Interview - Benoît Kerloc’h
Director of Finance and Treasury, CFAO
“We give priority to micro-hedging”
La Lettre du Trésorier
In France, the reputation of your company is modest in comparison to its size; it is worth over €1.5bn on the stock market…
The company is indeed not well known in France, although it was founded in 1887, but on the other hand it is very well known in Africa, where it conducts 80% of its business in 34 countries, with the remainder of sales coming from overseas regions and territories. CFAO is a specialised distribution business with three arms: automobile distribution and import which accounts for 58% of our revenue, distribution of pharmaceutical products, (30%), and a variety of industrial activities, involving equipment and services. The company, which had a turnover of €2.7bn in 2010, an operating profit of €233m and a net profit of €140m, employs 9,500 people in 140 subsidiaries.
What were the impacts of the financial crisis?
The two years of worldwide crisis, from which we have now emerged, acted as an interesting stress test. We were in fact able to see for ourselves that our markets resisted it better and that our mixture of activities and countries made for a well-adapted, diversified and solid risk profile: the distribution of medicines, for example, continued to increase during the crisis and not every country entered the crisis at the same time. Over the course of the last ten years, turnover has more than doubled with an average growth rate in the region of 10% per year, half of which was due to organic growth, the other half to acquisition.
Has your listing on the stock exchange, in December 2009, had a significant effect?
PPR, which was CFAO’s only shareholder, sold 58% of its holding, a large part of which had been acquired by long-term investors attracted by Africa’s rapid development across a diversified society, by a fairly liquid secondary market and high-quality ‘governance’ and financial communication. But this process, which marks the beginning of a new era for the company, has also necessitated a transition period during which we have had to sever links with our old parent company. Thus, when it came to financing, we had to negotiate a syndicated credit of €300m over three years, extended by one year since then. The other novelty concerned the management of foreign exchange risk. CFAO has high exposure essentially to the buying rate, especially in dollars and yen. We protect ourselves systematically when we order, at the moment of exposure. We prioritise micro-hedging in order to be able to determine our cost price and commercial margins very accurately. Up until September 2010, all our hedging operations were carried out by the PPR trading room, which was our only shareholder. We have had to manage the transition – 1,200 contracts – and install risk management software at the same time. Also, for the sake of simplicity, we have decided to entrust all our operations to one of our banks. Now that we have finished the installation of the software and put in place a rationalisation of our currency risk management, we will be able to start working with other banking partners during the course of the second trimester.