Five Group Five board members quit, leaving only the CEO and finance officer

By Robert Laing

Five of Group Five’s seven board members announced their resignations on Friday‚ leaving just recently appointed CEO Themba Mosai and chief financial officer Cristina Teixeira as surviving directors‚ on a new board demanded by institutional investor Allan Gray.

Chairperson Philisiwe Mthethwa‚ lead independent nonexecutive director Kalaa Mpinga and nonexecutive directors Justin Chinyanta‚ Willem Louw and Vincent Rague will leave Group Five’s board at an extraordinary general meeting to vote in new directors on July 24‚ the construction group said in a statement on Friday.

Group Five’s management upheavals first became apparent in its interim results statement released in February. Tucked away near the end of the results statement was this sentence: “Eric Vemer‚ the current CEO‚ will be leaving the company in the next few weeks.”

The company also said in the results statement that the head of its engineering and construction division‚ Willie Zeelie‚ would be replaced by Mark Humphreys on March 31.

This was followed by a flood of statements announcing the resignations of human resources head Jesse Doorasamy‚ the head of its investments and concessions cluster Jon Hillary‚ remuneration committee chairperson Mark Thompson‚ and audit committee chairperson Babalwa Ngonyama.

On May 18‚ Group Five issued a cautionary announcement saying an unnamed shareholder — which was subsequently revealed to be Allan Gray — had demanded an extraordinary general meeting to reconstitute its board.

“We became very concerned over the past few months‚ because of various changes. A lot of people have suddenly left the company — executives and directors‚” Allan Gray director Andrew Lapping told Business Day in May

Lapping said he met all but one of Group Five’s board members‚ and could not get a clear understanding of the problem.

On May 23‚ Group Five appointed Themba Mosai as CEO and Kushil Maharaj as head of its investments and concessions cluster.

Group Five said in that announcement its new executive management team comprised Teixeira as chief financial officer‚ Guy Motram as risk executive‚ John Wallace as manufacturing executive‚ Mark Humphreys as construction executive‚ and Peter de Vries as its engineering and construction division executive.

Source:BDproDate: 2017/06/23

European ferrochrome price dips nearly 30% in quarter, Merafe says

By Karl Gernetzky

Merafe Resources, the partner in Glencore’s South African chrome and ferrochrome operations‚ said on Friday the European benchmark price for ferrochrome for the third quarter of this year had decreased 28.6% from the previous quarter.

The company advised shareholders in a note that the price had been set at $1.10 per pound‚ from $1.54 in the second quarter. Though down from the previous quarter‚ the price was 12% higher than the 98c in the third quarter of 2016‚ sending Merafe’s share price up 0.85% to R1.18.

In 2016‚ ferrochrome prices were weak‚ averaging 95.5c per pound, with the price falling as low as 82c in the second quarter of the year.

SA is the world’s largest producer of ferrochrome‚ overtaking production in China in 2015.

Merafe said in its integrated annual report for the year ended December 2016 there was a 7% net lower price for ferrochrome during the financial year‚ which was offset by an 18% increase in sales‚ a weaker rand and a 38% increase in chrome or sales.

Source:BDproDate: 2017/06/23

Remgro, Distell to gain from dismantling Capevin

Liquor giant Distell, which owns best-selling brands such as Savanna, Hunters, Nederburg and Klipdrift, has uncorked a proposal that fortifies the position of its biggest shareholder, investment giant Remgro.

The proposed deal could potentially also boost Distell’s international deal-making and investment appeal by collapsing an archaic and unpopular pyramid holding company structure.

On Thursday, Distell proposed dismantling Capevin, a JSE-listed holding company that holds a 26% stake in Distell as its only asset.

The central figure in the transaction is Remgro, which holds a 26.4% direct stake in Distell, as well as a 19% stake in Capevin. Other major shareholders in Capevin are asset manager Coronation and pension manager the Public Investment Corporation (PIC).

While there has been a persistent clamour to break down the pyramid, speculation about a possible dismantling of Capevin mounted this week following a Financial Mail article, that noted that Remgro had acquired more shares in Capevin in May to shift its stake from 15% to 19%.

After the dismantling of the Capevin structure, Remgro will remain the biggest shareholder in Distell with a 31.4% stake. The PIC will speak for about 31% and Coronation just more than 5%.

Most critically, the unbundling of Capevin’s shareholding means the free float in Distell shares improves markedly from less than 20% to about 38%.

The mechanism of the transaction involves the creation and listing of a new entity, New Distell, which will acquire all the shares in Capevin and Distell. Shareholders in both companies will receive shares in the newly listed New Distell as settlement.

An important twist in the transaction is that Remgro will be issued with unlisted B shares. These shares have no economic rights, but will provide Remgro with the same voting rightsin Distell as it held before tothe transaction via RemgroCapevin Investments.

This means Remgro’s 31.4% stake will actually speak for 52.8% of the new Distell.

This is an important rider since Remgro appeared to be outbid by the PIC for SABMiller’s 26.42% stake in Distell in 2016.

Remgro held pre-emptive rights on the SABMiller stake and was widely tipped to buy the shares after the takeover by Anheuser-Busch InBev.

According to a statement issued by Distell, the PIC and Coronation will supportthe transaction.

Distell CEO Richard Rushton said that shareholders had been asking for the dismantling of the Capevin structure for a number of years.

He said the transaction would boost the general marketability of Distell stock to local and international investors. “It should also improve our ability to raise additional capital in the future, if required, to fund our growth ambitions.”

Distell – which has enjoyed huge success with its cider brands — has lately shown an inclination to build a meaningful global presence.

It has done this via the acquisition of cognac brand Bisquit cognac and whiskey brand Scottish Leader as well as new points of presence in the US and China.

Long-time Distell shareholder Chris Logan, the CEOof Opportune Investments, described Distell’s proposals as very positive and a long time coming.

He said that the Capevin structure was undoubtedly the main culprit in Distell never making value-accretive acquisitions with its scrip.

Source:Business DayDate: 2017/06/23

Expenses drive Moneyweb to delist from JSE

Annual costs of more than R3m were key considerations behind the move to delist Moneyweb, which, with a market capitalisation of R26m, is one of the JSE’s smallest companies.

Moneyweb chairman Paul Jenkins said it did not make sense for Moneyweb to be listed given the costs and the low level of trading in the shares.

The annual costs, which represent more than 10% of the company’s market capitalisation and about 17% of its annual turnover, include a board of directors, auditor fees, annual reports and JSE fees.

The media group, launched in 1997, was listed by its founder Alec Hogg in 1999. Hogg, who owned 12% of Moneyweb at the time he resigned from the company in 2012, no longer owns any shares. On Thursday, he said he had no comment on the proposed transaction.

In July, shareholders will get an opportunity to vote on African Media Entertainment’s (AME’s) offer to acquire 100% of their shares. On Monday Caxton, which holds 50.72% of Moneyweb, announced it would accept AME’s offer. Because Caxton’s controlling shareholders, chiefly the Moolman & Coburn Partnership, hold 38% of AME, the two companies are deemed to be related parties. The offer’s terms therefore have to be confirmed as fair and reasonable by an independent expert.

Shareholders are being offered 26c a share cash or AME shares worth 28c per Moneyweb share. The most recent results reveal a net asset value of 16.8c per share at end-December 2016. In the six months to December Moneyweb generated revenue of R17m and a net profit of R342,000.

Before the offer the share was trading at about 14c. It has since risen to 24c.

At the time of the release of the interim results in February, Jenkins said the company had started to reap the benefits from investments made in various areas of the business. He said Moneyweb had diversified its revenue stream and invested in its radio operations. About onethird of the company’s revenue comes from providing financial news content for the SABC.

Source:Business DayDate: 2017/06/23

Cartrack backs growth in US

Vehicle tracking and fleet management specialist Cartrack is upbeat about its recent foray into the competitive US market.

Cartrack’s main operating base is SA and Africa, with markets in selected countries in the Asia-Pacific region and Europe.

The company established an operational foothold in California in 2016 and — according to an annual report released this week — has to date incurred start-up and initial operating costs of R4m.

Cartrack CEO Zak Calisto said in-field testing of hardware and related software functionality on a new upgraded platform would start shortly.

He said Cartrack’s strong product offering — coupled with competitive pricing as well as a developing distribution and operating infrastructure — would provide the platform for market penetration in 2018.

Calisto pointed out that despite being one of the most advanced economies in the world, the US’s telematics penetration was relatively low at between 15% and 30%.

But he noted that the Federal Highway Traffic Safety Administration recently ruled that commercial vehicles must have electronic devices capable of recording service hours. Commercial vehicles must meet the new rule by December.

He estimated that 3-million vehicles would implement the changes in the next 18 months.

“Gartner believes that the use of commercial fleet management or telematics systems in North America is expected to increase at a 15% compound annual growth rate over the next four years, as trucking regulations tighten in the US.”

Calisto said that in 2016 there were 7-million vehicles in the US with these solutions installed and that by 2020, the number was expected to double.

“The focus of this operation will be primarily on fleet, combining all key metrics for electronic driver-logging devices required by law to be installed in long-haul vehicles in the US.”

Calisto conceded the US was a demanding market with healthy competition. “Cartrack USA will receive support and investment in operating capacity over the next 18 months.”

He predicted subscriber growth would be gradual as the brand became established. “However, we are confident that Cartrack’s value proposition will be quickly accepted, resulting in positive operating margin contribution in the medium term.”

Overall, Calisto believed Cartrack’s operations would deliver growth in the new financial year that was consistent with or better than the performance achieved in financial 2016.

He said that despite the global economic and foreign exchange headwinds, Cartrack expected good growth, although at a slower pace in the African operations. He said opportunities in Europe, where the company operates in Poland, Portugal and Spain, were being pursued.

Growth was expected in SA even though there was already a relatively high market penetration. Asian markets — including Hong Kong, Indonesia, Thailand, Philippines, Singapore and New Zealand — should achieve good growth off a low base.

Source:Business DayDate: 2017/06/23

Astral site isolates high-risk strain

Astral Foods confirmed a strain of highly pathogenic avian influenza known as H5N8 has been identified and isolated at one of its poultry breeding sites in the Villiers district on the Gauteng-Free State border.

This has been implemented following the higher risk exposure due to global outbreaks of avian influenza and an outbreak in Zimbabwe earlier in June.

“Astral assures all stakeholders that everything is being done to contain this incident. If this incident is contained to that specific site and/or farm, Astral’s contingency plans do ensure continued operations with no impact,” Gary Arnold, MD of agriculture services at Astral, said on Thursday.

“Astral has been on heightened alert following the recent avian influenza outbreak in Zimbabwe,” Arnold said. “The affected birds are breeding stock and not broilers for meat production. In addition, this virus is not known to infect humans.”

The Department of Agriculture, Forestry and Fisheries announced earlier in June the immediate suspension of all trade in live poultry, meat and eggs from Zimbabwe. It also heightened inspections of all freight consignments including all private and public vehicles at all ports of entry in SA.

South African Poultry Association CEO Kevin Lovell said on Thursday there was no risk to humans and the industry was working with government to halt the outbreak. “The most important thing is that this is the first time we have had highly pathogenic avian influenza in SA [among chickens],” he said.

There had been outbreaks among ostriches, but these had not been this particular strain.

Source:Business DayDate: 2017/06/23

Caxton’s Novus bid thwarted

Novus Holdings moved a step closer to completing a transaction that began in 2013 with Thursday’s Competition Tribunal ruling that Caxton could not intervene in Novus’s transaction with Media24.

Without Caxton’s intervention in the tribunal’s consideration of the proposed unbundling of Media24’s controlling stake in Novus, the proceedings are expected to be completed speedily.

Novus CEO Keith Vroon said he was pleased with the tribunal’s decision.

Caxton had sought to intervene on the grounds Media24 had failed to provide full details about its controlling shareholder structure.

The Competition Act requires companies to provide all the control structure details.

The tribunal rejected Caxton’s application on the grounds Media24’s control structure was irrelevant to the proposed transaction as the transaction would result in Media24 reducing its stake in Novus from more than 60% to 19%.

The tribunal said the reduced holding would mean Media24 no longer controlled Novus.

The process began when former Novus CE Lambert Retief wanted to retire. As Retief was deemed to be the joint controller of Novus with Media24, his retirement meant the company would have sole control, requiring the competition authorities’ approval.

In 2014 the Competition Commission recommended the tribunal approve the change of control.

Caxton applied to intervene on the grounds the merging parties had not provided full details about their shareholding structure.

After the tribunal requested additional details the merging parties announced they were abandoning the merger plan. Novus subsequently announced it intended to list on the JSE.

Caxton challenged the move and a Competition Appeal Court ruling resulted in the commission approving the listing.

Source:Business DayDate: 2017/06/23

Oakbay warned over JSE listing

The JSE has notified Oakbay Resources that it is considering suspending trading in the company’s shares following a recent spate of critical resignations.

In a Sens announcement on Thursday, Oakbay said it was considering various alternatives and advised shareholders to exercise caution when dealing in the company’s shares.

In the past four weeks, Oakbay’s sponsor and transfer secretary have tendered their resignations. In addition, on May 12 independent nonexecutive director Mark Pamensky said he was retiring with effect from June 10. He was the chairman of Oakbay’s audit committee and a member of the company’s risk, nomination, remuneration and social and ethics committees. At the time, Oakbay said it had begun the process of appointing a replacement for Pamensky.

On June 5, the company announced that its sponsor, River Group, had given notice that it would terminate its service after July 31. “The reason for River Group’s termination of their services is due to their revised assessment of association risk surrounding the company and its shareholders,” said Oakbay. On June 13, the firm’s transfer secretary gave notice that it was also terminating its services no earlier than July 31.

The critical resignations mean that Oakbay is at risk of contravening a number of the JSE listings’ requirements.

Oakbay said if it cannot find a replacement for Pamensky, it might not be able to constitute a functioning audit committee, which is considered the most critical of board committees. Oakbay also said Pamensky’s resignation may have compromised the composition of the social, ethics and remuneration committee, which are requirements of the Companies Act.

The sponsor and transfer secretary were mandatory appointments for JSE-listed firms and, said Oakbay, played a critical part in the JSE’s regulatory and supervisory structure.

Source:Business DayDate: 2017/06/23

Stadio adds stake in business school

tadio Holdings, the soon-to-belisted tertiary education subsidiary of private school specialist Curro Holdings, has made its second acquisition in June.

On Thursday, Curro announced that Stadio had acquired a 74% stake in Southern Business School (SBS). It did not disclose the amount.

While SBS operates in SA, the company holds a 51% interest in SBS Namibia.

The deal follows hard on the heels of the acquisition of the South African School of Motion Picture Medium and Live Performance earlier in June.

SBS extends Stadio’s African footprint after a 50% stake was acquired in Botswana’s BA Isago University late in 2016.

SBS is a South African-registered higher education institution, with SBS Namibia being recognised by the Namibian qualification authority. It has 11 accredited distance learning programmes ranging from higher certificates to master’s degrees.

There are three academic schools offering dedicated programmes, as well as short courses via the School of Business and Economics, the School of Safety in Society and the School of Law.

There are almost 10,000 students enrolled in SA and in Namibia.

Stadio appears to be following a similar tertiary expansion model to JSE-listed rival Advtech, which owns Varsity College and Rosebank College, along with offerings in niches such as culinary skills, advertising and marketing, graphic design and business.

Curro founder and Stadio CEO designate Chris van der Merwe has indicated that acquisitions would have the flexibility to expand their respective brands into other tertiary offerings.

Curro is one of the fastestgrowing companies on the JSE, and has rolled out and acquired about 130 private schools since listing in 2011.

Van der Merwe said SBS would look for growth opportunities by introducing new programmes, as well as increasing the company’s presence and reach geographically.

“This strategy is aligned with Stadio’s strategy of creating further access to tertiary education through the expansion and development of its core brands,” Van der Merwe said.

Source:Business DayDate: 2017/06/23

MMI forced to reshuffle board after two executives resign

MMI has announced executive changes following the departure of chief operating officer Danie Botes and Momentum Retail chief Etienne de Waal.

Business Day earlier reported that Botes and De Waal had left for personal reasons, after more than 20 years with the company. Their departures follow other high-profile resignations in the life insurance industry, where profit has come under pressure in a difficult operating environment.

Finance director Mary Vilakazi was appointed deputy CE of the group, MMI said on Thursday after market close.

The deputy CE role would combine the previous chief operating officer and financial director roles.

Risto Ketola, head of investor relations, was appointed chief financial officer, while Ashlene van der Colff, the chief internal audit executive, was appointed head of operations.

Van der Colff and Ketola will join the executive.

Khanyi Nzukuma, the CEO of Metropolitan Retail, had been appointed CEO of Momentum Retail. He would stay on at Metropolitan until a successor was appointed, said group spokesman Dan Moyane. MMI did not expect the changes to add additional costs, as these individuals were already in senior roles in the company and two individuals had left, Moyane said.

Source:Business DayDate: 2017/06/23

JSE warns Oakbay that it risks suspension if it does not comply

By Robert Laing

The JSE has given Gupta family-owned Oakbay Resources and Energy notice that it intends suspending its listing because it has failed to comply with various regulations.

Besides Oakbay’s problem that transfer secretary Terbium Financial Services and sponsor River Group recently resigned‚ the departure of independent nonexecutive director Mark Pamensky announced on May 12 was also raised by the JSE.

In a statement released on Thursday‚ Oakbay said the JSE had informed it “the resignation of the independent nonexecutive director may have compromised the composition of various board committees”.

Pamensky‚ a former Eskom director who featured prominently in the public protector’s state capture report‚ was chairman of Oakbay’s audit committee and a member of its risk‚ nomination‚ social‚ ethics and remuneration committees.

Oakbay said in Thursday’s statement: “The company would like to make shareholders aware that the sponsor and the transfer secretary are mandatory appointments pursuant to the provisions of the JSE listings requirements and play an integral part in the JSE’s regulatory and supervisory structure.”

The statement concluded by saying that Oakbay “is considering various alternatives available to it”.

Oakbay’s share remained untraded at R5.80 after the announcement. A seller was offering the share for R15.20‚ and a potential buyer was offering R5.81. Oakbay’s closing price has been R5.80 since May 29.

Source:BDproDate: 2017/06/22

Majority cut for Curro's Stadio in SA school with stake in Namibian venture

By Karl Gernetzky

Curro’s tertiary education arm Stadio has acquired 74% of the Southern Business School (SBS)‚ the latest regional acquisition as the company continues a strategy to expand its geographical reach in the tertiary education sector.

The acquisition is still subject to the fulfilment of certain conditions‚ including approval by competition authorities‚ the company said in note to shareholders.

On Thursday‚ the JSE-listed private education group announced the acquisition of 74% the issued share capital of SA-based SBS‚ which holds 51% of the Southern Business School of Namibia.

Curro is planning to unbundle Stadio later in 2017‚ part of a broader shakeup of the company that will result in founding CEO Chris van Der Merwe taking up a nonexecutive role at Curro in July‚ and heading up Stadio.

Curro chief operating officer Andries Greyling is expected to succeed him.

“Curro re-affirms its intention to unbundle and list Stadio separately during the course of this year. Shareholders are advised that further details in respect of such unbundling and listing will be released on SENS in due course‚” Curro said in the statement.

SBS is an SA-registered higher education institution‚ with SBS Namibia being recognised by the Namibian Qualification Authority. SBS has 11 accredited distance learning programmes‚ ranging from higher certificates to masters’ degrees.

Earlier in June the company‚ through Stadio‚ acquired 100% of SA-based film school Afda.

In November 2016‚ Curro also acquired half of Botswana’s BA Isago University‚ with the acquisition being done via its subsidiary‚ the Embury Institute for Higher Education.

In March 2016‚ Curro also acquired the Windhoek Gymnasium in Namibia.

Source:BDproDate: 2017/06/22

Competition Tribunal rejects request by Caxton to intervene in merger between Media 24 and Novus

By Karl Gernetzky

An appeal by Caxton publishers to intervene in Competition Tribunal hearings into a proposed merger between Media24 and Novus Holdings has been rejected‚ the tribunal said on Thursday.

The application was rejected on the basis that the issue of Media24’s control structure was not relevant‚ as a condition of the proposed structure would see Media24 reducing its existing stake in Novus to the point at which it no longer exercised control over the company‚ the Tribunal said in a statement.

Caxton had limited its argument for intervention on the grounds that Media24 had “failed to accurately notify its controlling shareholders and therefore a firm that should have been notified as an acquiring firm in the transaction was not notified”.

The complicated transaction would see Media24 acquire Novus‚ while simultaneously unbundling it.

Media24 is a wholly owned subsidiary of Naspers and held an 80% stake in Novus until 2015‚ when the latter‚ SA’s largest printing company‚ was listed on the JSE.

The listing was intended to enable former Novus’s CEO‚ Lambert Retief‚ an opportunity to sell his 20% stake in the firm. The Competition Commission initially approved the listing‚ which was overturned by the Competition Appeal Court after an appeal from Caxton that the listing did represent a notifiable merger.

The court ruled that the listing could go ahead only if Media24 cut its stake from what was then 66% to below 19%. Hearings on the merger are expected to continue but no date has been set.

Source:BDproDate: 2017/06/22

Competition Commission gives nod to sale of Grindrod's rail business

By Mark Allix

The Competition Commission has recommended the proposed sale‚ without conditions‚ of Grindrod’s rail construction businesses to WBHO Construction and Faku Family Enterprises for an undisclosed sum‚ to the Competition Tribunal.

WBHO Construction is a wholly-owned subsidiary of JSE-listed construction stock Wilson Bayly Holmes-Ovcon‚ which operates across four main divisions: building and civil engineering; roads and earthworks; projects; and construction materials. These activities include providing civil engineering services for the rail sector.

“The transaction is still confidential between the parties and subject to final approval by the tribunal‚” WBHO spokeswoman Shereen Vally-Kara said on Thursday.

Faku Family Enterprises is an investment holding company with subsidiaries in the construction‚ property‚ coal‚ petrochemicals and related logistics services sectors. It is wholly-owned by the Ntinga Investment Trust. The purchasers intend to buy Grindrod Rail Construction and Grindrod Rail Construction Company from Grindrod Holdings. WBHO did not respond to requests for comment on Wednesday.

“As announced earlier this year‚ Grindrod is exiting the rail construction businesses. The value will be disclosed to all shareholders as part of the half-year reporting‚” Grindrod group financial director Andrew Waller said. Grindrod’s rail construction services include construction‚ rehabilitation‚ electrification and maintenance of rail networks‚ including for large industrial and mining customers.

The commission said the proposed transaction was unlikely to substantially prevent or lessen competition and did not raise any public interest concerns.

Grindrod mainly operates in freight services‚ shipping and financial services. In its results for the six months ended June 2016 it had a rail carrying value impairment of R675m. In the year to December 2016‚ the group recorded an attributable loss of R1.9bn amid extremely depressed market conditions in shipping and freight services‚ and the impairment of its rail businesses.

The latter was due to the postponement of capital investments in new rail infrastructure in Africa and “aggressive road-haulage rates”.

“Given the subsequent anticipated inability to secure the desired‚ sustainable return in these businesses‚ the Grindrod strategy was reviewed and a decision taken to withdraw from the rail manufacturing businesses‚” the company said at the time.

Source:BDproDate: 2017/06/22

M&C Saatchi in sports deal

UK-based M&C Saatchi has bought a majority stake in sports and entertainment agency Levergy, which was founded in 2012 by Clint Paterson and Struan Campbell.

M&C said the transaction positioned the company to capitalise on the buoyant sport and entertainment industry in SA and across the continent.

The value of the deal was not disclosed.

“We’ve become great admirers of the Levergy team, their thinking and the work they produce for what is a remarkable roster of clients,” global CEO of M&C Saatchi sport and entertainment Steve Martin said.

Levergy’s clients include Audi, New Balance, DStv and SuperSport. It has 26 employees across SA with offices in Johannesburg and Cape Town.

Levergy CEO Clint Paterson said to be recognised by the M&C Saatchi group as the company to “represent their sport and entertainment offering in Africa is a proud achievement” for the company.

In January, integrated advertising company AVATAR360 announced that it had acquired shares in M&C Saatchi Abel, M&C Saatchi Africa as well as three M&C Saatchi companies — digital agency Creative Spark, media agency M&C Saatchi Connect and the design focused agency Dalmatian Advertising.

In turn, the London-headquartered global marketing firm, M&C Saatchi, acquired a minority share in AVATAR360.

The deal will, among other things, allow AVATAR360 to tap into resources and experience of M&C Saatchi Worldwide.

Source:Business DayDate: 2017/06/22

Sibanye will pay more for bond

ibanye Gold is paying more than it would have done ona $1bn bond because of the introduction of a new investorunfriendly Mining Charter, sovereign downgrades by ratings agencies and uncertainty in the mining sector.

Sibanye, SA’s largest producer of domestic gold and a major platinum group metal producer, has raised $2bn via a rights issue and now the twotranche bond towards repaying 2.65bn of debt incurred to buy Stillwater Mining in the US for 2.2bn in cash.

The cost of the bond was pushed higher by last Thursday’s release of the Mining Charter, with a number of investors in the US, where CEO Neal Froneman was on a road show last week to promote the bond issuance, raising concerns about the contents of the charter, which will add costs to operating mines in SA.

“There was definitely an impact on the cost. A number of investors said directly to us that the added uncertainty to our cost of business in SA was a risk and they wanted a higher rateon the bonds,” said Sibanye spokesman James Wellsted.

The Chamber of Mines earlier this week said the market capitalisation of JSE-listed mining companies fell by R50.69bn on Thursday because of the charter, which bumped up black equity ownership to 30% from 26% within a year, demanded that new prospecting rights be 50% plus one black owned and that black investors be debt free within 10 years within the ownership structures with firms writing off outstanding debt.

Foreign investors were particularly worried about the introduction of a 1% deduction from the revenue line to be paid to black partners on new mining rights, with concerns this put lenders down the pecking order and could limit cash flows to repay debt and the coupon on the bonds, Wellsted said.

Source:Business DayDate: 2017/06/22

Woolies faces fight on many fronts

hares in Woolworths, once regarded as a recession-proof retailer, are trading close to three-year lows as the company finds itself stuck between SA’s stalling economy, the cash-guzzling turnaround of its David Jones acquisition in Australia and an impending competitive onslaught from Shoprite, which is moving up-market.

Woolworths stock closed at R62.25 on Wednesday, a drop of 42% from its high of R106.88 on November 15 2015. In the same period, Shoprite shares have gained 36%.

One analyst said the country’s retailers underestimated the gravity of the changes new entrants such as H&M and Zara were bringing to the apparel sector. If they failed tot adjust to this “seismic shift”, they would battle to survive.

“I get the sense that they think it’s just a cyclical downturn, and they are going to come up short,” said Sasfin Securities’ retail analyst Alec Abraham.

Abraham was also critical of apparel companies’ reliance on discounting. “That’s a race to the bottom. What is being overlooked is a focus on styling. You don’t have to discount if you have what people want.”

Woolworths has a new threat to contend with: Shoprite’s push to take market share through its Checkers stores. Shoprite plans to open 23 Checkers outlets in wealthy areas by June 2018.

Sales from Checkers stores have grown more than 11% over the past 12 months, ahead of the group’s 8.8% increase and higher than Woolworths’ 9.5% increase in food sales for the first half to December 25.

In Australia, Imraan Jeeva, analyst at Mvunonala Asset Managers, told Business Day TV that management was overspending on righting the David Jones business. “It’s a really competitive environment right now … it looks as though they’re destroying more and more capital. I’d like to see management own up to their errors, honestly, and give a very credible strategy as to how they’re going to preserve what value they do have in Australia,” said Jeeva.

Woolworths, heading into a closed period ahead of its yearend later in June, said it was on a “transformational journey” at David Jones. Its investment would “make a considerable and sustainable difference to the business in the long term”.

CEO Ian Moir does still have backing among analysts.

“If I look at … how he successfully converted Woolworths’ brand equity into shareholder value, it left me confident that he could do the same with David Jones,” says Abraham.

“I’m quite positive that they have diversified their geographic sources of income outside of SA — it’s prudent.”

Still, Australia’s retail environment is proving no easier than SA’s. Sales fell 0.2% in both February and March, before rising 1% in April.

In SA, April retail sales showed year-on-year growth of 1.5%, but for textiles, clothing and footwear, sales between February and April dropped 5.9%.

the fall in Woolworths shares from their November 2015 high


the number of Checkers outlets due to open in wealthy areas withina year

Source:Business DayDate: 2017/06/22

Dis-Chem sale pumps up RACP

Long-term investment company RECM and Calibre (RACP) — headed by asset-management personalities Piet Viljoen and Jan van Niekerk — easily outsprinted the JSE in the year to March.

Results released on Wednesday showed RACP increased net asset value — the best gauge of performance of an investment company — a whopping 39% to R27.35 per share. Over the same period the JSE’s all share index managed a much more modest 2.5% total return. The largest component of the return stemmed from dividends triggered by the sale of RACP’s indirect stake in recently listed healthcare retailer Dis-Chem.

Viljoen said this partially reflected the way the company’s investment in Dis-Chem was structured — via Fledge Holdings, “as a result of which the proceeds from the sale of this investment of R324m was paid out as a dividend”.

During the year, RACP also sold off minority interests in boutique hotel group Gooderson, American Homes and Afrocentric Health for a small profit.

About R250m was spent on investments, most notably acquiring control of alternative gaming group Goldrush from the Hipkin family.

The result was that RACP’s investable cash increased to R171m at year end — well up on the R3m reported in the previous financial year.

RACP now controls 53.3% of Goldrush, which ranks as SA’s largest alternative gaming group. The investment accounts for 58.4% of RACP’s net asset value. At financial year end, Goldrush operated 14 electronic bingo terminal sites and had rolled out 1,614 limited payout machines of a total licensed opportunity of 4,085.

It operated 23 sports betting shops out of a potential opportunity of 36 licences.

Goldrush generated revenue of R816m with earnings before interest, tax, depreciation and amortisation at R229m.

Viljoen noted that Goldrush was set to buy the Boss Gaming Group in the Eastern Cape and KwaZulu-Natal. As Goldrush matured and improved the scale of its operations, the business had become more successful at acquiring licences and rolling out existing licences, he said.

RACP bolstered its presence in private education by investing another R28.5m in College SA, host of brands such as College SA, Tabaldi Online Accounting Classroom and IASeminars.

One near-term objective was to develop and obtain accreditation for more courses and programmes and to obtain even higher accreditation for College SA businesses, Viljoen said. “This might take a bit longer, but it is certainly a lot cheaper than buying them in the market.”

RACP saw attractive returns on capital invested in College SA as it grew scale, brands and reach, he said. “We therefore plan to reinvest all our cash flow from our existing business and some further capital into these high-return opportunities.”

The company reduced its minority interest in Sovereign Foods. Since financial year end RACP had sold its remaining shares, realising a profit of R29m, or 58c per share.

RACP has since become an anchor investor in sister company RECM’s recently launched “deep value” fund by injecting existing “undervalued” investments in listed engineering firm ELB and unlisted agribusiness KLK into the portfolio.

Company Comment: Page 15

Source:Business DayDate: 2017/06/22

Tricky job for Naspers to spin off value

Ann Crotty

The obvious approach to the growing discount between Naspers and its investment in Tencent — which would be to unbundle the Tencent stake to Naspers shareholders — overlooks the peculiarities of the investment environment in China.

If there is to be a major restructuring aimed at tackling the discount it is much more likely, given these peculiarities, that Naspers would spin off all its non-Tencent operations and hold on to the hugely valuable 33% stake in the Chinese company.

Jean Pierre Verster of Fairtree Capital says he cannot see the Chinese authorities allowing a deal that might threaten the control of one of the country’s most valuable companies. “The Naspers control structure has been important from a Tencent perspective because it ensures neither Naspers nor Tencent is vulnerable to a hostile takeover,” Verster says.

This structure was made seemingly impregnable back in 2005 by then CEO Koos Bekker, when PSG’s Jannie Mouton launched a hostile bid for control. Bekker, who made the initial $33m investment in Tencent back in 2001 and has good relations with Chinese leaders, said Naspers had to be attack-proof to provide comfort for its business partners.

Earlier in 2017, Investec’s Brian Kantor speculated that Naspers might not be free to sell the Tencent stake. “Even if [Naspers] were willing sellers, such a disposal might well be subject to the approval of the Chinese authorities. These authorities would be concerned about who might acquire these rights to the revenue and income....”

Kantor said it was therefore invalid to value Naspers as if it could be easily disposed of at current market prices.

The situation is further complicated by the nature of Naspers’s ownership of the Tencent stake, which is effected through a contractual arrangement known as a variable interest entity.

“Tencent Holdings in Hong Kong provides its shareholders with contractual rather than ownership rights,” said Kantor.

This means Tencent shareholders have rights only to the revenues, earnings and dividends generated by Tencent and not to the assets of the Chinese company, which, by law, can be owned only by Chinese citizens.

Any unacceptable move by Naspers could be challenged by the Chinese authorities, who might upend the arrangement.

When asked if there were any restrictions on Naspers’s ability to unbundle or sell its Tencent shares, Naspers group spokeswoman Meloy Horn said on Wednesday: “We’ve never considered selling our Tencent stake, so I’ve no idea whether there are any restrictions.”

Verster agrees it is more likely Tencent would remain in Naspers and other assets be spun off if there were any restructuring aimed at unlocking the perceived discount. He suspects something might be on the cards because Naspers has significantly beefed up its investor relations team in Hong Kong.

“They may be planning to list their e-commerce operations in Hong Kong,” Verster says, but he thinks this may still be some way off because the e-commerce businesses have still got to build a profit profile.

Talk of a major restructuring has dogged the company for years as shareholders, far from being grateful for access to a share of the huge Tencent bonanza, become increasingly agitated about the diverging fortunes of the Naspers assets. They fear Naspers’s other operations, particularly the cash-guzzling e-commerce assets, are soaking up a considerable chunk of the value being created by the Chinese internet powerhouse.

Tencent’s spectacular performance over the past three years has ensured that the issue comes up with increasing frequency. No results announcement passes without speculation of an unbundling. As far back as early 2015, Horn was emphatic the company had no plan to spin the Tencent stake off into a separate entity.

“As a global internet company, exposure to the world’s largest internet market [China] is strategically essential. Tencent provides that exposure through a highly regarded company with an exceptional management team,” said Horn.

This week, Horn repeated the message when she spoke to Moneyweb. She was responding to an open letter written to Naspers CEO Bob van Dijk by a Swiss-based advisory firm accusing him of destroying R334bn of shareholder value since his appointment in 2014.

Albert Saporta, MD of AIM&R, which has an unspecified number of shares in Naspers, points out that when Van Dijk took over,

the Tencent stake was equivalent to 90% of Naspers’s market capitalisation. This meant the value being attributed to its other operations was R34bn. Now the 34% stake in Tencent is worth 130% of Naspers market cap, which means the market is attributing a negative R300bn to the other operations. “In other words, in the last three years, R334bn of shareholder value has been destroyed,” writes Saporta.



Source:Business DayDate: 2017/06/22

Two senior executives resign from MMI

MMI has confirmed that longtime chief operating officer Danie Botes and CEO of Momentum Retail Etienne de Waal have left the company for personal reasons.

Their departures, which coincided, follow the resignation of brand and corporate affairs chief Vuyo Lee, who was appointed chief marketing officer at Old Mutual Emerging Markets in January.

De Waal and Botes had left MMI after extensive discussions with CEO Nicolaas Kruger and to pursue other interests, said spokesman Dan Moyane.

They had been with the company for 23 years and 28 years respectively.

Their departures come on the heels of a number of highprofile resignations from life insurance companies, where a difficult operating environment has put pressure on company boards and executives.

Last month, Thabo Dloti left his CEO role at Liberty over disagreements with the board and its majority shareholder, Standard Bank, on how to turn the company around. The insurer reported a 39% decline in headline earnings for the year to December.

In October, CEO of Old Mutual Emerging Markets, Ralph Mupita, left to join MTN as chief financial officer.

After Old Mutual plc’s managed separation, Mupita was the most likely candidate to head up Old Mutual Limited, the new company that will list in Johannesburg and London in 2018 and house the group’s emerging market assets.

Life insurers’ profits have come under pressure from rising unemployment and low growth, fuelling large withdrawals from retirement funds and weakening insurance policy sales.

MMI reported a 5% fall in headline earnings to R1.6bn for the six months to December. MMI’s management did not have a great track record and there had been some calls for change, said an analyst who declined to be named.

“MMI was very cost focused after the merger between Metropolitan and Momentum, but have since made a number of acquisitions that have not performed well.

“They have also put a higher value on these businesses than I think is fair.”

Metropolitan, traditionally a strong business in the entrylevel market, has lost market share to Sanlam and Old Mutual, while the retail affluent market remained highly contested.

The insurance group’s share price is down more than 16% this year, with two hold and two sell ratings on the stock.

The JSE’s life insurance index is flat, while Liberty’s stock is up more than 2%.

Group finance director Mary Vilakazi would oversee Botes’s function for the time being, Moyane said. De Waal’s successor would be announced soon.

Source:Business DayDate: 2017/06/22

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