SA’s most empowered company

Monday, 03 May 2010 00:00 SA’s most empowered company

The crowning of Sekunjalo Investment Holdings Limited as the most empowered company on the JSE comes with symbolic significance — and this may weigh far more than the numbers achieved by the group in the 2010 Top Empowerment Companies (TEC) survey.

Sticking to its ethos, this industrial holding firm is definitely not complacent about its performance

Sector: Financial services

Revenue: R405m; Total BEE score: 90,8; Ownership score: 23; Pref proc: 17,2

Sekunjalo produced a total black economic empowerment (BEE) score of 90,8% to claim the top spot for the second time. It claimed this top spot in 2006 and its unyielding commitment to empowerment has catapulted it to the top once more.

There will be no loud applause due to Sekunjalo’s re-emergence into the pole position. That is because Sekunjalo was born as an empowerment player and therefore its strong BEE credentials are deemed to be inherent. “From the outset our company’s ethos was a transformational one,” says Sekunjalo executive chairman Iqbal Surve.

However, it must be borne in mind that many other entities that may be viewed as inherent BEE players fail to complement their historical identities with high BEE scores. Their BEE credentials have been diluted by growth. That makes Sekunjalo’s achievement something of a marvel. This is a result of a well thought-out model, says Sekunjalo CEO Khalid Abdulla. “Our business values are linked to our people and our BEE strategy.”

Here lies an interesting twist. If business growth is accepted as a reasonable factor in the dilution of empowerment credentials in natural BEE companies, then logic dictates that this dilution must deliver business endurance or market resilience. That has not been the case. Instead many businesses in this class have failed to withstand the heat of the equities market. They have disappeared into dark corners where they are nursed by big brother type partners.

That makes it two for Sekunjalo, which has maintained its BEE credentials and withstood the vagaries of the market. Surve and Abdulla will tell you that it has not been a walk in the park. Sekunjalo has countless scars.

Sekunjalo has had its back against the wall a number of times. It has survived a couple of life- threatening market crashes and there was also the Leisurenet debacle. Sekunjalo also took heavy knocks from the receding global economic crisis. Its stock has nosedived from levels above 100c in 2008 to about 25c. Operations have been hit as well, with revenue declining from R601m in 2008 to R405m last year.

The company blames the recession plus a stronger rand. The latter is important in Sekunjalo’s life because of its exposure to the export market through its fishing operations. The group owns Premier Fishing SA and Aquaculture. Other operations and mainly IT subsidiaries were affected by reduced business expenditure. Sekunjalo also hosts health and financial services and biotechnology operations.

That gives the group a classic BEE investment holding company image.
To a certain extent the company does use its BEE credentials to do business. That is if the following statement in its latest result is anything to go by: “Sekunjalo’s prospects are positive ... because it has become an empowerment partner of choice to many large and small businesses.” Partnerships maintained by the group include those with Siemens SA, Microsoft SA, IBM, Gulf Pharmaceutical Industries, GlaxoSmithKline (GSK) and British Telecom SA.

It makes sense for such multinational corporations to partner Sekunjalo, which can hold their hand to navigate SA ’s BEE rules. But then the markets don’t see it this way. There is no BEE premium to speak of. In fact, the market does not like firms that pin their hopes on BEE credentials. Otherwise companies like African Partners, Wiphold and Nail would still be prancing around the JSE.

Other companies hosted by the JSE on a BEE ticket, such as mezzanine financier Makalani Holdings, have struggled to keep their listing.
Makalani is on its way out of the JSE. So is Mvela Resources. Part of the problem faced by these companies is the distance between the holding company and the operations. Their stocks tend to trade at a huge discount to intrinsic value.

It is partly this problem that has pushed Mvelaphanda Group towards a major restructuring programme. The situation is well captured by Mvelaphanda Group CEO Yolanda Cuba who says that the empowerment landscape has changed, rendering the “old age BEE” structures problematic.

That does not seem to be the case for Sekunjalo which has bagged a number of deals recently. These include acquisition of software developer Digital Matter and 30% of British Telecom SA. But the group has also seen a fair share of culling to meet the challenges of harsh trading conditions.

Abdulla says the business has been restructured to achieve greater operational efficiency and profitability and to enable it to absorb the economic downturn. He says prospects look bright. So do the prospects of Sekunjalo’s BEE credentials. As mentioned above, Sekunjalo engages its BEE credentials to grow its business, not the other way round.

The BEE credentials captured in the 2010 TEC survey expose a comprehensive approach that runs through the broad-based BEE scorecard.

The group boasts 83% black economic interest and 51% black women interests. Voting rights are quoted at 94% and black management control is at 70%. In addition, Sekunjalo claims 100% scores in employment equity, enterprise development and socioeconomic development. It claimed 17,2 points out of a possible 20 in preferential procurement and 7,6 points out of 15 in skills development.

Surve says Sekunjalo is set apart from many other BEE entities by its business model. Many others assume the state of being a simple investment trust, which creates an unhealthy distance between the investor and the operations, says Surve. “Our model dictates that we take active interest in our investments.” The company holds between 80% and 100% in its key investments. That allows Sekunjalo to move in and transform its subsidiaries.

Surve also argues that Sekunjalo’s model means that “we are firmly in control of our destiny. We are less vulnerable to share price movements”.

Abdulla says that the market does not fully appreciate Sekunjalo’s business model of creating enterprises and growing them into sustainable entities. This is reflected in the stock’s perennial discount to intrinsic value.

However, Abdulla does not seem to be losing sleep over the depressed market value of Sekunjalo. Sekunjalo seems to be on a mission to educate the market. Abdulla says this is a new market and everyone is learning. Attitudes are changing slowly, he says.

Surve says: “We have lost money in some cases, but also created significant value in others. Give us five to 10 years, this business will be one of the most successful industrial holding companies in the country.”

Sibonelo Radebe