200: Morné Eloff


Recycling makes rands and sense

Welcome to the CFO Club Africa podcast, where we interview leading CFOs from Africa and beyond. CFO Club Africa is a division of the Chartered Institute of Business Accountants, the professional body for business accountants, financial managers and chief financial officers. Go to www.cfoclub.co.za and join our community of accounting and finance executives.

Welcome to this CFO Club Africa podcast, each week we speak to leading chief financial officers and finance professionals about their professional journeys, their perspectives on the industries they are involved in and their perceptions of the skills modern CFOs must have to lead successful organisations.

My guest today is Morné Eloff, he is the Financial Director of Neopak, which is a business that uses recycled paper to manufacture containerboard and related paper products. He holds an MCom in Business Management and is a registered Certified Financial Officer at the Chartered Institute of Business Accountants, this institution was formerly known as SAIBA.

Morné also holds a Certificate in Tax Law from the University of Cape Town, which he acquired earlier this year. Before joining Neopak in 2018, he was the Managing Director of Bakos Brothers, a General Manager at Steinbuild and a Financial Controller at AfriSam.

Morné, tell us a bit about yourself, where did you grow up and when did you decide to become an accountant?

I grew up in Secunda, my father started at Sasol very early on when it was being built, I did all my schooling in Secunda. Obviously, living in the environment of Sasol growing into the massive organisation that it is today but not having a lot of exposure in a small town in terms of what’s happening in business in those days, so after school I went to the defence force for my one-year

service and I decided to stay on for another six months.

Then in early 1994, I started working at a company called Prominent Paints as a counter salesperson and my Financial Director at the time took me under his wing and saw some potential in me and he instilled in me the love for accounting, and he pushed me through the ten years that I was with Prominent Paints to get my degree and continue going forward.

Let’s talk about Neopak, it’s a big player in the recycling industry, tell us about the business and what exactly does it do?

It’s a very interesting business that was acquired by a private equity firm from Nampak late in 2015. At that time, it was a fully integrated paper business, which means that we manufacture brown paper from recycled material, effectively all non-white paper from deliveries to the likes of Spar and Pick n Pay and so on, we utilise that, put it into a paper pulp and make rolls of paper.

We then at that stage still had converting plants in Port Elizabeth, Cape Town, Durban and Wadeville, which we then effectively took the rolls of brown paper and convert them into a box that we then supply into the market, either commercially or agriculturally.

In late 2018 we decided to sell off the business or part of the integrated business, Ethos wanted to unwind the balance sheet a little bit, obviously reduce our debt levels, so we sold the Cape Town and Port Elizabeth businesses. Then in late 2019/2020 we did the same with the Wadeville and Durban operations, and we’ve maintained our key asset, which is a paper mill in Roslyn, where we continue to manufacture brown paper from recycled material. We do 120 000 to 125 000 tons per annum and that is then supplied out into the converting market for businesses to make carton boxes, especially for the export markets.

From an executive perspective, you being the Financial Director, what are the biggest challenges that you face on a day-to-day basis?

I think there are three things that we concern ourselves with in our industry specifically and also, obviously, as any manufacturing entity currently in South Africa, the key things are the availability and the cyclical nature of the product because recycled material is a commodity. So the availability and the pricing is a key factor in our operation and our profitability. Second to that, the unavailability and the instability of energy has become a major concern for us as an industry player.

The energy for the bulk of our paper mills is derived from gas that’s provided to us from Sasol and unfortunately, the availability of gas in South Africa has become a concern and Sasol has also started to push up prices in line with global pricing, which is putting a huge impact onto Neopak.

It’s forcing us back to coal, which is a swear word from an ESG and environmental perspective, but you need to look at options to continue operating.

The third one has always been a difficult one and that is labour, the requirements in terms of labour and labour relations is putting a lot of pressure on us as executives to ensure that you’ve got good labour relations but you can keep the costs in a specific band to ensure your profitability.

Those seem to be some significant challenges you face but how much of that responsibility lies on your shoulders? I would imagine the CEO would have sleepless nights about it, how much of that responsibility falls on your shoulders?

We’re a very close executive team, our CEO is a commercial expert and pretty much for the past three or four years he’s had sleepless nights with our relationship with Sasol, in terms of us getting supply and finalising and confirming that we’ve got the right pricing.

From a financial perspective, the key thing for us and obviously for me, is to look at alternative supply with regard to coal, you need to make sure that you’ve got the right strategic partners in place. My procurement team and I ensure that there are good service level agreements and supply agreements in place with first tier and second tier suppliers. Then also spend an enormous amount of time in making sure that you’ve got the right stock levels of those available at all times. Then also, that you’ve got good pricing contracts in place to ensure that you’ve got some leeway with these massive price hikes that are coming through.

You didn’t mention sales as a challenge, is there a significant market for your product?

It is not currently a challenge, as a result of the cyclical nature of the product, we are in a completely sold-out market, so there’s a bigger demand for my paper than what I can currently supply. I have key supplier agreements in place with some of the major customers that take up about 85% of my volume and then there’s potentially 10% to 15% of volume that we can then supply into the once-off customer market.

The bulk of my sales comes from contracted supply, which is usually between one and three-year contracts. Again, the economy is slightly picking up, there’s definitely a very good demand for our product in the market.

We are in the fortunate position, as we speak, that my order book is full for the next 24 months.

The ESG challenges facing most businesses in South Africa must also be on the agenda because there’s a lot of focus on it, there are a lot of concerns regarding ESG reporting, for example. As a finance professional, are you involved in formulating strategies to address this challenge?

Very much so, we are in the fortunate position to be owned by a private equity firm called Ethos Private Equity that’s on the front end and spending a lot of time and effort on ESG. But then again, as a manufacturing entity that is reliant on being able to manufacture with energy resources coming from, in many ways, coal, it becomes a big challenge.

We’ve been fortunate in that obviously we can use gas. I can tell you that the minute I put a CapEx proposal together and I send it through to our ESG specialist at Ethos, to say that we want to switch to coal, we are immediately on calls to one another and they ask what are we doing and why are we doing it.

We spend an enormous amount of time on ESG, and we have a massive questionnaire that’s being compiled by my finance team and I to see what we can do from an environmental side and how we can improve in terms of that. So it’s a big focus area and it’s definitely something that we have to keep an eye on. From a financial perspective, it’s important for us to reduce those costs because of carbon tax, so we need to be very cognizant of what we do from a carbon emissions point of view and the cost of doing business is going to increase drastically as a result of carbon tax.

How, in your perspective, has the role of the finance department and the senior leaders within that department changed over the years to address some of the challenges that you’ve just mentioned?

That’s been quite interesting and what really instilled a love of numbers in my life. I think 15 or 20 years ago, the finance director or manager was in his office, people on the ground never really saw them, they were the guys who were crunching the numbers and putting the debits and the credits through the books, making sure that the bank account is looking good and then producing financial statements for management accounts at month end.

That has entirely changed, I think the entire finance industry has changed due to the way in which we need to now do business and it is critical for a finance professional now to have an exceptionally good understanding of what’s happening in the business, what are the drivers within the business that’s really providing you with either a cost benefit or cost pressure and where one can start looking at cost transformation, giving some information back to your operations and sales teams.

We are also now looking more at managing risk than what we were before. I think prior to the late 1990s I would say finance was a relatively easy way in which we produce numbers because risks and financial risks were not as evident [as they are today] with unfortunately people not doing the right things, it’s been hurting the finance industry and the corporate industry as a whole.

There are so many scandals that we are all aware of, even in South Africa currently, so it’s a big portion of your work now, managing risk.

Earlier this year you acquired a Certificate in Tax Law and Taxation from the University of Cape Town and that clearly shows that you see professional development as key for your career. How important do you think this type of professional development is for a CFO or a finance professional to improve their skills and ability to address the issues you face?

It’s critical, I think there is absolutely no chance that you can acquire a degree early in your life and then you start your first job, and you carry that through for the remainder of your life, and then just rely on your experience as a professional. Laws change, accounting standards change, tax law and tax benefits change continuously, and it is extremely important as a finance professional, or any professional really, to enable themselves to become better at providing service and value to the organisation in which they work.

For me, I think that is non-negotiable, my continuous professional development is always at the forefront of my mind when I start a new year and the same with my people, I think it’s extremely important to look at how you develop your people because we need better leaders, both in industry and society.

CFO Club Africa is affiliated with associations of finance executives in France, Germany, Italy, Spain, Portugal, Greece, Mexico, Morocco, Tunisia and Namibia, and annually hosts an international CFO summit. You have done the work and achieved the CFO title, now join the CFO Club Africa as a finance executive.

Ryk van Niekerk is an award-winning financial journalist with over 20 years' experience. He is Moneyweb’s editor and hosts the Market Commentator podcast and RSG Geldsake, covering the markets, and financial and investment content, joined by CEOs, entrepreneurs, policymakers and others.

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