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How McKinsey and Trillian milked billions from SA Inc

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cover story REGULARS Pic credit 4 EdHere itorials 6 Editor’s Note 7 Letters 8 Between the Chains 18 Boardroom Tails 32 In Good Faith 61 Crossword 62 Backstory FM FOX 9 ETF Spat 10 Another Week 11 Trending 11 Dinner Party Intel 12 Diamonds & Dogs 12 Hot Property 14 3D Printing 15 Pattern Recognition

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The Guptas’ 00 genie Sygnia drags its critics to court P9

Rebuilding bodies with 3D printing P14

Debunking the WEF’s Twilight for Sun International? P35 fickle rankings P31

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editorials ODDS TILT IN FAVOUR OF AN ANC SPLIT

he pieces are moving towards the ANC’s national elective conference in December and the ominous words of the party veterans, in their critique of the party last year, loom large. Last December, 101 of the party’s elders delivered a scathing indictment of what the ANC leadership has allowed in a document entitled “For the Sake of our Future”, which they handed to President Jacob Zuma. They warned that should the ANC continue on its current path, it would split or, even more ominously, lose power. “The leadership of the ANC has . . . preoccupied itself with defending personal interests, interests of colleagues, families and friends, at the expense of the people of SA, particularly the poor, and the ANC,” they said. “The leadership of the ANC has failed to act decisively against corruption, nepotism, factionalism, arrogance and election slates in the ANC and the alliance,” they said. The ANC’s chaotic Eastern Cape conference last weekend provided tangible evidence that the elders were correct in their assessment. The problem is, at every elective gathering held by ANC structures this year, it has been business as usual, as the party ignores the accelerating slide into irrelevance and chaos. The Eastern Cape conference, where a group aligned to deputy president Cyril Ramaphosa was elected, was a case in point. That gathering was marred by violence, the hurling of chairs, and the spilling of blood. In the end, the opposing faction walked out, and held a parallel meeting at the City Hall, before launching a court bid to halt the election of new leaders. This Eastern Cape conference had already been delayed for months, as one faction totted up the numbers and found they were on the losing side, so resorted to lodging various disputes to stop the conference happening. Editorial

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Editor: Rob Rose. Deputy editor: Sikonathi Mantshantsha. Managing editor: Kevin O’Grady. Writers: See bylines for writers. Assistant editors: Zeenat Moorad, Razina Munshi, Prakash Naidoo, Amarnath Singh.

October 5 - October 11, 2017

Now, even though the court has struck this challenge from the roll, the losers may yet try other tactics — including petitioning the ANC’s national executive committee to overturn the result, which would hurt Ramaphosa. Similar chaos reins in KwaZulu Natal. There, Zuma’s supporters are pushing hard to retain their status as leaders of the ANC’s largest province. Zuma has even sought his own legal opinion on whether to appeal the judgment last month that nullified the election of his backers. Even in the Northern Cape — the ANC’s smallest province — regions are bucking against the Ramaphosa-aligned leadership elected this year. It used to be said the ANC could self-correct. But this adage seems emptier than ever, as selfinterest has only deepened in recent months. With the elective conference at Nasrec, near Soweto, looming within weeks, divisions are unlikely to heal after new leaders are chosen. This means Zuma’s heir will be saddled with a deeply divided party. Whoever wins, it will be a tenuous victory, given the split in support. Until now, the Zuma faction has not displayed restraint, even though the ANC itself may be sacrificed; they are unlikely to do so if the outcome does not swing in their favour. At the closing of the Eastern Cape conference, Ramaphosa delivered a sermon of unity — but the ANC has shown that the unity possible when the politics of the stomach is at play is a fragile one. This is why a split looms larger than ever. The ANC, as the veterans argued, is at a cross-roads and no amount of rhetoric can save it now. It missed the largest opportunity to repair the damage when it spurned the veterans’ offer to intervene and chart a path of renewal. Whoever wins in December will inherit a bruised and broken party, unable to extricate itself from its self-inflicted morass. x Sub-editors: Dave Landau (Chief), Shirley de Villiers (Deputy), Dynette du Preez. Proofreader: Norman Baines. Art director: Debbie van Heerden. Contracted artists: Colleen Wilson, Vuyo Singiswa. Graphics & statistics: Shaun Uthum. Photographer: Freddy Mavunda. Editorial assistant: Onica Buthelezi. Office assistant: Nelson Dhlamini.

JOBS ARE THE CRUX OF IT ALL

ou can hardly pick up a newspaper today without reading something about SA’s wealthiest man, Christo Wiese. That’s probably to be expected, given the R16bn listing this week of Steinhoff’s African arm, Star, or the machinations at Shoprite this year. But it is his message in Shoprite’s annual report, released last week, that deserves to be repeated often, and widely. Wiese says that at the heart of SA’s problems lie rampant unemployment and poor education. He points, particularly, to an unemployment rate of 38.6% among those aged between 15 and 34 years old. This isn’t being fixed, he says, because the wrong questions are being asked. “The right question is not, ‘What do our people want?’, nor ‘What do our people need?’ The right question is, ‘What can our people not do without?’ The answer is self-evident — our people need jobs.” This sentiment is even more crucial in light of the terrifying numbers released by Statistics SA last month, which show that 55% of our people live on less than R33/day, with a quarter surviving on less than R15/day. Everything government does should be judged by how many jobs it creates. While Wiese didn’t say as much, the corporate sector should be judged on the same metric. As a starting point, companies would do well to disclose their jobs numbers alongside their financials. x

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editor’s note by Rob Rose

THE BUSINESS OF FEAR In the aftermath of the drama at the PIC, Daniel Matjila might remain as CEO, but staff now know who’s really in charge — and it’s Malusi Gigaba @robrose_za roser@fm.co.za

here’s a dramatic moment in King Kong, the current revival of the seminal jazz musical, that would have resonated with beleaguered Public Investment Corp (PIC) boss Daniel Matjila last week. The play tells the story of Ezekiel “King Kong” Dlamini, a giant of a man who arrives in 1940s Joburg from Vryheid, becoming a Transvaal heavyweight boxing champion before his life cascades into drunkenness, violence and murder. It’s a Sophiatown-era allegory for the waste of talent during the fledgling years of apartheid, in the wrapper of a Greek tragedy, first propelled to global theatres in the 1960s by the likes of Miriam Makeba, Jonas Gwangwa, Kippie Moeketsi and Hugh Masekela. In it, there’s a sinister scene in which the township gang, headed by tsotsi-in-chief Lucky, prowls onto the stage, flicking switchblades and oozing malevolence. The gang argues about what makes it so powerful. Then a song starts, in which Lucky instructs his underlings why the threat of tangible menace is vital: the gang is in “the business of fear”. Fear was also an invisible presence at last week’s press conference, in which Matjila sat awkwardly alongside finance minister Malusi Gigaba, who crowed to anyone willing to suspend disbelief about how relations between the two were just swell. So why would Matjila have attended this charade, at which he seemed to have been strong-armed into retracting comments in the Sunday Times on how “some people” were targeting him in a bid to get the keys to the R1.9 trillion in the PIC’s safe? It seemed an exercise in enforced humiliation,

The PIC press conference suggested that Gigaba’s strongest currency, in the absence of hard-won credibility, is fear 6

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October 5 - October 11, 2017

making it resoundingly clear who is running the show. It suggested that Gigaba’s strongest currency, in the absence of hard-won credibility, is really fear. As you’d expect from someone keenly aware of his vulnerability, Matjila was the model of conciliation, gushing about the “support” he has, while decrying “spurious allegations” against his political masters. Only, it had all the plausibility of a KPMG balance sheet; all the integrity of an invoice from McKinsey. The PIC isn’t meant to be a tool of government or Gigaba; it’s accountable to the millions of government employees whose pensions it must invest responsibly. But with Matjila publicly pledging allegiance to Gigaba, there’s little chance that anyone else at the PIC’s Menlyn office will dare challenge any of treasury’s diktats. The PIC’s staff will have seen the concerted bid to oust Matjila in recent weeks, and just how close he came to being iced by Gigaba. This has been fuelled by an anonymous campaign from a group billing itself “concerned PIC staff”. The first e-mail was sent to PIC board members on September 14 from someone using the nom de plume James Nogu. It was titled “PIC CEO funds girlfriend”, and said Matjila’s “blesser tendencies” must be exposed. The group claims Matjila green-lighted a R21m investment in a Sandton-based spa called Maison that is run by Pretty Louw, a woman they say is “his girlfriend”. No matter that Louw herself says her relationship with Matjila is only “professional”, and that she got “absolutely zero” from the PIC. Another e-mail around the same time claimed “Matjila employs Sars [SA Revenue Service] rogue unit spy to the PIC”. Only, the person the e-mail refers to is former Sars spokesman Adrian Lackay — who was not a “spy”, nor a member of any “rogue unit”. Still, the “concerned PIC staff” threaten: “We will be releasing new corruption daily against Dr Daniel Matjila until someone listens.” They add, with zero evidence, that Matjila paid journalists to either bury stories or peddle the line that “he is the holy one”. It has all the hallmarks of the sort of patchwork hatchet job that has become infamous in the Jacob Zuma era: misconstrue some fact, link it untenably with some other distorted narrative, then douse liberally with some sketchy conspiracy theory. The air of menace that hung over treasury’s Church Square office is probably even heavier following reports last week of how Gigaba has “captured” treasury and shifted it in a radically new direction. Insiders told City Press how the minister brought in 20 of his own staff members to create a “parallel administration” in his office, and that he no longer bothers consulting any senior officials on crucial decisions. Matjila and his staff will have seen this. And as any good tsotsi knows, fear and intimidation are powerful. So when Gigaba comes knocking at the PIC with some hare-brained scheme to finance, let’s say a next uranium mine in Klerksdorp, you’d be brave to say you’ll “check the fund rules and get back to him”. x

you said... letter

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Last chance to fix SA The article “Myths about SA’s economy” by Claire Bisseker (Cover Story, September 21-27) offered optimism but with many provisos. The obstacles facing this country are immense but, as Bisseker pointed out, they are not intractable. However, poor political will to “right that which is wrong” allows matters to worsen, with unemployment and inequality remaining a bone of contention. The much heralded National Development Plan drafted by specialists has remained in President Jacob Zuma’s inbox because he has no grasp of the complex matters bedevilling the economy. Tough measures are needed to redirect SA’s growth path and employing qualified people to fill cabinet posts would be a step forward. But the rot set in from the very beginning of our democracy, when it was apparent that the ANC was not equipped to govern. Also trade unions were allowed unbridled influence and their strident demands for higher wages were not matched by increased productivity, with strike action, often violent, disrupting manufacturing capacity. The corruption that has been allowed

to savage our economy has resulted in failed service delivery. The introduction of BEE and continually moving its goal posts confuses the business community and has, in turn, affected foreign investment. An absolute necessity is for an improvement in our education system; increasing the level of competence among teachers and inculcating in them a creed that will help deliver sound minds. The Zuma years have been disastrous. He has been an impediment to growth. Simply put, he is out of his depth. The forthcoming elective conference is the country’s last chance to introduce a leader with the credentials to repair the damage. A herculean task awaits whoever is chosen. Ted O’Connor Albertskroon

Disaster-ridden SA Airways would do well to imitate Emirates, which is state owned but run on a commercial basis without government support. I returned from London to Cape Town on British Airways, sitting at the back of the plane. Dismal, to say the least! It is obviously capitalising on the monopoly. Many committed South Africans are being compromised by our incompetent, corrupt government in so many ways. Andrew Gunn SA is no longer tops in Africa. It was bound to happen. The world is talking about the fourth industrial revolution. Our president is talking about ghosts and witches. We are doomed. Kgomotso Mogodiri

Fingers crossed for Sasol’s BEE deal 2.0. The

lawyers and advisers collected their fees 10 years ago, but investors have not received a cent. Because of this, my shares dropped R100. Thanks! David Leviton

On the Financial Mail’s annual MBA survey: This is all relative. Henley Business School ranks highly on the international front, where the local schools do not even feature. In fact, who would want a local MBA, from a reputational point of view, against an internationally accredited and top-ranked MBA where the content is globally relevant? Francois Vanessa Malan

I’d rather get a chartered financial analyst qualification. MBAs have become commonplace and narrow in their curricula. Sabelo Malombo Mlamborghini

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between the chains by Sikonathi Mantshantsha THE MOST USELESS CEO EVER?

n June 22 Johnny Dladla was thrust into the national spotlight when he was appointed the seventh CEO of Eskom since March 2014. His temporary appointment carried much hope, as he was not well known outside the utility despite 22 years of service. Certainly Dladla had no media profile. This could be considered a good thing — it suggested he had managed to avoid publicity. Many an observer, including yours truly, took Dladla’s low profile to project the image of “Mr Clean”. Optimistic as that prognosis was, it turned out to be an unnecessarily hurried and inaccurate conclusion, much to my regret. “Mr Useless” seems a more appropriate title, considering Dladla’s almost four-month tenure at Eskom’s helm. Any amateur strategist will tell you there is always low-hanging fruit for a new leader to harvest to generate goodwill. Given the mess at Eskom, there was a lot of low-hanging fruit for the taking. With the allegations — and mountains of evidence — of corruption, starting from the lowest management levels and rising to the very top, Dladla could have come in and begun a thorough spring clean. The numerous investigations into fraud and corruption by Eskom had unearthed evidence that could be used not only to get rid of some of the rotten apples there, but also to secure criminal convictions. There were also the high-profile cases of malfeasance, including the billions dished out to management consultancies McKinsey and Trillian by managers who fall within Dladla’s area of authority. Dladla came in a month after generation division chief Matshela Koko was placed on special leave and then suspended for irregularly dishing out hundreds of millions to Impulse International, a company in which his step-daughter owned a significant minority shareholding. No shortage of prosecutable evidence.

@SikonathiM mantshantshas@fm.co.za

There is always lowhanging fruit for a new leader to harvest to generate goodwill. Given the mess at Eskom, there was a lot for the taking

good week During her short stint as chair of the interim board of the SABC, Khanyisile Kweyama did much to clean up the mess at the country’s public broadcaster. Now that she’s set to be on the new board, Kweyama, who is also the CEO of Business Unity SA, could turn the broadcaster into the one shining light in the dark shadow of SA’s stateowned enterprises. Another bonus is that President Jacob Zuma doesn’t trust her, which says a lot for the prospect of good governance at Auckland Park. At last. x 8

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October 5 - October 11, 2017

What did Dladla do? He came in and buried his head, hoping the problems would go away without the leader having to lift a finger. In fact, not only did Dladla look the other way — he was also the biggest obstacle to those colleagues who felt any sense of duty to clean up the utility. Windows of opportunity When Dladla fell sick and took a week off in August, he was temporarily replaced by Ayanda Noah, the executive responsible for customer services. She swiftly put two senior managers on suspension. The third official, Prish Govender, avoided his suspension letter by calling in sick, sources say. Govender, Charles Kalima and Edwin Mabelane were the senior managers who gave effect to the grand McKinsey/Trillian grab. As soon as board chairman Zethembe Khoza read about the suspensions in the media, he seems to have instructed Dladla to rescind them, though both he and Dladla deny this. Pressure was then piled on Noah and HR director Elsie Pule to lift the suspensions. An August bereavement in Dladla’s family provided another window of opportunity for the utility to do the right thing. Measures to suspend the three were put in place while he was off work. That plan was stillborn. Instead of doing his job, Dladla has blown hot and cold excuses about why he won’t proceed with Koko’s disciplinary action, which has cost more than R1m before the first hearing takes place. He’s made the same tired excuses for not acting against the three managers. Those who work with him say Dladla has been at the beck and call of chairman Khoza and their political boss, public enterprises minister Lynne Brown. Corruption has flourished at Eskom under their watch. Perhaps being a spineless yes-man is how Dladla has survived 22 years at the utility. Either way, it has turned him into the most useless CEO I have observed there in 13 years. x

bad week It’s common cause that the previously disadvantaged majority of South Africans have to become part of the economic mainstream. The question is how — and many probably share the view of Richemont boss Johann Rupert that the ANC’s “radical economic transformation” is “a code word for theft”. Environmental affairs minister Edna Molewa’s response to Rupert, which included her claim that BEE is the same as volkskapitalisme (Afrikaner capital) under apartheid, was facile and shows she has scant understanding of either. x

Digging up unusual, interesting tidbits in and around the business scene

ETF SPAT

Sygnia lashes out at critics

Magda Wierzycka

Magda Wierzycka riles up brokers and financial advisers who claim she is trying to win over their customers Giulietta Talevi talevig@tisoblackstar.co.za

ý Magda Wierzycka, the increasingly prominent anti-graft valkyrie of SA’s business scene, has upset more than a few industry insiders with conduct they describe as “highly unethical”. But the Sygnia CEO has hit back at critics and slapped etfSA.co.za — a platform for accessing exchange traded funds (ETFs) — with a summons and the legal might of Wim Trengove SC, over what she calls “defamatory” statements. It all stems from Sygnia’s R325m acquisition of Deutsche Bank’s popular db-x tracker ETFs earlier this year. The db-x trackers were the first to offer local investors offshore index fund exposure and have built up a considerable following among retail customers. Sygnia’s purchase raised more than a few eyebrows, Wierzycka having been a vocal critic of ETFs and their fee structures in the past. However, the purchase added R11.3bn to assets under management overnight — critical to a company like Sygnia that is intent on building scale. But Sasfin Securities deputy chairman David Shapiro says that Sygnia used the platform to contact db-x owners directly — bypassing the brokers and financial advisers who bought the product for them — hoping to win over

more customers. One industry insider told the Financial Mail: “It would be a bit like Standard Bank contacting its shareholders and saying to them, I don’t care where you currently hold your Standard Bank shares, but why don’t you come to Standard Bank stockbroking and bring your portfolio to us?” Shapiro, who is a holder of “significant” amounts of db-x products on behalf of his clients, says Deutsche Bank was never especially transparent about the costs of operating the trackers. Once Sygnia took over, it began to expose the costs on fund owners’ monthly statements which Sasfin would pass on as a matter of course. This prompted a flurry of calls from clients who started to query what the numbers meant. It was during those discussions with clients that Sasfin discovered that Sygnia was contacting its clients directly “suggesting that if you dealt with them on their platform, rather than through the JSE, costs would be lower.” Says Shapiro: “We freaked. They had no right to address our clients.” But Wierzycka is unapologetic. “I really think this is a storm in a teacup. We communicated with all the db-x clients based on Computershare records as we do not have any other details for those clients. We had no way of telling which stockbroker or wealth manOctober 5 - October 11, 2017

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Gallo Images/AFP/Lluis Gene

ANOTHER WEEK

VIOLENT SPLIT Firefighters form a barrier between protestors and the Spanish Guardia Civil outside a polling station in Sant Julià de Ramis, on the day of a referendum on independence for Catalonia. The region says 90% of voters backed independence from Spain, but Madrid dismissed the poll as a “farce”.

BY THE NUMBERS

ager uses db-x trackers for their clients automatically. “We obviously apologised the moment we met with Sasfin, but we did have to communicate change of ownership, fee changes, change of name etc.” Shapiro tells it slightly differently: “What upset me was there was no sense of right and wrong — we had to admonish them.” He says: “We have a lot of thirdparty introducers and never go behind their back and contact their clients without their permission, no matter how long we have had the account.” Meanwhile, We Sygnia began freaked. trumpeting the [Sygnia] new ETFs it had no planned to right to bring out as address part of its db-x our clients purchase — which it has David Shapiro since renamed Sygnia Itrix. That prompted some industry participants to lodge complaints with the Financial Services Board that Sygnia was marketing its new ETFs ahead of applying for formal approval. Again, Wierzycka says this is quibbling. “We do not believe we were marketing anything, but were merely informing clients of future product launches.” Now, she says, “etfSA.co.za has published two newsletters full of disinformation about Sygnia as our platform clearly threatens their business model because of significantly lower pricing.” She says they’ll have “every opportunity to prove their claims in a court of law”. But Wierzycka’s latest assault is unlikely to win over her critics who believe the self-styled consumer champion is anything but. In the opinion of one source: “She’s obviously trying to win more volume. I think the initial communication was very knee jerk . . . because she was shocked by Satrix coming out with its new products and [their] prices. “She’s doing damage to the industry and ultimately this is not going to help investors at all.” x

October 5 - October 11, 2017

Measuring the evolving digital economy Trade in ICT goods

ICT services exports

in 2015 exceeded

$7 billion in 2015

Global e-commerce sales:

$25 trillion in 2015

Shipments of 3D printers

Sales of robots

doubled in 2016 to

250,000

450,000

times higher in 2019 than in 2015

between 2010 and 2015

are employed in the ICT sector

of global GDP

Crossborder e-commerce

40%

100 million people

6.5%

rose by

$2 trillion Production of ICT goods and services

Global internet traﬃc

reached in 2015, the highest level ever

380 million consumers make purchases on overseas websites Source: Unctad Information Economy Report, 2017

DINNER PARTY INTEL... “Bill Gates and Richard Branson are very powerful, and more people say they are going to be eating plant-based diets because of them. But the move against meat-based diets is unfounded and irresponsible to promote at this stage.”

The topics you have to be able to discuss this week

1. Dollar shortage bites It may be illegal, but stores in Zimbabwe now routinely offer several prices for goods. A 2l bottle of cooking oil sells for $3.20, but its price jumps to 4.50 in bond notes and $5 when paying by card, according to AFP. Currency traders will exchange $1 for 1.37 in bond notes. For noncash bank transfers, the traders offer 1.50 in bond notes. Up to 60% of goods in stores are imported. And with the huge shortage of dollars, inflation on imported goods is spiking by as much as 60% a year.

Banting diet advocate Tim Noakes, speaking to HuffPost SA

TRENDING

iStock

The rising tide of blood and acrimony

2. People before profit

Ray Hartley hartleyr@tisoblackstar.co.za

ý Eleven people were killed by gunmen in an ambush at the Marikana informal settlement near Philippi in the Western Cape last week. It was, by any measure, a mass killing worthy of national outrage. But, perhaps because we have become inured to violence, it was just another news story that came and went. These days, it takes spectacular violence to grab attention. And so, when a gunman raked a crowd of country music fans with sustained automatic gunfire, killing 59 and injuring more than 500 in Las Vegas, it was global headline news. For a while, anyway. All this wanton violence raises questions about how the media should approach such incidents. The facile debate over how

much attention the local incident gets compared with the global one is getting stale. One could even argue that less attention should be given to all such incidents. After all, if it is attention that the perpetrators seek, should they be granted it in large headlines and sustained coverage by television stations? There are, in any event very big differences between one incident and another. In the SA case, the killings were part of an ongoing rising tide of violent gangrelated crime. In the US, the killings took place in an environment of lax gun control, but appear to be the act of a man acting alone. Commenting on the local incident, community safety

MEC Dan Plato had this to say to 702’s EWN: “The community is in panic mode because nobody knows what’s going to happen next. “The youngsters, according to [the community], are running amok and they’ve asked government to step in . . . with programmes to assist the youth.” It does not take a great leap of the imagination to conclude that the Western Cape killings are a symptom of SA’s youth unemployment problem, surely the most serious challenge facing the country. If there is any consolation to be found in these desperate tragedies it must surely be that, in SA’s case, a solution is possible: employment, hope and belonging. x

Puerto Rico has rejected a $1bn loan offered by a hedge-fund group, accusing it of trying to profit from disaster. Infrastructure was left devastated after hurricanes Irma and Maria battered the island. Most residents have no power, no food and no water, a situation that will require a more compassionate response — even from investors. Hedge funds which hold bonds in the local power utility offered it a US$1bn loan and a discount on a portion of existing debt. The scale of the devastation has led some to say the $50bn in debt owed by the island is likely to get wiped out.

3. Testing her Patience Nigeria’s former first lady Patience Jonathan will go to court to protest against restrictions placed by the country’s anti-corruption body on the bank accounts of four companies. The accounts, which hold $15.5m, were frozen pending a money-laundering probe into an adviser to former president Goodluck Jonathan. The former first lady claims the funds belong to her, even though she is not a signatory on the accounts. She says authorities want to “disgrace, intimidate, dehumanise and ridicule her and her family, through sheer propaganda, sensational investigation and media trial”.

iStock

Getty Images/David Becker

Gun violence: in SA’s case, a solution to these desperate tragedies is possible

October 5 - October 11, 2017

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DIAMONDS & DOGS BY JAMIE CARR

HOT PROPERTY THE WOW HOUSE

@jamiecarr

Badenhorst seems to have filled his cup with truth serum, noshed the lot and headed back to the trough for extra helpings 12

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Capitec

Unicorn Capital Partners

Still right on the money

Dispelling some myths

The problem with establishing a track DIAMOND record of stellar growth is that there will be sniping when the curve starts to flatten. A porky old legacy player could bash out a 17% rise in headline EPS and the market would barely stir from its slumbers. But when such a number comes from Capitec, it’s a bit like the Visigoths arriving at the gates of Rome. The nonbelievers will raise a quizzical eyebrow and start to hint that the story has run its course. But shareholders shouldn’t be too concerned. The commentary to the bank’s results stresses that it is dealing with customers in an economy under severe pressure, which is an environment where chasing after growth can turn around sharply and bite you in the seat of the pants. Capitec says it has improved the quality of its loan book, with stricter credit-granting criteria meaning it is extending loans to better-quality clients. Up-to-date loans have increased and loans in arrears have dropped, which is a solid achievement given the state of the economy. The bank is pushing its out-ofbranch transacting strategy, with its highly rated mobile app and Internet banking offering a better user experience and helping to keep the cost base down. Capitec has been showered with awards, and being voted the best bank in the world for the second time in a row in the Lafferty Group’s annual bank quality ratings survey is far from shabby. Still, the focus remains on providing exceptional service and providing simple, transparent solutions, and the customers are lapping it up. x

Many a corporate leader fights shy of DOG issuing bad news to shareholders, tending to prevaricate and bluster rather than thrust the chin forward and invite anybody to take a shot. This tactic does not appear to appeal to Unicorn CEO Jacques Badenhorst, who has written a letter to accompany the financial statements that suggests he has filled his cup with truth serum, noshed the lot and headed back to the trough for extra helpings. The company, formerly known as Sentula Mining, has been undergoing an aggressive restructuring over the past 18 months, and Badenhorst does not hold back while detailing the challenges in transforming from a diversified mining and mining services group into an investment holding company. He’s clearly a big fan of the aviation metaphor, describing the state of the company while teetering on the edge of disaster as being a “near miss”, and the process of restructuring as “building the airplane while flying, considering that any major mistake always had the potential to cause the group to crash and burn”. One mistake he owns up to is “expecting most people to act ethically in most instances”. He offers the gloomy lesson that “people are more likely to disappoint than surprise”. He gets into his stride when describing what a shocking business contract mining is, a model that “is designed to fail, and fail it will”. The priority for 2018 is to return the business to profitability, allocating capital to areas that have potential and reducing its exposure to businesses it doesn’t rate. x

October 5 - October 11, 2017

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3D PRINTING

Quickly, print me a bone The creation of crowns for teeth and hearing aids are among the applications of 3D technology as it goes mainstream Pericles Anetos anetosp@businesslive.co.za

ý Track cycling athlete Jason Laing’s arm was restored by 3D printing — and it helped save his life. When Laing was training for a competition on a velodrome track in 2015 he suffered a seizure and hit the deck of the track head-on at a speed of about 70 km/hour. The impact caused multiple brain injuries, breakages, torn muscles, major internal bleeding and collapsed lungs. He had to be resuscitated twice. Laing’s recovery was long and difficult, and he relied on occupational therapy and surgery. Gradually, he was able to communicate and function almost normally. But last year doctors discovered that the subclavian artery in his

right arm was being squeezed by bones that had failed to heal correctly. His brachial plexus nerve, which originates near the neck and shoulder, was also found to be damaged. This led him to lose feeling in his hand. The situation was deadly: Laing was in danger of haemorrhaging if he sustained a fall, and that could kill him in seconds. His options were few. Conventional surgery to treat such a condition was out of the question because of his brain injury. And without surgery he faced paralysis in his arm, the risk of haemorrhaging or even amputation. But with his life at stake, Laing wasn’t willing to leave it there, and it was his experience as a jewellery maker that changed his life.

Eventually, they worked out a way to replace Laing’s bone with 3D-printed titanium implants, which was a world first. It wasn’t all plain sailing. The technology is so new and so untested that some doctors walked away from it because of the risks. Also, approval had to be given by the SA Medical Research Council for the surgery to be done. And while Laing’s experience was pioneering, there are other uses of 3D printing that are slowly becoming more mainstream. Dentists, for example, now have the ability to 3D print a crown. In conventional dentistry a temporary crown would first be fitted, while a

iStock

He used 3D printing to manufacture jewellery. Before his accident, he had also used it to help print bones that had been damaged in people’s faces, based on detailed information from CT scans. “So when I was presented with the reality that my arm would have to be amputated, I said to the doctor: ‘At least give me the option to fight for my own arm and my own life.’ “To do that I applied a combination of everything I had done before,” Laing says. Laing, together with the medical team, designed a way to simulate his surgery for practice, using virtual reality. They also created guides for cutting to ensure that nerves or arteries would not be sliced.

financialmail.co.za

October 5 - October 11, 2017

lab sculpted a permanent one. The patient would return on another day to have the permanent crown fitted. Today, sophisticated technology helps dentists design a digital crown. Once that process is complete, a printer the size of a microwave oven produces the permanent crown in about 10 minutes. This means the dentist can fit a permanent crown in just one visit. The same technology can be applied to manufacture removable dentures. And the benefits of the new technology have extended to hearing aids. Before 3D printing, it took about a week to make a hearing aid; that has now been reduced to a few hours. Today, most hearing aids are said to be 3D printed. These offer a better fit inside an ear, as the ear is scanned using lasers. Other innovative printing techniques are slowly changing health care forever. Abdul-Khaaliq Mohamed, an associate lecturer at the University of the Witwatersrand, is using a 3D printer to build a robotic prosthetic hand. He says electrical signals from the brain or from muscles control the hand, giving some level of the functionality that has been lost. Mohamed says 3D printing is customisable, making it simple to make small changes quickly and fix problems as they arise. The next frontier is bioprinting,

PATTERN RECOGNITION BY TOBY SHAPSHAK

App, app and away . . . iStock

@shapshak

Apps once alerted us to useful updates or messages, but their notifications have become an untamed beast

iStock

a process of creating cell patterns using 3D printing, while preserving cell function. This is the technology that will eventually give the world printed organs. x

Instagram also got too needy. Goodbye. Twitter spammed me to say people posted on some trending subject. Mute.

n the past two months I have deleted the Facebook app from my phone and turned off almost all my notifications. I couldn’t be happier. I have been slowly tuning out of Facebook, for a variety of reasons. Principally, it is that the social media network is no longer used for the sharing of personal moments and life events, but as a running commentary of what people are reading. After years of disdain and Twitter snobbery, I started enjoying Facebook for its glimpses into the lives of friends and family, especially those overseas. I wanted to read updates about family events, walks in the park with kids, beach holidays and everyday life. I get my news feed from Twitter. Facebook was my personal news feed. But Facebook has evolved into a news feed. People post links to stories they are reading (and the outrage at the end of the Jacob Zuma years) and topics that I really don’t want to read. Facebook’s algorithm essentially shows you more of the same, based on what you liked in the past. It is an ever inward-spiralling echo chamber. The less time I spent on Facebook, the more I was pestered by the app to re-engage. Instead of mildly useful notifications about people responding to my posts, I started getting a stream of alerts when “so-and-so has posted for the first time in a while” or “have you seen so-and-so’s update?” In the past year, I have progressively turned off notifications from all my apps. There was a time when such alerts were useful. But then the app developers realised they could

use this backdoor to our attention to lure us back to their apps when we didn’t spend enough time using them. The noise-to-signal ratio of what was once a handy tool has gone haywire. When notifications first emerged they were a great way of being alerted to meaningful things without opening the app. Now it’s just out of hand. And the cost is our concentration. App makers have foolishly started biting the eyes that feed them. Trying to draw mobile users back into an app with pointless notifications has had the reverse effect on me. I resent the intrusion for something that is in the app maker’s interest (driving people to the app) and not in mine (telling me about a message I might want to see). Facebook is the extreme example of this. Instagram also got too needy. Goodbye. Twitter spammed me to say several people liked or posted on some trending subject. Mute. The only notifications I still use are for breaking news or e-mails (because Apple lets you select whose messages you want to see) and the odd messaging app. I also resent that the Facebook app is a 350 MB download. It’s a time thief and a data thief. There are also numerous reports about how the app drains a smartphone’s battery even when the app isn’t being used, though that problem mostly happens on Android. It seems contrary to the point of a smartphone to turn off notifications, but it hasn’t affected my productivity and, remarkably, my life is less cluttered. And I haven’t missed a thing that’s important. x Shapshak is editor-in-chief and publisher of Stuff magazine (stuff.co.za)

October 5 - October 11, 2017

financialmail.co.za

Freddy Mavunda

LEWIS

The sensible thing to do Share-repurchase programme finds support — and could even be extended at the company’s AGM this month Ann Crotty crottya@bdfm.co.za

GIMME

Sony Xperia XZ

Cool factor ★★★★/5

ý It would be difficult to find circumstances more appropriate for a share repurchase than those facing Lewis Stores over the past four months: little or no debt, growing cash balances, a subdued trading environment and, most significantly, a share price trading at almost half of the company’s net asset value. Even critics of repurchases acknowledge that spending R95m to buy back its own shares is probably the best thing Lewis could do to enhance shareholder value. It’s the company’s first repurchase since 2007. So why did its share price slump after the announcement it had fully used its repurchase authority in the four months to end-September? On Monday, Lewis stock dropped a hefty 8% to reach a 10-year low of R27.20. Retail analyst Syd Vianello reckons the market might have been disappointed to learn this buying support is on hold. But that is only until the imminent AGM. On October 17 shareholders will get the opportunity to give the board authority to recharge its purchasing capacity.

Usability ★★★★/5

This time shareholders are being asked to approve the repurchase of up to 5% of the shares in issue, up from the 3% limit approved at the 2016 AGM. Vianello says Lewis, which he describes as being financially conservative, had a number of options: “It could hold onto the cash, pay a special dividend, make an acquisition or repurchase shares.” Holding onto the cash was nonsensical, given the very low gearing and the limited demand to fund growth as a result of the sluggish economy. Paying a special dividend was not appropriate, given the risk that it couldn’t be repeated. And an acquisition was unlikely, given the current economic conditions. “A repurchase at half of net asset value benefits all the remaining shareholders and hardly makes a dent on the company’s equity base,” says Vianello. David Woollam, a minority shareholder and long-term critic of the company’s management, says he doesn’t normally like sharerepurchase programmes. “But in these circumstances it is the most sensible thing for Lewis to do.” x

Value for money ★★★/5

The whole picture ý The relentless stream of smartphone releases and updates continues unabated. The latest Sony flagship to arrive on our shores is the Xperia XZ Premium. The device was named best new smartphone at the Mobile World Congress 2017. So, what does it offer to have earned the title? As a physical handset, it’s in keeping with the general look of the previous Xperia models: bold and large, with squared-off corners. It’s comfortable to hold with a one-hand grip, though it’s a bit slippery, given its high-gloss, glass finish. As always, we highly recommend getting a cover on the device — this will give you more grip and protect it (somewhat) from inevitable drops. 16

financialmail.co.za

The design is striking but, arguably, divisive — you’re either going to love it or loathe it. The Xperia XZ Premium screen is 5.5 inches, with a 4K resolution (2,160 x 3,840) that makes a strong first impression. For Sony, this is brand association at play — it uses its Bravia TV tech to put an “immersive 4K [high dynamic range] experience in the palm of your hand”. Brand-building aside, it really delivers on clarity and depth of colour. Surprisingly, given this screen, the battery life is also outstanding. It charges quickly, and holds power well on standby. In typical use, it lasted the reviewer well into the second day. The device uses a Snapdragon

October 5 - October 11, 2017

835 processor and 4 GB of RAM that make for a swift and smooth experience, even while gaming. It offers 64 GB storage that can be boosted with a microSD card. The XZ Premium is a high-specification device, sure, but the real talking point is the capability of the camera, and specifically its categoryleading 960 frame/second slowmotion video mode. If this kind of feature excites you, have a look at some of the creative slow-motion videos being created by XZ Premi-

um users on YouTube. Another crowdpleaser for a younger audience is the augmented reality app, which lets you “insert” dinosaurs and the like into images and videos. The retail price for this device starts at a hefty R15,039 — putting it roughly in the range of top-end Samsungs, iPhones and Huawei devices. So even with all its camera tricks and bells and whistles, the XZ Premium has stiff competition to overcome. x Kate Ferreira

PROFILE Maurice Madiba CEO of Cloud Atlas Investing

No clouding of issues in this lean business With a brand-new firm and fresh investment vehicles, this entrepreneur is making it easier to invest in a selection of Africa’s biggest companies

the African Market Index series, is the AMI Big50 ex-SA fund. This will soon be followed by the AMI Consumer and AMI Property funds. AMI Big50 tracks the top 50 listed companies in Africa outside SA. Madiba says that as an ETF, as opposed to an exchange traded note (ETN), it has to hold the shares in the fund proportionately. Investors in competing African ETNs will find that it offers only a promise to follow the

Stephen Cranston cranstons@fm.co.za

Freddy Mavunda

ý At 30 years old, Maurice Madiba has set up SA’s first black-owned exchange traded fund (ETF) business and only its second black-owned collective investment scheme management company after African Collective Investments. Madiba named his business after a critically acclaimed 2012 film, Cloud Atlas. And yes, it was a firm he started in his mother’s garage, at the tail end of a successful spell at Deutsche Bank. He worked for two years developing and refining the business. By then he had been saturated in the Deutsche way of approaching equities and contracts for difference. Before that he had worked as a research analyst at the private equity firm Convergence Partners. He had also attended the Thabo Mbeki African Leadership Institute. He was a fellow of the Allan Gray Orbis Foundation, a large shareholder in venture capitalist E Squared. A year before Cloud Atlas listed, E Squared came on board as a financier. So it was logical for Madiba to turn to it for equity finance. Cloud Atlas made its debut on the JSE in April. Its first product, in

index, and has no obligation to replicate it. No country or sector is overrepresented in the portfolio. It cuts across 15 African markets. Nigerian banks, which often dominate these indices, are represented by Guaranty Trust, Zimbabwe by cellphone provider Econet and brewer Delta, and Kenya primarily by Kenya Commercial Bank and Safaricom. Cloud Atlas has a team of just four and is based in Rosebank, Johannesburg. Madiba can keep it lean, as he is able to outsource most of the functions: RMB is trustee, Maitland is fund administrator while Thomson Reuters maintains the index and does the appropriate calculations. But finance, much of the analytics and business development remain in-house. Madiba says it will not be an easy product to manage. Unlike regular Africa unit trusts, it can’t be gated — Cloud Atlas can never refuse to let anyone in or out of the fund. What Madiba doesn’t tell you is that the movie Cloud Atlas, which starred Tom Hanks and Halle Berry, might have wowed the critics, but it was a commercial flop. Thus far, his version of Cloud Atlas has impressed the critics. Since Madiba’s Top50 fund launched on April 20 it has been the second-best international ETF on the JSE, after Sygnia Euro, with a 17% return. The Cloud Atlas fund has declared its second dividend and it has a 3% yield. Raising assets has proved tougher, but it has grown from an initial R2m to R14m. But is the business too specialised for the SA public? We’ll soon find out. x

October 5 - October 11, 2017

financialmail.co.za

BOARDROOM TAILS BY ANN CROTTY

BY THE

NUMBERS Norway’s sovereign wealth fund

Time to find our own way out Business, labour and civil society must pull together

he Government, or at least large chunks of the cabinet that are supposed to give government direction, seem to have abandoned us. They haven’t abandoned us in the way so beloved of the free-market brigade, which is to step aside and leave everything to the fabled invisible hand of the market. Neither have they abandoned us to some Kropotkinstyle anarchistic idyll where voluntary associations of self-governing communities spring up in their place. They’ve abandoned us in the way a pair of alcoholic parents abandon their children, which is to say erratically. This means there’s lots of nerve-racking anticipation of the next time they stumble in the door drunk with all manner of destructive plans for what to do with the house or the family. The country faces the additional challenge akin to dealing with a trashy new neighbour who has inveigled his way into the parents’ good graces and, in exchange for the equivalent of the odd bottle of booze, has managed to get his hands on almost everything of value in the house. It might all begin to sort itself out in December after the eagerly awaited ANC conference. But perhaps not. Essentially SA’s 55m or so citizens must start thinking in terms of being latch-key children (that is, children who have to look after themselves). According to the literature, if dealt with decisively — and early enough — the damaging effects of a latch-key existence can be reversed. The feelings of fear and low self-esteem can, with enough determination, give way

They’ve abandoned us in the way alcoholic parents abandon their children — erratically 18

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October 5 - October 11, 2017

to independence and self-reliance. Who among us doesn’t have a morbid sense of fear every time we open a newspaper or click on a news story? The World Economic Forum’s latest competitiveness survey shows our self-esteem is slipping off the charts. It is time to stop waiting for cabinet to sort itself out; we have to assume they may forever lurch from one binge to the next. This is not a call just to business; that would be pointless. It’s a call to business, labour and civil society. Given our history and the current levels of tension it may seem unrealistic to expect these three diverse interest groups to work together. But there are already indications that it’s possible and that it is indeed happening. It’s becoming evident that parties outside the top layers of government are so concerned by the blatant disregard for its citizens that they’re prepared to set aside their long-held mutual animosity. While there’s been good reason to be cynical about the corporate sector’s commitment to BEE and social investment, 20 years on many of the thousands of those projects are starting to flower. Listen closely and you will hear evidence of a joint determination that defies fears of widespread social dissension. Look around and you will see more dynamic new small businesses being helped by the older, larger ones. But business must give more because it has most to give (and to lose). Employee share ownership schemes are a great way of showing labour that business cares — even if government doesn’t. x

US$1 trillion is the value of Norway’s pension fund, making it the largest in the world. It deposits surplus income from its fuel industry into the fund

$190,000

each is what that equates to, in value, for each of Norway’s 5.2m citizens. The fund was created in 1996

9,000

companies are represented in it

1.3%

of all listed companies worldwide are owned by the fund

5.9%

is its return since January 1998, a figure that drops to 4% when management costs and inflation are included

Source: CNN

@anncrotty

FEATURES An in-depth look at the hot button subjects of the day in SA and around the world

THE GUPTAS’ GENIE

A CHANGE OF PACE

THE MESS AT CRICKET SA

BEHIND THE NUMBERS

How Gupta-linked boutique firm Trillian and global consultancy McKinsey used political muscle to milk billions from Transnet and Eskom

Nearly a decade on, the global economy is finally recovering. But global growth is still weak in historical terms — and not everyone is enjoying the gains

The organisation running the game in this country may have played itself into a losing position by dawdling over the price of the broadcast rights

There might be more to SA’s drop in the WEF competitiveness survey rankings than a weak economy. What explains the tectonic shifts?

October 5 - October 11, 2017

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cover story / trillions

THE GUPTAS’ GENIE How Gupta-linked boutique firm Trillian and global consultancy McKinsey used political muscle to milk billions from Transnet and Eskom Stephan Hofstatter stephanh@businesslive.co.za

mong the stories in The Arabian Nights is one about a poor tailor with a son named Aladdin, an idle boy without a trade who gets a lucky break: he finds a magic lamp that unleashes a genie who turns him into a rich sultan who marries a princess . . . Some consulting firms struggling to make ends meet in tough times must have concluded that all they needed was an Aladdin and his magic lamp to start raking in hundreds of millions in fees. Ask Regiments, Trillian and McKinsey, who extracted over R2bn from state-owned enterprises (SoEs) Transnet and Eskom thanks to the intervention of the politically connected Salim Essa, codenamed “Aladdin” by one of his business associates. Regiments Capital is a financial advisory and management consulting firm, founded in 2004 by Litha Nyhonyha, Eric Wood and Niven Pillay. By 2012 the company had some impressive gigs under its belt but lacked a heavy-hitting international partner to take it to the next level. What was needed was Aladdin’s magic. According to several sources familiar with the facts, Pillay’s golfing partner Kuben Moodley brought Essa, a close business associate of the Gupta family and President Jacob Zuma’s son Duduzane Zuma, to Regiments’ offices in late 2012. Court filings show Moodley was a fixer whose company Albatime was paid a fee or revenue cut by Regiments to bring in business. Essa and Moodley, who was previously an adviser to mineral resources minister Mosebenzi Zwane, presented a proposal that would prove very lucrative to Regiments: “We have brought you McKinsey,” they apparently said. After conducting a due diligence, McKinsey appointed Regiments as its supplier development partner in January 2013, for work it was conducting for several SoEs, including Transnet, with Essa and Moodley apparently receiving a cut of the proceeds. McKinsey would not confirm Essa and Moodley had brokered its relationship with Regiments, stating only that the global consultancy hadn’t paid them any fee. But this obscures the fact that their cut would have come from Regiments’ fee. According to two sources familiar with the deal, Essa was paid more than 30% of all revenue Regiments earned from its work

financialmail.co.za

October 5 - October 11, 2017

with McKinsey at SoEs. Regiments did not respond to questions about payments to Essa. Wood confirmed in a statement last week that “Mr Moodley introduced Mr Essa to Mr Pillay in 2012” and “subsequent to this meeting Regiments contracted with McKinsey”. Moodley and Essa did not respond to questions about their role in setting up the deal. There’d soon be enough cash around for everyone. So much so that the hyenas were starting to circle the camp. But first the competition had to be knocked out of the race. In 2012 McKinsey’s supplier development partner was Letsema, SA’s first black-owned and managed consulting firm. It was founded by Isaac Shongwe in 1996. Letsema joined forces with McKinsey in 2005. Over the years the rail and port sector became one of Letsema’s specialities. By 2012 Letsema’s work with McKinsey generated about 80% of its total income, almost half of this with Transnet. In 2013 Letsema partners Derek Thomas and Aldo Sguazzin were called to a meeting with Garry Pita, chief procurement officer at Transnet at the time. He told them Letsema could no longer work on the 50bn 1,064 locomotives programme, citing a possible conflict of interest. Shongwe, Letsema’s chairman, was an executive director of Barloworld, which acted as a distributor for Caterpillar in SA. And Caterpillar Inc owned Electro-Motive Diesel, a company that was bidding for a portion of the contract. “It turned out to be the start of kicking Letsema out of Transnet,” said Sguazzin. “Suddenly Regiments was injected into the McKinsey relationship. From then on we were sidelined.” Soon Letsema’s Transnet income fell to 10% of total revenue before drying up altogether. “It almost destroyed us,” said Shongwe. “Transnet should have been proud to use a local company with our track record.” At Regiments, things were going swimmingly, for a while at least. “Salim knew the executives at Denel, Transnet and

Eskom,” said one former employee. His message to them was simple. “He told them if they don’t open the door, they’re out. Suddenly Regiments was flying.” Wildly differing accounts exist of Regiments’ earnings from Transnet through its partnership with McKinsey since 2013 until Wood left with its advisory division in 2016. The amaBhungane centre for investigative journalism puts the figure at R484m, the Sunday Times at R800m. Regiments said these numbers were way off the mark but declined to provide the correct figures, citing client confidentiality. Ironically this also left some crumbs on the table for Letsema. In 2015 Regiments subcontracted Letsema for six months to work on a Transnet project. “We had the rail expertise. Suddenly they needed us,” said Thomas. AmaBhungane also reported that in November 2014, payments totalling R84.3m began to flow from Regiments to Gupta front company Homix, with a large chunk funnelled to offshore letterbox companies linked to Essa. E-mails from the “Gupta leaks” show that in mid-2014 the Gupta family were beginning to eye Regiments, apparently using Essa and Wood as their Trojan horse. Essa and the Gupta family did not respond to questions e-mailed to them. Draft agreements attached to the leaked

What it means: The seemingly magical connections of Salim ‘Aladdin’ Essa saw the money taps turned on in an astonishing way

e-mails obtained by the Financial Mail circulated among Essa, Tony Gupta and other Gupta employees show the Saxonwold family wanted to buy a 50% stake in Regiments for R200m. One e-mail suggests Wood was party to the talks, even though Nyhonyha and Pillay said in court documents these were conducted without their knowledge. Wood, who owns 32% of Regiments, disputes this. In a company statement last week he said it would be “patently impossible” to secretly sell a controlling stake of the company to the Guptas as the deal would have required their buy-in. He said the Guptas had approached Regiments through Essa to buy a stake in the company. The Regiments directors had invited Essa to join them at their weekly meeting at Tortellino D’Oro restaurant in Oaklands, Johannesburg. “Following on from this interaction Dr Wood was authorised by Messrs Niven Pillay [and] Litha Nyhonyha to provide such information as would be necessary for a formal offer to be tabled,” Woods’s statement said. The plan fell through after a meeting held at Saxonwold in April 2015 attended by Pillay, Wood and Tony Gupta. Pillay and Wood provide vastly differing accounts of the meeting. Pillay told the Sunday Times last year that the Guptas wanted to buy a controlling stake in Regiments and offered to make him a “dollar billionaire” if he stayed on as CEO with Wood and ousted Nyhonyha. He said that when he refused, Regiments lost its Transnet work. But in court filings Wood alleges that when the Guptas offered to buy a controlling stake in Regiments, Pillay was in favour of the deal and disappointed at losing his “large pay day” when Nyhonyha rejected it. Wood also rejected allegations that he was the Guptas’ “inside man” at Regiments. He has “no relationship with the Gupta family and is most certainly not a proxy for the Gupta family (or anyone else)”, his statement said. Asked why he’d been invited to the Gupta wedding at Sun City, which he apparently accepted with alacrity, he “surmised” it was because Regiments “had been appointed to advise ANN7, the Gupta news channel, on its bid to acquire Independent [Media] and he was the lead adviser at Regiments in respect of this transaction”. In court filings and his statement last week, Wood insists he only came to know Essa, widely regarded as a front for the Guptas’ business interests, through Pillay and Moodley. He repeated allegations made in news reports that Nyhonyha and Pillay were implicated in “questionable conduct in setting up of investments that stood to benefit

certain politically connected individuals”. Reuters also recently reported Regiments had allegedly used its political connections to ensure McKinsey kept being awarded lucrative contracts from SoEs despite concerns McKinsey had about Regiments’ capabilities. Regiments said last week the allegations were “patently false” as the company had “no political connections” and McKinsey dominated “the strategy and management consultancy work in the public sector without help or assistance from Regiments”. “It should be noted that the relationship was preceded by a thorough due diligence that McKinsey (internationally) carried out on Regiments. We passed the due diligence with flying colours. There were no concerns about our capacity or political connections.” Either way, within three months after several fallouts with his partners, Wood and Regiments decided to part company. The fallout is laid bare in court proceedings each party has brought against the other. In his affidavit Wood reveals that Essa mandated Regiments to conduct corporate finance work for his purchase of VR Laser in a deal that included the Guptas and Duduzane Zuma. It later emerged that the real aim of the deal was to secure exclusive rights to Denel’s R100bn arms sales to India. Pillay and Nyhonyha said they were unaware Regiments had worked on the deal. “The current executives are still piecing together the chronology of the questionable activities perpetrated by Wood without their knowledge,” Regiments told the Financial Mail. Wood said Essa had also suggested Regiments should carry out advisory work for the Guptas in their bid to buy Independent Media “given Regiments’ involvement in the acquisition of VR Laser”. To this end “meetings were held between representatives of the Gupta family and Regiments” but the deal ultimately fell through. Nyhonyha and Pillay denied any knowledge of this deal too. Responding to allegations he’d been instrumental in diverting over R80m paid by Transnet to offshore entities associated with Essa and the Guptas, Wood said: “Over the past few months various sensational news reports have been published making widespread allegations, none of which has been proven true in a court of law. Similarly, the allegations in regard to the diversion of funds offshore by Dr Wood are categorically false.” Moodley denies being a Gupta associate and describes Essa as someone “known to me from social circles”. But the evidence suggests his relationship with Essa goes far

October55,- October 11, 2017 October

financialmail.co.za

cover story / trillions

deeper. The evidence includes Wood’s affidavit that refers to confirmatory affidavits by Essa and Moodley. By mid-2015, following Wood and Pillay’s April meeting at Saxonwold, the relationship between Wood and his partners at Regiments was on the rocks. After acrimonious meetings they decided to part company. A source with direct knowledge of the events said that when the Gupta bid to buy Regiments failed, Wood and Essa switched to Plan B. That’s where Trillian came in. “Eric and Salim needed a company with an FSB [Financial Services Board] licence after the Regiments deal fell through,” said a former employee. “Trillian was the perfect vehicle.” The name apparently comes from a character in Douglas Adams’ cult sci-fi novel The Hitchhiker’s Guide to the Galaxy, Tricia “Trillian” McMillan. In the book the unemployed astrophysicist is described as “beautiful, charming, devastatingly intelligent”. When Trillian was up for sale, the boutique financial advisory firm — owned by four investment professionals, brothers Rowan and Ben Swartz, Daniel Roy and Jan Fourie — was struggling to make ends meet. Trillian’s financial statements obtained by the Financial Mail show it made a modest profit that year of R440,487 and generated R2.7m in revenues. This was marginally better than the previous year, when Trillian earned R2.5m and posted a small loss. “The business was ticking along but it never shot the lights out,” was how one fund manager familiar with the company’s dealings at the time described it. “It was floundering, really.” In September 2015 the Swartz brothers sold their 50% stake for what’s understood to be a modest sum to what they were told was a black

empowerment consortium. Then Aladdin’s lamp worked its magic again. Rowan Swartz confirmed the brothers had sold their shares to a buyer whose identity wasn’t disclosed, but declined to say what they were paid. He said Trillian “had never done any work at Transnet, Eskom or any state-owned entity. That’s all I’m prepared to say.” It later transpired Essa was the crucial ingredient missing from Trillian before September 2015. The deal would give Trillian direct access to the highest echelons of two lucrative clients, Transnet and Eskom. In December 2015 Trillian received a deposit of R93m from Transnet, for whom Trillian had began to work immediately after the sale. The Sunday Times reported that by then, McKinsey and Trillian were discussing how they should divide up a staggering R9.4bn they expected to earn from Eskom over four years. In the end they received R1.6bn for six months’ work from a single contract before it was cancelled. Trillian received R595m of this as McKinsey’s BEE partner even though it did not have a contract with either Eskom or McKinsey An investigation by advocate Geoff Budlender later referred to McKinsey’s partnership with the politically connected Trillian as a “sham” arrangement designed to keep the Eskom taps flowing. McKinsey denies this. “We take supplier development seriously, and have done so for many years,” McKinsey spokesman Steve John said in September. However, the allegation that Trillian used political muscle to milk billions from Transnet and Eskom is supported by Bianca Goodson, the former CEO of a division of Trillian, who released a whistleblower statement last week. The company’s “business model was that work is secured through Essa’s relationships and

[Trillian] benefits from these relationships”, she said. The company didn’t conduct the work itself but once it was secured, “passed [it] over to internationally recognised companies and acted as the supplier development partner of choice, with roughly a 50% share in revenue.” In the next eight months Trillian billed Transnet and Eskom close to R500m. By March 2017 earnings since December 2015 topped R800m — not bad for a company that was earning less that R3m two years earlier. Trillian’s spectacularly improved cashflow came in handy for the Guptas. Both the public protector and a Deloitte probe for the Reserve Bank found Trillian had also helped Gupta mining business Tegeta pay for Optimum coal. The original approach to the owners of what was then called Trillian Asset Management in 2015 came from Stanley Shane, a member of the Transnet board who headed the strategically important acquisitions and disposals committee and ran a small financial advisory and capital raising firm called Integrated Capital Management (ICM), together with Clive Angel and Marc Chipkin. Like Wood, Angel and Chipkin both previously worked for Investec. At the end of 2014 the Swartz brothers told their partners they wanted out. Trillian Asset Management was 100% white-owned so Daniel Roy and Jan Fourie started casting about for a black partner. Shane then introduced Roy to Essa as a potential partner and shareholder. In an interview last week, Roy said at the time Essa’s name didn’t raise any red flags. “When I met Salim and did a due diligence there was very little about him in the public domain. I had no idea he had anything to do with the Gupta family. All I knew was the one thing we were seriously lacking was a BEE partner.” When they met, Essa sketched his vision of

CONFIRMED PAYMENTS TO TRILLIAN Transnet

R2.7m

R41m

R93m

R11.4m

May 20 2016

Apr 19 2016

Apr 15 2016

R8m

May 23 2016 (work up to Mar 31)

R8m

May 23 2016 (work up to Apr 30)

R8m

Jun 7 2016 (work up to May 31)

R36m Jun 7 2016

Total

R208.1m

Dec 4 2015

TRILLIAN GRAND TOTAL: 22

financialmail.co.za

October 5 - October 11, 2017

208.1m + 595.3m = R803.4m

creating a top-notch financial services firm that would attract SA’s best talent and clients. “Here was a BEE guy who’s got cash and connections and doesn’t want to be involved in operational matters. It was the holy grail,” he recalls. “In hindsight it was too good to be true.” A shell company was registered that bought the Swartz brothers’ 50% stake in Trillian Asset Management, which was renamed Trillian Capital Partners. Roy and Fourie’s stake was diluted to 3%. Eric Wood, who brought the advisory division of Regiments with him, took 25% and Essa 60%. Another 12% was held by Aeriom Nominees on behalf of a mysterious group of shareholders Wood described as “employees”. Then five subsidiaries were created, including one that took the original name Trillian Asset Management, headed by Roy. Court papers, e-mails, and other documents obtained by the Financial Mail, show the directors of ICM were involved in setting up the Trillian group and initially played an operational role, including in negotiations with McKinsey. Several sources said Shane and his company, ICM, were the intended owners of at least some of the shares held by Aeriom. This was supported by Goodson’s statement as well as Roy. “There was a discussion with Stan [Shane] and Salim about [Shane] being remunerated for setting up the company,” said Roy. He confirmed that “one of the options on the table” was granting Shane shares in Trillian. In a clear conflict of interest, Shane at the time chaired the acquisitions committee at Transnet, a parastatal that had controversially ceded Regiments’ contracts to Trillian. In his report Budlender also raised questions about whether Transnet had paid Trillian for work already done by Regiments. However, Transnet doesn’t see anything

amiss. The rail company had “satisfied itself that there was no conflict of interest involving Mr Shane and entities that were doing business with Transnet,” spokesman Molatwane Likhethe said last week. Transnet also maintains “there was no illegal cession of contracts (from Regiments) to Trillian”, insisting all due processes were followed, including obtaining “a legal opinion which supported its decision to pay Trillian for the services rendered”. Where a dispute existed over who had done the work, Trillian had been obliged to issue credit notes “and the monies were received by Transnet”. Despite this glowing endorsement Transnet decided to “terminate” its relationship with Trillian in November 2016 “in an effort to safeguard its reputation”. Roy said Essa performed the same function at Trillian as he had at Regiments — making key introductions. “I was introduced to the guys at McKinsey by Salim,” he said. Roy said last week that he, Fourie and their asset management team have now decided to leave Trillian. “The situation has become untenable. In the interests of our clients we have decided to part ways.” In the end, the plan to cede shares to Shane and ICM never came to fruition. Earlier this year the shares were transferred from Aeriom Nominees to Trillian nominees, again for the benefit of “staff”, according to Wood. By now they are probably worthless. Nevertheless, Shane’s documented involvement in Trillian while occupying an influential position at Transnet when suspect payments were made is a red flag. Another is that Shane’s partners at ICM allegedly received R700,000/month for “services” rendered to Trillian, says a well-placed source. Asked last week if they were ever party to or

aware of discussions to grant them or ICM shares in Trillian, Angel and Shane dodged the question. In cut-and-paste responses to written questions, they said ICM “has never owned and does not own any shares in TCP”. Despite evidence to the contrary in e-mails and court filings, both insisted “Integrated Capital performed no services for Trillian”. They conceded, however, that Trillian had “contracted a company operated by Angel and Chipkin to provide . . . primarily start-up services for Trillian”. Another key player in the game was former Blue Label director Mark Pamensky. Documents obtained by the Financial Mail suggest he, too, was conflicted. In January 2016 a letter from Pamensky, then a director of Gupta company Oakbay, was sent to Trillian. His letter assessed whether being a director of Eskom and a consultant “and potential shareholder” of Fuel Property Group represented a conflict of interest. At the time Pamensky chaired Eskom’s investment and finance committee, which was investigating the sale of noncore real estate assets to a dedicated fund to optimise the power utility’s balance sheet. In March 2016 Pamensky declared his potential shareholding of Fuel Property to Eskom. In his declaration the firm is described as a potential Trillian shareholder through Aeriom. He also declares that his company Markpam Consulting, as well as Fuel and Trillian, planned to offer balance sheet optimisation “to state-owned entities through (unlocking) potential value in SoE’s real estate portfolios”. According to Budlender’s report, citing a whistleblower, a month later Wood sent Transnet a property analysis proposal from Fuel

Eskom Total

R113.3m R30.7m Apr 2016

R122.2m Aug 2016

R152.8m Dec 2016

R176.3m

R595.3m

Feb 2017

Aug 2016

Eskom paid to McKinsey:

R1.1bn

(work done Sep 2015 - Jul 2016)

October 5 - October 11, 2017

financialmail.co.za

cover story / trillions

Property, with an invoice for R41m. The invoice is stamped “paid” in May 2016. In her statement Goodson also points out there were plans to make Pamenksy CEO of Trillian’s proposed property division. Several sources said Pamensky regularly worked at the Trillian offices on the company’s property proposals. Eskom did not respond when asked if it had accepted Pamensky’s declaration of interest and Pamensky did not respond to e-mailed questions and text messages over several weeks after initially agreeing to an interview. Eventually the party came to an abrupt halt in July this year after Eskom’s lenders threatened to pull the plug if the utility didn’t clean up its act. Within weeks Eskom launched several investigations into the R1.6bn paid to Trillian and McKinsey. These concluded the contracts were unlawful and should be subjected to court review to allow Eskom to recover the money. An interim report by law firm Bowmans as well as internal memos obtained by the Financial Mail recommended suspending seven officials for their role in the payments, issuing letters of demand to Trillian and McKinsey, as well as opening a corruption case with the Hawks. First in the firing line was Eskom’s CFO Anoj Singh, who was suspended last week. Eskom issued three more suspension notices this week. Singh, at the centre of a host of corruption allegations including those involving Trillian and McKinsey, promised to release a “tell all” document in July but hasn’t yet done so. It also emerged that Eskom had received a legal opinion in December 2015 — a month before it signed up McKinsey — warning that the contract was unlawful. The legal opinion, obtained by the Financial Mail, says the McKinsey contract is in breach of a national treasury instruction that stipulates consultants should be paid a prescribed hourly rate. Instead McKinsey and Trillian worked “at risk”, which means they were paid a percentage of savings achieved at Eskom as a direct result of their work, allowing fees to balloon. Sources at Eskom said McKinsey was hard-pressed to explain how it arrived at its savings calculations, accepted by the utility under Singh’s tenure. For now, McKinsey and Trillian are toughing it out. Both have denied wrongdoing and insist they are proud of the tangible results they’ve delivered at Eskom even though the utility posted irregular expenditure of R3bn this year and says it needs a 20% tariff increase to meet revenue targets. McKinsey has so far only suspended one partner, Vikas Sagar, and says it is investigating the allegations against him. Both firms say there is no basis for a criminal corruption case against them. True or not, they’ll need magic powers if they want to repair their battered reputations. x 24

financialmail.co.za

October 5 - October 11, 2017

ON THE ROPES

Questions are now being asked about whether KPMG could go bust within six months — but that would not mean its auditing role at the big banks would go to smaller firms, whether black- or white-owned Hilary Joffe joffeh@businesslive.co.za

hen KPMG quietly resigned from its role as external auditor of Oakbay Resources and other Gupta companies in March 2016, it evidently thought the issue would just go away and that the firm, now under the leadership of a new CEO, could go back to normal. In retrospect, it seems astonishing that the firm could have been so insensitive to SA’s political realities, or so arrogant, that it imagined it could dodge the bullet of its 15-yearlong involvement with the Guptas — or of the role it played at the SA Revenue Service, where a forensic report on the so-called “rogue unit” by KPMG was used as a pretext to fire then finance minister Pravin Gordhan. Now, after an ever-more-turbulent 18 months, the “big four” accounting firm’s very survival is at stake in SA. And there are questions about how much of a hit KPMG’s reputation might take globally, with parallels being drawn between the way the Enron scandal sank Arthur Andersen in 2002. Reserve Bank governor Lesetja Kganyago warned, in an interview with the Financial Times on Monday, that KPMG’s international business could be imperilled if the firm failed to do more to salvage its reputation in SA. He said KPMG had taken a step in the right direction by appointing an independent inquiry but urged this should be genuinely independent and the results should be made public: “KPMG has to own up. South Africans are angry with what it has done. It accepted work it should not have. This is a global firm that is supposed to have global standards and understandably clients will be asking lots of questions . . . I don’t think that if KPMG goes in SA, it will only go in SA.” It is a measure of how global the implications potentially are that the Financial Times has given it significant coverage in recent weeks. It is a measure, too, of how severe the potential implications of a KPMG failure are for SA’s financial sector that the Reserve Bank has gone public with its views. At the same time, the controversy has highlighted questions about the audit profession itself, as well as the roles of the boards

What it means: The more immediate threat to financial stability is the prospect that more than one big bank would suddenly be without auditors that sign off the annual financial statements. Nobody should celebrate the challenges KPMG faces, former finance minister Trevor Manuel told a Deloitte conference this week. Manuel, who is also chairman of Old Mutual Emerging Markets, talked about a crisis for the profession and the need for a healing process that would ensure no further deterioration in trust. However, he said the focus should be not just on the external auditors but must start with the financial management inside any company, and the audit committee of the board which was supposed to be the first safeguard. Deloitte CEO Lwazi Bam said: “This affects all of us as a profession and as a profession we need to introspect.” KPMG admitted in August that it had been far too slow to react to the controversies around its reports for Sars and its relationship with the Guptas. By then it was too late. The Independent Regulatory Board for Auditors (IRBA) had initiated an investigation. JSE listed Sygnia had gone public in late July with its decision to fire KPMG as its external auditor, prompting other clients to review their relationships with it. KPMG’s board responded by suspending one partner and relieving two others of their board and executive positions pending the outcome of a comprehensive review, and its then CEO Trevor Hoole admitted that mistakes had been made. But that only served to stoke anger against the firm. When it eventually went public in mid-September with the results of a damning investigation by KPMG International, and got rid of the top leadership of the SA firm, it was seen as too little, too late. The report itself was more damning, in a way, because while it concluded there was no evidence of corrupt or illegal activity by KPMG, it found the firm’s quality control processes had failed, and that its leadership had shown extremely poor judgment and failed to respond as it should have to “red flags”.

If clients hadn’t been worried already, they were now, and that was particularly the case for the banks and other financial services firms that are KPMG’s largest clients. Audit firms are there because they are supposed to spot red flags and exercise judgment, and as one banker put it, what made it even worse was that KPMG seemed not to have picked up the signs that the Guptas might be laundering money — a particularly disturbing failure for the banks, as they are charged by the Reserve Bank with looking out for money laundering or exchange-control contraventions. KPMG looms large in SA’s financial sector. Banking regulations require banks to have two auditors and KPMG is joint auditor for three of the big four banks – Standard, Nedbank, and Absa – with the latter two having brought KPMG in only this year. Absa has said it is reviewing its relationship in the light of the report. So has Investec, another audit client. KPMG is sole auditor for Old Mutual and that includes the highly complex task of auditing Old Mutual’s managed separation process, and it is also MMI’s auditor, among others. Sasfin has already said it will dismiss KPMG as its joint auditor, as have several other clients, and questions are being asked about whether KPMG could go bust within six months. That would certainly be the case if it were to lose one or more of the big banks that

Lesetja Kganyago: Clients will be asking questions Freddy Mavunda

are its largest clients. Some put its chances of going under at well over 60%. It’s a scenario that’s of extreme concern to SA’s financial sector regulators — which is why the banking regulator called the CEOs and chairs of the board audit committees of the big banks to a meeting on the evening of September 21, as the heat rose following KPMG’s report and its change of leadership. “We all agreed we should lower the temperature and provide some breathing space,” says one who attended the meeting at the Reserve Bank. The trouble with SA’s big banks is that they are particularly complex and cross-border creatures to audit, which is why only the “big four” audit firms take on those contracts. Nor is SA’s banking sector alone in this — in the US, for example, only two of the top 100 banks are audited by non-big four audit firms. The dominance of the auditing big four – KPMG, PwC, EY and Deloitte – tends to be controversial everywhere, but so far no-one is willing to be without them. Nor is it likely that if KPMG were to go down, the business would go to smaller firms, whether black or white owned. Finance minister Malusi Gigaba has upped the temperature if anything, calling for all government departments to review their relationships with KPMG, and has pointed to the risks posed by the market dominance of a few firms in a key industry. He has called for a “concerted effort by all stakeholders to open up the sector to more players for a more de-concentrated and transformed audit sector”. In the case of the big banks, that’s not going to happen. And one of the big concerns at the Reserve Bank and within banks’ boards is that if KPMG goes under, or the banks have to bow to pressure to get rid of them as auditors, the risk concentration will be even worse, because there would be just three firms to choose from. That would present real practical problems in a context in which each bank has to have two auditors – and in which the rules on audit independence prevent a client taking on a firm that is already providing certain kinds of nonaudit services such as IT or human-resources consulting. The challenges will be even greater when mandatory audit firm rotation is introduced, as IRBA has announced it will be from 2023. There are also concerns about reduced choice when it comes to the kind of non-auditing work which firms such as KPMG do for the banks and for the Reserve Bank itself. The reason banks, and large insurers, are different when it comes to auditing has to do with the scale and the risks of auditing them. Smaller firms are unlikely to have the resources to devote a dozen or more partners and more than 100 staff to a single client,

John Veihmeyer: KPMG International chair Kiyoshi Ota/Bloomberg

which is what a big bank audit would typically require, nor would they necessarily want the exposure – or to pay the billions of rand in professional indemnity that’s required. For banks and their regulator, the more immediate threat to financial stability is the prospect that more than one big bank would suddenly be without auditors, at least temporarily. No-one wants any question marks to be raised over the quality of banks’ own financial statements. The damage KPMG has done to the reputation of the audit profession itself is already an issue for the banks, as it is for the profession and the markets. Disturbingly, SA has already lost the top place it long enjoyed in the World Economic Forum’s ranking of countries’ audit and reporting standards, with the WEF’s latest global competitiveness index showing SA plummeted 30 places, from one to 31, on this measure. Though the Reserve Bank has not explicitly come out and said the banks should think twice about dismissing KPMG, it is said to have privately urged the banks to do so. At the same time, however, it has urged KPMG International to take charge and restore trust in the firm. Belatedly, KPMG International chairman John Veihmeyer and chairman-elect Bill Thomas visited SA in the third week of September, meeting Pravin Gordhan and others who suffered the consequences of the Sars report and issuing a public statement to say the firm would launch an independent investigation, chaired by a “senior SA legal figure”. It also said KPMG International would provide its full support to the SA firm, to restore trust and rebuild confidence — and ensure the firm was doing business with the right people. Veihmeyer and Thomas have recognised the damage done and, at last, have understood the significance of the issues to SA itself. They have promised full disclosure. Whether their intervention will be enough to save the firm has yet to be seen. x October 5 - October 11, 2017

financialmail.co.za

feature / global economy

he rebound from the global financial crisis took longer than expected but finally, nearly a decade later, the global economy is finding its feet. It has been aided in no small part by the recovery in the US. “Significant healing has taken place over the past several years,” says Tao Zhang, deputy MD of the International Monetary Fund (IMF). “The global economy is getting better.” The IMF is expecting global growth to rise to 3.5% this year and 3.6% in 2018, up from 3.2% in 2016. But despite clear signs of positive momentum, this is still weak in historical terms. Zhang identifies several global economic trends that help to explain this, including a synchronised slowdown in productivity growth, persistent income inequality, and the fact that globalisation is no longer generating the jobs and higher living standards that were once promised. Since the global financial crisis, there has been a clear slowdown in productivity growth across advanced, emerging and lowincome countries (see graphs). The fact that such an extensive decline has occurred simultaneously is in itself unusual, notes Zhang, but what makes it even more puzzling is that it comes at a time of rapid innovation and technological change.

The world economy may be doing better, but not everyone is enjoying the gains

A CHANGE OF PACE Claire Bisseker bissekerc@fm.co.za

Not only has the information technology sector made remarkable advances, but so too has the oil and gas industry, which has allowed the cost of producing energy to fall sharply. “However, this disruptive change has taken place without an apparent increase in productivity. This is very different from previous periods of rapid innovation and technological change,” says Zhang. Researchers have put forward various explanations for this conundrum. Some argue that statistical data is failing to capture large parts of the new economy. Others suggest that instead of making the pie bigger, innovation could simply be redistributing the fruits of growth differently — away from labour and towards capital. It makes sense that a decline in productivity would go hand-in-hand with weak income growth, but in many advanced countries another phenomenon has also been at work: the hollowing out of the middle class. According to Zhang, more than half of US

iStock

What it means: Productivity is falling despite rapid technology gains; the middle class is being hollowed out 26

financialmail.co.za

October 5 - October 11, 2017

LESS PRODUCTIVE WORLD

Productivity growth has been slowing Advanced economies

Emerging market economies

Low-income economies

% 2

-1

-2

All

-2 1990

1995

2000 2005

2010

Source: PWT 9.0, World Economic Outlook, IMF calculations

2015

1990

-1

Excluding China

1995

2000 2005

2010

2015

-2 1990

1995

2000 2005

2010

2015

Note: Group averages are weighted using PPP-GDP

households have lower incomes in real terms today than they did in 2000. Moreover, it is the middle class that has experienced the most persistent and pronounced decline. Recent IMF research on the US economy shows that a significant part of the problem can be linked to technological change, specifically the automation and offshoring of semiskilled tasks, as many of these jobs provided middle-class incomes. Though technology and economic integration have brought large benefits to many economies, these have not always been broadly shared, say IMF researchers Rupa Duttagupta, Stefania Fabrizio, Davide Furceri and Sweta Saxena in a recent blog. They explain that these advances have lowered prices, greatly benefiting the poor, who spend a large share of their incomes on food, clothing and other The largest wage basic goods. On the other increases go to those hand, technological who switch jobs. Less advance has increased dynamism [in the the demand almost labour market] means exclusively for skilled less job switching, labour, while trade has which arithmetically sometimes displaced translates into lower lower-skilled workers. average wage growth This worries policy Tao Zhang makers. Not only has this growing concentration of income and wealth reduced aggregate consumption by about 3.5% over the past 15 years, but it has also led to electorates’ increased dissatisfaction and a sharp swing of sentiment against globalisation — as is so evident from Donald Trump’s ascension to the White House and the UK’s Brexit vote. SA is a textbook example of how a persistent lack of economic inclusion can also damage social cohesion and undermine the sustainability of long-run growth. So, what can be done to generate more inclusive growth? The answer, says the IMF, is to foster innovation and entrepreneurship. Governments should improve access to education and retraining; broaden access to financial services; ensure financial stability

and encourage investment; and assist with job search and job matching. The wrong response is to adopt protectionist or isolationist measures. “Interrupting the free flow of goods and investments is not a solution. It will only make matters worse by disrupting trade relations and supply chains,” says Zhang. At the same time, he believes the negative side effects must be addressed. This means ensuring a level playing field that is clear of protectionist measures and distortive policies, and mitigating the effect of global transitions as much as possible. Though much of this task falls to individual countries, the international community also has a role to play by working together to deal with cross-border issues and strengthening the multilateral system. There is a fourth global trend that is occupying the minds of policy makers from Washington to Tokyo — the generally low level of global inflation and wage growth, especially in advanced economies. Core inflation in Europe is still below the European Central Bank’s goal of below-butclose-to 2%. In Japan, headline and core inflation are close to zero. In the US, despite earlier progress in getting inflation to rise towards the Federal Reserve’s 2% goal, core and headline inflation have subsided to 1.4%. Linked to this subdued inflation profile is relatively low nominal wage growth. The IMF estimates that the US, Germany and Japan are close to full employment. But even though labour markets have strengthened, there has been little evidence of the mounting wage pressure one would expect. Zhang believes that important structural forces are contributing to this pattern, including, as highlighted earlier, the pervasive decline in global productivity growth. Another reason could be that there has been a decline in labour-market dynamism. He says job-to-job moves have fallen by about 40% since the late 1980s. “This is important because the largest wage increases go to those who switch jobs,”

says Zhang. “Less dynamism means less job switching, which arithmetically translates into lower average wage growth.” There may be other secular forces at play, Zhang suggests, such as the fact that many populations in advanced economies are ageing. Another factor could be that the increasing consolidation of firms into very large companies is strengthening employers’ bargaining power, and so putting downward pressure on wages. Whatever the reason, the trend is certainly beneficial for emerging markets. First, the fact that global inflation remains benign and stable helps to keep emerging markets’ domestic inflation in check by reducing the amount of inflation that is imported into the country with foreign goods and services. But, perhaps more importantly, it has delayed the pace of monetary policy normalisation in the US and Europe. This has allowed risk appetite to remain strongly in favour of emerging-market assets for the past year or two. In SA, this has meant that the rand has remained relatively firm despite the loss of the country’s investment-grade credit rating and disappointing growth performance. Had it not been for this benevolent global trend, the rand would likely have been weaker this year and inflation higher, and the Reserve Bank may not have been able to cut interest rates as it did in July. Last month, the Bank held rates steady, noting that the rand poses the key risk to the inflation outlook. The Bank’s fear is that, should inflation move higher than expected in Europe and the US, it could speed up global monetary tightening, which could negatively affect capital flows into SA, hurting the rand. But, as Zhang notes, stronger nominal wage growth will be needed in the West to put inflation back on track towards the major central banks’ targets. With little sign that the low-inflation/low-wage pattern is about to change, luck may be on SA’s side for once. x October 5 - October 11, 2017

financialmail.co.za

feature / health care

PICK-UP POINT FOR PILLS A system piloted by the Western Cape health department allows patients to collect their chronic medicine at nearby venues so they don’t have to stand in queues for hours at hospitals and clinics Tamar Kahn kahnt@businesslive.co.za

t’s a cold, grey Tuesday morning as Jonathan Thomas steps into the grounds of St Mary’s church in Woodstock, Cape Town. There’s a quiet bustle in a corner of the clean and airy church hall — not of worshippers, but of patients who have come to collect their prescription medicines. Thomas, a 52-year-old driver, is making a small detour on his way to work in an informal settlement in Langa, where he supervises a team of toilet cleaners. With his boss’s permission he has stopped off at the church to fetch his monthly supply of pills for high blood pressure and cholesterol. “I find this ideal. I am in and out in less than five minutes,” he smiles. “Before, I had to wait at the Woodstock Hospital. It could take hours, depending on the [queues] there.” Thomas is a beneficiary of the Western Cape health The clinics are far department’s pioaway, and people have neering chronic limited transport. Now medicine dispensthey can just take an ing programme, hour off and they don’t which offers lose a day’s income patients an altertravelling to town native to lining up Madelein Bauer for hours at public hospitals and clinics to get their regular monthly prescriptions filled. It achieves this by providing pick-up points at places such as community halls, old-age homes, churches and mobile clinics. Health facilities also have separate collection points for chronic patients, who are given appointments to minimise congestion. The initiative began with a small pilot programme in Cape Town in 2005 that serviced just under 1,000 patients. Today it covers the entire province, providing on average 380,000 packs of medicines each month through its service provider, DSV Healthcare,

to sites stretching from Plettenberg Bay to Bitterfontein. In the year to March 31, more than 1.5m patients benefited from the service. Patients get an SMS to remind them of their appointment time, and have a 10-day window in which to get their drugs if they can’t make their allotted slot. They can also authorise someone else to collect their repeat prescriptions if getting to a pick-up point doesn’t suit them. Unemployed single mother Qudsiyyah Genadien says: “I volunteer to collect medicines for bedridden elderly patients who are themselves unable to collect [their medication], and also for some working people who have good jobs in factories and supermarkets. I do this for between 30 and 40 patients, and come to St Mary’s Church two or three times a week. I save the people time and money.” The programme has significantly reduced the workload for health-care staff, enabling them to spend more time talking to patients, which has in turn improved compliance, says Western Cape health department spokesman Mark van der Heever. DSV Healthcare’s Parow site runs a sophisticated operation using equipment that was designed for sorting mail. Bulk supplies of medicines come into the facility from the Western Cape depot, and the “production” line turns out separate boxes for each designated collection point. The boxes contain clearly labelled and sealed patient packets, neatly stacked in alphabetical order. Each patient has a unique identification number, which enables DSV’s pharmacists to stop patients collecting at multiple sites and assists them in spotting prescribing errors, says company logistics manager Michael Rossi. “There is a national shortage of pharmacists and pharmacy assistants. Our

technology allows us to use fewer people,” he says. His staff electronically capture 6,500 prescriptions a day, some of which have as many as 15 line items — a reflection of the immense burden of noncommunicable disease facing the province. “Many of these patients are really sick. The main diseases we see are diabetes, hypertension, high cholesterol and HIV,” says Rossi. Similar initiatives are now under way in other parts of the country, says the national health department’s deputy director for regulation & compliance, Anban Pillay. “In other provinces, however, our approach is to use courier pharmacies to deliver to private pharmacies and GP rooms [in addition to community-based sites],” he says. “Over 1.5m patient packs are delivered each month [around SA].” Medipost won the tender for KwaZulu Natal, and the other provinces are serviced by Pharmacy Direct. Rossi says DSV could readily deliver to private pharmacies in the Western Cape, but it all hinges on what the provincial health department considers affordable: it pays DSV R24.25 a pack for delivery to the sites it has chosen, considerably less than the R35 paid by other provinces to their service providers, he says. Delivery to private pharmacies would push up costs. Nevertheless, the Western Cape health department can boast that it reaches parts of the country that no other service provider does. Nurse Madelein Bauer oversees the handover of repeat prescriptions to contract workers on the apple and pear farms owned by Dutoit Agri in the Koue Bokkeveld region near Ceres. “The clinics are far away, and people have limited transport. Now they can just take an hour off and they don’t lose a day’s income travelling to town,” she says. x

Saving time: St Mary’s church, Woodstock, is just one medication pick-up point Trevor Samson

financialmail.co.za

October 5 - October 11, 2017

feature / retailers

SELLING THE EXPERIENCE

n many countries — SA included — shopping centre vacancies are ticking up. The reason: depressed sales, coupled with rising competition from e-commerce, force retailers to consolidate space and close underperforming stores. Understandably, mall owners and retailers are increasingly grappling with the question of how to stay relevant amid the fastchanging habits of fickle shoppers. Speaking at the annual congress of the SA Council of Shopping Centres (SACSC) in Cape Town last month, a number of international panellists warned that landlords and retailers will have to become far more innovative in their tenant mix and products if they want to curb rising mall vacancies and falling trading densities (turnover per square metre). Herculano Rodrigues, associate director of UK-based retail strategy consultant Javelin Group, said the global retail landscape will change more over the next 10 years than it has over the past 40 years. One of the key industry challenges, said Rodrigues, will be what to do with a growing oversupply of shopping centre space as retailers downsize. Rodrigues said this year in the US alone 20 of the biggest retailers will collectively close around 3,000 stores. “E-commerce hasn’t even hit SA yet, so the change in the retail landscape will be even more pronounced in SA than in developed countries over the next few years,” said Rodrigues. However, some industry players believed that the advent of e-commerce has also created new opportunities for astute developers, landlords and retailers. UK-based retail futurist Howard Saunders said the irony of rapid digital transformation is that people are increasingly returning to old-world values, with a renewed search for a sense of community and physical interaction. That has given rise to what Saunders

Yuppiechef: The local online retailer opened its first physical store in Cape Town

Mall owners and retailers take heed: today’s consumer is less into buying things and more into sharing experiences Joan Muller mullerj@fm.co.za

terms “brand playgrounds” — stores that not only display products but offer consumers a social experience and a place to simply hang out. He referred to Nike’s new flagship store in New York, which houses a basketball court where people are encouraged to engage with one another while trying out Nike shoes. Saunders says interestingly enough the trend is also being embraced by some of the big online retailers such as Amazon and prescription glasses and eyewear seller Warby Parker who both recently opened huge brick and mortar stores in the US to give customers a physical experience that e-commerce simply cannot provide. Another major trend is that people are sick of mass produced products, Saunders said. There is now a global search for authenticity, which he believed has supported the rise of markets and the artisanal food and beverage revolution. “It’s no longer other big brands that are scaring the likes of Starbucks or Cadbury’s but rather the small barista, bread maker and chocolatier. Similarly, McDonald’s isn’t interested in what Burger King is doing — they are more worried about food trucks and salad bars.” Saunders noted that in the US for instance, the number of markets has grown fivefold from around 10,000 to 50,000 over the past decade. He believed traditional malls will only survive if they embrace the same trend. “Mall owners need to bring entrepreneurs back into their centres.” However, Saunders argued that it won’t be financially viable for smaller tenants to open shop in malls unless landlords start adopting more flexible lease structures that make provision for pop-up shops and affordable, short-term rental options. Trevor Hardy, CEO of international brand strategists The Future Laboratory, voiced a

similar sentiment. “The most forward looking businesses today are not those that are saying how can we use technology to make retail more efficient but rather those that are using technology to make retail more human and emotional.” He said younger consumers in particular, typically aged between 17 and 35, want to opt out of fast-paced consumerism. “The new mindset is that more is not better. Younger consumers are less into acquisition and opulence and more into experiences.” Hardy said the new sharing economy has also encouraged a mindset of borrowing rather than buying. “Shopping centres therefore need to promote a sense of community if they want people to keep coming back,” said Hardy. SA industry players said local mall owners are already adapting their business models in a bid to survive shifts in consumer behaviour. Wilna Savio, portfolio executive for property management group Broll, said SA retail landlords are now actively looking at ways to improve tenant retention and create more flexible lease scenarios. They hope this will counter rising vacancies left by the recent closure of retailers such as Stuttafords as well as international fashion brands Mango, Nine West and River Island. She noted that after the closure of some of these “big box” stores they are being successfully “repurposed” through subdivision to create space for smaller tenants. Others are turning large, vacant spaces into boutique-type gyms, kids’ play areas, entertainment areas or food courts. “It’s now all about ‘shoppertainment’,” said Savio. x What it means: Shopping centres need to promote a sense of community if they want people to keep coming back October 5 - October 11, 2017

financialmail.co.za

feature / cricket sa

THE MESS AT CRICKET SA

The organisation running the game in this country may have played itself into a losing position by dawdling over the price of the broadcast rights and having to settle for a lot less in the end Luke Alfred and Tristan Holme

Haroon Lorgat: Ultimately proved to be the wrong ’un AFP 30

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he final episode in Cricket SA’s (CSA) latest crisis played out at Sandton’s Maslow Hotel last Wednesday. Among those present were CSA board members, overseas franchise owners of the T20 Global League (SA’s first foray into international T20 cricket) and, serendipitously, MultiChoice CEO Imtiaz Patel. The purpose of the meeting, ostensibly, was to notify owners that CSA would be firing CEO Haroon Lorgat the following day, but that there was no cause for alarm — indeed, it was business as usual. There was a sense of literary symmetry to the showdown, in part because it was Patel — not Lorgat — who had been the International Cricket Council’s (ICC) preferred candidate to take over from Malcolm Speed as its CEO in 2008. At the time Patel wobbled, and finally rejected the offer as MultiChoice moved heaven and earth to keep him. It paved the way for Lorgat to run the ICC — theoretically, the sport’s most powerful organisation. Fast-forward to July 2014, and Lorgat’s ICC credentials persuaded the CSA board to hire him, after the ICC decided against renewing his contract. CSA’s board, full of Lorgat praise singers, brushed aside those urging caution. The numbers were gerrymandered too. In the wake of the Gerald Majola bonus scandal, it was recommended that the newly constituted post-Majola CSA board should have an even split of cricket people and independents. But this was unacceptable to the SA Sports Confederation & Olympic Committee, which argued that “cricket needs to be administered by cricket people” — so the mooted sixsix board split was diluted to just four independents. An opportunity for a genuine governance overhaul was squandered.

October 5 - October 11, 2017

The CSA board then hired an independent headhunter to find a new CEO. CSA’s acting CEO at the time, Jacques Faul, was asked to apply, and rugby supremo Jurie Roux was also mentioned. Lorgat was in the queue, but was by no means first choice. Eventually, under the watchful eye of the board and the four independents — Dawn Mokhobo, Louis von Zeuner, Vusi Pikoli and Norman Arendse — Lorgat was levered in. They argued he was a fine administrator who would bring the appropriate checks and balances to an organisation bleeding money. Inconvenient facts, such as his departure from the ICC, were swatted away. Lorgat did bring his technocratic skills to CSA — the organisation was transformed and the board’s decision apparently vindicated. Two years after he was hired, at CSA’s AGM in September 2015, Lorgat’s contract was extended by four years. After all, CSA was now on a firm financial footing and the freespending franchises had been reined in, even if Lorgat sometimes found himself in unseemly spats with journalists. However, CSA’s transformation into a super-bureaucracy came at a cost. Staff complained about Lorgat’s arrogance. Some even hankered after Majola’s warmth and human touch. It was efficiency in a freezer. “[Lorgat] was very good at managing upwards, at managing his board in other words. He ran a good meeting and was hugely impressive,” says a former CSA insider. “His problem was that he didn’t manage downwards. His people skills were exceptionally poor.” In 2016, Lorgat and the CSA inner sanctum began talking about a local T20 tournament to rival the Indian Premier League. This would make CSA financially independent of

cricket’s power-broking bullies, India and England, revitalise a flat domestic product and, by offering top dollar, ensure local players pledged their allegiance to the Proteas. But planning for the T20 Global hit early snags. Lorgat was secretive about operational matters, marginalising CFO Naasei Appiah. The organisation shuttled through two consultancies before settling on Ortus Sport & Entertainment — an obscure outfit with no track record — to take the broadcast rights to market. Suddenly the board began to have qualms about Lorgat’s intentions and his cavalier spending. When the Financial Mail wrote about the headwinds in July, CSA president Chris Nenzani refused to respond to five straightforward questions. “CSA does not intend to respond to queries based on information sourced from faceless individuals,” he said. Two months later, the hapless Nenzani was at the Maslow Hotel last Wednesday, explaining to T20 Global owners what he and other directors had failed to do. The next day, CSA cut ties with Lorgat. It seems no accident that Patel, who might once have taken Lorgat’s ICC job, was there. And it is surely more than coincidence that CSA and SuperSport, which had endured a frosty few weeks with Lorgat, are now talking about the local broadcast rights sale. But the delays have meant the value of broadcasting rights has plummeted. CSA isn’t entirely happy, but at least Lorgat is gone. SuperSport has effectively stared down CSA, and a broadcasting deal is imminent. Had the board acted against Lorgat several months ago, it would probably have got a healthy price for the T20 Global’s international and local rights. Instead, it shilly-shallied, driving down the price. x

feature / corporate sector

iStock

BEHIND THE NUMBERS

There might be more to the drop in SA’s rankings in the recently released competitiveness survey than a weak economy. What explains the tectonic shifts?

t wasn’t long ago that the local audit profession was using the results of the World Economic Forum’s (WEF) annual competitiveness report to defend itself from mandatory audit firm rotation imposed by the Independent Regulatory Board for Auditors (IRBA). The same is not likely to happen after this year’s survey. SA lost the number one slot in the WEF rankings of the quality of auditing and reporting standards. It fell to number 30. Bernard Agulhas, CEO of IRBA, says he is disappointed with the 2017 results, but expected it. “What this means is that IRBA and other regulators must work together to correct the situation so that we can reestablish stability in our capital and financial markets,” he says. Likewise, the JSE has For years the WEF survey was in the past not been shy to use its strong WEF a reminder of survey showing for marjust how good keting purposes, most our corporate recently at the listing of sector was and Star. This year’s disashow poor the trous slump will put an labour and end to that. government SA’s overall rank fell sectors were by 14 places. And the JSE’s rank dropped from the number one position to 46. JSE CEO Nicky Newton-King has expressed disappointment with the 2017 survey. “The results are a clear indication that our political challenges are affecting confidence in important aspects of our economy,” she says. Her response hints at an important connection between confidence and perceived competitiveness. Few stopped to consider what it meant to feature in the number one slot. It was, wrongly, interpreted as meaning the best in

Ann Crotty crottya@bdfm.co.za

the world. This year, there might be more willingness to consider the survey as overwhelmingly, but not entirely, merely what a group of local businesspeople thinks about the local economy. Their view is important, but it hardly creates a scientific certainty. SA’s overall position dropped to 61 from 47 in 2016, taking us below Rwanda and Kazakhstan and even further from Mauritius, whose status as a tax haven seems to work well for this sort of survey. But things get even scarier when you dig below the headlines. A close analysis reveals there were a handful of improvements in the rankings (international Internet bandwidth rose to 11 from 126; the quality of education to 114 from stone last and pay and productivity to 99 from 136) but out of a survey that measures 119 variables and asks a dizzying 150 questions, that is small consolation. Other ranking re-adjustments that are difficult to explain include the efficacy of corporate boards, which slumped to 30 from third position in 2016, and the protection of minority interests, which dropped to 30 from number one last year. The availability of financial services is down to 32 from 6; financing through local equity markets sank to 25 from 3 and the soundness of banks dropped to 37 from 6. What is going on? For years the WEF survey was a reminder of just how good our corporate sector was and how poor the labour and government sectors were. It seems that is no more. Though corporate sector-related factors are still ranked way ahead of labour and government in 2017, things have gone decidedly awry. The WEF doesn’t attempt to shed light on the tectonic shifts, but there could be a number of reasons.

One is that the slowdown in economic growth has put the corporate sector under considerable pressure — it’s easier to do well when things are going well. A second and related consideration is that the seemingly never-ending low-level warfare between government and business is taking its toll on business and attitudes towards business, even by businesspeople. But perhaps the most significant consideration is that this year 170 SA executives responded to the WEF survey. This compares with just 44 last year and 58 in 2015. In addition, this year all the South Africans responded to the survey online. The much higher response rate was the more remarkable given that the number of questions was almost doubled, to 150 from 80 in 2016, making it an extremely timeconsuming affair for the respondents. The WEF’s Oliver Cann told the Financial Mail the two SA partner institutes who carried out the survey made a specific push to increase the size of the survey sample. “We have not been satisfied with the number of responses in recent years,” says Cann. He could not say how many people had been sent the survey. WEF economist Roberto Crotti says one-third of the SA respondents were “larger companies” and two-thirds “smaller companies”. Is it possible that respondents in previous years were largely executives with CAs and good working relations with the banks and the JSE? Perhaps what we should make of the WEF 2017 survey is that 170 local business people with a lot of time on their hands, and not all of whom have CAs, don’t think the corporate sector is as good as previously thought. Or that government and labour are quite as bad as previously thought. x October 5 - October 11, 2017

financialmail.co.za

IN GOOD FAITH BY CARMEL RICKARD

ADMIRABLE FEROCITY One of the big five of SA’s wildlife can show citizens how to approach corruption and maladministration: with fierce determination

n iconic animal, the SA buffalo. I have just read an appeal court decision that begins by describing its great size, its economic importance — and its temperament. This is an “aggressive bovine”, said the judge, “possessed of fearsome horns and a temper to match”. Now I have a new crusade: that the taxpaying public should identify more closely with the buffalo. Its size and importance to the economy are clear. What still needs to be developed is, if not literally a fearsome set of horns, at least the buffalo’s matching temper when faced with official corruption, incompetence and maladministration. Despite their strength, buffalo

@carmelrickard

The state’s lawyers said they wanted to bring an appeal against the judgment, but they missed deadlines every step of the way 32

financialmail.co.za

October 5 - October 11, 2017

are susceptible to diseases that could devastate cattle herds, and special permits are required to move them. Some years ago, out of concern that the species might die out, new breeding projects were started to produce “clean” buffalo calves from infected parents. One such was operated by Buffalo Conservation 97, at Magudu in northern KwaZulu Natal. The law says government specialists must test buffalo and issue permits before “clean” animals may be moved. However, officials did not test calves at the Magudu breeding project, despite being asked to do so. The company could thus neither sell nor move the animals, and eventually brought an application against government for compensation of R8,5m. In December 2014 the high court found in favour of Magudu, saying it was entitled to damages from the state. The negligence or bloody-mindedness of government officials had thus incurred legal costs of well over R700,000, with much more to come by way of damages in the next stage, which is still pending. Yet from the time of that judgment, the state’s lawyers behaved in a way that would cause ferocious temper loss in any selfrespecting buffalo. They said they wanted to bring an appeal against the judgment, but they missed deadlines every step of the way. Eventually, by December 2015, the appeal court registrar notified both sides that the appeal had lapsed. As ordered, government then paid the company’s legal costs in full. On December 13 2016, after hearing no word from the state for a year, the company asked for a

court date to argue the amount of damages. And suddenly the state attorney emerged again, attempting to reinstate the appeal. Last month the appeal judges heard the state’s excuses for this incredible delay, and had to decide whether to condone the missed deadlines. By the end of the hearing they dismissed the application, with costs, and have now given their reasons. Unacceptable excuses The explanations provided were found to be completely inadequate for the delays and the “extraordinary failure” of the state’s attorneys to communicate with the company’s lawyers for more than a year. Though the state had to use the state attorney, it did not have to “accept shoddy service”, said the court. The state should have demanded “professional and responsible representation”. The attorney’s conduct was “so far beyond the pale” that the clients would have to suffer the consequences. “This is a particularly gross case: the delay was extreme and the explanation unacceptable,” concluded the court. Taxpayers have already paid the legal costs for the initial case that established official dereliction of duty. A significant damages bill from the buffalo breeders is due next. On top of this, owing to some outrageously shoddy legal work, there is now a further round of legal costs from the abortive appeal. After reading the judgment I watched YouTube footage of an enraged buffalo. Forget the Guptas and corruption fatigue — every taxpayer should feel exactly like that angry bovine. x

money& investing Analysis and coverage of SA's top companies and investments - the guide to where your money should be CAPITEC

“We were more ‘strict’ on clients who wanted to reschedule while their outstanding balances were up to date and their free cash was not under pressure,” says finance chief André du Plessis. “We were furthermore more ‘strict’ on second and third reschedules on clients whose payments were in arrears.” This is not a new policy. Capitec tightened its lending criteria in February 2015 in response to an economy which decelerated from growth of 2.5% to 1.7%, putting consumers under pressure. Du Plessis says low-income earners — Capitec’s traditional market — and the small and micro enterprises that tend to employ them have been “taking strain”. Despite this, Capitec was the only “big six” bank this reporting season to announce headline earnings growth in the high double digits, 17%, outpacing Standard

From strength to strength The bank has reported headline earnings growth in the high double digits, and its best credit performance in three years

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ý Rumours of Capitec’s demise due to its exposure to the highly volatile unsecured lending market were greatly exaggerated. Despite desperately weak consumer sentiment, the bank has just reported its best credit performance in three years. For the six months to August, arrears as a proportion of gross loans and advances fell to 5.4% from 6% as customer accounts in arrears declined 2% to R2.49bn and recoveries rose marginally. Rescheduled loans — long a bone of contention for analysts critical of Capitec, who said this allowed the bank to avoid taking the pain of soured loans sooner rather than later — nose-dived: arrears rescheduled in the sixmonth period plunged 15% to R1.4bn, while paid-up accounts rescheduled during the same period dropped 32%.

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Moyagabo Maake maakem@bdlive.co.za

October 5 - October 11, 2017

financialmail.co.za

money&investing

Capitec SELL Target price: R836.23 Potential downside: -2.8% * Based on analysts’ consensus forecast

It is slowly weaning itself off funding from large institutional investors — known as wholesale funding — which comprised just R7bn, as growth in loans and advances was backed by a larger share of fixed retail deposits and profits. “Retail deposits growth continued to surpass that of wholesale, posting a 25% increase for call deposits and 36% for fixed deposits, compared to a 16% decline for wholesale,” says Jaap Meijer, MD of research at Arqaam Capital. “Retail deposits now represent 89% of total deposits.” This phenomenal deposit growth, mostly at the expense of the “big four” banks, according to Du Plessis, has led to a 29% boost in transaction fee income, which covers more than 70% of the bank’s operating expenditure and accounts for 35% of total revenue. “We think further client gains will come through competitive pricing structures and growing brand acceptance,” says Storey. “Capitec’s ability to continue to grow primary 34

financialmail.co.za

October 5 - October 11, 2017

THE DISRUPTER Capitec Bank share price (c) – weekly 90,000 80,000 70,000 60,000 50,000 40000 30,000 20,000

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bank client relationships is important, but so too is attracting higher-income/middle-market clients to the platform.” Storey says the bank has already made substantial investments in attracting this segment of the market, but gains from this are likely to lag its spending. “However, the idea is that those middle-market primary bank clients will use the Capitec banking platform a lot more, driving increased volume and revenue opportunities over time. Further product roll-out through the credit card offering and a potential insurance offering should also help with client retention and acquisition strategies.” Du Plessis says Capitec has signed up 200,000 credit card customers, a key strategy in attracting high-quality clients. The credit card book, launched just a year ago, accounted for R1.3bn of the bank’s R46.5bn loan book. “In everything we do, we do not differentiate our offer based on income of clients,” he says. “I therefore would not like to share the internal statistics [on the number of middle-income or high-income clients].” Capitec CEO Gerrie Fourie previously said the bank was considering offering insurance products with a partner, without divulging further details. Thus far, Capitec has started to offer its credit life insurance products — previously part of every loan — separately. But it is involved in a standoff with the National Credit Regulator over the latest rules governing the product. Credit life regulations allow credit

providers the option to retain the cost of an insurance premium at the level it was on the inception of the loan, even though the outstanding balance decreases over the life of the loan. Capitec does not want this, even though it could be beneficial to credit providers and insurers. “Capitec charges credit life on the declining balance, specific to the risk of every individual client, because it is the only correct way as far as we are concerned,” says Du Plessis. “It is furthermore in the best interest of the client. “Unfortunately the regulations allow either way — inception value or declining value — so some banks and credit providers charge fees on the inception value because it is beneficial to them, to the detriment of the client.” Meijer says there has been no impact from the new regulations either way. “The fees previously charged were below regulatory limits implemented on August 9 and thus clients and earnings should not be adversely affected.” x

Gerrie Fourie: Success story

Freddy Mavunda

Bank’s 12%. FirstRand, Nedbank and Barclays Africa mustered just 6%, 5% and 6.7% respectively. Investec is expected to release its interim results in November. John Storey, JPMorgan’s head of SA equity research, says Capitec’s growth story is decoupled from the challenging macroeconomic backdrop to some extent. “Competition is expected to increase, with the launch of Discovery Bank and [Commonwealth Bank of Australia’s] low-cost banking offering in SA,” he says. Insurer Discovery, which got a provisional licence from the Registrar of Banks, is in the process of setting up its bank, partly backed by R2bn in cash set aside for new ventures. The Commonwealth Bank of Australia’s TymeDigital, which is 10% owned by Patrice Motsepe’s African Rainbow Capital, has scored a full licence, and plans to launch in the middle of 2018. But Storey believes Capitec has strong competitive advantages due to its “entrenched” funding model, capital position, low cost structures, brand acceptances and continued investment in infrastructure, systems and people. Capitec is enjoying average deposit growth of R1bn per month, with growing acceptance of the Capitec brand. Its number of clients swelled to 9.2m during the six-month period – raising total retail deposits 28.7% to R55.4bn by the end of August.

SUN INTERNATIONAL

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Sun dims on gaming group The company is drowning in debt as its new flagship casino in Pretoria fails to deliver the goods

Stafford Thomas thomass@fm.co.za

ý Behind the glitz and glamour of Sun International’s casinos and posh hotels lies the rather apocalyptic truth of dire financial pressure. The company ended its half-year to June with a balance sheet weighed down by debt of R15.1bn — R11.46bn related to its SA operations and the balance of R3.64bn to its casino and hotel interests in Latin America. It doesn’t end there. Its interest bill, which came in at R592m in the latest six months, was up R207m from R385m in the corresponding 2016 period. And this is the crux of it: Sun International’s heavy debt burden means it’s breached its debt covenants in SA in its latest reporting period. Covenants have since been renegotiated with banks, with debt to earnings before interest, tax, depreciation and amortisation (Ebitda) standing at 3.9, just below the maximum covenant level of four, but Sun International is in an incredibly precarious situation. “Sun International needs to be recapitalised,” says Warren Jervis of Old Mutual Investment Group. But it is far from an opportune time to be turning to shareholders to raise capital through a rights issue. In the past 12 months the group’s share price has slumped 42% and now stands at its lowest level yet, as does its market cap of only R5.6bn. Profit-wise, things also looked pretty grim in the past reporting period. The group limped in with headline EPS (HEPS) down from 54c in

2016 to a negative 79c. Adjusted HEPS fell 21% to 198c. “It will be touch and go as to whether Sun International can trade itself out of the situation it is now in,” says Steven Hurwitz, an analyst at 36ONE Asset Management. Sun International has banked on its new Time Square casino in Menlyn, Pretoria, to deliver a big revenue and profit boost. Analysts have called for it to generate Ebitda of up to R750m. Built at a debt-funded cost of R4bn, Time Square is SA’s second-largest casino after Sun International’s GrandWest in Cape Town. Time Square opened for business on April 1 and has disappointed. In its first quarter the casino captured 13.4% of the Gauteng gaming market, a share Sun International concedes is “below expectations”. Sun International is relying on the completion of Time Square’s 8,500-seat arena in November and hotel in March to lead to strong revenue growth.

ON SHAKY GROUND Sun International share price (c) – weekly 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000

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Hurwitz is not convinced. “I think trading from here will get tougher as the novelty effect wears off,” he says. Time Square’s market share was achieved in a Gauteng market the group says showed no overall gaming revenue growth. “It seems like Time Square is cannibalising [Sun International’s] Carnival City and Carousel casinos badly,” says Hurwitz. “Their revenues were down 14% and 17% respectively.” Hurwitz continues: “Pretty much all SA casinos had terrible performance. GrandWest’s Ebitda was down 8%, with the Ebitda of smaller regional casinos down between 15% and 40%.” Against the background of what are likely to remain seriously constrained trading conditions in SA amid faltering gaming revenue, Sun International’s only real hope of delivering profit growth appears to lie in its Latin American operation, Sun Dreams. Sun Dreams was formed in June 2016 through the merger of Sun International’s operations in Chile, Panama and Colombia with those of Chilean casino and hotel group Dream SA. Sun International is upping its stake in Sun Dreams from 55% to 65% at a cost of US$63m. Jervis has reservations about Sun Dreams,

Sun International BUY Target price: R120.50 Potential upside: 131.2% * Based on analysts’ consensus forecast

which operates six casino and hotel complexes and is Latin America’s biggest gaming group. “I am not impressed,” he says. “Sun Dreams is a business involving multiple regulatory bodies and even language barriers. It makes it hugely complex for Sun International to manage from SA.” In its first year in the Sun International fold Sun Dreams failed to impress, turning in a 7% fall in Ebitda to R591m. It amounted to almost a third of total group Ebitda. Seemingly highlighting Jervis’s reservations, Sun Dreams faced particularly severe difficulties with two former Sun International properties, the Ocean Sun casino in Panama and Sun Nao casino in Colombia. Diving deeper into the red, Ocean Sun’s Ebitda loss jumped from R6m to R37m. Sun Nao eked out Ebitda of a mere R23m and has left Sun Dreams negotiating with the facility’s owner to terminate its lease early. With its SA woes and still unproven Sun Dreams venture, Sun International is a company to steer well clear of. x October 5 - October 11, 2017

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market watch by Marc Hasenfuss

@marchasenfuss

Neither an economic apocalypse nor a major acquisition appear to be on the horizon for Howden 36

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n the surface, it would appear Howden Africa is preparing for a huge acquisition or the economic apocalypse. The company, which provides specialised air and gas management services and has Eskom as a major customer, finished the six months to end-June with R1.125bn cash on hand. The cash pile is worth about R17/share — representing an inordinately large chunk of intrinsic net asset value. This once again raises the question of why the heck the company hasn’t paid a dividend since 2013. But neither an economic apocalypse nor a major acquisition appear to be on the horizon for Howden. The company posted a more than decent 185c/share in interim earnings, backed by net cash generated from operating activities of R185m (285c/share) and another reassuring performance from its core fans and heat exchangers division. That division had a 20% increase in orders received in the first half of 2017 to R713m (compared with R592m in the corresponding period in 2016). Howden CEO William Thomson said this increase related to mining and minerals projects that were awarded in the interim period. For the record, the fans and heat exchangers division managed a 12% increase in revenue to R660m, buoyed by the execution of rest-of-Africa mining projects awarded in the previous financial year. So if things are chugging along nicely, why the continued reticence on the dividend? This was one of the first issues raised at the recent investor presentation, when a shareholder wanted to understand the company’s plans for the cash — “assuming R1bn is sufficient for any single acquisition”. Thomson indicated that while R1bn would support a single acquisition, the firm is not limiting itself to one. A follow-up inquiry asked whether there are plans for the resumption of a normal dividend on cash in excess of the existing cash pile of more than R1bn. Thomson noted that “at this stage the company maintains its policy on divi-

October 5 - October 11, 2017

dends and there are no plans for the resumption of normal dividends”. At this point it seems Howden is likely to make an acquisition before it reconsiders dividends — though I suspect more than a few shareholders would not be averse to proposals to buy back shares. Interestingly, Howden looks determined to expand export sales into the rest of Africa and diversify away from the traditional power market (read: Eskom), and seek out opportunities to grow its after-market “both organically and through acquisition”. Curiously, though, Thomson reckons that if Howden mobilises cash for acquisitions it will be in SA. So that would probably mean a locally domiciled business with extensive interests in Africa. Not likely to rush into anything As things stand Howden could afford — and I use these examples for illustrative purposes around scale only — to pitch a fairly attractive offer for Bell Equipment or dangle an offer for ELB Group and still have enough cash left for a sizeable special dividend or to fund a muchmooted empowerment deal. Gut feel is that it probably won’t rush into any potential deals, as there still appears to be some growth traction despite the subdued trading environment. Overall, Howden expects some positive movement in the rest-of-Africa mining industry, and it seems reasonable to expect the core fans and heat exchangers division to keep churning out good cash flows by focusing on spares and service to key industries. The smaller environmental control division won’t shoot out the lights, but Howden noted that “positive signs from the second half of the year” indicate more activity in this market. If you can live without the distributions for the foreseeable future, Howden is an incredibly well-managed company with a solid suite of services. Thus, to my mind, it remains a share for stuffing away in a bottom drawer. x The writer holds shares in Howden Africa

Bain aims for Asatsu-DK US private equity firm Bain Capital planned to buy Japanese advertising agency Asatsu-DK Inc in a deal that could be worth US$1.2bn or more, a person familiar with the transaction said on Monday. Bain would launch a tender offer soon for as many shares of Asatsu-DK as possible, the person said. The Nikkei Business Daily, which reported the buyout, said Bain would pay about ¥150bn for the Japanese company. Reuters

Bloomberg/Chris Ratcliffe

Howden holds out

GLOBAL MARKETS

THE AIRLINE and Monarch Travel Group have been placed under administration, leading to the suspension of the Luton, UK-based company’s operating licence.

Monarch files for insolvency UK leisure carrier Monarch filed for insolvency in Britain’s biggest airline collapse yet, leaving the government to arrange the return of 110,000 tourists and marking the third failure of a major European operator in five months. The collapse of Monarch, which served more than 40 destinations from five UK bases, follows insolvency filings at Alitalia SpA and Air Berlin Plc as a glut in capacity prompted by the low oil price compels carriers to slash fares in a battle for market share. Bloomberg

money&investing PALLINGHURST

Outlook is gloomy at this point A change in strategy is not yet having an effect on turning around the diversified mining companyâ&#x20AC;&#x2122;s lacklustre share price Charlotte Mathews mathewsc@fm.co.za

Ă˝ Diversified miner Pallinghurst Resourcesâ&#x20AC;&#x2122; share price has failed to respond to managementâ&#x20AC;&#x2122;s assurances that it is addressing shareholder dissatisfaction about the underperformance of its assets and nonalignment of management and shareholder interests.

R 1 300 / night

The shares, at 250c this week, have almost halved since their January peak of 495c. The net asset value at the end of June was 436c. Pallinghurstâ&#x20AC;&#x2122;s chairman is well-known mining deal maker Brian Gilbertson and its CEO is former Goldman Sachs and JPMorgan investment banker Arne Frandsen. Frandsen says the recent buyout of minorities in London-listed Gemfields for shares created an overhang but it was part of the strategy to simplify Pallinghurstâ&#x20AC;&#x2122;s structure and become an operating company. By the end of this month Pallinghurst will be ready to explain how it intends to turn around Gemfields where, in the six weeks since taking over, it has already brought management back from London to the operations and started to review mine plans. In the six months to June, Pallinghurst made a total loss of US$81.2m, largely because of write-downs in the value of Gemfields and Sedibelo Platinum Mines, in which it holds 7%. Gemfields earned 24% less from auctions of its rubies and emeralds and production from emerald miner Kagem fell to a seven-year low. Sedibelo produced less platinum group metals than last year as it is focused on cutting costs. Asked if Pallinghurst would consider selling

R 1 200 / night

its stake in Sedibelo in view of the fact that this is a minority stake, that platinum prices have been in an extended downturn and that some shareholders believe Sedibelo has no value, Frandsen says this is not the right time to be trading platinum assets. The best-performing asset is Pallinghurstâ&#x20AC;&#x2122;s 18.45% stake in Australian-listed Jupiter, which holds 49.99% of the large and shallow Tshipi manganese mine in the Northern Cape and has benefited from manganese prices more than doubling in the past 18 months. Despite its good performance, Jupiter was not revalued upwards. Pallinghurst is considering options for Tshipi, Frandsen says. It is arguably the best manganese mine in the world but manganese prices are cyclical. Pallinghurst has made three new appointments to its board and committees, including Sedibelo CEO Erich Clarke and a former Sedibelo director, Kwape Mmela. The only truly independent new appointee is Lumkile Mondi, former chief economist of the Industrial Development Corp. Frandsen says these appointments were made because Pallinghurst is listening to its

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money&investing Pallinghurst share price (c) – weekly 540 500 460 420 380 340 300 260

2014

2015

2016

2017

Source: Iress

shareholders. It is becoming more operational, bringing in people with specific hands-on experience and replacing directors who have resigned. A shareholder, who asked not to be named, says the recent share-price underperformance reflects not only the exit by many former Gemfields shareholders who do not wish to remain in a diversified company, but also that some of the larger shareholders are still not happy. They missed their chance at the July AGM to change Pallinghurst’s structure and executive remuner-

Arne Frandsen: Entrenched

ation. So executives have entrenched their position. The most likely outcome is not another showdown, but that major shareholders will gradually cut their stakes. At end-December, Christo Wiese and his family held 19.89% of Pallinghurst, Old Mutual Investment Group held 9.46% and Oasis Group Holdings, through its asset management and Sharia-compliant investment company, held 15.26% in total. The shareholder quoted earlier says there are not many options now to unlock value. He believes Pallinghurst should increase its stake in Jupiter and though it could realise value by selling Gemfields to Chinese bidder Fosun Gold, which made a counter-offer, this is unlikely to happen. Pallinghurst may be able to generate more cash from Gemfields by paying down debt and increasing sales, but that will take time. He believes Sedibelo’s value is overstated. Another shareholder, who also asked not to be named, believes Sedibelo has no value at all. He says the weak share price reflects the fact that executive management speaks only to a select number of large shareholders, and minorities feel “ripped off” by the lack of capital and dividend return over the past 10 years against generous executive remuneration. x

SASFIN

Not the best of times The bank’s disappointing recent results may be turned around, with plans afoot to restructure and broaden its client base Stephen Cranston cranstons@fm.co.za

Martin Rhodes

LOSING FAITH

ý It was just as well that Sasfin’s announcement that it was terminating KPMG as its auditor took place on the same day as the release of its annual results. Its headline earnings for the year to June were down 16% to R194m, quite a contrast to the 29% growth in the previous year. Sasfin is different from other banks in SA, with a market cap of just R1.6bn and family control by the Sassoons. It still has the feel of a family business, it still knows virtually all of its clients by name, and one of CEO Roland Sassoon’s most cherished tasks is to feed the pet ducks. Many say that Sasfin reminds them of Investec in the early days — except for the ducks. Today, Sasfin’s peer group includes specialist business banks such as Bidvest Bank, Grindrod Bank and Mercantile Bank. It must have come as quite a shock when Sasfin experienced large losses from two clients, which increased the credit-loss ratio from 1.08% to 1.24%. The other factor was the 14% holding in the Efficient Group.

UNMET EXPECTATIONS Sasfin share price (c) – weekly 7,400 7,000 6,600 6,200 5,800 5,400 5,000 4,600

2012 Source: Iress 38

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October 5 - October 11, 2017

2013

2014

2015

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2017 Dividend

Michael Sassoon: Changing of guard

Even though the bank is a small player, its basic metrics have been hit by the economy. Gross loans and advances were up just 4% to R6.7bn. But it has benefited from customers’ reluctance to invest in risky assets, and vanilla bank deposits increased Sasfin still has by 40% to R4bn. the feel of a Sassoon says the transactional banking unit family business, it still knows is showing reduced losses. It was always a weak- virtually all of its clients by name, ness that Sasfin did not and one of CEO offer full-service transacRoland tional banking, but it can Sassoon’s most offer businesses some unique features, such as a cherished tasks is to feed the direct feed into the Xero pet ducks accounting programme. Sasfin has also beefed up its forex unit, an area in which it has long experience. Business Banking still makes up 52% of group revenue, and transactional banking and treasury another 8%. The group would like Sasfin Wealth to become equally important, though it still accounts for just a fifth of revenue and earnings. Sasfin Wealth, built off the Frankel Pollak private client chassis, is rolling out a suite of domestic and offshore unit trusts.

STOR-AGE

Extra space for growth Property investors are turning to alternative real estate sectors that are less exposed to economic swings Joan Muller mullerj@fm.co.za

Jeremy Glyn

The most promising unit there is Boutique Collective Investments (BCI), which provides a platform for unit trusts that do not want to form their own management company to be hosted as “white labelled” funds on the BCI licence. Sassoon believes it’s a promising business, but the holding has to be marked to market, and the Efficient Group share has been volatile on the JSE. Without the mark-to-market revaluation, Sasfin’s earnings would have been flat. During the year, Sasfin disposed of the majority of its investment in Imperial Sasfin Logistics. This business was known for many years as Premier Freight. It undoubtedly fits better into Mark Lamberti’s Imperial, with a logistics focus, than in a banking and wealth management group such as Sasfin. Sasfin’s main upcoming acquisition is of Absa Technology Finance Solutions, increasing its presence in one of its core businesses: leasing business equipment.

In addition to its star portfolio manager, David Shapiro, it has also recruited talent such as former Absa chief investment officer Errol Shear to run a new equity fund, and Absa Consultants’ Johan Gouws to run a new consultants and actuaries unit. Bruce Ackerman is another notable hire. Erol Zeki has just been appointed as CEO of Sasfin Wealth. He is a former CEO of FNB Securities. Sasfin Wealth took the hit for the Efficient slump. But it increased unit trust fees and foreign income. Executive director Michael Sassoon says a weak JSE, a stronger rand and the increased cost of investment in distribution, operational capability and technology all took their toll. The third pillar of the group is Sasfin Capital, a mixed bag that includes corporate finance, private equity, property equity and an umbrella unit called commercial solutions, of which forex was recently its most promising component. Sasfin sold assets worth R200m from its private equity book. It needs to decide if it wants to continue to manage these assets in-house. The group hopes to announce a comprehensive restructuring before the end of the year, which will seal the fate of these units. Sasfin still has a strong capital adequacy ratio of 16.4%. It will have the opportunity to broaden its client base once Wiphold has concluded its deal to buy 25.1% of the group. If nothing else, it should temper the group’s insularity. x

ý The only SA-focused property stocks — besides perennial outperformers Fortress Income Fund and Resilient Reit — that count among the sector’s top 10 in terms of share price growth over 12 months are self-storage operator Stor-Age Property Reit and logistics play Equites Property Fund. The two counters are up 18% and 39% in the year to September 29. That compares with a 6% rise in the SA listed property index as a whole over the same period. Analysts say demand for specialist offerings such as Stor-Age and Equites is indicative of growing appetite for stocks that invest in nontraditional real estate sectors. “Recent results reported by the listed property sector show that the earnings quality of companies exposed to the retail, office and industrial sectors has deteriorated quite quickly on the back of a weak economy,” says Sesfikile Capital portfolio manager and director Kundayi Munzara. He says it is becoming increasingly difficult for diversified funds just to maintain

NICHE PAYOFF Based to 100 130 120

Stor-Age Property share price SA listed property index

110 100 90

S O N D J 2016

F M A M J 2017

J A

Source: Iress October 5 - October 11, 2017

financialmail.co.za

money&investing money&investing

The big boys have bought into the [StorAge] story sooner than we anticipated, which I suspect has to do with how well the self-storage sector has performed in the UK and US. We have also delivered on our prelisting promises Gavin Lucas

inflation-beating dividend growth. In contrast, niche offerings such as Stor-Age and Equites are still delivering sector-leading growth. Munzara says that, as a result, management teams are increasingly looking at alternative asset classes that are less cyclical or vulnerable to economic ups and downs. He believes selfstorage, student housing, infrastructure (including cellphone towers and power plants) and health-care-focused property funds will gain further traction over the next two to three years as the SA economy slows. “Globally, investors have paid a premium for specialisation in companies and shown higher demand for property stocks that operate in these new real estate sectors as they tend to be more defensive in a downturn than their mature, more traditional counterparts,” says Munzara. Self-storage is a particularly interesting sec40

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October 5 - October 11, 2017

tor given that it is still in its infancy in SA. Wynand Smit, research analyst at Anchor Stockbrokers, says there is no doubt that self-storage is increasingly on the radars of SA investors as the dynamics are attractive, especially relative to more established property sectors. Some of the demand drivers for self-storage, such as life events (marriage, divorce, death, birth) and relocations, are not linked to the performance of the economy. In fact, Smit notes that some demand drivers are countercyclical and can lead to increased demand in a downturn. For instance, more people may be forced to rent or scale down to a smaller property in a recession, creating additional demand for shortterm storage of furniture and other possessions. Smit says the self-storage industry in SA is fairly fragmented, which creates scope for consolidation among established players with strong operational platforms. “However, the sector will need to gain scale in order to offer institutional investors adequate liquidity.” The only pure self-storage play currently available to JSE investors is Stor-Age. However, SA Corporate Real Estate recently entered the sector through a R65.6m investment in Storage Genie, while rand hedge counter Schroder European Reit offers investors exposure to the UK self-storage market. Stor-Age was founded 12 years ago by Cape Town-based chartered accountants Gavin Lucas and Steven Horton and listed on the JSE in November 2015. The company is the largest self-storage operator in SA. Its local portfolio spans 300,000 m² across 31 properties worth R2.1bn. Last month, management announced its first

offshore acquisition, a 97.3% stake in UK-based Storage King for £77.13m. Storage King operates 25 facilities across England and is the sixthlargest self-storage brand in the UK in terms of number of stores. Lucas says they initially thought it would take three to five years to educate the SA market on the investment case for self-storage. However, it has taken less than two years for Stor-Age to get the backing of a wide range of institutional investors. “The big boys have bought into the story sooner than we anticipated, which I suspect has to do with how well the self-storage sector has performed in the UK and US. “We have also delivered on our prelisting promises,” says Lucas. He believes the biggest misconception about the sector is the perceived risk of having shortterm tenants, similar to those of hotels, which some analysts equate with an inconsistent level of earnings. “But in reality that risk doesn’t exist.” Lucas says that while leases are structured on a month-to-month basis, the average length of stay in the Stor-Age portfolio is 14 months. The fact that the company has nearly 20,000 individual tenants also mitigates risk, as it is not exposed to a potential large vacancy when one or two tenants leave, as is often the case in the office market. Lucas says initial concerns that growth opportunities in the SA self-storage market were limited also proved unfounded. “We have nearly doubled our portfolio from around R1.2bn to R2.1bn in less than two years since listing. In addition, we have a development pipeline worth R1bn that will be brought onstream over the next three years. And if one also considers our recent UK acquisition and development opportunities in that market, our growth story is very much intact.” Despite the recent run in its share price, Stor-Age is still trading at a relatively attractive forward yield of 8.2%, ahead of the 7.6% sector average. x

If you’re in fuel,

you’re in floods.

Today, in investments, everything is connected. Like hurricanes in the United States, and the cost of fuel in South Africa. That’s why, at STANLIB, we have specialists in every field who consider how changes in global markets influence your investments at home. Making sure that closed ports and refinery outages on one side of the world, don’t translate into disastrous returns on the other. We call it multi-specialist investing, because that’s what a connected world demands. #ConnectedInvesting

stanlib.com STANLIB is an authorised financial services provider.

shop talk by Zeenat Moorad

@zeenatmoorad e: MooradZ@bdlive.co.za

Potato, potahto

little over three years ago, two students, Ben and Kendal, wrote to Nike co-founder and chairman Phil Knight about a great pronunciation debate. Their letter, dated April 17 2014, reads: “Dear Mr Knight, we are writing to ask you to help us settle a score that will in turn answer one of life’s big unanswered questions. When one speaks of your great institution, is it pronounced: Nike/naIk (Ni-ke) or Nike/naI.ki (Ni-key). If you could please circle the correct answer and return this letter within the stamped, addressed envelope provided we will be tremendously grateful.” According to the students, Knight’s confirmation “would help eradicate the social faux pas when mentioning the word Nike”. It is, after all, one of the most commonly mispronounced brand names in the world. The others are Porsche (say porsh-uh), Huawei (wah-way), Audi (that’s Ow-dee not Or-dee) and Moët et Chandon (Mo-wett, definitely not Mo-way). Knight circled the word Ni-key. So it’s settled. And now that I’ve saved you from sounding like a loser at your next dinner party, we can move on. If you haven’t read Knight’s memoir, Shoe Dog, I urge you to. There’s more in there about how the Nike name and signature swoosh — one of the most ubiquitous and recognisable symbols in the world — were created. It’s also a really frank account of what the evolution of a start-up looks like. 42

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Under pressure The US$85bn sportswear behemoth has hit a bit of a rough patch. Earnings fell less than analysts feared thanks to a lower tax rate and a cut in marketing-related expenses, but the company still posted its slowest quarterly sales growth in nearly seven years. Nike’s issues are as follows: its wholesale channel (that’s the goods it sells through retail partners), which makes up roughly three-quarters of its business, is under pressure. By extension then, North America (that’s its home market) — the company’s largest revenue contributor, at 40% — has hit the skids. The athleisure trend — in which consumers wear sports apparel in formal and informal settings, not just the gym — is waning. And a resurgent Adidas (Ah-dih-dahs, not Ah-dee-duhs) is taking market share. In fact, Adidas surpassed Nike’s Jordan brand to become the second-favourite sneaker in the US after Nike (which is tracked separately), according to market research firm NPD Group. While Nike remains the top seller, its Jordan brand is losing momentum, which has made some nervous. It’s important to note here that international growth — particularly in China — is strong. Meanwhile, here are the numbers bits. Net income for the quarter ended August 31 fell 24% to $950m. Analysts’ consensus had put this at $800m. It earned 57c/share, where analysts on average had expected earnings of 48c/share. It reported sales of $9.07bn, a touch short of the $9.08bn estimates. Nike, which was the worst-performing Dow stock of 2016, aims to retain its athletic sector dominance in a few ways. First, through . . . erm . . . cost cutting: 2% of its global workforce or about 1,400 jobs will be slashed. It’s also trying to cut out the so-called middleman by selling more directly to consumers through its own stores and website (higher margin here) and through Amazon. Chiefly, the company has renewed its focus on design beyond the pure purpose of function — which, when the rubber hits the road (level 10 corny, but I couldn’t resist), will be the only thing that sets it apart. x

October 5 - October 11, 2017

CHECKOUT COUNTER

Ikea acquires TaskRabbit Ikea has bought online on-demand services platform TaskRabbit for an undisclosed sum. TaskRabbit allows users to hire people to help them move, clean up their houses or assemble furniture. The Swedish home goods giant mostly sells its furniture in kits with illustrations provided as directions. The move is said to be aimed at catering to customers averse to self-assembly or do-it-yourself (DIY).

Hershey bullish on India US-based chocolate and confectionery firm The Hershey Company plans to expand its portfolio and manufacturing facilities in India. It is one of four markets that the Pennsylvania-based group has eyed to scale up its operations. The others are China, Brazil and Mexico. Its current product offering in India does not include Kisses or Reese’s Peanut Butter Cups — their most popular global brands.

Pot smokers go for McD’s McDonald’s was the most popular choice for marijuana users in states where it was legalised, according to research by Green Market Report and Consumer Research Around Cannabis. The study showed 43% of cannabis users preferred McDonald’s when stricken with the munchies within the four weeks prior to the survey. The study was conducted in major markets in Colorado, California, Nevada, Oregon, and Washington DC.

Coke and a dash of coffee Atlanta-based beverage giant CocaCola has launched Coca-Cola Coffee Plus in vending machines in Japan. The coffee-flavoured soft drink is made with an extract coffee powder added to original Coke.

investor’s notebook by Stephen Cranston

A matter

of profile and believe external managers should see the GEPF as their client. The fund should do its own manager searches, making the PIC just another manager. The PIC seems to take a lot for granted, but the only areas it should logically hold onto are its quasi-index bond and equity portfolios, where it can leverage its scale. There are better qualified managers to do private equity, property and infrastructure and the GEPF can find cheap ways to access global assets.

iStock

@scranston

I To get full credibility the GEPF needs to have open elections for its member trustees

t always strikes me how little attention is given to the Government Employees Pension Fund (GEPF). After all, it is the custodian of the R1.5 trillion or more in funds that minister Malusi Gigaba would love to get his hands on. All the attention is rather focused on the Public Investment Corp (PIC), which is no more than an agent of the GEPF. The PIC is tightly constrained by its mandate from the GEPF, and PIC boss Dan Matjila is telling the truth when he says he can’t buy a full R10bn of Telkom shares. I have always believed the PIC should simply be the investment department of the GEPF so that there is no confusion. The GEPF could certainly do more to raise its profile and beef up its intellectual capital. The principal executive officer, Abel Sithole, was a good choice, as

he had the same job at the Eskom Pension & Provident Fund and later ran Metropolitan Employee Benefits and Metropolitan Asset Managers. He can’t take all the blame for the lack of progress at the latter. But the GEPF head of investments and actuarial services, Linda Mateza, does not have the profile of her predecessor, John Oliphant, though she has been chief investment officer of Eskom’s fund. Low profiles are no bad thing: there was a time when you couldn’t go to an investment conference without Oliphant boring everyone to death with his shtick about responsible investing. But he is a heavyweight. And as he and Matjila had both worked as quantitative analysis geeks at Stanlib there was a strong working relationship. I would advise the GEPF to take direct responsibility for asset allocation,

Room for experts To get full credibility, though, the GEPF needs to have open elections for its member trustees. To date only the army and intelligence services have been able to vote for their own trustee. The other positions were carved up among the unions, without even the formalities of a stuffed ballot. Granted, there have been some good appointments from the union ranks, such as Prabir Badal, the former deputy chairman. I don’t buy the excuse that running an election between the 1,2m members of the fund is impractical or even impossible. The GEPF has a perfectly decent administrator that can send out ballot papers. And surely the two main stakeholders, government and the unions, still believe democracy is worth fighting for? There should be room for independent experts, co-opted into the ranks of employer trustees. A few years ago there were heavyweights such as Jeremy Andrew, the former chief actuary of the Financial Services Board; Sidney Place, the former boss of Matjila and Oliphant at Stanlib; as well as Rhonda Stewart, the most dynamic asset consultant I have ever come across. Themba Gamedze, a leading actuary and former Sanlam and Liberty executive, is custodian of most of the private sector expertise on the GEPF board. The board definitely needs someone with experience at the coal face of fund management who can look the PIC suits in the eyeballs. x

COAL OF AFRICA / THE COMPANY WILL SELL ITS MOOIPLAATS COLLIERY TO MOOIPLAATS COAL HOLDINGS FOR R179.9M October 5 - October 11, 2017

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Rhandzo Mukansi Interest rate market analyst, Futuregrowth

If someone came to you tomorrow with R100m to invest in just one company, which would it be? Of That Nature, a socially responsible, ecommerce based start-up organics business. Which talent would you most like to have? I’m a prolific footballer — in my head. I would wish it to life if I could. What’s your biggest regret? As far as investing goes, it’s not having converted my paper portfolios to rands and cents sooner. It’s a marvel how quickly you learn when your own money is on the line. What’s the best investment you’ve ever made? Undoubtedly the cows I paid towards my wife’s lobola. No market yield could rival my returns. Name a place you’ve been to that lived up to the hype? London, surprisingly. The blend of old-school charm and new-age edginess is captivating. What’s your favourite song? Sade — By Your Side. What’s your worst investment mistake? Succumbing to fear and greed (and their blinding effect on sound judgment) in my earlier days as a young analyst. If you could fix one thing in SA today, what would it be? I would fix our education system, particularly pertaining to its quality and accessibility. The bulk of SA’s ills can be blamed on our struggling education system. What was your first job? I coached soccer and rugby at my childhood primary school. My first paying job was as a sports coach at university. x

financialmail.co.za

October 5 - October 11, 2017

economic indicators AFRICA TOP STOCKS (EXCL SA) Company

ECONOMIC INDICATORS

Market Cap (Us$000s)

Maroc Telecom

Morocco

12,740.65

137.00

1.13

Attijariwafa

Morocco

10,119.41

470.00

16.92

Consumer price index

Aug

4.8

4.6

Prime

10.25

Nigeria

10,081.83

212.99

28.80

Producer price index

Aug

4.2

3.6

NCD*

7.20

7.13

7.45

Kenya

9,798.08

25.25

37.13

Repo

6.75

7.00

Morocco

5,793.73

300.50

7.59

Claims on the domestic pvte sector

Aug

6.0

5.7

Jibar*

6.99

7.05

7.36

Egypt

5,372.33

81.50

12.24

Total loans and advances

Aug

5.4

Safex†

6,72

6,75

6,95

Banque Marocaine

Morocco

3,910.91

206.00

-5.50

Total domestic credit extension

Aug

7.8

Nigerian Breweries

Nigeria

3,634.17

165.00

13.70

Zimbabwe

3,444.62

2.75

222.21

New passenger car sales

Sep

5.9

5.4

New commercial vehicle sales

Sep

9.3

9.0

Dangote Cement Safaricom Banque Centrale Commercial Intl

Delta Corp Guaranty Trust

Nigeria

Price Total Return Ytd

INTEREST RATES

Country

3,270.13

40.00

74.47

DIVIDENDS & DISTRIBUTIONS F Final I Interim p Pence Q Quarterly

Company

Bowler Metcalf

Amount (c)

Trade by

Payable

22.70

Oct 24

Oct 30

525.00

Oct 17

Oct 23

8.50

Oct 17

Oct 23

Latest

Month ago

Sep 29

Inflation (% change y/y)

Credit Aggregates (% change y/y)

Retail sales

Jul

1.8

3.2

Wholesale sales

Jul

-1.1

-1.3

Manufacturing production

Jul

-1.4

-2.2

Mining production

Jul

0.9

1.3

Mineral sales

Jun

-3.9

-5.8

Trade (Rbn)

Year ago

R186

8.550

8.570

R204

6.950

6.970

8.650 7.635

R207

7.260

7.310

7.860

83.76

R208

7.490

7.460

8.045

R209

9.475

9.560

9.200

Trade balance

Aug

5.94

9.33

coming together of minds. It’s a unique way of working which means that our Solutionist thinking, backed by our robust support procedures, will ensure you always get reliable longterm answers

to meet your specific business needs. Naturally, as pioneers in the field, we continue to deliver our individually tailored solutions that strive to maximise your returns while minimising your risks. After all, we believe when it comes to Prime Broking you should profit from our extensive experience.

3.00

Oct 31

Nov 6

Gold reserves

Aug

5.26

5.11

0.55p

Nov 21

Dec 15

SDR holdings

Aug

2.53

2.52

Rolfes Holdings

4.00

Oct 17

Oct 23

Forex reserves

Aug

39.13

39.12

TeleMasters Holdings

1.00

Oct 17

Oct 23

Gross reserves

Aug

46.92

46.75

Trencor

50.00

Oct 24

Oct 30

Net reserves

Aug

42.65

42.41

Gold & Forex Reserves (US$bn)

COMMODITY PRICES

EXCHANGE RATES

12-mth low 12-mth high

Precious metals (US$/oz)

Sep 29

Month ago

Year ago

12-mth low 12-mth high

Developed Markets — Rand per foreign currency unit

1,280

1,297

1,320

1,128

1,349

US dollar

13.56

12.99

13.89

12.43

14.42

913

933

1,028

893

1,029

Euro

16.02

15.61

15.59

13.42

16.02

937

922

715

613

983

16.65

17.00

19.10

15.62

19.18

Aluminium

2,080

2,137

1,661

1,606

2,150

Copper

6,432

6,416

4,825

4,614

6,887

Nickel

10,416

10,342

10,391

8,736

12,194

Lead

2,492

2,487

2,065

1,952

2,518

20,845

20,745

20,140

18,753

21,965

Base Metals (US$/t)

Zinc

3,205

3,077

2,354

2,227

3,205

Iron Ore

63.92

66.56

57.80

54.24

94.91

Energy

UK pound

18.17

16.79

18.03

15.51

18.17

Japan yen (100)

12.08

11.90

13.73

11.15

13.89 10.90

Canada dollar

10.87

10.47

10.58

9.30

Switzerland franc

14.00

13.66

14.38

12.54

14.54

Australia dollar

10.62

10.35

10.65

9.48

10.92

Emerging Markets — Foreign currency unit per rand Brazil real

0.23

0.24

0.23

0.22

0.26

China yuan

0.49

0.51

0.48

0.47

0.55

India rupee

4.83

4.92

4.81

4.64

5.26

Russia ruble

4.25

4.53

4.54

4.08

4.80 0.36

Brent ($/bbl)

56.53

56.64

47.83

43.73

58.86

Malaysia ringit

0.31

0.33

0.30

0.29

Coal (US$/t)

90.60

93.65

68.50

100.25

Thailand baht

2.46

2.56

2.50

2.45

2.78

Botswana pula

0.76

0.78

0.75

0.82

Agriculture (R/t) White maize

1,893

1,890

3,635

1,678

4,205

Yellow maize

2,012

2,009

3,068

1,804

3,444

Wheat

4,055

3,981

4,142

3,808

4,717

Sunflower

4,836

4,854

6,439

4,230

6,530

Economist: Global Markets Research,

Soya

4,682

4,690

6,143

4,387

6,702

Rand Merchant Bank (tel) +27 11 282-4716 or e-mail: isaah.mhlanga@rmb.co.za.

SHAREHOLDER MEETINGS Company

Month ago

93.09

Tin

Sep 29

97.44

Silver

Bond yields (%)

103.38

London Finance & Investment

Palladium

† Overnight rate

Aug

Insimbi Refractory and Alloy

Platinum

* 3 months

Aug

Gold

10.50

Exports

Year ago

Imports

Cognition Holdings

Week ago

Month ago

Industry (% change y/y)

Capitec Bank Holdings

Sep 29

Short-term interest rates (%)

Date

Type

Place

Sovereign Foods

Oct 9

Port Elizabeth

Balwin Properties

Oct 10

AGM

Bedfordview

Our vast experience in Prime Broking has taught us that true collaboration is much more PRIME BROKING than just a

SEE WHERE REAL EXPERIENCE AND TRUE COLLABORATION TAKE YOU. The information in the commodities column is provided by Isaah Mhlanga,

Company

Date

Type

Delta EMD

Oct 10

AGM

Place Johannesburg

RMB. Solutionist Thinking. Rand Merchant Bank is an Authorised Financial Services Provider. www.rmb.co.za

October 5 - October 11, 2017

financialmail.co.za

jse top stocks COMPANY

CLOSING PRICE (MONDAY) (C)

ANHEUSER-BUSCH INBEV BRIT AMER TOBACCO BHP BILLITON PLC NASPERS LTD-N GLENCORE PLC RICHEMONT-DR ANGLO AMER PLC FIRSTRAND LTD VODACOM GROUP STEINHOFF INT NV STANDARD BANK GROUP SASOL LTD MTN GROUP LTD SOUTH32,LTD MONDI PLC MONDI LTD OLD MUTUAL PLC SANLAM LTD ASPEN PHARMACARE SHOPRITE HLDGS REMGRO LTD BARCLAYS AFRICA BID CORP LTD NEDBANK GROUP CAPITEC BANK HOLD INVESTEC PLC ANGLO AMERICAN PLATINUM DISCOVERY LTD RMB HOLDINGS LTD MEDICLINIC INTL PLC KUMBA IRON ORE TIGER BRANDS LTD GROWTHPOINT PROP RAND MERCHANT INVEST HOLD FORTRESS-INC-A FORTRESS-INC-B WOOLWORTHS HLDGS REDEFINE PROPERTIES BIDVEST GROUP RESILIENT REIT REINET INVEST-DR ANGLOGOLD ASHANTI SAPPI LTD GOLD FIELDS LTD MR PRICE GROUP ASSORE LTD EXXARO RESOURCES IMPERIAL HLDGS CLICKS GROUP LTD LIFE HEALTHCARE AVI LTD NETCARE LTD TRUWORTHS INTL SIBANYE-STILLWAT SPAR GRP LTD/THE TFG LIBERTY HLDGS TELKOM SA SOC LT SANTAM LTD PICK N PAY STORES MMI HOLDINGS LTD HYPROP INVESTMENTS PIONEER FOOD GROUP BARLOWORLD LTD NORTHAM PLATINUM KAP INDUSTRIAL DIS-CHEM PHARMACIES

161,600 84,862 24,214 297,300 6,325 12,342 24,741 5,199 15,770 5,953 15,790 37,041 12,200 3,617 37,230 36,954 3,491 6,765 30,379 20,296 20,780 13,820 30,145 20,100 85,729 9,858 34,795 14,206 6,255 11,604 23,000 37,616 2,433 4,129 1,708 3,872 5,862 1,069 17,578 13,379 2,829 12,694 9,270 5,778 17,567 28,920 12,558 19,222 15,245 2,380 9,685 2,307 7,455 1,507 16,615 13,240 10,583 5,654 25,500 5,657 1,723 10,599 11,260 12,350 4,808 842 2,798

financialmail.co.za

MARKET CAP (RM)

SHARE PRICE RETURN YTD (%)

3,263,095 1,946,337 1,401,899 1,306,821 910,467 708,678 319,730 291,637 271,467 256,558 255,474 241,567 229,881 188,046 180,427 180,427 172,191 146,562 138,665 120,018 117,350 117,159 101,108 100,120 99,126 96,209 93,817 91,891 88,302 85,550 74,080 72,249 71,389 62,170 61,768 61,768 61,431 60,399 58,957 56,603 55,432 52,219 51,653 47,468 47,298 40,374 39,454 38,663 37,498 34,495 33,975 33,747 32,956 32,041 32,001 31,347 30,289 29,794 29,359 27,632 27,157 26,332 26,279 26,268 24,510 24,078 24,065

13.08 12.83 16.08 48 37.76 38.86 30.55 0.19 6.26 -15.96 9.78 -4.01 2.28 38.62 36.94 35.31 4.84 12.13 7.13 21.22 -6 -11.82 25.11 -10.62 24.64 11.06 31.59 24.89 -3.43 -10.2 57.11 -2.76 1.31 5.04 11.5 25.45 -13.31 -0.41 -0.06 22.44 6.54 -16.04 4.8 35.44 13.22 28.78 49.12 9.05 35.01 -20.46 7.81 -25.12 -1.19 -8.72 -15.01 -12.78 1.91 -19.92 12.88 -9 -21.09 -4.25 -25.15 8.07 18.72 15.41 25.23

October 5 - October 11, 2017

TRAILING EST. EPS (*) FORWARD EPS (*)

1.97 2.27 1.1 6.72 0.29 2.14 2.93 4.38 6.88 NA 14.64 33.26 4.34 0.23 1.29 1.29 0.17 5.06 11.22 9.58 15.23 17.81 12.04 20.29 35.17 0.44 -5.7 6.84 5.81 0.31 31.83 19.96 2.67 2.22 2.01 2.01 5.64 1.51 14.22 7.91 4.15 -0.41 0.65 0.13 8.62 48.67 20.83 13.02 4.65 0.71 4.75 1.48 6.59 -0.83 9.99 10.94 6.94 7.24 11.39 2.5 0.97 11.14 5.57 8.55 -1.82 0.52 NA

4.85 3.04 1.23 7.37 0.32 0.32 1.85 4.71 10.29 0.37 16.5 33.14 6.36 0.18 1.61 1.61 0.22 5.22 17.74 11.66 17.73 18.99 13.76 25.95 43.91 0.55 10.76 8.99 6.15 0.38 19.41 24.89 2.12 3.19 1.61 2.02 4.64 1 12.96 6.5 0.38 0.66 0.62 0.17 10.49 30.2 15.19 16.76 5.75 1.57 5.68 1.88 6.79 1.21 10.98 12.45 13.32 6.05 17.64 3.22 2.15 7.78 8.58 11.07 -1.17 0.68 1.07

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

3.41 3.7 4.68 NA 1.5 NA 2.65 4.9 5.26 NA 5.32 3.4 5.74 3.8 2.46 2.47 3.58 NA 0.94 2.48 2.38 7.56 0.83 6.17 1.55 4.19 0 1.32 5.23 1.23 6.94 2.87 8.05 2.86 9.43 9.43 5.34 8.34 27.93 4.24 NA 0 0 1.78 3.8 4.84 5.65 3.38 1.86 5.07 3.94 4.12 6.06 2.64 3.91 5.44 6.53 7.46 3.55 3.12 9.11 6.56 3.24 2.87 0 0 NA

3.34 4.19 4.29 0.32 3.54 2.48 4.03 5.43 5.96 4.04 5.99 3.25 5.31 3.28 2.82 2.88 3.88 4.55 1.07 2.92 2.79 7.63 1.91 6.68 2.13 5 1.36 1.39 3.43 1.49 7.26 3.39 8.68 3.3 8.45 5.25 5.64 9.21 3.24 4.88 10 1.03 3.02 1.56 4 4.51 3.89 4.17 2.32 4.83 4.71 4.1 6.28 3.86 4.46 6.15 6.96 6.44 3.95 3.89 9.57 7.3 3.52 3.56 NA 3 1.58

3-YEAR FORWARD AVERAGE ROE (%) ROE (%)

12.08 67.6 0.83 18.12 -0.45 9.99 -7.71 24.16 51.57 NA 15.69 10.92 11.82 NA 20.24 20.24 9.26 20.42 13.28 22.9 9.82 16.31 NA 14.47 25.87 8.89 -8.92 17.57 21.42 NA NA 19.21 10.28 18.16 5.72 5.72 NA 12.04 NA 16.58 13.16 -2.58 21.1 -0.32 45.81 NA 9.5 15.02 55.65 30.85 32.34 23.82 33.61 2.36 43.9 23.72 15.9 11.93 23.38 29.94 8.98 15.29 16.85 9.88 -7.76 13.29 NA

13.19 34.37 11.01 19.19 10.21 11.01 10.94 22.54 40.4 9.73 16.6 9.44 10.67 9.19 19.88 19.88 11.84 17.73 16.19 22.68 12.3 15.75 17.67 15.26 25.89 13.05 9.01 14.85 19.59 6.61 20.82 22.49 7.96 23.94 6.07 6.55 20.6 9.45 19.28 7.91 191.18 7.63 18.82 4.28 37.06 14.18 13.42 16.07 44.38 14.38 35.72 19.18 28.21 6.54 31.62 22.53 12.53 10.6 27.18 35.1 16.81 8.05 18.8 11.16 -0.67 15.7 54.99

P:E FORWARD P:E

60.43 20.67 16.04 122.23 31.92 36.03 6.11 12.27 17.09 NA 10.42 10.54 29.68 11.32 18.07 17.33 13.52 13.22 23.38 19.84 13.99 7.62 25.52 8.51 24.27 11.85 58.09 20.76 11.14 20.71 7.12 17.19 13.54 18.44 10.3 10.3 13.93 10.33 15.86 19.48 4.35 NA 10.5 22.38 19.27 5.73 6.7 15.5 30.79 19.95 19.95 10.65 11.26 NA 16.36 12.05 14.84 7.84 22.17 21.4 17.51 9.53 19.01 14.23 NA 15.54 NA

24.64 15.52 14.54 30.52 14.36 24.42 9.94 11.06 15.36 10.13 9.58 11.19 19.34 14.52 14.54 14.43 8.65 12.99 17.18 17.45 11.76 7.28 21.96 7.76 19.69 9.92 34.22 15.88 10.18 17.17 12.25 15.12 11.47 12.99 10.65 19.31 12.68 10.68 13.6 20.64 4.69 20.66 10.97 24.82 16.81 9.81 8.38 11.5 26.54 15.14 17.08 12.28 10.99 NA 15.13 10.67 7.98 9.35 14.52 17.66 8.04 13.63 13.13 11.15 NA 12.43 26.49

TOTAL SELL

TOTAL HOLD

TOTAL BUY

1 0 7 0 2 0 4 1 4 1 2 2 7 8 1 1 3 0 3 2 0 1 1 0 4 0 3 2 0 3 8 3 0 1 1 2 3 0 2 2 0 1 0 5 3 2 0 6 5 0 1 1 8 2 3 1 0 4 1 4 2 4 5 4 3 0 2

12 7 12 0 11 0 12 10 7 5 7 5 4 10 6 3 3 1 4 4 2 4 5 8 2 2 6 2 3 8 3 3 8 2 3 3 10 4 9 4 1 9 2 3 9 6 2 3 6 6 8 9 3 10 9 7 4 9 2 8 2 2 4 7 3 2 4

23 17 7 16 14 4 11 2 6 10 4 6 6 4 7 1 4 4 7 7 3 8 5 4 3 5 7 3 1 4 3 6 0 1 1 0 2 3 2 1 3 5 5 6 3 0 8 5 2 8 2 4 3 2 3 6 3 3 1 3 0 2 3 2 7 3 2

jse top stocks COMPANY

CORONATION MASSMART HLDGS IMPALA PLATINUM AFRICAN RAINBOW TONGAAT HULETT SUPER GROUP LTD VUKILE PROPERTY ATTACQ LTD RCL FOODS LTD/SO SA CORPORATE REAL EST NAMPAK LTD FAMOUS BRANDS LT OCEANA GROUP LTD GRINDROD LTD ADCOCK INGRAM HOLD HARMONY GOLD MNG PPC LTD WILSON BAYLY HOLMES ASCENDIS HEALTH ASTRAL FOODS LTD REBOSIS PROPERTY MURRAY & ROBERTS EMIRA PROPERTY FUND ROYAL BAFOKENG PLAT ARCELORMITTAL SO PAN AFRICAN RESOURCES THARISA PLC RHODES FOOD GROUP MPACT LTD MERAFE RESOURCES CHOPPIES ENTERPRISES LONMIN PLC

CLOSING PRICE (MONDAY) (C)

6,807 10,800 3,140 10,513 11,420 4,290 1,960 1,855 1,466 490 1,762 11,667 8,432 1,394 5,995 2,390 632 14,800 1,965 17,351 1,105 1,590 1,335 3,248 460 232 1,940 1,830 2,476 156 300 1,300

MARKET CAP (RM)

SHARE PRICE RETURN YTD (%)

23,811 23,452 23,072 23,003 15,430 15,405 14,858 13,898 13,719 12,400 12,147 11,651 11,428 10,630 10,536 10,530 10,060 9,352 8,566 7,433 7,098 7,071 6,978 6,361 5,235 5,184 5,063 4,644 4,245 3,917 3,875 3,676

-0.19 -12.53 -26.53 13.66 -10.57 11.05 10.01 9.83 16.27 -5.42 -5.06 -25.46 -26.87 3.64 27.13 -22.87 14.29 -2.87 -22.6 36.76 0.56 38.02 3.38 -8.79 -60 -10.08 -4.57 -31.04 -10.04 -1.23 -4.76 -44.59

TRAILING EST. EPS (*) FORWARD EPS (*)

Market Cap â&#x20AC;&#x201D; Global market capitalisation. YTD â&#x20AC;&#x201D; year to date EPS â&#x20AC;&#x201D; Earnings per share Trailing EPS â&#x20AC;&#x201D; EPS at the time of the most recent annual results presentation Est. forward EPS â&#x20AC;&#x201D; EPS as estimated by analysts at the time of the next annual results presentation * â&#x20AC;&#x201D; SA companies quoted in rand, otherwise in reporting currency Div Yield â&#x20AC;&#x201D; Dividend yield as at most recent annual results

4.39 5.83 -11.44 6.98 8.53 2.83 2.19 0.23 0.59 1.09 2.7 4.12 6.8 -1.16 3.33 0.65 0.12 13.54 0.69 5.39 2.63 0.12 1.43 0.88 -5.9 0.01 0.2 1.25 1.73 0.38 0.05 -1.84

5.03 6.82 -0.37 14.89 13.43 3.66 1.68 2.44 1.3 0.48 2.09 7.02 5.63 0.78 3.94 2.11 0.46 17.28 2.05 20.18 1.35 1.56 1.46 0.14 -0.66 0.02 0.2 1.45 2.25 0.29 0.14 -0.11

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

6.43 2.79 0 6.18 2.63 0 4.55 0 1.71 8.97 0 0 5.3 0 1.27 3.56 0 3.21 0.56 1.61 11.15 2.83 10.73 0 0 3.82 0 1.36 3.23 4.49 3.19 0

7.3 3.08 NA 5.83 4.55 NA 8.9 4.38 3.64 9.86 2.38 2.71 4.82 1.59 3.01 2.24 2.96 3.85 1.24 5.5 12.19 2.87 11.18 NA NA 4.54 2.3 2.49 3.16 5.14 2.91 0.15

3-YEAR FORWARD AVERAGE ROE (%) ROE (%)

83.28 22.05 -7.76 1.3 7.56 15.13 16.58 8.15 3.74 18.6 14.48 33.81 28.13 -5.98 NA -3.66 NA 13.44 9.75 22.55 17.33 8.63 12.91 -6.53 -31.14 11.49 NA 29.34 13.12 12.26 14 -30.88

75.74 20.67 -1.43 11.96 11.61 14.57 10.47 8.01 11.08 13.48 12.15 34.28 15.82 3.97 17.52 3.13 8.84 16.37 13.31 22.39 7.91 10.05 8.26 0.52 1.7 13.39 14.11 16.95 9.21 20.26 10.84 -5.72

P:E FORWARD P:E

15.52 17.96 NA 6.24 13.39 14.87 12.97 80.65 NA 11.25 15.26 19 12.65 NA 9.59 8.02 90.29 11.32 24.53 31.72 4.45 58.89 13.2 37.46 NA 8.66 6.8 13.88 13.68 4.07 49.18 NA

TOTAL SELL

TOTAL HOLD

TOTAL BUY

2 4 4 0 0 1 0 1 0 0 2 1 1 0 1 2 0 1 0 0 1 2 2 2 2 0 0 2 0 0 0 15

3 4 7 6 1 0 1 0 4 5 5 1 3 0 4 7 0 0 1 2 2 1 4 4 2 1 0 0 3 1 1 3

2 4 5 4 4 7 3 3 1 1 3 2 0 4 0 1 6 6 3 3 1 2 0 3 0 7 5 5 3 3 3 1

13.53 15.97 NA 7.17 8.65 11.77 11.71 7.74 11.51 10.2 8.42 16.73 14.99 19.74 15.27 11.36 13.89 8.59 9.63 8.6 8.2 10.22 9.18 NA NA 6.28 6.99 12.65 11.36 5.32 16.18 NA

Forward Div Yield â&#x20AC;&#x201D; Dividend yield as at next annual results Three-year average RoE â&#x20AC;&#x201D; three year average return on equity Forward RoE â&#x20AC;&#x201D; Return on equity as at next annual results P:e â&#x20AC;&#x201D; Price:earnings ratio as at recent annual results Forward P:e â&#x20AC;&#x201D; Price:earnings ratio at next annual results Tot Sell/Hold/Buy â&#x20AC;&#x201D; number of buy, hold, and sell recommendations. Sum of sells, holds and buys â&#x20AC;&#x201D; number of analysts following company

All information provided by Bloomberg and Bloomberg sources. The FM undertakes to transmit the information as accurately as possible and is confident it is correct, but is not able to warrant its accuracy. Companies not being tracked by analysts will not appear in the above listing, market capitalisation not withstanding.

AFRICAN INFRASTRUCTURE

DIALOGUE 2017

African Infrastructure Dialogue 2017: Infrastructure as a disruptor

Kgalema Motlanthe Former President, South Africa

Ranjeni Munusamy Associate Editor: Analysis, Tiso Blackstar Events

Business Day Dialogues invites you to its next discussion with Harith General Partners, where some of the brightest business minds will exchange insights and expertise on various aspects critical to further development and investment of African infrastructure. Date: 27 October 2017

Time: 08h00-16h30

Tickets: R4,950 Per Delegate

Venue: The Avenue Conference Venue, 40 Dock Road, V&A Waterfront, Cape Town For further information visit:

www.harithdialogue2017.co.za

Patrick Dlamini Chief Executive Ã&#x20AC;

October 5 - October 11, 2017

Funke Opeke Ã&#x20AC; Main One Cable Company, Nigeria

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special report

retirement funding

OVERVIEW

Investors need not panic A rush to shift assets away from riskier portfolios to more cash types of investments is missing out on present opportunities ý Broadly, returns have been disappointing for risky assets over the past three years, and this is having a distinct impact on investor behaviour. Coronation Fund Managers head of personal investments Pieter Koekemoer says conservative investors are disappointed with outcomes. “People who invested in balanced portfolios which have exposure to riskier assets in addition to cash have probably done worse than pure cash portfolios over the past three years,” he says. “This is relatively unusual in the SA context, where it is rare to have several consecutive years with below-inflation returns from the local equity market. Expectations have not been met and, as a result, there has been a shift of assets away from riskier portfolios to more cash and near cash types of investments.” However, he says while the move into cash is understandable, it is not necessarily the right move. “If you have a period of below expectation returns that normally translates into more attractive valuations for riskier assets, this increases the probability of better outcomes in future years.” Looking at the components of the local share market that are tied into the local economic cycle, the news has been bad, but this bad news has been priced into the shares. “At the moment the upside to fair value is at the most attractive

level we have seen since 2011, and this is usually consistent with better than average returns in future,” Koekemoer says. In light of this scenario he does not expect the present subdued market performance to continue for the next three years. In other words, Koekemoer says people who are invested in cash are responding to past disappointments and not necessarily to the present opportunity set. “This is particularly true of the more global businesses such as Naspers, where valuation levels are attractive,” Koekemoer says. He also notes that given that over three years ago the market was fully valued, the lower returns are not completely unexpected since that time. There are effectively two issues at the moment. Looking at present net cash flows in the unit trust industry there is a major swing away from low and moderate-risk multi-asset funds to the more conservative managed income funds. “People who were invested in bonds, cash and property would have done better over the past three years than they would have in a portfolio with 50% equities. “Investors are responding by taking money out of balanced funds and putting it into managed income funds. However, this is What it means: Below-inflation returns from the local equity market has led to some investors shifting assets

Pieter Koekemoer: Attractive valuation levels in the midst of subdued markets

probably the wrong time in the cycle given our estimated potential 30% upside to fair value,” Koekemoer says. He says investors may also have expectations for returns from lower-risk multi-asset funds that are too elevated. Allan Gray director Jeanette Marais says most of the money people need to retire comes from capital growth and only a relatively small percentage from their contributions. This is not to say that contributions are not important as they form the foundation of a person’s investment, but the capital growth, which compounds over time, is very much the focus, particularly as people get closer to the point of retirement. Given the importance of capital growth, real returns (that is returns ahead of inflation and any other factors that reduce purchasing power) are crucial and without real

returns there is no real growth. “At the moment our industry is seeing net outflows of discretionary savings. People still invest in their retirement annuities and preservation funds but in total they are not putting their discretionary savings into unit trusts. “Unfortunately, this could mean that they are putting their money into cash,” Marais says. She says this is understandable given that institutions such as banks are advertising 8%-9% guaranteed interest rates, while with unit trusts there are no guarantees. However, her concern is that investors in cash will not move back into the market in time to take advantage of the expected uptick in share prices. “They will be stuck with 8% or 8.5% when market returns start to pick up. “It also means that people who

October 5 - October 11, 2017

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Jeanette Marais: Capital growth is the foundation of investment

RETIREMENT ANNUITIES

Tough times call for caution Investors and retirees need to be prudent when setting their draw-down levels, especially in a low-returns environment ý Living annuities can be effective vehicles for funding retirement but they require investors to be knowledgeable about the way these annuities work and retirees need to be prudent when setting their draw-down levels, particularly in a low-returns environment. Professional Provident Society (PPS) Investments executive: product development Hugo Malherbe says unfortunately South Africans using living annuities tend to draw down too much and eat into their retirement savings capital. In addition, the situation is being worsened by the current tough economic conditions. “Markets are volatile at the moment and people are also starting to feel the impact of increasing costs,” Malherbe says. In other words, returns are low so there is less money available and people are tempted to draw down more money to cover rising living expenses. “There are a lot of benefits to 50

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having a living annuity but you need to understand the risks as well,” Malherbe says. This is the time when you need to ensure that you continue to draw a responsible income. If you start eroding your living annuity’s capital now, when the markets turn there will be no more capital to grow to support your income in the future. “By drawing less you will have more capital when markets start going in the right direction.” He says it is important that people thinking about acquiring a living annuity understand that when the hard times hit they have to be conservative. In addition, when markets are doing well, people need to control their drawdowns so that their capital has a chance to grow. “Those people who were responsible during good market conditions are now able to take a bit more because they built up more capital than they are using to

October 5 - October 11, 2017

invested in cash will not be getting real returns or that their real returns are simply not high enough. Over the long term 1%1.5% real return is not enough; especially if you are already drawing an income. “It is one thing to shift to certainty for short-term gains but historically portfolios with exposure to equities have delivered better performance for investors over the long term. “For example, investors who have been exposed to unit trust balanced funds over the past four

or five years have achieved gains well ahead of inflation, and these returns buffer your savings during dull periods such as the one we are currently experiencing. “Smart investors put up with the lower equity returns as they know they are already in the market and they will benefit when markets turn once more,” Marais says. She adds that timing the market by trying to switch in and out of investments is very difficult to get right and most investors end up destroying rather than adding value. x

help them through the difficult times. “Their current position should not be a surprise, it should be a part of a plan and it should have been discussed with their financial adviser,” Malherbe says.. “With a living annuity you are looking at a 20-30 year investment horizon and during that time you will go through various market cycles, and you need to plan for each of those cycles.” Another aspect is that when the living annuity kicks off it is a good idea to keep drawdowns to the minimum so that it has an opportunity to build up earnings to fund such drawdowns. “The less you use now, the more you have in the future and this makes a significant difference in later years. “In theory you want to be drawing less than your real returns (taking inflation into account) and if you are doing this in a responsible way, you will not be eating into your capital,” Malherbe says. He says the current situation emphasises the importance of saving enough while people are working to ensure they accumulate a sufficiently large pool of capital so that it will support them in retirement, even

during tougher economic conditions. Moreover, as people approach retirement it is a good idea to start adjusting their lifestyle expenses before they retire so that they have time to get used to their new budget. “It also gives you a chance to find out if you can live on that

Hugo Malherbe: Avoid temptation to draw down more to cover rising costs

Hetty Zantman

special report retirement funding

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special report retirement funding income and whether you can afford to retire or if you may need to work for a couple more years to build more capital and give compound growth more time to work for you,” Malherbe says. He says when people have problems after they have retired it would be in their best interest to consult with a good financial adviser as the adviser may be able to help set up proper budgets, prioritise expenses and coach them through the adjustment. Turning to government’s continuing retirement savings reform, he says there are new regulations with regard to funds providing default options. Retirees are not forced into the offering, and it is just there so that when people retire, and they are uncertain which way to go, the

trustees will have a suggested offering already in place for them. “It protects them from making a bad decision if they are unsure and it provides them with a point of comparison to other options. “Living annuities have been allowed as a default strategy and this will have to include a default drawdown option as guidance for members. “The regulations have been published by the regulator and it is in effect immediately for funds that are already providing default options and those that are not doing so at the moment will have to do so from the beginning of March, 2019,” Malherbe says. Coronation Fund Managers head of personal investments Pieter Koekemoer says living annuities are excellent retirement

funding vehicles but they require proper management to make them work. “While you are taking on some risk, if you take that risk in a considered way, most of the time you should end up being slightly better off than you would be with the alternative route of an underwritten annuity. “You take less risk with an underwritten or guaranteed annuity but you also have more limited upside,” Koekemoer says. He says the major risk associated with a living annuity is running out of money too quickly and having a drop in living standards as a consequence. “What you need to get right with a living annuity is a combination of longevity, inflation and sequence of returns risk.

“If you end up taking too much too quickly and you end up living longer you have a decline in your living standards. “However, you cannot invest too conservatively or inflation will erode your spending power. “At the same time, you cannot take on too much risk because of the sequence of returns issue. “This has a lot to do with the order in which you are earning your returns. As you are drawing an income it is less than ideal to have a bad investment return period at the start of retirement. “The only way to protect yourself from this is to start off with a fairly conservative income drawdown rate and waiting for returns to come through before you increase your spending out of the portfolio,” Koekemoer says. x

TAX-FREE SAVINGS

Best offer for short term Investors warn that the new trend cannot replace the good old retirement funds

ý Tax-free savings accounts (TFSAs) were launched two tax year-ends ago but many advisers and their clients are still debating the best way to maximise their tax benefits. Investec Asset Management director of advisory services Jaco van Tonder says most product providers have jumped on the bandwagon and launched TFSAs. This has left many investors and advisers wondering how best to utilise a TFSA as one of a number of tax-efficient savings tools. He points out that a TFSA is not the only tax-efficient savings option available and the media hype about TFSAs appears to have taken people’s eyes off the fact that the first savings priority for any 52

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investor should still be their contribution to a registered retirement fund (either through their employer or via a retirement annuity). “As a rule of thumb, investors should first provide for an adequate contribution to their retirement fund before taking out a TFSA,” Van Tonder says. “With the recently increased income tax deductions available to retirement contributions, the potential compounded tax savings from a client’s contributions to a retirement fund early on in their career dwarfs the tax benefits on a TFSA.” He says investors should also remember to use their annual taxfree interest exemption (currently R23,800 for individuals under age 65).

October 5 - October 11, 2017

Jaco van Tonder: TFSAs are to be used with caution

“At current money-market rates of close to 8%, and various other income funds offering close on 9%/year, an investor in SA can keep close on R300,000 in a fixed income fund before paying any tax on the interest earned. Ideally this allowance should be used to set up an investor’s emergency cash pool,” Van Tonder says. He says when TFSAs were originally launched many investors and advisers underestimated the extent to which the tax benefits on TFSAs would compound over time. This was because a TFSA contribution is not tax-deductible upfront like a retirement fund con-

tribution, which makes it difficult to calculate the value of the tax benefit in rands and cents. He says from a tax benefit perspective, it appears to not make sense for an investor to utilise a TFSA for an investment horizon of shorter than five years. “But this picture changes dramatically after 10 years due to the well-known compounding effect of long-term investment returns,” Van Tonder says. x

Special Report compiled by Andrew Gillingham Advertising executive: Sue Anthony

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feature / media & advertising Graham Warsop: Mistakes made and lessons learnt

THE FUTURE IS BLACK Overreliance on one major client (which later switched agencies) and insufficient attention to transformation are two of the reasons behind the demise of The Jupiter Drawing Room (JHB), once a top-notch agency Jeremy Maggs jmaggs@iafrica.com

s the ad industry dissects why The Jupiter Drawing Room (Johannesburg) has closed its doors after almost 30 years in business, founder Graham Warsop has moved swiftly to plug the gap. He’s been instrumental in the formation of Black Powder, a 100% blackowned agency that has taken over some of Jupiter’s clients and has benefited from a substantial cash investment. In a frank and reflective interview with the Financial Mail, Warsop opened up on mistakes made and lessons learnt. Jupiter reached its zenith in early 2007 when over three days it added three huge accounts worth over R1 bn. One of those was Absa. Ten years later, Warsop says the bank is partly why Jupiter has shut down — a year ago it moved its R500m account to rival FCB. Warsop says the big lesson learnt was to not rely too much on one dominant client. “We put tremendous diligence, skill and devotion into the Absa account, believing if we did a great job the business would be secure. We were wrong.” But that wasn’t the only problem. In an industry that is still battling to transform, Warsop admits he could have moved quicker on staff appointments. “I believe I placed insufficient importance on timeously replacing senior black executives who had left the agency. My thinking was that if I could use the limited financial means at my disposal to work with the team I had left, we could defer replacing the most

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October 5 - October 11, 2017

he’s not sure there’s any more he could have asked from Jupiter Johannesburg in terms of accomplishments. It was acknowledged at one point as the fastest-growing agency in the local ad industry and ranked in the top five most creative agencies in the world by US trade publication Advertising Age. “We became a flag-bearer for what home-grown, independent agencies can achieve on the global stage. I believe we built a distinctive brand in Johannesburg. The agency stood for and really believed in craftsmanship. It had a French-inspired name, a Latin motto (rem tene, verba sequentur — grasp the subject and the words senior black talent for some time. That was a will follow), an iconic English Chesterfield mistake. One of the reasons cited for why sofa and furnishings reminiscent of an we lost the Absa account was a lack of Edwardian gentleman’s club. I always mainagency transformation at the highest level.” tained that the greatest test of Jupiter (Johannesburg) as an agency would not be how The new Black Powder agency is led many awards it won, nor how much busiby shareholders Gugu Madlala (CEO) and ness it acquired. Rather, if the staff who Sizwe Kumalo (executive director). Both had passed through its doors would look back on senior management roles at The Jupiter their time in Jupiter fondly, as a fulfilling Drawing Room. period of personal growth and camaraderie Warsop says: “When our black shareholding partners divested equity and some of in a very special environment. I believe we our senior black executives exited the Jupiter came pretty close to achieving that.” Warsop is excited about the prospects of (Johannesburg) agency, we were left underBlack Powder, It has already lined up work represented from an empowerment perwith the Reserve Bank and Tiger Brands, spective at a senior level. Added to that, the among others. Madlala says the structure of lacklustre performance of our JohanBlack Powder is flexible and nimble nesburg agency in recent years and a move away from traditional had compromised the efficacy agency structures which rely on of our black staff trust. “large teams and ungainly pro“As we saw it, we were cesses to operate”. at a crossroads. We He adds that agencies decided to take the path with an ability to deliver that led to us backing impactful work to black two deserving young consumers will win the black entrepreneurs. next decade. “True transInstead of asking them formation is really gaining to continue with the Gugu Madlala: True speed as a result and existing Jupiter brand, transformation is we’re intent on setting the we challenged them to really gaining speed pace. Our vision is to grow create their own Black Powder into an vision for a 100% agency network that is black-owned agency.” world-class yet proudly Warsop, one of SA’s South African.” x best-known ad men, says

life

BALLET ý Joburg Ballet’s 10-performance production of Snow White opens at the Joburg Theatre on October 13 at 7.30 pm and runs until October 22.

A look at how to spend your downtime — from music, to sport, books, the theatre and the screen

The Alhambra: The plan is to turn it into a performing arts academy Jade Holing

theatre r s ecoming enues for t activity t Christina Kennedy

ARTS

NEW v HOPE FOR OLD PLACES

Some fading heritage theatres are becoming venues for vibrant activity

ý Instead of gracefully sashaying off into the wings after taking a final and rather tragic bow, two of Johannesburg’s grand old theatre dames are reinventing themselves for a new generation of inner-city audiences — as arts education hubs. Urban decay, the migration of theatre audiences and the passage of time had made the demise of the Windybrow Arts Centre in Hillbrow and the Alhambra Theatre in New Doornfontein seem not only likely but grimly inevitable. In the case of the Windybrow, maladministration and rotting infrastructure added to the plight of the 121-year-old heritage building, one of the few remaining examples of 19th-century architecture in the city. The Alhambra saw the light of day as a silent-movie bioscope in 1921 and went through various incarnations before being saved from demolition by impresario Pieter Toerien in 1981 (who bought it for R235,000 as a 37th birthday present to himself). It shuttered its doors in 2000 amid dwindling audiences and has been used as a props storage space ever since. But these two fading beauties are now getting a new lease of life, as the public and private sectors wake up to the pressing need for arts education as a catalyst for uplifting communities and developing the country’s creative economy. The historic Windybrow, a stone’s throw from the Ponte tower, is being refurbished, after the arts & culture minister placed this national monument under the management of the Market Theatre Foundation in 2014 and the two theatres amalgamated last year. That year an unspent capital works grant of R11m was used to renovate the mansion, which was in “a desperate state of disrepair”, says the foundation’s chief financial officer, Christine McDonald. A further R60m has been allocated by the department of arts & culture over three years to restore the

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Global research shows that the creative economy of the future requires flexible and innovative thinkers

Nomalanga Nkosi: Young people are my heart’s joy — they’re the reason I applied for this post Eugene Goddard

adjacent theatre to its former glory by 2020. No longer battered and bruised, the freshly minted heritage house has started offering free extramural arts workshops to children from the surrounding areas — anything from 50 to 110 participants a day — as well as other cultural activities. The nearby Alhambra, a stately but decaying theatre adjacent to Ellis Park stadium, has been sold by Toerien to a consortium that is planning to develop a performing arts academy to fill the crying need for high school education in the creative disciplines. A visit to the Windybrow reveals a national treasure that was facing ruin but has survived, and majestically so. It now chimes with the chatter and activity of youngsters preparing for their dance, drama, marimba and visual art classes. Some children are quietly paging through books in the reading room, which is sponsored by Exclusive Books. In the centre of this is the willowy figure of Nomalanga Nkosi, the centre’s new administrator. An actress by profession (“I’ve just been on a soapie — Scandal — but you probably haven’t seen me,” she laughs), Nkosi is also a seasoned communicator and manager who has worked at Pro Helvetia, the British Council and the Arts & Culture Trust. She studied fine art at Rhodes and drama at the Market Theatre Laboratory. “Young people are my heart’s joy — they’re the reason I applied for this post,” says the quietly assured young woman, who reportedly beat more than 1,000 applicants for the position. A head for the arts centre will be appointed soon. Since the Windybrow reopened earlier this year it has housed a number of arts development initiatives. Two residency programmes have helped to reactivate the centre and bring back the creative energy for which it was once renowned. Market Theatre Foundation CEO Ismail Mahomed explains that Nkosi will be a link between the foundation and the people running the arts and cultural programmes at the centre. “Our aim is to develop the Windybrow Arts Centre as a hub for excellence in pan-African expression, and that of the African diaspora, 56

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October 5 - October 11, 2017

but we want it to be responsive to the demands of the creative and cultural economies,” he says. “The programming at the centre will be bold. It will take calculated risks, but we will not compromise on artistic excellence and will be giving value and accountability for every cent that we derive from the public coffers.” Haven of creativity Mahomed believes the Windybrow can become a model for how SA multi-arts facilities can serve their communities. In Hillbrow, these are mainly poor people from immigrant groups, explains Nkosi. “Here, the children find a haven of creative expression. They come to this venue after school and are able to play, be children and be inspired,” she says, while offering a guided tour of the restored building, whose appearance still harks back to an 1896 Johannesburg in the throes of the gold rush. It has been reinjected with fresh life and relevance for a contemporary Egoli reality. “I would love to see the Windybrow thriving as a collaborative hub for different kinds of creatives, and to build a truly panAfrican centre. I want all the programmes to equip the children for what could possibly be a creative career — I believe every child needs to be part of an arts programme.” It’s a vision she shares with Gordon Cook, one of the buyers of the Alhambra along with Renney Plit and Joe Shibambo. As a cofounder of the Vega School of Brand Leadership, Cook knows a fair amount about education, but he was appalled to discover that out of 10,600 public high schools in SA, only 6.8% offer one or more of the five creative arts subjects — music, art, design, dance or drama. “It’s a shocker,” he says candidly. “That’s why we’ve created what we call the Reimagine Movement, to redress that.” He and his partners acquired the Alhambra from Toerien to function as the flagship hub for a number of performing arts schools, offering, initially, “fast-tracked creative training” to high school pupils on an extracurricular basis. The envisaged “hub and spoke” model will then have satellite arts education campuses fan out to areas such as Soweto

and Alexandra, Cook explains. He says the Reimagine Foundation has applied for section 18 (a) status as a nonprofit entity, and is in the process of developing a transdisciplinary curriculum in conjunction with the Wits School of Arts, Vega and the University of Johannesburg. “We’ll pilot the curriculum for inner-city high schools and will also use the Alhambra as a flagship hub to develop teachers in the creative arts.” Cook and his partners bought the Alhambra for less than R5m and it will cost between R10m and R12m to refurbish, Cook estimates. Because it is a heritage site, they are working with a firm of architects to preserve the “iconic” exterior and facade while repairing interior rain damage, roofing and electrics and building studio theatres, auditoriums and “areas for messy play”. Community activities Cook is critical of the current educational focus on developing analytical skills “while completely ignoring emotional subjects. Global research shows that the creative economy of the future requires flexible and innovative thinkers, and South Africans’ ability to operate in these creative spaces is unparalleled — look at Esther Mahlangu, Brenda Fassie and Sibongile Khumalo.” He hopes that by the first quarter of 2018, the as yet unnamed space will host its first community arts activities — and that it will also become a “funky space” for corporates to host their events, taking advantage of the nascent cultural renewal that’s sweeping through New Doornfontein. “I’m helluva bullish,” chirps Cook, with barely contained optimism. The “reimagining” of these iconic inner-city heritage theatres means that the nostalgia some might feel for a bygone era can take its place, without regret, alongside the new memories that will be conjured by new performers and new audiences in a new era. In a recently published commemorative book about the Alhambra, Toerien describes the melancholy he felt at having to mothball the theatre, with which he had fallen in love “at first sight” and where acting greats such as Rex Garner, Richard Haines and Michael Atkinson so memorably trod the boards. He recalls returning to the theatre periodically and being saddened by its frailty, before putting it up for sale with a heavy heart. “It was so dependent on the will of the audience and the actors to give it life. The Alhambra deserves a new life, to become something new . . . [and to find] a new owner who will love her as much as we did.” And she seemingly has. Soon this dignified dowager will once again be alive with the sounds of voices and the buzz of creativity — the show may be a different one but it will, thankfully, go on. x

life outbox

Museum of the Revolution Stevenson Gallery, Cape Town, October 12-November 25

PHOTOGRAPHY Exhibitions turn lens on the continent, past and present

AFRICA IN FOCUS

Priya Ramrakha: A Pan-African Perspective, 1950-1968 Faculty of Art, Design & Architecture Gallery, University of Johannesburg, October 5-November 1

ý Priya Ramrakha was a Kenyanborn photojournalist who did some of his most prolific work in Africa during the 1950s and 1960s, at the height of the continent’s independence struggles. Born into an activist journalistic family, Ramrakha was one of the first African photojournalists employed by such prestigious titles as Time and Life magazines. Among the influential figures he photographed were Kenyan trade unionist and independence activist Tom Mboya; Jomo Kenyatta, independent Kenya’s first head of state; and Nigerian politician Odumegwu Ojukwu. He also photographed a number of US politicians and civil rights leaders, including Martin Luther King Jr, Malcolm X, John F Kennedy, Jackie Kennedy Onassis and Richard Nixon, and even the British royal family. While covering the Nigerian civil war with CBS correspondent Morley Safer in 1968, Ramrakha was killed by Biafran soldiers in an ambush near Owerri. Recently, a series of his unpublished photographs was uncovered. This forms the back-

bone of an exhibition that opens in Johannesburg this week. Priya Ramrakha: A Pan-African Perspective, 1950-1968 affords one the opportunity to see the work of this remarkable photojournalist, and reflect on Africa’s past struggles while contemplating its many current challenges. Life on the streets Another photographer to capture African life, this time on the streets of major cities, is Guy Tillim, winner of the 2017 Henri CartierBresson Award. Tillim started out as a reporter in SA in the 1980s but was drawn to photography as a means of telling the story of the anti-apartheid struggle. His latest work, Museum of the Revolution, for which he won the award, incorporates photographs shot on the streets of African capitals such as Johannesburg, Maputo, Luanda, Harare, Libreville, Addis Ababa and Nairobi. Thanks to the Henri Cartier-Bresson Foundation, he plans to continue his project in Dakar, Accra, Kampala and Lagos. x Prakash Naidoo

October 5 - October 11, 2017

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life inbox RUGBY

BOOKS

SA have uphill battle against All Blacks

SWORDS & SANDALS

PLAYING FOR A BIT OF PRIDE ý The Springboks head into the final match when they’ve dominated up front and stifled of their 2017 Rugby Championship campaign the opposition’s momentum via an aggressive with a modest ambition. defensive strategy and pinpoint kicking game The All Blacks have already secured the — the team may have been more competitive title — their fifth in six seasons — with a in 2017. They may have given fans reason to round to spare. The Wallabies, who trail the hope for a different outcome at the 2019 Boks by three points in the standings, are World Cup. The Boks will face the All Blacks favourites to beat Argentina in Mendoza this during the pool phase of that tournament. The frightening truth about the All Blacks weekend and to finish the tournament in is that they are not even operating at full second place. Nobody should be betting on strength. They went into the this Bok side to stun the All The frightening truth clash against the Boks three Blacks at Newlands and to about the All Blacks is weeks ago without senior finish the competition as that they are not even players of the calibre of Ben runners-up. operating at full strength. Smith, Owen Franks, Joe Indeed, the Boks would Some senior players Moody and Israel Dagg. do well to avoid another have been absent More recently, the All Blacks substantial beating at the went to Argentina without hands of their traditional those players as well as Sam Whitelock, foes. Coach Allister Coetzee admitted as Brodie Retallick, Sam Cane much in the wake of the team’s disappointing and Liam Squire, yet scored 27-27 draw with Australia in Bloemfontein last five tries for a 36-10 win. week. The Boks will need to play out of their The safe bet is on skins just to keep the All Blacks honest. an All Blacks win at Coetzee’s charges sustained what was Newlands on then a record 57-15 loss to the All Blacks in Saturday. With Durban last year. More recently, the Boks several key players suffered an even worse defeat — their returning after a heaviest test loss so far — when they went two-week rest, down 57-0 to the New Zealanders in Albany. one would Saturday’s match at Newlands may well expect the Kiwis highlight the gap that exists between SA and to claim the tryNZ rugby. The SA teams lost 13 of their 15 scoring bonus regular season matches against NZ point and to opposition in the Super Rugby tournament finish the this year. The All Blacks handed the Boks a tournament physical as well as a tactical lesson in the with six most recent match-up in Albany. The hosts wins and scored eight tries and conceded zero in that 29 log points clash. Those stats served as a damning (out of a indictment of the Boks’ defence and attack. possible 30). Coetzee has obliged with a stream of Once again, this excuses in recent weeks. He has reminded all and sundry about the NZ system that puts the Bok side may struggle to come interests of the national team ahead of the away from the interests of the franchises and provinces. In biggest contest SA, of course, the opposite is true, with the on their test tail wagging the dog. Coetzee has calendar with their highlighted the Boks’ injury problems as well dignity intact. x as the lack of depth in certain positions. At Jon Cardinelli no point, however, has he accepted responsibility for the current situation. With better planning and an approach favouring SA’s traditional strengths — the Allister Coetzee Ashley Vlotman/Gallo Images Boks have beaten the All Blacks in the past 58

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October 5 - October 11, 2017

ý The world has never seen a civilisation as dominant as Rome in its pomp, and the history of the Roman Empire is fertile ground for stories of scheming senators, rebellion and retribution, military might and battlefield gore. This is the 15th book in Simon Scarrow’s Eagles of the Empire series, yarns of strategies and campaigns to enforce Rome’s power and dominion in the century after its conversion to an imperial entity. Invictus continues the adventures of Scarrow’s protagonists Cato and Macro, soldiering centurions in far-flung regions of the realm. This time they are dispatched to Hispania in 54 AD, where revolt has broken out, threatening the Pax Romana as well as Rome’s hold on a silver mine in the region. Their mission is crucial, not least because the bullion pays the Praetorian Guard to ensure its loyalty to the emperor. The Praetorians can be bought and bent, meaning there is a taut, febrile atmosphere as the political class conspires to curtail Emperor Claudius’s reign. Scarrow, a former history teacher, strikes a balance between fictional drama and respect for historical truth. For Invictus, he has probably taken inspiration from the commencement, in 29 BC, of a 10-year insurgency — the Cantabrian Wars — in the Asturias region of northwest Spain. The Celtic tribes fought a valiant guerrilla war which eventually compelled Rome’s first emperor, Augustus, to dispatch seven legions and to take command himself, sagaciously securing the gold deposits of the area for Rome. Scarrow’s books are often compared to the Emperor novels by Conn Iggulden, rooted within the same subject and epoch. But while Iggulden acknowledges a wide deviation from documented fact, he is more descriptive and expansive in tone, and his characters are better nuanced. Scarrow’s heroes are lionlike: powerful, brutal where necessary, survivalists — and one-dimensional, employing dialogue such as “We’re fighting to defend something bigger than ourselves. And that’s why the gods are on the side of Rome.” Yet his books remain hugely popular. Invictus is a fast-paced, formulaic, macho escapade with just a modicum of plot intricacy. Those relishing frequent descriptions of the savage nature of military engagement, against the backdrop of cracks in the Pax Romana, will find reward in this uncomplicated pageturner. But it underwhelms in its predictability: the protagonists, of course, will survive to serve the empire Eagles of the Empire: Invictus by on another front. x Simon Scarrow. Headline Publishing, David Gorin

distributed by Jonathan Ball

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031017 - 297mm x 235mm - MSC Cruises - Full Colour - English - Financial Mail.indd 1

2017/10/03 03:38:59 PM

food for thought by Justice Malala

PROOF IN THE PUDDING The #GuptaLeaks show just how much the taxpayer spent on desserts at the Sun City wedding. An honest meal may offset the bad taste that leaves @justicemalala

notice, with a rather heavy sigh, that the ANC brethren still refer to each other as “comrade”. Comrade? Really? Did you see the scenes of fighting at the party’s Eastern Cape conference last weekend? Have you noticed the dirty war unfolding within the party, with each scandal and smear hot on the heels of the last one? At least eight people were injured after one group of comrades started throwing chairs at those they regarded as their enemies. It was the Jacob Zuma comrades versus the Cyril Ramaphosa comrades. Blood flowed. Insults were hurled. Not a single person spoke about policy. Who cares about unemployment when all you want to do is grab power? The Guptas must be laughing their hearts out. While the ANC eats itself up, no-one realises just how much has been looted — and continues to be. The evidence just keeps tumbling out the closet. Last week those amazing folks at the nongovernmental Organisation Undoing Tax Abuse, or Outa, found an invoice from the R30m Gupta wedding at Sun City — the wedding that you, taxpayer, paid for. It was your wedding. Apparently there were “female

Lindor truffles set taxpayers back R13‚088, while 600 single scoops of ice cream cost R21‚812. We paid R473‚370 for drinks. And R310,800 for fireworks

financialmail.co.za

October 5 - October 11, 2017

knightriders on horseback” for the bride and groom to admire. This the Guptas claimed as a business expense. And the auditors happily signed it off. You have to love these guys. You also have to love their sweet tooth. According to The Times, the #GuptaLeaks show that you don’t know desserts until you hang with the Guptas. “The invoices from the Guptas’ company Linkway Trading — which KPMG helped write off as a business expense — show that guests were presented a delicious sounding and pricey platter of dessert options,” the paper reported. Hazelnut milk Lindor truffles set taxpayers back R13‚088, while 600 single scoops of ice cream cost R21‚812. Oh, yes, we also forked out for booze, paying R473‚370 for drinks. And R310,800 for the fireworks display. What did they feed their guests? Mainly vegetables, which came in at R169‚652. And we paid for that, too. This is why, when my good friend Neil Marsden from Lefika Securities invited me to grab a quick steak at the Hussar Grill on Mouille Point in Cape Town, I said yes very quickly. I knew the

vegetables wouldn’t be as expensive as the Guptas’ and taxpayers wouldn’t be saddled with the bill. I’ve seen this group of steakhouses before. The original Hussar Grill opened its doors in Rondebosch in 1964 and, well, it was about time that I visited. A good traditional steakhouse is pretty much like the next. The decor tends towards the dark and woody, the wine list veers to the red and rich, and the posture is one of olde-worlde charm and efficiency. It is a warm and nurturing environment, and the Mouille Point Hussar Grill did all this very well. It is the small details that differentiate the top steakhouses from the rest. Service is first — at this Hussar Grill it was excellent. Then it’s the food. It’s got to be outstanding, because there are so many excellent competing steakhouses across the country. I have been on a steak journey lately and there are some things I can tell you for sure: I know a good steak when I chew on one. My fillet on the bone was perfect — aged, medium-rare (as requested), succulent, juicy, tasty and nicely complemented by the vegetables. I was happy, Neil was happy with his burger, and we left for our next meeting. We did not have desserts. x The Hussar Grill ★★★★ 163 Beach Road Mouille Point, Cape Town Tel: (021) 433-2081 ★★★★★ Makhosi Khoza ★★★★ Excellent ★★★ Good ★★ Poor ★ Jacob Zuma

crossword 1987 ACROSS 1 Spar with a lump outside for medal (5,4) 6,3 Know-alls are told lie during kisses (5,6) 9,24 One of a group from 19, 12 that’ll be beneath Sialia (5,5) 10 Easily change a reactant (2,1,6) 11 Where 19, 12’s Luscinia made notes (8,6) 13 Source of sound (4) 15 Just one proceeds to attend reunion (4,5) 17 Big and tall he’s flailing around last in pool (5,4) 18 Sign that clownfish is back (4) 20 Extreme right turn more difficult when reported by celebrity panel (4,10) 23 Welcome to wild evening out (9) 24 See 9 26 Clipped trees badly (5) 27 Film Gandhi missing the latest news of Norfolk town (5,4)

1`2`3`4`5~6`7`8 `~`~`~`~`~`~`~` 9````~0```````` ~~`~`~`~`~`~`~` ~-````````````` =~~~`~~~`~`~`~` q`w`~~e```````` `~`~r~`~`~`~`~` t````````~~y``` `~`~`~`~~~u~~~` i```````o```p`~ `~`~`~`~`~`~`~~ [````````~]```\ `~`~`~`~`~`~`~` a````~s```````` By courtesy of the Financial Times

DOWN 1 2 3 4 5 6 7

Dip front of weapon (3) Lift top off stew (5) See 6 Across Story-teller starting to reject dog (5) Stew made early? (5,4) A Basque’s cooking blowfish (3,5) Protection for car wing-like in 50% of automatics (4-5) 8 Trinity’s chair holding regular redesigns (5,2,3) 12 See 19 14 Drink up like king and live with queen

By GAFF

(5,4) 15 A number imprisoned by post-imperial king in cruel deceit (4,5) 16 Simpson turns up in sound border town (8) 19,12 Newton Dyne could be love song performer (6,10) 21 Victim of Goneril’s terrible anger (5) 22 Start off bright with showers (5) 25 Cool sort of club (3)

SOLUTION No 1986 CAPONE~HOTPANTS R~O~U~~~S~A~A~A OPTIMA~CLERICAL W~E~B~L~O~A~H~U BENJAMIN~ESCORT A~T~T~B~I~I~~~E RUIN~BRASSTACKS ~~A~I~A~H~E~A~~ PALINDROMe~DRAW R~~~T~Y~A~C~T~H ENTRAP~GERONIMO D~U~G~A~L~H~L~P AMBULANT~DECAMP W~E~I~T~~~R~G~E NARCOTIC~METEOR

THE SOUTH AFRICA WE DESERVE

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12 - 13 October 2017

Tabea Kabinde Chairperson, CEE

Gallagher Convention Centre, Midrand

Thabi Leoka Nicky Newton-King Economic Strategist, CEO, Argon Asset Management JSE

Prof. Sipho Seepe Political Analyst

Iviwe Rwayi on: iviwe@bmfonline.co.za

Prof. Steven Friedman Adv. Mojanku Gumbi Political Scientist, Senior Advisor, University of Johannesburg ASG

Prof. Wiseman Nkuhlu Chancellor, University of Pretoria

Hajra Omarjee Political Reporter

Achieving Inclusive Economic Growth Workplace Dynamics & Corporate Transformation Political Crossroads The Big Debate Irvine Jim General Secretary, NUMSA

Dr. Mosibudi Mangena Former President of AZAPO

Prof. Chris Malikane Thembinkosi Bonakele Advisor to Minister Commissioner, Malusi Gigaba Competition Commission

NON-BMF MEMBER (CONFERENCE ONLY)

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BMF MEMBER (CONFERENCE ONLY)

October 5 - October 11, 2017

www.bmfonline.co.za

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financialmail.co.za

backstory MIKE CATHIE CEO of Nando’s

What is the one investment you wish you had made, or had made earlier? I didn’t buy Google at US$85/share at the time of its initial public offering. Warren Buffett made the same decision, though, so I’m in good company. What was your first job? I was a management trainee at Pick n Pay. It was there that I learnt the very direct correlation between hard work and success. How do you deal with stress? What are your top tips for handling stress? Acknowledging that I’m feeling stressed has proven useful to me; denial is deadly. I try to find an activity that forces me to focus on something else for at least 30 minutes, like trying to master a challenging piece of music or a tough workout. The iPad is definitely not a stress reliever. What’s the worst airport you’ve been in? Tunis-Carthage International Airport in Tunisia — the worst loose scrum I’ve ever experienced, and I’ve played a lot of rugby. Nominate your eighth wonder of the world. My daughter, Lorelai. She amazes me all the time. On what occasion do you lie? Whenever I bring another guitar home. I’m terrified that the day may arrive when my collection is sold for what I told everyone I paid for it. Which phrase or word do you most overuse? Exactly right. What is your biggest indulgence? I suffer from Gas (gear acquisition

financialmail.co.za

October 5 - October 11, 2017

syndrome) and struggle to leave music shops without some new piece of kit I believe will miraculously turn me into Jimi Hendrix. What is your most treasured possession? I have a 1967 VW Beetle that’s in a constant state of refinement. The best therapy in the world is to go for a drive for a couple of hours without power steering, air conditioning, automatic transmission and so forth. It’s impossible not to smile after that. What is your biggest regret? Not meeting Dominique, my wife, a lot earlier in my life. She’s my perfect partner in every way, and strong enough not to indulge my nonsense. What’s the most interesting thing about you that people don’t know? I was an art school dropout. I appreciate the irony of my life, though, as I now work for the company that owns the largest collection of SA art in the world, and I’m constantly exposed to this beauty in our restaurants and at our central kitchen. What are you reading at the moment? What’s the one book everyone should read before they die? I’m reading Sapiens: A Brief History of Humankind by Yuval Noah Harari. I think every African should read Things Fall Apart by Chinua Achebe and, if you’re in business, Good to Great by Jim Collins. Which historical figure do you most identify with? Leonardo da Vinci — not because I think I’m a genius, but simply because he’s so hard to define. He had a significant effect in diverse fields, from the art world all the way to engineering.

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