SA’s top newsmakers 2018 by SundayTimesZA

EXCLUSIVE: how SA firms dodge R8bn in tax

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Why populism caught fire in SA

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Endgame nears for Congo’s Kabila P34

Best of 2018: books, series, podcasts P55

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SA’s TOP NEWSMAKERS 2018

Conquest V.H.P.

contents

financialmail.co.za December 20 - December 26, 2018

fox

features

money&investing

life

‘Apolitical’ tax boss wanted

Shifting profits offshore

Wrecking ball hits home

Memorable reads of 2018

cover story

Pic credit REG ULHere ARS

4 5 6 8 18 38 62

Editorials Editor’s Note At Home & Abroad Between the Chains Boardroom Tails In Good Faith Backstory

FM FOX 9 Sars After Moyane 11 Trending 11 Dinner Party Intel 12 Diamonds & Dogs 12 Hot Property 14 AI and Data Protection 15 Pattern Recognition 16 Naspers

16 Gimme 17 Profile 18 Numbers FEATURES 20 Newsmaker of the Year 26 Tax Avoidance 28 Zuma’s Legal Fees 30 Populism 32 Start-ups 34 DRC Elections MEDIA & ADVERTISING 36 AdFocus Awards MONEY & INVESTING 39 Construction 41 Market Watch

41 42 43 44 45 48 48 49 50 51 52

Global Markets Alexander Forbes Coal Peregrine Holdings Abagold Shop Talk Checkout Counter Investor’s Notebook Analyse This Economic Indicators JSE Top Stocks

FM LIFE 55 Books 57 Inbox 58 Outbox 60 A Moveable Feast

Public en00 emy EXCLUSIVE: how SA firms dodge R8bn in tax

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Why populism caught fire in SA

P30

Endgame nears for Congo’s Kabila P34

Best of 2018: books, series, podcasts P55

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Cover: Shaun Uthum

December 20 - December 26, 2018

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editorials DIRE TIMES FOR SA’S LARGEST RETAILER

Editorial

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Editor: Rob Rose. Deputy editor: Sikonathi Mantshantsha. Managing editor: Kevin O’Grady. Writers: See bylines for writers. Assistant editors: Sarah Buitendach, Shirley de Villiers, Zeenat Moorad, Razina Munshi, Amarnath Singh. Contributing editor: David Williams.

December 20 - December 26, 2018

held more than 50% of the sector. Disturbingly, there aren’t too man y specifics on the turnaround plan. T here are promises to close some stores and im prove trading densities (sales per metre), get more stock through its tills, expand its financial servi ces side (credit and insurance, primarily) and reduce IT costs. There’s nothing ingenious in that, though. And it’s one thing to put those g oals on a PowerPoint presentation, another to make it happen. Still, the letter to landlords c ontains some interesting revelations. First, it says that since March, advisory firm Rothschild & Co has been trying to sell E dcon, but has found no takers. It adds that unless there is a further “i nt e r v e nt”,ioliquidation n is “highly likely”. Fortunately, Pattison seems to have a plan, likely to be announced in the next few days, to prevent that. Which is just as well, c onsidering the 40,000 employees who would be aff ected. Of course, Pattison hasn’t helped himself by repeatedly bungling the communications around Edco n . He denounces the reports as “misleading ”, without saying exactly what was wrong. At the same time, he admits that when asked to comment by the Sunday Times, he declined. There has been a c onsistent pattern of refusing to comment, then blaming the media f or publishing what happened, when greater introspec tion might have been the wiser approach. Unfortunately, it goes hand in hand with Edcon’s years of displaying a profound lack of respect for customers and, it seems, staff. Hopefully, a much stronger Edcon will emerge from the ashes, one that can restore the prin ciples and market position it once held, selling things that people actually want to buy. x

123RF/Beata Kraus

few weeks ago, the FM report ed that Edcon, an iconic SA retail brand that began life in 1929, was facing an imminent cash crunch. This weekend, news emerged that Edcon had written to its landlords, asking for a two-year “rent ho liday” of 41% for all its 1,350 stores. The reality may be less dramati c than the “Edcon crashes” he a d l i nesuggested, s partly because its stores are still open and trading. B ut there’s no denying that these are dire times f or SA’s largest clothing retailer. That’s not surprising. Last month, CE O Grant Pattison admitted to the FM that ne w funding was needed. “The current process we’re under is looking for shareholders, new and old, to inject new capital into the business,” he s aid. Now, a letter dated D ecember 11 and sent to Edcon’s landlords spells out details of how this new “restructuring plan” will work. What is apparently on the table is that the r et a i le rexisting ’s funders would convert R9bn of their debt into equity, while injecting another R700m. Then, the Public Investment Corp will inject another R1.2bn into Edcon. For this to happen, the lenders ha ve stipulated that Edcon’s 31 key landlords (like Hyprop and Growthpoint) must agree to the two- year “rent holiday”. This would equate to R1.2bn worth of support, for which Edcon plans to give the landlords a 5% stake. It’s a tough call f or the landlords, especially since Edcon plans to sh ut a number of stores until 2022. But if they reject this deal, E dcon could end up defaulting on leases an yway. The bigger issue is whether bailing out E dcon will create a stronger retailer able to c ompete, or whether it will be akin to an S AA bailout — where the money vanishes up a chimne y, with no value created. It’s a tough call, sinc e Edcon has been shrinking every year. Since 2012, it has lost 22% of its clothing and footwear market share; it onc e

Subeditors: Dave Landau (Chief), Magdel du Preez (Deputy), Dynette du Preez. Proofreader: Norman Baines. Art director: Debbie van Heerden. Contracted artists: Colleen Wilson, Vuyo Singiswa, Sylvia McKeown. Graphics & statistics: Shaun Uthum. Photographer: Freddy Mavunda. Editorial assistant: Onica Buthelezi. Office assistant: Nelson Dhlamini.

THE POSER FOR 2019

t has been a qui et December at the Union Buildings. No finance ministers have been fired, no more credit downgrades have assailed the c ountry. You’d almost think things are g oing in the right direction. The good news is that if all the di ce fall on the right numbers, then SA is actually in a prime spot f or a revival. The only thing is, the c onsensus is that global growth will slow slightly next year. Then, it’s about where those di ce land. Should Eskom’s situation deteriorate, or SA fail to keep a tight rein on the land issue, or Moody’s junk SA’s sovereign rating, the economy will take a hit. B ut if that doesn’t happen, and President C yril Ramaphosa gets a solid el ection victory for the ANC and can im plement sweeping changes to his cabinet and ac celerate policy reform, investors will believe they can bank on SA again. Either way, expect economic activity in SA to remain m uted for at least the next six months, based purel y on domestic factors. Then we’ll have to see what happens in an external environment. If the US Fed increases interest rates by more than expected, the rand c ould take a hit, SA interest rates c ould rise and the economy could tip into a rec ession. But, fortunately, the probability of an imminent US or SA recession is low. Which means SA could have a lot more to smile about in 2019. x

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editor’s note by Rob Rose

TELKOM’S SHORT STRAW For reasons yet to be properly explained, Telkom froze payments to a small Pretoria supplier — and the owner sold his home to stay afloat @robrose_za roser@fm.co.za

I It’s not as if Telkom did anything — it subcontracted the actual work and added on a 37% mark-up

f 2018 has b rought home one b rutal truth, it’s that the behavioural gap between the pri vate sector and public sector isn’t as vast as peo ple used to think. C orruption? Sure, you can find that in Nkandla, but you can just as eas ily find it in S teinhoff’s accounts. Lying liars? Again, you can pi ck Malusi Gigaba or Bathabile Dlamini, or you could look at the KPM G accountants who “audit ed” VBS Mutual Bank. Another charge is routinely levelled at the government: refusing to pay what it owes, and stom ping on small businesses in the proc ess. Again, it isn’t just the g overnment doing this. Take Telkom, which, court papers allege, folded its arms and refused to pay the final ch unk of a R41.2m c ontract it struck with Pretoria business owner N ico Oosthuizen. Telkom apparently still owes more than R6m. Oosthuizen has been around the block, ha ving begun his career 48 years ag o as a techni cal support engineer at Control Data Corp. But his fortunes took a turn f or the worse in July 2016, when his c ompany NetXcom ICT Solutions did a deal with T elkom to provide h ardware and software to manage bandwidth use. The SA Police Service (SAPS) needed the tech, so it ask ed Telkom, which subcontracted to NetXcom. For a while, all went well. N etXcom provided the ser vice, and Telkom paid up. Then the cheques dri ed up. Oo sthu izen’s lawyers wrote to Telkom, asking what had h a p p e neBut, d . they say, Telkom ignored them. The failure to pay in full was a blow to O osthuizen, whose business took a di ve. “I had to sell m y house, as

well as a property I owned at the V aal Dam, to keep the company afloat. When you get a big opportunity like this, it affects you badly when they don’t pay.” Noma Faku, Telkom’s spokesperson, says that as a matter of principle the company “does not withhold pa yment to its vendors” and even has preferential payment terms for small suppliers. But Faku says last year Telkom conducted a “supplier review”, which led to “c ertain a c tio n s i”ncluding “the withholding of payments where vendors were suspected to be in b reach of contractual or legal provisions”. Quite what Telkom is saying, she didn’t clarify. Asked about the NetXcom case, Faku said she “is not in a posi tion to respond” given the legal action. But there is another curi ous dimension to this story. Within months of O osthuizen’s company being appointed, Telkom hired another c ompany called AppCentrix to provide similar services. As Daily Maverick put it a f ew weeks ago, the R497m c ontract awarded to AppCentrix was “opaque and apparently convoluted” and, rather alarmingly, “did not go out to tender” as it should have. Bloomberg reported that this meant T elkom was billing the police “for two contracts that cover virtually the same work”. AppCentrix CEO Graeme Allcock denies this: “I find it quite funny. What we do is not related in an y form or fashion to what the other subcontractors do.” And he says that when it c omes to AppCentrix’s contract with Telkom, everything was above board. Either way, the Hawks are now investigating a whole range of Telkom projects, including the A ppCentrix deal. Allcock welcomes this probe: “We’re very excited to have this investigation happen, because we’re a small c ompany and we’ve been dragged through the m ud on this.” So did Telkom, alerted to anomali es, freeze up and cut payments to all suppliers, damn the co nsequence s? Perhaps. But what infuriates Oosthuizen most is that Telkom has been paid f or the work by the police, yet has not paid this money over to the subc ontractors. “It’s not as if Telkom did anything anyway. It subcontracted the actual work, invoiced the SAPS every month and added on a 37% mark-up,” he says. The courts haven’t been much help either. O osthuizen launched his legal action against Telkom in January, but now it is only due to be heard in the high c ourt in Pretoria in January 2020. You could argue that it’s understandab le that Telkom, as a clunky former state-owned monopoly, is prone to bureaucratic tendencies. It is still 40.5% owned by the government, after all. But under CEO Sipho Maseko it has shown a desire to c ompete in the real c ommercial world. If so, it needs to do m uch, much better. Not many small companies can afford to absorb the losses when a blundering c orporation decides it won’t pay. For Oosthuizen, it’s also a matter of principle. “S omebody else would have thrown in the towel a l ong time ago, but I’m not willing to. I f I have to live on the beach to make this case happen, I’ll li ve on the beach. Telkom has to pay for this,” he says. x December 20 - December 26, 2018

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at home & abroad by Justice Malala LET US COUNT THE WAYS Even with all the hard stuff SA is now a better place. The rest, from Brexit Britain to Trump’s America, may yet follow suit

ou couldn’t make 2018 up. We started the year with Jacob Zuma looking and sounding like he was going mad. And we are ending it with the man who moonligh ts as the pres ident of the US — when he takes a break from playing golf and tweeting — seemingly going cuckoo thanks to his legal troubles. In January Zuma’s “radical economic transformation” (RET) candidate, Nkosazana Dlamini-Zuma, had just been handed a h umiliating defeat at the ANC’s Nasrec conference in De ce m b e r . Everything changed for Zuma, the erstwhile strongman of the party. The Cyril Ramaphosa brigade was baying for his blood. The most vocal of the RET advocates were hiding under their beds. Even Bathabile Dlamini, who masquerades as a “le ader” of the ANC Women’s L eague a nd R ET, w as q uiet as a mouse. Zuma — alone and defeated — seemed to be on the verg e of a br e a do k wn. Remember that phantasmagoric interview with the SABC on Valentine’s Day? He claimed the AN C leadership had not provided him with reasons why he should resign as the president of the c ountry. “I need to be furnished [ with reasons] on what I ha ve done. Unfortu-

We end the year with Trump reflecting on the possibility that he could be facing jail time 6

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December 20 - December 26, 2018

123RF/ Tomas Griger

@justicemalala

nately, no-one has been able to pro vide what it is that I ha ve done,” he fulminated in response to the last of several visits he had rec eived from his comrades in the AN C asking him to pack up and leave the creature c omforts of the Union Buildings. South Africans were aghast. He didn’t know what he had done ? Let us count the ways, many said, donning their Elizabeth Barrett Browning caps. There is the b it about sleeping with and impregnating your fri ends’ daughters. There is the b it about enriching your family and friends through government contracts. There is the b it about the country being run by the Gupta family. There is the b it about unemployment, low growth, growing government debt and of c ourse the institutions (the SA Revenue Service, and so on) that have been brought to their knees. There was the b it about the nuclear deal that would bankrupt the country. “Where should we start when counting your misdemeanours?” c rie d the Twitterati. On the evening of February 14 this year Zuma finally, finally vacated the presidency. A sigh of reli ef went up across the country. Those who had never felt any hankering for organised religion suddenly found themselves wanting to mouth a prayer – or two.

SA has many, many problems. Economic growth is still rubb ish. Inequality is widening. Poverty is endemic. All that said, S A is a m uch better, far more hopeful plac e than it was under Zuma, any day. The only regret is that we, and the AN C, took so long to get rid of a man that some of us were warning the c ountry about way back in the earl y 2000s. Better late than never, I guess. We end the year with D onald Trump — a man who has spent the past two years bullying, ranting, flipflopping, alienating, dividing, mansplaining and offending virtually everyone sensible in the world — reflecting on the very real possib ility that he could be facing f ormal, well, jail time. Tr ump ’s lawyer Michael Cohen is going to jail — in part for making a hush-money payment of $130,000 to porn star Stormy Daniels, with whom the US president alleg edly had an affair. Trump is now alleged to have been in the room when the payments to Daniels and another woman were made. Trump won’t go to jail while he is president, of course. The US j ustice department has a long-standing policy that a sitting president cannot be c h a r ge d . However, the minute that Trump leaves the White House the very same justice department can, and most lik ely will, charge him. Trump’s current term ends in 2021. The only way he can put off that date with destiny is to win the presidential election in 2020. Otherwise he is toast. What a year, hey? Even with all the hard stuff, though, SA is a better plac e. The world — from Theresa May’s Brexit Britain to Trump’s America — may yet follow and write a positi ve chapter. We must hope. Merry Christmas. x

between the chains by Sikonathi Mantshantsha THE VOTING CONUNDRUM

n about 25 weeks, all citizens will ha ve to make a choice about who should g overn the affairs of our nation for the next five years. This is a ritual in which I have participated with religious regularity since I came of voting ag e. It has always been easy to make a decision about who to vote for. In that time, I ha ve voted for three political parties. But choosing who to vote f or has never been as diffi cult as it is today. While all sorts of parti es are punting them selves as the best choi ce, finding leaders and poli cies worthy of my vote has never been this tough. Let’s start with what would seem to be the natural home of my vote — the ANC. This party has, on paper, the best policies to advance SA. The National Development Plan is a good but imperfect start. Many of the government policies that have been developed over the past 25 years ha ve had a positive net effect on the lives of the overwhelming majority. The most important of these is the social security network that takes care of the basi c needs of soci ety’s weakest. Having grown up in a poor household in the years pre ceding democracy and the AN C’s social security interven tions, the difference is unmistakable. Just one example: this column is being typed in the homestead of m y youth, on a cellphone under a b right electrical light instead of the paraf fin lamps (called uf inyafuthi) my grandmother and I reli ed on back then. These handmade instruments, fashioned out of an old tin and pi ece of twine, emitted more smok e than light. My children don’t even know what f inyafuthilo o k s like. Neither are the children of m y unemployed neighbours as hungry as we were. At the professional level, government intervention has forced the private sector to open opportuniti es to black peo ple, which has expanded the black middle class. T he economy has broadened enormously over the past 24 years of democracy and the tax base has widened, yi elding more money to spend on ed ucation and other social g oods. Taking these positive strides into c onsideration, overall the ANC would be the most deserving of m y vote, par-

@SikonathiM mantshantshas@fm.co.za

I revolt at the thought that a vote for the ANC would be a vote for Gigaba, Zwane and those who looted Eskom and SAA

good week In a jittery world in which nobody wants to commit to anything more long term than lunch, Naspers CEO Bob van Dijk has splashed out $540m (R7.7bn), alongside Canada’s state pension fund, in Indian education start-up Byju’s. In a nutshell, Byju’s offers tools for schoolchildren in the country. Van Dijk has long been an advocate of investing in India which, at last count, sported a 7.1% GDP growth rate. It’s also a good alternative punt to China, where Naspers still owns 31% of tech company Tencent. 8

financialmail.co.za

December 20 - December 26, 2018

ticularly under Cyril Ramaphosa. But my whole being rebels at the thought that it would be a vote f or Bathabile Dlamini, Nomvula Mokonyane, Malusi Gigaba, Mosebenzi Zwane and the people who looted PetroSA, Eskom and SAA. Next candidate for my vote is the D A, whose electoral fortunes have been boosted by the ANC’s inefficiency and corruption under Jacob Zuma. But the DA seems hellbent on destroying itself. The combination of its m uddy stance on key policies, such as B EE and land reform, together with its treatment of black leaders like Lindiwe Mazibuko and Patricia de Lille, makes one wonder if it can e ver truly be a vehicle to advance the aspirations of the patri otic black middle class. Coupled with the naked ambition of people like Natasha Mazzone, and the hollow but preachy leadership of Mmusi Maimane, the party is no l onger worthy of my vote. Not the gumboots, please I have not for a second contemplated giving my vote to t he thugs who wear gumboots and overalls in parliament. They have reduced a key institution of our democracy to a sourc e of embarrassment. The corruption of the AN C under Zuma would be like a practice for the real deal — just much bigger, more crass and more b razen. Ask the Limpopo municipalities that did business with O n-Point Engineering. Who else? The less said about C ope the better, and the IFP serves no purpose in parliament other than earning salaries for the cantankerous chief and his shrinking impi. Bantu Holomisa is a good man, and has served the peo ple with honour and dedi cation. Ideally you should a lways have him on your side. B ut there is no diff erence between Holomisa and the UDM, and without Holomisa there is no UDM. The UDM lacks both plan and strateg y. Enter Hlaudi Motsoeneng and his Content party. Thieves and narcissists would feel at home here. M otsoeneng’s party and the EFF should merg e — they could call it The Grand Coalition for The Advancement of The Lootists. Gigaba could be asked to lead the c oalition while Motsoeneng is undergoing a psychiatric evaluation. A loota! x

bad week So, not the best Christmas gift for much-loved TV host-turned-media boss Khanyi Dhlomo. She has announced that her business, Ndalo Media, will close in January 2019. This comes after Ndalo’s loss of the SAA inflight magazine contract, gigantic outstanding printing bills and late staff payment. It also means the end of magazine titles Destiny, Destiny Man, Elle and Elle Decoration. It’s a particularly difficult moment for the many staff members who are now out of work. The digital dark lord claims another victim. x

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

SARS AFTER MOYANE

‘Apolitical’ tax boss wanted Four people are said to be frontrunners, but an official denies this, insisting Nugent’s guidelines will be followed strictly Natasha Marrian marriann@businesslive.co.za

Judge Robert Nugent: Submitted his final report to President Cyril Ramaphosa last week Sunday Times/Simphiwe Nkwali

ý The SA Revenue Service (Sars) commission of inquiry has rec ommended a host of measures to ensure that the tax ag ency is never again “seized” by a leader who “lacked integrity”, like axed commissioner Tom Moyane. The commission, chaired by retired judge Robert Nugent, submitted its final report to President Cyril Ramaphosa last week. It recommends far-reaching legislative and governance changes — and these proposals are to f orm the basis of the proc ess that has now started to appoint a suc cessor to Moyane. The post of c ommissioner was advertised over the weekend and contenders will be shortlisted in January. Nu ge nt ’s recommendations aim to ensure a transparent process for the appointment of the new commissioner who, he says, should be “a p o l it ic a l ”. The FM understands that the names of at l east four individuals to replace Moyane have been raised: former auditor-general Terence Nombembe; former Sars senior executive Nathaniel Mabetwa; former Sars COO and former Alexander Forbes CEO Edward Kieswetter; and former Sars deputy commissioner Ivan Pillay. But a senior government official says the stringent guidelines suggested by Nugent for the appointment leave the race wide open. What Nugent proposes is the professionalisation of the appoint ment process, to ensure that the new Sars boss is insulated from political influence. “It has become perfectly clear in the course of this inquiry that Sars is still plagued b y factional politicisation and intrigue that entered Sars with Mr Moyane’s appointment and it is set still to plague Sars. Without that politicisation being rooted out of S ars,

there is no prospect of its credi bility being restored,” he says in his r ep o r t . He adds that S ars under Moyane was a “c at a s t r o ”pbecause he of “massive failures of governance”, coupled with pervasive breaches of i nt e g r it y ”. Nugent recommends that the new commissioner should have “unblemished integrity”, have the ability to manage large organisations — Sars employs 14,000 people — and should “not be aligned to any constituency”. Two new posts might be created to tighten oversight of the agency: an inspector-general and a deputy commissioner, to be appointed by the president. Nugent also recommends that the reporting lines of the c ommissioner to the minister of financ e be strengthened, though he steers clear of returning responsibility f or the appointment of the c ommissioner to the National Treasury. The appointment should instead be made by the president in c onsultation with the finance minister. Ramaphosa has a huge task in making this appointment, as the new tax commissioner has to restore the agency to the efficient unit it once was, before Moyane brought it to its knees, culminating in a R100bn hole in revenue colle c t io n . It is unlikely to be an appointment made lightly, particularly as the Moyane faction inside and outside Sars continues its fightback. Ra maphos a’s pick will need steely resolve to withstand an o n s l au tgfrom h delinquent taxpayers, organised criminals and pla yers in the illi cit economy, particularly in the tobac co trade, which benefited from the weakening of the tax agency. Sars was among the first insti tutions captured through a c on-

December 20 - December 26, 2018

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AFP/Oli Scarff

ANOTHER WEEK

OUT Manchester United manager José Mourinho was sacked by the club on Tuesday, after Sunday’s defeat at Liverpool. United finally lost patience with a manager who was not adhering to the club’s core attacking values and who had overseen their worst start to a season for 28 years.

CHRISTMAS 1843

the first commercial Christmas cards, commissioned by civil servant Henry Cole in London. One sold for £8,469 in 2014

Turkeys are cooked in the UK every Christmas

1847

the year the Old English phrase Cristesmæsse “Christ’s mass”, was first recorded

0.1 0.01

0.5 0.4

1.8

1.2 1.1

2.38

SA retail trade sales All retailers, monthly (Rbn) 100 80 60 40 Dec 2010

37.8-million Natural Christmas trees sold in the UK each year

The christmas cracker, invented by London sweet shop owner Tom Smith. By 1900, he was selling 13-million a year

December 20 - December 26, 2018

Christians Muslims Unafliated Hindus Buddhists Folk religions Other religions Jews

1038

The most lights on a Christmas tree, in Malmedy, Belgium, 2010

The most expensively dressed Christmas tree, displayed by the Emirates Palace in Abu Dhabi in 2010

Billion

10-million

194,672 £7m

Global population by religion in 2015

The most Christmas No 1 hit singles (1963, 1964, 1965 and 1967) by The Beatles

Dec 2011

Dec 2012

Dec 2013

Dec Dec 2014 2015

50-million copies

The bestselling Christmas single ever, Bing Crosby’s White Christmas, since 1942

2 Bohemian Rhapsody by Queen is the only record to reach the UK Christmas singles chart number one twice - in 1975 and 1991

Source: FM Research and Stats SA

BY THE NUMBERS

certed attack on a number of fronts, which included state secu rity and the tobac co industry in cahoots with powerful politicians. The fallout of the capture of S ars continues to claim vi ctims. Bain & Co, the consultancy at the heart of the Sars restructuring which neutralised its capacity, “parted wa ys” with its head of SA operations, Vittorio Massone, in November. Bain has paid back the mone y it earned from the illegal c ontract it won from Sars, amounting to R 217m. Nugent has recommended that fraud charges be brought against Bain over the dodg y contract. IT consultancy Ga rtner was not spared either. The commisThe post was sion found that advertised Sars paid over over the R200m to the weekend and firm for work contenders which its own r ep r e s e ntv at e si will be shortlisted in described as “w o r t h le s s ”. January The Gartner mess just about crippled S ars’s infotech infrastructure, with the eFiling system at risk of c ollapse in two years if there is no c oncerted i nt e r v e nt io n . Moyane’s abrupt halting of the decade-long Sars modernisation p r o g r a m me shortly after he took over set the tax ag ency back; senior officials say it will t ake about R1bn to get it on track again. This will be a pri ority for the new co m m i s s io ne r . Nu ge nt’s report also contains far-reaching recommendations on improving governance and operations at Sars in the medi um term, including restoring key units such as the larg e business centre and the compliance unit, and for Sars to re-establish its capacity to investigate the illicit economy, especially the illicit tobacco trade. Its capacity to do so was diminished d uring Mo yane’s tenure. Politics poisoned Sars. To secure government finances, it is critical that political agendas be extricated from the agency’s DNA by appointing a neutral c ommissioner and cleaning out the rem nants of Moyane’s project. x

“No-one is in a position to dictate to the Chinese people what should or should not be done.” China’s president Xi Jinping, in a speech marking the 40th anniversary of the opening up of the Chinese economy. “We must ... reform what should and can be changed [and] not reform what shouldn’t and can’t be changed,” he added.

TRENDING

A basket of worries SA seems set to once again miss out on the good times, only to take the full hit of the bad times

DINNER PARTY INTEL... The topics you have to be able to discuss this week

1. Pompeii evacuation plan In a move that might have been useful 2,000-odd years ago, authorities in Pompeii are putting in place an evacuation plan in case Mount Vesuvius erupts again. More than 2,000 people were killed and the city buried under volcanic ash in the 79BCE eruption. And while there is thought to be no imminent threat from the volcano, a recent increase in seismic activity in the region has raised warning flags, according to a report in The Guardian. Under the plan, residents will be evacuated to Sardinia by boat.

Tim Cohen cohent@businesslive.co.za

2. Chicken ad in bad taste ý It’s been a rotten year on global stock markets, and without Father Christmas leaving a present under the tree, they seem likely to end down for the year. That would be a particularly bad result f or SA, which has seen this movi e for five years now, and 2018 was a particular shocker. The JSE all share inde x is heading for a 15% decline f or the year, and it’s hard to believe, in the c ontext of respectable global economic growth, that this result is actu ally around the middl e of the range globally. Year to date, markets all over Europe, including Germany, Italy and France, have declined by that degree, while the outliers were the Chinese indices in Hong Kong and Shanghai — both got thumped by more than 20%. The broadest market indicator in the US, the R ussell 2000 index, is down m uch more than the S&P and the Dow, suggesting that smaller, more US-focused companies are on the back f oot. The broadest reason has

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been sentiment concerns, but this picture is punctuated by a whole basket of worries about specific issues. These include US President Donald Trump’s trade war with China and the likelihood of increasing interest rates in the US, which worries equity investors about the im pact on the economy. It also tends to increase the move towards bonds, and accelerates the move away from emerging m a r kets . The shockers just kept coming this year, including the Brexit mess, the arrest of Nissan chair Carlos Ghosn and Goldman Sachs getting caught up in a h uge Malaysian corruption scandal, to name a

few. Most recently, it was reported that Johnson & Johnson knew for years that its baby powders sometimes contained asbestos. Rising interest rates are supposed to help banks, but instead, in many countries, they are hurting. The fear of a global slowdown is proving more powerful than the notional benefits of lower commodity prices. The stand-out markets over the year have been the Brazilian Bovespa and the Indian Se nsex .Here, the promise of the new dawn failed to materialise, and SA seems set to once again miss out on the good times, only to take the full hit of the bad times. x

SA’s Advertising Regulatory Board has upheld a complaint against a Chicken Licken ad, the Legend of Big John, which shows an African explorer conquering Europe in the 17th century. The board said colonialism was traumatic for Africans and was “not open for humorous exploitation”. The company said the ad, which shows a young African, Big Mjohnana, leaving his village in 1650 to conquer his hunger for adventure, was “tongue in cheek” and intended to create “pride” among South Africans. Few on Twitter seemed to take offence.

3. Japan to spend on arms In a break from the pacifism enshrined in its US-designed post-World War 2 constitution, Japan is to ramp up spending on defence, though this will still be less than 0.9% of its GDP. The cabinet approved new spending guidelines this week, said the BBC, in terms of which Japan will acquire its first aircraft carrier as well as long-range cruise missiles. The move comes in the context of increasing threats from North Korea’s nuclear arsenal and China’s plan to dominate the South China Sea. December 20 - December 26, 2018

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DIAMONDS & DOGS BY JAMIE CARR

HOT PROPERTY THE WOW HOUSE

This is now a highly competitive business, with margins among the best in the industry 12

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Anglo American

Cryptocurrencies

Trebles all round

A case of balls to the wall

The festive season seems well and truly DIAMOND to have arrived over at Carlton House Terrace, with Mark Cutifani’s investor briefing stopping just short of putting on the red suit and white beard. It’s clearly mince pies and trebles all round for investors who were brave enough to pile in at the bottom of the cycle back in J anuary 2016, when the share pri ce appeared to be tumbling towards the deck at a ver tiginous rate and the onl y question was just how l ow could it go. A five-year view paints a rather different picture, with the pri ce now back to approximately where it was before it went into free fall. Y et Cutifani picks five years as the time frame in which he states they have completely transformed the quality of the asset portfolio and the c ompany’s performance as a whol e. This is now a highly competitive business, with margins among the best in the ind ustry, and Cutifani is aiming to add $3bn-$4bn of incremental annual earnings before interest, tax, depreci ation and amortisation by 2022. The balance sheet is looking a lot healthier, with net debt red uced over the past three years b y $9bn, and some $2bn of dividends having been paid to shareholders over the past 18 months. The company is expecting the next step change in its perf ormance to be driven by the deployment of its FutureSmart Mining technologies and digitalisation, which will transform the way it mines, proc esses and markets its products. This is a far cry from the wailing and gnashing of teeth that was heard three years ago, and it’s been a remarkably strong recovery. x

It was late in 2017 when investors of a DOG certain age began to suffer the symptoms of cryptoglaze. This involved a general shutdown of the synapses oc casioned by a lecture from a true beli ever about why crypto was going to take over the world, why blockchain was the most important invention since the wheel and why fiat currencies were about as much use as F iat cars from the mid1970s. Cryptoglaze was useful because it allowed the suff erer to bear the brunt of the lecture while off ering no more than the oc casional grunt in return, but while the price of bitcoin and its more esoteri c compadres continued to fly, the true beli evers were in the ascendant. Until, of course, it crashed, whi ch it has been doing with remarkable vigour all year. This is not just the sort of low-speed fender-bender that you might see in the more mild-mannered suburban car park, it’s a balls to the wall, high-octane Formula One explosion from the era bef ore anybody had even thought of safety regulations. Bitcoin has plummeted from not far sh y of $20,000 to just over $3, 000, and there’s no sign of an ybody stepping in to stop the rout. Commentators such as Nouriel Roubini have been having a field day, describing crypto as “the mother and father of all scams and bubb les”, and blockchain as “the most over-h yped and least useful technolog y in human history”, while predicting that bitcoin should drop to zero, if not sligh tly lower, due to the negative environmental effect of mining the c oins. Whatever else you migh t say about crypto, it certainly delivers in the white-knuckle department. x

December 20 - December 26, 2018

WHERE: Waterfall Country Estate, Midrand PRICE: R11.5m This generously proportioned home in exclusive Waterfall Country Estate north of Johannesburg comprises spacious living areas, four bedrooms, three bathrooms, a state-of-the-art kitchen, large pantry, separate scullery, fitted study and a private guest suite that opens out onto the patio and pool. It includes underfloor heating, irrigation, piped gas and fibre, four garages and staff quarters. ● Agent: Jawitz Properties

WHERE: Kenilworth Upper, Cape Town PRICE: R16.35m Somerset House, which dates back to the 18th century and was once home to Lord Charles Somerset, the first governor of the Cape, has plenty of French charm. It has five bedrooms, two bathrooms and four living areas. Special features include ornate Victorian broekie-lace ironwork, a borehole and water filtration system, a complete irrigation system and fibre. ● Agent: Greeff Properties

The Breitling Cinema Squad Charlize Theron Brad Pitt Adam Driver

LAND

NAVITIMER 8

AIR

SEA

#SQUADONAMISSION

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AI AND DATA PROTECTION

Integrity by design Claudi Mailovich mailovichc@businesslive.co.za

ý Imagine trying on your clothes virtually via a mob ile app before making the purchase. Artificial intelligence (AI) will doubtless soon make this a reality, allowing you to skip the queues and cut out the hassl e of returning stuff, which has become synonymous with online shopping. Matthew Drinkwater, director of the London College of Fashion’s Innovation Agency, told a Microsoft conference in Paris recently that the agency had conducted a trial with a luxury scarf designer in 2016 in which clients were able to try on the scarves virtuall y. “Are consumers ready to virtually try products on? In this case it d id n ’thappen that much,” he admitted. But what they did do was try on the scarf virtuall y and then go out to the retailer to buy one. 14

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“At the moment we can very accurately scan the fac e, and within the next six to 12 months we will be able to do that f or the body. What will this mean f or fashion?” he asks. And what will it mean f or personal data security? What are the pitfalls of this development and what is being done to protect c onsumers from the misuse of AI? Enter “ethics and AI” , which was a theme explored on the same day that Drinkwater and multiple industry experts took to the stag e of the conference at Station F in Paris, the world’s b iggest business incubator campus for start-ups. The amount of data c ollected through technology is no small matter, as the c ontroversies over privacy and the misuse of personal data by social media giants such as

December 20 - December 26, 2018

A recent Microsoft event showcased the wonder of virtually fitting clothes for size and raised broader questions of data safety Facebook has shown. In Europe the issue is chi efly governed by the EU G eneral Data Protection Regulation (GDPR), which aims to protect EU citizens from data breaches. The GDPR crucially extends its powers to companies processing the data of any person living in Europe. In SA, data protection is governed by the Protection of Personal Information Act, 2013. Popi, as it is known, was signed into la w by then president Jacob Zuma on November 19 2013, but has yet to come into force. Most of its pro visions will come into effect only when the information regulator is fully operational. The draft regulations were published for public comment in the sec ond half of 2017. The final regulations are yet to be promulgated.

In terms of data protecti on in an age of rapid technological growth, the aim is to ha ve “integrity by de s ig n ”. Kavitha Babu, director and regional attorney for Microsoft in Europe, says the question should not be what c omputers can do, but rather what they should do. The industry needs to carefully consider the societal issues raised by sophisticated technology and AI. “We cannot afford to look at it with uncritical eyes,” she says, adding that every ethical issue that humanity has faced is a potential ethical issue for a computer. She outlines six values that AI has to respect as it augments human ingenuity — fairness, reliability and safety, privacy and security, inclusiveness, transparency and accountability.

Navigating the ethical pitfalls raised by AI will require a “shared understanding” of the guiding prin ciples and developing a common framework to guide researchers and developers of next-generation technologies. Babu says the complexity of AI technologies has fuelled fears that they might create unintended outcomes. In terms of major pri vacy breaches, Facebook has had an extremely turbulent year as it fac ed a huge backlash, especially after the Cambridge Analytica data scandal over the misuse of milli ons of Facebook users’ personal data for political purposes. At the weekend the Irish Data Protection Commission announced a probe into the social media giant f or failing to report a security b reach to the reg ulator within 72 hours, as required by the GDPR. Babu says privacy has to be a business imperative, and that it is a key pillar of building trust in an y AI initiative. AI systems had to tak e into consideration how personal data engages with the system “while it is being built”. “Computers need to remain accountable to people, so that the people who actually develop the technology continue to remain accountable to users,” she says. Murray Hunter of the Right2Know Campaign says that though SA law addresses the issue, it requires the watchdog (in the form of the inf ormation regulator) to be fully operational. He says Popi is exactly what SA needs, as everything would then be in place for effective regulation. Until it is, c onsumer protection laws and the Cybercrimes Bill afford only limited protection. Less than six months bef ore SA’s next election it is also crucial that the information regulator be given teeth before voters cast their ballots, says Hunter, because there is a growing body of case studi es of elections having been influenced by misusing d at a . In her address at the P aris conference, Babu aptly used the c liché: with great power c omes great responsibility. x The writer’s trip to Paris was sponsored by Microsoft

PATTERN RECOGNITION BY TOBY SHAPSHAK

Life with or without screens @shapshak

Smartphones and social media are closer to ‘crack cocaine than to candy’, but they are the way people communicate now

How do I allow my child’s computer skills to grow without him becoming addicted?

part from the im plosion of our trust in social media, 2018 will go down as the year we discovered just how bad smart phones are for us. Even though they have become an integral part of our lives, there is a global pushback against their damaging effects — not surprisingly, from Silicon Valley itself. “It’s the height of irony,” former US secretary of state Hillary Clinton said at the Discovery leadership summit last month. “If you go to Silicon Valley, parents are doing everything they can to keep their own children off screen devices because they understand how addictive these devices are and how the content on the device becomes an alternative reality.” She was talking about a N ew York Times article in October that highlighted this trend: “The people who are closest to a thing are often the most wary of it. Technologists know how phones really work, and many have decided they don’t want their own children anywhere near them.” Two ex-Facebook executives have decried, respectively, how they helped create the “bright dings of pseudop leas ure” and how these “do p a m i ne driven feedback loops we’ve created are destroying how society works”. Clinton and the remorseful e xecutives are preaching to the c onverted with me. Last year I removed F acebook and Messenger, which are the worst offenders for me. I’ve survived without Facebook on my phone and my life hasn’t suffered — in fact I have spent more time with m y family.

Perhaps one of the most telling admissions of the dangers of screens and the addictive nature of social media in the New York Times article came from Athena Chavarria, a former executive assistant at Facebook and now at Mark Zuckerberg’s philanthropic arm, the Chan Z uckerberg Initiative. She said: “I am c onvinced the devil lives in our phones and is wreaking havoc on our children.” The former editor of Wired magazine, Chris Anderson, told the paper: “O n the scale between candy and crack cocaine, it’s closer to crack c ocaine.” Several studies have bemoaned how bad social media is f or young p e o p ’slemental health, including one by the Royal Society for Public Health, which said it’s “more addictive than cigarettes and alcohol”. Last December Facebook conceded people “r ep o r t feeling worse afterward”. Nobody calls it “dep r e s s iobut n ” that is what these dopamine-fuelled hits are producing. But smartphones and social media aren’t going away. In a while I will have to tackle how my 18-month-old son is exposed to screens. Gaming is the new way kids and teenagers spend their leisure time and i nterac twith their peers. I believe computer-gaming skills will define the next generation of interfaces, especially in virtual reality. How do I all ow my son’s computer skills to develop without him bec oming addicted? I’m not the onl y parent facing this dilemma. Any suggestions are welcome but, meanwhile, we’re totally avoiding screen time. x Shapshak is editor-in-chief and publisher of Stuff magazine (stuff.co.za)

December 20 - December 26, 2018

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NASPERS

Taking a positive step A2X listing welcomed but market still awaits more detail on how the tech giant plans to reduce its valuation discount Nick Hedley hedleyn@bdfm.co.za

ý It’s not quite the b ig structural remedy that many investors are hoping for, but it’s still g ood news that Naspers shares will find a sec ond home on SA’s alternative stock exchange, A2X Markets, before the end of 2018. The internet behemoth said on Tuesday that its shares would start trading

Kevin Brady: Exchange has now reached ‘critical mass’

GIMME

Aaptiv workout app

on A2X on December 27. The company will keep its primary listing on the JSE. Analysts (and Naspers) say this move will do littl e to drive down the group’s hefty valuation discount relative to Tencent. But it could improve liquidity and, overall, it’s a win f or SA’s capital m a r kets . A2X CEO Kevin Brady says his exchange has now reached “c r it ic a l mass” as 15 companies, including some heavyweights, have listed. Successfully courting Standard Bank and then Naspers — Africa’s largest public company, with a market capitalisation of R1.3-trillion — is a big deal for A2X. For the time being, sa ys Brady, foreign investors are still “more rec eptive” to secondary exchanges because they’re familiar with the c oncept. Naspers CEO Bob van Dijk says A2X and other similar peers are using technology to reduce trading costs and lift market transparency.

Cool factor ★★★/5

Fitness trainer on tap ý Get a jump-start on those work out resolutions before the new year hits with Aaptiv fitness app. It’s audio based, and available for iOS and Android users. The app is well established in the US, where it launched in 2016, and was last month made a vailable to 20 more c ountries, including the UK, Australia, Singapore and SA. The offering is simple but smart: audio-guided workouts you can do at home, while travelling, or in the gym. Some of the workouts require access to equipment such as a treadmill, elliptical trainer or ergometer (rowing machine), but many don’t, and there are over 2,500 workouts to choose from. They cover a variety of activity categories, such as running, sta 16

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tionary/indoor cycling, yoga and strength training, and Aaptiv promises to add fresh c ontent w e e k ly . On opening the app you will be asked to state a g oal for yourself and provide some basi c information, including ranking your le vel (from beginner to advanced). The app then suggests sessions or courses for you (a course is a series of sessions presented by one trainer, often working towards a specific goal, such as running 5km ). The trainer will guide you through each session, even telling you when to pick up the pac e or change position. There is a layer of background music too, to give you that extra oomph or exercise-class fe e l ign.

December 20 - December 26, 2018

Usability ★★★★/5

“As one of the world’s l eading technology investors we understand the value of technolog y and are pleased to support these eff orts by also listing on A 2X … we believe our shareholders will appreciate the added choice of trading venues,” Van Dijk says. And there’s nothing to lose. Naspers won’t have to fork out any cash for its secondary listing and there’s no additional regulatory compliance required. However, the market is still waiting for more details about the larg er “structural options” Naspers is working on to red uce its valuation discount. Some have pressed the group to seek a secondary listing abroad, while others want it to unbundl e its main asset, Tencent. One structural measure in the pipeline is the unbundling of MultiChoice Group, the pay-TV operator that funded Naspers’s Tencent investment and its newer e-commerce ventures. That should happen in the first half of 2019 . A Naspers spokesperson says the secondary listing on A 2X is just anoth er “shareholder-friendly step that we have taken which is likely to be viewed positively”. x

Value for money ★★★/5

These are real trainers with their own distinct presentation and motivation s t y le sit ;is not an automated voiceprompt feature. This means that it f eels personal and directed, even though you know you’re listening to a pre-rec orded session. The only downside is that when you’re following along with something mat-based, like yoga or floor stretch ing, you’ve got no visual means of reference against which to compare your form. The app has an attracti ve, clear interface that is uncluttered and easy to navigate. During a guided workout, you’ll also see a clear countdown timer and progress bar. The app itself is free to down load, but after a se ven-day trial you’ll have to subscribe. The cost starts at R199 a month. x Kate Ferreira

PROFILE Darren Roos CEO of software company IFS

Introduced to the software industry through Dimension Data in SA, Roos realised he wouldn’t reach the position of CEO of a global firm if he remained in the country

on the international market and joined Software in SA in a sales position. He spent nine years at the company. “I moved very quickly through the ranks at S oftware. I started as a sales guy and after seven years was on the gl obal board of the company, living in Europe and responsible for all sales operati ons outside North America — w hic h was about 70% of the business. “I remain a h uge fan of SA. I love the country, I still have family there, but I moved because I recognised that I wasn’t g oing to get to be the CE O of a global soft ware business if I sta yed in the country – that was the reality.” His knowledge of and affiliati on to the SA market means Roos naturally sees an opportunity f or IFS here. “SA is a small business f or us, only a couple of percent of our global revenue, but I feel there is a lot of potential.” He recently appointed a new country manager for IFS’s SA business, and has moved the local unit into bigger, more prominent offices in the centre of Sandton. “And Born in Cape Town, Roos we’re in the proc ess of recruiting attended boarding school in the to grow that business now,” he town of Ladysmith before going on says. “So I see a b ig opportunity for to Durban for his high school us to capitalise on a mark et where years. After matriculating, he solutions that are qui cker to deploy moved to Joburg to do odd jobs so and easier to use would ha ve a that he could fund his studi es great attraction.” through Unisa. Roos says he’s confident that He then worked for four years the company can grow the SA for a marketing company in Israel, business over the next couple of Spain and the UK before r et u r n i ng years “to be probab ly 5% of our to SA in 1999 to join his first soft global revenue”. ware-related business. At present IFS’s customers in “It was a start-up called R ed SA include defence company Saab Flag that ran an electronic Yellow Grintek and hotel and gaming Pages-style operation. The idea group Sun International. was that people would call in and At group level, Roos says his say ‘I’m looking for a plumber’, and priority is to standardise IFS’s then a software engine would help operating model across all mar match them to suppli ers who had kets. “I took over a parti cularly signed up. I ran the sales side of good business, but it wasn’t realthe business,” Roos says. ising its full potential. But after the 9 /11 attacks in the “The main reason for that was US in 2001, funding dried up, the that we had eigh t regions — eight business went under and Roos bu s i ne s s — e sthat were all run entered the corporate world for the autonomously. There was no c omfirst time, joining Dimension Data. monality between t he m” . “It was a great f our years. That is This deterred some major global where I got my introduction to the customers. It’s a simple fix, says software industry.” Roos, but one that c ould transform In 2005, Roos set his sigh ts the operation. x

Quickly through the ranks Nick Hedley hedleyn@bdfm.co.za

ý Darren Ro o ss’ appointment as CEO of Swedish software company IFS adds credence to the theory that SA punches above its weigh t in the global tech arena. “I think that in most of the developed world — Europe and the US particularly — there is a very robust social welfare system and because of this, if you do n’t get a job and make a success of it after leaving school, you don’t usuall y end up on the streets,” says Roos, who took the helm of IFS — which specialises in enterprise resource planning software — in April. “As South Africans we grow up knowing that our fate is in our hands, and we are ac countable for that. As a result, we de velop a very good work ethic early on and have a strong sense of accountability. Those two things are great ingre dients for a successful career.” Roos says he tends to hire a lot of South Africans from IFS’s competitors. This is not by design, he adds, but rather because S A tends to breed strong candidates.

His company, headquartered in Linköping, a small city in southern Sweden, has close to 4, 000 employees worldwide. In the three months to September, IFS generated net revenues of about R 2.1bn, an improvement of 28% from a year before. “Running this business is not an individual effort, so having great people around me is definitel y v ital to success,” Roos says by phone from London, where his family is based and where he spends the occasional weekend. Before joining IFS, Roos was president of SAP’s global enterprise resource planning cloud business. He’s also held other leadership roles at the R1.9-trillion German software behemoth, including as GM for Northern Europe and as COO for Europe, the Middle East and Africa. Before SAP, he was a senior executive at Ge rman company Software. Not a bad track record for someone who gre w up far from the world’s major tech hubs (as did Tesla’s Elon Musk and Mi mecast’s Peter Bauer, who were both born in S A).

December 20 - December 26, 2018

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BOARDROOM TAILS BY ANN CROTTY

BY THE NUMBERS

Compared to whom? Should protesters be comforted by the long-term picture of development?

hat would Fa c t f u l n e s s author Hans Rosling h av e made of the comments of one of the French protesters that after paying for rent, food and petrol she could not afford to take an annual hol iday? Rosling — who died last year shortly after finishing his book about how the world is actuall y considerably better than most of us beli eve — might have been tempted to remind her of just how well off she and all her gilets jaunes colleagues are now. Rosling’s book provides a useful account of the progress that has been made by mankind over the c enturies and reminds us of how m uch better off we are now than bef ore. Just 10% of the gl obal population is living in severe poverty, compared with 85% as rec ently as 200 years ago; life expectancy has been extended significantly; fewer countries are being run by oppressive patriarchies; and, despite the headlines, far f ewer people are being killed in wars. Perhaps French president Emmanuel Macron, and our own President Cyril Ramaphosa, s hould consider distributing copies of the book to citizens whene ver they take to the streets to protest against their grim lot in life. By Rosling’s definition even the vast majority of S A’s township dwellers exist a few rungs above “severe poverty” and, with access to electricity, education and health ser vices, are considerably better off than they might have been 20, 50 or 100 years ago. And the French protester’s complaint about not being able to aff ord a holiday – even a car journey to a nearby caravan park – marks her and her hundreds of thousands of yell ow

e-mail: crottya@bdfm.co.za

Democratic capitalism is all about encouraging consumers to need more and voters to expect more 18

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December 20 - December 26, 2018

vest colleagues as being among Rosling’s top 50% wealthy in the w o r ld . Rosling contends the tendency to believe we exist in a world that is g etting steadily worse for all but a l ucky handful is a human instinct designed with self-preservation in mind. Journalists, according to Rosling, have aggravated the tendency, presumably because, for example, instead of writ ing about the tens of thousands of planes that land safely every day, we only tell you about the f ew that don’t. And we never tell you about the wars and famines that aren’t happening. As an aside, in the earl y 1990s the editor of The Star tried to push back against readers’ fixation on bad news. His commitment to giving exposure to some of the many good things going on back then had to be abandoned after a month or so, d ue to lack of reader interest. But should the gilets jaunes, or SA’s service delivery protesters, be comforted by Rosling’s long-term picture of development when their own li ves are patently not what the democrati c capitalist system has encouraged them to expect? Rosling’s data is impres sive, but the reality is that the allimportant growth needed by the capitalist system relies on people never feeling comforted and instead beli eving that more is needed. S imilarly, democracy involves politicians stoking the discomfort of voters with talk of inequality and promises of sol utions. Democratic capitalism is all about encouraging consumers to need more and voters to expect more. It has so far proved unab le to address the inevitable, growing disparities that make protestors look not to millennia of development, but to those who’ve extracted so much more from the system. x

The largest companies on each continent by market cap and the world’s largest economies

$785bn

North America

$221bn Europe

$367bn Asia

$127bn

Australia & Oceania

$98bn

Middle East

$86bn Africa

$82bn

South America

Largest economies 1

$19.39-trillion

$12.24-trillion

$4.87-trillion

$3.67-trillion

$2.62-trillion

$2.60-trillion

$2.58-trillion

$2.05-trillion

$1.93-trillion

$1.65-trillion

China

Japan

Germay UK

India

France Brazil Italy

Canada

Source: howmuch.net

F E AT U R E S An in-depth look at the hot button subjects of the day in SA and around the world

P U BLCI ENEMY

SHIFTING PROFIT OF F S HOR E

A RUN FOR THE MONEY

WORDS OF WA R N I NG

It was a conspiracy that dated back more than a decade, making fools of some of SA’s smartest businessmen. Markus Jooste is SA’s newsmaker of 2018

Some of the multinational firms that are coining it in SA appear to be transferring a substantial portion of their gains to their parent companies in tax havens

With an estimated R26m in legal costs hanging over his head and a court ruling blocking further state funding for his defence, Zuma is on the ropes

The populist rhetoric of 2018 is likely to gather steam ahead of next year’s elections. It should taper off after that — but the damage may be done by then

December 20 - December 26, 2018

financialmail.co.za

cover story /

P U BL IC ENEMY

newsmaker of the year

Warren Thompson thompsonw@businesslive.co.za

5,600

5,200

4,800

4,400

It was a conspiracy that dated back more than a decade, making fools of some of SA’s smartest businessmen. Steinhoff is SA’s newsmaker of 2018

4,000

3,600

3,200

2,800

What it means: Someone must pay for the huge loss of value

2,400

2,000

DOWN AND OUT 1,600

Steinhoﬀ International share price (c) – daily

1,200

800

400

n the end, it was no c ontest. Markus Jo oste’s Shakespearean fall from grace — from the top echelons of S tellenbosch royalty during his stint as CE O of Steinhoff, to pariah in the c oastal town of Hermanus — made him a shoo-in f or the FM’s newsmaker of the year. It was no small f eat: in 2018 the headlines were dominated by the ousting of S A’s president, Jacob Zuma, and by US leader D onald Trump sparking a global trade war. But it is the fall out from Jooste’s overnight “res ignation with immediate effect” on December 5 2017, and Steinhoff’s simultaneous admission of “accounting irregularities”, that will haunt S A for years to come. This year, there have been almost weekly revelations of how Jooste m a s t e r m i nde d secret “related-party deals” that enriched him, as well as revelations of how Steinhoff’s own books were cooked. It has sparked widespread outrage. In one of the last intervi ews he gave before quitting in 2017, Jooste famously dismissed the G erman investigation into him and S teinhoff’s accounting. “The authorities worldwide are looking for more tax ... you must remember, it’s a game f or money,” he said. It was a propheti c choice of words. A year later, and the game is up. I t’s a steep fall: for so long the gilded king of the local retail sc ene, Jooste embarked on a debt-fuelled acquisiti on spree to drive Steinhoff to the pinnacle of the global fur niture industry. It became the sec ond-largest furniture retailer in E urope, behind Ikea. But in the two decades that f ollowed the company’s 1998 listing on the JSE, J ooste’s greed became a cancer that brought the company to its knees, and may yet fell it entirely. In a multiplicity of deals that ha ve since come to light, it turns out he had tak en secret stakes in entities that were benefiting from S teinhoff’s dealmaking. Finally, the risk-taking became so daring that it could no longer be explained away to the c ompany’s au d it o Deloitte, r, and to nonexecutive directors. That Steinhoff has survived until now, without entering into formal bankruptcy proceedings, is an a c hiev e me ntSteinhoff’s . reconfigured board, led by chair Heather Sonn and the executive team, initially led by Danie van der Merwe, have managed to convince creditors and legal claimants that k eeping the

company alive is the best long -term solution for all. On December 14, Steinhoff concluded a lock-up agreement with the company’s creditors which, it hopes, will bring “a new period of financial stab ility for the group and enable manag ement to focus on maximising the potential of [ its] various businesses”. The trick now for Sonn’s board is to figure out what to do with its crown je wels: Steinhoff’s direct stake in Pepkor Europe (which it owns outrigh t), and the 71% of the P epkor group, which listed last year on the JSE as S teinhoff Africa Retail (Star). The FM has been led to beli eve the sale of P epkor Europe could fetch anything between R50bn and R60bn. One option touted in c orporate finance circles would unite the two P epkors under Pepkor Holdings. Here, the largely ungeared balance sheet of Pepkor Europe could be used to financ e its acquisition by Pepkor Holdings. Steinhoff still has other global retailers under its u mbr e l l.aThese i nc lu deFrench chain Conforama, US company Mattress Firm (which recently emerged from bankruptcy), Poundland in the UK and Freedom in Australia. It remains to be seen which ones will stay inside the group. But the real questi on for those who demand accountability for the R200bn lost in market value is: what will happen to J ooste? Given the complete evisceration of the National Prosecuting Authority under Zuma, there seems lit tle confidence that he will be held ac countable for his sins in SA. Perhaps the German prosecutors will prove more adept. But even the Germans have been investigating Jooste for more than three years, and h av e nt ’brought charges. Many people have been waiting f or PwC’s forensic report to emerge to see where b lame should be placed. But though it was initiall y expected this month, S teinhoff now says the probe is only “expected to be c omplete by the end of February 2019”. Even then, there’s no guarantee the full f orensic investigation will be rel eased — an alarming aboutturn on its earli er undertaking. Should it fail to do so, shareholders will certainly fight that in c ourt. That doesn’t mean justice will come quickly for the thousands who have suffered from the h uge lo ss of value. As it was, 948 of S A’s 1,651 pension funds had exposure to Steinhoff, and were cruelly exposed as the share pri ce fell from R96.94 in A pril 2016 to just R1.74 at the time of g oing to print. It would be a travesty if no-one is held to ac count for that. x Source: Iress

0 Dec 2017 20

Jan 2018

financialmail.co.za

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Mar

Apr

December 20 - December 26, 2018

May

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runners-up: agents of anti-state capture

It ain’t over yet, Cyril If you think President Cyril Ramaphosa had a tough 2018, ousting J acob Zuma and Tom Moyane, you ain’t seen an ything yet. The billionairre faces a gruelling 2019, which will kick off in the first week in J anuary with a fracti ous national executive committee meeting in whi ch the ANC is set to finalise its lists of candidates f or posts in the legislatures. So far, the list proc ess has been marred by factional fights, with the group aligned to Zuma using it in a bid to claw back power. I nsiders in the AN C who support Ramaphosa say the Zuma grouping is trying to pack the lists with its own can didates in a b id to direct the g overnment’s actions from within the vari ous legislatures. In January, Ramaphosa will deliver the ANC’s anniversary statement in Durban — Zuma’s home base and the onl y province in which he still enjoys plenty of support. T here are fears that Ramaphosa may face a hostile reception, but the party’s provincial e xecutive committee has been working hard to ensure that doesn’t happen. While it’s true that Ramaphosa has already made a number of vital appoint ments (such as Shamila Batohi as prosecu tions boss), he will fac e the ultimate test in 2019, when he announces a reconfigured cabinet, after the elections in May. Ramaphosa will be the fac e of the AN C’s election campaign. Indications are that his presence has vastly improved the party’s prospects: the ANC has even made inroads into the D A’s power base in the W estern Cape, winning two councils from the party in recent by-elections. But Ramaphosa will have to fight an election while battling to turn a sliding ec onomy around, with a power utility that c ould prompt all three ratings ag encies to downgrade SA to junk status. A t the same time, he’ll have to appoint a ne w SA Revenue Service commissioner (the deadline for hopefuls to submit their CVs is on January 18), while also fixing crises at the H awks and p olice. If all goes well for him, in 2019 Ramaphosa will win a strong mandate from the electorate. It would strengthen his hand as he presides over a fracti ous ANC harbouring leaders who want to move against him at the party’s ne xt national general Natasha Marrian council. x

Zondo shows how The long-awaited state capture commission, led by deputy chief justice Raymond Zondo, got under way in August and has heard e xplosive testimony about the influence the Guptas had over former president Jacob Zuma. Within the first few weeks, the ANC was moved to claim it “wasn’t on trial”, but it was soon clear that the party was indeed in the dock. The inquiry has plac ed Zuma and the AN C at the heart of state capture, in part because of what Zuma did and in part because of the par ty’s inability to stand up to him and his c ohorts. For a start, the c ommission heard that when the ANC raised concerns about the Guptas’ influence, Zuma said they were his “f riends” and the only people who were willing to help his sons Duduzane and Edward when he was per sona non grata. Zondo himself has handl ed the process meticulously. His questioning was on point as former and current cabinet ministers rec ounted their experiences. It places Zondo firmly in line to asc end to the position of chief justice when incumbent Mogoeng Mogoeng moves on. The chief justice holds office for a maximum of 10 years or until retiring. M ogoeng was appointed by Zuma in 2011, whi ch means his term will come to an end in 2021. The state capture c ommission will continue with its public hearings in 2019 and is e xpected to start dealing with issues around the interf erence in state-owned enterprises ( SOEs), such as Transnet and Eskom, when it rec onvenes. Fireworks are likely: the appointment of boards of SOEs was central to state capture. President Cyril Ramaphosa is expected to testify on behalf of the AN C and will hopefully give the inquiry more insigh t into the party’s role and why it was diffi cult to stand up to the man who was leading it. Witnesses such as former deputy finance minister Mcebisi Jonas and former ANC MP Vytjie Mentor are expected to be crossex a m iend . Zondo has on numerous occasions urged more people who have evidence to come forward and give testimony to the c ommission. Zuma himself has said he will not do so, though the deputy chi ef justice has asked him to r e co n s ide r . Zondo might just be f orced to start issuing subpoenas to those who are either too scared or too implicated to give their side of the story. x Genevieve Quintal

Bogeyman of the corrupt Public enterprises minister Pravin Gordhan has had a busy year of fixing b roken corporate governance in the large state-owned entities. But his most demanding challeng es lie ahead. His biggest headaches are what to do about the huge debt hanging over Eskom and how to keep a bankrupt SAA a i r b o r ne , as the airline is lik ely to report a loss of more than R5.7bn. For SAA to survive, Gordhan must convince his more hawkish colleagues in the government to bail it out with another R17b n over the next three months. The airline cannot claim to ha ve the same status of strategic importance as electricity monopoly Eskom, without which SA has no source of power. But SAA is an unnec essary drain on public finances as its mandate can effectively be fulfilled by dozens of other air line bu s i ne s s e s . SAA employs nearly 11,000 people (mainly Cosatu-affiliated workers) and has turned a profit in only three of the past 11 years. I n that time, its losses amounted to R 18.1bn. If it is to remain in the ski es, Gordhan will have to convince finance minister Tito Mboweni that another dollop of cash would turn S AA into a viable entity this time. I t won’t be easy: Mboweni has twice made public his desire to close it down. The last time he did this, in New York in October, it sparked panic in government circles. Gordhan had to visit SAA’s head office to calm the jitters. B ut he did say: “The SA public is losing patienc e with SAA and doesn’t think i t is viable.” In a speech laden with disclaimers, G ordhan said he belie ves the airline can survive “if SAA did the righ t things”. Those “right things” are for the airline to eliminate c orruption and waste and become more efficient. The problem is that nothing the airline has done in the past 23 years (in which it g ot more than R24bn in bailouts) shows it can be a g ood bu s i ne s s . Go r d h asndefining ’ moment will come in March, when R9.2bn of SAA’s maturing bonds must be settled. The airline has already burnt through its latest R5b n bailout and is unable to pay salaries without external Sikonathi Mantshantsha assistance. x December 20 - December 26, 2018

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cover story /

global newsmaker

AXIS OF EG OM A N ICAS

The common thread uniting the three global newsmakers — Donald Trump, Theresa May and Elon Musk — is that the trio of formerly mighty personalities were all felled by their own unjustified hubris Tim Cohen cohent@businesslive.co.za

e have the Darwin Awards for people who top them selves in such an idi otic way that they are effectively improving the global gene pool. But what about the Ozymandias Awards? Ozymandias was the sub ject of a poem by Percy Bysshe Shelley in which a traveller encounters the broken statue of a leg endary king of ancient times, lying forgotten in the desert, with these words carved on its base: “My name is O zymandias, king of kings: Look on my works, ye migh ty, and despair!” The poem wonderfully illustrates hubris, human frailty and fleeting prowess. I f there were such an award the global winners of the Oz Awards this year would ha ve to be US President Donald Trump, Tesla boss Elon Musk and UK Prime M inister Theresa May. Once they were mighty; now they are sniping and growling at e veryone and everything. Yet some of their prowess surprisingl y remains, like the mighty trunk of Ozymandias’s statue, a reminder of better times. Trump suffered two major setbacks in 2018: the loss of the H ouse of Representatives to the D emocrats in the midterm elections; and the expanding scope of the Mueller investigation and related legal a c t io n s . Trump’s biggest existing legal setback was the conviction of his f ormer lawyer and sex-fixer Michael Cohen. Cohen paid off adult-film star Stormy Daniels and former Playboy model Karen McDougal shortly before the November 2016 presidential elec tion, after both had e xtramarital affairs with the president-to-be. Cohen was sentenced to three years in prison and more than $1m in fines. The conviction opens the possibility of an indictment of Trump for criminal violations of the federal electoral financing laws. Potentially more damaging, however, is the investigation by former FBI head Robert

financialmail.co.za

December 20 - December 26, 2018

Mueller, the special counsel investigating Russian interference in the 2016 electi on campaign. Previous special counsels typically secured few convictions, but Mueller has been racking them up with terrifying c onsistency. He has filed c onspiracy charges against two lobbyists, reached a plea deal with former national security adviser Michael Flynn and indicted 13 Russians for trying to trick Americans into consuming Russian propaganda targeting Democratic nominee Hillary Clinton. The walls are cl osing in and while Trump calls the inquiry “t he w o r ld most ’s expensive witch-hunt”, the convictions suggest exactly the opposite. Trump’s already dire approval rating remains impervious to major improvement. He is now less popular in e very state than when he was elected. It’s not unusual for a p re s ide ntapproval ’s rating to fall, but Trump is less popular at this point in his term than any other US president in li ving memory. Trump was once a trend; he is now an a no m ay l. Only one other politician around the world has suffered such an ignomini ous drubbing: May. May was dealt a terrible hand: the neg otiation of the UK’s e xit from the E U. Even so, the deal she delivered, in the words of Financial Times columnist Martin Wolf, “united the UK in horror”. H e wrote: “For Remainers, it is evident that this quasi-per manent halfway house, which will keep the UK inside the EU’s customs area and di vide Northern Ireland from the rest of the UK indefinitely, would be far worse than c ontinued EU membership. For Leavers, it is equally evident that this very same halfwa y house would be far worse than a cl ean br e a ”k . As a result, she had to fac e a challenge to her leadership. Though she won, a third of Tory MPs voted against her. S he then went

to plead with the EU f or some kind of c oncession that would help the deal g et approval from the sceptical MPs, but the EU’s members stuck fast. In retrospect, the pro-deal Tories failed to appreciate that the EU states all had inc entives to ensure that the UK is gi ven the worst deal possible, mainly to discourage the growing anti-EU parties in their midst. T hey also didn’t realise that the EU states held all the cards: while 45% of B ritish exports go to the EU, only two EU c ountries (Ireland and Cyprus) send more than 10% of their e xports to the UK. As M ark Rutte, prime minister of the Netherlands, who is figh ting right-wing populist Geert Wilders, put it: “I f anyone in the Netherlands thinks Brexit is a good idea, look at England and see the h uge damage it’s do ne”. Before 2018 the me r c u r iMusk a l could do no wrong — then the chickens came home to roost. In 2017, Musk promised to build 5,000 Tesla Model 3 electric cars by December, and 10,000 a week in 2018. T esla finally hit 5,000 a week in J une this year. Then the gloves came off with in vestors. Musk refused to answer “boring, bonehead q ue s ot in s f”rom analysts, and smoked a doobie during an interview. Then he tweeted that he intended to tak e Tesla private, which turned out to be a pork y pie aimed at shaking off the short sellers. It’s been a poor year f or the Oz Award winners, yet they are still standing. Trump successfully renegotiated the North American Free Trade Agreement; May could run down the clock on the EU deal and f orce it through parliament; and Musk’s Model 3 is outselling Nissan’s Leaf 10 to one in the US despite being much more expensive. Tesla’s share price is very close to a rec ord high. That’s the thing about the O z Awards: you can’t bounce back after winning a D arwin, but the Oz Award is not terminal. S adly, in many cases, some migh t say. x

burst bubble of the year

scandal of the year

BITCOIN US$

15,000

A most unsophisticated bank heist

10,000 5,000 0 2017

2018

Source: Bloomberg

ETHEREUM 1,000 800 600 400 200

US$

0 2018

Source: Bloomberg

The great bitcoin implosion Around this time last year there was hardl y a braai in SA at which a conversation about bitcoin wasn’t taking place. It was an understandable frenzy. After all, the cryptocurrency had jum ped 17-fold in 2017 to just over $ 1 9,0 0 0. But, as most investors know, when every man and his dog are talking about something (on the southernmost tip of Afri ca no less!) it’s a pretty good sign that a bubb le is about to burst. And in 2018 b itcoin went the way of the D utch tulip. The price of a singl e bitcoin hit an all-time high of just over $19 ,000 in December 2017 and then began plunging. And it k ept plunging — by about 80%, to $3,400 a year later. Wounded bitcoin evangelists will argue that the principl e behind bitcoin is solid. It’s a universal world currency that can in theory be used b y anyone and moved anywhere, says Wayne McCurrie of FNB Wealth & Investments. “But people weren’t buying it to use it, they were buying it purely for speculation. Nothing only ever goes up. They lost a lot of mone y.” Shaun Murison, a senior market analyst at IG SA, says there are indi cations that bitcoin’s price dive was tied to its launch on vari ous global futures exchanges, which allowed institutional players to participate on a larger scale. They could take short positions, which meant “they can hedge underlying portfolios or basically bet on the decline of b itcoin”, he says Ran Neu-Ner, host of CNBC Afri ca’s Crypto Trader, says the buzz around bitcoin was originally about the underlying blockchain technology. Blockchain, a digital ac counting ledger, is still promising, especiall y as a disruptor of the financial services industry. “People piled into this technolog y, as if it would chang e in one year’s time,” Neu-Ner says. “Then the reality set in that it would tak e a lot longer.” While bitcoin took a dive, other cryptocurrencies, like ethereum, have done even worse. Some cryptocurrencies are down 95% from their all-time highs. “Unfortunately the majority of in vestors got in at the end of 2017 or beginning of 2018,” Neu-Ner says. The bitcoin bull market happened at a time when the tech was in its infancy, but “the amount of de velopment in the last 12 months is mindblowing”, Neu-Ner says. “Last year people were willing to pa y a lot of mon ey for nothing and now the y are not prepared to pa y for a lot of stuff that’s already been built.” Murison says that while blockchain technology looks like it’s here to sta y (in various forms), the fate of cryptocurrenci es remains u ncertain. But McCurrie reckons bitcoin will survive. “I think there is a demand f or it. But whenever you get a price collapse like that, it will tak e a hell of a l ong Lisa Steyn time for the speculators to c ome back.” x

There has always been corruption in SA. But in 2018 it reached an Olympic standard as an ind ustrial-scale looting exercise resulted in a whole bank being stolen in f our years. VBS Mutual Bank, based in Thohoyandou, Limpopo, collapsed this year after being fleeced by the very peopl e entrusted with l ooking after depositors’ money. Almost R2bn was stolen by the bank’s direc tors, senior executives and well-connected politicians. VBS has taken SA’s corporate corruption gig to a ne w level. Most alarmingly, the auditors em ployed by KPMG are believed to have participated in the f eeding frenzy, helping the thi eves cover up the crime. I t’s not as if the embattl ed auditing firm needed any more negative publicity, so the revelations by the Reserve Bank investigators that KPMG’s senior partner on the audit, Sipho Malaba, received more than R34m in gratuitous payments from VBS, were a bod y blow. Those payments were not disclosed to KPMG. When confronted, Malaba resigned, together with another VBS auditor, D umi Tshuma. Reclaiming the stolen cash hasn’t been easy. T he estates of six of the top b rass of the 36-year-old bank were s equestrated in the high c ourt. About R700m of the cash was used to fuel an acquisition spree by the bank’s largest shareholder, Vele Investments, which is also being sequestrated. It is a scandal that has re verberated across the northern provinces. This month the AN C fired 14 mayors in municipalities across Limpopo and the North West for allegedly instructing officials to deposit m unicipal funds with the bank (illegall y). Some municipalities lost as much as R234m as VBS ran out of cash and went into business rescue in M arch. In Gauteng, the ANC is said to be pressuring two ma yors to resign, as it is ill egal to deposit municipal funds with a m utual bank. The ANC has also had to admit it benefited to the tune of more than R 2m in sponsorships by Vele and VBS, whi ch hired buses to f erry members to its D ecember 2017 elective conference. But it is the EFF that is hurting most from the scandal. T he brother of EFF deputy president F loyd Shivambu and a c ousin of EFF leader Julius Malema allegedly received about R20m of the funds looted, according to the report on VBS written f or the Reserve Bank by advocate Terry Motau, and reports in the D aily Mav e rci k . The municipal officials are said to ha ve received personal inducements, averaging about 2% of the deposits, to place funds with VBS. In the process, municipalities lost more than R 1.6bn in funds deposited with the bank. T his cash was used to pay bribes, fuel Vele’s acquisition spree, for personal vanity projects, or to buy flashy supercars and m ultimillion-rand properties. The looting scheme worked like this: Vele Investments first sought the help of VBS chi ef technology officer Philip Truter, who allegedly created fictitious deposits in the bank’s IT system, which were then converted to equity in the bank. It allowed Vele to become VBS’s largest shareholder, with 26% of the stock. Vele’s nominees were then appoin ted to the VBS board, including chair Tshifhiwa Matodzi and CEO Andile Ramavhunga. Then the game really picked up: more fictitious deposits were created in VBS ac counts, while real money was transferred from the pool of actual deposi ts to beneficiaries at other banks. Motau called it one of the most unsophisti cated bank heists seen in SA. It’s no understatement. x Sikonathi Mantshantsha December 20 - December 26, 2018

financialmail.co.za

cover story departure of the year — mark lamberti

A distinguished record, all in vain No-one struggled with Mark Lamberti being f orced to bow out of corporate SA quite as m uch as he did. D espite a long and illustrious career, in 2018 Lamberti went from c orporate hero to persona non grata in the spac e of three words — “f emale employment equity”. Lamberti spent the better part of his career building M assmart into a m ultibillion-rand retail empire, and in 2014 the entrepreneurial veteran was brought in as CE O of industrial company Imperial Holdings. But it all went south when Lamberti described A dila Chowan as a “female employment equity” candidate when explaining to her that she would not be promoted to CFO within the I mperial Group as promised. Chowan wrote to then I mperial chair Thulani Gcabashe and an investigation was launched; the c omplaint was found to be “devoid of substance” and Chowan was dismissed f or abuse of the grievance process. She took the matter to c ourt, which found in April that her claim f or damage to her dignity was proven on both a sub jective and objective basis. In the landmark ruling on rac e and gender discrimination, Judge Piet Meyer noted that “as blatant and patent as discrim ination was in the da ys of apartheid, so subtle and latent does it also manifest itself today”. Lamberti resigned from Imperial as well as from his direc torships on the boards of Esk om and Business Leadership SA. In a resignation letter, Lamberti said the matter has been de vastating to him and his famil y. “A lifetime of clear c onscience and a distinguished rec ord of business leadership appear to have been in vain,” he lamented. Mbuyiselo Botha, commissioner at the Commission for Gender Equality, sees Lamberti’s fall from grac e as just what the doctor ordered for business in SA. “Twenty-four years into our democracy, how can you ha ve an executive who does not see the importance of promoting gender, race and class equity in SA? I think it was a wak e-up call to c orporate SA that transformation is not about ti cking a box or a ‘ni ce to have’. It’s at the heart of ensuring this ec onomy grows.” Karl Gevers of Benguela Global Fund Managers says the case highlights a significant change in society as well as the power of social media, which effectively forced Lamberti to resign in the interests of Imperial. “In the past one c ould probably have managed through a situati on like this, but not toda y, and rightly so. Like Warren Buffett said: ‘It takes 20 years to build a reputati on, but it takes a five minutes to ruin it.’” Lamberti’s dramatic departure tops the list, but a close sec ond is Alexander Forbes’ firing of Andrew Darfoor as CEO over a “loss of confidence and trust”. Another worth y mention is Investec’s Stephen Koseff, who retired after 40 years at the helm of the financial instituti on. x Lisa Steyn 24

financialmail.co.za

December 20 - December 26, 2018

deal of the year

The war for your wallet Since 1999, no new banks have launched in SA. The big four — Standard, FNB, Nedbank and Absa — have operated as a c osy cartel. Even the one entrant to grow to larg e-bank status in t hat time, Capitec, has adopted a traditional branch-based distribu tion model. Only Investec has operated without b ranches — but to a slim spectrum of high net worth cli ents. Yet in 2018, three banks launched, all on a b ranchless model but aiming at the uni versal target market of the large banks. They are TymeBank, Bank Zero and — the most eagerly anticipated of all — Discovery Bank. TymeBank started as a subsidiary of the C ommonwealth Bank of Australia (CBA), which has a larger market cap than the entire SA banking sector. Even before registering as a bank, it offered money-transfer services through Pick n Pay. Though it doesn’t have any branches, TymeBank will have 750 points of sale through the Pi ck n Pay and Boxer stores. Most transactions are free if they are carried out at Pi ck n Pay, and only R2 if done elsewhere. For depositors, the bank off ers up to 10% on positi ve balances. CEO Sandile Shabalala says the bank will start off ering loans in 2019. It will be able to off er even keener prices since, like Capitec, it will be able to cross-subsidise its transacti on and deposit books from loan-based inc ome. Patrice Motsepe’s African Rainbow Capital has taken full control of the bank, as CBA pulled out suddenly. This pits Motsepe against Michael Jordaan, the former FNB CEO who is the chair of Bank Zero. The CEO, Yatin Narsai, was head of FNB Retail and even more deeply entrenched in IT processes than Jordaan. As a mutual bank, B ank Zero will be confined to deposits and transacti onal banking and will not be allowed to offer loans — though Narsai promises a “c reative” solution for clients who might go modestly into the red. B ut he also hopes to nurture a sa vings culture by offering attractive r et u r n s . Discovery Bank’s model, typically, is the opposite of sim ple. The launch included a 70-pag e “thought leadership” document with chapters on shared val ue, behaviour change and peoplecentric design. CEO Barry Hore promises that the app will be simple to use, once people get used to it. U nlike the other two banks, Discovery is already a household brand. It has a good chance of capturing most of its credit card cli ents and a sizeable minority of its insurance and medical aid clients. Its Vitality programme has cult status among some, and if you beli eve its reports, physically fit people are less lik ely to be financially irresponsible. x Stephen Cranston

SA DOES NOT PLAN FOR RETIREMENT

86%

of South Africans either have noplan or are not confident in their plan for retirement No retirement plan Confident in retirement plan

40%

46%

14%

Not confident in their retirement plan

Source: Financial Services Board; Financial Literacy in SA; 2016

chickens come home to roost award

How Nigeria hung up on MTN

A Grand Parade of activists Finally, after many false starts, shareholder activism on the JSE ma y have come of age in 2018. While activism is commonplace in other markets — especially the US — the JSE has f or the past few years had only sporadic bouts of corporate confrontation led by individuals like Theo Botha, Chris Logan and more rec ently the disarmingly astute Albie Cilliers. But companies often shrug this off, especiall y if the activist cannot get the support of at least some major investors. That was probably initially the case at G rand Parade Investments (GPI), an e mp o w e r me nt company that holds the local franchises f or Burger King, Dunkin’ (Donuts) and Baskin-Robbins, as well as 17 .5% of steakhouse chain S pur. GPI has been trading at a woeful disc ount to its intrinsic value, and looked at risk of losing its dividend appeal because of ong oing losses in its food division. After several individual shareholders tried, and failed, to trigger the urgent response needed to restore the market’s faith, a c onsortium of entities rallied at the GPI board to spark chang e. These shareholders — Kagiso Asset Management, Denker Capital, Excelsia Capital, Westbrooke Alternative Asset Management and Rozendal Partners — represented just 12.5% of GPI. GPI’s response was to label the acti vist grouping as “asset strippers” that were not act ing in the best interests of the group’s community shareholders. It was not exactly the high point of Hassen Adams’s f a r -f r o m w -f le l as s tenure as executive chair. Even more disgracefully, there were attempts to paint the acti vists as agents of white monopoly capital. But the vacuous rhetori c wasn’t enough to snuff out overriding shareholder c oncerns about wasting value. Ultimately, the activists’ w e l l- acr ut il at e d grievances concerning governance, capital allocation and lack of qui ck-service-restaurant skills resonated with shareholders. I n the end, the activists gathered enough support to vote two directors — former SABMiller executive Mark Bowman and former Spur CFO Ronel van Dijk — onto GPI’s board as none xecutive directors. This also paved the way for the emergence of turnaround specialists Value Capital Partners as a shareholder with a 16% stak e. As a result, shareholder value has started to creep back, rising 30% in the month to midDecember. Of course, much more has to be done to unlock value — but arguably the bigger reward for all investors on the JSE is that the successful stab at GPI ma y inspire others to pick up the assegai of acti vism. x Marc Hasenfuss

The bitter Taste of Domino’s Th ere’s no disguising the fact that in 2018 Taste Holdings fell headlong into real trouble. The company should be going great guns — it owns the SA franchises for Domino’s Pizza and caffeine merchant Starbucks. And yet it incurred an R87.3m operating loss in its latest results f or the six months to A ugust, and it is burning though cash faster than a Gupta deployee on the Transnet board. In fact, the fast f ood and jewellery retailer would have likely already gone under if the Sean Riskowitz-backed Riskowitz Value Fund (RVF) hadn’t underwritten a R398m righ ts issue, which Taste used to pay off its R 270m de bt last year. The group’s CEO, Tyrone Moodley, who took over only in February, doesn’t expect the company to make a profit in the current financial year. Worse, even after the righ ts issue, he reckons it will need some ne w kind of refi nancing at some point in the future. Of course, it’s true that Risk owitz’s RVF provided it with a R 200m loan facility — but this money wasn’t cheap: RVF charged a pricey 16% interest rate on it. All of which means Moodley doesn’t have the cash to expand. To preserve cash, Taste even decided to hold off on rolling out ne w Starbucks and Domino’s r e s t au r a nt s . This underlines how much trouble it is in. Starbucks and Domino’s are premium US brands that were expected to power its growth, but this doesn’t look imminent. Minority shareholders are now on a hiding to nothing. Consider the wealth destruction: over the past few years, Taste’s share price has collapsed from a high of R4. 47 in July 2015 to an almost insignificant 18c, while they have also been asked to underwrite several rights offers by R1bn. Perhaps the only upside for shareholders is that analysts believe RVF (which already owns 66%) could buy them out. C onsidering the trouble Taste is in, this is starting to look more and more likely. Until RVF decides what to do with the group, turning it around will depend on the eff orts of the 32-year-old Moodley (who is, it m ust be said, the youngest CEO of a JSE listed c ompany). Moodley’s only experience in retailing before this came from being a none xecutive on Taste’s board. In other words, fasten your Larry Claasen seatbelts. x

Just when it seemed as though the worst was over for MTN, the group’s most im portant market came back to b ite it. After months of trauma, the mobile operator was finally recovering from a 2016 fine in N igeria for not disconnecting SIM cards, and had just doused regulatory fires in some of its smaller mark ets, when the Central Bank of Nigeria came knocking. In late August, the bank told the c ompany that no less than $8.1bn worth of dividends that MTN had moved from N igeria between 2007 and 2015 had to be returned. T he next day, August 30, the stock lost a fifth of its value. Shortly after, and just f or good measure, Nigeria’s attorney-general demanded that the company pay $2bn in back taxes. Since then MTN’s shares ha ve been capped at levels last seen a decade ag o, around R85, far below the R246 of August 2014. Over the past five years, MTN’s share pri ce has fallen 55%. CEO Rob Shuter has spent much of his time flying to and from Lag os in an eff ort to broker a deal, but it hasn’t yet made a diff erence to the share price. There’s much at stake. The claims from Nigeria, while laughable to some mark et commentators, are worth nearly the entire val ue of the company itself. But if MTN manages to prove its innoc ence and convince authorities to drop their demands, or meaningfully reduce them, the operator could be set f or a recovery in 2019. If it doesn’t, expect more pain ahead. JPMorgan says that if the c entral bank’s claim is withdrawn, and no restri ctions or penalties are imposed on the operator, the share would quickly climb towards R100. But the US brokerage reckons the most likely scenario is a $500m settlement for both claims — by no means an inconsequential sum. Still, some analysts still say MTN is a “bu y”, which is a positive sign that there is some c onf ide nce . Nigeria, which will hold el ections in February, is trying to squeeze funds from other c ompanies too. In mid-December, the government said it would sue S hell and Eni f or $1.1bn as part of a case that dates back to 2011. It has created a degree of trepidati on that isn’t great for the West African nation. To many analysts (and MTN) the apparent hostility towards big foreign investors could deter o t he r s . As it is, SA companies, including Woolworths and Tiger Brands, have already been burnt in Nigeria, so MTN’s woes in that mark et will hardly resuscitate confidence. x Nick Hedley December 20 - December 26, 2018

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feature / tax avoidance Claire Bisseker bissekerc@fm.co.za

wo groundbreaking research papers on corporate tax avoidance in SA have found that the authoriti es have grossly underestimated the scale of unla wful profit shifting out of the c ountry. It conservatively amounts to R8b n a year in foregone taxes, and some of the larg est multinationals are the b iggest culprits. The working papers, both authored b y Ludvig Wier, a doctoral fellow at the University of Copenhagen, are among the first to emerg e from a new research programme, SA-Tied. It is a tie-up of the National Treasury and other ec onomic cluster ministries with several international research institutions, including the UN University World Institute for Development Economics Research. The crux of the outc ome has been the cre ation of a high-quality, anon ymised tax information database on c ompanies and individuals operating in SA that is enabling the authoriti es to gain fresh insigh ts into the workings of the economy — and the way to close tax loopholes. The two studies are the first to e xploit actual tax returns to estimate profit shifting in a de veloping country. Until now only Germany, Denmark, Norway, Sweden and the US have granted researchers access to multinationals’ tax returns. The issue of profit shifting — when multinationals lower their global tax bill by shifting their earnings from affiliates in high-tax c ountries to those in l ow-tax countries — is particularly relevant for SA, given its fiscal squeeze, reliance on corporate tax receipts and growing exposure to foreign-owned firms. Since 1994, there has been an e xplosion of foreign activity in SA. As a share of GD P, the earnings of foreign-owned corporations have doubled in the past 25 years. A clear incentive exists for these firms to shift profits out of SA, where the c orporate tax rate has been 28% sinc e 2008 — four percentage points above the world a verage and 13 perc entage points above nearby tax haven Mau ritius. Even though there are onl y about 2,000 foreign-owned firms out of a total of 1.2 -million businesses in SA, these are large compared w ith domestic operations, accounting for more than 30% of the sales of all firms operating in the country. Roughly one-fifth of these f oreignowned companies are owned directly through tax havens. In the first tax paper, “B ig and Unprofitable”, Wier and the Tr easury’s Hayley Reynolds estimate that on average haven-owned businesses avoid taxation on as m uch as 80% of their true income by understating it in S A (see graphs). The assessment was made b y comparing the wage, asset and turnover data of local firms with that of f oreign-owned companies. Where the study breaks new ground is in 26

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December 20 - December 26, 2018

finding that this aggregate tax loss c onceals large differences across firms in ac cordance with their size. Most firms shift little or no income to tax havens, while a few large firms shift a l ot. In SA’s case, the authors estimate that a combination of high profits and more aggressive profit shifting results in the top 10% of foreign-owned firms accounting for 98% of the total estimated tax l oss. Wier says he was “very surprised” to detect this stark difference among firms. The implications are globally significant. What it means is that all c ountries, including SA, that have relied on existing global research to estimate the extent of profit shifting affecting their economies — such as the OECD’s 2015 “Base Erosion and Profit Shifting” (Beps) report — have underestimat ed the scourge by up to 80%. In SA’s case, Wier estimates that the S A Revenue Service (Sars) is being shortchanged by about R7bn a year due to profit shifting. This is equal to about 4% of total current corporate income tax receipts, but it appears to be in line with that e xperienced in other countries. However, this is a c onservative estimate, given that the data does not allow the researchers to study profit shifting to sister firms rather than the parent, or from SA par ents to foreign subsidiaries. The study finds that the worst off enders are mining companies, accounting for almost 30% of profit shifting, f ollowed by financial services firms, accounting for 19%. Wier considers this “alarming ”, given that resource extraction constitutes a large share of ec onomic activity in developing countries. Switzerland is ostensibly the main des tination for siphoned-off profits, as S wissowned firms account for roughly half of the profit gap between haven-owned and nonhaven-owned firms. Other havens that host the parents of firms that report near zero or

What it means: The largest multinationals avoid 80% of tax

negative profits in SA, despite having large wage bills, include Bermuda, Liechtenstein, the Cayman Islands, Mauritius, Singapore and Cyprus. Wier’s second paper is on transf er mispricing — a form of profit shifting that oc curs when firms apply a high pri ce to items flow ing from affiliates in low-tax c ountries (like Switzerland) to affiliates in high-tax c ountries (like SA) and vice versa. This erodes the profits in the high-tax affiliate, whi ch is paying the high pri ce, but equally increases the profits in the low-tax affiliate, whi ch is receiving the high pri ce. Legally, firms are supposed to use arm ’slength pricing when transacting internally. That is, they should set pri ces internally as if they were trading with an e xternal party. The disaggregated customs data set that Wier used covers all imported goods to SA from 2011 to 2015, allowing him to estimate precisely what the arm ’s-length price of each transaction should be. When comparing unit prices on intra-firm transacti ons to these arm’s-length prices, Wier found that imports from low-tax countries into SA are overpriced by at least 8%. T his provides strong evidence to suggest that firms are engaging in tax-motivated transfer mispricing. He estimates that SA is losing R1b n every year in this way alone — equivalent to 2% of foreign-owned firms’ tax payments. SA’s legislation on transfer mispricing was amended in 2012 in line with the inter national standards laid out in the O ECD’s Beps programme. Though there is evidence

R R

Some of the biggest multinational firms that are coining it in SA appear to be transferring a substantial portion of their gains to their parent companies in tax havens. But there are ways to combat this

that transfer mispricing decreased after the amendments, by 2015 it was back up to f ormer levels. Wier argues that this is because the ne w legislation was not matched b y greater enforcement, so as soon as firms realised the y were not being audited they went back to their old w ay s . Fortunately, there is a c ost-effective way to curb transfer mispricing. All the tax authoriti es need to do is appl y the econometric method used in Wier’s paper to act as an automated digital flagging system. It took him just two weeks to set up the data in S A to flag c ompanies with systematic deviations from estimated arm’s-length pricing automatically. To his knowledge, no other c ountry has set up a similar system. A t a minimum, the tax authorities could send flagged firms an e-mail cautioning them that they have been flagged and to desist from such beha viour. “This seems to be a very low-hanging fruit for tax authorities globally to pursue,” says Wier. “In many cases the data is already there, stored in a ra w format on a server and used in the calculati on of import statistics.” The cost of this monitoring would be in the thousands of rands, whil e the potential tax gain runs into the b illions. According to Wier, three things are needed to curb profit shifting. F irst, countries should implement all the OECD’s Beps recommendations, as Sars is already doing. Second, they should invest in their tax authoriti es in terms of headcount, skills and technology, including the application of his algorithm. Third, there should be a push f or global reform of the c orporate tax system to prevent firms from shifting inc ome.

The EU is c onsidering a new system called “formula apportionment”. It would require an inter national firm to allocate profits to its SA operation based on the proportion of activity carried out in the country. So, if 10% of a m ultinat io n al ’ssales, assets and employees are in SA, Sars should tax 10% of its global profits. Chris Axelson, chief director of economic tax analysis at the Treasury, says it takes Beps “very serio usly ”.The Treasury, with Sars, has adopted many of the rec ommendations emanating from the OECD’s Beps project, including making tax administration data available for research. SA has also im plemented the Beps minimum standards, in terms of which large multinationals are now required to report inf ormation about their global sales, assets and workforce to Sars. Axelson declined to be dra wn on how much of the R7b n in foregone tax the Treasury might be able to rake back through better enforcement, saying only that S ATied is likely to undertake more s t u d ieand s that “the minimum standards that have been implemented, along with measures implemented in future, will bear f r u it x”.

STRONG EVIDENCE OF PROFIT SHIFTING OUT OF SA Average turnover by size and origin of foreign-owned multinationals operating in SA Rm 3,000 2,500 Parent not in tax haven

2,000

Parent in tax haven 1,500 1,000 500 0 0% 6% 12% 18% 24% 30% 36% 42% 48% 54% 60% 66% 72% 78% 84% 90% 96%

firm deciles by size

Average taxable profits by size and origin of foreign-owned multinationals operating in SA Rm 1,150 950 Parent not in tax haven

750

Parent in tax haven 550 350 150 0 0% 6% 12% 18% 24% 30% 36% 42% 48% 54% 60% 66% 72% 78% 84% 90% 96%

firm deciles by size Note: Firm size deciles are based on the size of a firm’s wage bill Deciles 0 - 2% = the smallest 2% of firms; deciles 98%-100% = the largest 2% of firms

Source: SA-Tied

S H I F T I NG PROF I T S OF F S HOR E R

R December 20 - December 26, 2018

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feature / zuma’s legal fees

A RUN FOR THE MONEY

Karyn Maughan

ormer president Jacob Zuma stands on the brink of financial devastation as he faces his last c ourt battle to stop his corruption prosecution. There is an estimated R26m in legal costs hanging over his head and a court ruling blocking any further state funding of his def ence. Where Zuma’s attempts to appeal rulings that went against him — as president or as t he a cc u s e—d were once criticised as cynical efforts to delay the inevitable, his challenges to two devastating costs rulings are now matters of survival. Zuma cannot afford not to appeal. H is strategy of legal Stalingrad has become his prison. And without the intervention of a ridi culously wealthy and generous benefactor, he cannot venture outside it . Just days before the high c ourt cut off state funding for his de fence, Zuma had petitioned the Supreme Court of Appeal for the right to challenge the other damaging c osts-related order made against him — one linked to his “r ec kles s l”itigation in the state capture saga. Zuma wants the righ t to fight a ruling that he personally pay the R6m-R10m legal bill attached to his fruitless legal challeng es to former public protector Thuli Madonsela’s “State of Capture” r ep o r t . In court papers, Zuma argues that the high court’s finding that he acted “recklessl y and u n r e a s o ny a”by bl persisting with his legal challenge to the report, “because it amounted to a reckless disregard of the seri ous allegations of corruption involving the p re s ide nt ”, 28

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was “me r it le s s ”. The court found Madonsela had acted lawfully when she ordered chi ef justice Mogoeng Mogoeng to appoint a judg e to head the state capture i nq u i rbecause y Zuma was implicated in state capture and theref ore conflicted. It effectively found that Zuma’s attempt to challenge this remedial acti on was designed to frustrate the i nv estigatio n. Zuma vehemently denies this, saying he was trying to establish whether the i nquiry ordered by Madonsela could withstand constitutional scrutiny. “Furthermore, it could never be reckless and unreasonable for the president to seek to establish whether the chi ef justice could participate in the proc ess of establishing a commission of inquiry in terms of secti on 91 of the co n s t it u t ”io n . He also seems to take a swipe at Pres ident Cyril Ramaphosa for not appealing the personal costs order granted against him. “The principle that I should be held per sonally liable for costs orders for executive decisions that I took whil e I was president of the Republic of SA should have concerned President Ramaphosa because it has very concerning constitutional implications for the exercise of constitutional duties by the he ad of the national ex ecutiv e”, he argues. The appeal court needs to decide if it will even hear Zuma’s arguments, after the high court refused his appli cation for leave to appeal. If it and the C onstitutional Court find

he has no reasonable chanc e of success on appeal, Zuma faces the very real prospect that the opposition parties that won a per sonal costs order against him will attach his assets to recover these costs. At the same time, Z uma faces a crucial court battle in his figh t to avoid prosecution for corruption. Last month, he filed an appli cation for a permanent stay of prosecution, drafted by four experienced — and very expensive — senior counsel. That application, in which Zuma argues that the 16- year-old corruption case against him has been defined b y prosecutorial impropriety, undue delay and political interference, is his last chanc e to stop his trial on charges of racketeering, fraud, corruption and tax evasion. If he fails to persuade the K waZulu-Natal high court that he has a c ompelling case for the charges to be dropped, he is looking at spending at least a year in the dock. I f convicted of racketeering, he faces 25 years behind bars. Now, more than ever, Zuma needs a well-resourced and forensically adept defence team to figh t his case. But if last week’s high court ruling stands, he won’t get any of that funding from the state. Three judges ruled that Zuma had never been legally entitled to the millions of r ands that taxpayers spent on his m ultiple chal lenges to his c orruption prosecution, and ordered that the state attorne y use all means necessary to recover the money already

With an estimated R26m in legal costs hanging over his head and a court ruling blocking further state funding for his defence, Zuma is on the ropes. But he’s not giving up just yet

spent on this futile litigati on. “It is in the publi c interest that charges relating to the abuse of publi c office — corruption and fraud — are prosecuted to ensure publi c accountability, the promotion of good governance, the protection of the rule of la w and the protecti on and advancement of the righ ts enshrined in the b ill of rights,” the judges ruled in a unanimous decisi on. “If the state is burdened with the high legal costs of those publi c office bearers who are charged with such crimes, the taxpa yer bears that burden and poor c ommunities continue to be denied access to essential services, as the state’s resources are being diverted.” In the minutes before that ruling was handed down, Zuma’s attorney Daniel Mantsha told journalists that he wasn’t optimisti c about his cli ent’s prospects of success. “But we will appeal if we lo s e” ,he said. Mantsha had argued in c ourt documents that Zuma was entitled to ha ve his defence funded — with the proviso that these legal e xpenses would be reimbursed if Zuma was convicted — because the crimes he stood ac cused of were all egedly committed in the sc ope of his offi cial duties. Zuma’s corruption charges have their genesis in events dating back to 1997, when French arms company Thomson-CSF, now known as T hales, scored a R2.6bn contract to provide four navy frigates to SA as part of the wider R60b n arms deal. The state alleges that as claims of c orruption linked to the arms deal gre w, Thales agreed in 2002 to pay R500,000 to Zuma, then SA’s deputy president, for his “political protection” in the event

of an investigation — a deal allegedly brokered by his former financial adviser, Schabir Shaik. It’s further the state ’s case that Shaik and his Nkobi Holdings made 783 payments to Zuma, totalling more than R4m, in the 10 years between October 1995 and J uly 2005. In return, the state claims, Z uma abused his position as MEC and deputy president to do unlawful favours for There is a Shaik, who was jailed danger that for his role in the mat ter, and Nkobi Holdings. crippling Zuma financially may Mantsha has vehegive him mently denied claims by the DA that the case ammunition to argue that he is against the former being unfairly president “has nothing to do with his rol e as a targeted and victimised public official”. He said: “One just has to have a casual read of the charg es against him [Zuma] to notice that the [ DA’s] contention is false and self -serving.” He added that it is “s e l f- ev dei nt ”that the case against Zuma “centred around his offi cial powers and d uties”, given that the alleged bribes were supposed to induc e him to use his publi c office to further outside interests. “Logically, outside government, Mr Zuma would have no such power.” But the high c ourt in Pretoria, following from the reasoning contained in two recent judgments in the Western Cape, was unconvinced. “The specific conduct on which the

prosecution relies — that Mr Zuma allegedly received 783 payments or gratifications outside his official remuneration — is not conduct that could in any way be connected to his official functions.” The court added: “Allegations or charges of corruption and fraud against a publi c office bearer, in the words of f ormer pres ident Thabo Mbeki, raise ‘questions of conduct that would be inc onsistent with expectations that attend to those who hold pub lic office’. And, as was said b y President Ramaphosa, it is a ‘fundamental principle that public money should not be used to cover the legal expenses of individuals on strictly personal matters’.” Zuma’s lawyers will no doub t dispute this logic. But in a country in the midst of an economic, social and politi cal reckoning that is largely the result of Z uma’s leadership, it is likely to find support among frustrated t a x p ay e r s . There is a risk, though, that c r ippl i ng Zuma financially may give him ammunition to argue, as he has so man y times, that he is being unfairly targeted and victimised by opposition parties, the courts and a president unwilling to stand up f or him. Zuma is unlikely to win his l egal struggles over the state funding his fees. All he can do is use appeal proc esses to buy some b reathing room — and see whether a onc e dense forest of political and financial benefactors still believes he has the power to justify such largesse. x

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December 20 - 20 December 26, 2018 December - December 26, 2018financialmail.co.za financialmail.co.za29 29

feature / populism

he year 2018 can be remembered as the one in whi ch the global fire of pop ulism set politics alight in SA. Given that it is the year before h ig h - s teask national elections, it has not been une xpected. Policy-wise it was the year in whi ch parliament resolved to amend the c onstitution to explicitly allow for land expropriation without compensation — an ideal championed by the ANC and the E FF. However, South Africans saw parliament ignore thousands of written sub missions on the matter as it finalised its report, essentiall y shutting out the voi ces of those opposed to the amendment. The distinct racial tone the debate took on even moved former president Thabo Mbeki to write a discussi on paper in whi ch he said the ANC was abandoning its histori cal nonracial values. It was also a year in whi ch the DA marched in the Cape Flats, calling for the army to be deployed to deal with the gangsterism t hat plagues the area. D uring the march, the party’s supporters carried posters bearing the words “All South Africans first”, reminiscent of US President Donald Trump’s “Make America great again” campaign slogan. The tagline drew extensive criticism, and failed to make the cut for the DA’s election campaign. The final slogan it decided on is a far cry from this rall y for SA ex cep tio nalism; the party has opted for an i ncul svi e message of “One SA for all”. But the DA did not abandon its dog -whistle call to xenophobic voters: one of its election pillars focuses on tighter border control and taking a hard line on immigrati on — another of Trump’s favourite campaign me s s aegs . These actions exemplify what political analyst Ebrahim Fakir describes as popular issues

being dealt with by populist means. He believes issues such as land, immi gration, jobs and crime are not populist issues by nature — but when they are discussed in an unmediated, uncriti cal and unthoughtful way, with no basis in evidence, they tend to inspire populist publi c discussion and populist poli cies. The land question is a case in point. “Once you take popular issues and dis cuss them in populist ways without subjecting them to the frame work of mediation, critical thought, evidence and problem-solving orientation, you end up opening the floodgates of discussing every popular issue in a populist way,” Fakir says. Once you’ve set a prec edent in the way that a debate over land, f or example, is handled, “what’s next? Arbitrary deprivation of private property? Why not?”

“Once you exhaust all the popular issues and more and more issues are addressed in a populist way, the next step to that is … selforganisation on the basis of ethni c, or narrow, or other interests.” The politics of From there, it’s a pragmatism — natural progression to of realism — is vigilantism and selfsuffering at the organised networks of moment, as it patronage and protection — something Fa kir doesn’t promise instant results believes is already Somadoda Fikeni h a p p e n i ng . The issue is b roader than just SA. Somadoda Fikeni, a professor and political analyst at Unisa, says populism in SA has to be seen in the global c ontext. “Globally, we are undergoing a historical phase of populism in politi cs in general. We are in the era of populism in E urope, in Latin America, in the US and so on. And it seems to Fakir says every party in SA is guilty of have worked,” Fikeni says. this escalation. The ANC flirts dangerously He attributes the hold of populist rhetori c with the question of race, drawing “perilousin SA to the c ountry’s failure to resolve its ly” close to the edge before it pulls back. socioeconomic woes. There’s also the “post“The EFF just goes,” he says, “and masks it in honeymoon phase” of the democratic dispenthe crudest racial terms. S o does the B LF sation: populist policies find fertile ground [Black First Land First movement].” when people become cynical. The DA is also not above stepping into the But knowledge of facts and the sci entific populist realm, says Fakir, referring among examination of events are also often sec others to comments by DA leader Mmusi ondary to the psychological stimulation of Maimane about doubling social grants, as fear or hope. well as the party’s stanc e on immigration. “The politics of pragmatism — of realism — In contrast, Fakir points to the d i s c u s s io n is suffering at the moment, as it doesn’t about the national minimum wage as an promise instant results,” Fikeni says. example of a popular issue that was not He expects the heated political climate to dealt with in a populist wa y. The problem, he cool — for a while, at least. But then, of c ourse, says, can in some instanc es be traced to failthe 2021 local government elections will be ing governance systems. right around the c orner. x

The populist rhetoric of 2018 is likely to gather steam ahead of next year’s elections. It should taper off once the votes have been counted — but the damage may be done by then

WORDS OF WA R N I NG Claudi Mailovich mailovichc@businesslive.co.za

Get ty Im age s/Al Dra go

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feature / start-ups

STA RT-U P K IC K STA RT

Business development support is supposed to help entrepreneurs get their enterprises off the ground. It’s had mixed success

Mudiwa Gavaza gavazam@sundaytimes.co.za

on’t be egotistical about owning 100% of your business,” says Candice Thurston, CEO and founder of Candi & Co. It was through a partnership with beauty franchise Sorbet — not discounting her experience in marketing and branding at companies such as MTN and U nilever — that she was able to give life to her visi on of running an ethnic hair and beauty salon. F our years on, C andi & Co operates seven stores in Gauteng and has served thousands of customers. Digital payments company SnapScan p res ent s a similar picture of the payoff that can c ome from solid corporate backing. When mobile payments firm Firepay launched SnapScan in 2013, Standard Bank provided support, proc essing payments for the platform. The partnership gave the start-up m uchneeded visibility, as well as ac cess to Standard Bank’s substantial client base. It proved so suc cessful that the bank bough t a controlling stake in Firepay in 2016, and S napScan now operates as an in-house Standard Bank product. For years, the government has sought solutions to the issue of how to grow SMEs. I t’s something that seems to ha ve been passed on to the private sector in recent years, with B EE legislation mandating large corporate entities to support small businesses. Partly as a result, business de velopment support (BDS) — interventions to help start-ups structure, scale and fund their operati ons — has become a R20bn industry, says Sifiso Ndwandwe, executive director of Catalyst for Growth (C4G), a nonprofit organisation conceptualised by JPMorgan and advisory firm Dalberg that has developed an analytics platform for BDS providers serving SMEs. Even so, the money spent on BDS reaches just 5% of local start-ups, C4G’s research has found, leaving the vast majority unsupported. The business case for corporates investing in SMEs would seem sim ple: start-ups offer innovation, leading to opportunities for market disruption or increased market share. They also 32

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December 20 - December 26, 2018

create jobs, which corporates are not able to do fast enough in the fac e of SA’s unemployment crisis. “Small-business owners want to gain access to markets and networks, and integrate into value chains,” says Bulelani Ba l a b a lfounder a, of the Township Entrepreneurs Alliance (TEA), an initiative aimed at developing township entrepreneurs. An effective BDS programme strikes a balance between these needs, ensuring enterprise development, where businesses are built from the ground up, and creating opportunities for SMEs to ac cess markets. And the value they offer can be substantial in terms of material inputs and business guidance. Thurston, for example, says Sorbet CEO Ian Fuhr told her that she would not fail with Candi & Co, as Sorbet had already done the “failing” for her. Ba l a b a sl a’ printing business found similar success through BDS. It was incubated through Raizcorp from 2011 to 2013, whi ch “really did help me to g et my business to the next level and think out of the box”, he says. As a result, his business gre w from being a broker of printing servi ces to running its own machines and off ering an in-house service. But BDS doesn’t necessarily work in ev e r y oe’s n favour. “Some entrepreneurs move from one BDS or incubation programme to another,” says Selebogo “Dr Life sGu d”Molefe, founder of The Hookup Dinner, a networking community of entrepreneurs that hosts monthl y business events. He believes entrepreneurs need to man age their expectations about BDS programmes, as these are often treated as a tick-box exercise for corporate social investment spend in large organisations. “The problem is that BDS is a c ost centre item and not a profit centre item, ” says

Molefe. To be successful, companies need to rethink their approach to SME support: if they go into their SME in vestment not expecting to make a return, they will not work to ensure that the supported business thrives, he says. Balabala shares Molefe’s scepticism about BDS. He says there are operators in the BDS market that should not be all owed to assist SMEs, as the y don’t know what they are doing and often don’t have the interests of the SMEs the y are supposed to support at heart. Matsi Modise, a The problem is small business that business development and development policy expert, and support is a cost vice-chair of entrecentre item and preneur association not a profit SiMODiSA, says the centre item same problems that Selebogo Molefe plagued the government in the SME sector have carried forward into private sector support. She believes a significant number of corporate executives and public sector administrators providing development services have never started their own business es. This makes it hard to relate to and under stand the needs of SMEs, whi ch can lead to ineffective interventions. While many of the plans in plac e for BDS programmes tend to be sound, M odise says the sector “faces a problem of im plementation”, something best solved through collaboration between start-ups and c orporates. Through the TEA, Balabala is doing just that, working with a number of B DS providers to create more robust and incl usive programmes for SMEs. For Thurston, it was such c ollaboration that ensured success. She credits her partnership with Sorbet for Candi & Co’s growth. “I could not have done it any other w ay ”, she says. x

feature / drc elections

COUNTRY AT A C RO S S RO ADS Joseph Kabila has picked an awkward candidate as his preferred successor. The opposition is divided and undermined by ego. But whatever the outcome of the presidential poll next week, it’s clear the DRC is finally on a new path Mélanie Gouby

oseph Kabila has never given so many interviews or had such a b road smile. As the Congolese president met with the press in Kinshasa on December 9, two weeks ahead of histori c elections, it was as if he was enjoying the media’s attention for the first time in his 17 years in the presidency. T he role of patriarch of the nation about to step down and dis pense his wise counsel to his successor seemed to suit him well. But Kabila’s hint at a possible return in 2023 will not please the majority of C ongolese, nor reassure them that the polls the y are about to take part in will be free and fair. “Well, I am not g oing to rule out an ything in life,” Kabila told journalists. “As long as you are ali ve and you have ideas as strong as you ha ve — a vision — you should never rule out anything.” The Democratic Republic of Congo (DRC) is at an unprec edented crossroads in its his tory. It is hoped that elections scheduled for December 23 will determine its first peac eful and democratic transfer of power. After the terror of colonisation, the murder of Patrice Lumumba, the 30-year dictatorship under Mobutu Sese Seko, and the suc cessive wars that brought the Kabilas — father Laurent and son Joseph — to power, the Congolese people will for the first time choose a man (there are no women running) to lead them for five years. Or so one hopes. But as Kabila steps down — against all odds and expectations, and after delaying the elections for two years — his shadow looms large over the vote. H is throwaway comment about a c omeback in five years has only fuelled fears that polls will not be free and fair. They’ve also raised c oncerns that Emmanuel Ramazani Shadary, his designated da u p h i(an royal heir in the F rench monarchy), is in fact the D mitry Medvedev to Kabila’s Vladimir Putin, holding a guaranteed 34

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December 20 - December 26, 2018

ticket to the presidency. It does not help that the electoral c omm is soi n has been accused of being subservient to the ruling party, nor that it is set on using electronic voting machines, despite the opposition calling them “defrauding machines”. The South Korean devices require sustained power and only permit about one minute per person for voting, a co nstraint due to the restri cted budget allocated to the e le c tio n sthat did not allow more machines to be bought. In Kindu, the only voting machine for 300 voters rec ently broke down, and local candidates to the parliamen tary elections from all p artei s have requested that the machine not be used — to no avail. The broader logistical challenges to organising elections in a c ountry the size of the DRC have led in the past to the state relying on foreign help, through either donors or Monusco, the UN peac ekeeping mission in the D RC. This time, offers of support were flippantly rejected by the government on the grounds that the y would come with an unacceptable degree of foreign interfe r e cne . Observers from the EU and the C arter Center have been denied accreditation to monitor the elections. However, the AU and Southern African Development Community will be allowed to send observers. T heir responsibility is hard to overstate. “A t stake is not the integrity of an e xercise, but the longer-term trajectory of the D RC and the wider Great Lakes region,” says Stephanie Wolters at the Institute for Security Studies. It is in this c ontext that three main c ontenders will face each other. First, there’s Shadary, the candidate of the ruling People’s Party for Reconstruction & Democracy (PPR D) and Kabila’s hand-picked he i rHis . designation as candidate was not without

controversy, as none of the seni or members of the party was in volved in his sel ection. The announcement was made at the last minute before the end of the enrolment peri od for presidential candidates. Pictures taken on the day show Shadary looking as surprised as everyone else. A staunch Kabila loyalist, the p e r m a ne nt secretary of the PPRD was also the minister of the interior during the wave of demonstrations in 2016 in which tens of thousands of Congolese took to the streets to demand Kabila step down at the end of his mandate in December that year. The extreme violence meted out by t he security forces led to EU sancti ons against Shadary and 13 key members of the K abila regime. Last Monday, the EU declined to lift them, despite pressure from the D RC, saying it would “review the restrictive measures in the light of and f ollowing the elections in the DRC and [it] stands ready to adjust them a cco r d i ng y ”.l If the ruling party is presenting an a wkward candidate with preci ous little popularity, the opposition has also worked tirelessly to undermine itself. After months of promis ing a unique candidate, and a solemn meet ing in Geneva — an odd location that only underlines p o l itc i a n sdistance ’ from the people they claim to serve — the opposition presented Martin Fayulu as its champion. Then the pact fell apart in a grandi ose display of ego. Félix Tshisekedi, the son of Éti enne Ts hisekedi, the historical opponent to Mobutu, and Vital Kamerhe, a shrewd politician from the east who used to be alli ed with Kabila, broke ranks and decided to run together under their own banner, c omically named Fatshivit. Fayulu, a former Exxon executive and less well-known outside Kinshasa than either Tshisekedi or Kamerhe, is still backed by two heavyweights: Jean-Pierre Bemba, the former warlord recently released after 11 years in jail in T he Hague, who still retains much popularity but was not l egally allowed to run; and Moïse Katumbi, the former governor of Katanga and the strongest contender, who is in e xile after being c onvicted of illegal property selling and sentenc ed to three years in prison in absentia (he deni es any wrongdoing). Widely appreciated among the political class in Kinshasa, Fayulu has remained upright and determined in the past few years, participating in demonstrations with the population and retaining a cl ear political line. Not as much can be said of K amerhe, nicknamed “the Kamerleon”, who has a r ep u tati on for switching sides. He b et ryae d the consensus against the political dialogue

imposed by Kabila in 2016 by not only participating in the dial ogue, but moderating the d i s c u s s io n . Tshisekedi, meanwhile, relies mostly on the aura of his e xtremely popular father (who died in 2017), and has no politi cal career of his own. As the leader of the his torical opposition party, the Union for Democracy & Social Progress, he had the most support of the three candidates in terms of voting intentions in a poll carried out before the Geneva debacle. But during a recent Fatshivit rally at Camp Luka, one of the poorer neighbourhoods of Kinshasa, it was Fayulu’s name the crowd was chanting.

The fiasco of the unique oppositi on candidate carries two important consequences for the December vote. First, given the o ppo s ito in ’sinability to present a unified front — at the elections and for the past three years — it is unclear whether the candidates aspiring to replac e Kabila will be any better at running the country, or be any more capable of putting their personal interests aside. Second, a split vote will sim ply make it harder for the opposition to allege election fraud, if it c omes to that: Shadary, backed by the PPRD cam paigning power and esources, does have a real shot at the p r e s ide ncy .

So what might happen? We can expect, in any scenario, that controversy and some form of violence will follow the results. If the opposition wins, several key players loyal to Kabila, especially in the security forces, could refuse to ac cept the outcome and use the means a vailable to them to c ontest it. In the more likely event of a Shadary win, the opposition will almost c ertainly claim the vote was rigged, triggering demonstrations in the urban areas. Over the past f ew years, as Kabila’s power became increasingly contested and illegitimate in the eyes of many, armed groups proliferated in the east of the c ountry. And

What it means: A Shadary win is likely, the opposition will claim vote-rigging, and demonstrations will most certainly follow

123RF/ppbig

If the ruling party is presenting an awkward candidate with precious little popularity, the opposition has also worked tirelessly to undermine itself

while a popular uprising that began in the western Kasai province — where the Tshisekedis come from — was ruthlessly crushed by the army, it demonstrated that the pop ulation is capable of organising itself. The tragedy of the electi ons is that it is assumed, for good reason, that they will be rigged. So unless the opposition wins, no outcome will satisfy the populati on. The Putin-Medvedev game plan hinted at b y Kabila also does not bode well f or the stability of the c ountry. But there is a silver lining: any change, however small, is a chang e. Whether Kabila’s intentions are to use S hadary as a puppet or not, by stepping down he has set the c ountry on a new path that he will not be entirel y able to control. After all, much like Putin was meant to be a B oris Yeltsin puppet, and Kabila himself became head of state to satisfy the plans of his father’s fri ends, his successor will be the president. For better or worse, the DRC is writing a new page of its history — one that is the start of an entirely new chapter. x December 20 - December 26, 2018

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media & advertising adfocus awards

All the winners at the 2018 FM AdFocus Awards

CREAM OF THE CROP Luminaries from the local advertising industry came out in their numbers at the end of November for the FMâ&#x20AC;&#x2122;s annual AdFocus Awards, which recognise agency performance. Agency of the year was Ogilvy Johannesburg. Medium-sized agency was won by the King James Group and small agency of the year was Collective ID. Grid Worldwide was named specialist agency of the year and Vizeum won network agency of the year Agency of the Year Award: Ogilvy Johannesburg

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December 20 - December 26, 2018

African Impact Award: Dentsu Aegis Network

Lifetime Achievement Award: Ludi Koekemoer

Creative Challenge Award: M&C Saatchi Abel and Takealot

Network Agency of the Year: Vizeum

Large Advertising Agency of the Year: Ogilvy Johannesburg

Specialist Agency of the Year: Grid Worldwide

Student of the Year Award: Thamsanqa Gwafa, Felicity Davies and Faith Shields

Medium Advertising Agency of the Year: King James Group

Independent Media Agency of the Year: TMI Media

Small Advertising Agency of the Year: Collective ID

Partnership of the Year: FCB Joburg and Toyota

December 20 - December 26, 2018

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IN GOOD FAITH BY CARMEL RICKARD

ON THE CASE The new commercial court in Gauteng, if it works as planned, could change the way corporate disputes are managed — to the benefit of all parties

@carmelrickard

Mlambo’s vision is of a court offering efficient and faster resolution of commercial matters 38

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he next big litigation trend in 2019? The r e’s no doubt the answer lies with the new commercial court in Gauteng. The court’s official existence and applicable practice directives were announced in October by Dunstan Mlambo, the judge president of the Gauteng division of the high c ourt. And some cases are alread y in the pipeline, making their way to s et t le ment or a hearing. The court is envisaged as a dynamic operation, with disputes case-managed by the judge or judges likely to hear the matter when it g ets to court. Case management, already delivering good results in jurisdictions like Namibia, allows for the resolution of particular matters before trial, making the actual court hearing quicker and more focused. During meetings with the parti es, the judge helps clarify a timetable, witness statements and exchange of documents, with agreed deadlines to keep the pretrial process moving efficiently towards the hearing. Ml ambo’s vision is of a court offering efficient and faster resolu tion of commercial matters. Certainly, there is a need f or this. As attorney Jac Marais, partner at Adams & Adams, puts it, it is not good enough to tell the CE O of an international company that it will take four or five years for a final decision on whether the c ompany is entitled to certain money. “Because the courts have been perceived as s low, many parties have chosen arbitration instead,”

December 20 - December 26, 2018

Marais says. “If the commercial for which time delays are particcourt project takes off — and there ularly intolerable, to go to arbitrais every indication that this is tion. This is seen as g enerally already starting to happen — then cheaper because the parti es are this becomes a viable alternative.” committed to getting a quick result. From Mlambo’s a n no u nce me nt , Litigants also tend to pref er it it seems the c ommercial court will because they have input on who tend to go broad in deciding what will preside and th us enjoy conficases to a ccep t. dence in the arb itrator. Cases should “have their foundation in a c ommercial transaction A win-win solution or relationship” and might include But that trend has created its own import or export of goods; carriage d i f f ic u lt ie Assmajor . commercial of goods by land, sea, air or pipe matters disappear from the c ourts, line; insurance and reinsurance; so the pool of judg es with experience to handle such issues grows smaller. And because arbitration awards are generally confidential, precedents are not being created. Generally, commercial law precedents are “stuck in the 1980s”, says Marais. “Many commercial matters are going to arbitration and the resulting judgments remain confidential.” The new court could turn these problems around, cre ating a bigger pool of experienced judges and a new body of precedent-setting judgments. And when that 123RF/Maike Hildebrandt starts to happen and c onfibanking and financial services; dence grows in the ne w system, medical scheme matters; and c om- certain aspects of arbitrati on could mercial issues arising out of busi start to lose their appeal. ness rescue and insolvency cases. If parties are certain that cases It also seems qui te easy for a will be heard qui ckly in court, case to be transf erred to the c omwithout unexpected and expensive mercial court, simply requiring a delays — and that they will be letter to the judge president or heard by experienced judges famildeputy judge president ex plaining iar with a shared set of prec edents why the case is, or should be c on— this might become the preferred s ide r e da ,commercial matter of the option for dispute resolution. It sort that would warrant transf er. could end up being less e xpensive The trend for some years has to litigate in c ourt than to pay arbibeen for difficult cases, or matters t rat ors’fees and hire a venue. x

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

Wrecking ball hits home Group Five’s malaise is a symptom of bigger problems in the building industry, which has struggled to adapt to change

123RF/06photo

Siseko Njobeni njobenis@businesslive.co.za

ý Shareholders who coughed up money for Group Five shares at the beginning of 2018 ha ve virtually nothing to show f or it. The construction conglomerate has continued its slide because of pressure on Group Five’s margins, lower revenue and a rating will lower order book. improve only if Its market cap has shrunk the firm returns from R4.9bn in September to sustainable 2013 to R25.8m. cash Those who saw value in profitability Group Five — which operates in SA, some African countries and Eastern Europe — and pinned their hopes on its restructuring and rati onalisation interventions have had their investments badly damaged: the share price has fallen more than 98% sinc e January. That makes it an even worse performer than Steinhoff International, which has fallen 81%. What went wrong? For a start: not enough in vestment by the private sector and the g overnment, which affected Group Five and its peers. Esor Construction has filed for business rescue; its rescue plan is set to be finalised in February, according to its rescue practiti oners.

December 20 - December 26, 2018

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money&investing Basil Read and Aveng, former titans of the c onstruction sector, are also struggling. Construction companies have been unable to adjust since the infrastructure boom bef ore the 2010 Fifa World Cup was followed by the global recession and lower domestic infrastructure investment, in particular capital expenditure by the public sector. When the global ec onomic crisis hit 10 years ago, Group Five lost contracts worth R4bn in Dubai. It hasn’t recovered from such setbacks. Other than the macroec onomic environment, Group Five is also a vi ctim of its own missteps. Stephen Meintjes, head of research at Momentum Securities, points to the pursuit of growth outside SA.

Themba Mosai: Group Five’s CEO has seen his company’s share price fall 98% this year Freddy Mavunda

financialmail.co.za

December 20 - December 26, 2018

EMBATTLED

Group Five’s rating will im prove only if the firm returns to sustainable cash profitab ility on the back of a profitab le order book, an extensive 26 restructuring of operations and rigour of risk 24 management protocols, says GCR. 22 20 Adding to its woes is the fact that G roup 18 Five’s client in Ghana, Cenpower, has filed an 16 additional claim of $60.5m for its failure to 14 complete the Kpone project on time. 12 10 This claim followed a previous claim to 8 Group Five’s bank guarantee providers in 6 November for $62.7m to be paid f or contract 4 delay damages at Kpone. 2 Ron Klipin, portfolio manager at Cratos 0 Wealth, says there is no end in sigh t to Group 2014 2015 2018 2016 2017 Five’s woes. Klipin expects the company’s curSource: Iress rent financial year, which ends in June 2019, to He says taking on be disappointing. ADVERSE CONDITIONS large projects in the “The building and Group Five share price (R) – weekly rest of Africa comes construction industry 45 with risks. “How many is still experiencing 42 SA companies have low levels of activity. 39 36 paid school fees in the This will result in 33 rest of the c ontinent? shrinking order books 30 Tiger Brands and [and] operating mar27 24 Shoprite got burnt gin pressures, until 21 b a d ly” . after the elections 18 One factor looming when, hopefully, 15 12 large over Group Five’s confidence should 9 performance in 2018 r et u r”nhe , says. 6 has been the Kpone 3 Still, Group Five’s 0 independent oil and share price doubled 2014 2015 2018 2016 2017 gas-fired plant in last Thursday to 48c Dividend from Wednesday’s Source: Iress Gh a n a . The engineerclosing price of 24c ing, procurement and construction conafter it announced that it had attracted interest tract, which Group Five won in 2014, from numerous suitors. contributed the bulk of the group’s “Shareholders are advised that Group Five R1.3bn net loss for the year to endhas received expressions of interest from a Ju ne . number of parties for various parts of the group’s business,” the company said. In November, ratings agency Despite the dispute over its G hana project Global Credit Rating (GCR) down and low levels of public infrastructure spending, graded the company’s long- and perhaps there could be hope yet f or the beleashort-term ratings. In its rationale guered Group Five. x for the decision, GCR cited the cumulative attributable loss to Group Five shareholders of R2.2bn in the two SELL years to June 2018. GCR has put G roup Five, headed by Target price: R1.85 Themba Mosai, on a negative outlook, sayPotential upside: 704.3% ing there are signifi cant downside risks, * Based on analysts’ consensus forecast “particularly liquidity and reputati onal challenges facing the group … Further losses/erratic profitability due to Aveng [among others] weak contract execuHOLD tion, project disruptions, failure to secure contract awards timeously Target price: R8.50 and/or failure to meet liquidity tar Potential upside: 70% gets would further weaken credit * Based on analysts’ consensus forecast protection factors”.

Aveng Group share price (R) – weekly

market watch by Marc Hasenfuss

VCP might be keen to push a restructuring at GPI that would separate the gaming investments from the food segment

Apple to make $1bn Texas bid

he emergence of Value Capital Partners (VCP) as an influential shareholder at Grand Parade Investments (GPI) is not surpris ing. In the past f ew weeks it has snapped up most a vailable GPI scrip to build a useful 16. 6% stake. It’s not like VCP is unfamiliar with key assets in GPI’s portf olio. Earlier this year it underwrote Sun International’s R1.5bn rights issue. While much of the focus at GPI is on its eff orts to find a profit recipe for Burger King, its mo st tangible store of value is its minority holdings in GrandWest Casino in Cape Town, Golden Valley Casino in Worcester and highly profitable limited-payoutmachine company SunSlots. All three of these are controlled by Sun International. So far VCP has not shown its hand at GPI. I wonder if, perhaps al ong with other activist shareholders, it might be keen to push a restructuring at GPI that would separate the gaming in vestments from the food segment. The gaming investments represent a compelling bundle for investors keen on regular dividends, and for assets highly leveraged to an ec onomic recovery. The food segment would be more difficult — without the dividend flows from the gaming assets, funding f or rollouts of Burger King outlets could be a problem. Then again, if a ne w and deep-pocketed strategic partner — perhaps Burger King Europe — could be brought in as a major equity partner, GPI shareholders might be satisfied with holding a smaller stak e in a better-managed and profitable fast-food e nt e r p r i s e . I note VCP secured board represen tation at Sun International not long after underwriting the rights offer. Let’s see if the same happens at GPI, where, sig nificantly, VCP’s participation has already been welcomed by an executive director. Hook, line and sinker My story on Abagold (in this editi on) might make commentary in fishing giant Oceana’s annual report more

relevant. Oceana argues that the expected increase in demand f or fish and the largely static wild-capture rates point to substantial growth in gl obal aquaculture. The group notes rec ent projections forecast production growth of 37% by 2030 over 2016 le vels. This should be a boon f or Oceana’s existing fishmeal and fish oil businesses. But it also reaffirms a willingness to drop lines for “carefully targeted acquisition in the aquaculture sector”. Clear dividend signal The share price of TeleMasters is up around 130% so far this year to 115c. That should cause ringing in the ears f or punters who have continued to prefer its more illustrious telecoms sector countermates. Over the past three years the company’s share has on occasion plunged precipitously — touching levels below 30c. The concern has mostly been whether TeleMasters would continue its policy of paying out quarterly dividends. New faith in TeleMasters seems to stem from a stronger financial position with net cash flows from operati ons a more reassuring R17m (around 40c a share) for the year to end- June. The company also holds cash on hand of R11m (26c a share). I confirmed with founder Mario Pretorius that since listing in 2007, TeleMasters has returned R35m in di vidends. That is equivalent to around 78c a share — not a shabby return over 10 years for original investors who took scrip at 50c a share. I t’s still easy to dismiss TeleMasters as unadventurous … at least in comparison with the strate gic stretches made by larger rivals like Blue Label and Huge. Then again, it’s worth remembering that some of the most enduring businesses from the late-1980s listing boom — CMH, Spur, Bowler Metcalf and Nu-World — held a singular operational focus, shied away from corporate activity and guarded very conservative balance sheets. Tightly held TeleMasters could easily ring up more gains in 2019 if the half year to end-December results show sustainable profit signals. x

Apple will invest $1bn to build a second campus in North Austin, Texas, and another $10bn on new data centres over the next five years, as it aims to create 20,000 jobs in the US. US President Donald Trump has warned of slapping tariffs on iPhones and other Apple products imported from China, a major consumer market for the California-based company. Reuters

Bloomberg/Jeenah Moon

@marchasenfuss

How to win at roulette

GLOBAL MARKETS

PLANTING IN THEIR BACKYARD Apple’s announcement follows a promise in January to invest $30bn in the US and comes as companies with manufacturing operations outside America have been facing political pressure to ramp up investments at home

ECB to stop its printing presses The European Central Bank (ECB) is all but certain to end its lavish bond purchase scheme, but will take an increasingly dim view on growth, raising the odds that its next step in removing stimulus will be delayed. The long-flagged end of bond buys must be irreversible for the sake of credibility, but with France and Italy in political turmoil, Brexit in flux and growth slowing, ECB chief Mario Draghi will be keen to emphasise other forms of support. Reuters

December 20 - December 26, 2018

financialmail.co.za

money&investing ALEXANDER FORBES

Taking a big hit in a tough year It was known that there would be write-offs, but for a R4.5bn market cap company, the numbers were huge

market share in retirement administrati on and consulting, it has been losing staff. H e is concerned that head offi ce costs ballooned by 30% to R102m — excluding the R52m terminati on fee for the IT project. The high cost at the c entre reflects Darfoor’s taste for nonproductive strategic initiatives, sometimes called “thought leadership”. He also increased the costs of top management by giving positions primarily to European expatriates on large salaries. De Villiers says: “There are too many peculiarities in the SA market and my preference would be f or executives who understand the market well.” De Villiers is also taking a sec ond look at Darfoor’s project to open up the F orbes product

THE BIG FIX Alexander Forbes Group Holdings share price (c) – weekly 780 750 720 690 660 630 690 570 540 510 480 450

2016 Source: Iress

Stephen Cranston cranstons@fm.co.za

ý We will probably never know the precise circumstances around Andrew Darfoor’s dismissal as Alexander Forbes CEO in September. But the results for the six months to S eptember gave some hints. It was widely known that there would be write-offs, as the board had decided to discontinue the R1bn IT project in which Sapiens was the lead c ontractor. But for a R4.5bn market cap company, the numbers were huge. There was a R52m can cellation fee paid out in cash to S apiens, which was taken through the inc ome statement, as well as a R 287m software impairment on the balance sheet. Wallie van der Walt, a portfolio manager at Abax Investments, questions the quality of d ue diligence carried out before Forbes embarked on the project, especially as it doesn’t ha ve the resources to spend on IT in the quantiti es that the large banks do. David Talpert, an analyst at Avior Capital Markets, says his contacts at Alexander Forbes now say that the existing systems are more than adequate after all, especiall y in the c ore institutional business. Dawie de Villiers, former head of Sanlam Employee Benefits, took over as CE O in No vember. On Tuesday he announced the resignation of three members of the co mmittee: CEO of Alexander Forbes Investments Leon Greyling; chief risk officer Vishnu Naicker; and head of human resources Christian Schaub. More heads are expected to roll. De Villiers is committed to simplifying the group and leveraging its core strengths. He says the health-care consulting, for example, which increased income by 8%, is much strong er than its counterpart at Sanlam. Louis Chetty, financials analyst at Stanlib, says that in spite of its strong b rand and high 42

financialmail.co.za

December 20 - December 26, 2018

Dawie de Villiers: Took over as CEO in November Freddy Mavunda

2017

2018 Dividend

suite to independent finan cial advisers. “We are an advice-led business, so the pri ority should be on getting our financial planning business right. Why does it have a smaller footprint than our institutional business? “I am not sure that there would be the righ t alignment between ourselves and an independent.” De Villiers says he do e s not intend to set up an agency force in the S anlam mould, but it has sc ope to offer more retail prod ucts to its 1.2-million members. Its Income Solution i n -f u nd preservation fund and living annuity has gathered R1.4bn since its launch in February. Talpert calls the operat ing result “de cent”: up 9% before nontrading items and head office costs. Alexander Forbes Investments, the old Investment Solutions, continued to be the best per former, with operating profit up 17% to R 217m, even though assets under man agement were up just 3% to R315bn. Its main fund, Performer, is still a popular option, growing 15% to R118bn. The unit has been able to cut c osts and waste less management time by subcontracting its international asset management to

123RF/adam88x

Mercer, Forbes’s largest shareholder, with a 34% stake. De Villiers says he will review the current system in which asset consultants work for Alexander Forbes Investments, acting in many ways like its sales force. “The asset consultants need to work more closely with benefit c onsultants to understand the needs of the cli ent, but of c ourse they still need to be up on mark et trends, as trustees want feedback on that.” Talpert says that the Forbes balance sheet is inefficient. It has a regulatory surplus of R1.1b n. De Villiers says it is time to rati onalise the insurance licences in the group, as there is an investment-only life licence at Alexander Forbes Investments, a retail life licence in Alexander Forbes Life & Risk, whi ch is now closed to new business, and a li cence to do group risk business — death and disability cover for pension funds. In the long run Forbes will need to c onsider whether it should stay in the volatil e and capital-intensive group risk market — at any rate it might make more sense to operate sim ply as a broker. In the half-year there was a R3m loss from group risk as disab ility claims spiralled. De Villiers says the short-term insurance underwriter might seem an odd fit in the group, but it makes a strong c ontribution, with profit up 50% to R90m, with loss rati os on the motor book coming down. It doesn’t look as though Forbes is in expansionary mode. If anything, it will be selling busi nesses, including its closed lif e book. It would have a ready buyer for its subscale offices in Nigeria, Uganda and Zambia in Mercer, which offers multinationals a global It doesn’t look benefits programme as though known as Arrive. Forbes is in Talpert says Alex a nde r expansionary Forbes is ridiculously mode. If cheap at R5, but e ven anything, it will though it can add re vbe selling enue through new prodbusinesses ucts there is little growth in its core consulting business, and the investment side is leveraged to weak financial markets. A game-changer could be the growth in its umbrella fund book. It is the No 2 player after Old Mutual, but Forbes’s more independent, open architecture approach should help it win new clients. The umbrella fund’s assets increased b y 9% to R80bn. And at least Forbes has maintained the inter im dividend at 18c a share as it remains cash positive, with cash generated by operations up 5% to R492m. x

COAL Minergy says industrial users across the border in SA will get ‘consistent quality and guaranteed supply’ Lisa Steyn steynl@businesslive.co.za

Botswana ready to light fires ý It’s been known since the 1960s that Botswana has vast amounts of c oal reserves, says explorer and geologist John Astrup. Under the welcome shade of a tree in the summer heat, he casts an e ye out over the flat, sandy Kalahari landscape near the M inergy opencast coal mine, just 50km north of the capital, Gaborone. Better known for its diamond ind ustry, the backbone of its economy, Botswana is estimat ed to have 212-billion tons of coal. (SA, by comparison, has an estimated 66. 7-billion tons in recoverable coal, about 7% of the world’s total.) “So [Botswana has] massive amounts of c oal, but only one coal mine,” says Astrup. That’s Morupule, which feeds Botswana’s only power plant, which caters for the entire c ountry’s energy needs. In the 1970s and 1980s, the b ig oil companies — Shell, Total, BP and others — were drilling all over the country. “In fact, our project here was drill ed by Shell in the 1980s,” he says. Shell had wanted to export coal to Europe, but pri orities changed when the oil pri ce began to boom.

Digging through the archives, Astrup happened upon detailed drilling reports f or the site. “So we knew we were on some g ood coal he r e” ,says Astrup. “That old information helped us a lot in terms of where we l ooked.” Minergy, a micro-exploration company run by Astrup and his partner Claude de B ruin, was the early start for the company. Now the Botswana-listed group is mere metres a way from hitting coal in its Masama opencast project, outside the village of Medie. It’s on track to produce coal by February. The resource is estimated to ha ve 100 years of life and the aim is to prod uce 2.4Mt of coal a year. “Many people proved there was a l ot of coal in Botswana but they never really started a c oal m i ne” ,Astrup says. “The coal being there is onl y half the story. You need a market.” And for Minergy, that market is just across the border — in SA. Coal producers will tell you that it’s ultimate ly a logistics game. Despite being in another December 20 - December 26, 2018

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money&investing PEREGRINE HOLDINGS

Securities business on way out Group says it now wants to focus on capital-light, high-annuity businesses with limited key-man risk Stephen Cranston cranstons@fm.co.za

country, Minergy says it has an ad vantage over SA coal producers in its ab ility to supply industrial users in the northern parts of the c ountry. CEO Andre Bojé says Minergy’s coal will not aim to plug the holes f or Eskom, which is facing a supply crunch. But its customers, industrial users such as c ement makers, are going to get “consistent quality and guaranteed suppl y at similar pricing”. Critically, cement makers and the like can take the finer c oal — the duff — while the larger pieces (“peas” and “nuts”) could be sent further into SA at competitive prices. Astrup says that while it seems M inergy will be the first B otswana coal producer to market, it doesn’t want to be the onl y one. At this rate, it’s not likely it will be. Maatla Energy is pursuing a li cence to mine its Mmamabula project in B otswana. And Shumba Energy’s Mabesekwa mine is Many people reportedly at an proved there advanced stage and was a lot of coal due to be c ommissioned in Botswana but by 2021. … coal being African Energy there is only half Resources also has a the story. You project in the works and need a market Morupule, spurred on by John Astrup high global coal prices, is ramping up production aimed for export. “There are so many synergies when you have a coal industry — better infrastructure, more wagons, more capacity on the rail way lines, which brings your tariffs down,” says Astrup. “So we don’t want to be a mine on our own. Everyone will have to find their little pi ece of the market.” 44

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December 20 - December 26, 2018

The Minergy opencast coal mine, north of Gaborone

Once in production, Minergy plans to list on the London Stock Exchange’s Alternative Investment Market. The company expects a warm welc ome. “They like mining, they like Africa and they specifically like Botswana,” Bojé says. Pieter du Preez, senior economist at NKC African Economics, agrees that Botswana is a premier investment destination in Southern Africa. It has strong macroec onomic fundamentals, solid economic and fiscal poli cies, and remarkably low public debt levels. It is perceived as one of the l east corrupt countries in Africa. “Botswana also has the most fa vourable sovereign credit ratings on the Afri can continent, well above the junk -status grade. On the political front, Botswana will continue to be one of the continent’s model democracies,” he says. Still, the country has numerous challenges to overcome, he says. Mainly, it remains over-reliant on the volatil e diamond mining industry despite “s ig nfici a nt e ffo rts”to diversify the economy. Efforts have been complicated by a shortage of skilled labour coupled with relatively high labour costs. Recurring droughts have contributed to a weak perf ormance by the agricultural sector. Though the fledgling junior coal-mining industry has potential, for now, the b iggest challenge for Botswana remains diversification away from diamonds, D u Preez says. x

ý Previous Peregrine CEOs considered its broking and structuring business to be the glue that kept the group together. After all, the Peregrine Capital hedge fund manager was an im portant client and it was a supplier to other group businesses such as wealth manager Citadel and its UK -based family office Stenham. Now, subject to Competition Commission approval, Peregrine will dispose of its securiti es business altogether. CFO Claire Coward says Peregrine Securities no longer fits into the current group model, which is to f ocus on capital-light, high-annuity businesses with limited key-man risk. Peregrine Securities had numerous calls for capital. “The market is starting to see that we ha ve been evolving into a wealth manag er with some strong asset-management skills,” says Coward. For Peregrine, 56% of its earnings in the six months to September are in dollars and pounds, up from 38% in the c omparable period. It even acquired a toehold in the institutional market through its 30% holding in in vestment boutique Electus. Pe regrine’s results are messy, as the R65m return from proprietary assets, which were unbundled into Sandown Capital, were not repeated. And Peregrine Securities is treated as a discontinued operation, ironically having a great swansong, with earnings up 54% to R77m. Normalised headline earnings for the group were up 4% to R 283m. The proceeds from the Peregrine Securities sale will be R1b n, which Jacques Plaut of Allan Gray (the group’s largest institutional shareholder) considers to be a low multiple. Group CEO Rob Katz says some of this will come back to shareholders, through

share buybacks rather than a special di vidend. There are bills to settle first, such as R72m in tax, R250m for the debt incurred to fund the securities business last year, R 28m to pay back other loans, and R100m to em powerment partner Nala as a dividend from the SA business. There will be R550m left over, but C oward says about R200m has been earmarked for Citadel to take over another financial planning practice. It has bought two large players, Wealth Corp and Consolidated Financial Planning. Citadel’s overall profit increased b y 21% to R114m and more than 95% is from fixed f ees, though the 25%-30% of foreign currency revenues benefits from a weaker rand. The client retention at Citadel is 97%, in line with the “s tic kines s e” xperienced by competitors such as I nvestec Wealth. And unlike institutional managers, Citadel still has net infl ows, with R2.2bn of new money against R1.2bn of outflows such as pension payouts and R700m (out of R51bn) in client mandate terminations. Peregrine Capital has suffered from withdrawals along with the rest of the hedg e fund industry, notably from Sygnia, which closed its funds of hedge funds. Katz argues that the funds ha ve a highly marketable history: the High Growth Fund has a 26.4% annualised return over 20 years. Katz says co mp etitors such as Laurium, Tantalum and Fairtree have started running conventional unit trusts to supple -

Rob Katz: Some of the proceeds from the Peregrine Securities sale will come back to shareholders Freddy Mavunda

ment their incomes. “We think it is vital that Peregrine Capital focuses on what it does well. It can’t be all things to all peopl e.” But Peregrine Capital is hardly indicative of the “steady Eddy” group Peregrine Holdings wants to become, as earnings were down more than two-thirds to R13.3m. I t also appears to have key-man risk with old-timers such as Dave Fraser remaining the face of the business. But Coward says there is a deep bench, and the first generation isn’t necessarily that involved in the day-to-day operations. The business with clear k ey-man risk is Java Capital, which advises listed companies, mainly in the property sector — the top management owns the key relationships. With such a dis astrous year for property it is no surprise that Java’s earnings were down 40% to R11m. Coward says Java Capital is no l onger considered core, and would never have fitted in with the current management’s philosophy. “We are happy to hold on but would willingl y accept a well-priced offer to buy our holding.” Coward says Peregrine will change from a highly decentralised business into a more c oordinated group. Until recently, Citadel took little notice of its sister business in the UK, asset manager Stenham. “But where it makes sense for Stenham to do international investment management or administration for Citadel, it m ust do so. And we will be consolidating our trust activities on the Channel Islands,” says Coward. Stenham doubled its earnings in the six months to September to R95.3m. Citadel is reluctant to c ompromise its perceived independence by pushing Stenham products too hard. But Stenham has a wide menu to offer, including a global macro fund, long-only equities and even a global health-care fund. Citadel should c onsider putting some of its own staff into Stenham. Peregrine has been an undervalued share f or some time, and is on a p:e of barel y seven. The unbundling of Sandown Capital and the sale of Peregrine Securities should unlock value by creating a capital-ligh t, more focused group. In recent reports Sanlam valued the share at R29.30 and Avior Capital at about R 27 — it currently trades at R 19. Avior’s David Talpert says Peregrine is cheap given the prospect of share buybacks, a 9% f orward dividend yield and its large rand-hedge income. Allan Gray’s Plaut argues that Peregrine is trading on 12 times c ontinuing operations from operating businesses, which excludes the Peresec earnings and the one-off perf ormancefee income from the now sold S tenham property business. Peregrine already has good assets. Now it has to sweat them more. x

ABAGOLD

Many more fish to fry in future Severe damage caused by red tide last year affected what appears to be a wellrun and promising business Marc Hasenfuss hasenfussm@tisoblackstar.co.za

ý The latest annual report b y unlisted abalone farming venture Abagold might find interest outside its small pool of pub lic shareholders. Abalone farming, and aquaculture in g eneral, has drawn attention at JSE-listed fishing enterprises this year. Afri can Equity & Empowerment Investments-controlled Premier Fishing & Brands is in the throes of a major e xpansion of its Gansbaai abalone farm, while B rimstonecontrolled Sea Harvest snagged a major share of Viking Fishing’s diversified aquaculture offering. The JSE’s big fish, Oceana Group, has also sig nalled its intention to trawl for aquaculture opportunities, and there has been m uch pondering around the future of A VI-controlled I&J’s sizeable abalone enterprise. Increased interest in Abagold is probably following the company’s determined attempts to rebuild its production pipeline after a de vastating red tide incident at its H ermanus farm in early 2017. The immediate response to this e vent was to introduce “adverse water quality” plants, which chair Hennie van der Merwe says significantly reduces the potential im pact of another red tide event. But looking at the l onger term, Abagold stresses that the lessons from the incident made it clear that further di versification, geographically and in prod uct offering, is critical to sustainable success. The company now has an updated manif esto. It reads: “Abagold, the integrated and sustainable agribusiness with core competency in and focus on aquaculture and a di versified global footprint, de lvi e r i ng premium-quality products through innovation, branding and partnerships.” The manifesto appears deliberately openended, leaving plenty of scope for Abagold’s diversification thrust — possibly even to December 20 - December 26, 2018

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123RF/Larisa Vasileva

money&investing beyond seafood. Diversification to date has resulted in Abagold pressing on with its joint venture to de velop the abalone farm in Oman, and in plans to develop a sea bass fish farm in M auritius. Investments by the company in Specialised Aquatic Feeds (in which Sea Harvest-aligned Viking Aquaculture is a signifi cant minority shareholder) and Port Nolloth Sea Farms Ranching, also look to off er promising aquaculture niches. At the core, Abagold’s key thrust is on secur ing production at the Hermanus farm. Van der Merwe says the knowledge that the business could potentially be hit by a red tide event again focused a “t r e me ndo u s effort and financial c ommitment” on designing, developing and installing a multifaceted defence mechanism to protect the farms and future o p e r at io n s . He says the decision by management to anticipate the benefit of incremental spat production through significant early investment in the hatchery expansion was correct, and enabled increased spat production in the fiscal year. The annual report shows the hatchery produced 9.53-million spat that were transferred to the farm to speed up repopulation of the farming o p e r at io n s . Van der Merwe says this focus allowed the business to achi eve significantly higher growth than originall y planned. “It will provide us … with more options to redesign and shape the pipelines for future market requirements.” The key question is whether other fishing companies — especially those with sizeable bal ance sheets and available funding — would dangle bait for Abagold while it is still pushing f or operational diversity and re-establishing its pro duction pipeline in Hermanus. Van der Merwe concedes the financial resources of the business were tested in the past financial year on the back of a decisi on to harvest only 75% of growth in order to repopulate the production pipeline as qui ckly as possible. He says the decision about harvesting meant the market received less than 50% of the volume of product sent in 2017. Van der Merwe says this contributed to Abagold dipping into the cash pile that had been retained in 2017 to fund this restocking and 46

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December 20 - December 26, 2018

recovery effort. He believes the financial reserves created in prior years will allow the business to sustain itself over the next 18 months whil e the recovery of the pipeline volumes c ontinues. Obviously, Abagold’s cash generated from operations was lessened by the reduction in sales. Van der Merwe says the management team continued to work diligently during 2018 to maintain the health of the business’s working capital. “Initiatives such as The manifesto managing stock of fin appears ished goods, reducing deliberately de bt o r days s ’ to below open-ended, 30 days, as well as better leaving plenty of payment terms negotiatscope for ed with suppliers, were Abagold’s all continued in the cur diversification rent year.” thrust Still, the cash flow statement showed an outflow of R32m c ompared with an infl ow of almost R100m in the 2017 financial year. This was compounded by a decision to carry forward 42t of stock ( worth around R16m) in a bid to realise better value in c oming months from the added growth. At the end of J une Abagold’s net debt increased to R55m from a pre viously ungeared position, with the R37m insuranc e proceeds (stemming from the red tide e vent) mobilised for the adverse water quality protection

system, which is set f or completion in the financial year ahead. While Abagold seems to be determined to rebuild and rep o s ito in , these efforts will hinge on a c ontinued recovery in profitability and c onvincing cash flow generation. In this regard it is heartening that V an der Merwe reports that the hatchery di vision performed excellently in 2018 with a ne w “stretch” target of 1.6-million spat per month. “T he expansion of the facility meant that the hatchery reached more than double its original capacity by December 2017.” He stresses that the c onsistent production of increased volumes of high-quality spat to Abagold’s farms is the essential basis f or the recovery of the prod uction pipeline. Van der Merwe adds that expansion on other abalone farms also led to a high demand f or spat in the next 12 months. “This division remains the platform for the rest of the operati on to achieve growth targets, competitive feed conversion rates and c ost effic ie ncei s”, he says. The bottom line is that A bagold appears to be a well-run and promising business rendered vulnerable by circumstances beyond its control. Gut feeling is that the larg e listed seafood counters on the JSE will closel y monitor developments here — perhaps hoping that A bagold, at some point, might feel more buoyant with a deep-pocketed strategic shareholder on board. x

shop talk by Zeenat Moorad

@zeenatmoorad e: mooradz@bdlive.co.za

Public goes private

n SA, penny-pinching shoppers looking to economise have always had a tendency to rely on the reputati onal strength and goodwill of a branded product — with private labels inspiring less trust. Private labels, also known as house or store brands, account for about a quarter of the f ood that is sold through modern food retail worldwide. But locally they’ve often been perceived as being a generic no-frills or inferiorquality option. This is changing. Nielsen says sales of private-label products in SA now equate to R49 .3bn annually and the sector c ommands a healthy 21.1% share of the S A r etail sector, up from 20% in 2017 , and (this is the important bit) ahead of b randed product growth in the c ountry. “Private label” is defined as prod ucts that are sold e xclusively by a specific retailer or chain of stores and includes store brands, which feature a r et a i le rown ’s branding. All SA’s grocers have their own v e r s io n s . They’re a boon f or retailers as they generate higher average price margins because they require minimal advertising expenditure, lower research and development costs and, usually, reduced packaging costs. Locally, we tend to rel y on the good-better-best architecture for private label: a val ue or cheaper alter native, a standard-priced alternative and a premium or more expensive private label. 48

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The 2018 Nielsen Shopper Trends report found that 77% of local shop pers claim to c ompare the prices of store brands with leading manufactur er brands and most c onsumers say they buy private-label products because they are cheaper. The value-for-money proposition of private label is also now seen to be a major factor in its popularity. O verall, the quality of prod ucts is seen to be improving and there is an increase in the number of people rec ommending them. Just out of interest, the top pri vatelabel category remains long-life milk, with fresh chicken in second place. One of the b iggest movers has been prepared foods, which has jumped from No 12 to third in line with a big trend in SA towards convenience options and the desire to reduce food prep times. Sugar has also moved up from eighth to fifth positi on, while butter has moved from 10th to f ourth on the top category ranking. Given the increase in prices in sugar and butter alike, private label seems to be a more viable option for consumers in these c at eog r ie s . It must be said that in SA, penetration levels of private-label or ownlabel products — as they’re also known — are still relatively low compared with Europe or other developed markets. The sector is worth £56.8b n in the UK, where groc ers have all but made an art of selling g ood-quality private-label goods at attractive prices. ‘I don’t like labels’ Something that was also notable in Nielsen’s study was that when it came to the demographic profile of SA consumers choosing to buy p rvi at e -l a b e l goods, 55% of sales currentl y come from LSM 7-10, but the growth dri ver in 2018 has been the middl e LSMs, which have contributed approximately 30% of sales. Gareth Paterson, Nielsen SA retail lead, says lower LSMs have also shown that they are now willing to try private label within c ertain staple categories like maize, compared w ith years gone by, when trusted b rands were preferred and making the switch was not an opti on. x

December 20 - December 26, 2018

CHECKOUT COUNTER

Activist fund buys 2.5% stake in Pernod Elliott Management has built up a stake in French drinks company Pernod Ricard and called on the family-backed group to boost profit margins and improve returns for investors. Elliott’s stake in Pernod Ricard is just over 2.5%, its first holding in a French bluechip, worth around €930m. The fund has met Pernod chair and CEO Alexandre Ricard to discuss the way forward.

Tencent Music raises almost $1.1bn in IPO Tencent Music Entertainment Group raised close to $1.1bn in its US IPO after pricing its shares at the bottom of its targeted range. The music arm of gaming and social network giant Tencent Holdings priced its American depositary receipts at $13 a share, at the low end of its indicated $13-$15 a share range, it said in a filing with the Hong Kong stock exchange. The IPO values Tencent Music at $21.3bn.

A miss for Inditex Zara owner Inditex reported thirdquarter profit below analysts’ expectations due to currency effects, but the global retailer maintained sales and margin guidance for the rest of the year. Inditex, which also owns upmarket label Massimo Dutti and teen brand Bershka, launched online sales for Zara in 106 new markets last month.

Shoprite opens in Kenya Shoprite, which is seeking a foothold in Kenya’s retail industry, opened its first store in Nairobi this week. The market has a formal retail penetration of 33%, meaning roughly a third of shopping is done in stores rather than marketplaces.

investor’s notebook by Stephen Cranston

Don’t set the bar too low

@scranston

Returns can be achieved just by sitting in SA sovereign long bonds

aving spent the first years of my working life in an environment where 20% inflation was quite normal. I tend to look at a return on in vestment of 13% a year as medi ocre. It isn’t, of c ourse. At today’s inflation rate it is a real return of about 8%. This is close to the long -run real return from balanc ed funds over the past 30 years. B ut over the past fi ve years, investors have been lucky to even match inflation. A study by the multinational asset manager Schroders shows that most S A investors also considered 13% to be a respectable return. Yet in the past fi ve years the best large manager’s balanced fund, Investec, gave just 9.2% a year, and the weakest, Stanlib, 5.9%. The simplest way to avoid disappointment is to have low expectations, but we can’t set the bar too low. T here will be years of negati ve returns, and plenty with subinflation returns, but we should resist the tem ptation of moving out of risky assets such as equiti es and property for the false security of cash. Claire Walsh, personal finance director of Schroders, looked at 30 c ountries to see the difference between actual and expected returns. SA’s investors look wildly optimistic, having expected 12.8% returns, 8.4% ahead of the mark et over five years. And this was in a surve y of 22,000 wealthy people around the world. But this gap was e xactly the same in Chile, Portugal, Indonesia and even the financially sophisticated United Arab Emirates. The Russians were the most optimistic, with expectations 13.4% ahead of the mark et r et u r n . Walsh says the MSCI world index has given a 12.2% return over five years. But the JSE has

delivered dismal returns of 6%, onl y just above inflation. Some countries will be deligh ted to have seen returns well ahead of e xpectations. With very little return from cash or bonds, until very rec ently, US investors considered an 8.5% return to be satisfactory, yet the return of 13.1% has been the best in an y of the 30 mar kets that are measured. T he only market that comes close is India, with a 12.9%

return, but its investors, used to the emerging-market risk premium, expected a 13.7% return. The highest expectations were all in emerging markets such as Thailand and Brazil. China, with an expectation of a 13.1% return, was greedier than its neighbours in Taiwan, with an 11.6% ex p e c t iao n . It is hard to c ompare SA, which still has an inflationary problem, with countries that have flirted with defla tion, such as B elgium and Switzerland. Rand depreciation We would be c onfining ourselves to low long-term returns if we e xpected our fund managers to give a 7% return as the Belgians do, or the 7 .4% that is acceptable to the Swiss. Schroders believes a 5.6% return from a multi-asset or balanced strategy over the next 10 years is realisti c. With rand depreciation, let’s call that about 8%-10%. It is not surprising that man y prudent asset managers are bringing money back to SA. This return can be achieved just by sitting in SA sovereign long bonds, with littl e need for taking the risks of a traditional 6 5%-75% in equities. Walsh says forecasts should not be relied on for financial planning — but then in my view only a minority of financial planners can be reli ed on for effective planning anyway. I wonder whether millennials, who have no experience of double-digit inflation, have a different perspective. Maybe the 6%-9% returns from the Large Manager Watch are adequate to them, as they don’t anchor expectations in the 13%15% range. But even they won’t find an inflationtracking return acceptable. x

123RF/Oleksandr Yuhlichek

LVMH / THE LUXURY GROUP WILL BUY BELMOND, OWNER OF HIGH-END RESORTS AROUND THE WORLD, FOR $2.6BN December 20 - December 26, 2018

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money&investing

ANALYSE THIS...

Lesiba Mothata Executive chief economist, Alexander Forbes Investments

If someone came to you tomorrow with R100m to invest in just one company, which would it be? Danaher Corp, a US firm based in Washington, DC. In the past 30 years, its share price has increased 100-fold in value. It outperformed the market and its peers even during the 2008 global financial crisis. Its management has a unique strategy of turning businesses around and adding value in a diversified fashion. 50

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December 20 - December 26, 2018

What was your first job? As a vacation student, I worked for an asset management firm called Prodigy, based at the Waterfront, Cape Town. If you could fix one thing in SA today, what would it be? The preoccupation with macroeconomics in finding economic solutions for SA is misplaced. Economic growth ought to be sought in the micro aspects of cities peripheral to the metropolitan areas. What’s the best investment you’ve ever made? As a youngster, shortly after completing my degree, in my first year of work, I purchased a house in the eastern suburbs — Kempton Park. I sold the property for 2½ times the initial value within five years, during the real estate boom in the early 2000s. What’s your favourite song? Dear Mama by Tupac Shakur. My favourite of all time. On what occasion do you lie? Never, really. What is your greatest extravagance? I have discovered wine. I tend to look for opportunities to make a collection of different ones. What travel experience is on your bucket list? Brazil. The soul and culture of cities like Rio de Janeiro are experiences to look forward to. What’s the worst investment you’ve ever made? Acquiring bonsai trees. They needed special attention and died shortly after purchase. How much was your first pay cheque and what did you do with it? It was R10,000. I gave 60% of it to my mother to install a new kitchen. What was your last purchase? A tailored suit. I need to increase my accumulation in this department. Do you own bitcoin or any other cryptocurrencies? And why? No. I tend to be more conservative when it comes to money matters. I do not like to jump on bandwagons or fads. I do, however, find the technology behind cryptocurrencies, blockchain, very useful and it will certainly define a lot of what gets done in the future. As for cryptocurrencies, I will leave it to the enthusiasts. If you could turn back time, what would you change in your life? Nothing really. I have grown to appreciate that all things work out for the good. Wisdom is found even in the deepest regrets and most painful moments. x

economic indicators AFRICA TOP STOCKS (EXCL SA) Company

ECONOMIC INDICATORS

Market Cap ($000s)

Maroc Telecom

Morocco

12,973.34

141.00

10.04

Inflation (% change y/y)

Attijariwafa

Morocco

9,436.76

443.00

-6.04

Consumer price index

Nov

5.2

5.1

Prime

10.25

10.00

Kenya

8,994.68

23.00

-10.61

Producer price index

Nov

6.8

6.9

NCD*

7.30

7.20

Dangote Cement

Nigeria

8,672.61

185.00

-16.18

Credit Aggregates (% change y/y)

Repo

6.75

6.50

6.75

Banque Centrale

Morocco

5,245.75

275.00

-4.31

Claims on the domestic pvte sector

Oct

5.8

6.3

Egypt

4,820.90

74.00

-3.26

Total loans and advances

Oct

4.6

5.2

Total domestic credit extension

Oct

6.3

6.5

Safaricom

Commercial Intl Delta Corp Banque Marocaine Nestlé Nigeria Guaranty Trust

Price Total Return Ytd

INTEREST RATES

Country

Zimbabwe

3,612.66

2.85

86.09

Morocco

3,542.53

188.60

-9.74

Nigeria

3,161.90

1,450.00

-3.90

Nigeria

2,752.85

34.00

-11.19

Morocco

2,372.11

1,570.00

-1.46

Nigeria

1,969.30

22.80

-1.78

Abou Kir Fert & Ch

Egypt

1,761.34

25.00

20.79

Nigerian Breweries

Nigeria

1,746.78

79.40

-39.23

Morocco

1,695.99

171.50

-9.64

Ciments du Maroc Zenith Bank

Cosumar

DIVIDENDS & DISTRIBUTIONS I Interim F Final p Pence

Company

Amount (c)

Alexander Forbes Group

British American Tobacco

Telemasters Holdings

Trade by

18.00

Payable

Latest

Week ago

New passenger car sales

Nov

-5.4

-0.7

New commercial vehicle sales

Nov

-3.0

7.0

Retail sales

Oct

2.2

0.6

Wholesale sales

Oct

3.7

6.2

Manufacturing production

Oct

3.0

-0.1

Mining production

Oct

0.5

-2.0

Mineral sales

Oct

3.9

-3.2

Trade (Rbn)

Year ago

10.25

Jibar*

7.15

7.02

7.14

Safex†

6.73

6.46

6.73

* 3 months

† Overnight rate

Bond yields (%) Dec 14

Month ago

Year ago

R186

9.190

9.160

R204

6.250

6.155

9.230 7.590

R207

6.190

6.410

8.050

Oct

127.87

116.62

R208

7.260

7.545

8.295

Exports

Oct

122.32

112.79

R209

10.025

9.845

9.920

Trade balance

Oct

-5.55

-3.83

4.90

Gold & Forex Reserves (US$bn) Gold reserves

Nov

4.93

SDR holdings

Nov

2.48

2.47

Forex reserves

Nov

43.27

42.79

48.80p

Dec 21

Feb 7

Gross reserves

Nov

50.67

50.17

1.50

Dec 31

Jan 7

Net reserves

Nov

42.58

42.19

EXCHANGE RATES

12-mth low 12-mth high

Dec 14

Month ago

Year ago

12-mth low 12-mth high

Developed Markets — Rand per foreign currency unit

1,238

1,248

1,253

1,174

1,358

US dollar

14.39

14.40

13.47

11.55

788

793

882

768

1,016

Euro

16.28

16.26

15.88

14.21

17.90

Palladium

1,244

1,226

1,035

844

1,266

UK pound

18.12

18.64

18.10

16.14

19.88

Silver

14.57

14.62

15.89

14.00

17.55

Japan yen (100)

12.69

12.67

11.99

10.79

13.84

Canada dollar

10.75

10.87

10.54

9.04

11.67

Switzerland franc

14.42

14.29

13.62

12.22

15.85

Australia dollar

10.33

10.39

10.34

8.96

11.07

0.30

Platinum

Month ago

Imports

Jan 14

Precious metals ($/oz) Gold

Dec 14

Jan 8

Year ago

Short-term interest rates (%)

Industry (% change y/y)

COMMODITY PRICES Dec 14

Month ago

15.40

Base Metals ($/t) Aluminium

1,908

1,951

2,033

1,908

2,541

Copper

6,128

6,149

6,761

5,759

7,331

Nickel

11,010

10,846

11,100

10,697

15,688

Lead Tin Zinc

1,941

1,983

2,492

1,885

2,704

19,369

19,016

18,962

18,234

22,104

2,569

Iron Ore

2,681

3,187

2,284

3,606

68.93

64.71

67.37

57.85

76.88

Brent ($/bbl)

59.32

60.27

64.04

57.67

86.09

Coal ($/t)

95.25

94.20

97.70

83.20

109.00

Energy

Agriculture (R/t) White maize

2,741

2,610

1,877

1,772

3,050

Yellow maize

2,658

2,517

1,960

1,874

2,800

Emerging Markets — Foreign currency unit per rand Brazil real

0.27

0.26

0.24

China yuan

0.48

0.49

0.44

0.54

India rupee

4.99

5.01

4.76

4.64

5.60

Russia ruble

4.64

4.66

4.36

5.25

Malaysia ringgit

0.29

0.30

0.27

0.33

Thailand baht

2.28

2.29

2.41

2.12

2.71

Botswana pula

0.79

0.76

0.82

Wheat

4,342

4,251

3,964

3,525

4,563

Sunflower

5,600

5,253

4,525

4,325

5,800

Economist: Global Markets Research,

Soya

4,957

4,785

4,895

4,145

4,962

Rand Merchant Bank (tel) +27 11 282-1040 or e-mail: Mpho.Tsebe@rmb.co.za

The information in the commodities column is provided by Mpho Tsebe,

SHAREHOLDER MEETINGS Company Texton Property Fund

Date Dec 28

Type GM

Place Johannesburg

December 20 - December 26, 2018

financialmail.co.za

jse top stocks COMPANY

CLOSING PRICE (FRIDAY) (C)

ANHEUSER-BUSCH INBEV BHP GROUP PLC NASPERS LTD-N BRIT AMER TOBACCO GLENCORE PLC ANGLO AMER PLC FIRSTRAND LTD STANDARD BANK GROUP SASOL LTD VODACOM GROUP SOUTH32 LTD SANLAM LTD MTN GROUP LTD MONDI PLC MONDI LTD ANGLO AMERICAN PLATINUM ABSA GROUP LTD NEDBANK GROUP CAPITEC BANK HOLD SHOPRITE HLDGS OLD MUTUAL LTD REMGRO LTD DISCOVERY LTD BID CORP LTD KUMBA IRON ORE INVESTEC PLC ANGLOGOLD ASHANTI PEPKOR HOLDINGS BIDVEST GROUP GROWTHPOINT PROP MR PRICE GROUP NEPI ROCKCASTLE ASPEN PHARMACARE WOOLWORTHS HLDGS REDEFINE PROPERTIES TIGER BRANDS LTD EXXARO RESOURCES CLICKS GROUP LTD MEDICLINIC INTL PLC SAPPI LTD ASSORE LTD QUILTER PLC TFG NETCARE LTD SPAR GRP LTD/THE GOLD FIELDS LTD TRUWORTHS INTL LIFE HEALTHCARE FORTRESS REIT LT B FORTRESS REIT LT A SANTAM LTD AVI LTD PICK N PAY STORES TELKOM SA SOC LT LIBERTY HLDGS AFRICAN RAINBOW IMPALA PLATINUM VIVO ENERGY PLC MMI HOLDINGS LTD TSOGO SUN HOLDINGS BARLOWORLD LTD DIS-CHEM PHARMACIES RESILIENT REIT SIBANYE GOLD LTD KAP INDUSTRIAL NORTHAM PLATINUM MASSMART HLDGS HYPROP INVESTMENTS PIONEER FOOD GROUP

financialmail.co.za

101,869 29,312 281,827 48,115 5,237 30,756 6,450 17,362 42,863 12,430 3,429 7,600 8,601 29,384 30,009 53,000 15,833 26,537 107,314 19,026 2,203 18,989 15,080 26,102 26,884 7,776 17,082 2,040 20,522 2,320 23,083 10,800 12,950 5,362 962 27,000 13,858 18,099 5,959 7,825 28,613 2,080 16,366 2,582 19,714 4,613 8,476 2,541 1,395 1,750 31,100 9,805 6,985 6,065 10,660 13,626 3,588 2,190 1,697 2,197 11,727 2,886 5,792 1,029 820 4,181 9,805 8,300 8,560

Market Cap — Global market capitalisation. YTD — year to date. EPS — Earnings per share. Trailing EPS — EPS at the time of the most recent annual results presentation. Est. forward EPS — EPS as estimated by analysts at the time of the next annual results presentation. * — SA companies quoted in rand, otherwise in reporting currency. Div Yield — Dividend yield as at most recent annual results. Forward Div Yield — Dividend yield as at next annual results. Three-year average RoE — three-year average return on equity. Forward RoE — Return on equity as at next annual results.

MARKET CAP SHARE (Rm) PRICE RET. YTD (%)

2,056,982 1,662,429 1,238,808 1,103,647 734,662 397,553 361,812 281,006 267,702 228,198 174,235 169,631 162,066 143,921 143,921 142,903 134,224 132,749 124,084 112,508 108,873 107,235 99,270 87,547 86,590 78,411 70,767 70,380 69,254 68,927 62,414 62,402 59,110 56,216 55,467 51,251 49,710 45,962 43,932 43,601 39,946 39,567 38,748 37,981 37,970 37,897 37,514 37,285 36,050 36,050 35,806 34,578 34,468 31,001 30,509 30,174 26,364 26,319 25,412 25,214 24,942 24,822 24,613 23,320 22,127 21,314 21,294 21,239 19,961

December 20 - December 26, 2018

-22.85 24 -18.16 -39.68 -14.99 26.12 0.05 -6.84 2.74 -9.03 6.27 -9.38 -33.57 -1.08 1.07 52.74 -7.13 9.03 -0.54 -12.08 NA -17.49 -17.91 -11.55 -21.73 -9.06 33.69 27.9 -3.3 -9.22 -2.76 -46.02 -52.45 -14.29 -1.33 -39.65 0.22 1.75 -42.99 -10.66 -15.22 NA -13.33 6.63 0.65 -13.34 -6.11 -3.66 -62.89 2.6 20.01 -5.12 3 34.85 -9.32 10.26 10.6 NA -19.19 -1.14 -24.47 -20 -53.19 -32.35 6.35 -20.01 -28.12 -23.72 -35.7

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

4 0.69 31.53 16.93 0.42 2.36 4.73 16.44 14.21 8.76 0.25 5.43 1.96 1.39 1.39 20.18 16.53 26.52 41.9 9.33 NA 15.67 8.76 10.62 33.23 0.52 0.04 0.83 11.32 2.3 10.9 NA 13.12 -3.71 1.23 14.52 18.58 5.78 -0.83 0.58 49.63 0.22 10.9 3.54 9.42 -0.54 6.12 1.08 -2.16 -2.16 18.28 5.1 3.1 5.5 11.15 23.24 -14.86 NA 0.87 1.64 18.14 0.84 -16.78 0.18 0.57 -2.01 6.3 10.11 5.46

4.77 1.75 9.81 3.12 0.46 2.44 5.43 18.33 54.12 10.27 0.25 5.41 7.5 1.87 1.87 29.79 20.77 29.31 55.19 10.5 2.64 18.15 10.19 15.25 24.51 0.56 0.8 1.27 14.28 2.3 12.74 0.62 17.17 4.01 1.02 19.18 25.63 6.67 0.28 0.69 46.62 0.1 12.93 1.83 11.55 0.18 6.81 1.56 1.85 1.52 18.87 6.02 3.67 6.11 13.41 24.69 1.95 0.14 1.99 2.02 12.42 1.09 NA 1.5 0.73 1.86 6.84 8.31 6.43

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

5.7 3.01 NA 12.71 5.41 4.78 4.26 5.41 3.01 6.56 4.37 NA 7.27 3.39 3.49 0 6.85 5.16 1.47 2.54 NA 2.8 1.43 2.15 10.98 5.71 0 NA 2.71 8.99 3.14 NA 2.43 4.46 10.09 4 6.71 2.1 2.53 0 7.69 0 4.58 4.03 3.7 2.36 4.96 1.97 8.1 8.1 3.15 4.44 2.78 7.81 6.48 5.5 0 NA 0 9.19 3.5 NA 9.76 5.61 NA 0 3.46 9.11 4.26

3.1 7.59 0.34 7.88 6.17 4.74 4.85 6.06 4.65 6.76 5.46 4.42 5.12 4.27 4.03 1.75 7.62 5.74 1.94 2.73 8.7 3.31 1.67 2.51 8.86 6.33 0.8 2.93 3.07 9.71 3.62 8.86 2.7 5.1 10.47 4.13 7.25 2.46 2.46 4.02 7.46 4.37 5.24 4.72 4.12 1.84 5.46 4.23 13.57 8.72 3.57 4.91 3.54 5.99 6.89 8.52 0.53 2.63 4.57 6.69 4.41 1.64 10.23 0.78 3.36 0.08 3.54 10.06 4.43

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

9.45 2.13 30.39 80.31 4 5.53 23.44 15.85 6.79 29.43 3.15 19.21 4.57 20.57 20.57 -6.28 14.85 14.4 26.3 21.76 NA 8.76 14.63 NA 24.79 10.86 -0.48 NA NA 9.2 43.26 NA 12.01 10.48 9.3 18.62 12.48 43.86 NA 21.93 NA NA 20.81 21.53 32.32 -5.15 30.91 16.43 -7.14 -7.14 24.22 33.96 36.58 12.28 13.61 7.33 -13.85 NA 7.13 20.83 12.1 67.75 3.17 -0.27 13.63 -7.45 23.88 11.27 15

12.64 17.09 14.81 11.23 13.31 13.07 22.84 17.33 13.99 25.1 12.08 16.14 13.32 23.18 23.18 16.75 16.21 16.2 27.32 20.44 13.93 8.16 15.72 17.44 23.45 13 10.55 7.93 18.29 8.75 38.83 9.08 13.54 25.73 9 17.39 16 38.36 6.16 17.18 18.63 11.69 20.22 23.17 29 8.97 25.05 13.86 4.49 4.78 30.53 38.73 36.91 11.08 14.04 17.74 4.1 27.56 13.52 17.98 11.65 45.54 7.03 8.32 14.77 5.11 21.02 8.28 14.4

P:E FORWARD P:E

16.99 16.81 47.07 1.55 8.73 8.93 13.65 10.34 15.62 14.4 9.27 13.85 48.87 12.68 11.65 21.38 9.33 9.68 25.45 19.62 NA 12.55 17.21 20.29 10.6 8.09 24.72 12.01 16.66 14.51 20.05 NA 8.82 15.48 13.97 17.02 14.57 29.56 NA 9.21 5.77 527.73 7.24 52.37 20.41 12.82 13.77 23.35 NA NA 16.85 18.05 22.28 10.67 9.29 5.39 NA NA 19.24 11.06 9.84 34.52 NA 7.69 13.83 NA 15.32 10.93 16.28

14.82 11.66 19.94 8.51 7.83 8.74 11.87 9.47 7.92 12.1 9.48 14.03 11.47 9.64 9.84 17.78 7.62 9.05 19.43 18.12 8.35 10.46 14.8 17.11 10.97 7.67 14.87 16.01 14.37 10.07 18.11 10.79 7.54 13.35 9.41 14.07 5.41 27.11 11.62 7.9 6.14 11.08 12.65 14.08 17.07 18.12 12.45 16.28 7.55 11.48 16.48 16.28 19.05 9.93 7.94 5.52 18.36 11.19 8.52 10.88 9.44 26.44 NA 6.86 11.21 22.43 14.33 9.99 13.31

TOTAL SELL

TOTAL HOLD

TOTAL BUY

2 3 0 2 0 3 2 1 2 0 2 1 3 1 1 3 1 2 2 2 0 0 3 0 9 0 2 2 3 1 2 0 2 4 2 2 0 1 2 1 2 0 2 2 1 2 4 0 0 1 2 2 5 2 1 0 1 0 1 1 1 5 1 2 0 3 0 1 1

5 19 0 6 7 6 8 7 3 9 9 2 6 2 1 4 4 5 1 5 1 1 1 4 2 2 5 3 5 4 10 1 4 5 4 4 0 6 8 3 3 4 3 8 10 5 4 7 2 2 2 7 4 8 5 2 7 1 3 0 3 1 2 4 1 1 7 6 5

27 8 14 16 21 19 3 5 9 6 9 4 5 14 4 5 8 6 6 5 7 3 3 5 0 4 7 1 4 2 0 4 5 3 0 4 8 2 4 5 1 5 7 3 1 6 4 5 2 1 0 1 3 2 1 8 5 4 1 3 8 2 2 7 7 8 2 0 4

jse top stocks COMPANY

CLOSING PRICE (FRIDAY) (C)

VUKILE PROPERTY MOTUS HOLDINGS JSE LTD SUPER GROUP LTD IMPERIAL LOGISTICS HARMONY GOLD MNG NAMPAK LTD OCEANA GROUP LTD PPC LTD SA CORPORATE REAL EST SUN INTERNATIONAL WILSON BAYLY HOLMES TONGAAT HULETT EMIRA PROPERTY FUND ASTRAL FOODS LTD ROYAL BAFOKENG PLAT THARISA PLC GRINDROD LTD BLUE LABEL TELECOMS RHODES FOOD GROUP MPACT LTD MERAFE RESOURCES RAUBEX GROUP LTD PAN AFRICAN RESOURCES LONMIN PLC GROUP FIVE LTD

1,991 8,285 16,724 3,519 6,410 2,281 1,460 7,296 580 362 6,299 13,613 5,960 1,492 17,000 2,500 1,980 670 536 1,820 2,140 146 1,841 149 896 21

zar x exchange SENWES LIMITED

P:e — Price:earnings ratio as at recent annual results. Forward P:e — Price:earnings ratio at next annual results. Tot Sell/Hold/Buy — number of buy, hold, and sell recommendations. Sum of sells, holds and buys — 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 notwithstanding.

MARKET CAP SHARE (Rm) PRICE RET. YTD (%)

17,884 16,733 14,529 13,073 12,946 12,141 10,071 9,888 9,240 9,161 8,817 8,153 8,053 7,798 7,291 5,262 5,247 5,109 4,897 4,782 3,709 3,666 3,346 3,330 2,534 24

ISSUED SHARES

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

0.76 NA 12.37 -14.9 -31.72 0.53 -9.99 -12.92 -16.79 -16.76 7.44 -9.69 -47.15 21.71 -31.93 -10.71 11.72 -31.87 -64.08 -17.64 -10.49 9.07 -5.68 -37.92 -36.36 -98.37

LAST BID

2.84 NA 11.34 3.2 16.34 -9.94 0.76 6.75 0.11 0.57 -0.74 15.34 -1.03 1.66 36.88 -3.87 0.18 2.49 1.27 0.59 1.57 0.34 1.35 -0.05 0.15 -13.35

LAST OFFER

1.8 11.15 12.34 3.88 14.21 4.28 1.8 6.75 0.55 0.44 5.34 18.58 7.62 1.57 27.31 1.13 0.22 0.9 1.13 1.03 2.2 0.28 2.02 0.02 0.1 0.61

PREVIOUS CLOSE

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

8.75 NA NA 0 11.08 0 0 4.17 0 12.22 0 3.49 1.01 9.84 12.06 0 3.63 0 7.46 1.71 2.57 9.56 2.44 NA 0 0

9.75 6.29 4.38 NA 8.07 1.21 1.76 5.65 1.83 12.14 0.72 4.58 2.85 10.56 9.43 NA 3.8 3.18 7.52 1.82 3.23 14.88 3.39 7.09 NA 58.18

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

13.3 NA 30.78 13.57 14.37 -3.88 8.48 19.29 NA 17.44 NA 14.22 4.92 8.26 28.79 -9.71 14.42 -3.54 15.69 15.35 9.9 17.3 9.67 -9.76 -33.18 -30.05

8.59 18.36 23.88 13.41 13.19 7.73 9.87 16.23 9.61 8.74 40.63 15.19 5.56 9.15 26.18 1.63 13.37 7.34 12.36 10.54 8.53 12.75 9.17 16.36 4.08 15.35

P:E FORWARD P:E

11.54 NA 14.39 10.59 11.8 13.34 9.64 10.03 34.12 8.43 111.46 9.62 NA 5.71 4.58 38.05 7.24 5.11 4.64 29.93 13.28 4.31 13.82 13.72 4.1 NA

CLOSING PRICE

CHANGE

VOLUME

VALUE

MARKET CAP (Rm)

11.06 7.43 13.55 9.08 4.51 5.33 8.11 10.81 10.53 8.2 11.78 7.32 7.81 9.5 6.23 22.02 6.25 7.42 4.76 17.67 9.71 5.29 9.08 5.47 6.49 0.34

YEAR HIGH

TOTAL SELL

TOTAL HOLD

TOTAL BUY

0 0 0 1 0 4 3 2 0 2 0 0 0 1 0 1 0 0 0 0 1 0 1 1 7 4

2 1 3 1 4 2 2 0 3 2 1 2 0 3 2 1 2 1 1 4 2 0 1 2 4 0

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

YEAR LOW

TRADE DATE

180,789,308

6.30

7.00

6.75

6.50

(0.25)

30,483

198,264

1,175,130

13.00

6.50

14/12/2018

35,100,993

18.85

0.00

18.60

0.00

652,878

18.60

12.33

14/12/2018

SENWESBEL LIMITED

114,609,307

0.00

3.95

0.00

452,706

6.00

3.80

14/12/2018

TRANSFORMATION INVESTMENT PORTFOLIO LIMITED

50,000,000

0.00

1.00

0.00

50,000

1.00

14/12/2018

TWK INVESTMENTS LIMITED

NO.1? *

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December 20 - December 26, 2018

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life

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

YEAR OF MEMORABLE READS There is still a week and a bit to catch up on all the great books you didn’t get to in 2018 Sarah Buitendach

NONFICTION OF NOTE Becoming — Michelle Obama Former US first lady Michelle Obama’s autobiography has sold over 3-million copies so far. It’s a fascinating, candid read and delves into her relationships, her career and her years in the White House. Ma’am Darling: 99 Glimpses of Princess Margaret — Craig Brown The UK’s Princess Margaret – not a popular gal. Mean and entitled, or just misunderstood? Either way, a fantastic, unusual biography. Brief Answers to the Big Questions — Stephen Hawking The late guru and cosmologist delves into some deep issues: Is time travel possible? Is there a God? Will we survive on Earth? The Resurrection of Winnie Mandela — Sisonke Msimang Award-winning writer Msimang casts a smart, fresh perspective on Mandela in a short, sharp book. The Man Who Founded the ANC: A Biography of Pixley Ka Isaka Seme — Bongani Ngqulunga This won the Sunday Times Alan Paton Award for 2018. It’s a fascinating look at the at times tragic life of the man who, in a whirlwind of overachievement and in record time, founded the ANC.

How to Change Your Mind — Michael Pollan Pollan is back, this time taking a personal deep dive into the world of the mind, mental health and scientific and medical developments around psychedelic drugs. Bad Blood: Secrets and Lies in a Silicon Valley Startup — John Carreyrou A mesmerising tale of corporate fraud, Silicon Valley-style, and the biggest of its kind since Enron. This is one of the FM team’s top reads of the year. Everyone is Present: Essays on Photography, Memory and Family — Terry Kurgan Joburg artist Kurgan has woven a fascinating tapestry of stories in text and visuals that is a commentary on history and seeing and on how we interpret both. The Last Hurrah — Graham Viney A smart and sexy snoop into the British royal family’s famous tour of SA in 1947 and the politics, people and culture of the country at the time. Fear: Trump in the White House — Bob Woodward Yes, the Woodward of Watergatereporting fame. In this book, he draws from many, many interviews with sources and documents to paint a picture of the US president. The result isn’t pretty. December 20 - December 26, 2018

financialmail.co.za

life books RECIPE BOOKS TO SAVOUR Simple — Ottolenghi It might seem like an oxymoron, but it’s true: cult British chef Yotam Ottolenghi can do simple. He shows you how here, with fresh, easy and wildly successful recipes.

FICTION Warlight — Michael Ondaatje Certainly not as lyrical or magical as The English Patient (which won the Golden Man Booker Prize, the Booker of all Bookers, this year), but still an entrancing and smart read. Milkman — Anna Burns The 2018 Man Booker Prize winner is set during the Troubles in Northern Ireland. The style is unusual, but get into it and you’ll be richly rewarded. Less — Andrew Sean Greer A failed novelist escaping his life by travelling around the world — that’s the set-up of this warm, witty story of self-discovery. It won the 2018 Pulitzer Prize for fiction. Transcription — Kate Atkinson Atkinson is back with a story about a girl who gets caught up in the dark realm of World War 2 espionage.

financialmail.co.za

How to Eat a Peach: Menus, Stories and Places — Diana Henry Wonderful food writing and beautiful recipes for meals to share and celebrate over. No wonder this was the Sunday Times food book of the year in the UK.

Atkinson, a Costa Award winner, is a master storyteller and this new work will not disappoint. Washington Black — Esi Edugyan A central character of a slave who becomes a free man, adventures that span the globe, marvellous flying machines — what doesn’t Edugyan’s hit book offer? No wonder it’s been raking in the gongs. Love is Blind — William Boyd The story of a man’s life that sweeps across Europe at the end of the 19th century. It’s got all you want in a gripping read: human frailty, romance, drama, beautiful writing … and music. Normal People — Sally Rooney She’s the beloved writer of the cool set, the “voice of a generation”, but we were still deeply sceptical of Rooney’s first book, Conversations

- December26, 26,2018 2018 December 20 -December

Basics to Brilliance Kids — Donna Hay The Australian food favourite strikes back with another gleamingly styled homage to lovely eats, this time for the littlies and their try-hard parents.

with Friends. This makes up for it. It’s “zeitgeisty” and clever. Circe — Madeline Miller Miller does retellings of ancient myths with aplomb. Her The Song of Achilles won the Orange Prize, and this, a potent account of Circe, has also received big praise.

Melmoth — Sarah Perry Perry hit gothic gold with her second book, The Essex Serpent. This takes the dark, foreboding thing up a notch in a reinterpretation of an 1820s classic that involves some soul-for-time bartering with the devil. SHORT STORIES

A Keeper — Graham Norton Somehow in between hosting his much-loved TV show, Norton wrote this, his second novel. He sure knows how to spin a yarn. With undertones of the gothic, it is a tale of family, loss and relationships.

Friday Black — Nana Kwame Adjei-Brenyah This debut collection of stories was a huge success. The main theme? What it’s like to be black in the US. We predict more good stuff from Adjei-Brenyah in future.

Lethal White — Robert Galbraith The fourth in the Cormoran Strike detective series, this is a proper page-turner. Crime, intrigue, a “will they, won’t they” relationship, and Galbraith/JK Rowling’s trademark ace writing.

Florida — Lauren Groff Fates and Furies author Groff takes on the southern US state in this compilation of tales, which all have it at its epicentre. The New Yorker described it as “gorgeously weird and limber”. Give it a whirl.

life inbox ENTERTAINMENT FM’s pick of great series and podcasts

LOOK AND LISTEN SERIES Now is the time to commit to some serious serieswatching. Here are our three favourites to bingewatch, as they have new seasons airing in 2019. Catch up while you can. Game of Thrones Aunt Daenerys and Jon Snow. Enough said.

we really like is the masterfully complex relationship DCI Luther has with his “sidekick” Alice Morgan (Ruth Wilson). They share chemistry, complications, brilliant caper-solving, and the little matter of her being a supposed psychopath. x Sarah Buitendach

PODCASTS Ideal for long car drives or a bit of lying on the couch and listening, here are the podcasts that really broke the internet this year. Veep We defy you to name a more unpleasant and yet beguiling TV character than US senator turned vice-president Selina Meyer. Six seasons in, and the character played by Julia Louis-Dreyfus is as bizarre, calculating and funny as ever. Her team in the White House stumble from one faux pas to the next; they’re conniving and dirty and hilarious. This is fast, smart comedy at its best. The final episodes will air in the second quarter of next year.

Luther Idris Elba is the damaged, brilliant and very human detective Luther. What’s not to like, really? Add in a sharp plot and some seriously macabre crimes (don’t watch this alone, in the dark) and it’s no wonder the first four series of this crime drama were a sensational success. Of course, the thing

Alice Isn’t Dead If Stephen King and Thelma and Louise came together to take down a rogue monster army in the heyday of radio stories, Alice would be it. The tale of a truck driver looking for her wife has expanded over the past three years and came to a heady, emotional conclusion this year. It cemented itself as one of the most human narratives in recent days, in spite of the supernatural undertones. Personal Best A good one for the new year’s resolution selection process. Seen as a “selfimprovement show for people who don’t like selfimprovement”, Personal Best follows ordinary people’s often hilarious attempts to try to change in negligible ways. Though the idea of listening to someone trying to wake up earlier may sound strange, the journey almost always ends in a realisation that says something about humanity itself.

Slow Burn We love an investigative podcast and we adored the first smashing season of this because it looked into Watergate — during the days of the Mueller investigation. Slow Burn now tackles a story that fits squarely into the prickly domain of power and censorship in American politics and the #MeToo movement: the Clinton impeachment scandal. The podcast attempts to conjure up the world as it was at the time, through the lens of current, erm, affairs, and it couldn’t have come at a better time. The Teacher’s Pet If you hate an Aussie accent this one isn’t for you. That said, The Australian newspaper’s investigation into the disappearance of Lyn Dawson shook Down Under for a reason. You would imagine that if a dedicated mother of two small children vanished one week and her husband’s 16-year-old mistress, Joanne Curtis, moved into the family home, the next, that it would be enough to warrant some form of investigation. (Chris Dawson was a high school teacher; Joanne was one of his pupils, and the family babysitter.) In the wake of the podcast investigation by journalist Hedley Thomas, Dawson (now 70) was this month charged with his wife’s disappearance and murder. He is out on A$1.5m bail. Serial This is the podcast that launched a couple of million listenerships. After a cracker of a first season, which changed the game for the podcast medium as a whole, Serial is back with probably the most astounding narrative to date. After spending a year in Cleveland’s criminal justice system, host Sarah Koenig’s team weave a tapestry of many small incidents that come together to show just how far people are willing to go to game an already broken system, and win, no matter the human cost. x Sylvia McKeown December 20 - December 26, 2018

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life outbox FOOD Gongs to the great and the tasty

FOOD AWARDS 2018: TRIED-AND-TESTED STARS ý After going to hundreds of food-and-booze events this year, the FM and Business Day’s Wanted magazine rounded up their epicurean highlights for 2018. We’ve dished out the kudos where they’re due, and hopefully helped you make your dining and drinking choices (fancy or not) incredibly simple. The pleasure was all ours. FAVOURITE BAKED GOODS: TONKA BEAN BAKERY, Fourways, Joburg The almond croissants here are clearly made from fairy-dust dreams and butter — lots of butter. FAVOURITE ICE CREAM: UNFRAMED, Gardens, Cape Town If we have to scream for ice cream, then we’re hollering at this Cape Town hipster stronghold. Its ever-expanding selection of largely vegan options is a revelation. FAVOURITE BREAKFAST WITH A VIEW: EAST HEAD CAFÉ, Knysna It has one of the best views on the Garden Route and offers delightful breakfasts in every form and calorie count. Oh, and its service is morning brightening. FAVOURITE HANGOVER FOOD: CLARKE’S BAR & DINING ROOM, city bowl, Cape Town The fried-chicken burger situation is manna from heaven when everything else feels like hell. BEST-KEPT SECRET: BANCHAN, Parkmore, Sandton Nothing warms the heart like a bowl of Korean noodles from this tiny, authentic spot. It puts the pseudo-Asian places to shame. FAVOURITE TAKEOUT: THE LEOPARD, Milpark, Joburg The little buzz bike that delivers pata plate wraps and vigour bowls is a godsend that not even EFF protesters can keep away. FAVOURITE JOBURG RESTAURANT: FARRO, Illovo, Joburg This glittering new star of the SA food scene has shaken things up with its oft-changing casual fine dining. 58

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- December26, 26,2018 2018 December 20 -December

FAVOURITE JOURNO HANGOUT: BLIND TIGER CAFÉ, Parkview, Joburg Got a scoop? A pitch? You know where to find us. FAVOURITE DEADLINE TIPPLE: Kamiki It got us through the best of times and the worst of times. Our mismatched cups and mugs ran over with this sterling Japanese whisky. FAVOURITE COFFEE: FATHER COFFEE, Braamfontein, Joburg It’s a contentious decision. Fight us. FAVOURITE WINE YOU’VE NEVER HEARD OF: Silwervis, Smiley Chenin Blanc It tastes like the sea, there’s a sheep’s head on the label, and the winemaker wears a kilt. What more do you need? FAVOURITE BUBBLES: Paul René MCC Brut Rosé In terms of homegrown bubbles, you can’t do better than Paul René. Fruity, dry and wonderful. FAVOURITE SOCIAL MEDIA FOOD PORN: @Veldandsea Every photo is a moment of lush wonder beckoning you to the sea. FAVOURITE WINE BAR: PUBLIK, Gardens, Cape Town Because it sells the aforementioned sheep’s head chenin and other delightful small-batch wines. And its spot off Kloof Nek Road is a Cape Town decompression chamber. BEST-LOOKING CHEF: Ryan Cole Let’s just say, you do not have to go to Salsify for the ridiculously good food only. FAVOURITE DURBS VIBES: AL FIRENZE, Umhlanga Don’t forget about KZN. This is proper home-style Italian deliciousness. FAVOURITE NEW KID ON THE BLOCK: SAINT, Sandton, Joburg Art on the ceiling, art on the plate — who knew pizza could be this fancy? FAVOURITE SEAT IN TOWN: ON THE PASS AT THE TEST KITCHEN, Woodstock, Cape Town We know the right people — what can we say? FAVOURITE INNOVATION: WOLFGAT, Paternoster

You have to drive far for it, but this excellent and unpretentious fare is worth the effort. FAVOURITE FOR ECOLOGICAL VIBES: James Diack Diack brings his farm to several tables and can be applauded for every well-loved and truly sustainable ingredient. More of this, please. FAVOURITE BLOW-THE-BUDGET DINNER RESTAURANT: MOSAIC, Elandsfontein, Pretoria Best you book a Byzantine-like room and stay the night. Between the magical food bonanza and the never-ending cellar, you won’t make it to anywhere else. FAVOURITE CAPE TOWN RESTAURANT: LA TÊTE, city bowl, Cape Town Chef Giles Edwards excels with his chicken hearts, devilled kidneys and brains on toast. x Sylvia McKeown

a moveable feast by Fred Khumalo

HOW TO BEAT THE HEAT The best way to the cope with a heatwave is to drink iced water and eat ice cream, right? Wrong. You need to fight fire with fire

o remove a thorn, you need a thorn. I’ve never doubted the wisdom of this old Zulu expression, which was handed down by my grandmother. At the height of Durban’s ferocious summer, she would put on a jersey and make herself a pot of tea that she would sweeten with condensed milk and share with me. We would sit with the steaming cups under my father’s peach tree and tell stories, sweating. With the tea finished, and the sweat beginning to evaporate, I would feel light and refreshed. Dazed by the heat of Joburg this past Sunday and not knowing how to deal with it, I found myself thinking of grandma’s strategy. I decided to try it out, or at least try a new twist on it. I thought I should find a meal that would be an antidote to the heat. So I told my son Fred jnr we were eating out. I knew exactly where. We took the 1km walk to the local mall in sweltering heat. Funny thing is, though we’ve been living in this neighbourhood for the past 20 years, we’d never been to this particular restaurant. It’s called Pappadums. We were the only diners. I remembered why I’d never tried the place: it’s always empty. I don’t like eating in an empty restaurant. The emptiness doesn’t recommend it. The atmosphere inside a restaurant — the music and the hubbub of voices — is what I pay for. I suspect I’m not the only one. At any rate, the service was swift. For starters Junior ordered chicken lollipops — a fancy word for tiny chicken drumsticks dyed a fiery red so they look like popsicles. I ordered prawn pepper fry. Fried in an onion-based paste, the prawns were well-spiced, hot and divine. It was a refreshing approach to prawns. I

@fredkhumalo

With the tea finished, and the sweat beginning to evaporate, I would feel light and refreshed 60

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could have that starter over and over again, it’s so spicily addictive. I shared my prawns with Junior. Though he waxed lyrical about his fancy drumsticks — which I felt were run of the mill — I could sense he felt I had a better deal. My eyes were still smarting, my nose twitchy from the pepper, when the main course arrived. Lamb rogan josh. You can’t go wrong with this if you’re at a proper Indian restaurant. Rogan means fat and josh means heat. What you’re doing is cooking meat on the bone, slowcooking it in its own fat. But you use lots of spices: chilli powder, cardamom, Kashmir shallots, cinnamon or bay leaves. The chef nailed it. I’d ordered hot and I wasn’t disappointed. My son had chicken korma. I allowed Junior to dip into my rogan josh and I invaded the korma on his plate. I found it rather sweet, and contrary to the spirit of getting as hot as possible. So I stuck to my rogan josh.

I sweated profusely. Then I began to cool down. Iva likhishwa ngelinye iva. Unlike my grandma who insisted on hot tea, I washed my meal down with a rather bland sauvignon blanc. I shouldn’t have ordered ice cream for dessert. It was a cheap variety that undermined the whole superb dining experience. Junior took one spoonful of his dessert and pushed the thing towards me saying: “You grew up in Durban, maybe this will make sense to you.” The gulab jamun was so sweet it was inedible. All round, Pappadums is an underrated restaurant which should always be teeming with excited customers. x Pappadums ★★★★ 56 Morning Glen Shopping Centre, Kelvin Drive & Bowling Avenue, Gallo Manor, Sandton Tel: 011-656-1460 ★★★★★ Kimi Makwetu ★★★★ Raymond Zondo ★★★ Cyril Ramaphosa ★★ Bathabile Dlamini ★ Steinhoff

backstory CHINEZI CHIJIOKE Co-founder, CEO Nova-Pioneer Education Group

Tell us about a hidden gem in Joburg. A small coffee shop on Commissioner Street had the best carrot cake I have ever tasted, and I’m a pretty enthusiastic taster of carrot cakes. That was a gem. Unfortunately, the coffee shop shut down about three years ago. For a healthy, and operating, hidden gem, Fruits & Roots at the Hobart Shopping Centre in Bryanston has a range of vegetarian groceries, a delicious vegetarian lunch buffet and an always friendly team. What’s your one top tip for doing a deal? Keep it simple. Each new layer of complexity sprouts tendrils to untangle and weeks, if not months, of additional terms to work through … I often fail to follow my own advice on this. Which phrase or word do you overuse? “Interesting.” My teammates tell me that’s Chinezi-speak for “I don’t agree but I’m listening”. 62

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What is your biggest indulgence? Shows like Idols and X-Factor. I love amateur talent taking a risk and blowing us away. And carrot cake. Who is your favourite hero of fiction? There are many. A fun one is Precious Ramotswe from Alexander McCall Smith’s The No 1 Ladies’ Detective Agency series. I think his stereotypechallenging choice, to make his “Sherlock Holmes” the intuitive, common-sensical and brave Mma Ramotswe, was inspired. How do you deal with stress? What are your top tips in handling stress? I try to take a step back to get perspective on the source of my stress, recover my poise, and then jump into tackling it. More routinely, however, I try to build a life routine that includes activities which give me energy: sports, concentrated time with family or friends, and some solo time to reflect.

Which historical figure do you most identify with? Horace Mann. What’s the worst airport you’ve been in? In general I don’t mind airports, and I appreciate the opportunity they often offer for me to catch my breath, pick up a new book, have a conversation, or catch up on work. However, the 1999 version of Murtala Muhammed Airport in Lagos, Nigeria, probably tops the list of my worst airport experiences. Checking into my flight took hours of stamina, elbowing, arguing, negotiating, cajoling, and even pleading. It built character, you might say. I’m happy to say that 2018 Murtala Muhammed Airport is a completely different and more pleasant experience.