And then in the personal care industry they own well known brands such as Sorbet.
WHO WE ARE
- Listed on the JSE in April 2017, Long4Life focuses predominantly on lifestyle businesses.
- What are we deeply passionate about?Investing in high quality assets. Partnering with experienced and entrepreneurial management.
- What we strive to be the best at?Unique and flexible investment solutions (capital and strategy).
- What drives our economic engine?Sustainable long term growth and developing a diversified pool of listed and unlisted assets.
CORE INVESTMENT FOCUS
- Businesses with a proven track record;
- Market leading consumer biased brands;
- Capital light businesses;
- Businesses with attractive growth prospects;
- Businesses with an established market share and strong consumer equity;
- Strong, experienced and entrepreneurial management teams; and
- Businesses that are scalable and where we can dominate or lead within the category.
OUR GROWTH AGENDA
- Intent on building capability and capacity across the branded lifestyle space – preferably within categories which speak to emerged and emerging consumer;
- Obsessed with being close to our investment and trading partners, understanding the businesses and markets in which they trade and compete;
- Passionate about scalable brands with strong consumer equity;
- Focused on investing in growth categories and growth markets; and
- Perceived as disruptors of the categories in which we invest. Disruption is part of our DNA.
But what this does not tell you is the fact that they own Holdsport. And Holdsport owns well known brands such as Sportsmans Warehouse and Outdoor Warehouse. L4L also owns Performance Brands. They are also active in the beverages space with brands such as Chill beverages, which owns popular Tonic water brand Fitch & Leedes. And then in the personal care industry they own well known brands such as Sorbet.
So how did the company do during the 6 months ending end of August 2018?
The following commentary and results were obtained from the SENS released by the company earlier today
- All divisions performing satisfactorily
- Good momentum underway to achieve longer-term strategic ambitions
- Acquisition of Chill Beverages successfully concluded
- EBITDA - R205 million
- Trading profit - R178 million
- Profit before taxation - R203 million
- HEPS 16.0 cents
- Reported results include trading results of acquired businesses for the full reporting period
Based on the current headline earnings per share (HEPS) the share is trading on a PE ratio of around 13.6, which is not terribly expensive. Cash generated from operations for the 6 months amounted to R62.9 million which implies cash generated per share for a full year would come in around 14c a share. This is close to the headline earnings per share, showing the business is a strong cash generator.
- All divisions performing satisfactorily
- Good momentum underway to achieve longer-term strategic ambitions
- Acquisition of Chill Beverages successfully concluded
- EBITDA - R205 million
- Trading profit - R178 million
- Profit before taxation - R203 million
- HEPS 16.0 cents
- Reported results include trading results of acquired businesses for the full reporting period
Based on the current headline earnings per share (HEPS) the share is trading on a PE ratio of around 13.6, which is not terribly expensive. Cash generated from operations for the 6 months amounted to R62.9 million which implies cash generated per share for a full year would come in around 14c a share. This is close to the headline earnings per share, showing the business is a strong cash generator.
A worry for us with regards to the results is the fact that inventories increased by almost R213 million from February 2018 to end of August 2018. Together with this trade and other receivables skyrocketed from R66.6 million to R259 million. Are suppliers taking a lot longer to pay them back? It is certainly something that investors and potential investors in the company should keep an eye on. Anoter troublesome number is the size of the "Goodwill" reported in their assets. Out of their R3.47 billion in non-current assets, R2.2 billion of this is reported to be "Goodwill", up from R1.92 billion in February 2018.
Below a brief overview of their various business segments as reported in their financial results
Sport and Recreation
This division, which includes Sportsmans Warehouse, Outdoor Warehouse and Performance Brands, contributed 60% of the Group's revenue and 64% of trading profit before central expenses in the six months under review. The division demonstrated a resilient trading performance notwithstanding continued macro- economic headwinds and low consumer confidence. In the aggregate, sales were 6.3% higher than the corresponding period, albeit that retail price inflation dropped to 0.6% (6.6% a year earlier). On a like-for-like basis, retail revenue was essentially flat, while the wholesale operation Performance Brands, which owns and distributes product under the First Ascent, Cape Storm, Second Skins and African Nature brands, increased external sales by 6.2%. Gross margins have been temporarily affected by the 1% increase in VAT to 15% on 1 April 2018. Trading expenses increased by 8.5%, driven by CPI and a 3.4% weighted increase in trading area. The store roll-out programme is disciplined and the operating model is benefiting from the ongoing investment in store design and refurbishment.
Beverages
This division includes Chill Beverages, acquired effective 1 March 2018, and Inhle Beverages. The businesses provide a complementary blend of own brands, contract packaging and house (private) label production. Production facilities in the Western Cape and Gauteng accompanied by storage and distribution in all major centres, provide geographical efficiencies and product diversification, enabling access to all significant markets throughout the country. On a pro forma basis (given that Long4Life had not yet entered the beverage industry in the corresponding previous period), the growth is encouraging with case volumes up 24% and revenue higher by 21%. Pleasingly, the division's primary own brands, Score Energy and Fitch & Leedes, reflected good growth. The Beverages division represented 36% of the group's revenue and 29% of trading profit before central expenses in the first half. During the period under review, significant investment in upgrades and enhancements to the facilities infrastructure was made, which has increased capacity and improved capability. The timing of these facility upgrades is advantageous as peak trading and capacity utilisation is traditionally weighted to the second half in the summer months, with around 60% of full year revenue anticipated in this period. Improved operational and logistical efficiencies and sustained growth in market share bodes well for the future.
Personal Care and Wellness
The Personal Care and Wellnes sdivision includes the Sorbet group of operations - Sorbet Salons, Nail Bars, Dry Bars, Sorbet Man and Candi & Co. The division's suite of products and services were complemented during the period by the acquisition of Lime Light, which distributes spa and salon products and equipment. Lime Light contributed 19% of the division's trading profit in the period under review. The Personal Care and Wellness division represented 4% of the group's revenue and 7% of trading profit before central expenses in the first half. Sorbet has performed according to expectations and continues to grow as a significant brand in the industry, now boasting in excess of 200 stores countrywide. Enquiries from potential franchisees remain strong, with growth in stores limited by suitable site availability. Post the reporting period, the Group, through a 59% stake in newly established Long4Life Health Proprietary Limited, acquired 61% of the ClaytonCare Group Proprietary Limited ("Clayton") resulting in an effective 36% economic interest therein. Clayton is a sub-acute rehabilitation medical group providing comprehensive inpatient treatment and care. The acquisition is a strategic initiative and creates a platform for opportunities for Long4Life to enter into the high growth wellness space.
Prospects
Leveraging the Group's shared knowledge and platforms is expected to accelerate and act as a catalyst for growth. This success will be driven by the strategic ability and experience of the Group's executive team fuelled further by the depth of human capital at the operational level. Over the last year, the Long4Life team has focused on enhancing its decentralised management strategy, while working with the respective management teams to improve processes, policies and efficiencies within its three divisions. Progress has been made in all areas and it is anticipated that improved performances and profitability will materialise as a result over the medium term. While the existing portfolio has substantial potential, the Group's cash resources of around R1 billion, strong balance sheet and the gearing optionality derived from cash-generating businesses, provide a basis for further acquisitions. These are continually being assessed and anticipated to lead to the addition of exciting new opportunities.
Sport and Recreation
This division, which includes Sportsmans Warehouse, Outdoor Warehouse and Performance Brands, contributed 60% of the Group's revenue and 64% of trading profit before central expenses in the six months under review. The division demonstrated a resilient trading performance notwithstanding continued macro- economic headwinds and low consumer confidence. In the aggregate, sales were 6.3% higher than the corresponding period, albeit that retail price inflation dropped to 0.6% (6.6% a year earlier). On a like-for-like basis, retail revenue was essentially flat, while the wholesale operation Performance Brands, which owns and distributes product under the First Ascent, Cape Storm, Second Skins and African Nature brands, increased external sales by 6.2%. Gross margins have been temporarily affected by the 1% increase in VAT to 15% on 1 April 2018. Trading expenses increased by 8.5%, driven by CPI and a 3.4% weighted increase in trading area. The store roll-out programme is disciplined and the operating model is benefiting from the ongoing investment in store design and refurbishment.
Beverages
This division includes Chill Beverages, acquired effective 1 March 2018, and Inhle Beverages. The businesses provide a complementary blend of own brands, contract packaging and house (private) label production. Production facilities in the Western Cape and Gauteng accompanied by storage and distribution in all major centres, provide geographical efficiencies and product diversification, enabling access to all significant markets throughout the country. On a pro forma basis (given that Long4Life had not yet entered the beverage industry in the corresponding previous period), the growth is encouraging with case volumes up 24% and revenue higher by 21%. Pleasingly, the division's primary own brands, Score Energy and Fitch & Leedes, reflected good growth. The Beverages division represented 36% of the group's revenue and 29% of trading profit before central expenses in the first half. During the period under review, significant investment in upgrades and enhancements to the facilities infrastructure was made, which has increased capacity and improved capability. The timing of these facility upgrades is advantageous as peak trading and capacity utilisation is traditionally weighted to the second half in the summer months, with around 60% of full year revenue anticipated in this period. Improved operational and logistical efficiencies and sustained growth in market share bodes well for the future.
Personal Care and Wellness
The Personal Care and Wellnes sdivision includes the Sorbet group of operations - Sorbet Salons, Nail Bars, Dry Bars, Sorbet Man and Candi & Co. The division's suite of products and services were complemented during the period by the acquisition of Lime Light, which distributes spa and salon products and equipment. Lime Light contributed 19% of the division's trading profit in the period under review. The Personal Care and Wellness division represented 4% of the group's revenue and 7% of trading profit before central expenses in the first half. Sorbet has performed according to expectations and continues to grow as a significant brand in the industry, now boasting in excess of 200 stores countrywide. Enquiries from potential franchisees remain strong, with growth in stores limited by suitable site availability. Post the reporting period, the Group, through a 59% stake in newly established Long4Life Health Proprietary Limited, acquired 61% of the ClaytonCare Group Proprietary Limited ("Clayton") resulting in an effective 36% economic interest therein. Clayton is a sub-acute rehabilitation medical group providing comprehensive inpatient treatment and care. The acquisition is a strategic initiative and creates a platform for opportunities for Long4Life to enter into the high growth wellness space.
Prospects
Leveraging the Group's shared knowledge and platforms is expected to accelerate and act as a catalyst for growth. This success will be driven by the strategic ability and experience of the Group's executive team fuelled further by the depth of human capital at the operational level. Over the last year, the Long4Life team has focused on enhancing its decentralised management strategy, while working with the respective management teams to improve processes, policies and efficiencies within its three divisions. Progress has been made in all areas and it is anticipated that improved performances and profitability will materialise as a result over the medium term. While the existing portfolio has substantial potential, the Group's cash resources of around R1 billion, strong balance sheet and the gearing optionality derived from cash-generating businesses, provide a basis for further acquisitions. These are continually being assessed and anticipated to lead to the addition of exciting new opportunities.
The industries they operate in are certainly industries investors would like to and should have exposure to, especially when it comes to services, such as those provided by Sorbet. But as we mentioned earlier, we are concerned about the size of the "Goodwill" reported on their books as well as the increased inventories, which could signal products are not moving as fast as they expected and therefore inventories are building up as goods are not moving fast enough. We like the share and its brands, and its not priced at the top end of the market, but investors should take note of concerns raised.