M. Adil Douiri, fondateur et associé-gérant de Mutandis
La Nouvelle Tribune: Mr Douiri, you have just announced the results of Mutandis’ public offering. Please would you discuss them in relation to the capital structure that underpins the various different deal tranches?
Of course! The public offering went well, especially given the rather gloomy stock market conditions that we are currently experiencing and the backdrop of sluggish growth for the domestic economy!
Last September, Mutandis’ Supervisory Board decided to go ahead with this IPO in the belief that the stars would never be perfectly aligned, nor would there be a more opportune moment from a stock market perspective. The fact that our company was to be listed for the long term, it was important that the IPO price was attractive.
And what we proposed was an attractive 180 dirhams a share, a 19% discount to the company’s ‘fair value’ of more than 220 DH.
In addition, Mutandis is paying a decent dividend of 7.5 DH for a par value of 100 DH. We also decided to give the new shares entitlement from early 2018, enabling the new shareholders to benefit from the 2018 dividend even though they only joined us in December.
I would like to emphasise that the dividend is an integral part of the stock’s overall performance.
The dividend is not simply the icing on the cake!
By comparison with the expected return from the Casablanca stock market of around 9.3% annually (3.3% for the risk-free rate of return plus a 6% risk premium), Mutandis’ 4.2% dividend on its IPO valuation is already halfway to equalling this expected return.
So, the size of the dividend is already a good start!
The deal enabled us to raise MAD 1 billion for MAD 400 million offered, despite our road show only lasting for two weeks.
And there was a good reason for that. We did not obtain the AMMC visa until 16 November and we had to close the deal before 18 December since foreign investors are not able to settle beyond 21 December due to their Christmas break.
So, by counting backwards, the subscription period had to be between 3 and 7 December to allow the Stock Exchange ten days for recounts, allocations and attributions, prior to posting the results of the public offering.
Despite all this, the deal was a great success, being 2.5 times oversubscribed.
What was the breakdown of subscriber applications?
It is better to analyse it by investor type, knowing that applicants could subscribe for different tranches.
As a result, 54% of demand was from Moroccan institutional investors, 23% from retail investors and foreign institutional investors 23%.
It is also important to mention that Mutandis attracted 3,200 retail investors compared to about 1,300 for Immorente, 2,900 for Total and 1,900 for AFMA.
Of the last 4 public offerings (excluding Marsa Maroc’s privatisation), Mutandis has attracted the largest number of retail investors.
I personally attribute this success to our products’ simplicity. People have a perfect understanding of what we manufacture because they use our products on a daily basis.
The way in which we structured the different tranches was a technical arrangement to be able to allocate a significant portion to foreign investors who, should their allocation have been scaled back, would not have subscribed, preferring instead to purchase the shares at a later date on the open market.
But we wanted foreigners to participate in this IPO, in the same way as, in concertation with the AMMC, we wanted to attract retail investors.
And so, to ensure that their needs were met, they were allocated a specific tranche (Tranche III) with two requirements: a MAD 10 million minimum subscription and a 3-month ‘lock-up’ period.
This worked well and the allotment ratio for Tranche III was 76% compared to only 34% for Tranche II (Moroccan institutions investing more than MAD 10 million with a 3-month lock-up period) and 36% for the general public (Tranche I).
What does the post-IPO capital structure look like?
Mutandis’ stable (‘hard core’) group of shareholders account for 34% of its capital in the wake of this equity offering.
These shareholders include Adil Douiri, Label’Vie, the FinanceCom Group subsidiaries and Améthis.
It is worth mentioning that Mr Douiri and Rothschild Group’s Amethis Finance subscribed to the IPO so as not to be diluted.
The second third of the capital is held by long-standing shareholders which currently total just under 60, a number that has grown steadily in the wake of successive equity offerings since 2008.
The final third of the capital belongs to new shareholders which invested in this IPO with new foreign investors accounting for 8%.
But these last two shareholder categories should be considered as comprising Mutandis’ free float.
So, 65% of Mutandis’ capital listed on the Casablanca Stock Exchange comprises its free float?
Indeed, whilst it’s something of a novelty in Morocco for a company to be governed by a minority shareholder, it is, however, more common in more developed stock markets.
Assuming that a properly listed company must be sufficiently liquid to allow as many buy and sell transactions as possible, the share price will then reflect the company’s actual value.
For a society to be liquid and for its shares to be tradeable, it must have an adequate free float in dirhams; in Mutandis’ case, 65% of the free float equates to a MAD 1 billion free float.
There is no relationship, however, between having a sufficient free float and the upward or downward movement in the company’s share price. A sufficient free float simply ensures that a stock market price reflects market expectations.
It also ensures that foreign investors are not discouraged in advance by concerns about liquidity and will invest in the stock.
It is worth noting that on the Casablanca Stock Exchange, there is a free float-weighted index in which Mutandis is ranked around 20th out of the 75 companies listed in terms of liquidity, while in market capitalisation terms i.e. its overall value, the company is ranked 40th.
But one must also be aware that within this free float, there is some ‘false free float’ i.e. core portfolio holdings held by Moroccan institutional investors which, after bidding for MAD 540 million of the MAD 1 billion raised, were allocated about MAD 200 million.
They are known to be medium and long-term income investors who are remunerated through the dividend yield.
Mr Douiri, please would you explain to our readers why you chose the legal form of a limited partnership?
A limited partnership is a legal form which reconciles two generally irreconcilable goals, on the one hand, engaging in a series of equity issues so as to grow the company quickly and, on the other, ensuring stable governance. Moroccan limited companies often have an owner who owns at least 51% shareholder of the equity and has a controlling interest.
The result is that this shareholder, so as not to lose control, restrains or even slows the company’s growth.
In Mutandis’ case, because of its legal form, the company has grown rapidly without its founder needing to inject more capital. This has been achieved by increasing the number of partners (shareholders) and their contributions.
The limited partnership structure enables the company to achieve its goal of rapid growth through regular capital calls.
It is worth noting that a partnership structure is widely used in English-speaking countries where the ‘limited partners’ are the sponsors and the ‘general partners’ are the sponsored/ managers.
US Real Estate Investment Trusts, for example, are more often than not publicly traded limited partnerships.
In France, a number of very large companies are limited partnerships such as Michelin, global leader in tyres, whose general partner is the Michelin family, with the latter owning only a small percentage of the company’s equity.
Lagardère, which owns Hachette, and which heads up a number of media firms, is also a limited partnership that is publicly traded on the Paris Stock Exchange.
I recommend this legal form for Moroccan entrepreneurs wishing to expand, just like the Michelin and Lagardère families, who founded wonderful groups.
In what way has the limited partnership which you founded in 2007 managed to develop its brand portfolio?
I recall that we started with 15 shareholders and, just before the IPO, there were 60 of us. That’s how we were able to make a series of acquisitions!
And that is how Mutandis was able to buy brands such as Maxis from Lesieur or Marrakesh from Citruma-Delassus as well as sound family-owned companies that were no long wanted by the heirs as well as others in difficulty.
Then, from consumer goods, we moved into consumer durables when we acquired the exclusive importer of the SEAT and Honda brands.
Prior to the equity offering, however, to streamline and simplify our businesses, the Mutandis Board decided to split our limited partnership into two entities, while retaining the general partners of each entity.
On one side, Mutandis now encompasses the consumer goods businesses while the other is focused on consumer durables, with only the former listed on the stock market.
Please would you say something about the business activities of the listed Mutandis and their stage of development?
Mutandis has four product lines – detergents, seafood products, bottles and caps for beverages and fruit juices.
They are each at a different stage of their development.
The fruit juice business is the least mature of our businesses and is really in a start-up phase.
This business, which ranges from recipes to packaging, is a new venture for us. We acquired the business in February 2017 and have completely transformed it. It has just been relaunched in its new form in May 2018. We are acquiring experience in marketing our products via our distribution trucks which group together many of our products, distributing them to grocers who account for 80% of retailers in Morocco and who are our main customers.
The second business is seafood, acquired in January 2016. It is currently being overhauled and transformed. It is undergoing a shift on the marketing side, which consists of gradually changing our customer base in favour of countries where margins and sales prices are higher like Morocco, Saudi Arabia, Europe or the United States, as opposed to sub-Saharan Africa, where purchasing power is lower, especially given the fact that fish is an increasingly rare commodity around the world.
The detergents business has already been transformed and is now in a somewhat linear growth phase with new lines being added as well as trucks distributing to grocers.
Our production facilities in Berrichid consist of one factory for powder and another for liquids.
The final business activity, which is the most mature, is bottles and caps, which has seen relatively smooth growth since 2010, consistent with the expansion of Morocco’s beverages industry.
Mr Douiri, what message would you like to convey in conclusion?
First, it is important for our country that our entrepreneurs are ambitious and have a desire to succeed.
Second, to be able to generate uninterrupted growth, one must have a solid capital base and one must not restrict the quantity of capital to the depth of one’s owns pockets.
Third, to achieve this, one needs to identify the most appropriate legal set-up for the company to satisfy one’s ambitions.
And fourth, it is very important to surround oneself with the best possible human resources, by choosing people who can demonstrate that they have the necessary hands-on skills, who roll up their sleeves, go into the factories and work hard to grow the business.
These are the principles and values that have guided Mutandis for the past 10 years. And, as we promised the market, we will continue to grow these businesses as a small Unilever, a small Nestlé …
Interview conducted by Afifa Dassouli
Mutandis’ financial results
The limited partnership houses common functions such as General Management and the Finance and Administration Department while business operations are carried out by subsidiaries. It is a group holding company which receives dividends.
As far as the company’s 2018 consolidated financial results are concerned, gross operating income, which is the operating margin, is likely to be around MAD 183 million.
The detergents business is expected to be the largest contributor, accounting for MAD 82 million of the total MAD 183 million, followed by seafood products with MAD 63 million, bottles MAD 45 million and fruit juice MAD 4 million.
These results are all up compared to 2017.
Forecasts for 2018 turnover are as follows: MAD 564 million for detergents, MAD 489 for seafood products, MAD 245 million for bottles and about MAD 60 million for fruit juices.
Public offering results breakdown:
The MAD 215 million raised from the public offering will be primarily used to build new factories.
This sum will enable the company to raise debt, the MAD 215 of capital generating MAD 300 million of additional investment capacity which will be allocated to additional factories.
The Group needs to launch other types of hygiene product because it covers only 65% of the categories available on the Moroccan market.
Mutandis therefore intends to set up new turnkey plants, one for hygiene products, another to process seafood products and one for bottling and caps because the existing unit has reached maximum capacity.
All these units will be launched in the near future.
It is worth noting that Mutandis’ debt stands at 40% of its liabilities versus 60% of shareholders’ equity.
The company’s liability structure has been stable for several years.