Sunday Times Business Times Top 100 Companies 2016

How the Top 100 were assessed

THE Top 100 Companies awards acknowledge those listed companies that have created the most wealth and value for shareholders.

The share price performance of every company listed on the JSE —which forms the basis of this research —is calculated using a hypothetical initial

Ranking based on value created for shareholders

investmentofR10 000 in each share over five years, from September 1 2011 to August 31 2016. The winner is the company that has earned the most for shareholders over that period, taking into account normal and special dividends —these, along

❛ Some believe that Gordhan is all that keeps South Africa from junk status because he has the credibility and gravitas

—Adele Shevel, P3

with bonus shares, are deemed to have been reinvested when declared. Where there has been an unbundling, the proceeds from the unbundled company are treated as a special dividend.

Apart from being an accurate measurement of

❛We can’t blame the government if the private sector is doing the bribing and colluding. It’s not a very good state of affairs at the moment —Johann Rupert, P4

shareholder fortunes, the share price plus income returned to shareholders is an indicator of a company’s soundness of operations —if one accepts that share price performance is generally an accurate barometer.

We exclude suspended companies (although they

may be included in tables and data), preference shares, loan instruments and derivatives. If prices declined at the end of August as companies went ex-dividend, we have accrued the dividend.

In previous years we excluded companies that did

not meet a threshold of minimum value traded of R10-million ayear. However, since 2011we have raised the minimum value to R20-million because of higher trading volumes over the years and to exclude distortion from extreme movements in penny stocks. Calculations were doneby financial services company INET BFA.

❛Business leaders’ influence is hugely overrated. People think government should listen to business ... in many cases that is a misplaced expectation —Christo Wiese, P11

BUSINESS LEADER: PRAVIN GORDHAN

A winner whos e business is leadership

Sign of the times as award spreads its net to politics

ADELE SHEVEL

FINANCE Minister Pravin Gordhan has devoted much of his life to fighting for democracy and justice, and is seen as a lone defender protecting South Africa’s institutions from political intervention.

After President Jacob Zuma, he is the mostwatched man in the country. Gordhan describes himself as a man of optimism and hope; many see him as a man of integrity and honour.

This is his second stint as finance minister, having first served from 2009 to 2014. Then, late last year, he was brought into restore calm and re-establish credibility after the disastrous four-day stint of Des van Rooyen that followed the sacking of Nhlanhla Nene.

Some believe Gordhanis all that keeps South Africa from junk statusbecause he has the credibility and gravitas to provide ratings agencies with assurances that their concerns are at least being heard.

Large partsof civil society and many leaders in the ANC have come out in Gordhan’s defence in the face of legal manoeuvring against him. Top business leaders have taken the unprecedented step of forming an initiative in support of the minister.

The fact that this award —which has always celebrated business people —goes to a government minister this year suggests just how important the body politic is right now.

“Clearly there’s an understanding that maintaining the independence of the National Treasury, in the wake of attack from unscrupulous elements, is critical and on that basis, business has taken a stand,”said political commentator Daniel Silke.

Detractors have said Gordhan is too close to business, but he has rejected this.

He has said he will not step aside unless he is fired, and he sees his position as one of fighting for social justice. He continues to stand firm over how the South African Revenue Service is managed, on nuclear power expansion, and on the independence of theTreasury.

Gordhan has been an

activist for more than 40 years —he wasdetained several times during apartheid, and banned — and has long spoken of social conscience, of working as a collective, of the team, and principles. At the age of 67 he still shows unwavering resolve.

The need to improve the welfare of the less fortunate has a major role in defining his world view.

Gordhan, speaking to Business Times last week, said: “There’s another side as well, a side which asks what business contributes to sustainable development goals and a more sustainable planet. How does business think not only about today but about tomorrow?”

Between stints at finance Gordhan was minister of co-operative governance, and was previously a SARS commissioner.

Bloomberg reported that, as head of SARS, he revamped its arcane systems and addressed the

❛We have the will to change South Africa into a better place

low levels of tax compliance that were pervasive under apartheid. “Annual revenue collection more than tripled over the decade he was in charge,”it said.

Gordhansaid he was motivated by the Freedom Charter, in particular the first line: “South Africa belongs to all who live in it, black and white.”

He said: “The challenge, of course, is that 20 years doesn’t eradicate centuries of difficulties and so there’s harder work to do, and there are more risks as we go ahead.

“All those in the faith community, in civil society, in government, in business and in labour who believe that we need a shared and prosperous future for all South Africans would very much like to see the fulfilment of a wider set of objectives that benefit all citizens.”

His activist background helpedhim tremendously, said Gordhan. “It enables you to understand what’s going on, it gives you the resilience that’srequired and the commitment that’s

required to do the job and do other things that are necessary.”

Gordhan was involved in the negotiations that led to thedemocratic elections in 1994. After the ANC came to power, he became chairman of a parliamentary committee that oversaw implementation of the constitution.

What does it mean for Gordhan that he’s won this award?

“I think it exemplifies the fact that our wider message is now resonating with the business community, the message which says we are all in this together, that it’s up to us to change South Africa for the better —not just for business people but for all constituencies.

“It’s recognition that we need an inclusive form of transformation where all South Africans feel that they are part of the process and [among] the beneficiaries.”

Gordhan said it was about creating mutual hope and optimism, and about reinforcing one another’s strengths and resources.

“I am very grateful for the award, but I don’t see this as a personal thing.

“I think it’s a huge acknowledgement by the business community that we are in this together and that collectively we have the will to change South Africa into a better place.”

To young business people, he would say: “Have a conscience, do not think only about money.”

In this very stressful position, how does he relax?

“I have an excellent family support system, and try to take time out when I can —I like watching sport, I like reading when I get half a chance so I collect somewisdom. .. and cope with what needs to be done on a day-to-day basis.”

Has the support of the business community come as a surprise to him?

“It’s good to have citizens involved,”he said, adding that it was “fascinating” how “ordinary people”saw through murky situations

with greater clarity than some people in more exalted positions did.

“They understand what is right and what is wrong in

South Africa.

“Democracy is about holding all of us accountable whether you’re in business, labour, government or

indeed in any other institution. The security of our democracy and the richness of our democracy depend on those citizens.”

“Sunday Times Company of the year 2015”

us on: 011 612 7500

TOP 100 COMPANIES

LIFETIME ACHIEVER: JOHANN RUPERT

ADELE SHEVEL

JOHANN Rupert has been called the most powerful businessman in South Africa.

As a dollar billionaire several times over, he’s certainly among the wealthiest, and his family businesses hold a stature almost unrivalled in South Africa.

The companies he runs bring back more dividends to South Africa than the rest of the JSE put together.

But more than that, Rupert is one of the most outspoken business leaders in the country. He calls it like he sees it, and has done for years.

A university dropout conferred with a doctorate in economics by Stellenbosch University, where he is now chancellor, Ruperthad a father who made a fortune setting up Rembrandt Tobacco Corp.

The younger Rupert sold out of Anton Rupert’s Rembrandt and went on to create the world’s secondlargest luxury group, Compagnie Financiere Richemont, which sells 20 luxury brands that rank among the world’s most sought after —from Cartier

❛The rest of the world considers South Africa irrelevant We’re not discussed at any forum

to Chloé and Montblanc. Rupert has been growing dividends in the luxury group for 25 years by managing brand equity. “That’s what I live and die by —protecting the brand equity.”

He also heads South Africa-based investment holding company Remgro, with interests ranging from healthcare to alcohol and among the 20 biggest companies listed on the JSE.

Rupert wins the Sunday Times’Lifetime Achiever Award after havingbeen namedbusiness leader of the year in 1996 and 2008. His father, Anton, was the first recipient of the Sunday Times Top 100 Lifetime Achiever Award, which was made in 2000.

Described as “reclusive” by the Financial Times, Rupertis knownfor his dislike ofinterviews and big events. An ardent conservationist (he’s a vocal opponent of fracking), he also nurtures a love of historic cars, wine and a good game of golf.

He’s played golf with Ernie Els, Gary Player and Bill Clinton. He occasionally has dinner with good friend and partner Ralph Lauren, and counts international authors and top hedge fund managers among his friends. He may shun big events, but he’s plugged into leaders of the global community, spanning diverse fields.

Concerned with shareholder returns as well as social issues, he founded the Laureus Sport for Good Foundation in 1990, which

Outspoken, but ‘mo st loyal businessman’

Rupert scion created world’s second-largest luxury group

funds 65 projects globally, using sport to tackle social issues.

There’s also the L’Ormarins wine estate which he took over after his younger brother Anthonij’s death in a car crashin 2001. Rupert is back in an executive position at Richemont, having taken a sabbatical from his role as CEO on several occasions.

“I told the shareholders this is the last time I’m coming back because next time it’s for the next generation. Right now it’s not the time to take your eye off the ball,”he says. And he should know, spending more time outside the country.“The rest of the

❛We’re in for some very bad and very dangerous times because the gap of wealth is too big and

it’s growing

world considers South Africairrelevant. We’re not even discussed at any forum. We’re fooling ourselves if we think we’re part of Brics. Economically, we’re irrelevant. And to them, the dream has faded. We’re on

our own and we’re not doing a helluva good job.”

As for the companies under his control, the dividends are now substantially more than the market value when he started. “Today our shares are a multiple of the value of the market cap, so it gives you the freedom to share wealth and in a sense that’s what drives me. I guess it’s the pleasure that my wife and I are having in providing bursaries and feeding schemes, and I think that in the end is the real measure of success.”

In 1979, he started Business Partners,through whichnearly700 000 jobs have been created. “That’s

would he give? Not to pick a career that will in future be decimated by technology: plumbers, hairdressers and florists will survive; radiologists or a doctor that does diagnostics will be in trouble.

He believes capitalism needs a new model, that currently it is unfair and unsustainable.

the kind of legacy that I think I’d like to leave.”

He’s putting some 400 students through university and is piloting schemes to educate and feed kids. It’s the philanthropic work that truly motivates him.

“I’m having far more fun with that than designing and selling luxury goods or anything else.”

So what is he most proud of?

“It’s a tough question, but I guess all three of our kids grew up normally. And they’ve got empathy and curiosity. I know what it felt like to be in the spotlight and even more so for them, so I’m ever grateful that they’re all three good young adults.”

Rupert was called “Rupert the Bear”in 2006 for

❛What breaks my heart is when I look in South Africa at what we

are fighting about

predicting the economic crisis of 2008.So what does he believe the future holds?

“We’re in for some very bad and very dangerous times because the gap of wealth is too big and it’s growing. The ranks of the unemployable will carry on increasing. Why is the gap big and growing? If you had assets before this quantitative easing and you didn’t have a lot of debt, what happened was immoral because they broke a sacrosanct social contract which said if you worked and acted prudently during your life, your savings would suffice to see you through retirement.

“Then, in bailing the banks out, they socialised the debt and got repressive interest rates. So the savers of the world, the ‘good folks’ of the world, got screwed and the speculators got bailed out.”

He says that in the US and Europe the average person is worse off than 10 or 20 years ago. “Obviously there’s anger. Now people ascribe this to a failure of free enterprise or capitalism. I would say they did not allow free enterprise to function.”

Rupert believes fervently that the growing inequality between the wealthy and the poor is a recipe for disaster. He talks of robotics and artificial intelligence that will make big parts of industries obsolete and believes the challenges of e-commerce to business will be dwarfed by what’s going to hit the world with AI. So what career advice

“We have to share equitably without disincentivising the people who are creating the surplus. The problem is if they take everything I’ve got in South Africa and divide it amongthe population the next year, that’s fine.But they will have to tell the 400 kids I’ve got at university because they’ve got no income, or the feeding schemes, because it will be blown in a year. And if they do it, nobody like me will stay in the country.

“We’ve got really complex issues facing our society. What breaks my heart is when I look in South Africa at what we are fighting about. Where we should be creating employment, we should be fixing our schools, preparing our kids for the future —it’s heartbreaking.”

Rupert is frustrated that the private sector has been slow in coming forward about issues challenging the country and believes that if you have some influenceyou must use it.

“They can’t tell me I’m racist because it won’t stick. So if you have some influence and they can’t use that white racist label, then I think you should speak out.

“We’ve paid billions in taxes. So that’s when it hurts, when the president, for some inexplicable reason, says that you flew back from London to instruct the deputy president to change the finance minister.”

Rupert has been at the centre of a battle around ANC accusations of state capture, allegedly by white capital exerting undue influence on government. He was accused of asking Deputy President Cyril Ramaphosa to reverse President Jacob Zuma’s decision to appoint Des van Rooyen finance minister last December.

This flared in the same month that Rupert implored Zuma to step aside and go back to his ANC branch for the sake of the future of South Africa’s children.

“It’s a little bit worrisome that they’re trying this Nazi technique of telling a big lie, repeating it often enough, and carrying on with that lie nonstop. As it happens, I did not see Cyril; I haven’t seen him for five years. But why target individuals?”

He says his business empire is totally different from that of the Guptas, and has never done business with the government.

The cronyism, or state capture, is untenable as it stands, he says, adding that it goes both ways. “We can’t blame the government if the private sector is doing the bribing and colluding. So, yes, it’s not a very good state of affairs that we’ve got at the moment.”

So with everyone else having a say about Rupert, how would he describe himself? “South Africa’s most loyal businessman.”

TOP 100 COMPANIES

TOP COMPANY: CALGRO M3 HOLDINGS

Lower end ke eps profits high

Calgro M3 banks on keeping roofs over workers’heads

LUTHO MTONGANA

AS the economy dwindles with a slow growth rate of 0.4% GDP, so do infrastructure and housing spend. But for the “affordable housing” company Calgro M3, resilience in this tough environment has led it to the No 1spot.

Calgro, which is largely responsible for affordable housing infrastructure such as RDP housing, would have returned an astonishing R150 000 over five years on aninvestmentofR10 000 on September 1 2011.

This equates to a compound annual growth rate of 71.9% from September 1 2011 to August 31 2016.

The company said that diversifying into other income groups and the private sector had paid off because it had to adapt to the changing market where most people were renting

instead of owning property.

MD Wikus Lategan said the restructuring of the company, introducing the Captain Calgro programme and the low reliance on the government, had kept the business afloat.

“We really think that we de-risked the group. We have done well for the consumers in terms of what products are out there,”

Lategan said.

He said South Africa had a housing backlog of about 2.1 million in the “affordable housing”bracket and although it had private clients to keep the order book going, Calgro was still going to helpthe government to meet the demand.

However, John Loos, property analyst at FNB, said although the affordable market was slightly better than other property segments in recent years, growth was still slow.

He said the rhetoric about unlimited demand and huge

supply shortages was untrue because demand was driven by whether people could afford to buy a house or get a home loan.

“Affordable housing is performing slightly better than the market higher up

❛We really de-risked the group. We have done well for consumers

—our low-income metro price index,”Loos said.

The company has 12 projects on the ground, equating to roughly R22billion. It has also launched areal estate investment trust, Reit, in collaboration with SA Corporate Real

TOP COMPANY: FORTRESS INCOME FUND B

Estate, which will focus on South Africa’s affordable rental market.

It will acquire new units to be developed in Johannesburg and Cape Town for about R1.6-billion and hopes to build up to around R10-billion to R15-billion worth of property in the next five years. This is about 30 000 rental units.

“What that will mean is we will play both sides of the interest rate cycle: if interest rates come down people will buy more property and if interest rates come up people will be able to afford the rent.

“So again we have safeguarded the company from macroeconomic impacts,”Lategan said.

In the past few yearsthe working class has been migrating tocitiesto be

closer to work.Lategan said this phenomenon was an opportunity the company had seized —it was building affordable rental spaces in metro CBDs.“It makes life easier for people to cut down on traffic when they are going to, or coming from, work and if we can keep on

making a difference we will have a stable business.”

Lategan said the business would return to growth in the next six months but at the moment the market was still stagnant because of consumer sentiment and economic unpredictability.

He said that with an uptake of about 80% in private sector sales in this year’s results, he was sure there would be proper growth next year.

However, Loos said all the housing segments at the moment, from top to bottom, had been slowing in recent times, and demand was not that much ahead of supply.

“In the near term there will not be massive growth. We have an economy that is not growing, the growth is insignificant and job prospects don’t look great. The economic problem plays a major part in the housing problem,”Loos said.

Calgro also has a project in the Namibian capital, Windhoek. Lategan said that although growth would be stagnant for the rest of the year he was optimistic about next year.

Mammoth merger and shrewd managers boost returns

ALISTAIR ANDERSON

PROPERTY company

Fortress Income Fund has been a consistently strong performer since listing in 2009 with a market capitalisation of R1.8-billion. It is now worth more than R50-billion.

IfyouinvestedR10 000 in Fortress on September 1 2011, in the five years to August 31 2016, your investment would have grown toR100 066.

The company has an A and a B dual-share structure which caters for investors with different risk profiles. The A and B shares trade independently on the JSE under the codes FFA and FFB. Investors in the A shares have a preferential claim to the income growth distribution of the fund. They are therefore paid first, but their distribution is capped at whichever is the lowest: 5% or CPI. The rest of the distribution is paid to B shareholders.

FFA has a market capitalisation of about R18.3-billion and FFB one of about R32.3-billion. So its combined market capitalisation is just over R50-billion, making it among the 10 biggest property companies on the JSE.

Fortress enjoyed tremendous growth in its

SPOTTING A NICHE: CEO

dividend payouts recently. As a real estate investment trust, or Reit, Fortress must pay the majority of its income out as dividends. Its share prices have also performed well since listing. Over the past five years, Fortress’s B shares have climbed about 555%. Its A shares have risen 30.98% over that period. Since listing, Fortress A’s share price has risen 70.46% and B’s by 2370.25%. According to Grindrod Asset Management, the total return on Fortress A shares from listing on October 26 2009 to October 27 2016 — assuming distributions were

❛Fortress is run very well by a highly skilled management team

reinvested —was 193.69%.

The total return on Fortress B shares over the same period —under the same assumption —was3 038.69%.

Initially, the company established niche retail centres that served commuters. Last year, Fortress merged with Capital Property Fund, owner of the most industrial

property of any listed property company in South Africa.

As a result, Fortress was included in the All Share Index top 40.

CEO Mark Stevens said:

“We are working in a very low-growth environment in South Africa, with a challenging labour market, and there is limited demand for new factories and the like. However, there is growing demand for logistics and warehousing ...This is where we have expertise.”

Stevens and his management team have also invested in Resilient Reit and in offshore property ventures, including Rockcastle Global Real Estate, New Europe Property Investments and Hammerson plc.

Fortress could soon make a bid for Equites Property Fund, a specialist industrial property trust with a market value of about R4.476-billion.

Fayyaz Mottiar, head of listed property at Absa Asset Management, said Fortress offered a healthy balance between local and offshore exposure for investors.

“Fortress is run very well by a highly skilled management team which manages to improve the portfolio at a lower cost than

many of its peers do,”said Mottiar.

“They invested in Eastern Europe earlier than many other South African funds did and benefited from the economic reforms and wealth effects there. This was thanks to their stakes in New Europe Property Investments, which focused on Romania, and Rockcastle Global Real Estate, with its investments in Poland.”

Anas Madhi, an executive director at Meago Asset Management, said Fortress was primed for success.

“Fortress Property Fund is a diversified property company, run by a dynamic management, with an uncanny ability to target high growth opportunities across both local and global markets, while at the same

time optimising a stable property portfolio through asset management and disposal programmes.

“This is complemented by innovative balance sheet management which is matched with prudent hedging strategies,”Madhi said.

And Fortress’s offshore returns are set for another boost, because Rockcastle and Nepi are exploring a merger, which could make the resulting entity the sixthlargest European property company and the dominant retail property owner in Eastern Europe.

“Fortress. ..may well use the opportunity to realise some capital to deploy in other high-yielding expansionary or acquisition opportunities,”he said.

TOP 100 COMPANIES

TOP COMPANY: CURRO

Solid A-plus p erformance from Curro

Private educator taps

into market

hungry for better schooling

COLLEEN GOKO

CURRO marked its sixth anniversary as a listed company this year, making it old enough to finally debut on the Sunday Times’s Top 100 list of companies. The performance of its share price since it began to publicly trade on the JSE has been outstanding.

Based on a hypothetical investmentofR10 000 on September 1 2011, with a shut-off date of August 31 this year, Curro would have given a return of just over R73 000.

The education provider has been resilient in the midst of challenging economic conditions.

Its pre-listing statement says parents are willing to reprioritise their spending in

order to acquire a good education for their children. Guardians will forego discretionary expenses, pay higher pricesand travel further distances for educational facilities that exceed average standards.

Chris van der Merwe, founder and CEO of Curro, said the idea for the business came to him after he completed his doctoral studies, which identified the indicators of excellence in schools. He said he believed he could create independent schools based on those indicators, and on July 15 1998Curro started with 28 pupilsin a church in Cape Town.

“Within two yearsCurro had grown to 300 learners,” said Van der Merwe.

Vestact portfolio manager Michael Treherne said part

of Curro’s winning formula was being in an industry that had consumers who felt they were not getting their needs met.

“It also helps that they have an anchor shareholder, PSG, that they are able to count on. This means Curro does not get hamstrung if it runs out of capital,”said Treherne.

PSG holds about 57% of Curro while the company’s management holds more than 2%. Another significant

portion of the company’s shares is held by institutional investors. Asset manager Coronation recently acquiredsix million shares.

Curro said that each independent school opened saved the state between R120-million and R200-million in capital expenditure. The figure was based on infrastructure spend and annual running costs of between R20-million and R40-million.

Going where grow th is good and strong

WHEN Afrimat bought the Glen Douglas dolomite mine for R35-million from Exxaro six years ago, the open-pit mining company’s share price was just above R3. Today, the group has more than tripled in value as it cements its position in various industries.

Diversification — Afrimat is also involved in construction and building materials —has been the winning recipe for the company, which has been in the top 10 for the past eight years.

This year, Afrimat came fourth, with compound annual growth of 47.81% over five years to August 31.

Afrimat CEO Andries van Heerden said the company had spent a lot of time on a strategy.

“We have acquired companies over the years, but it hasn’t been in a haphazard way,”Van Heerden said.

Last month the group bought 60% of two units of

Part of Curro’s competitive advantage has been its ability to offer education in independently run schoolsfor less —its fees are 20% to 40% lower than those of other private schools.

Curro management initially pledged to open 40 campuses by 2020, but soon saw it had underestimated the marketpotential. It now expects to deliver 80 school campuses, or 200 schools, by 2020 to accommodate 90 000 pupils. The company currently has 47 campuses.

The groupwill tap into the demand for more private higher education institutions, too. Degree programmes are planned to targetthe50 000 eligible students who cannot find places in public universities each year.

Curro entered the

TOP COMPANY: AFRIMAT

tertiary market four years ago when it acquired primary-teacher training college Embury in KwaZulu-Natal.

This was soon followed by a demand to train high school teachers, which, in turn, led to accredited degree programmes for high school teachers.

Since its listing in 2011, Curro’s share price has grown 542% from about R5.30, reaching a closing high of R56.78 on December 31 2015, said Bloomberg. Van der Merwe said Curro would remain true to its vision of providing affordable, independent school education. “We believe that the calibre of citizen we deliver to the workplace will contribute to the predicted national economic growth of 6% per annum in future.”

Diro Resources, an iron ore producer, for R276-million.

Orin Tambo, a senior investment analyst at Intellidex, said: “These acquisitions brought diversity to the group’s product offering and in most cases enhanced margins. It now has a vibrant division which supplies the industrial sector with metallurgical dolomite and quartzite (customers like ArcelorMittal), silica (glassmakers), and ceramics.”

The group’s exposure to markets with strong growth

and the segments it services in the construction industry have buoyed the business. “With the government having earmarked over R800-billion for infrastructure spend over the next three years, Afrimat is likely to sustain its current level of success,” Tambo said.

Afrimat is also deepening its relationship with its BEE partners.

African Rainbow Capital, owned by mining magnate Patrice Motsepe,plans to buy an 18.36% stake.

TOP COMPANY: BRAIT

PALESA VUYOLWETHU TSHANDU

THE sale of apparel retailer Pepkor for R62.8-billion in 2015 changed the course of private equity company Brait, whose deepening focus on long-term value creation has seen its share price gain more than 300% in the past five years.

The investment company with a primary listing on the Luxembourg Stock Exchange and a secondary listing on the JSE ranked fifthin this year’s Top 100 list.

Brait’s share price rose from R17.59 in September 2011 to about R116.50 at the end of August 2016, after reaching an all-time high of R169.09, making it clear that the company’s appetite for acquisitions has served shareholders well.

John Gnodde, Brait’s CEO, saidgrowth was a consequence of the decision to “change to a long-term, open-ended investment horizon. .. removing short-term bias from decision-making. Brait continues to see strong deal flow and remains focused on the broad consumer.”

He addedthat the UK and South Africa wouldbe the main target markets for the business, with plans of opening headquarters in both locations.

Long game pays off for equity giant

All

those market leaders in one basket make for healthy returns

The proceeds received from the Pepkor sale, at the end of March last year, to retailing giant Steinhoff Holdings were deployed four months later into buying a controlling 89% of UK-based retailer New Look and 78% of Virgin Active, as well as increasing Brait’s investment in Iceland Foods to 57%.

Gnodde saidthe sale of Pepkor had seenreturns seven times more than the cost of the business, while the internal rate of return, which measures the profitability of potential investments, was 69.5%.

Christo Wiese, who is a shareholder and backs other consumer-centric businesses including Steinhoff and Shoprite, said:

“Brait and Shoprite have similar businesses. They are growth-oriented. .. and they will continue to build great businesses.”

Which is probably why today Brait’s portfolio comprises controlling stakes in market-leading privately owned businesses.

The group’s health club operator, Virgin Active, madeup 23% of total Brait assets as of March 31 2016, with over 1.3 million members and more than240 clubs in 10 countries across four continents.

Virgin Active plans to open 15 new clubs in Southern Africa in its current 2016 financial year, including five Red clubs. Brait also controls Premier Foods, a local

national staple foods producer which has seen eight businesses acquired for a total investment of R2.2-billion, including the acquisition of the leading food producer in Mozambique (CIM) as well as the leading bakeries, wheat and maize mills in Swaziland.

Offshore investments provide a rand hedge for Brait, with its apparel retailer New Look and retailer Iceland Foods.

TOP 100 COMPANIES

TOP COMPANY: NASPERS

After stellar growth, can decline be far off?

If debt isn’t cut, it could face a ratings downgrade

MAARTEN MITTNER

IT’Shard to believe that five years ago Naspers was trading at R370 a share. Since then, it has jumped to R1 000 (in 2013, when it delivered growth of 101%), and in September this year it reached its highest level: R2 553.59.

IfyouhadinvestedR10 000 in Naspers on September 1 2011, that investment would havebeenworthR66 427 by September this year, a compound growth of 46.04% over the past five years.

So, should investors continue to believe in the company and that growth will continue?

Some funds are sticking with it, most notably at the Old Mutual Investment Group, where 18% of its Investors’ Fund is in Naspers.

“Naspers continues to offer

CONFIDENT: The CEO of Naspers, Bob van Dijk

attractive value despite its stellar performance over the years,”saidfund manager Peter Linley. However, investing in a company at a p:e of 100 is

TOP COMPANY: EOH

Smart strategy, executed well, spells success

THABISO MOCHIKO

TECHNOLOGY firm

EOH has become a major force in the local information and technology sector.

The company has built a good reputation in the market and has been an outstanding performer over the past five years.

Headline earnings per share have trebled from 253c to 719c over that period despite slow economic growth in South Africa, its key market. The share price has risen even faster.

In 2013 its stock outperformed all listed companies, making it the best company of the year.

EOH’s key business areas are in consulting, technology and outsourcing. It designs IT architecture, installs and integratessoftware applications, provides cloud services and manages technology operations for clients.

Over the past three years it has widened its geographical reach through acquisitions and now has a presence in 33 other countries in Africa. It is also becoming a major player in the public sector, which contributesmore than 15% to group revenue.

What distinguishes EOH from its rivals is its strong management and deal-making abilities, demonstrated by its ability to find good companies to acquire on favourable terms.

CEO Asher Bohbot has said previously that “doing things right first time epitomizes the philosophy of EOH.”all had similar strategies but the key was in implementation.

EOH believes that it is well positioned to grow aggressively. “Our internal strength, strong entrepreneurial culture and great execution ability bodes well for similar growth in the future,”it said. On average, EOH’s growth has been equally derived from expansions and acquisitions. It has grown more quickly than the local IT market even if acquisitions are stripped out of the figures.

“It’s a story of a strong management team and consistency in execution to meet customer expectations,”said Mergence Investments’ analyst Peter Takaendesa. But can EOH sustain the growth momentum in the medium term?

risky, because much of the anticipated growth could already be priced in.

But the executive team, under CEO Bob van Dijk and chairman Koos Bekker, is

“It will be difficult,”said Takaendesa, but added that EOH would outperform its peers thanks to a strong management team and expansion into the rest of Africa.

He said the key determinant of the group’s success over the next five years was whether it could replicate its success in South Africa elsewhere on the continent and in the Middle East. This would be difficult due to different market structures.

convinced growth will continue. It is intent on developing assets complementary to Naspers’s main driver, Tencent, the Chinese internet and gaming company it bought in 2001 for a pittance. Investors have been clamouring for the company to sell off assets to increase the paltry dividend payout. Naspers’s share price spiked on the recent news that the company’s Polish Allegro interests would be sold for $3.25-billion (about R44billion) —but flattened out when management said the money would be used to write down debt and invest in e-commerce.

The company will not be selling off its media and printing interests —even though the division only contributes 3% to revenue — because they are seen as the roots of the company, said Naspers investor relations head Meloy Horn.

But the market is also concerned about MultiChoice, whose DStv bouquet of offerings is facing myriad challenges,

mainly in Africa, including a host of new competitors.

MultiChoice has lost more than200 000 customers this year alone as it battles a depreciating rand and resistance from viewers to increased subscription fees.

With SABMiller falling out of the JSE Top 40, Naspers now accounts for 20% of the index, so it is in investors’interests that the company continues to do well.

But with a gearing ratio of 32% and net debt at $2.2billion, the race is on for

Naspers to reduce debt levels to stave off a downgrade by the ratings agencies.

Selling off a portion of its Tencent stake would make sense —but rumour has it that this is precluded because Tencent has some form of control in Naspers’s convoluted holding structure.

Clarifying Naspers’s holding structure would go a long way to reduce the riskoff sentiment potential investors have against this highly valued company.

TOP COMPANY: NEPI

Helping ex-Reds to shop

JOAN MULLER

IT’S been a tough year for rand hedge property stocks exposed to the UK and Europe, as uncertainty about Brexit and the value of the rand continueto play havoc with share prices. Perennial outperformer New Europe Property Investmentshas not been left unscathed. The property player, which focuses on Eastern Europe, has seen its share price fall some 7% so far this year.

Despite this, Nepi improved its ranking among this year’s Top 100 Companies to eighth, up five places from last year’s 13th position. The stock boasts a compound annual growth rate of nearly 44% over the five years to August 31.

Nepi was founded in the late 2000s by Resilient property group and former South African Martin Slabbert.

shopping experience.

Romania offered Nepi the opportunity to rapidly grow its portfolio of dominant shopping centres, which have performed consistently well on the back of demand for space from international retailers, many of whom see the fast-growing Central and Eastern European region as the natural alternative to the stuttering economies of Western Europe.”

Since listing on the JSE in 2009, the company has assembled a portfolio of 35 properties, mostly shopping centres, plus a few office and industrial buildings, with a total value of à1.77-billion (about R2.6-trillion). The bulk of Nepi’s portfolio (88%) is in Romania, although the company has also recently entered Slovakia, Serbia and the Czech Republic.

Nepi’s entry to Eastern Europe in the late 2000s, could not have been better timed, saidMeago Asset Managers director Anas Madhi.

“Romania enjoyed a sustained period of economic growth post its entry into the EUin2007. .. Until then, the country had limited retail offerings amid growing demand for a more efficient and cost-effective

However, Nepi does face increased competition in Eastern Europe, and the departure of its former management team —under Slabbert and chief operating officer Victor Semionov —early last year, raised some concern. But Madhi saidthe fact that Nepi waslooking to merge with fellow JSElisted Rockcastle should provide comfort to investors. A tie-up with Rockcastle, which owns a number of shopping centres in Poland, will lead to cost synergies and a “best of breed”management team. If the merger goes ahead, the company will be the JSE’s largest property counter with a market cap of around R90-billion. It will also mean that Nepi becomes the sixth-largest property company in Europe (excluding the UK), which would make it eligible for inclusion in several international property indices.

Nepi CEO Alex Morar said at the company’s results presentation that its development pipeline exceeded à750-million, including redevelopments and extensions, up à150-million from December 2015.

TOP COMPANY: MONDI

Wrapping up a timely strategic shift

Switch to packaging and heeding environmental concerns pay off

ASHA SPECKMAN

THE shift in packaging preferences globally is set to become a boon rather than a headache for those companies, such as Mondi, whose foresight set in motion plans to evolve with the trends years ago.

Mondi CEO David Hathorn credits the determined transition from a predominantly papermanufacturing business towards packaging over the past 15 years forthe spike in financial performance and share price growth over the past five years.

Mondi manufactures three major types of packaging — packaging for industrial purposes, such as cement bags; container boards used for corrugated boxing; and

flexible packaging such as paper, film and foil, or a combination of these.

“It’s been part of the reason we’ve been successful, together with the fact that we’ve been very focused on achieving structural cost advantage.”

Shareholders watching from the sidelines may have also been pleased at the growth in the return on capital employed, from 9.9% at the start of the group’s 2010 financial year to 19.1% in the 2015 year.

This year the company is ranked ninth among the Top 100 companies and is fourth on the sub-index ranking JSE blue-chip top 40 companies.

Mondi was spun out of Anglo American in 2007 and in the nine years since then its value has grown to twice the value of its former parent

TOP COMPANY: TRUSTCO

Building on and b elow ground

TRUSTCO continues to outperform even as the economies of South Africa and Namibia struggle.

The company, which placed second in last year’s Top 100 rankings, this year kept its head above water in the top 10.

In the past five years the group has managed to expand its operations into resources through acquisitionsthe company calls strategic but which critics have labelledrisky.

Nevertheless, the company’s market value has ballooned from R685-million in 2011 to R2.8-billion.

AninvestmentofR10 000 in Trustco on September 1 2011 would have reaped a total return to the shareholderofR55 047 by the end of August this year, at a compound annual growth rate of 40.65%.

CEO Quinton van Rooyen says “strategic acquisitions managed to grow shareholder wealth during the period”.

In the past few years the group, which owns a vast amount of land in Namibia, has been involved in building residential homes and creating new suburbs. The most notable

TOP 100 COMPANIES

company.

Anglo features among the 30 worst performers over the past five years with a 10.20% contraction of its compound annual growth rate over the period.

In comparison, Mondi has realised a compound annual growth rate of 41% of its share price over the past five years. The share jumped from R61.70 at the start of September 2011 to R299.20 at the end of August 2016.

Its rival Sappi is ranked

acquisitions were a diamond company in Namibia and the Meya Mining diamond exploration business in Sierra Leone. This enables the company to have some dollar-linked revenue.

The acquisition of the Namibian company last year caused a lot of noise from analysts andinvestors who felt that Trustco paid too muchfor it.

But the transaction, according to Van Rooyen, represents an opportunity to diversify the business.

DIAMOND MINES: Quinton van Rooyen’s Trustco attributes the group’s success to strategic deals

Picture: RUSSELL ROBERTS

Van Rooyen says that although the company managed to secure funding from the European Investment Bank last week —of about N$113.5-million (R113.5-million) for the development of small business entrepreneurs— getting funding remains challenging given the risks to which the business is exposed in the region and especially in South Africa, which is dogged by continuing political uncertainty and slow economic growth.

55th on the Top 100 companies index. Its share price has grown at a compound annualrate of 22.23% over the period — halfMondi’s growth.

Mondi also features on the list of Royals for 2016 — the companies that have featured in the top 10 for the past three years.

Hathorn saidMondi had done wellsince listing in London and on the JSE in July 2007.

The company is a

constituent of the FTSE 100 index in the UK. It pushed through the global financial meltdown of 2008-09 and the 2011 European debt crisis and now operates in 31 countries with more than 100 operations and a staff countofmorethan20 000.

The challenge now is muted global growth and demand and the pressure that places on innovation.

“It all comes down to strategy around the importance of your product choices,”saidHathorn.

The group invested in packaging in Central and Eastern Europe with acquisitions in Germany and Turkey among many purchases as the manufacturing trend shiftedto the east.

Goods are packaged and shipped back to larger consumer markets such as

Europe, which remains a growth area for Mondi. Only 10% of Mondi’s asset base remains in South Africa, where it is still headquartered.

Hathorn saidpackaging offered good structural growth. Printing and writing paper is suffering from weaker demand.

The group’s expansion has resulted in an accumulation of a low-cost footprint with operations that have been modernised over the past decade.

Capital spend over this period has included green energy and the company now generates its own power. This has also positioned it to better serve growing trends such as the demand for lighter-weight paper and packaging to comply with environmental regulations.

TOP 100 COMPANIES

WHERE THE TOP PERFORMERS ARE HIDING

Best to pick your shares rather than sectors

Infrastructure, education firms make strong showing

MARC HASENFUSS

THE five-year returns from the JSE’s topperforming stocks, if anything, will reinforce notions that it pays to be a discerning stock-picker rather than simply backing an index.

In years gone by, the performance of resource stocks, retailers, property counters or even financial services shares could have offered a reassuring pattern of standout returns for investors. But in the past few years —when more volatility has crept into the investment market —a sectoral trend has been less conspicuous.

The rankings throw up startling contradictions. For example, it’s possible to argue they show that infrastructure-aligned stocks have generally offered the most convincing five-year returns as an asset class.

This would be supported by the performance of low-cost housing developer Calgro M3 (72%), aggregates specialist Afrimat (48%), building products retailer Cashbuild (37%) and ceramics retailer Italtile (32%).

But investors would have been considerably less happy if they had invested in

companies like cement group PPC, construction firms Murray & Roberts, Aveng and Basil Read, as well as building products group Distribution and Warehousing Network. All of these ranked amongthe 30 worst performers over five years.

Stock-picking acolytes would no doubt also point to the differential between certain top-performing

❛Equity investment instruments performed best as a pack stocks and their counterparts.

Mediclinic International, the Remgro-controlled private hospitals group, showed a rosy five-year return of 33%. But Netcare and Life Healthwere more pedestrian at 22%. The difference might be Mediclinic’sdeal-making.

The difference is starker with the JSE’s two paperand-pulp producers, with Mondi notching up a strong 41% return, leaving Sappi (22%) in the dust. Media giant Naspers (46%) was one of the strongest five-year performers, but other media

BACKING A FUTURE WINNER

Few funds saw the potential of Calgro M3

STEPHEN CRANSTON

NOT many fund managers hold this year’s winning company, Calgro M3. Among the widely followed unit trusts, just Nedgroup Entrepreneur holds the share, at just 0.4% of the fund’s assets, or R8.4-million.

Portfolio manager Anthony Sedgwick also had a 0.4% holding in Afrimat, theNo 4company, so didn’t miss that constructionrelated share either.

There were chunkier holdings, of 7.7% in Calgro M3 and 5.4% in Afrimat at their peak, in the Cannon Equity fund, which, unlike Entrepreneur, is a general equity fund, not a small-cap fund.

Cannon chief investment officer Andrew Dittberner said it invested in Calgro M3 in mid-2013 because of its ability to deliver on projects, generate earnings growth and grow its order book.

Cannon sold the share a few months ago on valuation grounds. It has remained a

BACK TO BASICS: A Curro private school. The company provided a return of more than 48% over five years

companies hardly featured in the rankings. If there is a definitive trend, it might be argued that equity investment instruments —or the old investment trust companies —performed best as a pack. Brait led the way with a 47% return followed by Namibian-based Trustco (41%), Conduit Capital (39%) and Jannie Mouton’s PSG Group (35%).

The Rupert family’s investment vehicles — Reinetand Remgro—were both measured at around 21%.

Private education was another big winneralthough there are only two genuine listings on the JSE. Perhaps a sectoral trend can be gleaned only once the sector is more populated.

PSG-controlled Curro managed a return of more than 48%. Advtech, which also has a substantial tertiary element and has paid consistent dividends over the long term, was a little off that winning pace with 28%.

The strong five-year showing by certain infrastructure-aligned

stocks and private education arguably speaks to some of society’sbasic demands.

While banks (aside from Capitec with a 28% return) and financial services counters are largely absent from this year’s rankings, it is interesting to note that wealth management firms like Coronation Fund Managers (35%) and Peregrine (30%) featured fairly strongly. Convenience food specialists like acquisition-hungry Famous Brands (32%), Spur Corporation (24%) and Taste Holdings (15.5%) were also

five-year “flavourites”. Resources stocks are scarce. Junior miners Pan African Resources (24%) and Wescoal (22%) fly the flag, with marginal miner DRDGold (17%) getting a look-in. Telecom companies have also been less engaging than in previous years. Ironically, the charge is led by prepaid services specialist Blue Label Telecoms (35%), which recently clinched a deal to buy 45% of debt-laden Cell C. Vodacom (17%) and Telkom (13%) were ranked well behind, with MTN not even making the rankings.

holder of Afrimat, however, which Dittberner praised for the operational and capital allocation track record.

Warren Jervis, manager of the Old Mutual Small Companies Fund, agreed that an unglamorous aggregates and quarries operator turned out to be extremely good at acquisitions. He started buying the share at 360c —it is now around R27.

The most widely held of the top 10shares is Naspers, the largest holding in funds like Old Mutual Investors’ Fund (18%), Sanlam General Equity (12%), Investec General Equity (12%) and Coronation Top 20 (13%).

Coronation chief investment officer Karl Leinberger said the house had held Naspers for more than a decade, backing former CEO Koos Bekker’s vision. A few dyed-in-the-wool value investors like Dittberner and Investec Value’s John Biccard don’t own any Naspers. Otherwise there is not much evidence of trimming the share.

❛Opportunities to make money lie in the list of losers rather than winners

An exception is Allan Gray, which at its peak owned almost a quarter of Naspers. If it had kept this holding it would account for about half its domestic equity holdings by value.

Of the larger winners, Allan Gray has held Mondi over the past five years but sold out when it reached

R300. It has since fallen back to about R270.

Sanlam head of equities Patrice Rassou is still invested in Mondi because it is a shrewd capital allocator, buying assets at low prices and expanding into highervalue-added areas such as consumer packaging.

Allan Gray portfolio manager Simon Raubenheimer said he was more familiar with the shares at the bottom of the rankings than those at the top. Allan Grayowns close to 25% of such out-offavour companies as Sentula, Argent, Aveng and Basil Read.

Leinberger agrees that the opportunities to make money lie in the list of losers rather than winners.

Coronation is possibly the largest private sector institutional shareholder in Anglo American. Even thoughitwasNo 24 in the 30 worst performers over the past five years, Coronation now owns 5% of the business.

Coronation also owns Implats and Exxaro from that list. Investec Value does not own any of the (arguably) pricey shares in the top 10 but is making big bets on “dogs”such as ArcelorMittal (7.5% of the

fund), Implats (17.7%), Harmony (2.4%) and PPC (2.3%).

There has already been rotation out of the winners. Brait, for example, has fallen from R170 to R90 on the back of a weaker pound as well as a disappointing performance from its New Look clothing chain.

Yet Implats gained 47% in just the first quarter of 2016. ArcelorMittal has tripled off its low but is still at a 90% discount to its replacement cost.

Property has had a phenomenal run over the past five years, so it is no surprise to see two less prominent shares in the top 10, both from the popular Des de Beer Resilient stable. Fortress Income Fund B was not as well favoured as the A-class share.

New Europe Property Investments was and is widely held.

Curro is one of the controversial shares in the fund management community. Some, such as Jervis at the Old Mutual Small Companies fund, prefer to hold its more reasonably priced competitor, Advtech. At a price-earnings ratio of more than 100, is there time for a last dance for shareholders? Coronation Smaller Companies manager Siphamandla Shozi seems to think so. He said more opportunity had presented itself now that Curro was gearing up to start private universities.

TOP 100 COMPANIES

CHRISTO

WIESE, 2015 BUSINESS LEADER OF THE YEAR, REFLECTS ON GOVERNMENT

Business leaders’inf luence ‘overrate d’

PALESA VUYOLWETHU TSHANDU

RETAIL tycoon

Christo Wiesebelieves thegovernmentis notdoing enough tobroker relations with students and business.

“Studentstoday arejus-

BIGGEST MOVERS FROM 2015

Students ‘don’t get enough support’from state

tified in their grievances that they do notget enough support,primarily fromgovernment,”he said.Wiese, 75, refined hisbusiness acumen as a studentleader at Stellenbosch University. He believesthat business

Brexit blamed for Capco’s demotion

ANDRIES MAHLANGU

CAPITAL & Counties Properties slid the most places among the bluechip companies from last year to this year’sTop 100 Companies.

This year’s rankings feature a significant contribution by small-to medium-sized stocks in maximising shareholder returns.

Capco, the London property developer, which until recently had been a hot favourite for investors, is reeling from the fallout of the UK vote to leave the EU.

The uncertainty around the economic impact of Brexit has hit the pound, fuelling concerns about a decline in property values. “Every day, management teams are out there trying to make a difference in the world. Some things they can control, others they can’t,”said Craig Antonie, chief investment officer at AnBro Capital.

Capco has slipped from eighth spot in last year’s Top 100 survey to 42nd, having lost just more than a third of its market value. Viewed over five years, the total return on a R10 000investmentinCapcoisR30 935.

Brexit has taken the shine off other JSElisted shares, including Brait, the best performer in the top 40 index last year.

Absa Stockbrokers and Portfolio Management chief investment strategist Craig Pheiffer said it was difficult to determine where the value level would be in affected stocks because one would have to define what “normal” earnings would be post-Brexit.

❛Taste Holdings had the steepest fall, from fourth last year to 90th

Another key factor that has weighed on the local equity market is a stronger rand, which poses a challenge for companies that derive much of their earnings offshore.

The rand appears poised to break a fiveyear losing streak against the dollar and has regained much ground against the euro and pound, even as fears linger about a downgrade of South Africa’s credit rating.

Finance Minister Pravin Gordhan reduced GDP growth expectations to 0.5% this year, from 0.9%, with the budget deficit now forecast to widen to 3.4% of GDP in the 2016-17 financial year, from 3.2%.

“I expect an ongoing period of volatility with opposing forces working against each other —rand-hedge stocks versus pure South African-based companies that will continue to drive this market sideways,” said Casparus Treurnicht, portfolio manager at Gryphon Asset Management.

Mr Price encountered a fairly sharp drop from 17th position last year to 53rd this year, and Woolworths moved from 23rd to 64th.The Foschini Group disappeared from the list after occupying 65th spot last year.

There were trials and tribulations for some small- and medium-sized companies, with Metair Investments and Invicta disappearing from the list.

Taste Holdings hadthe steepest fall, from fourth last year to 90th this year, as the cost of establishing international brands in South Africa took its toll.

should not be blamed for government mishaps.“Business leaders’influenceis hugely overrated.People thinkthat governmentshould listento business people because they understand the real world of economics,but in

many cases thatis a misplaced expectation.”

Last year he took double honours at theTop 100 Companiesawards, asbusiness leader of the year and lifetime achiever, an honour he attributed to his interperson-

al relationship skills. But even Wiesecannot escapethe challengesthat comewith runningabusiness. In October,the JSE found InvictaHoldings, in which he holds an anchor shareholding, guilty of breaching its listing rules related to a share buyback.

We are Mondi: IN TOUCH EVERY DAY

At Mondi, our products protect and preserve the things that matter.

Worldwide, we offer over 100 packaging and paper products, customised into more than 100,000 different solutions for customers, consumers and industrial end users – touching millions of people every day.

And we’re determined to deliver the highest quality in everything we do, from managing forests and producing pulp, paper and compound plastics, to developing effective and innovative industrial and consumer packaging solutions. We work closely with our customers and other strategic partners to develop cutting edge solutions; while also prioritising the sustainable management of our resources.

www.mondigroup.com

RAISING A GLASS TO THOSE WHO HELP SOUTH AFRICA KEEP WALKING.