MAG AZINE FOR FINANCE PROFESSIONALS IN SOUTH AFRICA 2 • 2015 CFO.CO.ZA
KPMG’s Edson Magondo An exclusive interview about growth in difficult terrain Finance Indaba Africa 13 and 14 October 2016 in the Sandton Convention Centre Mervyn King “I would be mad to retire” Shabeer Khan CFO dti “Achieving a clean audit was the proudest moment of my career” CFO OF THE YEAR 2015
Deon Viljoen Driven by a higher purpose
Bongani Nqwababa CFO Sasol “A crisis can be the best time to drive changes” Wayne Koonin CFO Omnia “Business grows and finance improves through a focus on systems”
Facilities Management The 3rd way and how to save costs – A must read for CEO’s & CFO’s Whether your business operates from a single large facility, or numerous sites across the country, you will likely be responsible for determining your organisa�on’s approach to Facili�es Management, or FM as it is commonly known.
compliance as opposed to capability and approach. Organisa�ons then have to intensively manage service providers themselves and enter a cycle of termina�ng apparent under-performers and replacing them through the same ineffec�ve process.
FM can be described as an interdisciplinary eld devoted to the coordina�on of space, infrastructure, buildings and people in organisa�ons and the provision of services in support of such. Services provided o�en include buildings and asset management, reac�ve and planned preventa�ve maintenance and technical services, space planning, reloca�ons, security, cleaning, washroom services, pest control, landscaping, catering, indoor plants and other support services.
Arguably, this 1st way is at odds with the principle objec�ves of outsourcing. Not only do you have to employ your own procurement staff (with the associated xed costs), but a huge amount of �me and resource is spent managing these service providers, in the provision of services your staff may not fully understand, against o�en meaningless KPI’s which add li�le value to the business.
Over the past 30 years, many businesses have evolved from performing these func�ons ‘in-house’, to outsourcing them, as they focus more on their core business func�ons. Tradi�onally there have been two ways to approach the procurement and management of FM services. The rst involves a company’s own employees being involved in the scoping of service requirements, procuring services and then managing the resul�ng plethora of service providers and deliverables, as they go about their business. This allows an organisa�on to maintain an element of perceived control over service provision in line with their own unique requirements and business culture. This approach does have its drawbacks however. Due to the wide range of specialist skills required in the delivery of a professional FM solu�on, many companies nd that their own staff lack the skills required to scope, procure or manage all the services effec�vely. What CEO’s and CFO’s are looking for, are commercially compelling proposals from suppliers, who are able to demonstrate innova�on and improved efficiencies, which ul�mately lead to cost savings. Unintended consequences of this approach are o�en a poorly wri�en scope and service providers being appointed purely on the basis of price and
www.servest.com
The 2nd way involves nding a solu�on to the above through the use of a specialist Facili�es Management company. Such companies employ specialists in the procurement and the management of service delivery and are able to source, deploy and manage service providers against a technically sound scope of services. The aim of this approach is to allow you to focus on your core business and reduce the number of employees you would otherwise require to manage such processes internally. Whilst this approach allows you to outsource FM in its en�rety, it is not a silver bullet. Tradi�onal FM companies do not self-deliver the majority of services you require. Instead, they become the ‘middle man’ between you and the suppliers that your own staff would have appointed if you had followed the 1st way. Arguably, the selec�on and management of them would be more effec�ve, but a management fee will need to be paid for the privilege. The percep�on may be that savings can be realised by adop�ng this approach, but it is important not to forget that both the FM company and the service providers also have prot margins. Ul�mately, there are s�ll mul�ple layers of margin in the value chain – most o�en unseen. Addi�onally, the use of an intermediary creates a gap between the service provider and the client. This can result in
poor communica�on down the chain and a lack of ownership. As FM has evolved globally, a 3rd way has been developed. This has been in response to customers demanding greater value, seeking trusted partners as opposed to service providers and ul�mately the realisa�on of true cost savings, without the risk of compromising service levels. In the 3rd way, forward thinking organisa�ons have come to the fore. They have systema�cally acquired FM companies, other service providers and skilled individuals, bringing a full range of FM and specialised skills under one roof. This has posi�oned them to ‘self-deliver’ up to 95% of the services that their clients require. The real value has been created with this approach in that a layer of margin is able to be removed from the value chain, with the bulk of prots being made in the delivery of the specialised services, as opposed to the charging of management fees. Furthermore, an improvement in the performance of the service provider has invariably resulted. The 3rd way can only be achieved by an organisa�on that is structured for true self-delivery, with integrated management structures, common objec�ves and a single pla�orm to measure performance delivery and provide meaningful feedback and business intelligence to customers. This approach has become accepted as the norm in Europe and the US. In contrast, very few South African companies have bene�ed from the 3rd way by partnering with a strategic outsourcing partner. The Servest Group is the largest, majority black owned Facili�es Management company in Africa and is uniquely posi�oned to manage and self-deliver a full range of both hard (technical) and so� FM services to meet your requirements. As the economy places external pressures on organisa�ons to realise savings in order to maintain shareholder value, why not try the 3rd way? Servest will review your current FM por�olio and advise on how we can engineer greater value for your organisa�on. Contact us on 0860 225584, or at www.servest.co.za
Over the past 30 years, many businesses have evolved from performing these func�ons ‘in-house’, to outsourcing them, as they focus more on their core business func�ons.
TABLE OF CONTENTS Deon Viljoen
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Being a business partner is extremely important, but a CFO should never forget to bring his or her financial acumen to the table, says CFO of the Year 2015 Deon Viljoen. As money boss at Alexander Forbes he has guided the company through a rebirth that included a delisting and a relisting on the JSE. These days ‘higher purpose’ and ‘balancing stakeholders’ are key success factors at South Africa’s largest retirement fund administrator, he reveals.
Bongani Nqwababa
57 CFO South Africa is the number one network for finance professionals in South Africa. Our goal is to connect finance professionals online and off in order to share knowledge, exchange interests and open up business opportunities. CFO South Africa CFO Enterprises PTY Ltd 6 Kikuyu Road | Sunninghill 2157 Johannesburg | South Africa +27 (0)11 083 7515 www.cfo.co.za
Prof Mervyn King
“The key learning for me was never to delegate engagement with employees to the unions, but keep in touch yourself,” says Sasol CFO Bongani Nqwababa. He exclusively shares some of his most valuable lessons during his tenure at Amplats. “As executives you need to smell and breathe the same air as your employees. Another thing is that you need to be resolute during a crisis, which suits me because I don’t get flustered very easily.”
MANAGING DIRECTOR Graham Fehrsen graham@cfo.co.za +27 (0)79 898 0227 COMMUNITY MANAGER Jurriën Morsch jurrien@cfo.co.za +27 (0)11 083 7515 EDITOR IN CHIEF Joël Roerig joel@cfo.co.za +27 (0)76 371 2856
35 SUBEDITOR Dianne Tipping-Woods PROOF READER Toni Muir CONTRIBUTORS Joël Roerig, Ebrahim Moolla, Alexandra Watson, Dumisani Dlamini, Neil Morris, Charl du Toit, Brett Tromp, Claudelle von Eck, Graham Fehrsen, Eric Osei
“My grandson Daniel, who calls me ‘judge’ like many other people, recently said ‘Judge, you are always in airplanes, you must have a big carbon footprint?’ He also asked me if I recycle all the paper I use. And that was coming from an 8 year old!” Not only is Prof Mervyn King’s anecdote endearing, the former Supreme Court judge and global governance guru is also making a point; even an 8 year old knows that the world is changing. “It will be a disaster if companies don’t start thinking in an integrated way.”
PHOTOGRAPHY Patrick Furter, Denielle Janse van Rensburg, Stephen Cruickshank PRINTING Paarl Media Group +27 (0)11 201 3460 +27 (0)84 612 1032 Coenraad.Pretorius@paarlmedia.co.za
SALES Shay van Huyssteen shay@cfo.co.za +27 (0)82 570 9482 © 2015 CFO Enterprises PTY Ltd, All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. DESIGN Cor Lesterhuis
TABLE OF CONTENTS Strategy & Growth 18 Taking CFO events to the next level 19 Expert Insight Charl du Toit: drive better business decisions
Leadership
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24 Expert Insight Brett Tromp: health: the new economic value driver 27 Recipes for success: 11 of SA’s best CFOs reveal their secrets 31 Introducing the Finance Indaba Africa 2016 34 Expert Insight Prof Alex Watson: 5 tips for integrated reports
Governance 40 Expert Insight Dr Claudelle von Eck: internal audit as competitive advantage 43 Report Tax Indaba: taxing times
Public sector 45 Interview Edson Magondo: growth in difficult terrain 49 Interview Shabeer Khan: making a difference 53 Expert Insight Dumisani Dlamini: 5 ways public sector CFOs can get a clean audit
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Capital & Finance 55 Report Exit Conference: entering with the exit in mind 61 Interview David Hodnett: from Absa to Barclays Africa
Moving into Africa 65 Expert Insight Eric Osei: 10 reasons to do business in Ghana 66 Interview Bikash Prasad: passion for Africa
Technology 71 Interview Wayne Koonin: focus on systems 75 Report Finance Transformation CFO event 22 October
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FinTech 76 Report FinTech event Cape Town 20 October 78 Interview Nicole Anderson: time for FinTech Africa is now 81 Interview Paul Steenkamp: arrogant FinTech & self-obsessed banks
And further 6 9 10 11 83
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Finance leaders celebrated at CFO Awards 2015 From the editor: in with the young On the move From the MD: the first 100 days Calendar CFO South Africa Events 2016
CFO AWARDS 2015
Finance leaders celebrated at CFO Awards 2015 The CFO Awards were a massive success again this year, with a host of fascinating master classes, a delicious dinner and eight deserving award winners. Deon Viljoen, chief financial officer at South Africa’s largest retirement fund administrator, Alexander Forbes, was named South Africa’s CFO of the Year 2015. The award was presented on Thursday 14 May 2015 at the end of an inspirational conference and gala event at Summer Place in Hyde Park, Johannesburg. The event was capably chaired by dynamic speaker and investor Vusi Thembekwayo and was attended by 300 CFOs and prominent business leaders. In six master classes that took place prior to the award ceremony, attendees discussed topics including strategy execution, leadership, business opportunities in Africa and ways of coping with and benefitting from the fast pace of technological development in the world. During the gala dinner, South Africa’s doyen of corporate governance, Prof Mervyn King, held a keynote speech, and last year’s CFO of the Year Simon Ridley (Group FD Standard Bank) shared his thoughts on finance leadership. Services firm KPMG was this year’s principal sponsor, with CEO Trevor Hoole presenting the night’s major award to Viljoen (see page 12). He described the Alexander Forbes executive with a Jiddisch word. “A mensch is a person of integrity, a person of honour, someone to admire and emulate, someone of
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CFO MAGAZINE • CFO.CO.ZA
noble character and someone who has a sense of what is right.” Viljoen said the award was unexpected and thanked his wife and children. “I feel very honoured, very humbled.” CFOs Brett Tromp (Discovery Health) and Anoj Singh (Transnet, now Eskom – see page 10) were the other big winners during the night, each accepting two awards. Besides receiving the Public CFO of the Year Awards, which he also won last year, Singh was honoured with the much coveted Strategy Execution Award for his role at the successful parastatal and his ambitious, counter-cyclical capital build programme. The inspirational Brett Tromp is currently trying to convince government that companies should report on what he calls the ‘fourth bottom line’, a mix of measurable health metrics. Tromp, a regular guest at CFO South Africa events, walked away with the Young CFO of the Year Award and the High Performance Team Award. Sasol’s new CFO Bongani Nqwababa received the Finance Transformation Award for his steadfast reign during difficult times at his previous employer, Anglo American Platinum. Last year’s double award winner Colin Brown (Super Group) was also among the award winners this year, securing the Finance & Technology Award.
Alexander Forbes CEO Edward Kieswetter with his CFO Deon Viljoen
Imraan Soomra, CFO at Africa’s largest fishing company Oceana, won the Transformation & Empowerment Award. The Moving into Africa Award was won by the ambitious Greg Davis (Standard Bank Africa), while Mervyn King handed the Compliance & Governance Award to Cobus Grove, the 33-year-old IFRS specialist and CFO who turned the struggling vehicle tracking company Digicore around, starting by restating 14 years of accounts and culminating in the recent sale to the Nasdaq-listed firm Novatel Wireless. l
“A lot is demanded of the modern CFO. Gone are the days when finance professionals were merely technocrats.” Victor Sekese, CEO of SizweNtsalubaGobodo
CFO AWARDS 2015
“The CFO has a dynamic role. He or she has got to balance the books while being strategic to meet goals, and both mentor and transform the finance team.” - Prof Ben Marx “What is common to all the nominees is the ability to urge caution on a slippery slope, so we don’t all end up screaming ‘Fire!’ in a burning theatre.” - Thembekile Kimi Makwetu, Auditor-General “Let me be philosophical for a moment. This country is great, but a lot of work needs to be done so that this room [of CFOs] is more representative of the demographics of this country.” - Imraan Soomra, CFO at Oceana:
Who will win at the CFO Awards 2016? Send your nominations to shay@cfo.co.za CFO MAGAZINE • CFO.CO.ZA
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Join the CFO Awards and Conference on May 12th 2016, Johannesburg.
Meet 200 CFOs, share knowledge and boost business.
“The interaction will take the finance profession further.” On May 12th, 2016 the annual CFO Awards will be held at the beautiful Summer Place in Johannesburg. This prestigious event recognises CFOs of listed companies, large corporations, parastatals and government institutions and awards them for outstanding performance and leadership. The gala dinner brings together South Africa’s top finance professionals. It is an opportunity to celebrate excellence and engage in conversations about the culture, pitfalls and possibilities of continuously exceeding expectations.
The CFO Awards are preceded by the CFO Conference. Designed to demonstrate thought leadership, extend professional networks and help businesses to grow, this event sets the bar for financial leadership on the African continent. It is open to all CFOs and Financial Directors. CFO South Africa invites you to buy a table at the CFO Awards, attend the CFO Conference, join the panel of judges and become our partner. Seats are limited, so book now to avoid disappointment. For more information visit CFOAwards.co.za or email Shay van Huyssteen at shay@cfo.co.za and Graham Fehrsen at graham@cfo.co.za.
Buy a table at the CFO Awards or join the CFO Conference. Attendance is free of charge for Platinum and Board Advisor Members. www.cfoawards.co.za +27 (0)11 083 7515
FROM THE EDITOR
In with the young
F
irst the bad news: after the JSE’s formidable Aarti Takoordeen won the Young CFO of the Year Award in 2014, there were exactly zero female award winners this year. That is disappointing. With impressive CFOs like Raisibe Morathi (Nedbank), Ronel van Dijk (Spur Group), Megan Pydigadu (MiX Telematics) and Rofhiwa Irene Singo (Department of Mineral Resources) there were definitely strong female contenders, so let’s hope the scales will tip in 2016. The good news is that the CFO Awards have firmly taken root on the annual calendar of South Africa’s CFOs. As Standard Bank’s Group CFO Simon Ridley frankly admitted, at last year’s inaugural event nobody knew what they were in for. But I am proud to say my colleagues at CFO South Africa have outdone themselves again and compliments have been pouring into our email inboxes ever since. Even Mervyn King, the doyen of corporate governance, endorsed CFO South Africa during his speech at Summer Place. And a compliment by Prof King is one that sticks. Our interview with him on page 35 of this edition is one to read and reread. No less than half of the ten awards were won by CFOs aged 40 years or younger this year. Regular CFO.co.za contributor and Standard Bank’s Africa CFO Greg Davis scooped the Moving into Africa Award, while Oceana’s Imraan Soomra won the Transformation & Empowerment Award. Poor fishing communities along South Africa’s West Coast have received an economic boost from the first payout of a shares scheme by Africa’s largest fishing firm – so no wonder the judges voted for him. Brett Tromp (Discovery Health) went home with two prizes: Young CFO of the Year and the High Performance Team Award. Brett has been one of CFO South Africa’s biggest supporters since its inception, so it was gratifying to see him win. His guest article on page 24 about the ‘fourth bottom line’ comes highly recommended. And what about Cobus Grove, still in his early 30s? The Digicore CFO managed to win the Governance & Compliance Award for his slick turnaround strategy at the Pretoria-headquartered business. His interventions helped grow the share value of the company more than threefold in just over two years, which ultimately led to the recent buyout by Nasdaq-listed Novatel Wireless; and an international career for – dare I say ‘our’ – Cobus. I hope you enjoy this second edition of CFO Magazine, which contains all of the above, as well as interviews with other award winners and nominees and much more. Bongani Nqwababa (Sasol) shares his learnings from his time at Amplats, David Hodnett (Barclays Africa) talks about the coming of age of Absa, and Bikash Prasad (Olam) gives insight into his passion for Africa. A very special mention goes to the interview with the country’s new CFO of the Year, Deon Viljoen of Alexander Forbes. Deon delisted and relisted his company within seven years, ending up with a leaner firm ready to meet the future. His achievements resemble those of Simon Ridley, who bought a bank in the United Kingdom and subsequently – after a strategy shift at Standard Bank – sold it again and still came out on top. No wonder these two gentlemen have now both been crowned CFO of the Year! l Joël Roerig joel@cfo.co.za +27 (0)76 3712856
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MOVERS Anoj Singh joins Eskom, Jo Pohl moves to Telesure – and other CFOs change jobs
net CEO Brian Molefe, together with whom he forms a formidable team. Let’s hope they can keep our lights on!
On the move
Following Gareth Griffiths’ retirement as Nampak CFO, Glenn Fullerton took over as head of the company’s finance team effective 1 September. Fullerton previously worked in the packing industry at Kohler, a former JSE-listed company. He was available after he retired as group CEO of MB Technologies Group, following serious injuries sustained in a cycling accident.
A number of finance leaders changed jobs in the second half of 2015. Here are a few noteworthy moves. In July, Eqstra CFO Jannie Serfontein was appointed CEO of the listed leasing and capital equipment company. Serfontein has an audit background at Deloitte, but has never made a secret of his ambition to be in general management. In 2014 Jannie was nominated for the CFO Awards. Another internal move took place at Nedbank, where Anbann Chetti – an often seen guest at CFO South Africa events – became CFO of Nedbank Wealth. He was previously in charge of the finances at Corporate Banking.
One of the most interesting recent CFO moves is surely that of multiple CFO Awards winner Anoj Singh, who moved from state-owned company Transnet to help save the embattled Eskom. His appointment was endorsed by cabinet in September. Anoj won two CFO Awards in both 2014 and 2015 and is regarded as one of the most brilliant finance minds in the public sector. He followed in the slipstream of Trans-
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Jo Pohl, a platinum member of CFO South Africa, has left her job as CFO Africa at Standard Chartered Bank to join insurance conglomerate Telesure Investment Holdings as group CFO, effective 15 October 2015. In an exclusive interview with CFO.co.za she said “the opportunity to work in non-banking financial services with a proudly South African brand on home soil was a compelling proposition and aligned to my personal goals too”.
Gustav Raubenheimer is CFO designate of Good Bank (African Bank) and its new holding company since the end of July. He has extensive banking experience at Absa and Nedbank. Good Bank will launch next year and have the South African government as major shareholder. Standard Bank recently announced that Group CFO
Simon Ridley, CFO of the Year 2014, will retire next year April. By then he will be 60 years old, the retirement age for executive directors at the bank. l
FROM THE MD Building a community of practice for CFOs
The first 100 days
I
n my first 100 days as the MD of CFO South Africa I have been struck by the number of incredible professionals that make up the South African finance ecosystem. Finance professionals who reach the top rung, regardless of whether they work in large listed entities, private companies, the public sector or any number of public, academic or non-profit organisations, have by and large arrived there on the back of their finance skills (to state the obvious). But what has struck me most is how many of these professionals are good people too. The very best are filled with humility, courage, conviction, an appropriate dose of vulnerability and very often a clear sense of purpose. Another quality I have encountered among CFOs is grit. This isn’t easy to define but I think it’s the will to see things through, to work harder, to stay curious, to pursue answers, to remain honest and true to yourself and perhaps most importantly, to put other people first. Over the last 100 days I have spent many hours with finance leaders – both in their work spaces and by hosting learning and networking events. What I have learnt is that whatever unique circumstances conspire to bring out the best in a CFO, the consistent theme and measure for success is the impact they have on people inside the business. I have observed how essential it is to be able to influence and lead a community. Finance leaders are now expected to be exceptional business partners and inspire people to pull in one direction – while maintaining their role as masters of the finance function. As we bring these professionals together through CFO South Africa, it has been hugely rewarding to see how human capital, culture, change and technology are driving themes for finance professionals and how much appetite there is to learn from each other, ask difficult questions and grow in the right directions. We are excited about the year ahead and the potential of the people and platform to support the needs of the finance leaders of the future – a future we’re co-creating. We are a people centered organisation and our vision to develop the CFO community across Africa is taking shape. Our ambition to create communities of practice that help CFOs individually and collectively solve some of the most pressing issues of our time continues to grow. Through our fast-growing finance community we will continue to offer learning and engagement opportunities: master classes, roundtables and discreet meet ups with the best minds in the business. There is also the critical role of our partners who enable these opportunities and the wider ecosystem to flourish and we are proud to be associated with the organisations that set – and continuously raise – the bar in this field. To accommodate this growth, we’re convening the Finance Indaba Africa which will be the biggest gathering of finance professionals on the continent. As MD, my role is to listen to and accommodate your needs as finance professionals and make sure that you stay ahead of the curve. Don’t hesitate to get in touch and I look forward to meeting more of you, and supporting your professional and commercial ambitions.l
Graham Fehrsen graham@cfo.co.za +27 (0)79 898 0227
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“Reputational risk is very tough to manage. It is not on the balance sheet, but it is crucial to us. Our clients trust us and I feel that I contribute to that.”
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STRATEGY & GROWTH An exclusive interview with Alexander Forbes CFO Deon Viljoen
Driven by a higher purpose Being a business partner is extremely important, but a CFO should never forget to bring his or her financial acumen to the table, says CFO of the Year 2015 Deon Viljoen. As money boss at Alexander Forbes he has guided the company through a rebirth that included a delisting and a relisting on the JSE. These days ‘higher purpose’ and ‘balancing stakeholders’ are key success factors at South Africa’s largest retirement fund administrator, he reveals. However, only when you manage to get all the basics done more efficiently, timely and accurately, can you sustainably shift your focus towards co-piloting the business.
What was the response when you were elected CFO of the Year 2015? “I received a lot of great messages and congratulations. News travels fast these days and I have been getting nice emails from people who I haven’t been in touch with for years. I was very surprised and humbled to win the CFO of the Year award and it really took quite a while to sink in. There were a lot of strong candidates. Why did I win? Maybe the judges looked at my achievements over a longer period and how I have performed as an Alexander Forbes executive through truly difficult times? The company has come out at the other end as a stronger, well-positioned business. By no means does this mean that the challenge is over. In fact, the Alexander Forbes challenge is only now really on and I can only hope that I do justice to the award in times to come.”
“At Alexander Forbes, our biggest asset is goodwill. We sell expertise, IP, relationships and trust. Reputational risk is very tough to manage. It is not on the balance sheet, but it is crucial to us. Our clients trust us and I feel that I contribute to that.”
What do you like about the CFO role? “As CFO I am at the centre of the strategic decision making. Although I joke about having aged in dog years during the last seven years in this role, I have also gained a lot of wisdom. You do get exposed to a lot, especially when times are tough. In my acceptance at the awards, I mentioned that there are two kinds of challenges. Those that you elect to get involved in because you are so passionate about them and then those that are handed to you because of circumstances and where you just have to step up to the
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STRATEGY & GROWTH plate. I mentioned that personally I’m not sure which of those two inspire me more as the inspiration for each comes from a very different part of your psyche or being.”
Who were your mentors? “When I worked at Coopers & Lybrand, and later when it merged into PwC, I worked with a group of professionals and they have had a very significant impact on my career. That was still in the era of true partnership and even before I became partner I had people who were willing to invest time and effort to look after me. I will always be thankful to people like my articles principal Daniel de Kock, who had lots of experience, great wisdom and was a professional with absolute integrity. During that period I also saw a lot of different industries and only later I specialised in financial services and banking. To hone those skills I was seconded to London and when I came back I was offered a partnership in the South African firm. Audit is really a fantastic profession to build your skills if you want to be a CFO and I was privileged to meet many great influences along the way.” “During my time with Alexander Forbes, I also had the privilege of working with unbelievably talented individuals including my predecessor Mike Ilsley, and you might recall in a relatively short space of time I worked with no less than four different CEOs. Each of them of course brought their own unique strengths and approaches to the equation. Maybe I was fortunate but I could work very well with all of them and I learnt a lot from each one of those individuals. I guess how you deal with circumstances and what you take from it has a lot to do with your values and upbringing and there I can only thank my unbelievably committed parents who always gave us the right guidance and who sacrificed so much in our interest without ever thinking twice.”
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solutions that accommodate all stakeholders. I like dealing with multi-dimensional issues and consider myself capable of offering a perspective that perhaps nobody has thought of.”
“My personal career goals are secondary to ensuring that I don’t disappoint those who put their trust in us.” What are your career goals? “I take the responsibility placed on me by our clients and employees as well as shareholders and the community very seriously. My personal career goals are secondary to ensuring that I don’t disappoint those who put their trust in us. My goal is to add value and make a positive difference, wherever I am. Adding true value and balancing stakeholders are two sides of the same coin and very important to me personally. They should be crucial to each organisation, because they talk to sustainability. For now, I would like to think that Alexander Forbes, an almost 80-year-old organisation, will still be around 80 years from now. I hope to contribute to that.”
How do you juggle the demands on your time?
What makes you successful?
“I wouldn’t necessarily consider myself an expert in this field. I find finance is often the default home for anything that doesn’t have a designated owner. In order to deal with that challenge, I have split off the logistical and operational issues that tend to end up in finance, so they can receive dedicated attention.”
“Let me qualify my answer first by saying that I strongly believe that you should define yourself not by what you do but by who you are. That opens an entirely different philosophical discussion perhaps for another day. I presume you ask this question from a professional perspective and there you are only as good as your last game. I always try to understand all of the moving parts of the business and I am usually able to find sustainable, long-term
“Sometimes you need a very strong general manager, not so much a technical finance person, to help institutionalise the way a finance department works. Whatever comes up in a business, if it is likely to be recurring in nature, the process dealing with it must be institutionalised to avoid crisis managing the same issue again. That creates sustainable solutions that ultimately takes the pressure off finance.”
CFO MAGAZINE • CFO.CO.ZA
STRATEGY & GROWTH What was it like to delist and relist a firm within seven years? “We delisted in July 2007 after a bid by a private equity consortium. I had just become CFO during that period. You will recall that a few months later the world was a totally different place as we witnessed the start of the global financial crisis. As a private equity owned company we were typically highly leveraged, which meant our risk appetite for earnings volatility in particular had to change. We were also a very complex organisation with a complex shareholding structure and even more complex capital structure. This included existing shareholders who were previously invested when we were listed that had wanted to remain invested and for whom we had created a special purpose vehicle listed on the JSE. That meant that we had to navigate through some very tough times with lots of debt but effectively remained in the public domain with a very wide spectrum of shareholders with different positions. During those seven years many regulatory changes also came through that required additional regulatory capital – none of this of course ideal for a highly leveraged private equity structure.” “The listing last year was the culmination of 7 years of hard work in which we also restructured and sold certain businesses. In fact, when the private equity shareholders acquired the group in 2007, the group’s net revenue was around R4.4 billion. Of that 2007 equivalent, we disposed of approximately R1.6 billion of revenue in a number of individual business disposals over the seven year period. At the time of relisting in 2014, the group had grown back to the R4.4 billion revenue level and at an overall improved trading margin. What we took to the market in July 2014 was therefore a very different company to the one that had delisted in 2007. The group is now much more focused and strategically well positioned for the changing dynamics in the financial services industry. We also had to reposition the group from a capital structure perspective to meet the changing regulatory environment. We did that under sometimes very difficult circumstances.”
What were the toughest decisions during those years? “There were many. The tough thing about it is that they impact people along the way and many of those decisions impacted the sus-
tainability of the organisation. The first issue that faced us was the high leverage and the resultant dependency on cash flow from the group. With hindsight one of the better decisions we made was to hedge our dependency on equity markets just after the transaction which assisted greatly when the global financial crisis happened. However, this was a pure risk appetite call and not a market call which is a very important distinction. Also, as a result of the financial crisis at the time we were unable to place the high yield bond in the European bond market as was the original intention. In a very difficult and complex series of transactions, we managed to buy back what then became a high yield term loan into shareholders’ hands. I think this transaction was absolutely definitive to ensure a successful outcome in the end. It allowed us the flexibility to navigate through the crisis, regulatory changes and avoid significant currency risk.” “In addition, we did about 15 transactions, of which there were about 3 or 4 major ones. We sold our corporate broking business to Marsh and sold Guardrisk to Momentum for example and we sold a number of UK businesses, wanting to focus on the African market. We also did a comprehensive capital restructure, just prior to the listing. At the same time we saw new regulations on the horizon, in particular the requirement for consolidated supervision. We had to prepare for that, because a highly leveraged structure would not have survived this legislation. We are now compliant with the future requirements.” “The decision to relist was another very tough one. Typically, a private equity group will look to sell after 5 to 7 years. We worked out a number of attractive exit solutions. From January 2014 we ran a very intense process, a ‘dual track’ so to speak which always led with the option of listing, but we understood there was interest in the group from trade buyers. This parallel process, while running the business at the same time, was extreme. Most companies take 2 years to list. We did the Guardrisk sale, capital restructure and parallel sale and listing process in just over one year. It was beyond challenging… very, very tough. As I mentioned in my acceptance of the CFO of the Year award, we have a surprisingly small team at the center but they are exceptional individuals who can and will take on any challenge. You cannot
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“If you want to align people around a common purpose, it has to be for a worthwhile purpose that everyone understands.” do these things without truly committed and talented people in your team, strong support from the senior people in the rest of the organisation and a great team of advisors with the right skillset.” “We had valid options with a trade sale and relisting and I feel that we managed to get the best of both worlds. The advantages of a trade buy would have been that we would be part of a large group with bigger critical mass. Listing would suit existing shareholders and would help the long term objectives. It was very much a balancing act between outgoing shareholders, incoming shareholders, staff and the business and never forgetting our valued clients. In the end Mercer acquired 34% and we went to the JSE for the rest. That is a great example of making a solution work for all partners. It provided certainty for the private equity consortium, it was an elegant transition for the existing public shareholders and it gave Mercer the opportunity to invest in an emerging market. It was a massive leap forward for them in Africa. I like the challenge of these type of multidimensional issues; involvement in strategic direction and implementation.”
What is next for Alexander Forbes? “We are a very strong institutional player, but if we want accelerated growth we need to leverage from that core in a focused manner. We have about one million South African members in the retirement funds we administer through our institutional products and another 400,000 in the rest of Africa. Now we see opportunities for that acceleration in the retail space. Corporates and institutions know us for our packaged solutions and our thought-through advice. We believe that is even more suitable to the retail client, who is more than ever in charge of his or her own financial well-being, but has also inherited the risk of being underfunded at retirement. With our intellectual property, unique skills and demonstrated capability to address the growing need for the best advice, we think there is space in the market.”
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“We have a slightly different positioning to other companies in our space. Interestingly, our main competitors, suppliers and shareholders are often the same institutions. Our proven skill is to package the best advice in an affordable accessible product. For instance, as a multi-manager, we don’t do stock selection ourselves but package the best managers in each asset class. Being less entrenched in traditional products means we can be more agile. We continue to search for improvement innovation and we are very aware of the risk and in fact, we are seeding our own disruptive innovation. Disruptive innovation will bring significant change, so we need to stay on top of that.”
What do you want to achieve with Alexander Forbes? “We thought long and hard about this question a number of years ago. When Edward Kieswetter joined as CEO, he introduced the term ‘higher purpose’. A lot of analysts looked at us strangely when we first mentioned this, but we feel it is very important to know ‘why’ we do things – what is our reason for existence? If that is not clear, you can stray and become irrelevant.”
“You need the right culture in place before the business can be agile, but first the people in the business need to understand and be agile themselves.” “If you want to align people around a common purpose, it has to be for a worthwhile purpose that everyone understands. The example Edward always gives is when NASA was aiming to put a man on the moon in the sixties, even the janitor who was sweeping the hallways at NASA headquarters would say he was contributing to putting men on the moon. Our higher purpose is securing the financial well-being of the people that we serve.” “In the past our consultants and actuarial division would deal with pension funds and corporates as clients. But the actual purpose of their work is the members of the schemes
STRATEGY & GROWTH or the employees of the corporates and their financial wellbeing. To make that cultural shift, takes a lot of work but if you see the passion in our organisation for this ambition today you will agree that we are well down that path.”
What is your dynamic with the CEO like? “As mentioned earlier, I had the privilege of working with a number of CEOs over a relatively short space of time and each of them had exceptional strong points and I was fortunate to have a very good relationship with all of them. We have proper debate of course and difference of opinion is seen as a valuable mechanism to get to the right answers. You have to have that. It is our responsibility to debate the opposite view to ensure that we consider everything and when it comes to critical decisions it is our job to make sure that we understand all the moving parts. I work very well with Edward. He has a great ability to look through the clutter, get to a level of clarity and insight and to ensure alignment with the bigger objectives. I think the entire organisation learnt a great deal about leadership working with him.”
What can a CFO do to make a business more agile?
set to the equation — that is very important. Also, as you move up the scale, the basics still need to be done. The challenge to the CFO’s evolution is getting those basics done even more efficiently, timely and accurately. Only then will you have the platform and capacity to truly co-pilot the business.” “At the same time a CFO needs to be a true leader. We had to work on breaking down the silos of our business units at Alexander Forbes, because if we all operate separately it is tough to compete in the market. Those synergies and making people work together are things you have to drive from the top as a coherent team, because people don’t naturally operate that way.”
How important is it for CFOs to meet peers? “There is great value in meeting other CFOs during events like the ones CFO South Africa organises. Just finding that you are grappling with the same issues provides a degree of comfort. You can also tap into the creativity of others that have different ways of looking at things. It is particularly good in South Africa, where CFOs often deal with such a wide range of unusual issues. They all impact on finance. We’re the wicket-keeper for everything that comes past the batsman.” l
“You need people to understand the bigger picture. As much as the things you do need to change, the true underlying reason for doing them is the constant that you align people around. This talks to the higher purpose or “why” we do rather than “what” we do as I mentioned earlier. We also invested quite a bit in leadership development. You can be a very strong accountant, actuary or salesperson but that doesn’t mean you are equipped to be a good leader. You need the right culture in place before the business can be agile, but first the people in the business need to understand and be agile themselves.”
What does the CFO of the future look like? “As businesses deal with an ever more sophisticated world, the demand on the CFO to provide true insight and guidance in decision making is growing exponentially and is ultimately far more important. I encourage the FDs of our divisions to move through that evolutionary scale of sophistication and value add. It goes from pure financial accounting, to process manager, to business partner and ultimately to value driver. As you evolve to become more of a business partner and more value adding, you need to remain responsible for bringing the financial skills
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Taking CFO events to the next level CFO South Africa’s events have really made a leap to the next level in 2015. Elsewhere in this magazine there are reports on the CFO Awards (p6) and our October event on digital transformation (p75). Here’s a summary of the CFO get-togethers in June, July and September. Business partners Our 25 June event took us to KPMG’s Wanooka Place and provided “really stimulating and brilliant discussion”, as CFO of the Year Deon Viljoen (Alexander Forbes) called it in closing. The afternoon saw a star-studded line up and provided a platform for deep and meaningful conversations about the way CFOs can influence and drive growth as business partners. Keynote speaker was Sasol CFO Bongani Nqwababa, who spoke about the reorganisation he led at Anglo American Platinum (see interview p57). “Success is adding value to yourself,” Bongani said. “But significance is adding value to others.” The discussion was energetically moderated by whirlwind business speaker Vusi Thembekwayo, with valuable input by JSE Limited CEO Nicky Newton-King and property mogul Marc Wainer of Redefine Properties.
Effective growth Alexander Forbes CFO Deon Viljoen was back during our 30 July event at the Nedbank headquarters in Sandton to share how he dealt with the turbulent recent history at the country’s biggest pension funds administrator (see interview p12). The ensuing panel discussion, led by our own Graham Fehrsen, turned into a conversation about risk, with Anthonie de Beer, partner at Ethos Private Equity, emphasising the leadership role the CFO has to play as a “cornerstone of integ-
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rity”. Karel Janse van Rensburg, executive head: finance and strategy at Nedbank’s Corporate Investment Banking advised to “always trust your gut. Don’t let it go, don’t let it grow but deal with it.” Natalie Kolbe, partner South Africa and West Africa at Actis, said that “you need an internal structure to deal with risk, but the real test is what you do about the external environment”.
Planning, budgeting, forecasting On 17 September at the 54 on Bath hotel in Rosebank, KPMG’s Charl du Toit opened with an insightful presentation about planning, budgeting and forecasting (see his guest article on p19). Individual presentations by Derik Rothman (Futuresense), Seldon Goodwin (Ethoss), Carl Janse van Rensburg (Intellient) and Zafar Mahomed (CFO of McDonald’s SA) each offered further insight into the topic. Armin Moradi, territory manager financials for South Africa Oracle, led attendees through research he conducted into the status of PBF in South African companies, having interviewed some 100 organisations. A select number of CFOs attended simultaneous roundtable sessions, discussing what their companies would look like if Steve Jobs was in charge. KPMG technology ace Frank Rizzo chaired one of those sessions, while the always impressive CEO Victor Sekese of SizweNtsalubaGobodo enthralled a group of public sector CFOs. l
Visit cfo.co.za become a member and join us at our events!
STRATEGY & GROWTH BY CHARL DU TOIT
Using integrated business planning as an approach to develop your organisation as a leading planning, budgeting and forecasting practice
Drive better business decisions In the majority of organisations, planning, budgeting and forecasting (PBF) processes are flawed. KMPG’s Charl du Toit suggests that a fully integrated planning process is essential to deliver full benefit and value from the planning process – and help your organisation achieve its goals.
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common theme at KPMG is seeing in its client base is that the planning function is placed under stress from a variety of sources. These include internal pressures, such as organisational complexity, skills shortages, disparate systems and governance issues, as well as external pressures, such as market forces and expectations, geographic requirements, and disruptive technologies.
In the face of these challenges, current PBF processes are characterised by a large investment in sub-optimal processes which do not meet the strategic or operational needs of the business. Instead, they should be investing in fully integrated planning processes, like Integrated Business Planning. Some of the key challenges for organisations are: •
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Inconsistent planning processes – different approaches to planning across the organisation means different understandings of key measures, and inconsistent methods leading to disconnected plans. Planning and forecast accuracy – the budgets and forecasts delivered were not particularly accurate, which causes concern both internally and externally. Integration of actuals and plans – some organisations struggle to integrate the plans with the actual data, because they don’t have a single planning platform, and do have a number of disparate source systems. This makes it difficult to accurately report on performance against plan.
WHY SOUTH AFRICA LAGS BEHIND In South Africa, the PBF processes lag far behind other developed countries. It takes South African companies eight to 12 weeks to complete a budgeting cycle. It takes European and North American countries companies an average of four weeks to do the same. One of the reasons for this much longer budget cycle time is that South African companies underuse rolling forecasts. A survey by Oracle found that 84% of South African companies do not do any form of rolling forecasts and, even worse, 74% of South African companies do no forecasting at all. Effective forecasting means the forecast can inform the budget and lessen budget cycle time, and if done correctly a rolling forecast can supplant a budget completely, where a version of the forecast becomes the budget. If this is used in conjunction with a standardised budgeting platform (61% of South African companies do their budgets on Excel), combined with a true integrated business planning approach to planning, South African companies have a huge opportunity to improve and gain true value from the planning process.
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Companies are starting to implement certain measures in the PBF processes in order to address these typical issues. Some of the key trends are: •
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Process standardisation – companies are standardising their planning approach across the entire organisation to ensure consistency in method and interpretation of results, and to ensure all areas use the same definitions of key metrics. Reduction of planning content – organisations are planning on less line items, focusing on the key items which have the most impact on results. This goes hand in hand with using value-based driver models, which lessens the amount of input required and calculates more detailed plans based on the well-defined drivers. Less budget and more forecast – organisations are moving away from a once-a-year budget process and implementing monthly or quarterly rolling forecasts which are more dynamic and provide more timely feedback on performance.
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Use of a standard technology platform – organisations are implementing standard planning technology platforms, and moving away from Excel and siloed planning systems. This helps ensure consistency in approach, definitions, and the use of consistent planning methods.
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• KPMG has analysed some of the global organisations recognised as leaders when it comes to their PBF processes. Some of the behaviours which were common across these organisations include the following: •
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Rolling forecasts – every single one of the leading practices made use of rolling forecasts, usually on a monthly basis. This means they have a completely up-todate view of how performance is tracking and are able to adjust targets and expectations more frequently in response to changing environments. Value-driven budget models – the leading practices defined budget models based on the key measures which drive performance and the model calcu-
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lates the more detailed items automatically. Align budget to KPIs – planning is done on key indicators linked to strategy, not purely on the financial account structure. This ensures the plan can be used to measure achievement of strategy. High level of accuracy vs good enough – the leading practices insist on having forecasts and budgets of a high level of accuracy and do not accept ‘good enough’ plans. Variance analysis aligned with business imperatives – Variance analysis is not just an automatic actual vs plan report for every single line item, but rather focused on measuring the variance of key indicators, as dictated by the business imperatives relevant at that specific point in time. Collaborative target setting – targets are set through a collaborative process which ensures there is buy-in and ownership of targets, and not something forced down from above. Fully integrated ERP and EPM environments – there is full integra-
STRATEGY & GROWTH can an integrated planning model be realised. 3. Improve business decisions – Due to the alignment of planning processes, having a common platform, understanding of measures and results, being able to know results sooner and being able to perform better analysis, implementing IBP correctly will drive better business decisions.
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tion between the ERP and planning systems, making it possible to import actual data for proper analysis of performance, and to use this to adjust forecasts using the latest available data. Fully trained, empowered employees – leading practices ensure the employees involved with the planning process are firstly fully trained to use the available technology and secondly, are empowered to take ownership of their plans. Use enabling technologies – leading practices all make use of some kind of common, central planning platform, and not disparate, Excel-based processes. This drives consistency in approach and definition of measures and methods.
Integrated business planning In order to address these challenges in the PBF process, and to assist organisations to move towards becoming leading PBF practices, KPMG suggests that companies implement an integrated business planning (IBP) approach. IBP aligns strategic planning, financial planning, and other operational planning activities such
as supply chain, sales, marketing and product development planning into a unified planning operating model in order to make proactive business trade-offs and improvement decisions. IBP creates value by realising three specific objectives to support improved financial performance: 1. Integrate planning activities – IBP aims to integrate all the different levels of planning activities, i.e. strategy, finance, sales, product and operations planning, into a single model, to drive common approaches and make it easy to share data between different activities to ensure consistent results. 2. Understand key business drivers – For an integrated model to work across all levels, it is vital to have a shared understanding of key business drivers. It is a truism in the PBF field that the more important a measure is to the organisation, the more different definitions there are of what it actually means. Only through a common understanding of these key drivers
“IBP connects strategy with execution and intent with outcome and it makes it possible to accurately and quickly measure this.” In short, IBP connects strategy with execution and intent with outcome, and makes it possible to accurately and quickly measure this. IBP harmonises financial and operational processes with customer demand, enables organisations to optimally collaborate and address cross-functional business decisions, and delivers alignment of planning and execution processes to improve predictability and financial perfor-
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STRATEGY & GROWTH mance. A key aspect of IBP is that it impacts all aspects of financial statements, and does not just provide a sales or expenses plan.
IBP leading capabilities In order to effectively implement IBP, the KPMG IBP operational model provides guidance to the leading capabilities required. These capabilities, if developed correctly, will help ensure your organisation can implement a proper IBP model, which covers all the required bases. These capabilities are organised according to the key objectives for IBP as outlined above.l
“ 84% of South African companies do not do any form of rolling forecasts and, even worse, 74% of South African companies do no forecasting at all.�
How to approach implementing IBP at your organisation It might seem like a huge task to implement IBP at your organisation. Taking a sub-optimal planning process, which might suffer from most, if not all, of the issues discussed earlier, and changing that into an IBP model which delivers on the promised benefits might seem like too much to take on. However, at KPMG we can assist and we have an approach which has proven effective to do exactly this. Like all large transformations, we do not suggest you do all at one, but rather take a step-by-step approach. Our suggested approach covers the following areas:
1. Develop your current PBF state hypotheses Analyse your current PBF processes and determine the current state. At KPMG we have industry benchmark databases which are used to benchmark your planning function against your peers, which helps identify problem areas.
2. Prioritise key IBP gaps and opportunities This is done by firstly doing a maturity assessment of your existing planning environment. This is done by plotting the planning maturity against 12 key dimensions which helps sketch a picture of how mature your processes are across various key elements. After this, key gaps are identified and prioritised based on the business impact and level of effort for each of these.
3. Develop a planning transformation roadmap The desired future state for planning is developed using the IBP framework, as well as guiding principles relevant to the organisation such required timing, accuracy targets, etc. A governance and role matrix is develop to align key stakeholders and ensure everyone required is involved. Execute on key initiatives and embark on the transformation journey. Based on the roadmap, execute quick wins, measure the success of these, and maintain momentum by continually adding to and improving the IBP environment.
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Cyber security should be on your agenda. KPMG’s annual Data Loss Barometer Study shows that the Insurance sector was at the greatest risk from Social Engineering attacks and Human Error incidents. Do not let your organisation be the next target of a cybersecurity breach – be proactive and prepare your response. Let KPMG assist you to address your cyber security issues before you are targeted. Herman De Beer Director 082 719 2533 herman.debeer@kpmg.co.za Jason Gottschalk 082 719 1804 jason.gottschalk@kpmg.co.za
LEADERSHIP BY BRETT TROMP
Why health should be a reporting imperative; the fourth bottom line
Health: the new economic value driver The health of a workforce is a critical economic driver. There is a direct financial correlation between employee wellness and business outputs. With approximately 42% of all non-communicable diseases deaths globally occurring before the age of 70, business as usual is no longer an option, suggests Discovery Health CFO, Brett Tromp.
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mployers are realising they need to step up efforts to create and promote an enabling environment for healthy behaviours among their employees. The next evolution in corporate reporting relates to this realisation. It is the emergence of a ‘fourth bottom line’ – the integration of health metrics into traditional corporate reporting. Corporate reporting has evolved from reporting only financial infor-
mation to reporting information that gives stakeholders a detailed understanding of all aspects of the business, including the organisation’s past performance, its strategy, value creation and future outlook. Current reporting covers financial, environmental, social and governance elements. However, reporting on health has largely been neglected, even though the wellbeing of employees has a substantial impact on business success and sustainability. Employees with multiple risk factors for disease are more likely to be high-cost employees in terms of absenteeism, disability, reduced employee morale and significantly reduced levels of employee engagement and productivity – often referred to as presenteeism. These employees are also more likely to incur higher healthcare costs and so not only impact the financial performance of the employer, but also the wider economy. As such, there is a strong rationale and incentive for employers to implement and report on workplace health programmes targeting the primary prevention of risk factors and the early detection and management of NCDs. Five NCDs – cardiovascular diseases (like heart attacks and strokes), can-
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Non-communicable diseases (NCDs) are one of the major challenges for development in the 21st century. Currently more deaths are caused by NCDs than all other causes combined, with global NCD deaths projected to increase from 38 million in 2012 to 52 million by 2030. cers, chronic respiratory diseases, diabetes and mental illness – result in over 75% of deaths worldwide. These five diseases combined are colloquially referred to as chronic diseases of lifestyle because they are often caused or aggravated by unhealthy lifestyle behaviours. What does the research say? Local and international research points to a positive correlation between a healthy workforce and improved financial performance. A study performed by Fabius, published in the Journal of Occupational and Environmental Medicine, identified a group of US companies who were Corporate Health Achievement Award winners and combined them into a portfolio. The stock market performance of this portfolio of healthy companies was tracked between 1999 and 2012 and an investment in this portfolio outperformed the S&P 500 by more than 50%.
LEADERSHIP
“Discovery Health data on our own service agents’ health and performance, undertaken from 2010 to 2012, indicated that customers received better service from non-smokers than from smokers.” An unpublished paper submitted for publication in the Journal of Occupational and Environmental Medicine yielded similar results to the Fabius study as it presented research on the effect of employee health promotion through corporate wellness programmes in South African companies. The conclusion reached was that companies which build a culture of health by focusing on the well-being and safety of their workforce yield greater value for their investors.
Investing in workplace wellness
those who do not show higher levels of absenteeism, accounting for about a 3% increase in direct and indirect costs for the employer. Discovery Health data on our own service agent’s health and performance, undertaken from 2010 to 2012, indicated that customers received better service from non-smokers than from smokers. The overall performance in terms of service delivery was better for non-smokers and their risk of error was also lower.
Similar research data from Discovery Health in the same period looked at the effects of employee wellness on productivity levels. The results clearly demonstrate the effect of poor health on productivity. Employees in poor health had a negative 8.9% effect on productivity, compared with their healthier colleagues who had a positive 6.5% impact on overall productivity. This reveals a direct effect on the bottom line, with healthier employees being almost 16% more productive. There’s no doubt that that there is a
Many workplace health programmes have been implemented globally. Experience and evidence to date show that a strategic and integrated approach is essential to address workplace health effectively. Employers who take a more comprehensive and planned approach to workplace health and wellness have seen increases in productivity and, ultimately, improved financial performance. Research conducted by Discovery Vitality further supports the link between workplace health programmes and improved productivity and performance. This research shows that employees who participate in workplace wellness programmes exhibit lower absenteeism, whereas
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“Health reporting can help organisations create and promote environments for healthy behaviours, which will extend not only to employees but also to their families.”
tangible correlation between healthy lifestyle behaviours and improved personal and organisational performance.
Health as a reporting imperative The next evolution in corporate reporting is the emergence of a ‘fourth bottom line’ – the integration of health metrics into traditional corporate reporting. These health metrics should align with, and expand on, existing reporting frameworks, like the International Integrated Reporting Framework and Global Reporting Initiative (GRI) G4 guidelines. Health metrics add to a more comprehensive interpretation of human capital, one of the six capitals included in the Integrated Reporting Framework. Integrated reporting such as this adds a new dimension to existing labour and health disclosures in GRI standards.
The fourth bottom line Health metrics need to be: applicable to the entire working population; material; understandable to non-
health professionals; comparable across organisations; and motivational. High-level categories include, but are not limited to, reporting on the company’s: • • • • •
Culture of health Leadership Investment in health culture Health and wellness measurements Health and wellness awareness and promotion.
Measuring employee health and wellness provides an indication of the well-being of the organisation. It is also a direct indicator of the well-being of a country’s workforce, making health reporting a national priority and not just a corporate one. Health reporting can help organisations create and promote environments for healthy behaviours, which will extend not only to employees but also to their families. This can result in healthier workforces as well
BRETT TROMP Brett Tromp is a qualified chartered accountant and has been the chief financial officer of Discovery Health since 2007. He has been with the Discovery Group since 2003 and has vast experience of the Health Insurance Industry. He also has experience in treasury, due diligences and financial modelling as well as significant international health insurance exposure, obtained during his travels into Africa, the US and the UK. Brett has lived in the US where he worked for KPMG and audited fortune 500 companies. He has been an external member of the University of Johannesburg’s Finance and Investment management honours programme, in charge of moderating the honours syllabus, and also chairs an NPO’s finance committee and sits on other finance committees. Brett was named as Young CFO of the Year and won the award for the best High Performing Finance team at the CFO Awards 2015. He is married and has twin boys and a daughter. as healthier cities and countries. The ‘fourth bottom line’ also meets the government’s call to action for the private sector to partner with the public sector in responding to the challenge of NCDs. This helps organisations fulfil their shared value and corporate citizenship obligations, and can have profound positive effects on individuals, companies and societies as a whole. l References: World Health Organisation: Global Status Report on Noncommunicable Diseases 2014. World Health Organisation: Interim Report WHO Global Coordination Mechanism on NCDs. Fabius et al: The Link between Workforce Health and Safety and the Health of the Bottom Line. Conradie, C., Smit, E. & Malan, D. 2015 (unpublished). Corporate Health and Wellness and the Financial Bottom Line: Evidence from South Africa. Paper submitted for publication in Journal of Occupational and Environmental Medicine.
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LEADERSHIP 11 of SA’s best CFOs reveal their secrets
Recipes for success Is it IT? Is it the team? Is it super hard work? These days every CFO and their smartphone can crunch numbers and predict ups and downs. More than ever though, money bosses are in a pivotal position to steer their business towards glory. In this article, 11 of South Africa’s best chief financial officers – all nominees for the 2015 CFO Awards – reveal their recipes for success.
Colin Brown, Super Group “One of my recipes for success is having a very good understanding of IT. I learnt how to program at a young age and can program in Microsoft SQL. This has really helped me to have hands on skills and experience with managing IT. I know I have this skill, so that is why I can do it myself if necessary. IT people are very good in building things, but they often have a blind spot for what the business really wants.” “I came into Super Group as head of treasury in 2009. I personally created a treasury reporting database that we have used for internal and ex-
ternal reporting of the group’s cash position on a daily basis. We are still using that same database today. We have been able to drive significant interest benefits by moving cash around. Benefits such as these are why I believe that a CFO that doesn’t understand IT is at risk.”
Colin Brown (Super Group): “I believe that a CFO that doesn’t understand IT is at risk.” CFO MAGAZINE • CFO.CO.ZA
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LEADERSHIP organisation. When our staff gets poached, I see that as a good sign.” “One of the success points of finance is how we use our 163 staff members. I have devolved responsibility to directors and we make sure that the teams own the decisions that are taken. The best way to get buy in is for executives to provide the team with information, recognise good work and give feedback.”
Brooks Mparutsa, Hollard Insurance
Megan Pydigadu, MiX Telematics
“My recipe is being accessible and close to the 105 people on the finance team. It is also important to have a long-term view. Often we look at numbers coldly, but the longer term requires a strategic view. I like the word engaging. I want to be inspiring my team through personal relationships. I do a lot of coaching of people in my team. I am making sure they have a passion. When you show you care about people as individuals, by asking after their children for example, you create a sense of belonging and people will do amazing things.”
“Surrounding myself with a good team, which I think I have done. The head office team I have built up is young, but energised and very innovative. You have to be innovative to be able to adapt. Being in touch with the business is also crucial. That is why I speak with our six regional financial directors on a weekly basis.”
“Often we look at numbers coldly, but the longer term requires a strategic view.” - Brooks Mparutsa (Hollard Insurance) 28
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Vuyo Mafata, Unemployment Insurance Fund “I work with the right people, systems and processes. I make people understand what has to be done, why and what the impact of it is. As finance we exist to provide support, we are the oil that lubricates the
Vuyo Mafata (UIF): “As finance we exist to provide support, we are the oil that lubricates the organisation. When our staff gets poached, I see that as a good sign.”
“The majority of the staff was around when things were bad at the UIF. They owned the transformation and there is a sense of pride about that. They realise the importance of the quality of information: what they put in, comes out. We have had a clean audit for the last seven years. That should be the norm, but in government it is an achievement. The key thing is involving people at grassroots during a transformation. That is the thing we continuously get right and that is also how we are approaching our current SAP implementation.”
LEADERSHIP Lawrence Weitzman, Business Connexion
Reeza Isaacs, Woolworths
“Hard work and having a great, mature team that I can trust. I also make sure I understand the details. That helps me gain the trust of people and it makes it easier for me to have conversations. But it does take more time.” “My success lies in how I manage the team. These guys sit here at 8 or 9 o’clock at night. They trust me as a leader. It is about a value system, being consistent and backing difficult decisions. Every morning that I am in this office, I go around and greet everyone. I try and give people space to do their own things and to make mistakes.”
“There is no substitute for hard work. You have got to put in the hours. As a CFO, you can’t do everything on your own, so you need a good team around you. That is key. You have to make sure that you have competent people around you. In addition, you need to be strategic, yet you need to know when it is time for you to go into detail.”
Brett Clark, Mpact “I try to keep things simple and set high expectations for people who report to me. I stick to what I am good at and I do not try to do everything. Where possible, I try to resolve matters quickly and get professional advice early. For instance, if we have a technical accounting disclosure issue, we consult with our auditor early and agree on the way forward, so that major issues are agreed well before the year-end audit. Communication is also crucial, so I spend a lot of time making sure that the members of the board know exactly what is happening in the business.”
“There is no substitute for hard work.” - Reeza Isaacs (Woolworths) Ronel van Dijk, Spur Group “It is very important to surround yourself with strong people who speak up when they disagree. I empower them, because that allows me to have balance. I did articles at Arthur Andersen. My second-in-command and his deputy trained with me there and now work for me. We finish each other’s sentences.”
“I try to keep things simple and set high expectations for people who report to me.” - Brett Clark (Mpact) CFO MAGAZINE • CFO.CO.ZA
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“My view is to try and get the company in a position that we are a net exporter of talent.” - Kevin Johnson (Howden Africa) Kevin Johnson, Howden Africa “So many CFOs try to do everything themselves. I try to make sure I recruit people that can jump up two levels quickly. They are very motivated and really want to work hard for you and be successful. My view is to try and get the company in a position that we are a net exporter of talent and become resilient enough that things continue at the same standard without any one individual.”
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Suren Singh, Morvest Business
David Edley, Santova
“My dad always said: protect your good name, because it is your biggest asset. I know what I want and believe clarity is power. Vague goals promote vague results. I want to be the most passionate person in what I do. When I’m successful in that, it will become contagious. I want to know more about my craft and the work I do than anyone has ever done in the history of the world. That is why I devote my time to learning something new about my field every day. I believe in investing in my personal and professional development, like all superstars do. A sound value system is crucial too and includes honesty, integrity, trustworthiness and passion.”
“I have learnt over time where my skills and strengths lie and this role is perfectly suited to those. Also I have come to realise that management is very much about teamwork being complementary skills and personalities, which I really enjoy. The CFO role is a supportive role and that suits my strengths. As a result I find myself enjoying the role and embracing regulatory and technical challenges that in the past I often fought against. This has put me in a position where I feel I am able to impart knowledge to others and ready to start acting as a mentor. I think I went through my midlife crisis early, I left a role in an established bank and started a business with a lot of financial risk that was not ideally suited to my personality. I have that behind me now and have focused a lot of energy on my current role, which really suits me.”l
Suren Singh (Morvest Business): “I want to be the most passionate person in what I do. When I’m successful in that, it will become contagious.”
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Find out more at www.finance-indaba.co.za
Landmark expo and conference for finance professionals in Johannesburg
Introducing the Finance Indaba Africa 2016 The Finance Indaba Africa, scheduled to take place on 13 and 14 October 2016, promises to be a game changer for finance professionals. It is poised to be the biggest and best event of this nature that the continent has ever seen. We spoke to Melle Eijckelhoff, founding director of CFO South Africa and the driving force behind next year’s event. “Finance drives business and its role has never been more important than now, especially as the demands on finance professional are growing and changing all the time,” says Melle, an experienced organiser of large multi-day finance events in Europe. “The difference between success and failure is often determined by the quality of the finance team and processes.” Together with Alex van Groningen, Melle is the founder of CFO South Africa, the leading platform for finance leaders in Africa. With its
focus on knowledge-sharing, networking and building careers, CFO South Africa runs the annual CFO Awards extravaganza, monthly CFO events, a quarterly CFO Magazine and the dynamic website, CFO.co.za. The organisation is well-positioned as a one-stop-shop for chief financial officers and financial directors and has realised the need to expand its reach to cater for all finance professionals. This is what motivated the first-ever Finance Indaba Africa. “The trend is that finance takes on an increasingly broad role as information manag-
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LEADERSHIP er in an organisation,” Melle explains. “This includes business intelligence (BI), but also the collection and interpretation of data around risk, governance and compliance. More and more tasks and responsibilities are added to the finance team, which – at the same time – is also regarded as the conscience of the organisation.” Finance professionals do not operate in isolation, but they can use the help of many suppliers, tools and platforms. “There is a large service industry and they, too, are becoming more professional,” Melle notes. “Through our daily engagements with CFOs we have seen that it is once again okay to invest in the finance function, whereas for a while most of the emphasis used to be on efficiency. However, there is so much out there – where should the money go? It can be hard to see the wood for the trees. Besides, finance people spend 80% of their time on tasks that need to be done now. Who has time to look at the many possible suppliers and services on offer? This is why we’ve designed the Finance Indaba to bring together all the players over a period of days.” The Finance Indaba Africa 2016 will consist of a large expo and a conference, which will be entirely based on a CFO’s agenda, Melle reveals. “It will be a place where finance people can showcase results and best practices, frankly debate challenges and solutions, experiment and try out products and make new connections. Topics will range as widely as the finance portfolio, with sessions on process automation, big data, recruitment, fast-close, talent management, risk and compliance. I can guarantee that many visitors will be surprised by how much is possible in the 21st century.”
“There is clearly a need for finance people and service providers in South Africa to meet each other in one space.” Organising the first edition of any major event may make even the most confident of people nervous, but Melle says he is not worried, as there is clearly a need for finance
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people and service providers in South Africa to meet each other in one space. Indaba partnerships have already been struck with firms like KPMG, Old Mutual and Sage One, indicating there is a hunger in the industry for an event like this. “We would be happy if at least 5,000 finance professional spend a day listening to presentations, visiting stands, finding their employer of the future,” says Melle. “It will be a great place to make new friends and get a total overview of what’s out there in the finance space.” As an experienced organiser of finance events, Melle knows how to make sure that the get-together will not be dry or boring. “The Finance Indaba Africa is being organised by CFO South Africa and we will make sure – as we always do – that presentations will be based on real-life examples, stories will be shared by top CFOs, Awards winners will share their recipes for success, inspiring speakers will challenge and disrupt, and that you’ll have plenty of opportunities to meet your next employer or employee.” This is because besides being a comprehensive expo, the Africa Finance Indada will also be the biggest networking event for finance professionals on the annual calendar. The event will take over a whole floor of the Sandton Convention Centre for two days. “In the future I expect the Africa Finance Indaba to occupy the whole centre for an entire week,” says Melle. He notes that for service providers, Finance Indaba Africa 2016 offers a unique opportunity to showcase services and products for a relevant audience of influencers and decision makers. “It doesn’t often happen that you meet thousands of potential clients in one place. With side events for members of professional bodies and alumni of big audit firms, the target audience for many service providers will all be sharing the same space. We have diverse packages for partners, offering great opportunities for brand awareness, product presentations, taking the stage and showing creativity.” l
Find out more at www.finance-indaba.co.za
Share your ideas and help South Africa grow
The call for speakers for Finance Indaba Africa is open Finance Indaba Africa is the largest expo and conference for finance professionals. It brings together peers, advisors, technology suppliers, banks, platforms, tools, CFOs and thought leaders. Over 5,000 visitors tap into a wealth of resources, knowhow and inspiration.
We are calling for speakers: are you enabling businesses to cut costs, boost sales, productivity and company profits? Then share your ideas at the Finance Indaba and help the country grow. Contact Graham Fehrsen on 079 898 0227 / gfehrsen@cfo.co.za.
Visit Finance-Indaba.co.za and boost your profits by 100%.
GOVERNANCE BY PROF ALEXANDRA WATSON
An Expert Insight by Prof Alex Watson
Five tips for integrated reports When a fellow adjudicator of EY’s Excellence in Integrated Reporting awards asked Prof Alex Watson, Richard Sonnenberg Professor of Accounting at the College of Accounting of the University of Cape Town, to identify areas where companies should be focusing in order to improve their integrated reports, she came up with five tips based on her review of the 2014 integrated reports of the 100 largest listed companies and ten largest state-owned companies. ue creation, or destruction. Very few companies articulate what value they are attempting to create, with those that do largely referring to generating returns for shareholders. While IR is reporting through the lens of a financial investor, this does not imply that the only goal of the company should be to generate financial returns. If the goals of the organisation are to keep the lights on while supporting black economic empowerment (BEE), or preserving jobs in the mining sector, that should be made clear.
1. Get the right business model inputs While an increasing number of companies have pretty graphics of their business model, there needs to be more focus on the inputs that the business model relies on, and how the business model uses those inputs to produce outputs and outcomes. 2. Identify what ‘value’ means to the business Integrated reporting (IR) is about val-
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3. Know your ‘outputs’ from your ‘outcomes’ There appears to be significant confusion between ‘outputs’ and ‘outcomes’, despite the fact that both terms are defined in the glossary to the IR Framework. Outcomes are consequences or impacts of the business model and should include negative as well as positive impacts. While there may be outputs and outcomes for each of the six capitals, there is a no direct link with the inputs to the business model, for example, spending money on training staff will reduce financial capital
while increasing human capital in the current year. 4. Disclose the trade-offs in the business model While many companies are increasing the level of disclosure of environmental or social outputs or impacts, there is very little disclosure relating to how trade-offs between different capitals influence the strategy of the company. Many companies disclose how much more efficient their production processes have become, but there is little or no disclosure of the impact of that efficiency on other capitals. For example, how much more is the company prepared to pay to use a system that consumes less water, or emits less carbon dioxide? How much value is placed on job losses when deciding whether to mechanise a process? 5. Don’t hide the bad news Hiding the bad news reduces the credibility and usefulness of the report. This is particularly noticeable in relation to outcomes, where in many cases only positive outcomes or consequences are presented, whereas many positive outcomes have negative outcomes for different capitals. Readers of the report are aware of many of the challenges that companies face. Highlighting those indicates that management is giving them the necessary attention. While we understand that there are many commercial sensitivities, we do believe that companies could do a better job of communicating the factors that decision makers are taking into account. l Prof Alex Watson is one of the most popular expert insight contributors on CFO.co.za. She is also editor of various financial reporting textbooks, a member of national and international reporting work groups, and independent director and audit committee chair of two listed companies. As part of SAICA’s Competency Framework Part 1 Working Group she was involved in the latest CA examination changes.
“If you think you can carry on with business as usual… welcome to the age of stupidity!”
World-exclusive interview with Prof Mervyn King – CFOs critical for integrated thinking
Radical change “My grandson Daniel, who calls me ‘judge’ like many other people, recently said ‘Judge, you are always in airplanes, you must have a big carbon footprint?’ He also asked me if I recycle all the paper I use. And that was coming from an eight-year-old.” Not only is Prof Mervyn King’s anecdote endearing, the former Supreme Court judge and global governance guru so makes a good point: even an eight-year-old knows that the world is changing. “It will be a disaster if companies don’t start thinking in an integrated way.” CFO MAGAZINE • CFO.CO.ZA
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rof Mervyn King hardly needs introducing. His three reports on corporate governance – with a fourth in the offing – have not only set the standard in South Africa, but are considered reporting ‘gospel’ the world over. It’s therefore no surprise that he currently chairs the International Integrated Reporting Council (IIRC) and is jetting all over the world advocating an integrated approach to governance. With his sights now also set on the public sector, CFO South Africa spoke to Prof King about best practices in corporate reporting, the crucial role of CFOs and the dangerously outdated ways that many boards and asset managers think. Mervyn is an eloquent thought-leader with an impressive CV, having chaired, commissioned and directed countless organisations and firms. He has also raked up various prestigious honorary positions, like being just one of seven honorary members of the Institute of Chartered Accountants of England and Wales (ICAEW) – “and I am not even an accountant, but a corporate lawyer.” For good measure, he also has had various roles in cricket administration and has launched a walking trail in the middle of Johannesburg. Does he ever get anything wrong? “Yes, I wasted a year of my life writing a thesis on the history of organ music in the Witwatersrand,” says Mervyn, who finished school at 16 and his bachelor of arts at 19 years old. He developed a lasting love for the music of Wolfgang Amadeus Mozart at a young age. “I was young and impressionable and my biggest mistake was doing a major in the history of music, even though I really wanted to study law and become a lawyer. This was in 1957 and I have never played an instrument since.” Setting aside his musical ambitions, Mervyn went on to make a name for himself as a corporate lawyer and eventually as Nelson Mandela’s ‘favourite judge’, although he maintains that was just a phrase the legendary former president used to put him at ease and get him to do things without remuneration. In the last two decades the professor has been making an ever-increasing impression on the audit and accounting profession across the globe, adapting the terms of engagement to the constantly changing needs of society.
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“I wasted a year of my life writing a thesis on the history of organ music in the Witwatersrand.”
Game-changing trends “The current mega trends are population explosion, climate change and radical transparency,” he explains. “Because of social media platforms like Facebook, Twitter and Instagram you can no longer hide a secret in the corporate closet. Another trend is the capital crisis, which is also still not resolved. With the EU being our main trading partner, South African CFOs need to be plugged into what’s happening around the globe.” In dealing with those mega trends, CFOs and FDs are crucial players, Mervyn says. “CFOs used to be seen as in charge of the financial accounting only, but the concept of value has changed completely. Because CFOs stand a little bit away from the team and are in a position to get input from other senior executives, they play a critical role in integrated thinking.” Mervyn says he was brought up with value meaning “the present value of discounted future cash flow”, but that has changed radically. “Now value is about the way a company makes its money. What is the impact on the economy, on society and on the environment? If your firm has a bottom line of $100 million, but your impact on the latter two aspects is negative – then your company could be destroying value and not creating it. CFOs should be people who understand this new definition of value.” Not only has the CFO role changed,, internal auditors are also in a different line of business these days, argues Mervyn. “In the past they were mostly compliance driven. Now it is about developing a risk-based plan for the firm in which mistakes in areas like technology need to be managed. Good internal auditing teams don’t only consist of auditors anymore, but also of environmental professionals, water engineers and more specialists.”
GOVERNANCE sustainability as a business judging mechanism, we are headed for disaster. That lead to King II, but companies started reporting in two silos – financial and sustainability – that is why we published King III to rectify that. In some companies for the first time the head of sustainability, the head of internal audit and the CFO sit around the table together. Companies are using natural assets, finance, systems, human capital and social capital – it is all interconnected on the ground, but often not in reporting. That is why integrated thinking on an executive level is pivotal.”
A changing world King knows his statistics, like the fact that one eighth of the world goes to bed hungry each night and that the world will have two billion more inhabitants than its current 7,5 billion by 2035. “If you think you can carry on with business as usual… welcome to the age of stupidity! Large, multinational companies like Unilever understand that they will be out of business if they don’t change. That is why they are now driving at zero waste, by introducing recyclable packaging, making sure
Integrated thinking explained There is a starter’s guide to integrated reporting available on the websites of the IIRC and the South African Institute of Chartered Accountants (SAICA), but Mervyn says the very nature of integrated thinking prevents the possibility of creating a more detailed template. “The IFRS accounting standard is very detailed and incomprehensible to the average reader. Directors spend a lot of time getting relevant information from that. That is why in integrated reports the business jargon needs to be translated into clear language. Nowadays, providers of capital are mostly pension funds, which means ordinary people in the street are important stakeholders. They need to be able to understand the reports. In those reports businesses need to show how critical sustainability issues are embedded into strategy and that value creation is maintained in a sustainable manner.” Where Mervyn first report dealt with basic reporting standards and his second one with sustainability, the third one – in 2009 – was needed to emphasise the importance of integrated thinking, he says. “After King I, we realised that if we don’t deal with
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“I have a lot of frustration, not only in South Africa but globally, with people that still think on a short-term profit basis.”
is the new Protection of Information Act. Do you have a response officer to deal with those issues? That should be the board’s concern.”
Mervyn King with Digicore CFO Cobus Grove, winner of the Governance & Compliance Award 2015
consumers use less water and energy and by forcing their suppliers to produce differently.” Partly because executives are usually younger, Mervyn feels they tend to be ahead of their boards when it comes to integrated thinking. So while he says that ‘the integrated thinking Bastille has been stormed’ and ‘the revolution is over’, non-executive board members still have some catching up to do. “The board’s mindset has to change. They are still spending 80% of the time on management accounts, but other agenda items are needed, like IT governance. Security has also become critical in any IT environment. Cyber breaches are accelerating and there
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Even stakeholder relations, sometimes still seen as a fluffy topic, needs to be given high priority. Corporate Shareholder Relationship Officers (CSROs) should talk to stakeholders and feed information about their needs, interests and expectations to management and the board should be informed through the audit committee, Mervyn explains. The doyen of corporate governance also notes that the new concept of ‘value’ is not embedded yet with many older non-executives. “Young people are more concerned about the global environmental crisis than the global financial crisis. The cream of the crop at universities are people who don’t want to work for companies that exacerbate the crisis. Most executives understand that, but there is often a tension with the boards. I think integrated thinking is winning though.” Investment advisors and administrators are another group that has some serious catching up to do, he says. “Responsible investment is on the rise, but there are still a lot of asset managers focusing on the short term and then pulling out the money. If you do an actuarial calculation in a pension fund you realise that, although you need to do payouts now, most of your payouts will be in the future. The problem is that the asset managers still get rewarded, bonus-wise, in a way that is focused on the short term. That needs to change. Investments need to be focused on an enhanced bottom line, including social and environmental aspects. It is not happening enough and that is an issue. Stakeholder expectations are greater than ever before. Businesses cannot make
GOVERNANCE money anymore at the expense of human rights, for example.”
So who’s getting it right? Besides Unilever, Mervyn often uses Coca-Cola as an example of well-developed integrated thinking. In South Africa he is impressed with SABMiller, which is working with the World Wildlife Fund around water issues. “Another one is Nedbank’s former CFO Mike Brown – now CEO – who has been a big driver of integrated thinking. I have a lot of frustration, not only in South Africa but globally, with people that still think on a short-term profit basis.” “The Coca-Cola Company is a great example of how things should change,” says Mervyn. “They realised ‘if we don’t conserve water, we don’t have a business’ and introduced four key themes – reduce, recycle, recover and reuse – with the aim not to waste any water by 2020. I was at the company’s Hellenic Bottling in Istanbul earlier this year, one of the biggest bottling plants in the world, and they have already accomplished 80% of water saving. That is quite astounding. Imagine being Head of Internal Audit of that plant. If you would just capture financial numbers, you would not add any value. You need to start developing informed controls over a wide purview of issues such as strategy, sustainability, technology and treasury.” The allegation that Coca-Cola causes obesity was another great test for the firm, he says. “The company is over 128 years old and for 126 years they have been concentrating on marketing their product, which was the greatest brand in the world until Apple came along. Since May 2013 they have started to focus on the impact of the output by offering low- or no-calorie beverage options in every market, providing transparent nutrition information, helping get people moving by supporting physical activity programmes in every country where they do business and by refraining from advertising to children under 12. This is a great example of integrated thinking – taking account of the outcomes of your output.” Most people of his age (68) are taking it a bit easier than Mervyn, but he flat-bats the question of retirement with disdain. “People ask me all the time if I will retire, but if I retire, I will die… I get phone calls every day from everywhere in the world, from here to Timbuktu, to come and speak. On a
corporate level we are now in the marketing phase of integrated thinking, but I also want to start focusing on the public sector. Governments are starting to think on an integrated basis.”
“I would be mad to retire.”
In the past few years, Mervyn has addressed the global bosses of the big accountancy firms, the global accountancy and audit bodies and the World Bank and he received a Gold Service Award for his “worldwide contribution to the accountancy profession” from the International Federation of Accountants (IFAC) in 2012. No wonder he claims he is “at the pinnacle” of his career at the moment, as chairman of the IIRC and chairman emeritus of the Global Reporting Initiative (GRI). “The accountancy profession can save the planet. If integrated thinking becomes common, we can have a sustainable planet by the end of the century. The IIRC is really making a difference in the world at the moment and, as its chairman, I would be mad to retire.” l
MERVYN KING Prof King is often referred to as the doyen of Corporate Governance, in South Africa and internationally. He convened the first King Committee and has been leading the corporate governance process in South Africa ever since. He consults and advises on corporate legal issues and is recognised internationally as an expert on corporate governance and sustainability. He is a founding member of the Arbitration Foundation of Southern Africa and was the South African judge at the ICC International Court of Arbitration in Paris. He has acted as an Inspector of Companies and a Commissioner of Inquiries into the affairs of companies. He has spoken at conferences and lectured on corporate issues in 38 countries. He is also a regular speaker on radio and television talk shows and ran his own television series, “King on Governance”.
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“Too many organisations confuse internal audit with external audit and confine it to only focusing on financial matters.”
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GOVERNANCE BY CLAUDELLE VON ECK
Internal audit as competitive advantage Organisations that have embraced internal audit, employ competent internal auditors and give internal audit the freedom to execute its duty in accordance with the international standards, find that it’s not the unwelcome watchdog for which it is sometimes mistaken. In fact, internal audit can confer a competitive advantage, suggests Dr Claudelle von Eck, CEO of the Institute of Internal Auditors South Africa (IIA SA).
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CFO must embrace an assurance process that is designed to give some peace of mind as he or she continuously navigates the high delivery tightrope. How then does the CFO know that internal controls are always adhered to and that best practice is followed? If the discipline in an organisation is not optimal, the ripple effect into finance could be dire. A key partner in providing assurance is internal audit. Not only are internal auditors trained to do valid evaluations, but their independence and objectivity lend credibility to the process. They offer an independent, objective assurance and consulting service designed to add value and improve an organisation’s operations – and ultimately its bottom line. As the complexity of the context in which organisations operate increases, their leaderships’ ability to navigate the challenges, while still creating value, is constantly tested. This is amplified by the degree and velocity of changes in the market and broader environment. As the term value creation is increasingly bandied about, it is no wonder that leaders are finding it increasingly difficult to stay on top of their game and ahead of the pack. Internal audit helps an organisation ac-
complish this by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Thus, in the context of finance, internal audit’s role would be to provide assurance (in other words, peace of mind) and act as a consultant on best practice. The CFO should embrace the process of internal auditing as an activity that is designed to assist the organisation to function optimally.
Unwelcome watchdog or valued partner? Many organisations see internal auditors as unwelcome watchdogs instead of assurance and consultative partners. Often internal audit is resisted in the process as “those people who are only out to scratch through our stuff and expose our mistakes”. An excuse that may from time to time be put on the table is that “we cannot allow ‘outsiders’ access to confidential information”. Such resistance causes a combative atmosphere that can be destructive as it counteracts the objective of the internal audit. Internal audit should be seen as the extra eyes and ears that assist the leadership in ensuring that their internal controls are not only adequate, but are also adhered to. If people stop resisting the process, then leadership can find enormous benefit in it.
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GOVERNANCE areas in the organisation where managers are not adhering to finance related policies. In these situations, they have an opportunity to become a conduit for the changes the CFO would like to see. This makes internal audit a potentially powerful ally. A word of caution here though. Too many organisations confuse internal audit with external audit and confine it to only focusing on financial matters. Although finance is a crucial focus area for internal audit, it is not primarily a financial discipline. As a risk based multi-dimensional discipline, its scope stretches over every aspect of the organisation. It is therefore important that internal audit strongly focuses on the non-financial areas of a business too. At the end of day, these have financial implications and by the time the effects are seen in finance, it may already be too late.
The right people for the job
In fact, the forward-thinking CFO should seize the opportunity to allow the internal audit department to advise on best practice principles. Part of the internal auditor’s job is to look at processes objectively and advise on better ways of doing things. In a world where managers have to deal with a flurry of information on a daily basis, it is becoming increasingly difficult to keep an eye on everything and ensure that the best methods are applied at all times. Opening the doors to those objective assessors may therefore save the leadership a lot of rands and cents — and even some embarrassing moments.
A conduit for change The one area where internal audit can become absolutely invaluable to the CFO is by becoming an ambassador for the finance department. Internal auditors have to audit all aspects of the business and may come across
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Internal audit’s ability to be a powerful ally is however highly dependent on the level of competence of the internal auditors in the organisation. Internal auditors should not only be technically skilled auditors, but must have a deep understanding of the strategy, the organisation’s processes as well as what best practices exist in the industry and beyond. Training internal auditors for such an intimidating role is not easy as you cannot produce instant competent internal auditors. Developing the necessary depth needed to deliver the right level of value takes time. It is therefore important that organisations employ and train internal auditors in accordance with the career path standards set by the Institute of Internal Auditors South Africa (IIA SA). In the same vein, the independence of internal audit must be guarded jealously. The minute internal audit’s independence is compromised, its effectiveness is compromised. A crucial aspect of independence is the reporting lines. Internal audit should functionally report to the audit committee and administratively, to the CEO. Its independence is hampered if it reports to a function that it also has to audit. Organisations that have embraced internal audit have ensured that competent internal auditors are employed and have provided internal audit with the freedom to executive its duty in accordance with the international standards, find that internal audit confers a competitive advantage. l
GOVERNANCE BY EBRAHIM MOOLLA
Efficient taxation has never been more important for South Africa’s sustainable development
Taxing times A revolution in thinking is needed to limit the detrimental effects of the economic downturn, according to the country’s leading tax experts at the fifth annual Tax Indaba. The week-long event in September brought together more than 800 thought leaders, dignitaries and tax professionals to debate pressing issues and explore opportunities.
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ne of the solutions to the country’s economic woes mooted at the recently held Tax Indaba was a VAT rate hike – an idea which seems to have support from a number of sectors. ANC MP Des van Rooyen, a member of parliament’s standing committee on finance, gave insights into government’s current frame of mind in his address, stating that it had to walk a tightrope to generate revenue in tough economic conditions. He said that there was concern that any increases in the VAT rates would hurt the country’s poor and that this “was not an option open to the ruling party”. Judge Dennis Davis, the head of the Davis Tax Commission, said any increase in VAT was “inherently retrogressive” and would worsen social inequalities. He said that if used, the measure would have to be accompanied by sustainable initiatives, such as social grant raises or the strengthening of the school nutrition programme. Davis further argued that a hike in corporate tax would make the country uncompetitive and ward off investors. However, he risked angering Cosatu and other trade unions by insisting that the country’s swelling public sector wage bill was unsustainable. “It just can’t be that we continue having a situation where roughly 36% of what we collect in taxes goes towards the public service sector wage bill,” he said. The speakers were unanimous in their glowing praise of the work undertaken by the South African Revenue Service (Sars). After
cabinet approved the restructuring of the old Inland Revenue and Customs and Excise Directorates in the Department of Finance into an autonomous revenue collection agency, the tax base has grown from 1,7 million taxpayers in 1994 to 16,8 million in 2014. Sars is recognised as a global leader by its partner agencies in the US, UK and Australia and, earlier in the year, received more than one million tax returns, which is a sign of the positive compliance atmosphere. The Tax Ombudsman, established in 2013 under Judge Bernard Ngoepe, was also progressing well in fulfilling its mandate to resolve disputes between Sars and taxpayers, although they said he was “making noises” about more autonomy for the watchdog. However, tax morale, according to David Hartnett, former permanent secretary of tax at the UK’s revenue and customs authority, was a fragile attitude that is easily influenced by external factors, with corruption chief among them.
“There is ample evidence that systemic corruption can do serious harm to tax morality.” David Hartnett CFO MAGAZINE • CFO.CO.ZA
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GOVERNANCE high levels of compliance reduce the cost of tax administration and allow for easier expenditure planning, which, in turn, facilitated sustainable development, reduced aid dependence, increased trade and foreign investment and created an opportunity for state building. His thoughts were echoed by Prof Mervyn King, who maintained that the new era of holistic business models and socially conscious operations dictated that taxation had to be acceptable to the masses. The “narrow financial prism” of old is obsolete and corruption needs to be rooted out before an increase in taxes could be considered, King said. “We need to ask how our money is being spent before thinking of increasing taxes. How can we justify raising taxation when unaccountable billions are being purloined through a corrupt sieve?” asked King. The chief of the National Treasury’s Budget Office, Michael Sachs, painted a sobering picture of the current state of the South African economy, posing questions for which there were no “magic bullets” or easy answers. He said there is an upward trend in the debtto-GDP ratio that indicated a structural gap, commodity prices and demand were both on the wane and current fiscal spending was dependent on a GDP growth rate of double the current level of 1,5%.
“When there is a fair system, tax compliance and tax morality seem to be high. However, there is ample evidence that systemic corruption can do serious harm to tax morality,” he said. Curiously, this does not apply to political scandals. When citizens believe that government is acting in their interests, that its procedures are fair and that their trust of the state and others is reciprocated, then people are more likely to cooperate in paying taxes, even when it demands that they put aside their short-term interests. Hartnett said this was important, because
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Michael Sachs (National Treasury): “We must find consensus on what is important to resolve the deep problems facing our economy.”
“We must find consensus on what is important to resolve the deep problems facing our economy. We need to build relationships between the state, labour unions and business. What we agree on is not as important as finding consensus,” concluded Sachs. l
PUBLIC SECTOR Proteas grow in tough terrain and a lot of patience is required before seeds can be harvested and sown again. There are surprising parallels with the growth of black accountants in South Africa – and with Edson Magondo’s own rise to prominence, as we discover during an exclusive interview with the man who heads the KPMG service offering for government, infrastructure and healthcare.
Growth in difficult terrain Once the smallest boy in a Venda village, Edson’s can-do attitude saw him rise to prominence as co-founder of the country’s biggest black audit firm, KMMT. After its merger with KPMG the self-professed ‘delivery guy’ headed-up the Pretoria office, the audit practice and – since 31 August – KPMG’s public sector offering. We spoke to Edson about transformation, sustainable client relations and professional fear. “You have to be a little frightened of your job to keep yourself true.”
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dson Magondo plans to cultivate king proteas on a piece of land he owns in the mountains of Venda, in the far north of South Africa. “My neighbour is already growing them, so he is giving me lessons,” he says. Eventually he wants to make money off the sale of the flowers, but for now he needs to be patient. “I need to wait for the flowers to dry on the plant, so I can harvest the seeds and sow them.” His interest in growing South Africa’s national flower is telling; proteas – like Magondo – prosper in difficult terrain. Venda is where it all began for Edson. He reluctantly admits that he “always had firsts for everything” in his village. “For some reason I was tinier than most people in my class at Thengwe High School,” he recalls, but this didn’t hamper his performance. He went to Khwevha High School for grades 11 and 12. He continued to excel and fondly
remembers Mrs Ludolf, “a missionary-type educator” and her accounting lessons. Her lessons and motivational talks set him firmly on the route to become a chartered accountant, he says. Edson studied at the University of the North, now the University of Limpopo. When he was a student, it was the university reserved by the apartheid regime for Sotho, Venda and Tsonga people, and was also known as “Sovenga”. Student leaders like Tito Mboweni, later Reserve Bank governor, and many others led anti-apartheid protests, but Edson laid low. “The campus was a nucleus of everybody from everywhere,” he explains. “Besides,” he chuckles , “the guys from Soweto and other urban areas were more connected and streetwise so I just stayed in the background.” “The few graduates that I knew went to do articles at Deloitte Haskins & Sells (now
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“It is not only size that matters. It is about sustainable change, where enough black partners are standing in front of key clients.”
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PUBLIC SECTOR Deloitte) at the time (which is testament to how long ago they saw transformation as a business imperative), so I wanted to go to a different firm,” he says. After half a year of trying with no success, Edson gave up, applied to Deloitte, was interviewed by Dr Hennie Van Greuning, and articled with them, subsequently working for Eskom and South African Breweries. “Then 1994 happened. We were already thinking about starting our own practice. Our first attempt in 1990 failed but in 1995 we didn’t falter. We got bank loans and got going.” With partners Moses Kgosana, Tshidi Mokgabudi, Themba Tshikovhi and, of course, himself, KMMT instantly became the biggest black audit firm by number of partners. Gill Marcus – who went on to become another Reserve Bank governor – spoke at the KMMT launch event. The courting by big firms started. “Our first job was with Nedbank Property Group. I still remember their largest project at the time, a multi-use complex next to Fourways in Johannesburg. We went in with all four partners to do the work. It was such good work.”
“You need to be very transparent, because public sector auditing, with its expanded focus, is always a sensitive relationship and you need to diplomatically discuss inconvenient truths.” The Auditor-General also provided the company with “wonderful opportunities” to do audits on their behalf and Edson’s long relationship with the public sector started. “I was the audit delivery guy and Moses was our front man. I am not very outspoken, but I build good relationships with clients and ended up doing audits like Denel Aviation and the City of Johannesburg.” “My strength is working with people, listening to them and then trying my utmost to deliver. You need to be very transparent, because public sector auditing, with its ex-
panded focus, is always a sensitive relationship and you need to diplomatically discuss inconvenient truths. It needs to be clear that my work is never personal or about what I think, it is about the information put in front of the audit team.” Edson doesn’t consider the acquisition of KMMT by KPMG in 2002 as the end of an adventurous dream. “We always wanted to make a difference. The number of black accountants in the country was low and is still low, so we wanted to play a part in increasing these numbers. We also wanted deep skills and could not scale-up quickly enough. We wanted transformation to be even more impactful – so we ended up joining KPMG. The merger added real impetus to transformation at KPMG and the appointment of Moses Kgosana as the first black African CEO of a big four firm was a highlight, which accelerated transformation in ways that we have not fully comprehended! Moses led from the front, identifying and promoting many black partners. In the last few years enormous transformation strides have been made across the accounting profession.” Can we call KPMG the biggest black audit firm now, since it has more black partners and staff than SizweNtsalubaGobodo or SekelaXabiso? “It is not only size that matters. It is about sustainable change, where enough black partners are standing in front of key clients. In that sense, even as one recognises the progress being made, the need for transformation in South Africa is far from over,” says Edson, who values the independence of ‘Sizwe’ and ‘Sekela’. “The emerging firms have been change leaders in transformation and are keeping the pressure on the profession by demonstrating their capability – and they are continuing the articulation of new ways to transform faster and sustainably. Collaborating through the Association for the Advancement of Black Accountants of Southern Africa (ABASA) and other forums have put the accounting profession ahead on many levels.” After the merger Edson went to Pretoria, where he ended up heading the KPMG practice with considerable success. “We pitched, we won and we delivered,” he recalls. He was then asked to head up KPMG’s audit practice. “I was scared,” he admits, adding that fear is a good thing. “If I am not scared, I am not able to deliver optimally. You have to be frightened of your job a little to keep yourself
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PUBLIC SECTOR true. Once you think you can do it with your eyes closed, you are in trouble.”
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While long-time pal Moses Kgosana stepped down as KPMG’s CEO earlier in 2015, Edson has stepped up – from 31 August – into the “toughest job” around, heading up the KPMG service offering for government, infrastructure and healthcare. “My approach is firstly about the quality of work, including the time and cost an audit or project involves,” Edson says. “Secondly, we need to link our work to the top outcomes of the client, because then we add real value. What do the clients worry about? If it is youth unemployment, what can we do beyond our annual intake of trainees?”
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The third thing KPMG will focus on in its public sector work is sustainability, Edson says. “As a consultant, I get worried when I see a consultant working on the same problem at the same client for very long periods – years and years. That gives consultants a bad name. If a project starts at day one and the end date is day 365, you try to finalise by day 340 or so. Every project should have a finite date and needs to create a positive story. KPMG is known for good audits, financial services, clean audit projects, internal audits and forensic investigations. Our public sector advisory work in a more sustainable way to ensure that each project we undertake adds credibility and social acceptance for our clients.”
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Breaking the consultant curse will be music to the ears of public sector CFOs, who are struggling to do a lot with little. Edson says he’ll go out of his way to get to know CFOs, DGs and the supply chain professionals. “When we have a meeting with a CFO, I need to know what is bugging him or her. My team needs to know ‘it is this time of year, the public sector CFO is busy with this aspect of his work’. When I meet a municipal CFO I need to know – confidently – what things should be going on in his or her working life at that point in time.”
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“There is a lot of giving back to do, when I retire.” Although Magondo is now a big man instead of a tiny boy, he hasn’t become a massive celebrity in Venda, “although people know about me,” he admits. The chance that he’ll ever retire to his nascent protea plot or his ancestral village on the other side of Thohoyandou is slim though. “I can’t be that far out in the beautiful woods, because when I leave KPMG I want to get back into the public sector on the other side and sit on audit committees (having previously chaired the audit committee of the department of Correctional Services when Mr Linda Mti was DG). There is a lot of giving back to do, when I retire.” l J6770
http://www.cimaglobal.com/gateway
PUBLIC SECTOR Public sector CFOs have a special role to play
Making a difference In an exclusive interview with CFO South Africa, Shabeer Khan, chief financial officer of the Department of Trade and Industry (the dti), explains how he and his dedicated team managed to achieve a clean audit.
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omewhere in Pretoria there is a big government department where the financial statements reported are of the highest quality, supply chain management legislation is adhered to and wasteful expenditure is a thing of the past. In September the Minister of Trade and Industry proudly announced that the dti had just received a clean audit for the 2014/15 financial year. He also deservedly deflected much of the praise to CFO Shabeer Khan and his highly committed team.
“Achieving a clean audit was definitely a highlight for our department and it was also the proudest moment of my career.”
“Not everyone understands what a clean audit is,” says Shabeer. “It means the department’s financial statements are free from material misstatements and there are no material findings on reported performance objectives or non-compliance with legislation. Achieving a clean audit was definitely a highlight for our department and it was also the proudest moment of my career.
It was the first clean audit ever for the dti and considering our enormous budget, this was quite an achievement. I could see that our Minister was proud. That made it really worthwhile. He sees what the team has accomplished.” Speaking like a professional sportsman who has just been crowned a champion, Shabeer knows how much work he and his team put into achieving this goal – but that the fight is not over. “The biggest challenge now is maintaining this level. This is a huge department and we can’t review every document or transaction, so the systems supporting the engine of the department must always be in good running order.”
Cleaning up across the board When Shabeer joined the dti in February 2013, he found a department that was doing well in many respects. “We were paying our creditors within 30 days and the dti was ranked as the top department by the Department of Performance Monitoring and Evaluation. However, it was struggling with the basic disciplines of financial reporting and compliance to supply chain management legislation.” From an audit with no less than six findings across areas of performance and compliance in 2012, the dti managed to reduce this to two findings in 2013 and one finding in 2014. “Producing financial statements that were free from material misstatements was of the utmost importance; so we improved our discipline with regards to preparing and
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“It is about working smartly and controlling the spending behaviour to improve service delivery.”
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PUBLIC SECTOR reviewing regular financial reports. Producing financial statements of the highest quality is something we now pride ourselves on. In order to get a deeper understanding of the environment, I spent days analysing everything on a micro level and luckily my understanding of audit and risk guided us in the right direction.” Another thing Shabeer needed to tackle head on the irregular expenditure as a result of the non-compliance to supply chain management legislation, which was the only finding that kept the dti from receiving a clean audit in 2014. “This is a huge concern across government as this is expenditure that was not made in the manner prescribed by legislation.” Such expenditure does not necessarily mean that money was wasted or that fraud was committed, but is an indicator that legislation is not being adhered to, including legislation aimed at ensuring that procurement processes are competitive and fair. “We decided to implement an internal control unit within finance to review transactions proactively. We also amended relevant policies and procedures and held workshops with key staff to enable them to get a better understanding of what was required. We launched an internal campaign to eradicate irregular expenditure and over the last year we have managed to eradicate irregular expenditure almost completely. The ongoing support from the minister, deputy minister, the director general (DG) and the deputy directors general has been invaluable.”
Improving service delivery At a national department it is not about the bottom line or the strength of the balance sheet, but about stretching the available budget to achieve as much as possible,
“Succeeding as a CFO is not only about number crunching. It is also about putting the right systems and processes in place that carry on long after you’ve gone.”
says Shabeer. “It is about working smartly and controlling the spending behaviour to improve service delivery. It requires one to be strategic and innovative.” Shabeer has implemented various cost-cutting measures across the department in areas such as communications, entertainment and consultants. “To me, the tough economic conditions and budget constraints are a blessing in disguise as staff members now have a better understanding of the importance of the limited resources we have and have thus learnt to plan properly and spend wisely. This has changed the culture at the dti.”
“A CFO should be able to partner with the DG in achieving the strategy of the department.” Shabeer recognised the fact that the dti needed a game changer and his practical experience from working in the Auditor-General’s office (AGSA) meant that he knew which areas to focus on and where to channel his energy. “I spent close to ten years in the AGSA, which provided a solid foundation for me both personally and professionally.” Shabeer speaks fondly of his time at the AG’s offices and acknowledges that was where he was taught discipline, basic values and principles which he still practices today. “It’s for this reason that the AGSA’s office will always hold a special place for me.” Shabeer emphasises the need for a combination of the right skills and the right attitude in government departments. “A CFO should be able to partner with the DG in achieving the strategy of the department. It’s easy for CFOs to sometimes get dragged in and be driven by numbers and mundane tasks which often causes one to lose sight of what you want to achieve.” Succeeding as a CFO is not only about number crunching. It is also about putting the right systems and processes in place that carry on long after you’ve gone, says Shabeer. “A CFO needs to continuously wear different caps. You need to be many things, among the most important are a strong
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PUBLIC SECTOR leader, a strategic thinker and also be very knowledgeable in all areas, not just limited to finance. You need to not only lead and guide your team but you also need to really engage with them, recognise their talents and draw on their strengths. You need to be technically up-to-date to enable you to empower your team with the correct advice. Motivating your team and getting them to share a common vision is also very important. Finance is a diverse and an ever-evolving environment and it requires you to be a fast thinker and a quick learner and because of this I learn new things every day. Just as much as being a CFO is challenging, it’s even more rewarding when things get done.”
The right tools for the job Shabeer feels that the pro-active CFOs are the ones who are on the right track. “Many CFOs spend large amounts of time collating and analysing financial information, because the transversal Integrated Financial Management System (IFMS) has still not been implemented across government. Some of us have put key processes in place to assist with financial reporting and strategic decision making. At the dti, we have the CFO Helpdesk. Its objective is to improve the overall customer experience. Internal and external stakeholders make use of it and through this
process they are able to track the status of any document submitted including when an invoice or claim will be paid. There are two officials who log all documents and enquiries and then escalate them to the correct business units within finance. The help desk was started prior to my joining the dti and it really has been a stroke of genius. At one stage, we were only one of two departments managing to pay suppliers within 30 days, now there are a few more departments achieving this. We are also in the process of implementing an electronic system to manage our incentive schemes which will assist in improving turnaround times, efficiency, reporting and the overall customer experience.”
A clean desk policy Balance and discipline are probably the terms that describe Shabeer best. He has a young family with three sons, ages five, three and one, so life at home can be hectic. “It’s important for me to leave the office at the end of every day with a clean desk. If that means I have to stay a bit later, that’s fine. At least when I get home I can spend quality time with my family.” So what’s next for Shabeer? He says he often jokes about new challenges but he knows the real work has just begun. Shabeer has been appointed as a non-executive director of the Coega Development Corporation and is eyeing other exciting projects within the dti. “We are working on strategic partnerships with development financiers of other countries to partner with South Africa on financing key projects across the African continent. Africa is fast becoming a growing and strategic investment destination for the rest of the world and South Africa is a gateway into Africa. The industrialisation of the African continent is key.” As much as the public sector can learn from the efficiency and effectiveness of the private sector, Shabeer believes many companies could benefit from taking a more long term view on success, something government departments have to do all the time. “I am one of only one of two chartered accountants in the dti and I am hoping that this statistic will improve not only for the dti, but across the government spectrum in general. I hope to continue making a difference in the lives of others and for me, working in government allows me the opportunity of constantly striving towards making that difference.”l
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PUBLIC SECTOR BY DUMISANI DLAMINI
Five ways public sector CFOs can get a clean audit National Arts Council (NAC) of South Africa recently received a clean audit and was praised by the Auditor-General South Africa, Thembekile Kimi Makwetu. NAC CFO Dumisani Dlamini suggests five things that public sector CFOs should consider in pursuit of a clean audit.
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here is an increasing focus on improving the quality of public financial management around the globe, with many countries in both the developed and developing world making important and impressive strides in strengthening public financial management and governance. In South Africa, public entities, most of which are implementing agencies of various government departments, carry huge mandates while facing major challenges. These pertain to limited financial and human resources but despite these limitations, the entities are still expected to perform and meet their mandates. There is a lot that needs to be done in support of this. The public
sector landscape is rapidly changing with an increasing emphasis on fiscal management and discipline, prioritisation of expenditure and value for money. As a result it is even more important that donors, governments and national and local institutions (including regulators and professional accountancy bodies), work together in partnership to achieve long-lasting improvements, transparency and accountability in public financial management. This is because public financial management is absolutely critical to improving the quality of public service outcomes. It affects how funding is used to address national and local priorities, the availability of resources for investment and the cost-effectiveness of public services.
Also, it is more than likely that the general public will have greater trust in public sector organisations if there is strong financial stewardship, accountability and transparency in the use of public funds. It is important for us to get this right and ensuring a clean administration is part of the journey. Clean audits are awarded on the basis of public entities being financially sound and managerially stable. Unlike private sector audits, the Auditor-General scope in the public sector is broader and rigorous, reporting on performance against predetermined objectives, as well as compliance with applicable laws and regulations. Attaining and maintaining clean audit opinions is a sure sign of getting it
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PUBLIC SECTOR right and below are five things that can assist CFOs within the public sector to do so. 1. Correct application of accounting standards and policies is crucial It’s said that the only constant thing in life is change. This is no different in any professional field. It is critical for CFOs to keep abreast of new accounting standards and establish controls that will assist in complying with those standards. In the same breath, policies need to be regularly updated to comply with accounting standards and treasury regulations. Most errors made in the financial statements of most public entities are due to oversight or lack of correct knowledge in application of accounting standards and policies. Using old-school ‘T account’ is very helpful in establishing a correct accounting entry to process a particular transaction. This can save a CFO a huge amount of time in processing journals to correct previous incorrect entries. 2. All figures in the financial statement must be mapped to support evidence Proper record keeping is an essential ingredient for a clean audit. Proper record keeping is so important that it should be embedded in the team’s performance agreement. It’s a basic item that cannot be ignored or de-prioritised as it makes the transaction valid. Lack of sufficient evidence has been a main reason behind many public institutions obtaining negative audit outcomes. It is critical that the CFO collect enough supporting evidence for all transactions at the time the transaction takes place. If there is not enough documentation, probably the transaction is not worth loading into the accounting system. The mentality of “process the entry now and obtain the information later” catches up with most CFOs as there is not much time to gather supporting documents during the preparation of annual financial statements due to the volume of work required to complete financial statements within a short space of time.
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3. Consistently review information It is the role of the CFO to put in place controls and processes that will assist in reviewing organisational information to ensure accuracy and comprehensiveness. Consistent implementation of audit recommendations is critical towards achieving a clean audit. Therefore it is important that a public sector CFO develop proper action plans for implementation. This implementation plan needs to be time bound, with relevant person/s assigned to complete each task. The CFO then needs to coordinate the process to ensure the successful implementation and execution of the plan. Good communication between the CFO and Auditor-General is very important as the Auditor-General is a partner in ensuring sound financial management and proper governance. A harmonious working relationship can lead to great results. 4. Emphasise commitment and teamwork A dedicated team goes a long way in helping the CFO to create and maintain a financially sound environment with proper governance. Every team member who has personal accountability needs to understand what is at stake and what the possible results can be should there be a missing piece in the puzzle. Every piece of the puzzle is important. This also means that is it critical to not only have the commitment from the team but to ensure that the team is adequately skilled and continuously being given opportunities to reach their maximum potential. Of course everyone makes mistakes – within certain parameters – but your team should always learn from their mistakes and with time, make less of them. Believing in every single person as the CFO makes each individual within the team aspire to belong to a winning team and motivates them to do everything possible to ensure the success of the organisation. Every team member understands that while efforts are appreciated, results and achievement is the ultimate goal.
What counts is what is produced at the end of the day and everyone on the team needs to buy into that. 5. Use your interim financial statements and audit Some public sector CFOs assume that preparations of interim financial statements are a private sector concept perhaps used to measure performance of the organisation, understand trends and also to improve the results halfway through the year. While this can be true, the interim financial statements can be prepared and used as a yardstick to review the extent to which the CFO has implemented recommendations of the auditors and to also correct any incorrect information. The completed interim financial statements can be submitted to the Auditor-General for interim audit. This provides a good basis for the CFO to establish the status of the books and what the current issues are. This gives the CFO sufficient time to resolve issues identified by auditors during the interim period. The reality is an independent review provides more assurance than an internal review. It might be too late to leave this for year-end as the CFO might not have enough time to resolve all the issues or sometimes some to the issues require resolution before the end of the accounting period. Preparation of interim financial statements and allowing auditors to audit these statements is a must for CFOs to achieve a clean audit.l
Bonus tip
The achievement of a clean audit is not an annual event. Rather, it is the result of the daily maintenance of internal controls and effective record keeping. It is about being prudent, having integrity, asking difficult questions and making difficult decisions. After all, financial management and proper governance is not easy. It’s worth it, though, to get public trust in public institutions. Let’s all take this journey and make it happen!
CAPITAL & FINANCE BY EBRAHIM MOOLLA
A viable exit strategy is becoming increasingly important on the agendas of the country’s startups
Entering with the exit in mind “We encourage entrepreneurs to build sustainable, lasting businesses, but with an end in mind,” said Andrea Böhmert, a partner at Cape Town-based fund managers Knife Capital. “Every journey comes to an end, whether it is through retirement, liquidation or acquisition. When it does, it needs to be as valuable as it can possibly be.”
B
öhmert was speaking at the Knife Capital Exit Conference, held at the Sandton Convention Centre in August this year. Although controversial with a number of critics, including American billionaire Mark Cuban, many of the delegates saw merit in preparing businesses for a potential buyout.
60% of these were non-traditional business. In addition, more than 51% of emerging businesses are looking to the global market for growth, while 48% of exits in SA were full sales and 63% took place outside
Böhmert was supported by PwC’s Maija de Rijk-Uys, who said that the company’s surveys of emerging businesses and exits show that South African startups are being snapped up in increasing numbers. She came armed with statistics: some 42% of exits between 2011 and 2014 in Africa occurred in South Africa, with 26% in West Africa and 14% in East Africa. More than
“42% of exits between 2011 and 2014 in Africa occurred in South Africa, with 26% in West Africa and 14% in East Africa. More than 60% of these were non-traditional business.” CFO MAGAZINE • CFO.CO.ZA
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CAPITAL & FINANCE the country. Despite the gloomy economic climate in the country, De Rijk-Uys believes that there are opportunities for private equity and that the growth of SMEs is vital to boosting GDP. Two of the people behind South Africa’s biggest exit success stories were on hand to reveal how they did it. Franz Struwig, MD of Stellenbosch-based tech startup iKubu, said painstaking preparation and a healthy dose of luck had been crucial in securing American GPS giant Garmin’s big-money buyout of the company and its revolutionary bicycle radar device in January. “We were very happy with the deal in the end. We have been lucky, but we were also in a position to take advantage of the opportunity when it did come. The necessary documents and marketing materials were already waiting when we were approached,” said Struwig. He advised entrepreneurs to invest in leadership, think big, be valued in the USA and have a competent deal team on hand. Former Fundamo CEO Hannes van Rensburg, who has long been considered one of the most influential people in global telecommunications, revealed how the world leader in mobile payment, with well over 100 million subscribers, was acquired by Visa for $110 million in 2011. The company had been down and out in 2007, but sheer determination and a risky venture into Pakistan proved fruitful. “Have a profound understanding of the industry and be paranoid. Be prepared to jump on opportunities when they arise. Don’t sit around and wait for luck,” he urged. One of the key themes of the conference was the need to have the relevant documentation at the ready in the event that there was interest from a buyer. Ansarada director Arie Maree said virtual data rooms – a limited-access website that bidders and advisers can use to peruse confidential corporate information before making a decision to purchase – offered significant savings and facilitated due diligence processes. While a regular feature in the USA and Europe for many years, they have only been in use in South Africa since 2009. Maree advised CFOs looking at buyout options to invest in a dedicated merger and acquisition virtual data room and allow for a seamless negotiation. l
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10 steps to a successful exit Knife Capital co-founder Keet van Zyl outlines an exit plan: 1. Be awesome. Startups don’t deserve special treatment. Businesses need to be solid all-rounders to be considered for a buyout. 2. Build a business, not a product. It is all very well having a revolutionary app or new investment vehicle, but ultimately, your success will depend on your mastery of business fundamentals. 3. Build a solid platform for growth. Businesses need to be awesome across the board, not just in one or two departments. 4. Generate traction verticals. Build upward momentum by, for example, investing in marketing, winning awards and building an audience. 5. Scale proportionately. You need to balance the growth of core dimensions. A small team will not be able to execute on a business model that is too big. 6. Package the opportunity. Investors are difficult to reach – startups need to present themselves in the best way possible and avoid communication problems. 7. Build a partner universe. Enter into as many strategic partnerships as possible. 8. Populate your data room. Startups need to make investment as painless as possible and possess a data room with corporate, marketing and financial information about the business. 9. Understand your value. Be realistic about what you have to offer and manage your expectations. What will you be selling at the exit stage? 10. Build the right networks. Align yourself with the right people to earn full value for your business.
CAPITAL & FINANCE Award-winning Sasol CFO Bongani Nqwababa reveals what he learnt at Amplats
Lessons from deep down After previous CFO roles at Shell Southern Africa, Eskom and Anglo American Platinum (Amplats), Bongani Nqwababa has found himself another tough task – navigating national pride Sasol through a tricky period of low oil prices. Bongani won this year’s CFO South Africa Finance Transformation award for the amazing work he headed up at Amplats. In this interview he shares some of his lessons.
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hen Amplats recently announced that it had sold its open-cast platinum mines in Rustenburg to Sibanye, the strategic shift that had been initiated under Bongani’s leadership reached its logical conclusion. Meanwhile, the man himself was already many months into his new challenge at Sasol. If anyone knows what it takes to be a successful CFO, it must be Bongani Nqwababa.
What do you like about being a CFO? “I have been in CFO roles since 2002, which has meant being at the core of business performance and having to keep up-to-date with continuously changing requirements. There is always something new, which keeps me
fresh. I like being a business partner, not only to the CEO but also to exco colleagues and the board. The role of the CFO is converting strategy statements into value and dealing with a multiplicity of internal and external stakeholders. Contrary to the image of the CFO role, I am yet to have a boring day at work.”
You played a crucial rule for Amplats during the 2014 Amcu strike, which lasted for five months – how did you approach that? “I was made crisis manager during the Amcu strike in the platinum sector. That was tough, because you’re dealing with an explosive situation. For five long months we had a daily crisis meeting at 8am in the morning, sometimes also on the
weekends. From a finance point of view it was all aimed at reaching a sustainable settlement.” “We had already anticipated that the new union would be more aggressive. That is why we followed the Margaret Thatcher strategy (not that I am an admirer of hers) of increasing inventory. For key parts of the business we also improved relationships with employees, communities and other unions. We also improved our security. As a result, in those five months, not a single customer got an ounce less platinum. We also managed to settle the wage demands, which started as a demand for a 100% salary increase, for an increase of between 7 and 10%.”
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What did you learn from the mining strike? “The key learning for me was never to delegate engagement with employees to the unions, but keep in touch yourself. As executives you need to smell and breathe the same air as your employees. Another thing is that you need to be resolute during a crisis, which suits me because I don’t get flustered very easily.”
“A crisis can be the best time to drive changes in an organisation” “People tell me I have a knack for ending up in difficult jobs. After the oil price crashed, I started at Sasol… But a crisis can be the best time to drive changes in an organisation.”
What does it take to be a successful CFO? “It starts and ends with having exceptional and engaged people on your team. I said it internally as well when I arrived at Sasol: “You can copy strategies, you can copy processes, you can copy structures, but you cannot copy people in ability and behaviour. They provide the sustainable competitive edge.” “Another important thing is delivering on promises. If it cannot be done in time, I tell the board and colleagues straight away. People know me. I don’t like surprises, even positive ones. You also need clarity of strategy and clarity of decisions. After a decision, I like to emphasise what things are, but also what they are not. There can’t be any ambiguity.” “People should be developed, in terms of technical skills, but also in business skills. At Amplats we did a gap analysis of the supervisory and management staff. What came out of that process was that managing conflicts, influencing people and building relationships were the hardest things for them. So instead
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“You can copy strategies, you can copy processes, you can copy structures, but you cannot copy people in ability and behaviour. They provide the sustainable competitive edge.”
of sending them for IFRS training or something like that, the focus was on training that developed softer skills and we could see the team becoming more effective as a result.”
What should the CFO’s relationship with the CEO look like? “The CFO needs to be a trusted business partner or wingman, as the Amplats CEO used to call me. You need to support and not second guess each other. I work on building relationships with the CEO, but also with other colleagues. That means that when I raise difficult issues, it is because of the issues and not for any other reason. That is important. For example, when discussing the effects of the low oil price at Sasol, the discussion should not only be about deferring projects but also about taking projects off the table. Some of those might be pet projects of individuals in the company, so it is important they understand you talk about the issues – and not about the people.” “If there is an issue, I give a heads up in advance to the person, so that when I raise it in a meeting they are not surprised. I had to explain that style here at Sasol on arrival, because some people thought I avoided difficult issues. I am not sure if it is a cultural thing, but putting down people in public is not my style. I was misunderstood by my direct reports, but I don’t want drama for the gal-
lery, even if there is some behind the scenes. Now they understand me.” “Agreeing on corporate messages with the CEO is also important. As an accountant, I am rather big on structure and order. When you talk, you can’t do that in free-flow without using key messages and without knowing what you want from a meeting. When we are asked about our response to the low oil price, for example, we should mention all the levers and give specific examples.”
What was your role? “Although I think strategy should sit with the CEO, strategy sat in my portfolio at Amplats. Luckily the CEO was also a details person. We didn’t want our strategy to be based on who shouts the loudest or who has pet projects. I lead a process in which we developed scenarios ranging from status quo to only open cast mining. We settled on a hybrid model, which focused on mechanisation and employing highly paid skilled staff, largely from the local community.” “A lot of people had opinions so I said ‘none of this nonsense of having spectators’. We created strategic working groups in which people could give their views. That then led to an integrated view for everyone to stand behind.”
Not long after the strike, Amplats announced a big scaledown of operations. What was the rationale behind that? “As much as the platinum price had come down, we needed a prognosis. To invest in and run a mine is a 50 years decision. You can’t make longterm decisions based on a temporary aberration. We did an analysis to find out if the downturn was a cyclical or structural issue. The conclusion was that it is more structural, due to the increased influence of recycling. Our cost was going up by 14% while our revenue only went up by 7% and labour was becoming more militant and less productive. The business was being squeezed, while stakeholders wanted more from it. In the old days the trick
used to be to mine more to reduce unit costs and get out of trouble, be we decided that value needed to be the focus.” “We decided to exit a lot of underground mines and move to higher grade mines – more open-cast and less labour intensive. That would give us a more valuable company and we would be able to afford the salary expectations. It would also deal with the emotive issue of migrant labour. In the new structure we would work with fewer people, of whom more are local, better educated and higher paid. That decreases the chance of strikes, as we had seen at our open-cast mine, where people weren’t striking during the big mining strike.”
How did the dramatic changes impact the finance team? “I reduced 28 finance teams back to four by creating hubs. If they had tasks in common, like transactional processing or capex accounting, that would be centralised in the hubs. But the key decision support people would stay at the operations. We managed to reduce headcount by 28% this way, because, as an example, you only need five capex accountants, not 20.”
“You cannot change faster than your culture allows, otherwise you flounder. Sometimes you need to be slower to be more effective.” “I wanted to go ‘full monty’ and establish one finance team. The head count reduction could have been 40%. I think this is something
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“The true test of whether a finance team adds value is: are you invited to meetings or do you force your way to the table?”
the company might still consider in the next 18 months. But you cannot change faster than your culture allows, otherwise you flounder. Sometimes you need to be slower to be more effective.”
Did this improve the quality of the finance team? “Yes, most people were reporting numbers like ‘production at this operation is up by 20%’. But I didn’t want that, because I also have a calculator. I wanted to know WHY it went up by 20%. That question forces the finance people to understand the business
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better. This has improved, but needs further improvement. Bringing finance into one hub will also be an improvement.” “The reality was that people spent 90% of their time on data reporting and 10% analysis. Now it is 70% reporting and the quality of the business reporting is getting much better. That also improves the credibility of finance, which means finance gets invited to the table. The true test of whether a finance team adds value is: are you invited to meetings or do you force your way to the table?” l
BONGANI NQWABABA Bongani Nqwababa was appointed CFO of Sasol beginning 2015. He was born in Harare, Zimbabwe, and is a South African citizen. Bongani graduated in 1989 with honours from the University of Zimbabwe and completed his articles with Price Waterhouse. In 1995, he joined Columbus Stainless Steel as Corporate Accountant. After joining FBC Fidelity Bank in 1999, he was seconded to the Treasury Department of Mees Pierson in Rotterdam and Amsterdam, Holland. He joined Amplats as CFO in January 2009 from Eskom Holdings, after serving as treasurer and CFO of Shell Southern Africa. He Is also the chairman of the Audit Committee of SARS and previously served as a nonexecutive director and member of the nomination, audit and remuneration committees of Old Mutual plc. At the CFO Awards 2015, Bongani won the Finance Transformation Award for his work at Amplats.
CAPITAL & FINANCE Deputy CEO and FD David Hodnett helps establish a ‘fully international, fully regional and fully local’ bank
From Absa to Barclays Africa As deputy chief executive director and finance director, David Hodnett is the right hand of CEO Maria Ramos at Barclays Africa. In an exclusive interview with CFO South Africa, he speaks about his love for detail, his relationship with Ramos and the creation of Barclays Africa. He also reveals how he very deliberately chose to plot his career path via risk management roles and why he sees the way he deals with people as a reason for his success. “I believe in accountability and giving people space to operate.”
Can you describe your role at Barclays Africa? “Besides financial director, I am also deputy CEO, responsible for IT and operations, all our African countries outside South Africa and the strategy portfolio.”
What do you enjoy most about the FD role? “It is the width of the FD role that I like. Besides regular things like accounting and investor relations, the finance portfolio includes group treasury, which has a very important part to play in the balance sheet management of the Group.” “I am a CA and have an MBA, but have not followed the traditional finance route. After articles I worked at KPMG, consulting in financial services and then moved to risk at Standard Bank. That was a strategic decision on my part as I saw the risk and financial management areas growing closer together and I realised that at a bank it was going to be difficult to be the FD without a detailed understanding of key risk concepts.” “I then joined Barclays Africa as chief risk officer, which enabled me to get exposure to the board and our major shareholder Barclays PLC. That put me in a position to apply for the FD role when it became available.
My core strength lies in my ability to understand the detail but at the same time to put together and communicate the big picture.”
“I believe that the smaller the company, the bigger your risk as FD.”
“As FD of a bigger organisation I am in a privileged position, as I have an unbelievable support team in place. I believe that the smaller the company, the bigger your risk as FD. Here at a bigger organisation you have so much good information from such bright people. My head of finance could easily be an FD of a JSE-listed company.”
Your CEO Maria Ramos is a wellknown figure, what is your working dynamic like? “We know each other’s strengths and weaknesses and we trust each other. Her connec-
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“The toughest decisions are always those where there is a vacuum of information, there is not a right or wrong answer and the decision needs to be made quickly.”
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CAPITAL & FINANCE tions across the world are unbelievable. She trusts me enough on the details. With an organisation of 44,000 people you have to be present as an FD. My room for growth lies in ensuring that I develop a wider personal network among our customers and other external stakeholders. I am also engaging a lot more with the wider organisation on our strategy and the progress we are making.”
from strategy to country heads to business heads and functions, was aligned.” “We also needed to work hard getting everybody to understand that we were now an organisation working across 12 countries in Africa and that the ways of working needed to change.”
What is your recipe for success? “Although I am by nature an introvert, I am a people person in the sense that I believe in accountability and giving people the space to operate. People will lose interest if they just need to execute instructions. Here at Barclays Africa, the complexity of our matrix is deeper than many local companies – our head office is in London, we have our own board and all the other countries have their own boards as well. A lot of work is involved in aligning our messages, which is why relationships are incredibly important. You don’t have to be friends all the time, but you need to be consistent and treat people with respect.”
“Finance’s job is to allow business to do what it is good at. To do that, there needs to be clarity of numbers.”
What was the change from Absa to Barclays Africa like? “Putting the construct of Barclays Africa together was a major crossroad. Previously Absa was only a South Africa-based organisation and now we need an Africa mindset, which includes creating excitement around opportunities to visit other African countries.” “It is clear where our differences and advantages against our competitors are. Barclays was already active in many African countries and we took on an unbelievable local brand. Our motto is ‘Fully international, fully regional, fully local’. We can do anything the international banks can do, but have better local presence. We can do anything the regional banks can do, but we can go global when we need to. We can also do anything the local banks can do, but have a regional and international presence.”
What was the most challenging for you during that period? “Our budgeting process was traditionally very numbers orientated and with operations across 12 countries and a complex matrix, we needed to ensure the whole organisation was aligned. Therefore we introduced the concept of Integrated Planning to ensure there was complete alignment between the strategy and finance. I spent a lot of time making sure the language used by everybody,
How can finance contribute to making the bank more agile? “Finance’s job is to allow business to do what it is good at. To do that, there needs to be clarity of numbers. We close each month on the fifth working day and flash numbers at the end of every week. The financial pack used to be 60 pages, now it is ten pages and I can see the nature of the discussions in exco changing.” “Having said that, I don’t think we’re agile yet. You can only become agile if you get the core working. That gives you confidence to try different things. We are now starting to talk like ‘why don’t we do that’ and get innovative.”
What is the toughest decision you have recently made? “The toughest decisions are always those where there is a vacuum of information, there is not a right or wrong answer and the decision needs to be made quickly. An example was when African Bank went into curatorship and we made the decision to buy the debt instruments out of our unit trusts onto the bank’s balance sheet. At times like this, it is great to have an experienced board that can guide you in your thought process.” l
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MOVING INTO AFRICA BY ERIC OSEI
Ten reasons to do business in Ghana Chief financial officers and investors from South Africa and across the globe generally consider Ghana to be Nigeria’s well-behaved little brother. In this Expert Insight, Eric Osei, business analyst and author of the recently published book Doing Business in Ghana, lists ten reasons businesses should consider the friendly West African country. 1. Political stability - Compared to other big African countries such as South Africa, Nigeria, Kenya and the Ivory Coast, where violent incidents have gained international attention at various points in time over the last two decades, Ghana has sustained political stability over the same period, allowing the country to make gains in socio-economic activities such as business, healthcare and housing. 2. Democratic governance - The key explanation for understanding the political stability in Ghana is the ever-increasing acceptance of democracy as the ideal system of governance across all institutions in Ghana. Both local and foreign business people are free to know, accept, challenge and even to suggest ways of improving the state’s guidelines that regulate both public and private businesses using the appropriate channels without fear. 3. Socio-economic prospects - Ghana’s economy is presently experiencing expected slower growth due to sharp currency depreciation, an energy crisis, domestic and external debt burdens, macroeconomic imbalances and rising inflation and interest rates. Nevertheless, Ghana’s economy, bolstered by increasing oil and gas production, private sector investment and improved public infrastructure, is expected to recover and grow about 6% in 2016. 4. Vibrant media – Since the 1990s, the media in Ghana, considered one of the most free in Africa, increas-
ingly plays a pivotal role for businesses. Ever-increasing numbers of vibrant television and radio stations and newspapers engage both local and international audiences in discussions that cover all aspects of the country. The internet has added to the media’s huge impact on businesses in Ghana. 5. Increasing skilled labour force With education always receiving the largest chunk of government’s annual budget, Ghana’s educational institutions continue to expand in quantity and quality making the country attractive for tertiary students across West Africa. 6. Competitive business atmosphere - Businesses usually flourish in an atmosphere where the expansions of business activities creates positive competition among old and new businesses. Ghana, through the efforts of Ghana Investment Promotion Center (GIPC) and other agencies, is characterised by accelerated growth in the number of private and public business enterprises making the country one of the most competitive places for businesses. 7. Decreasing bureaucracy - The drive to accelerate promotion of both local and foreign business activities is leading to less bureaucratic and more effective procedures for the registration and operation of businesses. Even though business people still have to be cautious of corrupt and fraudulent acts by public officials and private individuals in
Ghana, the decrease in bureaucratic hurdles ensure more transparent handling of business related issues by the officials responsible. 8. Business-friendly environment Given that the skilled labour force continues to increase rapidly in Ghana, unemployment is still a major issue in the country. Hence Ghanaian citizens really appreciate the importance of businesses. New business ventures mostly receive very friendly reception. 9. Recreational opportunities - Ghana also has several good relaxation spots for business owners and workers. There are a good number of tourist destinations that provide different recreational experiences across the ten regions of the country. Furthermore, it is becoming easier to travel from Ghana to other African countries. 10. Hospitality - Local people always try to create a positive impression on the mind of foreigners. It follows that foreign businesses are able to capitalise on the hospitality of Ghanaians in order to kick-start and to grow their businesses. l
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“Africa has 60% of available cropland in the world and higher GDP growth compared to developed economies.”
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MOVING INTO AFRICA How the continent can feed the world
Passion for Africa A conversation with Bikash Prasad always includes exclamations like “I am passionate about Africa” and “we are very bullish about the continent”. The finance wizard, nominated for the 2015 CFO Awards, readily dishes up facts and figures about Africa’s economic opportunities. “Olam’s investment in Africa in the last five years is over a billion dollars. It is humongous.”
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hen Bikash took over the CFO role for agri-business Olam International in Southern and East Africa three years ago, things were tough. He restructured the existing operations in the region, closed down tail profit centres and managed to reduce overheads and risk exposure. The capital released as a result was reallocated to expand the value chains through organic and inorganic investments to balance the product portfolios in the region. Bikash also modernised IT and localised the finance teams in African countries, getting rid of superfluous expats. Being active in the agri-sector, Bikash believes Africa is the world’s food provider of the future with “young people, urbanisation, the rich mineral resources and better governance” the key to the continent’s potential. Having joined Olam in 2006 in Cameroon before moving to Ghana as finance head for West Africa three years later, Bikash knows what he is talking about. He moved to Durban in 2012 to head up South and East Africa and since July he is CFO for Africa. Bikash is a longtime supporter of CFO South Africa, so we were extremely happy to speak him at length about his role at Olam, his approach to change management and the ups and downs of investing in African countries.
What were the challenges when you moved down to South Africa for Olam International? “When I took over the regional CFO role for South and East Africa three years ago, the region was going through extremely tough
times due to high dependence on cotton with prices at rock bottom. We had lost people at senior finance level, had extremely high operating leverage and an expat-dependent structure. Our systems were still catching up to support our new business models and not many businesses were very attractive.” “After understanding this, I immediately started the strategy recalibration exercise along with the business heads and came up with a restructuring plan that involved exiting tail and non-performing profit centres, reducing overheads and reducing risk exposure. As difficult as these decisions were, we are already seeing the benefits of our strategy for the overall growth in value of the company. After implementing the changes, all the regional clusters have been turned around.”
Changes are often met with resistance. What were the toughest decisions you had to take? “I had to convince the team to let go of 20 expats, 200 local staff and 5,000 temporary workers. It was a difficult period, but it helped in bringing down the overheads by 35%. The second tough decision was to start a localisation drive. We were very expat driven in pockets, but I find it very important for continuity and stability to have national talents.”
How have you gone about changing your finance team? “I have actively tried to nationalise my finance teams and have created an African
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“I think the high percentage of young people, urbanisation, the rich mineral resources and the attempts towards better governance are holding the key for Africa.” talent pool which we are constantly adding to through our various initiatives, like our Africa finance trainees programme. These trainees have now become managers and have also been afforded the opportunity to work in different countries in our region. This expands their skill set, but also brings in fresh new ideas, experience and sets of skills into our finance teams.” “Over the last two years I have consolidated my finance team and geared it towards a more regional focus, allowing for cross sharing of skills and experience which has positively impacted all our businesses and the region as a whole. I have completely standardised reporting, systems and processes across the countries. I insist on market visits for all the finance team members, so they can develop better business understanding.”
What improvements can still be made? “We aim to stay ahead of the game and have already started to build an Africa-wide tax function, where we are implementing processes and controls which may not currently be on individual countries’ tax agendas but which we believe will eventually top the list in the next five to ten years. We are also in constant conversation with the Big four accounting firms to understand the key trends
on the continent and which tax regimes are the most well-structured and efficient, so that we are geared towards the changing tax environments in each of the economies in which we operate.”
What is the role of technology in your finance team? “It is very important, especially with our current value chain expansion. We have successfully implemented SAP in South Africa, Cameroon, Ghana, Senegal and Mozambique and are laying it out in the rest of the region. We believe these systems, which are linked to our BI platforms, will contribute significantly to the quality of our data and analysis which will allow us to constantly maximise our efficiency and add value to the company and its decisions.”
What is your recipe for success? “I believe in standardising processes and reporting, because it makes reviews easier and more effective. I like working with teams, but also have a very good technical understanding myself. Before I go to sleep each night I spend 45 minutes reading about things like accounting and best practices. I interact a lot internally and externally. All of that improves my understanding and learning.”
You handle M&A, joint ventures and green field projects for Olam, making you almost a Chief Strategy Officer. What are the prospects in Africa? “Africa is a strong pillar for Olam’s business with invested capital of multi billions. Africa has 60% of available cropland in the world and higher GDP growth compared to developed economies. The rising middle class presents an opportunity for customer facing industries, which is why Olam has invested in packaged foods. I think the high percentage of young people, urbanisation, the rich mineral resources and the attempts towards better governance are holding the key for Africa.”
WHICH THREE AFRICAN COUNTRIES WOULD BIKASH INVEST IN? “I would choose Gabon, Ivory Coast and Ghana. The new government in Gabon is very pro-investment. They are looking to diversify from oil, gas and timber. They are really promoti ng investments. As Olam we have established a special economic zone with them with all sorts of tax holidays. The opportunities are mind blowing. Ivory Coast might look scary from the outside, because of the recent political unrest, but inside the country there is a good climate for investors. Ghana also remains a good destination. While there are some economic challenges in the last few years, it is a great country with very friendly people and a probusiness climate.”
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MOVING INTO AFRICA “Africa is poised to become the food producer for the world. Having the lowest yield currently compared to other producers globally – only 25% of total potential yield on average as compared to 90% in East Asia – there is an opportunity to maximise yields and production through upskilling agronomics, improved fertiliser application, technological innovation and PPP. Corporate farming firms will increasingly support small holders, thereby reducing poverty and improving farm productivity, which is very low today. As Olam we do this for many crops, including coffee, rice, rubber and edible nuts.” “Our biggest successes are probably flour milling, packaged foods business and plantations. We bring the best technology in the world and get the best teams. Our sourcing capability and risk management are unparalleled.”
“There is also the oftenrepeated fear of huge amounts of corruption, security issues and political insecurity. Many of these fears are exaggerated.” How do you keep up-to-date with opportunities and pitfalls in Africa? “We operate in 24 countries in Africa and we work very closely with tax authorities and governments. We try to understand what their priorities are. I also subscribe to various publications and speak with various stakeholders across Africa on a regular basis, such as bankers, business managers and finance managers. I also attend and actively participate in various trade and finance conferences, CFO conferences across the continent and internationally, where topics related to our business are discussed.”
How have you organised your African finance function? “We have four clusters: Eastern, Central, Mozambique and South Africa. They have
BIKASH PRASAD Bikash Prasad – current CFO South and East Africa of Olam International – has a rich history filled with over 17 years of experience in finance-related roles for world-class companies. After starting his career in India (his land of birth) and working with companies such as KimberlyClark Lever, Unilever and Asian Paints, Bikash moved to Nigeria ten years ago to work for Nulec Industries. In 2006 he joined Olam International as country finance controller in Cameroon. In 2009 he moved to Ghana as cluster financial head for West African countries and, in September 2012, assumed his current position in Durban leading a team of 100plus finance members,20 legal entities spread across 11 countries, supporting the region’s billion-plus turnover with end-toend supply chains in agriculture, food and food ingredients. Bikash was also one of the nominated for the South Africa CFO Awards 2015.
cluster CFOs and the senior leadership comprises of 25 people. We now have a healthy mix of nationals and expats. Our routine accounting and reporting has been outsourced to Olam Global Business Services in Chennai, India. This allows my team to focus on value-adding roles and to become a trusted business partner.”
What misunderstandings do South African CFOs have about investing in other African countries? “If you talk to CFOs, the perception is that infrastructure is very bad, but it is actually quite good compared to many other places in the world. There is also the often-repeated fear of huge amounts of corruption, security issues and political insecurity. Many of these fears are exaggerated. Corruption risks, for example, are entirely different per country. In countries like Ethiopia it is not bad at all and in other countries you can actually help governments fight corruption. In Ghana, for example, Olam has come with suggestions to curb illegal trade.” l
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WE CANNOT SOLVE OUR PROBLEMS W I T H T H E S A M E
THINKING WE USED WHEN WE CREATED THEM - Albert Einstein
Boost Productivity and Efficiency with Excel-Based Reporting Solutions In a recent CFO innovation survey, 73% of respondents used ExcelŠ for over half of their analytical work even while acknowledging that spreadsheets are problematic.1 ERP and business intelligence (BI) systems hold a wealth of important information, yet this is not easily accessible by executives. Award-Winning Software Excel4apps solutions have cured the reporting pain of over 23,000 Oracle & SAP users in 67 countries.
Time saving: Excel4apps allows executives to quickly and securely access real-time, meaningful information directly from their Oracle E-Business Suite or SAP ERP. Risk Avoidance: Excel4apps solutions create a direct link from Excel to your ERP eliminating the disconnect between Excel and the ERP and reducing the risk of spreadsheet calculation errors. Time for Analysis: Rapid, error-free and real-time access to vital information directly in Excel allow executives and their teams to quickly and thoroughly analyse the information ensuring timely decision making. 1 Kelly, Susan. For finance planning & analysis, majority still use spreadsheets. CFO Innovation. July 3, 2014. Retrieved Aug. 13, 2014, from http://www.cfoinnovation.com/story/8507/finance-planning-and-analysis-majority-still-use-spreadsheets.
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TECHNOLOGY Omnia CFO Wayne Koonin on turnaround strategies and digital transformation
Focus on systems “Business grows and finance improves through a focus on systems – that is my thesis,” says Wayne Koonin, group finance director at Omnia. With 15 years of turnaround experience in the mining industry and a small team of trusted advisors in tow, he recently joined the South African chemicals group and identified digital transformation as the lever to “take the business to the next level”.
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FO South Africa spoke to Wayne and chatted about raising capital in a highly pressured mining sector, his concept of ‘reversing’ a business ‘into a system’ and an invitation to go to the US to exchange views with the leadership of software giant Microsoft.
“I have specialised in corporate turnaround by re-engineering businesses through raising debt and equity and at the same time driving changes to systems, business processes and structures.”
Wayne Koonin’s description of the term ‘sabbatical’ says a lot about his personality. When he left mining firm Coal of Africa (CoAL) – after what he describes as a very challenging but rewarding time in his career – Wayne decided that he was ready for a break. “In addition to my finan-
cial background, I also have a strong legal background, so in that period I did some interesting work in the field of financial and commercial litigation. It was fascinating stuff. I was probably as busy as I was in my CFO role at CoAL, but I could do everything in my own time. For me, a sabbatical doesn’t mean playing golf all day. It was more about how I kept myself busy until I decided on my next career move.” Take that attitude and an impressive CV and it is not hard to see why Wayne was headhunted by Omnia, a 4,400 people strong South African firm active in mining explosives, fertiliser and other specialised chemicals, with a R16,8 billion turnover. “I studied on a part-time basis both at the University of Toronto and Wits and qualified as a South African CA in 1997,” Wayne explains. “I have spent the bulk of my career in international mining, using South Africa as a base. I have specialised in corporate turnaround by re-engineering businesses through raising debt and equity and at the same time driving changes to systems, business processes and structures.” After his stint as CFO of multiple-listed CoAL, Wayne decided he had “done everything” there was to be done in the mining industry and started looking for a new experience. “After the disposal of a 25% interest in CoAL to a Chinese consortium, I was bought out of the remainder of my contract.
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TECHNOLOGY After two-and-a-half years I had achieved what I had set out to do in a five-year period. It was an incredible way to round off my career in the mining industry, where I have been active for close on 15 years. Most CFOs only have the opportunity to do one turnaround in their career. I had the privilege to be involved in many along with a range of very complex issues to add to the challenge.”
Raising capital Although Wayne implemented Microsoft’s solutions at CoAL, he feels that raising capital was one of his biggest contributions during his time with the company. “When I joined, the company was in a lot of financial and legal difficulty and we needed to undertake an extremely complicated capital raise within a relatively short period of time. After preparing a 600-page prospectus, we successfully raised $106 million that provided a lifeline to the company. We did several other capital and debt raising exercises thereafter, culminating in the $100 million we raised by selling 25% of the business to a Chinese consortium. It was basically about giving oxygen to an enterprise that was running out of air and creating flexibility to ensure a future for the business and shareholders.” “At the same time we also had to deal with a range of complex environmental issues and legal issues, which made it really complicated. The process to complete the prospectus and raise the capital involved 46 people spread between Johannesburg and London
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TECHNOLOGY and we worked on this for six months. The raise was almost scuppered on the last day when Greece unexpectedly called a referendum and sent the global markets deep into the red. To add to the difficulty, the deal with the Chinese involved lots of complications and was negotiated during the time of Marikana. The successful outcome of this transaction has been the highlight of my career so far.”
Technology trap Wayne says his objectives for Omnia are very different and he is able to call on his vast experience in the turnaround space to create effective change in a short period of time. This will be the sixth time he’ll be reengineering a business during his career and due to the size and complexity of the business, the most challenging. “When I joined as group FD last year, the business was already doing very well, yet there were opportunities to further improve the performance.” The company had previously embarked on a project to implement an ERP system that was challenging and was reaching a point where it could potentially limit future growth. “You have to avoid the technology trap. That is very dangerous. Omnia had an ERP system that we could not scale or take advantage of the changes in the technology landscape to improve the business further.” Although this was not a core part of his initial brief when hired, Wayne quickly identified the opportunity to put his skills to good use in the company. “I understand the IT environment and how to use it to change a business. I had to build a business case to convince the executive and board that the IT strategy and vision needed to be revisited and that Omnia needed to align with the right vendors as part of this process. We took nine months to put the business case together in support of upgrading and updating the entire network architecture and platform to Microsoft Dynamics AX, which will become the recommended ERP platform for the entire business.” After the challenges of the previous ERP implementation, there was a fair amount of resistance in the business to conquer, Wayne admits. “That is why we are first doing a series of pilot projects to prove the benefits to the business. We are using our own version of the ‘agile approach’ to run and implement the projects in short time frames. It is crucial that the business adapts to the systems and
“We have saved the business between 2 and 3 years by finalising a plan within 9 months which we started to action once we purchased the licences.”
not the other way around. By reversing the business into the system, we automatically adopt best practices, improve controls, maintain a standardised footprint across the group and importantly, reduce the risk around upgrades in the future.” “The real core of my strategy is building a unified technology platform and there is no software company that can cover all the requirements from network software to databases to ERP systems, except Microsoft,” Wayne explains. “The real benefit lies in setting up, implementing and using the software properly. Often a lot of money gets spent on technology, but it doesn’t deliver value because of a poor implementation. A strong understanding of the business requirements and the software capabilities, are the key ingredients to design the core architecture and hardware requirements correctly.”
Hunting in a pack Wayne speaks a lot about ‘we’ when he talks about reengineering the business systems and that is not because he is being polite. “I have a team of people that have worked with me for a long time. I am very much the visionary with the ability to marry strategy, vision and technology, but my head of IT, Rajan Pillay, is the technical brains on the full range of Microsoft technologies and also has a strong understanding of accounting and business. I have worked with Rajan for 14 years and this will be our fourth implementation of Microsoft Dynamics AX together. The other person is Sanet van Schalkwyk, with whom I have worked for the last six years and who was also involved in three of
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TECHNOLOGY the four implementations with Rajan. As a team we work with a number of consultants, but the three of us hunt in a pack. It has been very rewarding to build the core team and to work together for so many years.” Together, Wayne, Rajan and Sanet talk to colleagues who may feel that the ERP is not going to be able to handle a specific slice of the business. “By understanding the software properly, we can do eight or nine out of the ten things with it. For the rest we can either find a suitable workaround in the system, use third-party software or develop something as a last resort. If people don’t understand how they can use the technology properly, we go into conversation with them to find a solution. At Omnia we are yet to find something that cannot be done within the core Microsoft products and especially the Microsoft Dynamics AX 2012 R3 system.” Thanks to the team’s intimate knowledge of IT – and Microsoft solutions in particular – Wayne expects there is “a substantial return on investment” awaiting Omnia. “We have saved the business between two and three years by finalising a plan within nine months which we started to action once we purchased the licences. We just went live with our first pilot site in 100 days with no major problems. The previous project for this site took more than two years to complete and get properly operational. I can’t reveal a number, but I am expecting substantial ROI – and more importantly - the ability to create a platform for growth and take the business to the next level.”
Microsoft showcase Wayne says that many executives at Omnia already knew what had to happen, but the real challenge was how to tackle the project. “We are a science business incorporating many elements like manufacturing, exporting, sales and hazardous chemicals – all adding complexity. The CEO was very supportive and we were able to deal with the risk profile quite well thanks to the learnings of the previous project.” With Microsoft moving away from a salesfocused machine towards a partnership approach, Omnia was a massive test case for the American firm. “It was a hard sell to Microsoft here, to get them behind me and to canvas the deal on a global basis. I met with many of the international executives and shared the vision with them and
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the opportunities for both organisations. Because of the size of the deal, approval had to come right from the CEO’s second in command in the US. For us that means the level of exposure is phenomenal as we are forging relationships at the highest level and have built an excellent working relationship with Microsoft. For them it is also one of the better deals. I am sure that in time, Microsoft will use us as a showcase of a blue chip company with an end-to-end solution where the technology is used properly.” Wayne now regularly speaks about his experience with Microsoft and has even been invited to come to the company’s Executive Briefing Conference (EBC) at the Microsoft headquarters in 2016. “I am very excited. The exposure is phenomenal. It took a lot of hard work to make the partnership happen, but we have had the licenses since May 2015 and have already delivered quicker than even Microsoft had expected. We also have a similar partnership with HP around hardware which has been equally successful. HP are way ahead of the competition and for me this combination of Microsoft software and HP hardware is a tried and tested format.”
“Once we have implemented this, we can look at more aggressive growth and acquisitions.” Stereotypical Wayne’s career reads like that of a typical top achiever, who gets bored when a challenge has been met and its back to business as usual. However, he says he is with Omnia, which is active in 25 countries and has 12 plants at the 168 hectare factory site in Sasolburg, for the long haul. “I have built my career around not being a stereotypical FD. Omnia is a great opportunity to put my experience to good use, and also for me to learn and continue to grow at a senior level. Once we have implemented this, we can look at more aggressive growth and acquisitions.” l
TECHNOLOGY CFOs discuss big data at October event
Asking the right questions Working with big data can enable CFOs and their companies to innovate, interrogate and turn the finance department in a profit centre, rather than an expense. This only starts to yield results, though, when BI allows finance bosses to “answer sufficiently interesting questions”.
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hat was one of the conclusions at the inspiring Master Class of CFO South Africa’s Finance Transformation event on 22 October 2015 at The Forum in Bryanston, Johannesburg. In a parallel exclusive roundtable session Microsoft South Africa’s CFO Paul Marten discussed the practicalities of big data with a carefully selected group of his peers. Moderated by our own MD Graham Fehrsen, the discussion touched on Microsoft’s exciting data analysis at Spanish soccer club Real Madrid, the need to know how to make pizzas and the cold fact that finance transformation will stall if you don’t get buy in from your own people.
Great insights from Microsoft CFO Paul Marten and KPMG partner Alida Taylor
Meanwhile, the Master Class was kicked off with a very insightful presentation by Alida Taylor, a partner at CFO South Africa’s principal sponsor KPMG. She told CFOs to take
charge of finance transformation, especially now big data is starting to play an increasingly big role. “If you don’t take the lead, the IT department will, but that is not right, because data and analytics should sit firmly within the business.” CFO South Africa’s founding director Melle Eijckelhoff then called a diverse panel of experts on stage to share their insights. Servest CFO Peter Walsh frankly admitted his company could probably extract more value from big data, even though it’s a purely B2B business offering services like landscaping, security and water dispensers. “We don’t need to be at the bleeding edge of big data innovation, but if we don’t innovate, we get left behind. If data allows us to get single view of a customer – especially if we offer multiple services to that client – we could grow our business.” Zetta Solutions EPM manager Anna Puzone said that the CFO plays a pivotal role in the data revolution. “IT and the business often talk a different language. Even though it is getting smaller there is still a gap.” Business Optics director James Saunders implored the audience to know what they want from big data and Berenice Francis, group commercial executive at Imperial, added that CFOs can only take advantage of big data “if you have a plan, the right
Fabian Cazares (CFO Philips Southern Africa) and Paul Marten (CFO Microsoft South Africa)
data and the right people”. The technicians need to report to the CFO, she said. “IT people can be like kids in a sweet shop. We need to harness their energy and relate it back to the business so it makes sense.” The way people influence – and determine – the success of finance transformation was also a major theme during the round table discussion. Philips Southern Africa CFO Fabian Cazares admitted changing the way finance operates is still “a journey”, especially when working in different African countries that “lack integration of systems or have no systems at all”. Zimkita Mabindla (Digby Wells), Edward Willcox (Simba) and Natasha Moodley (Yum Brands) all elaborated on their challenges to distil the right information from the available data. Moodley is involved in the rollout of Pizza Hut in South Africa and emphasised how important it is to know the business inside out. “I know how to stretch, how to top and I can ring up an item,” she said, with other CFOs around the table agreeing that a deep understanding of the business is crucial for modern finance leaders. Irene Singo, CFO at the Department of Mineral Resources, candidly shared her challenge from a government perspective, where “pockets of data” are scattered throughout divisions. l
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FINTECH Overwhelming success at the FinTech event in Cape Town
Think globally and grow up South African FinTech companies need to adopt an attitude of abundance, learn to “think globally” and then “grow up and do the hard work”. Those were some of the conclusions of the incredibly successful and well-attended FinTech Africa event in Cape Town on 20 October 2015.
“We have been overwhelmed by the response,” FinTech Africa MD Graham Fehrsen candidly admitted. “Never in our wildest dreams had we expected such a large audience and such fantastic speakers.” Whereas disruption, learning by failing, innovation and collaboration were the main themes during the first large FinTech event at GIBS Business School in Johannesburg on 28 July 2015, the Cape Town gathering was all about taking the next step. One of the pivotal presentations of the afternoon and evening was a chat by Nicole Anderson of the Lon-
don-based company FinTech Circle Innovate, who had flown to Cape Town specifically for the occasion. She told the 130-strong audience at the Bellville campus of the University of Stellenbosch Business School Executive Development (USB-ED) that FinTech investment has skyrocketed from less than $1 billion in Q2 2010 to over $3 billion in Q1 2015. “FinTech is the perfect storm for venture capitalists. Until now it has mainly been B2C, but B2B FinTech and complex products around for example insurance are now taking off and some leading VC funds are now solely focusing on that.”
“South African FinTech entrepreneurs should be acting locally, but thinking globally.” Nicole stressed that all the big American and European players – including Citi Ventures, Goldman Sachs, Google, eBay, Intel, HSBC and Barclays are all “staking their claim” and investing in FinTech. In South Africa, however, regulations are hampering growth. “Three years ago I tried to set up a tech fund in South Africa, but lack of tax incentives and exchange control are things that are not helping.” She called on South African entrepreneurs to look across the border, both for customers and for funding. “You should be acting locally, but thinking globally.”
Growing hamburgers
Nicole Anderson (FINTECH Circle Innovate) and Paul Nel (Barclays Africa)
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Nicole’s keynote was preceded by a short opening by USB-ED CEO Frik Landman and a whirlwind, futuristic presentation by Dutch ‘lifehacker’ Martijn Aslander, who has rapidly grown in popularity in South Africa as ‘boardroom sparring partner’. Aslander touched on some of his
FINTECH favourite themes, aimed at “doing more in less time with less stress at a lower cost with more impact”. He chatted about 5g, growing hamburgers, storing data in dna and the mindset of abundance. A cheer erupted from the audience when he predicted the demise of accountants and lawyers. “Attitude,” Martijn asserted, “is more important than knowledge or even skills.”
Paul Nel (Barclays Africa): “We need to make the partnership stuff real and get the compliance and legal departments involved in the solutions.” Before some lively panel discussions took place between the who’s who in the Cape’s FinTech space, Barclays Africa’s self-proclaimed ‘chief of stuff’ Paul Nel assured the audience his bank wants to “fundamentally change the way we do things”. Barclays Africa recently announced a new accelerator in collaboration with the internationally renowned accelerator Techstars. “We really want to go out of our way to help companies grow,” Nel said, adding that the example of the investment in lending marketplace RainFin shows it can be done, even though the process is onerous. “We need to make the partnership stuff real and get the compliance and legal departments involved in the solutions.”
Shorttermism A panel discussion with IDM’s Benay Sager, FinTech guru Perry Blacher and SnapScan CEO Kobus Ehlers then emphasised that capital will be available for FinTech entrepreneurs, as long as they are good enough. “Banks get a lot of flak, but they are good at what they do,” Ehlers said. “There are not enough
Dave van Niekerk (GetBucks), Will Mapham (Vula Mobile) and Brett Magrath (Zoona)
good startups to go around. Businesses that are excellent usually prefer to build themselves into a better negotiation position first, while the less good ones end up being funded. Banks are good with trust. They are moving slowly and it is super hard. We spend 30 to 40% of our energy on compliance, but that is part of the game being in the finance, payments and banking space. As an entrepreneur you need to grow up and do the hard work.” Blacher agreed, indicating that accelerators and incubators often suffer from ‘shorttermism’, as he dubbed it. “The truth is that the ones that work is where the entrepreneur wants the accelerator or incubator, not when he or she needs them. The problem is often that the opportunities in South Africa are not big enough.” Ehlers also feels the focus of large corporates as FinTech investors is often missing, locally. “They spend a small amount of money on investments and treat these as ‘future proofing insurance’ rather than as high risk venturing – that can have a paradoxical effect.”
Hit the numbers Ophthalmologist Will Mapham then briefly chatted about his amazing health app Vula Mobile, which has so far mainly been funded through the money of competitions the app has won. Vula makes it possible to do an
eye scan through a mobile phone and then directly send it to eye specialists who can diagnose the patient. Currently Mapham is upscaling the app to including hearing, heart function and other diagnoses that can be done through simple mobile technology. “With all the data we are collecting, we are basically writing text books on eye conditions,” he said. Mapham also discussed the future of FinTech during a final panel with Dave van Niekerk (CEO GetBucks), Zoona-founder Brett Magrath and Patrick Schofield, founder of crowd funding platform Thundafund. “My tips for entrepreneurs who want to talk to investors is to hit the numbers you promise and to engage early, as raising capital is a long journey,” Magrath said. According to Schofield crowd funding can play a crucial role in vetting FinTech startups and doing the hard work for larger investors – who can then step into the most successful ventures. It was up to the flamboyant Morne Mostert, director at the Institute of Futures Research and Faculty at Stellenbosch to close the evening and open the floor for networking and refreshments. Echoing Aslander’s assertion that all that is matters is attitude, he stated that people who are afraid to be replaced by computers, should stop acting like one. l
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South Africa should be “leading the charge” and helping innovative companies to flourish
“The time for FinTech Africa is now” Globally, hubs are sprouting up for companies that disrupt the financial sector with technology. Africa is in danger of missing the boat. “The time to act is now,” says Nicole Anderson, the South African-born and educated CEO and co-founder of FINTECH Circle Innovate in London. 78
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FINTECH
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ccording to a new white paper that Nicole has authored, FinTech is a great opportunity to accelerate the financial inclusion of the hundreds of millions of unbanked people in Africa. She argues that the continent’s population is “magnitudes more suitable for the digital age than the western world’s population”, because of demographics. “Millennials make up a much larger chunk of the African population than of the western world’s population and Africa’s rising middle-class is per definition a rising demand-base for all kinds of financial services.” FinTech Africa recently interviewed Nicole on the opportunities she sees for “radical growth” on the continent. How did you end up in London? “I am from Johannesburg and have lived in Cape Town and in KwaZulu-Natal. I only moved to the UK in 2000, when I was transferred there when I worked for SAP. I had several roles and when I left I was Business Development Director and UKI board member.” “I am still very much connected to South Africa personally, but Africa is also a very interesting market professionally. In London I started a consultancy that did strategy work for companies like HP and Nokia, specifically looking at Africa.” How did you end up in the FinTech world? “In 2012 I joined Sage as business development director for the UK and Ireland. There I was exposed to a lot of SMEs and startups. It was a tipping point. The term FinTech had not been coined yet, but I saw the wave coming. Lots of startups were knocking on doors, it was very exciting. An ecosystem was starting to emerge. I took a jump into FinTech and I haven’t looked back.”
“In the last six months things have fundamentally shifted. The scale and depth of Fintech companies are growing, valuations are bullish and growth rates are radical.”
“FinTech is also an enabling technology for industries like telcos, energy, agriculture and insurance. This is super, super exciting and hugely relevant to Africa.” What is so exciting about this movement? “No day is the same. We are really pioneering and the network aspect of the FinTech ecosystem is still shaping and forming. That is why I believe FinTech Africa has a massive opportunity to play a role in supporting the growth of this movement. When I was working for large companies, the structures shielded me from the trials and tribulations of the market. Now I am in the middle of it. In FinTech, if you are willing to take risks, the rewards can be high. We are pioneers and are market-making.” Is the business world starting to take FinTech seriously? “We are on a journey. Globally, there are various levels of maturity. In London the FinTech PR is at full throttle and all players including the banks are leveraging that. Even if companies are not massively investing in FinTech yet, they are experimenting with FinTech labs or parallel strategies which explore the FinTech ecosystem. In the last six months things have fundamentally shifted. The scale and depth of companies are growing, valuations are bullish and growth rates are radical.” “In terms of disruption, traditional financial services are one thing, but FinTech is also an enabling technology for industries like telcos, energy, agriculture and insurance. This is super, super exciting and hugely relevant to Africa.” “Still the challenge is that we are on the periphery. I speak to people like the heads of innovation, chief technology officers and venture capitalists but they are often disconnected from their own peers or C-Suite influencers. Big firms still have to learn to work with small, agile companies. Large institutions are still figuring out how they work internally with open innovation – there is no one model that fits all.” What role does FINTECH Circle Innovate play? “We connect smart money to the FinTech
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FINTECH ecosystem to help facilitate acquisitions, partnerships and investments. We also work with public private partnership and other government-backed initiatives. We work with startups across the ecosystem to source the right deal for corporate investors. We have to be experts in our field. That is why we write white papers, but we also do training for C-suite business leaders and give advice on right deal structures. About 90% of our business is outside of London, but it is good to be based here because of the lessons — and models — London provides.”
“Africa’s population is approaching the 1,1 billion mark. This is a huge growth market.” What can FinTech mean for Africa? “In many ways, Africa lacks legacy in financial service infrastructure and policy. This is actually an opportunity for FinTech companies to design, implement and grow their solutions. It is fertile ground for FinTech. Africa’s population is approaching the 1,1 billion mark. This is a huge growth market. All Africa’s growth forecasts for the next decade are way over any western region’s forecasts. This means that very soon western FinTech companies will begin to look at Africa, with its tech-savvy young population, as a prime growth market to enter.” What are the barriers for FinTech in Africa? “A major barrier to the growth of African FinTech companies is the regulation patchwork. The continent consists of over 50 countries and each in itself is a limited (often very limited) market. Regulations however are poorly or not coordinated and often incompatible.” “The biggest challenge remains the ability of policy makers to get their heads around FinTech. The UK already has a regulator and a trade body for the ecosystem. In London those bodies are always thinking about competition with hubs elsewhere in the world like New York, San Francisco, Singapore, but now also places like Israel and Stockholm. The United Arab Emirates and various states in the Middle East are well poised to become FinTech hubs. The time is now and South Africa has some significant global competition
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for talent and capital.”
“South African entrepreneurs are very locally focused. That needs to change because FinTech is a global ecosystem.” What is the problem with capital flow in Africa? “Regulations restrict the flow of capital, like exchange controls in place in South Africa and some other African countries. Another problem is that sources of funding for tech are not mature or widely available. Private equity, while viable for infrastructure projects, is not suitable for technology and venture capital, as an asset class, is still immature in the region. If capital can’t be mobilised, innovators can’t come. South African entrepreneurs are also very locally focused. That needs to change because FinTech is a global ecosystem.” What about other African countries? “Botswana is a leading light and totally gets it, but the country is very much focused on private equity and not really on the technical side. Nigeria is not an easy market, but the growth rates are the highest on the continent and it has a large population. South Africa has a knowledge base in financial services. It has talent and it is a natural gateway for the continent. Despite all the challenges this could be a massive opportunity for South Africa to lead the FinTech Africa charge. The clock is ticking though. The time is now.” Can you give some examples of exciting African FinTech companies? “FarmDrive in Kenya is a company that wants to transform the way smallholder farmers get access to financial services. Atikus in Rwanda offers lenders comprehensive credit insurance, called J.E.M. Guard, on loans for micro and SME enterprises (MSMEs) and there is the Johannesburg-based company Fourex which has invented a coin exchange, which is hardware, believe it or not. Financial inclusion, tapping into the unbanked, of is the major theme which Africa represents to the investment community.” l
FINTECH BY EBRAHIM MOOLLA
More genuine collaboration is required, says Standard Bank’s Paul Steenkamp
Arrogant FinTech & self-obsessed banks “Banks need to become less self-obsessed and more aware that all the decisions they make have to have customers at the centre,” says Paul Steenkamp, Head: Innovation Capability at the Standard Bank Group. He has a message for FinTech firms too: be less arrogant.
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aul was on the panel during the successful second FinTech Africa event in Johannesburg in July. Afterwards, we spoke to him about the panic banks felt about FinTech and the way they are starting to embrace the revolution now. “One plus one equals three. Banks and FinTech companies can achieve a lot more by working together.”
Tell us about your background. “I’ve got a background in industrial psychology and an MBA and have been involved in driving culture change in big organisations, particularly in financial services, over the past ten years. I spent five years at FNB, running the innovation programme, and joined Standard Bank last year to build innovation capability. We are pursuing an open innovation strategy that involves partnering with FinTech companies to solve very specific business challenges.”
How important is financial education for the entrepreneur? “It is hugely important to be part of a learning organisation and, on an individual level, to believe in lifelong learning, remaining curious and making space in your mind for new things. I refer to a degree certificate as a slip of paper because I believe formal education is driven by people’s insecurities and
the belief that a degree somehow makes them better than others. An MBA is an exercise in persistence and resilience, rather than a title that marks the holder out as someone special.”
What is driving the FinTech boom? “One of the drivers is the extent to which banks are regulated and that banks have been conservative in the wake of the 2008
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FINTECH global financial crisis. There are exceptions, but there is evidence to suggest that they have tied themselves in knots in trying to comply with new, more stringent regulations. This has resulted in them being more internally focused and less responsive. Another contributing factor is that customer experience expectations have changed radically over the past few years.”
What is the big bank perspective on the FinTech revolution? “A year ago there was panic in parts of the global banking industry and some people were really rattled. Lots of banking presentations used slides with Bill Gates’ famous quote: “The world needs banking, but it doesn’t need banks.” There was a lot of fear mongering over the rate of proliferation of FinTech companies and how much money was being invested in them. Things have changed and there is now recognition that banks have brands and scale. The reality is that the scale and reach of big banks are incredibly valuable. FinTech startups, on the other hand, have agility and capabilities that banks don’t have. When you bring these things together, one plus one equals three. Banks and FinTech companies can achieve a lot more by working together.”
What can banks do to stay relevant? “Banks need to become less self-obsessed and more aware that all the decisions they make have to have customers at the centre. The “my way or the highway” days are very much gone. The problem is that there are a lot of legacies in banks, because they have been built with a product mindset. There are also new ways of working that banks need to embrace and move away from silos and hierarchies. Companies are having a lot of success by using small, multidisciplinary teams who employ innovation accounting metrics and big data to keep themselves honest around their investments, challenges and opportunities. Lean, agile and continuous development processes also need to be infused and adopted.”
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Are there any FinTech companies that have impressed you? “We developed our SnapScan product with a Stellenbosch-based FinTech group called FireID. We loved working with them, but I don’t think the feeling was mutual. There’s clearly been something in it for them to go through the pain of working with us. We’ve learnt a lot on how to partner with FinTechs, which is innovation in its own right for our sector and our customers. Our partnership with FireID has been inspiring and they’ve helped demystify a lot of topics for us. They are head and shoulders above their peers. We’ve also engaged the local and international FinTech community extensively through our sponsorship of the Matchi.biz forum.”
What are some of the misconceptions FinTech companies have about banks? “They often feel that banks absolutely need their solutions, when this is seldom the case. Often, the bank has actually developed and launched a similar solution years ago, but it just didn’t work for some reason. FinTechs are very quick to accuse banks of being arrogant, but they don’t realise their own arrogance. They think people in banks are stupid and haven’t thought of the obvious. We are not going to fall over ourselves to adopt their solutions. Partnerships work better when we have a specific challenge that we need to solve and this involves community building and regular engagement. As banks, we have to be open with our laundry list of stuff of things we needed to solve, leaving some space for wildcards.”
Do you have any advice for entrepreneurs in the space? “I really admire FinTech entrepreneurs. It is important that they remain committed to their businesses and be willing to continually iterate or kill solutions they’ve come up with. I’ve seen FinTechs go under because they kept flogging a dead horse.” “Many successful FinTech businesses, including FireID, hold onto their ideas lightly and are not afraid to kill them. They have a wonderful objectivity and metric-driven decision-making process and don’t get emotional about things. The challenge for FinTech entrepreneurs, especially those who have come out of financial services, is that they need to focus on solving problems instead of developing products.” l
“FinTechs are very quick to accuse banks of being arrogant, but they don’t realise their own arrogance.”
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17 November Risk, Compliance & Control
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Africa Business Guide
Doing Business in Africa KPMG Africa Capability
Angola Country Profile Country Snapshot Fiscal Guide
KPMG Africa Contacts
Africa Blog
Lunch With our Leader: A Discussion with Jason Kazilimani on investment prospects in Zambia
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Africa Events
KPMG Dakar Osarge News Tax Conference Mobile Internet Dakar, on the riseSenegal in developing 28 March 2014 African Countries Shared by World Bank | General African News