CFO Magazine South Africa - 2016 - 2nd issue by CFO South Africa

MAG AZINE FOR FINANCE PROFESSIONALS IN SOUTH AFRICA 2 • 2016 CFO.CO.ZA

Prof Wiseman Nkuhlu CFOs need courage and competence

CFO OCEANA GROUP

Imraan Soomra Landing the big fish Cobus Grove Former CFO DigiCore The good, the bid & the ugly Reggie Boqo CFO City of Johannesburg Fuelling Africa’s economic engine Megan Pydigadu CFO MiX Telematics Lessons from an NYSE listing

Integrated reporting Why should we care? KPMG CEO Trevor Hoole Nine burning topics for modern CFOs

â&#x20AC;&#x153;How do you take your business to international waters?â&#x20AC;?

Oceana partnered with Standard Bank to acquire Daybrook Fisheries, a USA fishing company, creating a fishing group of global scale. We provided an end-to-end solution that further demonstrates our expertise in the consumer sector and our cross-border capabilities. So, whatever the opportunity, let us be your partner for growth. standardbank.co.za/cib

Corporate and Investment Banking Authorised financial services and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). Moving Forward is a trademark of The Standard Bank of South Africa Limited SBSA 212304.

“Partner with a bank that’s already there.” R4.6bn Acquisition Financial and Debt Advisor Debt and Equity Underwriting Foreign Exchange Hedging

Also trading as Stanbic Bank

TABLE OF CONTENTS Prof Wiseman Nkuhlu

Megan Pydigadu

“CFOs need to be role models,” says Prof Lumkile Wiseman Nkuhlu, South Africa’s first black chartered accountant, current chancellor of the University of Pretoria, and an often-cited inspiration for members of our CFO community. CFO South Africa had the pleasure of an exclusive interview with the 72-year-old finance elder, who was the guest of honour and keynote speaker at the recent CFO Awards 2016 on 12 May.

Three years ago MiX Telematics decided their JSE listing was nice but an NYSE listing would really boost the fleet and mobile asset management solutions firm. CFO Megan Pydigadu, nominated for the CFO Awards in both 2014 and 2015, talks about the listing process as a rollercoaster ride and shares a number of important lessons for companies that are considering going to New York.

16 45 Imraan Soomra

When Imraan Soomra first joined Oceana in 2013, his new CEO Francois Kuttel feared he would be too timid. But Francois was soon proven wrong, and the two have since formed a formidable executive pair, shaking up the culture, gearing up for growth and bursting onto the global stage with the spectacular acquisition of Daybrook Fisheries in the US. Imraan shares the story with us.

CFO South Africa is the organisation for finance executives 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

MANAGING DIRECTOR Graham Fehrsen gfehrsen@cfo.co.za +27 (0)79 898 0227

EDITOR IN CHIEF Joël Roerig jroerig@cfo.co.za +27 (0)76 371 2856

BUSINESS AND STRATEGY MANAGER Michelle Crosby mcrosby@cfo.co.za +27 (0)82 859 1245

SENIOR EDITOR Toni Muir tmuir@cfo.co.za +27 (0)82 908 8687

OPERATIONS AND SALES MANAGER Shay van Huyssteen svanhuyssteen@cfo.co.za +27 (0)11 083 7515

DESIGN Cor Lesterhuis

OTHER CONTRIBUTORS Anouk Bommer, Ebrahim Moolla, Elmar Venter, Lesley Stones, Li Chen, Lotte Kemper, Mary Barth, Megan Pydigadu, Steven Cahan PRINTING Novus Holdings +27 (0)11 201 3460 +27 (0)84 612 1032 coenraad.pretorius@paarlmedia.co.za

PHOTOGRAPHY Patrick Furter, Denielle Janse van Rensburg, Mpho Mokgadi

© 2016 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.

CFO MAGAZINE • CFO.CO.ZA

TABLE OF CONTENTS

Finance Indaba Africa 14 Finance Indaba Africa 2016: More than 40 corporate partners and thousands of participants have already signed up.

Leadership 16 Interview Prof Wiseman Nkuhlu: CFOs need courage 22 Lightning-fast reflexes – the agile team

Public Sector 27 Interview Umar Banda: The public sector is not everyone’s cup of tea 30 Interview Reggie Boqo: City of Johannesburg CFO 34 Report of recent public sector CFO events 38 Interview Vuyo Mafata: Get things right by doing things right

30 58

M&A 41 Interview John Geel: Quietly confident about 2016 45 Interview Imraan Soomra: How Oceana bought Daybrook Fisheries 51 Report of the recent M&A event 53 Interview Cobus Grove: A compulsion to keep succeeding

Risk 58 Interview Sneha Shah: Enabling CFOs to focus on what matters 62 Interview Thobeka Ntshiza: The tenacity of youth 66 EY’s Susan Breytenbach: What CFOS should know about forensic accounting 70 KPMG’s Trevor Hoole: What it takes to be a successful finance leader

Governance 74 Integrated reporting and why CFOs should care 78 Megan Pydigadu: Lessons from an NYSE listing 81 IBM: How CFOs can harness the power of technological advancement

And Further

6 From the editor in chief: Calling for courage 8 CFO Awards 2016: SA’s finance Oscars 10 On the move – new appointments 12 From the MD: Leaders who serve, succeed 83 Calendar CFO South Africa Events 2016

CFO MAGAZINE • CFO.CO.ZA

FROM THE EDITOR IN CHIEF

A call for courage

drenaline, emotional breakdowns and distant dreams are usually topics for other kinds of glossy magazines. But, as our high-level events and candid online and offline interviews often show, CFOs are people too. So when South Africa’s living accounting legend, Prof Wiseman Nkuhlu, called for courage during his keynote at the CFO Awards on 12 May 2016, it was a message that resonated with many of the successful finance leaders in our network: professional AND personal courage are required in equal measures to make it in the world of finance. I had the privilege of talking to Prof Nkuhlu for this issue. His call for CFOs to be role models (page 16) is a must-read for anyone who aspires to be a great leader. We further explore what it means to be at the helm in interviews with KPMG South Africa CEO Trevor Hoole (page 70), Thomson Reuters Africa MD Sneha Shah (page 58) and in a great feature on agile and flexible finance teams penned by our senior editor Toni Muir (page 22). For me the highlight of every magazine is the insight CFOs give, whether providing practical pointers for peers or simply showing a friendly face behind sometimes frightening figures. MiX Telematics CFO Megan Pydigadu, for example, wrote a great guest article (page 78) about the trials and tribulations of listing on the New York Stock Exchange, complete with cautionary tales and tips. The cover story on Oceana’s go-getter Imraan Soomra (page 46) and the feature on The Good, The Bid and The Ugly side of Cobus Grove’s success at DigiCore (page 53) are also articles about courage, illustrating the highs and lows of corporate action. Both young men have made it big in the USA. The confident-but-humble way in which they discuss their professional and personal challenges bodes extremely well for the health of the South African finance profession. Some of the finance leaders I admire most work in government. This year’s public sector CFO Awards nominees Shabeer Khan (the dti), Clifford Appel (Department of Social Development), Yvonne Chetty (Department of Energy), Suren Maharaj (Pikitup), as well as double-award winner Dumisani Dlamini (National Arts Council of South Africa) all deserve a special mention as “giants with no accolades to their credit” who “stand between social stability and chaos”, as KPMG’s Edson Magondo described them during the awards gala. For this issue we profile municipal top CFOs Reggie Boqo (Johannesburg) and Umar Banda (Tshwane) as well as former UIF CFO Vuyo Mafata, the new Commissioner of the Compensation Fund. Another theme that both Prof Nkuhlu and CFO South Africa are passionate about is knowledge. We are noticing an incredible hunger for knowledge from finance professionals through our ever-increasing readership on CFO.co.za. The following on our new Facebook page has increased from less than 100 to more than 4,000 in just a few months, as this is a great way to keep up to date with our daily interviews, finance features and news articles – we hope you’ll join us too! We are also excited about the Finance Indaba Africa on 13 and 14 October 2016 at the Sandton Convention Centre (see page 14). We hope this inaugural expo and conference will address the hunger for knowledge and inspire thousands of South African finance professionals to dig deep and find the courage to make a difference to South Africa and the rest of the continent. Joël Roerig Jroerig@cfo.co.za +27 (0)76 371 2856

CFO MAGAZINE • CFO.CO.ZA

Visit the CFO Awards Summer Place Hyde Park on May 11th 2017. Awards presented

CFO of the Year

Public CFO of the Year

Young CFO of the Year

Strategy Execution

Transformation & Empowerment

High Performance Team

Compliance & Governance

Finance & Technology

Moving into Africa

Finance Transformation

Meet 300 CFOs, share knowledge and boost business On 11th May 2017 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.

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 contact Graham Fehrsen at gfehrsen@cfo.co.za.

Visit CFOAwards.co.za

CFO AWARDS 2016

Glitz, glam and glory at the CFO Awards 2016 CFO South Africa held its highly anticipated CFO Awards Conference and Gala Dinner – dubbed the Oscars of South Africa’s finance profession by many CFOs – on 12 May 2016 at Summer Place in Hyde Park, Johannesburg. The event was attended by over 250 guests, with keynote speaker Professor Wiseman Nkuhlu inspiring many with his sagacious words, and MC Vusi Thembekwayo weaving the evening together with charm and humour.

he evening was certainly memorable for Dumisani Dlamini, CFO of the National Arts Council (NAC) of South Africa, who was called to the stage twice to receive first the Young CFO of the Year Award (for finance leaders aged 40 or below) presented by former winner Aarti Takoordeen (JSE Limited), and then the Public Sector CFO of the Year Award, presented by KPMG’s Edson Magondo. Dumisani, in accepting the Young CFO of the Year accolade, dedicated it to his peers: “This goes to all CFOs in government who are under extreme pressure of politics as well as in a complicated environment – this is for all of you!”

Later in the evening, KPMG’s Edson Magondo, presenting the Public Sector CFO of the Year Award to Dumisani, spoke powerful words about the role of the CFO in the public sector: “I stand here to appreciate and underscore the important role that public sector CFOs play in all of our lives. Public sector CFOs are giants with no accolades to their credit. They stand between social stability and chaos. They are unseen and unheard and all they do is grind away so that there are viable, budgetable solutions to the many challenges facing our democracy.” Edson emphasised the

CFO MAGAZINE • CFO.CO.ZA

value of public sector CFOs, saying “Stand tall because DGs, CEOs, city managers, they all stand on your shoulders. Without you, their work will become near-impossible”. He advised these CFOs to have courage and know that they are key pillars of our democracy. “You work under the full glare of public scrutiny to make our lives better. Thank you, public sector CFOs,” he said. Woolworths Group FD Reeza Isaacs was named CFO of the Year 2016, and also received the Transformation & Empowerment Award, although he was not present at the dinner to accept the awards himself – board meetings abroad had kept him away. For the first time ever, two Lifetime Achievement Awards were handed out, the first going to CFO of the Year 2014, Simon Ridley, who retired as Standard Bank FD in early May, and the second to former Remgro CFO, Leon Crouse, who retired a few months ago. While Simon was travelling in Namibia and unable to receive his award in person, Leon was visibly moved by the recognition he received. The evening was a great success, with next year’s event sure to be even better. Visit cfoawards.co.za to register.

We’ve also opened the call for nominations for the CFO Awards 2017. To nominate a candidate, visit www.research.net/r/CFOAwards2017Nominations or contact Shay van Huyssteen for more information. l

Award winners 2016 • CFO of the Year Reeza Isaacs (Woolworths) • Young CFO of the Year Dumisani Dlamini (National Arts Council of South Africa) • Public Sector CFO of the Year Dumisani Dlamini (National Arts Council of South Africa) • Strategy Execution Award Osman Arbee (Imperial) • Transformation & Empowerment Award Reeza Isaacs (Woolworths) • High Performance Team Award Osman Arbee (Imperial) • Compliance & Governance Award Walter Leonhardt (ABI) • Moving into Africa Award Bikash Prasad (Olam International) • Finance Transformation Award Walter Leonhardt (ABI) • Finance & Technology Award Christine Ramon (AngloGold Ashanti)

CFO AWARDS 2016

CFO Award winners Back: Osman Arbee (Imperial) and Walter Leonhardt (ABI). Front: Bikash Prasad (Olam), Christine Ramon (AngloGold Ashanti), Zaid Manjra on behalf of Reeza Isaacs (Woolworths), Dumisani Dlamini (National Arts Council) and Leon Crouse (Remgro)

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

MOVERS New CFOs for Mediclinic, Datatec, Eqstra, Wescoal and Sentech

On the move CFOs become CEOs, go global, start new jobs or retire. Here are a few recent, noteworthy moves.

here was a bit of a domino effect in the world of CFOs, with Datatec finance boss Jurgens Myburgh accepting the role of CFO at Mediclinic International, which he will join on 1 August 2016. Myburgh is no stranger to the hospital group, as he worked on a number of major Mediclinic transactions while in corporate finance at Standard Bank. Myburgh takes over from Craig Tingle, who retires this month. Jurgens’ place at Datatec will be taken up by Ivan Dittrich. He

Jurgens Myburgh

CFO MAGAZINE • CFO.CO.ZA

formerly fulfilled the same role until he left the JSE-listed IT group in 2012 for the CFO job at telecoms giant Vodacom, where he resigned last year. South Africa-focused platinum producer Lonmin has appointed Barrie van der Merwe as its new CFO, effective 17 May. Barrie was previously CFO at Debswana Diamond Company, a joint venture between the Botswana government and De Beers. Coal mining company Wescoal has appointed Bothwell Mazarura as group FD and CFO, effective 1 July. Bothwell has held various senior financial roles over the years, most notably at South African platinum miner Lonmin, where he was head of group finance, head of treasury and acting CFO. Prior to working for Lonmin, Bothwell worked for Deloitte in South Africa and in the UK. Clarinda Simpson has been appointed CFO of state-owned signal distributor, Sentech. A graduate of the University of South Africa, Clarinda was the former CFO at communications regulator ICASA, head of finance at the Financial Services Board, and senior manager at the Office of the Auditor-General. David Austin has been appointed to the Eqstra board of directors as CFO, effective 1 May. He will be taking over from current CFO and CEO Jannie Serfontein, who was nominated for the CFO Awards 2014. Jannie will now focus solely on his role as CEO. David is a seasoned finance professional, having held the post of CFO of Hulamin Limited before accepting this appointment. ArcelorMittal CFO Dean Subramanian is going back to his role after a period as acting CEO. His new boss from 1 September will be Wim De Klerk, previously FD of Exxaro, who was appointed CEO. Wim is excited to go “back to his roots”, as he started 20 years ago in Iscor Steel. His move is one of several high profile South African CFOs who have become CEOs in 2016. “A CFO has the distinct advantage to interact with stakeholders di-

Wim De Klerk rectly and side by side with the CEO,” Wim said. “While the CEO is the face of the business, a great CFO is his support behind the scenes. Inevitably the stakeholders find comfort in that relationship and role play and look at the CFO to understand all nuances of the business.”

Lawrence MacDougall

Tiger Brands, South Africa’s largest food producer, appointed Lawrence MacDougall as its new CEO. Lawrence’s appointment follows the resignation of Peter Matlare from this post, which was temporarily filled by Noel Doyle as Acting CEO until Lawrence took over. Prior to this, Lawrence was with Mondelēz International as

MOVERS regional president for eastern Europe, Middle East and Africa. Nedbank, a subsidiary of the Old Mutual group, has made several changes to its group executive committee in recent months, including the appointment of Ciko Thomas to head of retail and business banking. Ciko, previously the bank’s consumer banking managing executive, took over the retail and business banking unit from Phillip Wessels, who left on early retirement. Nhlanhla Nene, former South African finance minister, has been appointed a resident advisor to Thebe Investment Corporation. According to the company, the appointment will last two years, beginning in May. It was also announced that Nhlanhla will join investment management firm Allan Gray as non-executive director. Nhlanhla had been on extended leave since his removal in December 2016 from his position as finance minister. In news from further afield, the Nigerian Stock Exchange (NSE) announced that it has renewed the contract of Oscar Onyema, its CEO, for a further five years. Oscar’s initial five-year contract was due to expire on 31 March this year. Marjorie Ngwenya, chief risk officer for Old Mutual’s African business

Marjorie Ngwenya

unit, has been appointment president-elect of the UK’s Institute and Faculty of Actuaries (iFoA). Of particular importance is the fact that Zimbabwean-born Marjorie is the first person not based in Britain to ever hold the position. l

Leon Crouse

Remgro CFO Leon Crouse retires One of South Africa’s most impressive CFOs, Remgro’s Leon Crouse, retired on 31 March this year. He will be succeeded as CFO of Remgro by Neville Williams, Remgro’s current head of corporate finance. Leon will continue to function in an advisory role for FirstRand.

Leon (63) shared his thoughts on his retirement with CFO South Africa: “I feel very blessed to have had a very rewarding and fun-filled career of 42 years where I met and worked with many fantastic people that made a difference to my and my family’s lives. I have been very fortunate to be part of two very successful startups, namely Compagnie Financière Richemont and Vodacom, and in addition to finish my career at Remgro. I was able to do these jobs successfully because I surrounded myself with positive people who shared my values. I look forward to a new chapter of my life where I will have more time and freedom to do things spontaneously without the daily responsibilities of an executive position.” Leon started his career in earnest in 1986 with one of Remgro’s previous incarnations, the Rembrandt Group, the business empire founded by Dr Anton Rupert. Leon was an instrumental part of the team that unbundled the luxury goods business from the Rembrandt group to form the separately listed Richemont.

Leon received a Lifetime Achievement Award at the CFO Awards 2016, alongside Simon Ridley, who recently retired as CFO of Standard Bank. The award was handed out by Professor Wiseman Nkuhlu, Chancellor of the University of Pretoria.

But Leon’s most visible success in South Africa came when he joined the Vodacom Group in 1993 as its fifth employee. The mobile telecoms giant was co-founded by Rembrandt, which “deployed” Leon as one its wisest finance heads. During the spectacular growth of the firm between 1994 and 2008, Leon was its CFO, working side-by-side with CEO Allan Knott-Craig.

As founder member of the management team of Vodacom, Leon was instrumental in the launch of the mobile communications giant, where he was in charge of the purse until joining Stellenbosch-based investment holding company Remgro in 2008.

After Leon became Remgro CFO, he oversaw the remerger of Remgro and VenFin in 2009. One of the last spectacular projects he was involved in was funding the reverse takeover of Al Noor by Mediclinic, of which Remgro owns 41 percent of the shares.

CFO MAGAZINE • CFO.CO.ZA

FROM THE MD

Leaders who serve succeed

odern leaders face complexity on an unprecedented scale. And despite the advances in technology and insight into business, the leader’s role has only become more challenging. The recent CFO Awards shone a light on a small group of exceptional finance leaders in South Africa and I was struck by the number of CFOs who espouse servant leadership qualities. These leaders put people first, recognise the full spectrum of stakeholders and often make untold sacrifices to help deliver success in both private and public sector entities. Although the study of leadership can be dated back to Plato, Sun Tzu and Machiavelli, the contemporary study of leadership has only come into sharp focus over the last two or three decades. There is hardly a postgraduate programme that doesn’t look at the subject and in part one could attribute this to the increasingly connected world in which we live. Information is more freely available than ever before and the smallest gestures and utterances of modern leaders can be shared worldwide with critical audiences in real time. As a result, the courage to lead has never been more important. There is simply nowhere to hide and developing your leadership skills requires you to be comfortable with unseen audiences and stakeholders having some opportunity to judge your progress. It also means that any shortcomings are likely to be put under the microscope and interrogated closely. The conundrum for leaders, in my view, is how to test the boundaries of decision making and behaviour without damaging the organisation they lead or the people they serve. Leadership requires a constant honing of skills: how best to engage those you serve, offering vision of a better tomorrow, stimulating collaboration and creativity while being bold enough to know when a decision must be made or a principle enforced. But if learning or developing requires some failure, how do modern leaders muster the courage to make decisions? From what I have seen, effective leaders always put other people first knowing this puts the business in the best possible position. It sounds easy, but in a modern organisation this simple idea is corrupted - in every sense of the word - by ego, money and politics. On 13 and 14 October we will host the inaugural Finance Indaba Africa. Our aim is simple: to offer finance professionals a platform to learn, network and develop their careers. We hope that by putting finance professionals first, we will serve their development and help lead the wider finance community forward. CFOs have already committed themselves to this platform and will share their insights and experience with aspiring finance leaders. I hope that you will be there and, if you would like to be a part of this groundbreaking platform, that you will get in touch with us. Graham Fehrsen gfehrsen@cfo.co.za +27 (0)79 8980227

CFO MAGAZINE • CFO.CO.ZA

Exhibit and speak at Finance Indaba Africa 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. Diamond Partners

Platinum Partners

We are calling exhibitors & 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 or register online. Gold Partners

Silver Partners

Visible results.

Visit Finance-Indaba.co.za, Sandton Convention Centre 13 & 14 Oct 2016

FINANCE INDABA AFRICA More than 40 companies and professional bodies joining diamond partners KPMG, Standard Bank and Old Mutual

Finance Indaba Africa 2016: thousands sign up With still four months to go, over a thousand finance professionals have registered and received their tickets for the Finance Indaba Africa 2016. In addition, more than 40 corporate partners have already committed to be part of the expo and conference on 13 and 14 October at the Sandton Convention Centre.

“

We have been overwhelmed by the response. The massive interest confirms that the Finance Indaba Africa is going to be an event that no South African finance professional can afford to miss,” says Melle Eijckelhoff, founding director of CFO South Africa, the organisation arranging the event. There are 81 keynote speakers during the two-day finance feast, which will also host the first ever SA Accountancy Awards and the FinTech Africa Awards. The Finance Indaba Africa 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. The event will consist of a large expo and a conference, which will be based on the agenda of the CFO of the future. “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,” says Melle. More than a thousand finance professionals have already registered for the event, after a Facebook campaign kicked off mid-March. Over the next

CFO MAGAZINE • CFO.CO.ZA

few months, Melle expects at least 5,000 people to register through targeted mailings and invitations from partners – more than 40 companies and organisations have already committed to be part of the event. “It doesn’t often happen that you meet thousands of potential clients in one place,” explains Melle. “With side events for members of professional bodies and alumni of big audit firms, the target audience for many service providers will 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.” Every week one of the event's partners explains on CFO.co.za why they are joining the Finance Indaba Africa. Here are some of their responses: “It’s the biggest annual expo and conference for finance professionals, so we simply cannot miss it. For us, it’s a valuable opportunity to showcase our technology, talk about the latest developments around our products and services, and speak to customers and potential customers.

We’ll be talking about how businesses can use the cloud to manage their financials more effectively.” - Steven Cohen from Sage One (Gold Partner) “We will be talking about how businesses can recover working capital, not only from eliminating double- and over-payments, but also from improving efficiencies and using our payment analysis reports. For instance, as an example, let’s assume that one of our clients, British American Tobacco’s procurement department, has agreed to pay IBM within 60 days, but is not sure whether its divisions in each country in which it operates are doing so. We provided free of charge reports on each division to assist them. These reports are also a valuable indicator of the integrity of suppliers. These errors are not all attributable to accounts payable departments. We’ve found that in as many as 60 percent of cases, the mistake is on the supplier side. We aim to find out where in the process things can be changed and streamlined.” - Carolina van der Ark from Transparent (Gold Partner) “I believe there are excellent synergies between what the Finance Indaba and Clarkhouse Human

FINANCE INDABA AFRICA

Vusi Thembekwayo, entrepreneur and global speaker

Martijn Aslander, boardroom sparring partner & international speaker

Capital are trying to achieve in terms of the vision for the Finance Industry in South Africa and Africa. I will be there to offer advice, guidance and assistance to those in the industry as well as provide insight into how the employment landscape is going to change for financial professionals and how to harness these opportunities.” - Roy Clark from Clarkhouse Human Capital (Gold Partner)

- Valentine Nti from CharterQuest (Silver Partner)

“Over 300 teams of young aspiring CFOs and business leaders representing 53 universities from 25 different countries across five continents have entered the CFO Case Study Competition. They are competing for the right to represent their country/university and to win the the CharterQuest Future CFOs & Business Leaders Award, plus a R100,000 cash prize. These teams will go through multiple rounds and the semi-finals of the competition will be held at the JSE on 13 October 2016. The global grand finals will be held at the Finance Indaba Africa on 14 October 2016.”

“At ACCA, we equip our learners with business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.” - Patience Semenya, ACCA (Gold Partner)

“We will be sharing how our financial reporting products designed specifically for Oracle, SAP and PeopleSoft can eliminate time wasted on generating reports, leaving more time available for detailed analysis.” - Shirley Riddick, MD of Excel4apps (Gold Partner)

“We see ourselves as the gateway to the accounting profession. We don’t try to be the leaders, but focus on providing access to anyone seeking a career in accounting. We sit down with you, work out a career development and training path and monitor your progress and facilitate mentor-

Suzan Briganti, CEO and Founder Totem Inc.

ship. We also help you find a job and set up a practice. We pride ourselves on creating a successful business for you, other than being a professional body with designations.” - Nicolaas van Wyk, SAIBA (Silver Partner) The Finance Indaba Africa begins on the morning of Thursday 13 October with a keynote address by celebrated businessman, successful venture capitalist and popular international speaker, Vusi Thembekwayo. Visitors to the Finance Indaba can listen to and learn from various award-winning CFOs and captains of industry, who will take the stage during the two-day programme. They can also witness the presentation of the FinTech Awards and the National Accountancy Awards, as well as use the opportunity to boost their careers in the Finance Career Room. We look forward to having you there. l Register as a partner, present your product or partner with us! More info at www.finance-indaba.co.za

Readers of CFO Magazine join the Finance Indaba for Free! Use invitation code CFOM2016 and get your free tickets. Visit finance-indaba.co.za to register.

CFO MAGAZINE • CFO.CO.ZA

LEADERSHIP An interview with Prof Wiseman Nkuhlu

CFOs need courage and competence “CFOs need to be role models,” says Prof Lumkile Wiseman Nkuhlu, South Africa’s first black chartered accountant, current chancellor of the University of Pretoria and an often-cited inspiration for members of our CFO community. CFO South Africa had the pleasure of an exclusive interview with the 72-year-old finance elder, who was the guest of honour and keynote speaker during the CFO Awards 2016 on 12 May.

rof Nkuhlu’s father was once forced to give his son a western name for the teachers to use at school in the Eastern Cape, but refused to invent something new and simply translated Lumkile into English – and a wise man his son proved to be. After graduating as the country’s first-ever black CA, Prof Nkuhlu went on to start the first black accountancy firm and then lead the University of the Transkei, where he felt he could “positively influence many more youngsters than at a small accountancy firm with one or two trainees a year”. During his career, he has filled many influential positions in business and even in politics. We chat to the Prof about the responsibility of being a role model for all black CAs that came after him – and the fact that not only he, but CFOs as well, are continuously under a magnifying glass. He also gives some great tips for effective leadership and talks about his passion for education – including compulsory retraining for incompetent teachers. “We need to tackle mediocrity and embrace excellence, allocating more budget for science and technology. To be an innovative country, we need more PhD graduates.” What does it mean to be a role model? “It is extremely humbling and flattering, but you also feel the pressure, as any mistake on my part would affect a lot of people who look up to me. It influences my deci-

CFO MAGAZINE • CFO.CO.ZA

sion-making, for example when sitting in a board meeting. It makes me think very hard about everything. I really have to put my thinking cap on, as I have to be courageous with the decisions I make.” Is it like being under a magnifying glass? “All of us should feel like we are under a magnifying glass, whether we are CFOs or chartered accountants in other positions. Society has great expectations of us and its trust in corporates is dependent on people like me. I don’t only have a fiduciary duty; as chartered accountants we also need to ensure we conduct ourselves in an ethical way. Situations might come up that are on the borderline of ethical behaviour. As board members we might have to decide that we recognise impairment, even if it results in a loss to the company. That is when our courage is most needed.” You still occupy many influential roles. How do you divide your time? “My interest has always been in three things: education, accountancy and development. On the education side, my time is now occupied as chancellor of the University of Pretoria, which means functioning as a sounding board for the vice-chancellor.” “With regards to accounting, I am a trustee of the IFRS Foundation in London, which looks after the development of the International

LEADERSHIP Financial Reporting Standards. I am very proud of that role, but it once again also brings pressure, because I am the only representative from Africa. That means I cannot miss a meeting. I need to read and be able to make a contribution and speak for the needs of Africa.”

“Society has great expectations of us, CFOs and CAs, and its trust in corporates is dependent on people like me.”

“I have served on the boards of Old Mutual and Standard Bank and am currently chairman of Rothschild in South Africa. I also serve as a non-executive director on the board of AngloGold Ashanti, where I used to be chairman of the audit committee, and am now just a member. I also sit on the board and the audit committee of Datatec. All this exposure requires a combination of competence and courage.”

have fallen. I read about how they evolved, how the leadership changed. The question is, as with the Roman empire, China and the Ottomans, what are the factors for growth and what caused the collapse? As South Africa, what can we learn from it?”

“In terms of my interest in development, I was economic advisor to president Thabo Mbeki from 2000 until 2005 and I also served as chief executive of NEPAD, The New Partnership for Africa’s Development. Currently, I am still one of the directors in the NEPAD Business Foundation.” Does that mean you are just as busy as always? “No, luckily not. I have time to read now. My interest is in civilisations. Throughout the centuries China, Japan, Europe, African kingdoms and other civilisations have all risen to power, they have been at their peak and they

What are the lessons for us? “My reading has convinced me that advances in science and technology, the rule of law, private property and work ethic are the determining factors for success.” “After 1994, South Africa should have not only focused on improving access to education, but also on the quality of it. We never really tackled the lack of discipline in schools – and by that I mean the discipline by teachers. Many of them don’t have adequate knowledge of the content they are teaching. That has become one of our greatest handicaps now. Our education is poor, even compared to

Professor Nkuhlu and his wife arrive at the CFO Awards

CFO MAGAZINE • CFO.CO.ZA

LEADERSHIP

“CFOs should be the embodiment of ethics and competence.”

CFO MAGAZINE • CFO.CO.ZA

LEADERSHIP

“We need to tackle mediocrity and embrace excellence, allocating more budget for science and technology. To be an innovative country, we need more PhD graduates.”

countries like Uganda or Malawi.” “We should be retraining teachers, but there is no political courage to tackle the problem. They may protest, but we have to bite the bullet and the ones that don’t want to be trained and assessed cannot be teachers. With courage and a deep belief, you can overcome any adversity. We can get out of it through discipline and hard work.” “We also need to foster a culture of recognising and rewarding excellence. Blacks have been subjected to a system that was made to make us feel inadequate. We need to kill that kind of doubting. We should have competitions all over the country, in every village. We need to tackle mediocrity and embrace excellence, allocating more budget for science and technology, which are invariably critical factors for success. We need to increase our number of masters and doctors. To be an innovative country, we need more PhD graduates.” “Thirdly, we need a partnership of trust between government and business, like they had in Germany and Japan when they were ascending. When they were threatened by invasion and colonisation by the Western powers Britain, France, USA and also Russia, the Japanese asked themselves, why do western countries have better weapons and why are they beating us? This lead to the focus on education and a partnership with business, just like later in South Korea. Government and business need to sit down and formulate the way forward: what research will

we prioritise? What infrastructure is needed? What policies are required? There are great opportunities around minerals that are not beneficiated, for example, and there are large swaths of fertile land still available.” “The most frustrating thing is listening to politicians who claim education is priority, but are doing nothing about it. I cannot fault the policies of the ANC. We talk the same language, but what is lacking is implementation and effective leadership.” What does effective leadership mean for you? “In leadership there are those difficult decisions to take, for example when colleagues try to accommodate something they know to be wrong. I would not be able to be at peace with myself if I just went along. That pressure actually strengthens my resolve. I speak to a lot of young people who ask me how I overcame my poor background and reached the top. I always tell them that I strive very hard to be true and honest.” How can CFOs be effective? “These are challenging times for CFOs, with a lot of volatility in the markets, rising interest rates and uncertainty. It is tough to plan for the future. Valuation of assets can be hard, for example in mining, which works with the projected price of a commodity. Again, what is required is a combination of competence and courage. As CFOs and chartered accountants on the board we sometimes come under pressure from CEOs, but we are to be the ones who stand firm and uphold fair presentation.” “In my mind, there are two important attributes you should have as a modern CFO. Firstly, you have to understand your business, your operations, your products and the key drivers for their performance. You need to physically travel to where the operations are to understand them. Secondly, knowledge is crucial. You need to always make sure you keep up-to-date with new developments, whether they are regulatory issues or industry-related developments.” “Just like me, CFOs need to be role models around compliance, especially with the upsurge of white collar crime. You should be the embodiment of ethics and competence and make sure there is ethics education in your organisation. You can’t say there is a compliance officer or company secretary. As a CFO you are the one responsible.” l

CFO MAGAZINE • CFO.CO.ZA

ADVERTORIAL

Delivering better retirement outcomes

aving for retirement remains a challenge for most people. How much you have when you retire is primarily a function of how much you put aside each month and how long you’ve been saving. Despite sounding simple, few people manage to accumulate enough savings to maintain their standard of living. This is compounded by the fact that people are living longer than previous generations so the amount of capital needed to generate the same level of pension is greater. For employers, helping employees to save enough for their retirement can be a challenge. We aim to assist employers, through appropriate advice, education, information and solutions, to structure their employee benefit arrangements to maximise the probability of their employees achieving their retirement goals. When it comes to retirement fund investments, there are three popular approaches: The one-size-fits-all strategy, where one investment solution has to fit every member of the fund, regardless of age or circumstance. A life-staging strategy, which tries to overcome the challenges posed by the age-related misfits that result from a one-size-fits-all approach. This works best when an employee remains with one employer for their entire working career or, if they do move jobs, their new employer has a similar life staging strategy. A strategy that relies on members to make their own investment decisions. While this empowers members to become actively involved in their retirement fund investments it all too often fails to equip members with the knowledge, information

CFO MAGAZINE • CFO.CO.ZA

and advice necessary to ensure they make good choices. The challenge for most members is that they don’t have a clear idea of what their retirement objectives are or whether they are on track in terms of retirement savings. In defined contribution funds this is a problem as the members ultimately carry the risk of not meeting their liabilities. In this regard, the ‘liabilities’ faced by each member are their own income needs in retirement. Old Mutual believes that it is essential to provide the decision-making board (whether it’s a board of trustees of a stand-alone fund or an umbrella fund management committee) with sufficient information to assist them and their members to make sound decisions. This includes an analysis of each and every member to quantify the likely liability that the member faces. This provides the board with the information necessary to monitor the progress being made in relation to their members reaching their desired retirement outcomes. Furthermore, it allows the board to communicate more directly and more meaningfully with each member to ensure that they understand how best to achieve their retirement goals within the fund. This also enables the board or management committee to make investment decisions that best position members to achieve their goals. This valuable analysis goes beyond merely directing the investment choice and there are numerous examples of our clients who have adjusted their benefit structures to ensure that the fund is optimally structured to deliver superior

pension benefits. Prompted by the results of the analysis, clients have increased contribution rates or pushed up normal retirement age. Extending the influence of funds beyond retirement We believe that it is essential to provide solutions that allow members to convert their accumulated savings to an income when they reach retirement. In so doing we are able to provide a true lifelong solution that aligns the pre and post retirement phases and ensures a seamless and cost-effective transition at retirement. Through our comprehensive support package combining meaningful analysis, expert advice and targeted strategies Old Mutual aims to assist employers to design and manage suitable retirement savings schemes and in so doing ensure that sound retirement outcomes for members become the norm rather than the exception. Andrew Davison Head of Investment Consulting Old Mutual Corporate Consultants

BEST ADVICE, BEST OUTCOME FOR MEMBERS Old Mutual Corporate Consultants delivers both. Old Mutual is committed to improving the retirement outcomes of ordinary South Africans. One of the key ways this is achieved is through appropriate advice,education and information to all stakeholders in the retirement industry.

To achieve this, Old Mutual Corporate Consultants offers an array of client-centric services, including, but not limited to:

Old Mutual Coroorale Consultants offers this level of tailored advice to Old Mutual’s corporate clients. Created on the understanding that a person armed with the right knowledge is more likely to make good decisions regarding their own and their employees retirement funding needs. Old Mutual Corporate Consultants offers a comprehensive suite of consulting services.

• Comprehensive investment advice to grow and protect clients’ and members’ finances.

Importantly, Old Mutual Corporate Consultants puts the needs of individual fund members at the centre of all its advice. Old Mutual Corporate Consultants is committed to professonal and ethical codes of conduct which ensure that the interests of members and employers are placed first.

While all of these services are tailored precisely to the needs of the individual client, they share the common foundations of objectivity, integrity, experience and an absolute focus on client and fund member needs.

• General employee benefit consulting, coordination and support to meet the needs of members and employers.

• Actuarial services that provide meaningful information to help trustees and stakeholders make informed decisions. • Guidance on communication strategies that empower and educate employees and members.

bds 5.2016 L9367

For more information about the many ways in which Old Mutual Corporate Consulting can add value to your business or fund, contact Samantha Jagdessi at 011 217 1105 or sjagdessi@oldmutual.com or visit www.oldmutual.co.za/omcc

Old Mutual is a Licensed Financial Services Provider

LEADERSHIP

Lightning-fast reflexes: the agile team While many other teams in a business have some flexibility as far as deliverables, reporting and project timelines go, this is a luxury not often enjoyed by the finance team. But as the pace of doing business is so much faster today, is it not time the finance function became more agile too? We spoke to experienced CFOs and other industry experts to get their insight.

“

Being agile requires openness, the reservation of judgement and the ability to turn on a dime,” says Terrence Taylor, general manager: Talent, Analytics, Leadership and Learning at Discovery. You need people with a cosmopolitan outlook, an open mindset and an eclectic set of experiences, he adds, and a leader who is comfortable sharing leadership and power. But what exactly is an agile team, and what makes it so? Moreover, why is

“Finance teams needs to stop being seen as the ‘dinosaurs’ of a business and instead be able to provide data in a more agile way.” – Ryan McDougall, CFO Trustco Group 22

CFO MAGAZINE • CFO.CO.ZA

this important to the finance function? Cindy Hess, chief financial officer at Pioneer Foods, provides a simple answer: “An agile team is a responsive team which is able to effectively react to rapidly changing and demanding business environments.” Heidi Volschenk, Director: Learning & Development at KPMG, agrees. The whole concept is about change, she says: “This includes how you deal with change, because change is tough, and most people will resist change to an extent. The immediate thing I think about is resilience. So for me, an agile team is one that can work or function with resilience.” Businesses need to be agile in order to be responsive, opines Ryan McDougall, group financial director at Trustco Group, and in order to be agile, a change in mind-set needs to happen – particularly for finance departments. “We are in this age now of social media and millennials, where everyone wants information and answers immediately. I think finance teams are in that area where they need to progress towards this, and stop being seen as the ‘dinosaurs’ of a business and instead be able to provide data in a more agile way,” he says.

Core competencies and common failings For Cindy, the core competencies of an agile team include high energy and intelligence, commercial acumen, an understanding of urgency, and the ability to see a “helicopter” view. Ryan adds attitude and a willingness to change into this mix. “If something is done the way it has been in the past, that doesn’t necessarily mean it’s right,” he says. “We should always be open to change. If one department is reluctant to change it can slow down the speed of the whole organisation.” Heidi believes vision is key: “The reason for this is around focus. If you think about leadership in this whole VUCA notion [volatility, uncertainty, complexity and ambiguity], with everything changing around us, to be an agile leader you need to sort out among all the chaos what it is that you have to keep your focus on. You need to identify what is that critical target or goal that you’ve set for yourself and the team.” An agile leader should also be mindful of blocking out some of that noise, she says. “Ensuring the team stays focused on what is important comes with a level of boldness and courage to say yes, there are all these other things, but

LEADERSHIP BY TONI MUIR

Trustco Ryan McDougall

KPMG Heidi Volschenk

Discovery Terrence Taylor

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

LEADERSHIP this is our key focus right now.” She adds that constant communication, along with effective communication skills, is just as important: “Especially in terms of constant change. It can be so easy to lose someone along the way.” “You need people with a cosmopolitan outlook, an open mind-set and an eclectic set of experiences,” says Terrence. “If you’re a deep specialist asked to work in a very agile way, your training and mind-set are likely to get in the way. Agility requires you to change on a dime, so to speak. For example, a soccer player on a

“As a team leader you need to learn how to experiment a bit, which is something new, especially if you think about CFOs and FDs.” – Heidi Volschenk, KPMG

Pioneer Foods Cindy Hess with Olam Africa CFO Bikash Prasad

CFO MAGAZINE • CFO.CO.ZA

pitch needs to adjust and adapt very quickly – turn on a dime – as the ball changes direction. Specialists find that a bit difficult when they’ve worked for years in their specialty.” He opines that openness and the ability to reserve judgement are also necessary traits: “If you see someone doing something in a certain way and you think, based on your training, that it’s not the right way, you should withhold judgement and give the person the chance to still accomplish the task even if it’s in a different way to how you would’ve done it yourself.” However, just because you have a group of people working together does not mean they are a team, opines Terrence. “A team is built once people get to understand each other and know each other’s strengths and weaknesses in a lived rather than theoretical way. Once those types of experiences have happened and there’s a genuine bond among team members, I find it makes a huge difference in how the team actually functions.” People also underestimate the importance of emotional intelligence, he says, which works to ensure the team

does not find itself mired down in a cycle of gossip. Heidi also speaks to the value of emotional intelligence, which she believes plays a crucial role and says is a leadership imperative, as is eliciting quality feedback. “As a leader you need to ensure you get feedback. Because the more senior you become, the less people will give you feedback. So you need to find ways you will get feedback from those you trust, so that they’re giving you feedback with the right intention.” Heidi believes trust is another oft-overlooked area, and one which could well see a team fail. “Your trust in a team is absolutely crucial. You want to know you can rely on your team members. But it has to be a supported environment that they’re working in, for example, if someone makes a mistake that mistake happens as part of a team and everyone will work together to make a plan. It comes back to resilience and people having the capacity to redeploy.” Ryan names a “month-end mindset” as one of the most common failings of a finance team; that they can “coast until month-end and

LEADERSHIP then rapidly churn out reports”. Players who are too rigid in their role definition, as well as those who do not want to do things in a new or different way also hold back agility, he says. Does size really matter? “Many of us in corporates believe the larger our teams are, the more effective they are likely to be just from the point of view that you have more resources,” says Terrence. But this is based on an assumption from the adage “many hands make light work”, he adds. “Interestingly, based on studies done and from my own experiences, a smaller team can be just as effective as a larger team, producing as much or sometimes even more. It comes down to whether or not the team can synergise – it’s important to synergise strengths to the task at hand. Larger teams can be agile but need certain things in place, such as someone who is good at process and coordinating work to ensure collaboration happens.” Building an agile team They key to building an agile and flexible team, according to Heidi, is

focus. “As a team leader you really need to sharpen focus. You also need to learn how to experiment a bit, which is something new, especially if you think about CFOs and FDs.” Building unity in a team is also important, and goes hand in hand with strong communication skills, she says. Cindy agrees: “Effective communication and knowledge sharing is crucial. You need to speak clearly and unambiguously. If you’re the leader, you also need to understand your team dynamics, and be sure to celebrate and reward the right behaviours and energy.” Dissenters should be dealt with immediately, she adds. Playing to the team’s strengths will also serve you well, says Heidi. “When we talk about agility, you want people to also develop their skills, so if one person isn’t there today another can fulfil that role. Playing off the various strengths of the team’s members talks about the diversity that you have within a team – diversity of people as well as diversity of talents. Because your technical knowledge will get you through the door, but there’s so much more than that.”

“Decluttering complexity requires intelligence and determination before it can be simplified.” – Cindy Hess, CFO Pioneer Foods

“Making sure there is clarity about the purpose of the work that the team does is absolutely critical,” says Terrence, “as is integration among team members.” Formal meetings are one mechanism to ensure the latter, and there should be at least some type of formal meeting with the team that works at a frequency relevant to that team, he says. In addition, it is important to have “touch bases” or one-on-ones with individual team members, as these work to solidify the relationship between the team member and leader of the team, he says.

Pioneer Foods Cindy Hess

CFO MAGAZINE • CFO.CO.ZA

LEADERSHIP

“You have to be very in tune with the impact your emotions have on the team. It’s amazing how the team looks to the leader to have a sense of how things are going." - Terrence Taylor, Discovery

“They also present an opportunity to offer support to team members and discuss any challenges they may be facing.” Heidi agrees; the leader has to be present, she says: “They have to be in touch with what’s going on and what’s happening with their team members. Are they all on track and have they bought into the common goals?” If the team is agile but could do with an edge, Cindy suggests heightening the commercial skills of team members, as well as ensuring a broader understanding of the rest of the business and an appreciation for the challenges faced by other portfolios or colleagues. In so doing, you create a corporate team spirit and a desire to contribute, she says. Follow the leader “The leader is the one creating the environment to learn,” says Heidi. The leader has a dual role to play in both challenging the team and providing it with support, as well as finding the balance between these. Ryan believes the leader should be a person you can talk to and discuss things with, and not be seen as someone sitting in an “ivory tower”. He says: “I believe work

CFO MAGAZINE • CFO.CO.ZA

hard together, play hard together. Get to know each other on a personal level. You spend so much of your life with your co-workers, the better you can understand them, the better for teamwork.” In terms of soft skills, the team leader must be comfortable sharing leadership, and sharing power, says Terrence. “I think you have to be very in tune with the impact your emotions have on the team. It’s amazing how the team looks to the leader to have a sense of how things are going and whether or not things are going well. A leader must be mindful that he or she is in a fishbowl and every aspect of their non-verbal behaviour is being observed and interpreted by the team. But if you’ve spent time understanding each other, the team can better calibrate what’s happening with the leader. Hopefully the communication is good enough in the team for team members to approach the leader about this. Then again, the leader must be comfortable with being approached by the team.” In order to guide their team to better finance agility, Cindy feels it is important for whomever is leading the team to create strategic context. “The leader must demonstrate the behaviours required from the team. He or she must also define the outcomes the team needs to achieve and impress upon the team how their role enables or drives those outcomes.” Ryan agrees: “What happens in larger organisations is that the CFO sits on committees like exco or the board and has a very strategic mind-set. But the finance staff sit on the opposite side of that spectrum. It’s the CFO’s role to bridge that gap and bring finance staff up to the strategic level, as well as to ensure that he or she communicates the finance team’s compiled data and parametric information to the board in a fashion that they understand.” Terrence adds that being open to learning more about other areas of the business beyond your own

department’s niche, and understanding what it is that your department can contribute beyond just its traditional value-add, can aid agility. “Also important is staying abreast of what is happening in your industry and what is likely to happen in your industry.” Speaking the language of decision makers in business will also help, he adds. Is complexity the enemy of agility? “In a purely technical way I agree,” says Heidi, “because agility is all about coping with change and gaining that focus on what it is that’s really important, even though there’s so much complexity around us. I think you should keep things simple, because the more complexity you’ve got, at some point it becomes too much. It’s difficult to keep focus if there’s too much complexity.” Business is inherently complex, says Cindy, although creating unnecessary complexity can destroy value. “Decluttering complexity requires intelligence and determination before it can be simplified,” she says. Ryan answered both yes and no, as he says regulatory issues come into play too. “We need to understand why certain things are being reported, because often the regulatory requirements stem from the business requirements,” he says. “If you can acknowledge the link between a complex environment and doing business, it makes you more open to being flexible.” A fully functioning and agile finance team will take time and energy to put together, and a layered or step-by-step plan to get there may serve team members well, not to mention ease some of the strain of making the changes required. Communication and collaboration, as our experts advised, are key to making a smooth transition, as is a clear objective that everybody understands. Teams which are agile have a competitive edge over those that are not, and are better able to respond quickly and appropriately to changing business needs or market trends. l

PUBLIC SECTOR BY TONI MUIR

Umar Banda on professional integrity, change, and the CFO of the future

Navigating the often choppy waters of the public sector “As a CFO you need to ensure you maintain your integrity and professionalism. It does get a little tricky at times but if you stick to your values it makes life a lot easier. You also need to be steadfast and stick to your decisions – it’s the only way to survive in this environment,” Umar Banda, Acting CFO of the City of Tshwane Metropolitan Municipality, told senior editor Toni Muir during a recent interview.

You’ve been in this post for almost two years, what have you achieved during this time? “I’ve concentrated on three main areas: revenue enhancement, compliance on the supply chain side and compliance on the asset management side. Most notably on the revenue management side we’ve managed to turnaround the revenue collection of the city and introduced a programme that seeks to involve the community and which helps people understand how services are provided and why there is a need to pay for those services. The programme is called “Mmogo Re A Gola” or “Together

we Grow” under the banner “It’s my Responsibility”. We officially launched it on 30 March 2016 but it has been running for almost a year. Over and above that, in the city traditionally, when you do your collection drives you send letters of demand to defaulters to pay for their services, and if they don’t pay they get disconnected. We have now introduced a debt collection outbound call centre that alerts people ahead of time to pay for their services, before they incur final demand charges and disconnection fees, or get disconnected, and we’ve seen quite a change in attitude. On average we have

“The only way you can implement change is to have a mix of new blood coming into the system joining the old, and ensuring that the wealth of info that you have in the system is a combination of the two. But change does take a long time.”

about R80 million additional cash coming in per month, just from the call centre.” “On the supply chain side we’ve always had issues on compliance, with legislation particularly on procurement. We’ve introduced a paperless module on procurement “e-Procurement”, which is in the final stages of development and which should help streamline the procurement process. Everything will be submitted online, in real-time, on a very secure system. Our service providers will have access to the portal as well, which should make things much easier for them.” “On the asset management side, we did a study in Mamelodi that looked at the state of the infrastructure and if it was correctly captured in our financial system, as well as what we still needed to do to ensure our systems are complete, accurate and valid. At the end of the day we got a full 3D asset register that is 100 percent compliant with the accounting standards. We plan to roll that out with the rest of the city. The challenge is that it requires a lot of cash so we are

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR in the process of securing funding. Once that is done, the full assets of the city will be fully captured in 3D.” What are you hoping to achieve over the coming year? “Our treasury unit is still quite young. Over the next year our plan is to grow and build this unit so that it can interact directly with investors and banks. In 2013 we went out into the bond market, which exposed us to a different kind of investor. We need to ensure we can interact with such investors on a regular basis, ensure our information is readily available for our investors, and that we are able to track our performance.” How does change happen at the organisation, and how do you implement change so that it is successful? “It’s difficult to implement change simply because local government finance and the reforms are still young. I think when you look at how the MFMA [Municipal Finance Management Act] has revolutionised local government, and how the accounting standards have affected local government, that plays a part too. A lot of people have been in local government for many years, so it’s difficult for them to accept new ways of doing things. In that regard it’s difficult to implement change. The only way you can do this is to have a mix of new blood coming into the system joining

“If you want to be a good CFO you need to be able to engage with your peers in the organisation and understand how their work impacts on yours and how yours impacts the organisation’s longer-term vision.” 28

CFO MAGAZINE • CFO.CO.ZA

the old, and ensuring that the wealth of info that you have in the system is a combination of the two. But change does take a long time. I guess if you are results driven it is one of the things that can frustrate you.” What has been the greatest challenge you’ve faced in your career? “Having to adjust. By profession I’m an auditor, and when I came into the city I was an auditor. Luckily when I came into the city I was doing the work I used to audit. I was now the preparer of the financial statements. When I had to move into the CFO role, looking at budgets, the treasury function etcetera, it was things which I previously wasn’t that involved in. I had to now go back and engage with the team and get an understanding and see how to take it forward. When you engage with your peers it’s the best learning opportunity. I’ve had a lot of contact with my peers to get an understanding of how things work in local government and how to manage those things in finance.” Would you say it takes a certain kind of CFO to work in the public sector? “It’s not everybody’s cup of tea. The environment itself, especially if you are a CA, is a really difficult one simply because it’s obviously a very politically driven one. As a CFO you need to ensure you maintain your integrity and professionalism. It does get a little tricky at times but if you stick to your values it makes life a lot easier. You also need to be steadfast and stick to your decisions – it’s the only way to survive in this environment.” Sometimes, CFOs in public sector have to deal with unusual requests. How do you handle requests that aren’t entirely within the law? “The only saving grace I have is legislation. As long as it doesn’t comply with legislation, it doesn’t happen. Also, if anything comes from any corner that doesn’t comply with legislation, I have full support from my leadership not to do it.” You have registered for the Finance Indaba happening in October this year. What are you looking forward

to about this event? “Having engaged in the different CFO forums I’ve been able to pick up a lot of insights from the experience of other CFOs in the public sector. There are a lot of learnings that one can take back. Over the long term I need to concentrate on building a sustainable finance structure for the city, so financial development for me is a key goal and objective in the next three to five years. Hopefully through these sorts of engagements I will gain greater insight into how to actually get that balance.” What makes a great CFO? “You can’t just be a numbers person. I’ve recently had to get involved on the city planning side. This was simply because I had to understand how, when we go out into the market for financing infrastructure projects, this impacts spatially on the city in line with the long-term vision of the city, Vision 2055. If you want to be a good CFO you need to be able to engage with your peers in the organisation and understand how their work impacts on yours and how yours impacts the organisation’s longer-term vision.” What does the CFO of the future look like? “You will probably have to be a jack of all trades. I’ve been thinking about doing my Masters, and looking at which area I should focus on, but it’s a very difficult decision to make, especially in the public sector, where demand and the needs are so wide. As a CFO you have to be in meetings for 30 minutes, where you must be conversant with what is happening throughout the whole city. I should be able to speak to any matter of the city without having to think twice.” “The CFO of the future is somebody who will have to understand finance but be up to speed with many other issues, such as IT, infrastructure, and legal matters – the latter especially in the South African context. We are slowly moving into more complex financial transactions, which means you need to understand your finance well, as well as the legal implications of the transactions.” l

PUBLIC SECTOR

“Working in the public sector is not everybody’s cup of tea. The environment itself, especially if you are a CA, is a really difficult one simply because it’s obviously a very politically driven one.”

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR CFO Reggie Boqo is making a difference in Johannesburg

Reggie in the city

Reggie Boqo has been CFO of the City of Johannesburg for the last two years and is often mentioned as an example of a great public sector CFO. Our reporter Lesley Stones visited him and tried to find out what it means to be the money boss of the engine of Africa’s economy.

eople who pay their rates to the City of Johannesburg might feel a tad rebellious when litter overflows during a PikitUp strike or burst their tyres on the rampant potholes. Why pay rates and taxes when service delivery is so poor that you take your rubbish to the tip yourself and hire security guards because the police don’t keep us safe? Those are questions Reggie Boqo has heard a thousand times as Group CFO of Johannesburg municipality. He has bigger headaches to occupy him than trying to placate grumpy residents, but he insists that the ordinary residents are his customers, and he’s doing all he can to ensure they are served efficiently. Reggie occupies a large office in an austere Braamfontein building that dates from the era when the government aimed to intimidate, not serve. But he’s friendly and welcoming, and very dapper in a neat dark suit. Trying to comprehend all the duties this group CFO must handle is quite confusing, as the workings of a bloated public sector tend to be. He talks of separately run entities, departments, sub-departments and seven portfolios; of raising money from rates and loans and treasury; of having to spend this much money on that, and budget so much on the other. You need a degree to understand how it all fits together. I interview Reggie for an hour, and feel I’ve touched on only 10 per-

CFO MAGAZINE • CFO.CO.ZA

cent of the issues we could talk about. “The city undertook an institutional review in 2012 to reconfigure the management structure and respond to the Growth and Development Strategy,” he says. “They understood the complexities and the decentralised model the city has chosen to follow, with 12 stand-alone municipal entities with their own boards, executive management and independent brands like City Power and Johannesburg Water.” City Power is a R16 billion company and water is an R8 billion company, and those are just two of the 12 entities that eventually fall under Reggie’s eye. The City of Johannesburg also encompasses 15 other departments such as the Metro Police and the development and planning department. Reggie has just shy of 2,000 people working for him, and his overall task is to integrate all the strategic financial issues at group level. “It’s a chunky, sizeable department and my position was created to provide consolidated financial leadership for the group picture,” he says. The city gets its money from various sources, with the most obvious being the rates and service fees residents pay for water, electricity, refuse collection and sewage. Money is also allocated to the municipality by National Treasury, chiefly for capex expenditure such as roads and housing. A lesser-known source of income is from private investors such as pension funds, which buy the bonds

PUBLIC SECTOR BY LESLEY STONES

“It’s a chunky, sizeable department and my position was created to provide consolidated financial leadership for the group picture.”

the city issues and lists on the JSE. It also takes out local and international loans from banks on commercial terms, or from international development finance institutions, whose loans are concessional because they are development-oriented. “They give us terms like 20-year loans when the local market wouldn’t take that risk, particularly in this economic climate. We do whatever we can come up with for the benefit of the entire city,” Reggie says. Overall, the city is self-funding, generating close to 80 percent of its own revenue and receiving just 20 percent in grants. “That forces us to operate like a business. When something goes wrong we don’t need any motivation from anyone to fix things, because if we don’t, our budget won’t work. So it keeps us very honest.” The Group Accounting and Budget Office handles the R53 billion budget for the entire city and provides strategic direction for its spending. Its group financial reports pull everything together in one picture. That picture must be the size of an IMAX cinema compared to other municipalities whose ‘bigger picture’ could fit onto a TV screen. Reggie is also in charge of the group’s strategic supply chain management, which handles all the procurement planning. And he oversees the Revenue Shared Services department, which sends out all the bills to residents.

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR “The city’s model is that we have only one customer, and the fact that we have organised ourselves into different companies doesn’t mean we deal with different people. So we set up the shared services centre to bring in all the fees for things like electricity, water, property rates and refuse removal – although I know that may be a touchy thing after the strike,” he says, referring to the extended Pikitup strike that left the streets full of litter and saw the workers willfully overturning bins instead of emptying them. Bills for all those services go out on one invoice after the unit coordinates input from each entities, giving the public just one point of contact. Another task for Reggie is chairing the meetings when the CFOs of all the municipal entities get together. “I have to meld and mould things into a city perspective so the sum of the parts talk to the whole objective, and that’s my key role,” he says. “Part of my job is to work very closely with the city manager and chief operating officer on group matters about where the city is going and provide direction and leadership on financial issues.” That draws him into operational issues that have a financial impact, such as the notorious Pikitup strike. “My job evolves all the time,” he says. “Pikitup has a CFO and a board, but because of the potential outcome of the negotiations and the impact on the rest of the city I was part of the management team in the background, giving input with consideration to how it translated city-wide.” Another key role is talking to potential investors in the city, including bankers potentially supplying loans, businesses looking at setting up a presence, or businesses threatening to quit and move elsewhere. So his role involves diplomacy as well as financial acumen. “When it comes to talking to investors we run road shows to present the city’s performance and where we are heading. Credit rating agencies interact with the city through my office, as well as the international investors we raise funds from. That’s one of my big core responsibilities.” Many municipalities don’t have much economic activity and rely on government grants, but as the country’s economic hub, Johannesburg has a vast pool of businesses contributing to its coffers.

CFO MAGAZINE • CFO.CO.ZA

“About 75 percent of listed companies are headquartered in Johannesburg so those are the people we have to deal with. I have to find a balance as the CFO to be hard-nosed and businesses-like when required, without excluding the appreciation of the socio-economic landscape we are working in.” It takes a lot of work to bring in enough revenue to cover the city’s R53-billion running costs. “We are continually competing for investments, so to attract and retain investors you have to be in contact with them and know what their pain points are and make them disappear as much as you can, otherwise they’ll move. It’s only 40km between us and the City of Tshwane and 15km to Ekurhuleni, so businesses could move there.” The impact of lost jobs, lost rates and reputational damage would be highly detrimental, so the city continually benchmarks itself against others to make sure Joburg remains an attractive and affordable business hub. “We interact with businesses asking what can we do to make your lives easier,” he explains. Common issues are the need for speed when businesses apply for building planning permission and electricity supplies. One asset that attracts businesses to Johannesburg is the large workforce, but the continual arrival of more migrant workers is a headache for the city, as an ever increasing number of people require services. Latest statistics indicate that Joburg attracts a mindboggling 10,000 more people every month, so the basic services must continually stretch to cover the rising population. And no matter how quickly the city tries to service the informal settlements, they keep expanding beyond that pace. Good, robust legislation governs how municipalities handle their money, Reggie says. “I can’t think of many places that are more regulated than where we operate, and ensuring you don’t have leakages in your system comes down to internal controls. Appointing the right people first is where it starts. You may appoint someone who is competent but their moral compass isn’t where you’d like it to be, or someone who doesn’t have the competence to ensure the controls are in place.” An anonymous hotline allows workers or outsiders to report anything that looks suspicious. Last year that resulted in 40 people being exposed for electricity supply scams. “We

PUBLIC SECTOR

In December 2015, in a financial slump where numerous entities were downgraded by ratings agencies, the city was upgraded by Fitch Ratings Agency.

have a big communications drive internally to explain what fraud is and what to do when you find what looks like fraudulent activity.” The Municipal Public Accounts Committee investigates everything that’s reported in the financial statements as fruitless or irregular expenditure. Irregular doesn’t necessarily mean fraudulent, Reggie says, but maybe something was not done entirely in line with all the step-by-step procedures. Reggie is proud of the track record the municipality has achieved since he took office. “The key indicator for the public sector is the Auditor-General's opinion, and in 2012 the city achieved a qualified opinion, which is the AG saying I really don’t like what I see. Processes and standards were put in place and we have appointed a number of competent people. My rule is if you come into the financial department you have to be a CA, and we have enforced that.” It’s paid off. In 2013 the city achieved an unqualified opinion, with its accounts free of any material mistakes. A third standard is a clean audit, awarded if you meet a certain percentage of the objectives set at the beginning of the year. In 2013 the city received an unqualified report at group level and two of its entities were awarded clean status. In 2014, four entities were clean and the group received an unqualified report. By 2015, half its entities were declared clean. “We are working on the

other half, and it’s an upward trend. Linked to that is the number of audit fines that have reduced drastically over time, and that’s the mark of a city that’s cleaning up its administration completely. We are absolutely comfortable with the road we are taking,” Reggie says. The units that need help are being assigned extra financial capacity from within the group. Reggie doesn’t believe in using external consultants for that, as it’s expensive and does nothing to raise the capacity internally. Another confirmation of progress is that in December 2015, in a financial slump where numerous entities were downgraded by ratings agencies, the city was upgraded by Fitch Ratings Agency. “We went in the opposite direction to the whole country,” Reggie says. “I am proud to have brought a lot of presence and guidance to the management of the city’s finances and raising the comfort of investors and ratings agencies alike. In their reports they are using language like ‘the financial management of the city has quite a lot of sophistication about it’. I wouldn’t like to claim anything, but it has happened under my watch,” he says. l

A training academy Accounting standards are on the rise at the City of Johannesburg, partly through a scheme to bring in trainees with honours degrees who are looking for work experience. Now a more ambitious plan is under way. Reggie is aiming to establish an internal academy by the end of this financial year to groom a fresh generation of accountants for the city. Its standards will be guided by SAICA, which is assessing how many people the city has available to mentor and oversee the trainees to determine how many it can take. “We have 27,000 staff so it’s easy to absorb 20 to 40 people and place them,” Reggie says. “That will help us to breed our own professionals, and in time we will be able to share them with other municipalities, which is very exciting.”

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR Intimate round table discussions provide a massive boost for public sector CFOs

Standing up for what is right One round table for public sector CFOs took an intriguing turn when a participant told how she stood up against wrongdoing and took her superiors to court, while another event debated the subject of control. No matter the topic, CFO South Africa’s increasingly popular public sector round tables, held in partnership with KPMG, are giving a massive boost to CFOs working in government.

he public sector round table hosted on 15 March at the Marion on Nicol focussed on leadership, discussing the concept of good leadership and its relationship with fear. Many of the CFOs in attendance agreed it can be difficult to do the right thing in the public sector, where politics and corruption override honesty and principles. When the group broke off into pairs to share more personal experiences, the feedback from one pair highlighted the pain and isolation that is often the price of good leadership. Good leadership comes at a price Guest speaker Nadine Jackson of Legitimate Leadership told the group how she had left a stable and lucrative job as CFO of a large organisation because the company did not operate in line with her own value system. Nadine completed her articles at Deloitte and went on to manage 12 teams, then moved to other companies before the niggling feeling that something wasn’t right became overwhelming. “I came to a stage where I was struggling with where my values sat and where the company’s values sat,” she said, adding that she wanted to spend more time helping the people around her to develop into exceptional individuals, and felt she had reached the peak in her ability to do that in the job she held. She also realised she

CFO MAGAZINE • CFO.CO.ZA

had been fooling herself by thinking she was happy. “I had always been really good at my job and I thought really loved my job, but when I really sat back and reflected I realised I loved being good at my job, but I didn’t necessarily love my job. I needed to make a shift. I can be a much better leader if I am leading in alignment with my own values.” Quitting her job to become a leadership consultant was a scary move, she told the group, but you have to push through your fears to come out on the other side. “It took a lot of courage. I had committed a long period of my life to a career that had served me very well and I walked away from it. But it shifted my entire life to do what I knew I should be doing.” For many public sector CFOs, doing what they know they should be doing involves standing up for what is right and not silently accepting what is wrong. For others, it involves making time to coach the members of their team to be better and more professional. One of the questions to Nadine was very telling: How do you know when enough is enough? Nadine said for her, it was when the fear of what she was about to do was outweighed by the fear of not making that move. “You will have a moment of clarity and my moment was ‘I’m

so afraid to do this and I’m so afraid not to do this’. The fear of not doing it was as bad as the fear of doing it, so I may as well do it.” Graham Fehrsen, MD of CFO South Africa and the evening’s moderator, said we sometimes all feel a pressure that may make us declare ‘enough is enough’, and it’s when you push through your fear by taking action that you become the leader you were meant to be. “As CFOs in the public sector you are not alone. You face a multitude of challenges that private

Five tips for good leadership, as offered by public sector CFOs 1. Suspend your own agenda to act in the best interests of your team. 2. Integrity is vital, and having the ability to act in line with your values. 3. Be transparent and lead by example. 4. Don’t be afraid to make decisions and give proper directions. A leader doesn’t follow the majority – they should be leading. 5. Face your fears about making personal changes, or you risk becoming irrelevant in a changing world.

PUBLIC SECTOR

Umar Banda, Acting CFO of the City of Tshwane Metropolitan Municipality Edson Magondo, Head of Public Sector at KPMG

Nadine Jackson of Legitimate Leadership sectors CFOs don’t face,” he said. The message from the discussion was clear: a good leader can only become a great leader by facing their fears and pushing through. Does this thing we call ‘control’ really exist? The public sector round table hosted on 7 April at the Menlyn Boutique Hotel centred around effective communication and reporting to stay in control, and posed two questions: can the public sector CFO be a true business partner, and is it possible to have control of the business? Shabeer Khan, CFO of the dti, and Nichola Dewar, CFO of Postbank and Acting CFO of the Post Office, shared their experience of both effective and ineffective systems with the assembled CFOS. “Sometimes we get confused by the level of reporting, because sometimes our reporting needs to reach the ordinary citizen on the ground. For me it’s about how can we simplify reporting for the man on the street,” Shabeer

said. Reporting is an important function, he continued, because when we talk about being a true business partner, people take it for granted that there’s a CFO. “If you don’t produce credible numbers, the impact is great. If we don’t produce numbers in accordance with a set of accounting standards, imagine the impact on the market out there. You need to have standards and compliance. To me CFOs are the truest business partner in that sense. You are providing a framework where they can see credibility in numbers. And solid financial numbers bring market confidence.”

“Effective reporting is still to get the reporting correct. Before you can be strategic and add value to the business, your numbers must at least be correct.” – participant

Shabeer made the point that while CFOs can certainly add value to businesses, there are various ways this can be done. “As government we can create a brand that people can relate to. It’s about building the brand and everything related to that brand. I think there’s a lot of things we can do differently. Overall, we can do much more as government in terms of setting up this brand.”

Effective reporting to stay in control is dependent on the situation, said Nichola. “In terms of managing a business that is effectively in crisis, you need different kinds of reporting. You actually need daily reporting,” she said. “It’s amazing what you uncover. You really learn your business this way.”

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR Action points for clear and effective reporting, as cited by public sector CFOs

Public sector CFOs enjoying a recent CFO South Africa event, and posing for a photo with KPMG's Edson Magondo

“The power of reporting is that people will remember things. If you pick up the key ones and present them in a way that people can remember, that’s effective.” – participant

She cautioned the group to not only focus on the numbers but also consider the moment you are in at that time, and contemplate whether it is possible to change that revenue line in the month. “You need to focus on the strategic insights derived from the reports. You can use cheap tools to identify problem areas, like Excel, and which are quick, and you can then carry on focussing on your business,” Nichola said. She added

CFO MAGAZINE • CFO.CO.ZA

that is important not to become so focussed on compliance that you forget about your business’s right to stay in business; something which she believes has happened at the Post Office. Karin Kruger, Associate Director in KPMG’s Data and Analytics function, offered insight into the power of visualisation, and how this can not only simplify a report but also make it memorable. Some six years after she left the employ of FNB, Karin could still recall quite clearly the bank’s three-point plan for change. This is because it was depicted visually, by way of an infographic. Many of the CFOs present exclaimed out loud at this revelation, which is in essence so simple it is almost laughable. Think about it for a minute, a visual bypasses the challenges of language or level of education, and is retained by its audience far easier than the information read in a two or three-page document – if such a document is even read. As far as effective reporting is concerned, Karin seemed in agreement with Nichola about not reinventing the wheel: “Don’t think that you can’t go on the journey of effective reporting without new skills or tools. Look at what you have and start le-

• Ensure that what you are reporting on is understandable; keep it simple. • Never underestimate the power of visualisation; it immediately conveys the message. • Put your achievements where everybody can see them; be proud of them. • Know where you’re going and what pieces of information you need to move through the phases and life cycle of your business. • Change your paradigm and way of thinking – start talking to the numbers, because the numbers will talk back to you. veraging that and then start to journey. That will start opening doors. You can do so much with what you have, without capital outlay.” Offering some final words of advice, Shabeer advised participants to know where they are in the journey, as this determines how you move forward. “For us as the dti the reason why we could do a lot more in terms of reporting was because of the clean audit but understanding where you are in this journey there are other ways. Can you still report effectively even if you don’t have a clean audit? Yes. We can all do something different, for example, visualisation. It’s about packaging. In terms of business partnering this means partnering with the head of marketing.” Don’t sweat the small stuff, added Nichola; get the big insights first, and get the directionally important things to surface at the right level of the organisation to encourage the right conversations. “You’ll get the compliance right over time. And then you can focus on the future of the business,” she said. l

Be sure to join us at our next public sector round tables. Go to cfo.co.za/events and register!

Risk and Insurance Brokers who Empower Results In todayâ&#x20AC;&#x2122;s ever-changing environment, successful businesses take the advice of a qualified, expert Insurance Broker who is on their side. Partner with Aon to Empower Results for your business and employees. Call 0860 453 672 or visit www.aon.co.za today. Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider (FSP #20555).

Risk. Reinsurance. Human Resources.

PUBLIC SECTOR Vuyo Mafata’s daunting task as Commissioner of the Compensation Fund

Getting things right by doing things right Vuyo Mafata played a prominent role in the establishment of CFO South Africa’s public sector forum and his success as the finance boss of the UIF earned him a nomination for the CFO Awards 2015. In government, accolades are generally a ticket for an even harder task. Vuyo was recently appointed Commissioner of the Compensation Fund, which is struggling, to put it mildly. We sent our reporter Lesley Stones to find out more.

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR

rom the outside, the government’s Compensation Fund looks like quite a mess. Once you’re on the inside, you realised that’s wrong. It’s not just a mess, it’s one hell of a mess. In fact, it’s three or four messes all rolled into one, says Vuyo Mafata, its new Commissioner. Vuyo built up a great reputation as the chief financial officer of the Unemployment Insurance Fund (UIF), collecting contributions of R15 billion a year, paying R7 billion in benefits and managing its investments of R100 billion. But taking on the challenge of the floundering Compensation Fund (CF) has given him headaches that involve malfunctioning technology, unhappy human resources, a lack of basic financial practices and outright fraud. “People don’t know whether to congratulate me or give me their sympathies,” he jokes. “Time will tell.” It’s going to take a long time, however, since the CF is mired in so many problems that he expects to see little progress for at least 12 to 18 months. And a complete turnaround is still a distant dream. “We have identified a number of things that require correction, which are mostly medium to long-term projects. The problems are so entrenched it’s going to be 24 to 36 months before we see major improvements. It is a huge, huge challenge.” Rising from a CFO to a CEO-type role was a natural step, he says, and after 10 years at the UIF he was ready for a change. “History is full of CFOs who have gone on to manage big organisations. It is the next progression career-wise from CFO to overseeing the operations of an entire organisation, so it was a challenge I felt I needed to try. The skills you learn from being a CFO play a big role in the position of managing a financial institution. If the finances aren’t in order, there’s not a lot the organisation can do.”

Unfortunately, the Compensation Fund’s finances are far from being in order, he discovered. Letting workers down The fund was established to provide compensation to people who are injured at work, left disabled or killed in work-related incidents. But it is letting down those workers as well as the medical practitioners, because their claims go unpaid for months or get lost entirely. The South African Medical Associ-

BY LESLEY STONES ation (Sama) says many doctors refuse to treat ‘injured-on-duty’ cases lest they are never paid by the fund. Legal action is common too. In one current case, the Radiological Society of SA and 19 radiology practices are taking legal action against the labour minister over the fund’s failure to process and pay R121.5 million in claims for services provided to injured workers. The society says some claims have gone unpaid for years, while the average repayment takes 350 days. Vuyo says being taken to court is a regular occurrence for the fund as it hasn’t been paying medical practitioners or clients. “Money isn’t the problem, spending the money is the problem,” he says. The Auditor-General has also expressed concerns for a number of years about the CF’s finances, Vuyo says. “It’s sitting on healthy reserves (of R56 billion) but the problem is managing those reserves and the financial administration of the organisation has been very poor. That is one of the things that appealed to me, that I can play a role in getting this organisation back to where it should be.” Vuyo was initially appointed as the acting Commissioner in mid-2015 and made permanent in March 2016, which must be a vote of confidence for the rescue plan he has devised. The issues are multiple: poor financial management with financial principles being ignored, bad people management creating an unhappy work environment, inefficient business processes and information technology (IT) systems that don’t work properly. One complication is that there are three fields of activity within the CF: it is the country’s biggest medical aid scheme; it is a pension fund; and it is a short-term insurer. Those are treated as one business, but Vuyo may split them into three distinct operations to make them each easier to manage. Recruitment drive Getting the right people on board is also crucial, and Vuyo has been on a recruitment drive and made several changes at senior management level. The medical aid business didn’t have people with the necessary medical skills so people are being recruited now. He has also appointed a CFO, two financial directors, a head of legal services and a head of human resources. That broad sweep of new appointments shows how many problem areas had arisen.

CFO MAGAZINE • CFO.CO.ZA

PUBLIC SECTOR From a financial point of view, the key will be getting back to basics and applying sound financial management principles. “There have been a number of previous turnaround strategies but they dealt with the symptoms of the problem, not the root causes, and the best way to deal with the root causes is to get back to doing the right things right,” he says. He has uncovered a high level of non-compliance with the basic financial rules and legislation that govern public sector institutions. Some stem from an element of neglect, and some from fraud, he says. “There’s been a lack of leadership in the financial management. People are not being guided and led in terms of what needs to be done or the policies, so we need to put the proper policies in place and review our accounting policies.” Another pressing need is to fix the IT landscape by installing the right technology to manage the massive amount of daily transactions that must be processed. The head of IT has embarked on a huge installation of an SAP Enterprise Resource Planning system and is searching for a new claims processing system. The current electronic claims system installed not long ago was done in haste and isn’t working properly. “Most of the interventions in the past were dealing with the symptoms, not the root causes, so a lot of things were implemented that weren’t sustainable. We need to find long-term solutions, and getting the right claims management system is one of them.”

“The best way to deal with the root causes is to get back to doing the right things right.”

“The challenges in this organisation are huge and it is not going to take a short period of time to resolve it, but I think with my skills I should be able to help. It is not an individual thing – no one person can do this. The mess isn’t because of one person, it is because of a whole collective, and to get it out of the position it is in, I need a good team around me,” he says.

CFO MAGAZINE • CFO.CO.ZA

At 38, Vuyo says he enjoys working in the public sector because it is an excellent learning ground. “I am still young, so there is still scope for me to go to the private sector at some stage, but I have experienced things in the public sector which I wouldn’t have done in the private sector,” he says. Like being called to explain his strategies in parliament, for example, and handling investments of R120 billion when he was with the UIF. Attending events hosted by CFO Africa is helping him with his new role, because he has met and developed a network of other CFOs that he can call upon for help and advice. “Getting to share knowledge and insights has been very helpful. The public sector CFOs know each other now so, it has become easier to call for help or to say I am looking for someone and people can assist.” l

M&A A chat with KPMG’s M&A guru John Geel

Quietly confident about 2016 KPMG’s M&A guru John Geel says he is “quietly confident” that 2016 is going to be a good year for mergers and acquisitions in South Africa. In an exclusive interview with CFO South Africa he reveals that he expects the number of deals to be “at least equal to last year, if not more”.

ith 22 years of experience in M&A, John has a number of intriguing deals on his CV, including numerous transactions relating to Saambou Bank while it was in curatorship and then receivership and the sale of iconic brands like Mrs H.S. Ball’s Chutney, Bovril and Marmite. On 16 February 2016, he was in the spotlight at the DealMakers Gala Awards Banquet in Sandton, where he received both the coveted Reporting Accountants awards from Graham Fehrsen, MD of award-sponsor CFO South Africa. With our M&A events in July on the horizon, we spoke to John about what the awards mean, the role CFOs should play during acquisitions and his predictions for the current year. What are your expectations for M&A in 2016? “The right noises for investors are now being made by the National Treasury after a tough closing quarter of 2015. The saga around the finance ministers in December was very negative, but the momentum has turned and we have heard a different story during the budget speech by Pravin Gordhan. It is still early days, but we have a lot on our plate at KPMG and there is a good pipeline of deals.” “We see a lot of activity at the moment, even though we’re going through a difficult economic cycle. We are quietly confident

this will be a good year, equal to last year in number of deals at least but perhaps not in deal value. We also have inbound investors who feel companies in SA are undervalued. They believe in the longer term and are bargain shopping as investors are shifting their portfolios.” What did winning the DealMakers reporting accountant award mean to KPMG? “It was fantastic and it was definitely celebrated internally. We have been going to the dinner since its inception (15 years) and have always ended high, but I cannot remember when last we received both the reporting accounting awards based on deal flow and deal value in the same year. We have received many messages from partners, former partners and clients, congratulating us, which started soon after CFO South Africa first published its article about the event. It means a hell of a lot.” Why did you think you scooped the prizes? “We actually didn’t expect to win both awards. Our number of deals was good in 2015, but our value only went up towards the end of the year. DealMakers publishes the table on a quarterly basis and in Q3 we still weren’t on top. Thankfully, a number of clients closed deals in Q4, with some very big ones among them like Mediclinic’s reverse takeover of Al Noor. That was a 1.5 billion pound deal.” “We had a few other significant deals in

CFO MAGAZINE • CFO.CO.ZA

M&A

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

M&A Q4, including Allied Electronics (Altron), a JSE-listed company that sold part of its subscriber base to MTN, Vodacom and Cell C. We were also involved in the R4.5 billion deal of Amplats selling its Rustenburg platinum mines to Sibanye.” What was the most fascinating deal you worked on in 2015? “It is difficult to pin one down as the most interesting where our team was involved, especially since we are the accountant reporting the numbers. Having said that, Sibanye’s acquisition of the platinum mines was a transformational deal for that company and the transaction with Mediclinic was also very interesting, because we were involved internationally with a firm based in the UAE, where we are the auditors, and listed in London.” What do you enjoy most about M&A? “M&A is creating change. It is a rewarding part of the business to have been involved in for the last 22 years. Although I head the deal advisory team, we get a lot of help from other KPMG departments, like audit. There is always something going on. When I started in 1994, companies were looking at coming back to South Africa. There was a sense of excitement and change. And now, as tough as things are, there is still activity and transformational change. In a growing economic environment, there will be more transactions, but last year, even in a tough environment and economic cycle saw the biggest deal registered in South Africa, with the AB Inbev acquisition of SABMiller.” “Recently, we saw that Anglo American announced it will be selling more mines and assets, which is exciting, because it creates opportunities for new entrants and other emerging mining houses. For every player exiting, there is one new one coming in. Many companies are right-sizing, but we also still see new players coming into South Africa.” What do you consider your proudest professional achievement? “Around 2001 I was involved in the curatorship of Saambou Bank. I worked as the righthand M&A man to the curator John Louw, who is obviously a very well-known force in the financial services industry. We did a lot of transactions that were very interesting, including complex deals with the likes of FirstRand, Absa and Abil (African Bank Investments) among others. I spent about three

CFO South Africa MD Graham Fehrsen handing out an award to John Geel (Head of M&A) at the 2016 DealMakers Awards years on this full time and a further two to three years on and off.” “Another great deal was the sale of Unilever’s Mrs H.S. Ball’s Chutney to Tiger Brands two years ago. Sometimes it is not the big ones that are the most rewarding. Complexity and innovation also make for great jobs and Mrs Balls chutney is obviously a famous South African brand. In 2005 I had already been involved in the sale of Bovril and Marmite, so I seem to have knack for these.” What role should CFOs play during M&A processes? “CFOs have a critical role to play in M&A. The CEO sets the strategy and the advisors make it happen, but the CFO needs to look at every deal and look at tax consequences, synergy opportunities, the integration process and when finance is required. Deals often fail if businesses are not properly integrated or if benefits are not extracted after the deal, or when risks are not identified during the due diligence process. This is the CFO’s responsibility.” l

CFO MAGAZINE • CFO.CO.ZA

“How do you take your business to international waters?”

“Partner with a bank that’s already there.”

R4.6bn Acquisition Financial and Debt Advisor Debt and Equity Underwriting Foreign Exchange Hedging

Corporate and Investment Banking Also trading as Stanbic Bank Authorised financial services and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). Moving Forward is a trademark of The Standard Bank of South Africa Limited SBSA 212304.

M&A How Oceana bought Daybrook Fisheries - CFO Imraan Soomra reveals

Landing the big fish When Imraan Soomra joined Oceana in 2013, CEO Francois Kuttel still feared he might be “a little too timid”. Since then the two have formed a formidable executive pair, shaking up the culture, gearing up for growth and bursting onto the global stage with the spectacular acquisition of Daybrook Fisheries in the US. Timid? Nope. One of the hottest CFO success stories at the moment? You bet.

“

The acquisition of Daybrook has put us years ahead,” says Imraan Soomra. He is relaxed, soft-spoken and confident; a rare combination for a South African CFO operating on the global stage. “We grew our market cap by about 50 percent, with an acquisition which brings dollar-based profits. We expected a slow decline of the rand, but couldn’t have anticipated that it would drop so dramatically.” With local growth slowing – and limited opportunities for acquisitive growth in SA – the fishing company has its sights firmly set on “strategic diversification in geographies and fish species”. The timing of the deal could not have been better.

“I don’t need to be aggressive to be effective; the first prize is winning people over. At the same time, you can’t be afraid to show your teeth if you need to!”

A different orbit The purchase of the Louisiana fishing firm catapulted the Cape Town-based company – already the biggest in Africa – into a different orbit. CFO South Africa spoke to Imraan about the finance transformation that laid the groundwork for the deal, the addictive adrenaline of going global and the combination of diligence and decisiveness that is required to pull it off. Imraan took some decent experience from Nampak, SuperSport and Netcare with him to the Cape Town harbour, but the fishing industry proved to be his breakthrough as CFO, even seeing him win the Transformation & Empowerment Award at the CFO Awards 2015. In a short time, he has transformed the culture and the finance team’s way of working, introduced shared services for its businesses and is now setting the firm up for further growth by implementing SAP – with a blanket-disapproval of any customisation requests “unless the business executives are able to convince us of the value of any divergence from SAP best practice”. How did he make all this happen and what did he learn? “I saw an opportunity to work with Francois,” Imraan says about his move to Oceana. “He is

CFO MAGAZINE • CFO.CO.ZA

M&A a fisherman and entrepreneur at heart and as a CEO he is very dynamic; a very astute businessman. His mantra is ‘don’t take ourselves too seriously’, but he wants us to be the biggest, best fishing company around.” The CEO’s fears that Imraan would be too shy for the rough-and-tumble crowd of the fishing industry, soon dissipated and made way for trust. “I think he has been pleasantly surprised. I don’t need to be aggressive to be effective; the first prize is winning people over. At the same time, you can’t be afraid to show your teeth if you need to! Francois needs a guy who sometimes says ‘I disagree’.” Culture shift Before the two executives could grab the headlines with their purchase of Daybrook Fisheries and Foodcorp’s fishing interests, Imraan first had to make some serious changes. Oceana had been growing at a rate of knots over the last decade, but when he joined as CFO the momentum had just started slowing down. “It was the first time in ten years that the company had an overdraft and growth was going to be single instead of double digits,” says Imraan. “I realised a culture shift was needed. Oceana had always been cash-flush and administrative efficiencies were not top-of-mind. Simple things like forecasting cash flow were done, but there was little accuracy. We always underpromised and got away with it because delivery exceeded expectations.”

processing business. You need to get to know what the fishing crews are saying about the resource and what our operations teams are saying about the status of our factories. Fortunately, our CEO is a fisherman.” Imraan took over from a fairly traditional finance director, whose management style was less collaborative and more instructive. “My style is the complete opposite. I had to drip feed the change, as I got angry stares initially. One has to win over trust first before people will follow you into battle.” Calculated gamble The CFO soon realised something more “dramatic” needed to happen to set the finance team on course for the future. It was a change of thinking, rather than a complete structural overhaul, that Imraan sold to the board. “I wanted us to work smarter, sharper and more innovatively. It was tough. I had to let the CIO and the group senior accountant go, because they did not have the ability to shift. It was a calculated gamble, but it worked and we’ve brought in talented individuals who have enhanced the team without increasing our headcount. I’m proud to say that all my five appointments have been people of colour and four of them women”.

With Lucky Star as its most renowned local brand, Oceana is split into five businesses: fishmeal and oil in the US, canned fish and fishmeal in SA and Angola, horse mackerel and hake, lobster, squid and French fries, and commercial cold storage logistics. The business includes mid-water fishing for horse mackerel, deep-sea trawling for hake, as well as inshore fishing for pelagic fish like anchovy, redeye herring and pilchard. “If you want to add strategic value as a CFO, you have to know what goes on in the business. I am actually more of an operations person than a finance person. We are a harvesting and

Although Imraan is much happier with his team now, he sees a lot of room for improvement. “There has been an underreliance on information. If our biggest vessel, the Desert Diamond, doesn’t catch, that costs us half a million rand per day. We need to be able to make decisions around those assets faster. I’ve encouraged my team to make time to think about their businesses and I insist that divisional FDs play the role of the number two to the MDs. Elevating the role of finance executives in the business enabled us to focus on the Daybrook acquisition while running a business and implementing shared services for accounts payable and procurement. With efficiencies like these, we can save the business hundreds of millions of rands.”

“I had to drip feed the change, as I got angry stares initially.”

Change management will also be a massive part of the SAP implementation Oceana has embarked on for its African operations, a necessary step to prepare for the next big acquisition in one, two or three years’ time, says Imraan. “Once again, people need to change their thinking. I think I am going to be very unpopular in the next few months. Whenever we get a request to customise

CFO MAGAZINE • CFO.CO.ZA

M&A

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

M&A something in the ERP, our default response will be no. This platform is designed on the back of global best practices. That should mean we customise our processes to suit the ERP and not the other way around. It will help us to standardise most of our own processes, something that would never work on our current platform.” World Cup 2010 Hard work and authenticity have made it possible for Imraan to do what needed to be done, he says. “I tell it straight and I take it straight. That’s not everybody’s cup of tea though! I know my strengths and my weaknesses,” says the CFO who worked on South Africa’s bid for the football World Cup in 2010, and after that gained some great experience in the operations department at SuperSport, where he was mentored by Imtiaz Patel, the current CEO of Multichoice SA. “In this country people of colour have always felt the need to prove our worth. Sometimes that results in a massive chip on the shoulder and a healthy dose of cynicism! As accountants we are trained to always look for faults or weaknesses. Add these two together and you’ve potentially got a very inhibiting combination. Because of my mentor I became aware of how I operated. It was a crucial shift for me to change my attitude from being a cynical auditor to seeing opportunities.” Traditionally, Oceana has fielded a debtless balance sheet and a portfolio of brands that has grown not only by acquisition, but also driven by the global need for quality fish protein. As a result, because of its size in the South African market, further growth with the support of the regulators would be difficult. According to Imraan, the CEO and he were inspired by Woolworths’ acquisition of Australian retailer David Jones to start looking at landing a big, international fish. “Against our tradition we approached Standard Bank for a loan and they gave us a number: we could raise $450 million." Imraan had experienced positive growth at Naspers, but had “seen the flip-side at Netcare”, which canceled a prelisting in the UK and was left with massive debt. He was keen to make sure Oceana would not fall victim to rash plans. “I learnt very quickly that in fishing a budget is valid for two months as our outlook changes all the time due to the inherent volatility of fish harvesting. Fishing rights have a big impact and we need to

CFO MAGAZINE • CFO.CO.ZA

M&A balance longevity with sustainability. That is why we want to diversify, scale up and spread the risks.” Diligent and decisive M&A advisors told Imraan and his CEO that they appreciated the decisiveness of the duo during the Daybrook acquisition that followed. “That is our nature,” says the CFO. “I hate dragging my heels. We did have a period where we weren’t sure about the deal, but every morning Francois and I spoke and asked each other ‘is it still a go?’ And if you go, you go as hard as you can. It does help if the partnership between the CEO and CFO is a secure one, if there is clarity about the roles it makes the journey simpler.”

“Things can still crop up in two years’ time that we have missed. We are aware of that; we just need to learn from it.”

Paradoxically, the executive’s decisiveness was paired with extreme diligence. “The more due diligence you do upfront, the easier it is to make a decision. You cannot spend too much time investigating a target and it is a fine balance that needs to be achieved. Ultimately a thorough due diligence helps the integration later. The most important thing during these processes is to learn. You never get it 100 percent right. There is no such thing as a perfect acquisition. Things can still crop up in two years’ time that we have missed. We are aware of that; we just need to learn from it.” When asked which part of the acquisition was the toughest or most frustrating, Imraan doesn’t hesitate to call out the legal process. Sometimes legal advisors are rather like they are a grudge purchase. However, when things go wrong you certainly want the best legal team in your camp.

Lawyers x5 “There were five different parties of lawyers; from the US banks, the South African banks, the US shareholders, our two main shareholders and the regulator in the US. When they sit together it sometimes becomes all about egos, unfortunately. We had to manage that, and it became the most frustrating aspect of the deal.” Imraan advises other colleagues who deal with lawyers during an acquisition process to agree on a fixed fee for the whole process. “It will certainly help drive an efficient legal process. We ran the process pretty hard, but I think we could have shaved a month off if we managed the legal process better.” Perhaps it just means that the company, which was founded in 1918 and is listed in both South Africa and Namibia, is now playing with the big boys. “We already were the biggest fishing company on the continent, but now have really become a global player. We have noticed that means that the way you do things is different,” admits Imraan. “Even the skills level required of the staff is different. Everyone needs to step up a level.” To make sure the CEO and CFO continue to be able to be on top of things, new positions were created for a managing executive for the African business and a treasury executive. “It is a lot of fun. If it would just be hard work, it would be very difficult to succeed.”

“It does take a lot out of you, but I am already missing the adrenaline of the transaction.”

Aiming big Nowadays, Imraan visits the American headquarters and operations of Daybrook once every six to eight weeks, committing an entire week to four working days in the US, because of the 35-hour travel time. “It does take a lot out of you, but I am already missing the adrenaline of the transaction. It has been a massive learning curve, dealing

CFO MAGAZINE • CFO.CO.ZA

M&A with investors, banks and a very different culture. There is lots of liquidity in the US and institutions are bending over to lend you money. The US regulators are very different. Things work there. People are surprisingly down-to-earth, especially in the South of the US. It has been an eye-opening experience.” Some CFOs say ‘never again’ after such a megadeal, but Imraan’s appetite for growth and adventure has only increased, it seems, although he is less interested in gobbling up smaller opportunities, like in the past. “It is clear what we are looking for when things come across our desks. We still want to diversify geographies and fish species. If something ticks the boxes, we will go for it. Something we have realised is that acquisitions need to be of a larger size now to ensure that management push hard for its success. If you buy a small company and it fails, there are hardly any consequences for the executives involved, just for the people on the work floor. If a big buy succeeds it is very positive, while if it fails it is bad for you as an executive. Yes, there are bigger risks with bigger acquisitions, but this ensures management focus.” l

Empowering people In 2015, Imraan won the Transformation & Empowerment Award at the CFO Awards. In his acceptance remarks he noted how untransformed the CFO community still is. Oceana has maintained its rank as the most empowered company on the JSE, but compliance is not always easy, Imraan admits. “There are a lot of knee-jerk reactions going on and not all stakeholders want the same from us. The Department of Agriculture, for example, doesn’t rely on the BEE scorecard. What they want is black ownership. But we do much more for transformation and empowerment than one guy with a boat does, even though his company might be 100 percent black owned. It’s a juggling act for government and we’re hoping to engage on a more constructive basis.” Currently, Oceana provides employment opportunities for 6,053 employees, of whom 4,399 are directly employed and 1,654 indirectly. “We convert fishing quotas into a greater number of jobs and provide more to the fiscus per ton than anyone else,” says Imraan. “One of our most successful empowerment initiatives is the empowerment trust, which started in 2006. The trustees are all Oceana’s black employees and they own more than R1.3 billion of the company. Last year we paid out R219 million to them. An average factory worker suddenly received R100,000 payout after tax. It is life changing.” “The payout came earlier than planned. We realised a lot of guys in places like St Helena Bay, Lamberts Bay and Hout Bay were in financial difficulty. Many of them were paying interest rates of 25 percent to microlenders. The trust was only going to be liquidated in 2018, but we asked internally if we could do a cash payout earlier. That has made a huge impact. People have moved out of shacks. Someone bought 150 sheep. What touched me most was a couple who couldn’t fall pregnant but didn’t have money for fertility treatment. Now the wife is pregnant.” “Before paying out the money, we had road shows – three months of education. We emphasised that paying off debt and bonds should come first. Based on today’s share price, the person who received R100,000 last year, will still receive an additional R550,000 in five years’ time. Now that is true empowerment.”

CFO MAGAZINE • CFO.CO.ZA

M&A Successful M&A event in April, more to come on 21 July 2016

Preparation is key to success

“

When you transact across borders, it’s bigger than you imagine. You have to keep your eye on the business and the acquisition. You also have to make a call – do I have quality people running my business and do I trust them enough?” said Imraan Soomra, Group FD of Oceana Group. Imraan was speaking at a recent CFO South Africa event on M&A – the first in a two-part series. In 2015, domestic and inter-Sub-Saharan African M&A reached $8.3 billion, up 39 percent year-on-year. But how does one take advantage of this climate? By being prepared, our experts agreed. The well-attended and very successful M&A event debated issues around how to work on your business while remaining fully immersed in your business. Telkom CFO Deon Fredricks agreed, saying the lessons they learnt from making some serious mistakes worked to strengthen the company. “We went into Africa, Nigeria specifically, and made some mistakes. We didn’t send our best people – that was our first lesson. The second was not understanding the culture. You have to understand the culture where you’re going or you’ll have a challenge. And the third, you must make sure the locals are part of the solution,” he said. Deon further advised ensuring the timetable of the deal suits both parties, otherwise you’ll pay “serious school fees” if you get pushed into a must-do-the-deal-now-or-else situ-

KPMG's Nick Matthews shares his thoughts on how CFOs should be preparing for M&A activity

ation, he said. “You need to understand this is your strategic framework and if the deal doesn’t meet your requirements, you move on. Sometimes it’s better to walk away from a deal that doesn’t feel right.” You should also understand where you are in the life cycle of a firm, because M&A must help you achieve your strategic objectives, he added. Imraan agreed, calling the question of time frame critical. “I agree that you take your time in assessing the opportunity and do your due diligence. Never be pressed into doing a deal,” he said. “But once you’ve made up your mind, then you go hard, as hard as you can. Set timetables and stick to them. Because otherwise your deal is longer than you anticipated, and you can get deal fatigue and doubt.”

For Andrew Balnaves, Executive VP, Corporate and Investments at Standard Bank, clear focus is crucial to a well-functioning M&A team: “When you have a focused team it is outstanding what can be achieved in a very short amount of time. But you need clear direction. Once you have intrinsic confidence in that, that will come across and you won’t be challenged on it, because it’s already been dealt with. So you won’t be tested on the strategic value of the deal.” Andrew offered a few points of advice to create momentum in a deal, such as securing financial backing before getting started, and ensuring the readiness of your counterparty. “I recommend you don’t start a transaction if your counterparty isn’t ready,” he said. Nick Matthews, Head of M&A at

CFO MAGAZINE • CFO.CO.ZA

M&A KPMG South Africa, offered insight into the sell side of business. “M&A processes are becoming longer, more complicated and more regulated,” he said, adding that it is advisable to run your forecasts through a valuation model and ensure you have management’s buyin before getting stuck in. “Your real sales force is not your advisor, it’s your management team, so you need their buy-in. They’re the guys who are going to be managing the forecast,” he said. With regards to confidentiality, Nick suggested disclosing things early on in the process. “When you start approaching prospective buyers, the word is out. So my advice is, engage with your employees. Rather they hear it from you than someone else.” The question of whether or not to use an advisor also got airtime. Imraan spoke to the enormous value such an individual can add: “If we were ever doing something of big scale again, I would say yes. It’s all about the value that was added. To my mind, the advisor you pick must

be the advisor who resonates your and your CEO’s culture.” Deon offered words of caution when choosing an advisor, and said there are several things you should consider first, such as whether the advisor has done this before, whether they understand your business, and whether each participant understands their role. “I would say you need a project manager to run that deal and ensure what’s your risk appetite, what’s your debt capacity, and should this fail, what does it mean for the business, because only 50 percent of M&As are successful," he said. Another of the evening’s key takeaways was that it is important to know when to walk away from a deal. “Walking away is the hardest thing to do when your deal’s very attractive. But if you have a walkaway point that makes it very easy. And you have to have that,” said Imraan. “It’s about the preparedness. If you always know in the back of your mind why you’re doing this, it becomes easier to be objective about

a walk-away decision.” Asked to each offer one word that they think is key to M&A success, in addition to preparedness, Andrew said trust; Nick said understanding; Deon said focus; and Imraan said escape. “You have to have a means of escaping the transaction, something that you do or a place you go that brings you back objectively,” Imraan said. “For me that was recreational fishing. But it’s different for each person.” l

Be sure you join us at the second instalment of our M&A series ‘Where the rubber meets the road – integration or separation for post deal success?’. It takes place on 21 July 2016 in Johannesburg and features contributions from CFOs Charl Keyter (Sibanye Gold), Deon Fredericks (Telkom), Ryan McDougall (Trustco) and DigiCore’s CEO (and former CFO) Cobus Grove. Go to cfo.co.za/events and register now.

A smiling Andrew Balvanes (Standard Bank) and Imraan Soomra (CFO Oceana) enjoying the networking at a CFO South Africa event

CFO MAGAZINE • CFO.CO.ZA

M&A From DigiCore CFO to global executive – the terrifying success of young Cobus Grove

The Good, the Bid & the Ugly Most CFOs dream of saving a company with sheer accounting brilliance, fantasise about lining shareholders’ pockets through a spectacular M&A deal and secretly yearn for fame. Cobus Grove achieved all that before he turned 34. In a series of interviews with CFO South Africa, Cobus shares how he saved JSE-listed company DigiCore and sold it to US firm Novatel Wireless. He talks about his compulsion to keep succeeding and gives some candid insight into the personal toll of managing these high-stake corporate manoeuvres. “You work yourself to the bone and when you accomplish it, you get a little high. I am always looking for the next high.”

CFO MAGAZINE • CFO.CO.ZA

M&A

n 14 May 2015, Prof Mervyn King called Cobus Grove onto the stage at Summer Place in Hyde Park and handed him the Compliance & Governance Award at the CFO Awards gala. South Africa’s doyen of corporate governance, whose influence in reporting standards is massive the world over, said Cobus's work is evidence that “the application of quality governance does pay dividends” and posed for a joint photo that many CFOs would covet. Insiders were not surprised that Cobus received recognition for his work, and King’s succinct summary was typically on point. As the award placed the spotlight firmly on Cobus’s impressive achievements, everyone in the room knew he was one to watch. What they didn’t know was just how quickly things would move and that just a month later the phone would ring in the unassuming DigiCore headquarters in the Route 21 Corporate Park in Pretoria. This call would catapult the already impressive career of the then 33-year-old into a different orbit. Not only was the company sold to the Nasdaq-listed Novatel Wireless, Cobus also now became General Manager of C-track Global. “I’m in it for the ride,” Cobus says. “I am getting exposure to the biggest markets in the world.” 1. The Good – saving DigiCore Cobus comes across as a grown-up version of a charmingly nerdy school friend who is always more than willing to help out with complicated maths homework, not because he is desperate for friendship, but because he is genuinely happy to help and confident he can. Aged 27, he was part of the executive management team of Innovation Group, at EY he played an IFRS and compliance advisory role to various large listed entities in the banking, insurance and mining sectors, and as lecturer at the University of Johannesburg he shared his wisdom with the number crunchers of the future. But it was the turnaround at DigiCore that truly saw Cobus emerge as a financial professional to be reckoned with. The challenges were plentiful when Cobus joined DigiCore in November 2013. The company was running its fleet management and vehicle tracking brand C-track in no less than 55 countries, but had manoeuvred itself into such a desperate corner that Nick Vlok,

CFO MAGAZINE • CFO.CO.ZA

who founded DigiCore in 1985 and listed it in 1998, had already returned as CEO a few months prior to calm markets and regain clients’ faith. “Some of the problems that we faced at the time were high costs, extremely high stock levels and 50 percent debtors in excess of 120 days on our book,” Nick recalls. “Our cash flow in the company was a huge problem at the time. We further had some exposure in terms of foreign loans between some of our subsidiaries based offshore that had to be addressed to minimise our exposure, an issue that Cobus tackled and resolved due to his extensive knowledge of the subject.” “Our cash flow was under severe strain when I joined,” says Cobus. “I remember visiting up to three clients weekly in an attempt with our operations and accounts receivable departments to collect cash. Together we managed to reduce the accounts receivable days by 55 percent within the first 12 months. Our stock balance was also uncomfortably high. Weekly stock movement reporting per stock location and a change to a just-in-time stock management system resulted in the days of stock in hand to reduce by 62 percent,” says Cobus, giving credit to the whole organisation, as good CFOs always do. “Operations, finance and management truly combined and we managed to repay overdrafts of R180 million within 24 months.” It was unfortunately not the only issue that had to be dealt with immediately. “During my initial review of the accounting process, I identified some accounting practices that had to be rectified and that would provide a more accurate view of the financial position of the group. This lead to a restatement of our financials. With the guidance of our experienced audit committee we managed to not only do the restatement successfully, it also resulted in the increase of the share price with 30 percent on the date that the announcement of the restatement was made.” As confidence with shareholders and the finance team returned, the operations of DigiCore revived. “Cobus created a huge amount of confidence with customers as well as the operational staff, as he is always willing and prepared to listen and see how he can assist in making our lives easier,” says C-track MD Hein Jordt. “He has a vast amount of knowledge that he is not scared to share with his co-directors or any other staff member. He is

M&A

“We were excited about the scale advantage Novatel could offer us to take the business to new heights.”

a real mentor to all in the business. His high levels of energy rub off on everyone that he engages with.” Cobus agrees that working outside finance was crucial. “At DigiCore I now have 110 percent support from operations. I have listened to them and tried to implemented what they needed. That is something CFOs don’t always do. At our company, finance used to be seen as the gatekeeper, the negative people. Now operations and finance are tightly integrated.” Evidence that DigiCore was on the right track came when some of South Africa’s foremost investors bought into the firm. In a year the share price rose from R125 to R325 – Novatel Wireless eventually bought the company last year for R440 per share. For founder Nick Vlok, it was great to find a CFO who was “trustworthy, energetic and extremely knowledgeable in terms of accounting, but also of the business”. Cobus introduced proper controls and managed to get stock levels down through “his direct involvement and putting pressure on the factory and stores throughout our distribution network”, says Nick. Cobus was thriving. “The CFO role is the link between the business and the strategy. It is our job to make sure the guys can put the numbers on the table. You need to understand the problems of the business units and make sure they have the right resources.” 2. The Bid – Going global A month after the CFO Awards Novatel Wireless contacted Cobus for the first time. Winning the Compliance & Governance Award had “created immediate credibility for the DigiCore finance function, because I was nominated with other CFOs of immense calibre,” says Cobus.

CFO MAGAZINE • CFO.CO.ZA

M&A

“As a CFO you might think you have to be fully knowledgeable in the law, but the advisors guided us very nicely through the process.”

Not only was DigiCore already a distributor and user of Novatel’s tracking units, it was also a firm that complemented the offering of the South African business, rather than competing with it. “That made it easier to negotiate. If it was a competitor, you would have been more concerned about leaking competitive information,” says Cobus. “Due to previous experience, I had already learned what to highlight and what not to say in the exploratory conversations.” It was no time for champagne, though, as a haunting period of sleepless nights commenced, with working days starting at 17h00 South African time in California. “It was exciting, but also scary,” he says of the opportunity to help broker an international deal of this magnitude. “There are so many different things going through your head. Could I lose my job? Do they want to let people go? What will be their strategy? We had just gotten momentum at DigiCore and we didn’t want to lose that. But we were also excited about the scale advantage Novatel could offer us to take the business to new heights.” Novatel Wireless made an indicative offer of R440 per share, which amounted to a 40 percent premium and a total purchase price of $84 million (then R1.14 billion). “As a CFO you might think you have to be fully knowledgeable in the law, but the advisors guided us very nicely through the process,” Cobus says, praising PSG Capital’s consultants for their advisory role during the deal, slogging through a massive implementation agreement. “The entire process was completed within a period of four months with shareholders’

CFO MAGAZINE • CFO.CO.ZA

approval, competition commission approval and takeover regulation panel approval obtained. This could not have been done without an experienced board of directors and the help of excellent corporate advisors.” While DigiCore’s revenue was only a fifth of Novatel’s, its incorporation is crucial for the worldwide growth strategy of the American firm. “We now have the hardware, the software and the international footprint, which means we can start offering fullblown solutions, which a US company like Fleetmatics is already very successful with,” explains Cobus. Global expansion doesn’t mean rolling out a one-size-fits-all approach. “In South Africa we worry about stolen vehicle recovery. In many other markets, tracking is mainly for insurance, fuel efficiency and achieving lower maintenance costs. In the UK our technology is mostly used for fleet management and in the US we are mostly looking at asset management and optimisation.” Cobus is confident that the South African operations won’t fall victim to the deal. “South Africa is well-known for its software development around the world. In countries like India there is still a bit of a language barrier, something we don’t have. The cost-to-quality ratio in South Africa is very good and there are nice tax benefits.” 3. The Ugly – “It never stops” “I am a very good customer at Brown’s Jewellers,” says Cobus. He admits his current nocturnal life is taking its toll on his wife Marilize and his children Christoph (4) and Kaitlin (2). An M&A process like this is “not fun”, says the brand new General Manager.

“How do you switch off? I am still struggling with that. I can write a book about it. Emotionally it breaks you down.”

M&A His candour and honesty are refreshing; while he has never looked back, he is clear not to underplay the effort and commitment it takes and the negative effects this can have on an individual’s personal life. He says researchers would “get a shock if they saw how many CFOs get divorced”, but is confident he won’t contribute to those statistics. Of course, Cobus admits, the process has given him “wonderful exposure” for a 34-year-old who thought he was a specialist in technical accounting for life. “I’m in it for the ride. The opportunity to get international experience at a listed American company is great.” Family and friends have asked Cobus why he works so many hours, he says. “But how do I take the foot off the pedal in the middle of an acquisition? You realise you made a commitment and you’re dealing with shareholders money. You cannot say ‘now it is me-time’. How do you switch off? I am still struggling with that. I can write a book about it. Emotionally it breaks you down. We thought things would get better after turning the company around, so I told my wife and family I would work myself to death for a short period and then things would get back to normal. But now there will be easily another two to three years of high-intensity work. It never stops.”

While it’s easy to laud Cobus as a role model for his peers, he advises caution. “Be careful, it is not always what you expect. The expectations are high and there is a lot of pressure. Being in a role like this requires significant support and understanding from your family and friends and I am lucky to have the most understanding and loving wife one could have. Also don’t underestimate the role that the right role models could play in your career. I have been fortunate to have been guided and advised by individuals like Professor Ben Marx from the University of Johannesburg, Graeme Berry, a partner at Deloitte and Nick Vlok, founder of DigiCore, who always managed to calm me down and helped me to keep focus on the important things relating to my career and work-life-balance.” As Cobus prepares for another night of working late hours, he tries to play down his unique professional achievements – without too much success. “I was at the right place at the right time. I was given opportunities and was not afraid to take them. I have never worried too much about doing things that were out of my comfort zone.” “My focus at the moment is normalising my working hours. I don’t want to wake up in five years’ time and realise I haven’t spent any time with my kids.” As much as he revels in his success, always chasing that next high, that is his biggest fear. l

Cobus Grove receives his CFO Award from Professor Mervin King at the CFO Awards 2015

CFO MAGAZINE • CFO.CO.ZA

RISK MD Sneha Shah reveals Thomson Reuters plans for Africa

Passion for the customer No matter what the question is, in Sneha Shah’s world the answer always starts with the same two words: the customer. In an exclusive interview with CFO South Africa, the charismatic Africa MD of Thomson Reuters speaks about her time in New York, the challenges facing modern CFOs and about her drive to help transform Africa’s aid-based economies into knowledge-based economies.

ost of the successful projects Sneha has run, delivered because of a firm focus on customers. “For me, the customer is a passion,” Kenyan-born Sneha Sanghrajka Shah reflects. “Too many companies start with their products and ideas, risking irrelevance when the customer needs change. You cannot afford to lose sight of the customer, so my team starts with the customer every day. Even HR, which many organisations would see as back-office role, has customer-facing targets to meet.” The same rules apply for CFOs, says Sneha, as “they have had to become more customer focused in order to be able to manage the increasing burden of regulation and risk. But overall, there is a trend globally where CFOs are becoming much more market-aware and client-facing. CEOs are becoming less of the singular face to the market and more like coaches to a strong business focused leadership team, and this has led to CFOs and other C-Level roles evolving accordingly.”

CFO MAGAZINE • CFO.CO.ZA

Reuters has had news reporters in South Africa since the 1860s and the finance business here started in the 1980s. The name has become synonymous with FX trading across the continent, but Thomson Reuters actually does much more, across a variety of industries and customer segments. “For a global information company with strong roots on the continent, we definitely need to do a better job of sharing who we are and what we do,” says Sneha, as she lists the range of Thomson Reuters services that can benefit businesses and their CFOs. The firm brands itself as ‘the answer company’ and combines news, broad and deep content and industry expertise with innovative technology to provide information to decision-makers in the financial and risk, legal, tax and accounting, intellectual property and science and media markets. “We can play a significant role in empowering Africa, helping governments, corporations, banks and professional services agencies in making the shift to knowledge economies,” says Sneha. Specifically in the CFO community across

RISK

“Too many companies start with their products and ideas, risking irrelevance when the customer needs change.”

CFO MAGAZINE • CFO.CO.ZA

RISK

“We can play a significant role in empowering Africa, helping governments, corporations, banks and professional services agencies in making the shift to knowledge economies.” Africa, she is seeing huge interest for Thomson Reuters risk and compliance solutions. “CFOs are faced with an enormous amount of pressure, and have to be on top of all aspects of the business and market changes. Many of them work in organisations with disparate systems and manual processes, which simply cannot keep up with new and increasing regulatory demands. By helping them have immediate access to deeper and more relevant macro-economic data and insight into who they are doing business with, we highlight where enterprise risks are growing in their organisation and we help connect the dots and enable CFOs to focus on what matters. We allow organisations to simplify their regulation and compliance obligations and free up resources for customers and growth.” Sneha considers Africa to be her ‘home’ continent and describes herself as “an Afro-optimist”. Whether she speaks about the energy she gets from her children Rohan (10) and Aaria (6), her love for food, wine and adventure travel, or the way that her team at Thomson Reuters can help transform the continent, listening to Sneha is an enriching experience. African first, and from an Indian heritage, Sneha relates to many cultures and easily flexes depending on her environment. With a British education and a degree in politics and international relations, young Sneha had hoped to qualify for a job at the United Nations in Nairobi, but the organisation only hired post-graduates “and I could not afford to do a masters”. With a knack for the proactive and the practical, Sneha grabbed a phone

CFO MAGAZINE • CFO.CO.ZA

book and started at A, looking for Kenyan banks, as she had heard they were recruiting. “When I was at C in the book, I phoned CFC Bank and they offered me a position as a management trainee, which I promptly accepted. On one of my rotations, I learnt how to do FX trading – with Reuters terminals and thereafter, when the head of treasury went on maternity leave, I was asked to step up to cover and in the process, discovered how much I loved it.” At her next job at Cargill in Johannesburg, Sneha got to grips with commodity trading, before moving to the United States. When talking through her career, Sneha often enthusiastically remarks that she “was lucky” or that she “loved her job”. People create their own luck, she believes. “Many people have opportunities presented to them, but they filter them out and often overlook these prospects. I try to be open-minded when people talk about new ideas and this has helped me gain valuable experiences and learn an incredible amount.” After her husband was offered a role in the US (a stint that ended with them living there for 12 years), Sneha didn’t sit idle for long. She credits a random conversation with a taxi driver for pointing her to Reuters for a potential role, and joined the organisation in 2001 in an entry level project management role. Four years later, she led the build and launch of the DataScope Select platform, one of the company’s flagship solutions. “When I joined the project, it was over budget and not delivering,” Sneha explains. “People had been managing messaging up to the

business sponsor of the project, while the project team lacked focus and confidence as a result of several missed deadlines. It was important to realign the team’s roles and responsibilities, and to reset expectations with the sponsors as to what deliverables they could reasonably expect. “They weren’t happy, but they understood the importance of having a plan and team they could believe in,” she remembers, adding that this is where her dogged focus on customers began. “We took apart all the project requirements and deliverables in one month and narrowed the scope based on what customers actually wanted, as we were trying to do too much. We created a smaller, more diverse team that was passionate about blowing the lights out and had a dynamic startup mentality.” The project became so important to Sneha that she even took a conference call while in labour and about to give birth to her son. “We had bets on whether I would deliver before the project, as our deadlines were close together. This project, that started off so poorly, meant that much to me and to the team that we all went above and beyond in our own ways to deliver what has been one of our most successful platforms. This experience especially taught me how a committed, focused and diverse team can achieve much more than any single team member could.” Then came the 2008 merger between professional services firm Thomson and Reuters. Sneha was tasked with integrating a major part of the financial services business during the fallout from the financial crisis, and calls it “one of the best learning experiences I have ever had”, adding that it was “not easy, but fun”. The cultural differences between the companies were vast, providing Sneha with an interesting challenge and an opportunity to approach the newly-created business from the perspective of the customer. “Reuters was a global company, where people

RISK were more flexible. They were used to working at odd hours, and often remotely, due to the various time zones we operated in. Thomson had more of a Wall Street “face-to-face” culture. Thomson delivered products quickly to the market, while Reuters prioritised quality.” I learned quickly that to bring the best of the organisation to our customers, I had to allow the strengths of both organisations to shine, and accept that the best results are not always the fastest results, but rather those that come from the collective wisdom and buyin of the team and the customer.” One of her next assignments was as Head of Global Business Operations for the media organisation, where Sneha led initiatives that helped the division drive the transformation from a fast declining print business to a growth focused digital one. “I spent a lot of time with our customers and our sales people. We looked at different product development and revenue models, created new content destinations with brands and partners, and focused on events-specific content. It was internal, external, commercial and customer transformation all at once, over a period of three years – and an amazing experience.”

Reuters is exactly in the right place at the right time. “What keeps many of our customers awake at night is risk, regulation, compliance, currency exposure and talent. These are all challenges we can help with, both through our local and global solutions and through our strong focus on partnerships throughout the business ecosystem” says Sneha. The strategy is bearing fruit, with impressive year-on-year growth, a doubling of staff across Africa, an impressive Africa leadership team, and an increasing number of locally driven enhancements to the global platform. A market surveillance system driven by the needs of central banks in Africa has been so success-

ful that it is now implemented in several other areas of the world. “We have incredible breadth and depth of content in a variety of sectors from law to tax to financial services, and we can pull these assets together and help enterprises transform with all we can offer.” The journey ahead is going to be an exciting one and again, it will be all about the customer. “A small change can affect the whole customer experience. Because I was a customer once myself, I am adamant that no decision we take should negatively impact customers. If we continue to delight our customers, there is no limit to what we can achieve.” l

Being from Kenya, Sneha has always closely watched what is happening in Africa. When an opportunity arose in 2013 to move back to South Africa to run the Financial and Risk business across the continent, she and her family jumped at the opportunity to come back and make a difference. Discussing this role, Sneha mentions that the move was in some ways, a leap of faith. “It was smaller than my then-role in terms of revenue and global scope, but potentially much bigger in terms of impact”. In 2015, she went on to become the managing director for all of Thomson Reuters business on the continent. Sneha could not be happier. With the transformation happening across the continent in terms of land reform, law reform, financial markets development, and trade, Thomson

CFO MAGAZINE • CFO.CO.ZA

RISK

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

RISK BY TONI MUIR

Lessons in success from Aveng Infraset FD Thobeka Ntshiza

Tenacity and youth Risk management and “going into the trenches” of the business are crucial for Thobeka Ntshiza, financial director of Aveng Infraset. Our senior editor Toni Muir had a chat with the finalist in the 2015 SAICA Top 35-Under-35 competition and learned a lot. Here’s the interview.

“

I think risk management is so important," says Thobeka. “It talks about, knowing what you know now, how is this going to affect how you do business in the future? In the next six or 12 months, is the business still going to be able to operate and trade?” Although she may not have known then exactly what a CA did, Thobeka Ntshiza remembers the day she went home and told her parents that this was her chosen career path. “When I was in Grade 9 I was introduced to accounting as a subject and told what you could do with it, and what career path you could follow. I was so fascinated. And today I’m here. I’ve always been one of those lucky people who only ever had one career in mind and fortunately it was a passion that never changed. It was a natural love.” Thobeka, the oldest of two children, grew up in Durban, KwaZulu-Natal, in a township called Clermont, and says she was raised “in

“Having the different pieces of the puzzle and being able to see which pieces fit and which need to be adapted excites me.”

an abundance of love”. She speaks fondly of her childhood: “My grandfather was an Anglican priest and we thus lived in a home provided by the Diocese. I fell from a guava tree and broke my right arm in that house. I also buried my milk teeth there. I love that house to this day. There are different occupants now but I still call it home.” The thrill of unpacking numbers Thobeka completed her studies at the University of KwaZulu-Natal, doing her articles with Sasol Infrachem, a division of Sasol Chemical Industries. “There is a 10-year gap between me and my younger brother. As young as my brother was when I was in matric and subsequently university, he was my biggest supporter. He would insist on staying up with me when I was studying and would keep me well fed. There were many nights when I needed to carry him to his bed.” An ambitious individual, Thobeka has little doubt that within the next five years she will be the CFO of a listed company. As a finalist in the 2015 SAICA Top 35-Under-35, this is certainly a believable goal. Calling her nomination the proudest moment of her career, Thobeka speaks fondly about the experience: “It’s about not just doing your work but making a positive contribution and leaving a positive legacy for yourself in the companies for which you’ve worked. That’s what I’ve been most proud of. Whichever company you speak to I don’t think there’s anybody there who would say they wouldn’t work with me again.”

CFO MAGAZINE • CFO.CO.ZA

RISK Thobeka believes a set of data and financials tells a story, and enjoys the “thrill” of unpacking numbers. “As a financial director for a business I love that. At the same time, it’s really about being the financial custodian for a company, which is a huge responsibility. This involves addressing issues around business liquidity, the fill rate of our order book and how this shapes our revenue forecast in the short to medium term. Having the different pieces of the puzzle and being able to see which pieces fit and which need to be adapted excites me.” On her role as FD of Aveng Infraset Aveng Infraset, a manufacturing company in the business of making concrete products, operates 11 factories – eight in South Africa and three across SADC. While she jokes that manufacturing is not for the faint-hearted, Thobeka says she’s equally at ease in the boardroom as she is on a site visit: “I’m the FD but I’m quite comfortable wearing the safety boots and hard hat and walking the factory floor with the factory manager to see what’s happening on the ground. It is so important to have face-to-face interactions with operations, to understand at first principle production capacity, efficiency wins and challenges.” Working in what is predominantly and traditionally a male-dominated industry, Thobeka says one shouldn’t judge things from the outside, as perception skews the reality of what she calls an “exciting” industry. “In my opinion the manufacturing space still needs to attract a lot of black females, because they are very rare in this space,” she says, adding that the typical choice for women is to join a financial institution or FMCG company. “So I’m out there spreading the word. It’s different but it stretches you. You do get a lot of fulfilment. I tell people not to judge it from the outside but rather to come into the business and see for themselves.” Thobeka says she faced one of her most difficult career challenges while in this role, but says you have to be tough and stand by the decisions you make in business. “When I joined this business the finance team was working from three different locations, which had created a silo mentality and made communication difficult,” she recalls. “We weren’t getting the synergies and working as a team. I made a decision to move the teams to one location. Needless to say I had a lot of unhappy people on my hands, but it was a business imperative. I had a lot

CFO MAGAZINE • CFO.CO.ZA

of one-on-one discussions with my team members about it. You do win a lot of people if you engage in conversations such as this. With some people it takes a while for them to buy into the change. In the end we did it and moved to one location. Every day the ops guys thank me for it.” The vivacious young FD believes that senior finance professionals cannot separate their core financial work from the strategy function of the business, and as such, is very involved in the business strategy at Aveng Infraset. She argues that it is key to have strategic conversations as well as sound financial analysis to back it up, so that when you present your ideas to the board you are prepared and can articulate your strategic choices. “Part of being involved in the strategic side of the business is about communicating that strategy, which for me is so important,” she says. “Our budgeting cycle starts mid-March and is finished at the end of April with presentations to the board. The budgets that we present must talk to the strategy. And for that to happen, you need to have comfort that the guys who are going to deliver on the strategy understand it, and that when they talk about the plans for the next 12 to 24 months, what they’re planning aligns with the business strategy.” A vibrant and alive risk register is also a strategic imperative, she says. “For example, we had electricity as one of our risk factors not so long ago. Today we have water and its impending usage restrictions. You need to be aware of what’s happening out there and how that affects business internally today as well as over the next 12 to 24 months.”

“You need to be able to have frank conversations about whether to keep the product line or to withdraw it from the market.”

RISK

“I’ve been hugely inspired by women such as Telesure CFO Jo Pohl and JSE CFO Aarti Takoordeen.”

To ensure she’s always on top of things Thobeka makes regular trips to visit the company’s different divisions and have conversations with the managers about where the business is going, what’s working and what isn’t. “You will have instances where sales managers are passionate about their products but perhaps those products are no longer giving us the required profit margins or speak to market demand,” she says. “So you need to be able to have frank conversations about whether to keep the product line or to withdraw it from the market.” The changing nature of the finance function With regards to the future role of the CFO, Thobeka opines that this is not changing as much as it is growing. “First and foremost, you are a financial person, so you cannot abandon that,” she says. “You are the financial and compliance custodian of the business, so you need to ensure the company produces sound financial results which can be communicated timely and accurately. That’s the core function and we cannot move away from that. But there are starting to be add-ons. I spoke earlier about risk management. I think it’s so important. It talks about, knowing what you know now, how is this going to affect how you do business in the future? If you cannot execute a big project, what effect will that have on financials? You must have a robust risk register as a financial person because that allows you to look at all angles of the business. You have to keep your finger on the pulse.” She adds that strategy is also important, and says the CFO must be actively involved here, rather than just passively receive information and populate it into the financial numbers. The value of learning A regular at CFO South Africa events, Thobeka opines that this is “part of your growth and development as an FD, and in the CFO space”. She says: “I’ve been hugely inspired by women such as Telesure CFO Jo Pohl and JSE CFO Aarti Takoordeen. I’ve sat at events where these ladies were in the panel discussion and I was in awe; I was inspired. Purely because they were talking about finance transformation and how we get our teams to stop being number crunchers and only analysing historical data but rather, focus on looking forward, and for them to share ideas of what they’ve done in their environments. There were a lot of ideas which I’ve already implemented in my space. So that forum has enabled me to

think broader and differently, and to tap into the knowledge of my peers. You actually cannot afford not to attend such events.” Thobeka names her mother as her earliest role model, and says she gave her the tenacity to push through: “She lived by example. She was a young mother – 19 when she had me – but she went back to school. I was about nine when she was doing her BSc degree part-time and working full-time. Now she’s got her Masters and is doing very well. But for her to come from such a humble beginning and not be a victim of circumstance or hand over her fate to someone else, that resonated with me. To qualify as a CA you have to pass Qualifying Exams Part 1 and 2. I passed Part 1 on my fourth attempt. I had to dig deep to do that. Having seen my mom’s example that came in handy. I’m here because I didn’t give up.” In a professional capacity, Thobeka finds the guidance she has received from both the FD of Aveng Manufacturing, Craig Barrett, and MD of Infraset, Gary Steyn, particularly helpful. “Craig has been great, especially in impacting the know-how of working in a male-dominated world,” she says. “Where he’s been exposed to something I wasn’t a part of, he will share that with me, such as presentations he has attended. Likewise, Gary has been very open about sharing his knowledge and experiences. He has taught me to think like an engineer and not an accountant. So that gives me a different dimension to thinking and idea generation. I’ve been lucky to tap into that. It has stretched me to be creative and innovative.” A view to the future Thobeka says she is amazed by the calibre of skill and enormity of talent of South Africa’s young finance professionals. “When we had the SAICA Top-35-Under-35 awards evening, with all top 35 in one room, I walked out of there and said to myself, ‘If these are the youngsters of this country, South Africa is in good hands’.” While they may be young in their careers they are doing fantastic things, she says, making an impact not just in business but also in their communities. “There are so many people doing good in their personal capacity, not for recognition but just because it means something to them. It gave me a sense of hope and excitement that this country is going to be ok. It has good people and good professionals who are going to drive this economy into the future.” l

CFO MAGAZINE • CFO.CO.ZA

RISK What should CFOs know about forensic accounting? EY’s Susan Breytenbach explains

Staying in control “With fraud the devil is often in the detail,” says Susan Breytenbach, a leading partner in EY’s forensic services department. “For the CFO there is a fine balance between not being in the detail, while still maintaining control to ensure that the checking gets done by the appropriate level of person to the appropriate level of detail.”

FO South Africa sat down with Susan to chat about her career in forensic accounting, “the exhilaration of finding stuff”, the latest fraud trends and – most importantly – the role CFOs should play to prevent and detect fraud. “The CFO should consider whether adequate controls are in place to mitigate the risk of fraud, but he or she need not be the control,” says Susan, who divulges a number of extremely practical tips for finance leaders. How did you get into forensic accounting? “I completed my audit articles at one of the Big Four accounting firms and I was seconded in 1995 to their offices in the UK, where forensic accounting first grabbed my attention. After working with forensics specialists on a number of forensic accounting and anti-money laundering projects in the banking industry in London and Switzerland, I knew forensic accounting was the field I wanted to work in. When I moved back to South Africa in 1998 I joined the newly established forensic department of a firm and have ever since worked exclusively in forensic accounting.” What do you like about forensic accounting? “The exhilaration of finding stuff, getting to the bottom of an issue or

CFO MAGAZINE • CFO.CO.ZA

suspicion, as well as the sense of contributing towards putting right what is wrong. It is a passion. In the litigation support environment, I find the application of financial and accounting skills to legal issues particularly interesting. The issues and their complexity can vary significantly from case to case. ”

“CFOs are often seen as the gatekeeper when it comes to fraud risk – the person whom the organisation looks to when things go wrong.” What types of fraud or litigation support do you deal with? “It varies considerably. On the investigation side, anything from investigating fraudulent payments and Ponzi schemes to financial mismanagement, related party transactions or other forms of

misrepresentation. On the litigation support side, it ranges from the quantification of damages to providing assistance with warranty claim submissions in terms of a sale and purchase agreement.” Does the CFO have a role to play here? “Our point of contact is often the CFO. Fraud investigations and litigation often touches on the CFO’s role of guarding the financial affairs of an organisation, for example these matters may typically impact issues related to cash flows, controls, costs and risk. CFOs are often seen as the gatekeeper when it comes to fraud risk – the person whom the organisation looks to when things go wrong.” “Also, in litigation matters organisations often seek either to claim for or defend a claim against them for financial damages. In sale and purchase disputes the buyer may at some point seek to claim against financial warranties. Those matters typically require the input of someone in the organisation such as the CFO, who is not only financially skilled, but who also has a deep knowledge of the business, its stakeholders and the market in which it operates. So when the organisation has suffered or stands to suffer financial loss, the CFO is often called upon either to drive

RISK

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

RISK or support such investigations or related financial analyses.” Which fraud is detectable? “All frauds are detectable – however, the timing of detection is the issue. Fraud is committed with the intent to conceal and fraudsters invest effort in covering their tracks and circumventing IT and other financial controls, and by the time fraud is detected considerable loss may already have been suffered. ” How does fraud get detected? “The 2014 global fraud survey of the Association of Certified Fraud Examiners (ACFE) shows that fraud mostly gets detected via tip-offs, followed by management review. There is often a misconception about the role of internal auditors. One cannot expect them to have the same expertise to detect fraud like forensic accountants do and they in turn may rely on internal accountants and management to detect fraud. The same goes for external audit – detecting fraud is not their primary role.” “Fraud often follows a learning curve trend. Criminals would typically start with small amounts over a long period and as their confidence grow the amounts increase over a shorter space of time. Often their work is good and they are trusted, hence fraud red flags, such as gambling habits or living above means, are often ignored. Fraudsters often get caught at the tip of the fraud learning curve, when the frequency of transactions and values are high.” What external fraud risks do CFOs face? “It depends on the industry they are in. For example, in the banking and insurance industry, external fraud risk in comparison to internal fraud risk” is generally higher than in certain other industries such as public sector or mining and energy. Credit card fraud syndicates and insurance fraud perpetrators can include policyholders, assessors and brokers.” “There are also a lot of external cybercrime related risks that have

CFO MAGAZINE • CFO.CO.ZA

emerged with the rise of technology, which are not necessary industry specific, like hacking a network to obtain valuable information from an organisation, either to be exploited or sold on. The risk of unauthorised access to your network can be as easy as the most junior member of staff clicking on a link in an unsolicited email. Also, syndicates may also place people in an organisation or corrupt existing employees to obtain access to sensitive systems or information.”

“Fraudsters are typically entrepreneurial and schemes evolve as technology or internal controls change.”

What can CFOs do? “Fraud is dynamic and methods applied to mitigate against or detect fraud can become outdated, so the starting point is to keep up to date with the risks, for example by sharing information about fraud risks in your industry. It is also crucial to be alert when you are restructuring or laying off people. You need to make sure controls don’t get compromised. Fraudsters are typically entrepreneurial and schemes evolve as technology or internal controls change.” “When entering into agreements with suppliers or with prospective buyers or sellers, CFOs should be involved when financial warranty and related clauses are drafted. Vague or ambiguously worded financial termi-

nology in agreements with suppliers or sale and purchase agreements often form the subject of costly disputes later down the line. ” How should the CFO structure the controls? “The CFO should consider whether adequate controls are in place to mitigate the risk of fraud, but he need not be the control. In larger organisations it is not always practical for the CFO to be the only point of control and to get involved in that level of detail. That is why these CFOs need to consider appropriate support structures below them, such as a hands-on financial manager with sufficient attention to detail, commercial savvy and professional scepticism.” “The person who approves transactions should have sufficient time to consider properly the relevant supporting documents and business rationale of transactions. Fraud often gets missed when persons approving transactions consist of too many different people who do not have proper history of, background to or understanding of a transaction. If the same person sees all related transactions and invoices, he or she should be better placed to see and probe red flags.” “EY survey results over the past 10 years further suggest that there may be a persistent level of fraud that businesses are not able to eradicate. Instead, they may also need, apart from the right processes, technology to be able to detect fraud indicators. In this regard the mining of data, using forensic data analytics technologies and techniques, can assist in detecting and monitoring suspicious activities and transactions earlier and more effectively.” “With fraud it is often that the ‘devil is in the detail’. But for the CFO there may be a fine balance between not being in the detail, while still maintaining control to ensure that the checking gets done by the appropriate level of person to the appropriate level of detail.” l

Go beyond the data

Some see only

ones and zeros.

We see opportunity. #KPMGDataAnalytics © 2016 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in South Africa. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. MC13914

RISK An interview with KPMG South Africa CEO Trevor Hoole

The evolution of the modern CFO Since Trevor Hoole joined KPMG in 1975 he has witnessed the change in CFOs from “the traditional bespectacled back-office-person” to the modern money boss of today. We asked the CEO of our principal partner what it takes to be a successful finance leader in a world of change, big data, volatility, risks and cybersecurity. Here are Trevor’s insights summarised in nine burnings topics. 1. Risk & compliance – change is constant Risks are of all eras, but the nature of them is volatile and change is a constant. Being at the helm of a leading firm like KPMG, Trevor spends a “a fair proportion” of his time on risk management and brand awareness," he says. “What I have certainly learned is that in a multifaceted business, risk often comes from unsuspected quarters.” While only some issues make it into the newspapers, hardly ever a week goes by in which the CEO doesn’t get a complaint about something or the other “whether it is corporate recovery, deal advisory, valuations or something else”. You cannot make an omelette without breaking eggs though, so for a company like KPMG Trevor considers this par for the course. “Of all those emails, messages, phone calls and conversations, most complaints fortunately lack substance. In a way, dealing with this is routine for a CEO of a big firm like ours. If I would receive no complaints, it would mean we don’t have enough work in the market place.” With risks evolving and complexity increasing, compliance and paperwork follows. “For a CFO, the

CFO MAGAZINE • CFO.CO.ZA

pressure on governance is broad,” says Trevor. “Whether it is sustainability, thinking green or balancing your transformation agenda with the government’s imperatives, you have to comply. Our American firm has developed software that tracks compliance and calculated that an average non-financial services company has to deal with a staggering 650,000 pieces of legislation. Consequently, there will be increased costs.”

“There is a huge demand on CFOs recruiting cybersecurity specialists.” 2. Cybercrime – tomorrow’s threat today “Cybersecurity is massive, both for KPMG as for the CFO,” says Trevor. “I learn every day. When you think of cyber fraud, you think of people hacking into your system. But fraudsters may also send you an email based on your profile. For example, if I am a golfer, they can

send me something that looks like a promo for a golf shop. If I am tempted to open that email, they may gain access to my system. They will know when I am away and can then pretend to be me and send an email to my CFO requesting a payment to a certain account, using all the same language we would normally use. That is cybercrime, but not by attacking a payment system. And it is just one of many examples.” “There is a huge demand on CFOs recruiting cybersecurity specialists,” says Trevor. “Yes, you can outsource a fair bit, but you need some internal capacity on your premises as your first line of defense, while leaving training and implementation to externals.” 3. Analytics – mining your data “The big buzzword is data. How do you manage and maximise that? How do you use data to find early warning signs? How do you use it to cut down lead times? Some companies are better than others and there is a lot of scope for improvement here, especially in the medium term. There is already technology that recognises shoppers by their cell phone when they enter a shop and then target them with deals based on

RISK their profile, but that may still be a few years away in South Africa. Shops can also combine photos of customers with images of clothing items to show their customers what they will look like in a new dress. That goes a lot further than manipulation of data, as you also have to deal with privacy issues and the POPI act.” 4. Being the business partner – and dealing with perception “People like the previous CFO award winners Deon Viljoen (Alexander Forbes), Simon Ridley (who recently retired from Standard Bank) and Aarti Takoordeen (JSE Limited) are much more involved in the business side than CFOs ever were,” says Trevor, adding that CFOs “need a machine” that takes care of IFRS and

other repetitive tasks. “The questions CFOs of listed firms deal with are very broad these days. Can we operate a mine? Can we close a mine? What does it mean for the surrounding community? One of the main items on a CFO’s agenda is saving costs and one of the ways you can do that is by working smarter, but business decisions that CEOs and CFOs make have knock-on effects. As technology takes over, how is that mitigated in a country where there is poverty and where unemployment is unacceptably high.” “Someone like Deon Viljoen is a good example of issues that keep a modern CFO occupied. Alexander Forbes had to deal with bulking issues for example. As a CFO, those things are part of

your role. Public perception and managing your own market is massively important. You have to manage sentiment as well as numbers. The role of the CFO is pivotal. Investor analysts are not necessarily interested in the way you depreciate your assets, but they want to talk about your people and about the way you respond to the economic climate.” Pressed to name some of the best finance leaders of today, he concedes he is meeting less CFOs in his current role. “These days I tend to mix more with CEOs and maybe few CFOs of listed clients like Investec, where CFO Nishlan Samujh is doing an outstanding job. The new Standard Bank FD Arno Daehnke is also a remarkable person. He is a typical CFO of the future, with accounting skills, but a treasury and risk background.” 5. Re-imaging leadership – eloquent and outgoing “The CFO role demands strong interpersonal skills,” says Trevor. “When I look back at my early days, CFOs were absolute bean counters. They collected data, put them in spreadsheets and did the financial statements. They were not involved in discussions with unions, for example. People were just told what they would get paid. These days, young people want to talk about their salary, but also about the way their performance gets measured. That is not just an issue for the Head of HR, as the CFO needs to get involved in setting parameters for salary increases.”

“Clearly, CFOs need technical expertise, but it also needs to be someone who can communicate, who is eloquent, gregarious and outgoing.” CFO MAGAZINE • CFO.CO.ZA

RISK A modern finance leader still needs to have some accounting background, says Trevor, but “it takes a different kind” of person. “Clearly, CFOs need technical expertise, but it also needs to be someone who can communicate, who is eloquent, gregarious and outgoing. Strong technological skills are also paramount. You cannot judge the influence of social media on your market profile if you don’t understand it yourself.” 6. Business climate – bigger and badder storms The CEO is extremely positive about the influence that Pravin Gordhan, the minister of finance, has had since his reappointment. “We are trading in a difficult economic and political circumstances, with state capture and other polarising issues. Business is totally behind the minister of finance. We are totally aligned with some initiatives minister Pravin Gordhan has undertaken. For some time, I have publicly been saying that I was worried that the agendas of government and business were not aligned. I am thrilled to see how Pravin Gordhan has since embraced business. When delivering his budget and the budget speech, the minister had clearly done his homework. It created the spirit of togetherness that I had been speaking about. I was very pleased.” Just after Gordhan and president Jacob Zuma returned from the World Economic Forum in Davos in January, he invited 90 CEOs to a meeting at the Nedbank-headquarters in Johannesburg to hear the views of South Africa’s captains-of-industry and share government’s views. “We received a three-day notice, but there were about 60-odd people who made it that day,” Trevor recalls, complimenting the minister on his willingness to listen. “For example, one of the comments to the minister was that the government cannot make ad hoc decisions like the introduction of long-form birth certificates, which has severely impacted the hotel business and the rest of the tourism industry. Even though there might have been valid worries

CFO MAGAZINE • CFO.CO.ZA

RISK that the legislation was trying to address, the regulations were done in a high-handed way that did not achieve its objective.” 7. Firm rotation – saying farewell to friends “As the world hopefully continues to become more global, practices from elsewhere in the world will also come to South Africa, like mandatory firm rotation, which is already in place in Europe. That means CFOs will have to face new questions: How do you make sure it is business as usual? How does the company keep making money, while meeting the expectations of the regulator?” Trevor is not in favour of the mandatory rotation, but he knows it is on the cards. “Audit firm rotation is not going to achieve what the regulator expects in terms of improved quality and independence. I think there are other checks and balances that are more effective. However, I am expecting either mandatory firm tendering or rotation in the next three years in South Africa.” 8. Transformation – a brave new world Staying out of politics is simply impossible for a firm with the stature of KPMG, which plays a leading role in shaping the new South Africa. There are still many people disappointed that former CEO Moses Kgosana was succeeded by Trevor, regarded as someone from the old white guard. However, Trevor feels the criticism has died down. “I spend a lot of time worrying about transformation. I have a lot of interaction with ABASA and the Black Management Forum. They have accepted that transformation at every level is crucial for me. It is an important journey, but one that will not be finished in my lifetime.” Trevor goes as far as to say his “proudest achievement as CEO” has been the appointment of black colleagues in the leadership of the firm. “Our board is 60 percent black, our executive is 50 percent black. Our Head of Advisory, which is 50 percent of our business, is a black

woman. Our Head of HR, which is our lifeblood, is a black woman. Financial services, which brings in a third of our profit, is headed by a black man. The new head of forensics will also be black. These are all my appointees.”

“In the next three to five years we will see a lot more black CFOs at listed companies.”

The CEO says he has never been approached by a white colleague who felt unjustifiably side-lined, because of his or her skin colour. “There is strong realisation that transformation is needed and we need black role models in the profession. I also have to recognise a lot of groundwork was done by colleagues and Moses, my predecessor. We have in no way sacrificed quality. Disappointment about missing out on a job is normal, so there might be white colleagues who feel that. But if you play cricket or football and you don’t make the squad, you will also be disappointed. The coach of a football team has to choose a striker and will have one that runs harder, one that is better in the air, one that gives a lot of assists. Only one of them will make the line-up.” When talking about transformation of the CFO profession, Trevor is equally optimistic. “There are a lot of quality CFOs around. Are there enough with all the right attributes at the top-200 firms? Are there enough black CFOs? Maybe not, but

I believe that the new guys that are coming through have what it takes. In the next three to five years we will see a lot more black CFOs at listed companies.” 9. Work & life – a new kind of balancing act “I love wildlife and the bush,” Trevor reveals, when asked if he ever manages to relax and forget about work. He is about to embark on a short holiday in Kruger to “sit at a water hole and watch the impalas”. He admits “it is tricky to switch off completely. I always do a few hours of emails. When CFOs are appointed they do not know what their tenure is and if your job is indefinite, you have to pace yourself. I know that my tenure is four years, after which I will be too old for a second term.” That doesn’t mean Trevor doesn’t look for balance, just like he advises CFOs to do. “I have a great family with two older children, two younger children, a grandchild and one on the way. I love spending time with them, but sometimes when I am with them, I am not really with them. I try to go to the office at seven and come home at seven. Then I spend two hours with the kids, before doing some more work. I do go on vacations. Otherwise I will burn out.” The trick for a CFO is to manage his or her modern role, without getting consumed by it, Trevor says. “It is an absolute reality that things like data, cyber and compliance are increasing. If this all comes through the CFO office, you don’t have time for the big picture stuff. Take internal audit: these days it is very difficult to have an effective insourced team that is always up-to-date. Although internal audit shouldn’t functionally fall under the CFO, practically it often does. When the auditors don’t function properly, other employees come to you to moan and it takes up more of your time. If you cannot be confident that all the elements of your portfolio are taken care of, you get bogged down.” l

CFO MAGAZINE • CFO.CO.ZA

GOVERNANCE Issues affecting CFOs

Integrated reporting: why CFOs should care Integrated reporting improves firm value, cash flows, analyst forecast accuracy and leads to more dedicated long-term investors. That is the conclusion of four academics in this guest article written exclusively for CFO Magazine, based on research they conducted with financial support of the Chartered Institute of Management Accountants (CIMA). Using mostly South African data, they argue that CFOs should care deeply about integrated reporting.

ince the financial crisis, several questions have been raised about the appropriateness of the traditional corporate reporting model. Key statistics highlight some of these concerns about corporate reporting. In 1975, around 83 percent of the market value of S&P 500 firms could be explained by physical and financial assets; by 2009, that number dropped to 19 percent. The remaining 81 percent consist of intangibles; most of which are currently not communicated to investors.1 Bob Laux, senior director financial accounting and reporting at Microsoft, argues that “the value-drivers of a company are increasingly intangible and include items such as intellectual and human capital as well as environmental, social and governance issues”. In his view, such changes in the ways in which company value is created are not matched by developments in corporate reporting.2 In line with this concern about unreported value drivers, EY points out that, on average, the number of pages devoted to note disclosure in financial statements and in management discussion and analysis quadrupled from 1972 to 2012.3 Former

CFO MAGAZINE • CFO.CO.ZA

United States vice president, Al Gore, and David Blood warn that “despite the volume and frequency of information made available by companies, access to more data for public equity investors has not necessarily translated into more comprehensive insight on companies”.4 Adding to the disclosure burden may therefore not necessarily be the solution to the unreported value drivers. The proponents of integrated reporting see it as the solution to this vexatious issue. In this article, we briefly discuss what integrated reporting is (and what it is not), together with some of the academic evidence emerging on the benefits of integrated reporting. What is integrated reporting? According to the Framework of the International Integrated Reporting Council (IIRC), an integrated report is a “concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term”. There are at least four reasons why integrated reporting is worth noting:

The first reason is that integrated reports’ scope and content go beyond those of traditional corporate reports. Integrated reports cover issues such as how the factors that influence the ability of a firm to create value over time are combined and interrelated, and how they depend on each other. Six forms of capital are relevant to integrated reporting. These are financial, manufactured, human, intellectual, environmental and social and relationship capital. Unlike inte-

“Integrated thinking affects internal decision-making and actions once managers grasp the consideration of the creation of value in the short, medium and long term.”

GOVERNANCE

Authors: Mary E. Barth (top), Graduate School of Business, Stanford University, USA Steven F. Cahan, University of Auckland, Auckland, New Zealand Li Chen (above),, University of Auckland, Auckland, New Zealand Elmar R. Venter (right), University of Pretoria, Pretoria, South Africa

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

GOVERNANCE

“Higher integrated report quality is associated with lower bid-ask spreads, higher firm value and expected future cash flows, higher analyst forecast accuracy and more dedicated long-term investors.”

grated reports, financial reports, for example, usually only focus on how a limited number of the six forms of capital (mostly financial and manufactured capital, and sometimes intellectual and human capital) have performed historically. It is clear that an integrated report is integrated by virtue of its being more than an artificial yoking of a sustainability report with the IFRS financial statements. The second reason is that, according to the IIRC framework, “integrated thinking” underpins integrated reporting. It is argued that integrated thinking affects internal decision-making and actions once managers grasp the consideration of the creation of value in the short, medium and long term. Bob Laux argues that integrated reporting “provides feedback on how organizations are functioning on multiple levels”, thereby helping organizations to “break down silos”.5 The third reason is that integrated reporting is oriented towards the long term. Long-term future value creation speaks to a company’s ability to continue as a self-standing business. If this is cannot be

CFO MAGAZINE • CFO.CO.ZA

achieved, a company’s existence, and its ultimate demise, could be detrimental to society at large. An unsustainable company is one that destroys more value than it creates (where the concept of value includes all six forms of capital). The fourth reason is that integrated reporting is about applying a framework, not about complying with regulations. The IIRC Framework, which is only 37 pages long, is an extreme example of a principles-based reporting framework. This implies that managers of firms are left to apply the principles of integrated reporting to their company and to tell the company’s value creation story in the best and most transparent way, from their perspective. Because of the absence of hard regulations and rules on integrated reporting, it has been described as a “market-led initiative” in that the market itself tends to distinguish the “good” reporters from the “bad” reporters and to reward the “good” reporters. The evidence While the objectives of the IIRC and its Framework are commendable, it remains an open question whether integrated reporting actually meets

those objectives. In this section we provide a brief overview of academic evidence on integrated reporting. Given that integrated reporting is a recent phenomenon, time series data are limited. Hence, only a few academic studies are currently available on integrated reporting. We discuss four studies in this section. As South Africa is the country in which integrated reporting is the most advanced, mainly as a result of the foresight of the King III Code of Governance and the JSE Limited’s listings requirements, it is not surprising that most of these studies use South African data.6 The first study is our own, in which we examine whether integrated report quality (IRQ) is associated with bid-ask spread, firm value, expected future cash flows and cost of capital for the 100 largest firms on the JSE in terms of market capitalisation.7 Our sample covers the period from 2011 to 2013. We use the EY Excellence in Integrated Reporting Awards as our proxy for IRQ. We show that IRQ is negatively associated with bid-ask spreads, which is consistent with the argument that integrated reporting reduces the information asymmetry between insiders and outsiders. We also demonstrate that IRQ is positively associated with firm value. We probe further to establish which component of firm value, namely expected future cash flows or the discount rate, drives a positive association between IRQ and firm value. Our evidence suggests that the driver is more likely to be a cash flow effect than the cost of capital. The positive association between IRQ and expected cash flows is consistent with investors’ revising their estimates of future cash flows upward when they understand the firm’s capitals and strategy, or future cash flows increasing because of improved internal decision-making by managers. Because managers’ decisions are not directly observable, we have tested the latter conjecture with a DuPont (profitability) analysis, which has produced consistent evidence.

GOVERNANCE Researchers from the University of New South Wales and the University of Sydney have investigated the association between IRQ and analysts’ forecast properties and the cost of capital for firms listed on the JSE over the period from 2009 to 2012.8 They measure IRQ using a self-developed IRQ coding framework based on the 2012 Integrated Reporting Prototype Framework issued by the IIRC. These researchers report a negative association between IRQ and analysts’ forecast errors, which is consistent with the claim that integrated reporting assists analysts in forecasting earnings. These researchers also report a negative association between IRQ and cost of capital, but only for firms with a low analyst following (arguably firms with a weak information environment). Their results are sensitive to the choice of cost of capital proxy. Researchers from the University of Manchester and the Roma TRE University have investigated the association between firms’ environmental, social and governance (ESG) scores and analysts’ forecast

accuracy, before and after the integrated reporting regulation in South Africa.9 They report no association between ESG scores and forecast accuracy in the period prior to the integrated reporting regulation in South Africa, but they do indicate that there is a negative association between ESG scores and forecast accuracy after the integrated reporting regulation became effective in South Africa. These researchers argue that their findings are consistent with the claim that integrated reporting establishes better links between ESG and financial performance and thereby assists analysts in forecasting earnings. Finally, given that integrated reporting focuses on the longterm value creation of companies, George Serafeim from the Harvard Business School has investigated the association between IRQ and the composition of companies’ investor base in the United States.10 His main finding is that companies that produce integrated reports have more long-term, “dedicated” investors than transient investors.

Conclusion Integrated reporting is a recent phenomenon. It is based on the IIRC Framework and requires a company to describe succinctly how its business model and strategy are executed to create value measured in terms of the six forms of capital. We discuss the nascent empirical academic research on the benefits of integrated reporting. This research suggests that higher integrated report quality is associated with lower bid-ask spreads, higher firm value and expected future cash flows, higher analyst forecast accuracy and more dedicated long-term investors. In addition, there is some evidence to suggest that higher integrated report quality is associated with lower cost of capital. We hope that this academic perspective on integrated reporting will assist CFOs in reflecting on the relevance of producing high quality integrated reports for their companies. l

1. The International Integrated Reporting Council. (2011). Towards integrated reporting: Communicating value in the 21st century. Available at: http://integratedreporting.org/wp-content/uploads/2011/09/IR-Discussion-Paper-2011_spreads.pdf. 2. Magarey, G. (2012). Wake up CFO’s you need to care about integrated reporting. Available at: https://www.charteredaccountants.com.au/secure/myCommunity/blogs/gmagarey/sustainability-and-regional-issues-blogs/194/wake-upcfos-you-need-to-care-about-integrated-reporting. 3. EY. (2012). Now is the time to address disclosure overload. Available at: http://www.ey.com/Publication/vwLUAssets/ ToThePoint_BB2367_DisclosureOverload_21June2012/$FILE/TothePoint_BB2367_DisclosureOverload_21June2012.pdf. 4. Gore, A., & Blood, D. (2011). A manifesto for sustainable capitalism: How business can embrace environmental, social and government metrics. The Wall Street Journal, December, 14. Available at: http://www.wsj.com/articles/ SB100014 24052970203430404577092682864215896. 5. Magarey, G. (2012). Wake up CFO’s you need to care about integrated reporting. Available at: https://www.chartered accountants.com.au/secure/myCommunity/blogs/gmagarey/sustainability-and-regional-issues-blogs/194/wake-upcfos-you-need-to-care-about-integrated-reporting. 6. Since, March 2010, integrated reporting is required for firms with a primary listing on the JSE on an “apply or explain” basis. 7. Barth, M. E., S. F. Cahan, L. Chen, and E. R. Venter, 2015, The economic consequences associated with integrated report quality: early evidence from a mandatory setting, Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=2699409. 8. Zhou, S., R. Simnett, and W. Green, 2016, Does integrated reporting matter to the capital market, Available at: http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=2600364. 9. Bernardi, C., and A.W. Stark, 2015, Environmental, social and governance disclosure, integrated reporting, and the accuracy of analyst forecasts, Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2641699. 10. Serafeim, G., 2015, Integrated reporting and investor clientele, Journal of Applied Corporate Finance 27, 34-51.

CFO MAGAZINE • CFO.CO.ZA

GOVERNANCE The steep learning curve of MiX Telematics CFO Megan Pydigadu

Listing on the NYSE Three years ago MiX Telematics decided their JSE listing was nice, but an NYSE listing would really boost the fleet and mobile asset management solutions firm. In this guest article, CFO Megan Pydigadu, nominated for the CFO Awards in both 2014 and 2015, describes the listing process as a rollercoaster ride and equates it to giving birth. More importantly, she shares a number of important lessons for companies that are considering going to New York.

lose to three years ago our board took a decision to list on the New York Stock Exchange (NYSE) under the Jumpstart Our Business Startups Act (JOBS Act) through an ADR (American depositary receipt) level 3 listing. We made the decision at a board meeting early in March 2013 and by 9 August 2013 we were listed and had raised $100 million. It ended up being an extreme rollercoaster ride and at the same time was a steep learning curve. Close to the end of the process, one of our seasoned bankers equated it to giving birth. You don’t tell a woman what it’s like to give birth as then she will never want to get pregnant. The same applies to doing an IPO in the US!

“You don’t tell a woman what it’s like to give birth as then she will never want to get pregnant. The same applies to doing an IPO in the US!” 78

CFO MAGAZINE • CFO.CO.ZA

These are some of the lessons we have learned along the way: Clarity of why you are listing Generally, there are a few reasons to list a company: • Capital raise • Gaining access to a global currency • Global brand awareness • Diversify shareholder base • Inclusion in ETF trackers • Access cheaper cost of funding . For MiX Telematics Limited, we listed to have a global currency, to create more liquidity in our share and also for brand awareness around our company. We service large multinationals and being listed on the NYSE gives our customers and prospective customers a sense of our sustainability as an organisation. When considering listing it is also important to ensure your market capitalisation as well as your free float will attract the right level of interest and allow funds to invest in you based on their investment mandates. Having a market cap of over $500 million and a free float of over 50 percent is probably ideal. Managing the process Running a process in the US and at the same time ensuring compliance from a South African perspective is complex. Having a detailed timeline and understanding ‘drop dead’ dates

that can impact on both processes is critical. It is important to consult with the JSE and South African Reserve Bank (SARB) early on to explain what you are trying to achieve and to get their buy-in. During the process we had four US bankers involved in the process, our lawyers in the US and South Africa and then lawyers representing the bankers also in the US and South Africa as well as our local sponsor in South Africa. When it came to drafting the F1 (prospectus), everyone had a slightly different slant as to how our story had to be presented. It was therefore important that we had a tight control over the story that ultimately was messaged in our F1. Importantly, before you start the process, ensure you are very clear in terms of your strategy, your long term business model and objectives. From an accounting perspective, it is also critical to work with an audit firm who has experience in the US (from a South African local perspective) and understands the US Securities and Exchange Commission (SEC) both in terms of requirements and process. You need to ensure you are rock solid in terms of the accounting policies you apply and you need to be able to defend them and justify them. You cannot have generic accounting policies in your financial statements, but rather tailored ones

GOVERNANCE BY MEGAN PYDIGADU

CFO MAGAZINE â&#x20AC;¢ CFO.CO.ZA

GOVERNANCE

“Importantly, before you start the process, ensure you are very clear in terms of your strategy, your long term business model and objectives.”

specific to your circumstances. Once we submitted our F1 for filing the first time with the SEC, the SEC came back with a letter and questions – all of which had to be cleared in a tight deadline before our prospectus could go live. If these are not cleared timeously, you can risk your financial statements used in your prospectus going stale and having to get a more recent set off accounts audited. At this point our audit firm was invaluable in assisting us through the process and understanding why certain questions are being asked and ultimately clearing the queries. If you want to be US-listed, act like a US company If you have gone through the effort to list in the US and to attract US investors, you then need to give them what they want. This entails quarterly guidance, which is an art in itself as investors and analysts are very short-term focused and want you to beat and raise your guidance every quarter! The other important factor to consider is meeting regularly face-to-face with investors in the US. This involves attending investor conferences and doing non-deal roadshows with our analyst banks in the US. During our IPO listing process we were lucky enough to go through a mini

CFO MAGAZINE • CFO.CO.ZA

CFO South Africa MD Graham Fehrsen and Megan Pydigadu in conversation ahead of an exclusive CFO South Africa dinner roadshow before our IPO offering was effective through the JOBS Act which is known as “testing the waters”. This was a great learning opportunity for us in seeing what US investors require in terms of information and ensuring we altered our reporting to meet their needs specifically around quarterly reporting. In South Africa we tend to be more focussed on half year and full year reporting and growth and margins thereon. As a small cap business, we do not have a dedicated investor relations department or team. We therefore appointed a company in the US to help us with this and still employ them today to assist with our quarterly reporting and messaging of our results. We only employed them a week or two before we went on our testing the waters roadshow. In hindsight it would have been better to appoint them at the beginning of the process to help us navigate the US investor market better as they have your interests first and foremost at heart as opposed to our bankers, who have their fee as their first motivator. It is also important from a compliance perspective, irrespective of being a foreign private issuer, that you comply with significant US legislation as an organisation (if not it can preclude you from certain investors), namely the Foreign Corrupt Practic-

es Act and Office of Foreign Assets Control (OFAC). SOX compliance Under the JOBS Act we have a dispensation for the first five years that we do not have to have a 404(b) certification. This is when your auditors audit your SOX (Sarbanes-Oxley Act) controls. As management we are still required to give a 404(a) certification on our internal financial controls. Even though it is a self-certification, the amount of work is not to be underestimated and a paradigm shift from a financial accounting team perspective and what is required to demonstrate that controls are in place. l

NYSE listing lessons at a glance • Be clear why you are listing. • Ensure your market cap and free float attract the right investment. • Have a detailed timeline. • Consult early with the JSE and South African Reserve Bank. • Tightly control the message in the F1 (prospectus). • Meet investors face-to-face regularly. • Appoint an investor relations consultant early in the process. • Shift the finance team paradigm to comply with SOX.

GOVERNANCE BY LESLIE MOODLEY

How CFOs can become performance accelerators through technological advancement

Disruption: Turning a threat into opportunity Technological advances are disrupting the status quo and creating huge turbulences. Businesses are converging and unforeseen competitors are emerging. It is all about creating disruption and staying ahead of the curve, which is rising at a rapid pace. And amid all this change, CFOs still need to create profits for their enterprises, writes Leslie Moodley, managing partner Global Business Services, IBM South Africa.

n the recent IBM global C-suite study, CFOs identify the collapsing of barriers and industry convergence as the single biggest trend transforming the business arena. It is both a blessing and a curse. While it offers a fantastic growth opportunity for enterprises to cross over into other products and services and provide customers with an overall experience, it also means competitors crossing over into your space, seizing your core business functions, invading your opportunities, threatening the very foundation on which the enterprise is built. Are CFOs ready for this disruption? An alarming 47 percent of CFOs are bracing themselves for an influx of new entrants from other markets. They acknowledge that technologies such as cloud computing, mobile computing, Internet of things (IoT) and cognitive computing along with other emerging technologies will have a particularly big impact on their businesses over the next three to five years. Digitalisation has changed the way

CFO MAGAZINE â&#x20AC;˘ CFO.CO.ZA

GOVERNANCE in which enterprises interact with customers, with 80 percent of CFOs expecting digital forms of interaction rather than face to face. The challenge therein lies in partnerships or formed alliances with companies that have the digital competence to drive business revenue. However, this is not without financial implications and resource requirements as new systems need to be adopted for information and systems to be integrated. Many are concerned that their teams aren’t quite ready to weather this disruption.

financial planning along with strategic and operational planning.

This is particularly relevant during the current economic uncertainty.

The opportunity for an organisation often lies in its relationship with its customers and in the customer’s experiences. At the end of the day, the ‘customer is king’ cliché remains a critical business value. Although this might seem like a CMO’s function, customer satisfaction has a direct impact on revenues. Therefore, it is also important to understand and assess the feasibility of new trends and technologies within the organi-

The reality is that most CFOs know that they need to prepare for a pervasively disruptive future, filled with technological advances which blur the distinctions between industries and increase competition. Therefore, they need to take a long term view and constantly analyse industry trends and the competitive landscape.

“The reality is that most CFOs know that they need to prepare for a pervasively disruptive future, filled with technological advances which blur the distinctions between industries and increase competition.”

What can CFOs do about this? The study identifies a group of CFOs dubbed as Performance Accelerators. These are people particularly adept at producing business insights and who have robust infrastructures, with common standards, data definitions, finance process and planning platforms. They combine all of these strengths together with superior analytical powers. These Performance Accelerators are delving in, and getting involved in shaping their organisation’s strategy and influencing the innovative approach that needs to be adopted. Those who focus solely on numbers will find themselves left in the dark. In order to thrive in a highly competitive environment, it is crucial for a CFO to integrate

CFO MAGAZINE • CFO.CO.ZA

sational context, viewed from a value perspective rather than the cost it initially entails. Integrate, analyse and adapt Analytics are crucial to accurately gauge how an organisation is faring. Subjecting the combination of financial, operational and external information to rigorous analysis will empower CFOs to address business complexities such as revenue growth, risk, the potential of a specific customer base and how to optimise capital expenditure for a better ROI. The performance accelerators who had the foresight to integrate information and resources are already reaping the benefits. They are also able to leverage predictive analytics to plan for the future, forecast revenues and manage risk.

This is where cognitive computing plays a crucial role, with 37 percent of the respondents singling it out as the technology most likely to transform their enterprises over the next three years. Cognitive systems can be used, for example, to identify which customers are likely to spend the most and be the most loyal, and to predict which deals have the best chance of being closed. That, in turn, allows an enterprise to direct its marketing more precisely, produce reliable cash flow projections and adjust its expenditures as required. Performance Accelerators, likewise, apply predictive analytics to evaluate opportunities for stimulating organic and acquisitive growth. One obvious area is the identification of new products and services with promising revenue streams. But the vast majority of Performance Accelerators also use analytics to assess mergers and acquisitions and refine their firms’ pricing and promotional strategies. Essentially, in order to ensure that they are not blindsided by competitive disruption and lose their market share, CFOs need to invest in technologies that will enable them to integrate data from different sources. Good data analysis will produce richer, more predictive insights, enabling more efficient capital allocation. They need to emphasise the importance of developing talent – with both financial skills and business acumen required to promote a closer partnership with the operating units, and create scalable delivery models to expedite turnaround times for analysing information. l

Platinum f CFO members o receive a South Afric zine a g CFO Ma e e fr for

BOOST YOUR CAREER, COMPANY AND KNOWLEDGE. JOIN AS A PLATINUM MEMBER TODAY Are you open for networking, sharing and learning? Do you have an active ‘can do’ approach? Are you ambitious and willing to grow? Do you work as a finance executive at a top tier company or are you advisor or supplier working with executive boards? If all answers are affirmative, the CFO South Africa membership suits you perfectly.

MEMBERS ONLY CFO EVENTS 2016 Private Sector 22 June - The CFO as business partner 21 July - Executing an effective growth strategy 15 September - Digital Transformation 13 & 14 October - Finance Indaba Africa 10 November - Risk, Compliance & Control

Public Sector 21 June - The Public CFO as business partner 27 July - Municipalities vs Departments 13 September - Digital Transformation 13 & 14 October - Finance Indaba Africa 9 November - Risk, Compliance & Control

+ exclusive cfo dinners, meetings and roadtrips.

FEEL FREE A NEW APPROACH TO CYBER SECURITY FREE FROM FEAR Protection and Confidence

www.kpmg.com/za/cyber

© 2016 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in South Africa. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. MC13914