Smoking pays for BAT chief Nicandro Durante‚ as report shows his salary rose 37%

By Robert Laing

British American Tobacco (BAT) CEO Nicandro Durante received a 37% pay increase to £11.4m‚ the cigarette company’s annual report for 2017 released on Thursday showed.

Chief financial officer Ben Stevens received a 35% pay increase to £6.6m.

BAT’s share price fell as much as 5.3% to R634.50 following the release of the report.

The acquisition of US tobacco group Reynolds American helped BAT grow its revenue 38% to more than £20bn in 2017.

What the group has traditionally referred to as its “global drive brands” — Dunhill‚ Kent‚ Lucky Strike‚ Pall Mall and Rothmans — will be expanded to a “strategic portfolio” that includes “next-generation products” encompassing vapour‚ and chewing tobacco.

“In the US‚ American Snuff Company’s volume of moist snuff was 228-million cans in the period since the acquisition of Reynolds American. Total moist market share was up 100 basis points on 2016 to 34.4%‚ primarily due to Grizzly‚ a leading US moist snuff brand‚ benefiting from its strength in the pouch and wintergreen categories‚ as well as the recent national expansion of its Dark Select style‚” BAT said in its annual report.

BAT said its “local and international brands” — which include Peter Stuyvesant‚ Craven A‚ Benson & Hedges‚ and John Player Gold Leaf — suffered a 13.4% sales decline in 2017.

“Although experiencing a slow overall decline‚ our local and international brands continue to play an important role in delivering the group’s strategy in several key markets‚ including Brazil‚ SA‚ Vietnam‚ Pakistan‚ Bangladesh and Japan.”

Source:BDproDate: 2018/03/22

Naspers to sell up to 190m of its Tencent shares

By Robert Laing

Naspers proposes to raise about R125bn by selling some of its Tencent shares‚ it said on Thursday.

The media group said it intends selling up to 190-million Tencent shares‚ which would reduce its stake in the Chinese internet group to 31.2% from 33.2%.

At Tencent’s share price of HK$439.40 on Thursday — which was a 5% drop from Wednesday’s closing price after the group’s quarterly results failed to meet the high expectations of investors — Naspers could raise about HK$83.5bn.

At the current exchange rate of R1.50 to the Hong Kong dollar‚ this would equate to more than R125bn.

“The funds will be used to reinforce Naspers’s balance sheet and will be invested over time to accelerate the growth of our classifieds‚ online food delivery and fintech businesses globally‚ and to pursue other exciting growth opportunities when they arise‚” the statement said.

Naspers said this would be its first sale of Tencent shares since its initial $32m investment in 2001. “Tencent understands and supports the intention to sell. Naspers will not sell further Tencent shares for at least the next three years‚ in line with its long-term belief in Tencent’s business‚” Naspers said.

Bank of America Merrill Lynch‚ Citigroup and Morgan Stanley have been appointed joint global co-ordinators and joint book-runners to manage the transaction.

“Books are open now and are expected to close prior to the Hong Kong market opening‚” the statement said.

On Wednesday‚ Satrix announced its new weightings of its top 40 index tracking exchange-traded fund (ETF)‚ which showed Naspers is by far the largest constituent‚ growing to 23.37% in March from 22.58% in December.

Richemont is a distant second‚ with its slice of the top 40 shrinking to 8.78% from 9.51%.

Source:BDproDate: 2018/03/22

Buffalo Coal breaches debt covenant‚ gets stay of execution from Investec

By Allan Seccombe

With current liabilities surpassing its current assets and exceeding its capitalisation‚ Buffalo Coal is in serious trouble and in breach of its debt covenants.

Its auditor has cautioned shareholders of “material uncertainties” about the business as a going concern.

Buffalo‚ which is a coal miner listed in Toronto and on the JSE’s AltX board‚ has recorded mounting debt‚ largely with Investec.

Investec can call on that debt‚ now surpassing R200m‚ at any time because of the violated debt covenants.

Buffalo has a market capitalisation of R352m in Johannesburg. Its shares have never challenged the R2.99 peak reached at the end of 2014 and are now trading near 85c in muted activity.

Buffalo recorded a full-year loss of R124m to end-December 2017‚ compared with a R46m loss the year before‚ despite revenue rising to R738m from R661m.

The company’s total current assets were R184m‚ up from R136m a year ago‚ with cash rising to R21m from R14m.

However‚ current liabilities stood at R353m‚ up from R331m‚ with R188m of debt repayable within the next 12 months‚ all of which is held by Investec.

Auditor UHY McGovern Hurley said: “The company has experienced operational challenges‚ and has a significant need for equity capital and financing for operations and working capital.

“These conditions along with other matters … indicate the existence of material uncertainties that cast significant doubt about the company’s ability to continue as a going concern.”

Investec has‚ subsequent to the year-end‚ extended a further tranche of R16m in debt to Buffalo as working capital‚ and has secured an agreement that the company will repay R36m of debt immediately. The total Investec debt facility is now R236m.

“The group shall provide Investec with a certified copy of a signed mandate with Northcott Capital‚ pursuant to which Northcott will conduct a review of the strategic options available to the group‚” Buffalo said.

“Investec agrees not to exercise its acceleration rights with respect to any existing events of default under the Investec facility and will appoint a technical adviser until June 30 2018 to provide certain monthly reports to Investec‚” it said.

Buffalo is 85% owned by Resource Capital Fund (RCF)‚ which has provided financial assistance to the company in exchange for shares.

Buffalo generated R58m cash in the financial year‚ up from R53m the year before‚ but interest and tax consumed R32m of that‚ with interest payments of R24m.

Buffalo owns a South African company‚ Buffalo Coal Dundee‚ which controls two mines‚ the Magdalena bituminous mine and the Aviemore anthracite mine.

“Although the group has implemented various restructuring initiatives‚ the group continues to experience operational challenges. The group remains dependent upon sustaining profitable levels of operation‚ as well as the continued support of Investec‚ RCF and other stakeholders‚ and believes that subject to its ability to meet current forecasts‚ it should be able to generate positive cash flows in the foreseeable future.”

Buffalo needs to install a new adit or horizontal shaft at the Aviemore mine to tackle remaining reserves‚ with the existing adit due to reach the end of its life in 2020. The new adit would push the mine’s life to 2033.

Source:BDproDate: 2018/03/22

Pallinghurst changes focus

After a decade on the JSE and a mediocre performance at best, Pallinghurst Resources is selling stakes in a range of investments and focusing instead on coloured gemstones.

Pallinghurst, which started trading in August 2008 and reached a high of R8.19 a share, was trading at R3.19 — below its historical average of R3.50.

Much was expected of Pallinghurst under the chairmanship of Brian Gilbertson and longtime business partner Arne Frandsen as CEO. Gilbertson made his name in the team that pulled together South African and Australian companies to form BHP Billiton, the world’s largest resources company.

Frandsen will leave Pallinghurst to return to Pallinghurst Capital Partners, a private equity company that will manage Pallinghurst’s exit from Sedibelo, a platinum mine north of the Pilanesberg nature reserve. He will be replaced by Gilbertson’s son Sean.

The diverse nature of the investments held by Pallinghurst — luxury jewellery brand Faberge; steel ingredients in manganese; and gemstones and platinum group metals — failed to catch the market’s attention in any serious way.

The decision by its Australian investment Jupiter Mining to list on the Australian bourse, bringing to the market a 49% stake in the Tshipi manganese mine in SA, has marked the turning point for Pallinghurst, which for most of its existence was an investment holding company.

“The Jupiter IPO [initial public offering] and consequent selldown of a significant part of Pallinghurst’s shareholding are important steps in our strategic development,” Gilbertson said.

“Henceforth our shareholders will hold their interests in two essentially ‘Pure Play’ vehicles — Jupiter in manganese, and [a renamed] Pallinghurst in coloured gemstones.”

Efforts during 2017 to sell the Tshipi manganese mine faltered, with the owners holding out for a price no one in the market could justify.

Pallinghurst, an 18% shareholder, has drawn a line under that investment as well as its minority stake in Sedibelo mine, saying it would change its name to Gemfields Group.

Pallinghurst bought and delisted Gemfields in London, with Gilbertson arguing there was value to be unlocked that incumbent management appeared incapable of doing.

The gemstone assets include the Kagem emerald mine in Zambia and the Montepuez ruby mine in Mozambique.

As part of its exit from Jupiter, Pallinghurst agreed to sell a maximum of 212-million of its shares for A0.40 each, realising up to 65m. Pallinghurst now holds 396-million shares. The balance will be sold after a 20-month lock-up.

Source:Business DayDate: 2018/03/22

Sasfin to fight credit-loss fraud in court

asfin Bank will take legal action against a customer it says committed fraud that led to a credit loss that is partly to blame for its second successive double-digit interim earnings slide.

“There was definitely fraud involved. We won’t take this lying down,” bank CEO and Sasfin founder Roland Sassoon said on Tuesday.

For the six months to December 2017, the group’s headline earnings tumbled 41% to R50.5m, hit by a higher tax rate and a single credit loss that propelled impairment losses on loans from 1.2% in the previous period to 2%. Return on equity halved to 6.86%.

Sasfin was still conducting a “post mortem” on the loss, which involved a trade finance client inflating assets, said Roland. While the loss, expected to be between R30m and R40m, was “exceptional”, Sasfin had to “acknowledge that our systems weren’t strong enough to pick it up”, he said.

This is the third successive reporting period in which Sasfin’s earnings have gone backwards. The credit loss follows two material impairments in the previous half-year.

Shareholder Cannon Asset Managers was disappointed with the repeat of “once-off” credit impairments, said portfolio manager Samantha Steyn. “We plan to meet with management to understand the likelihood of further impairments,” she said.

Sasfin has undertaken a detailed analysis of its credit process and appointed a new head of credit, Magda Oosthuysen, a former Nedbank executive, as part of a management shake-up under new group CEO Michael Sassoon. “We have gone a long way to strengthen the management team [in order] to take the business forward,” said Michael, who at 36 is SA’s youngest banking group CEO.

Sasfin poached Stewart Tomlinson from Standard Chartered Bank to be chief risk officer and appointed Michael Blackbeard, who has spent the past 11 years at the Reserve Bank, to head compliance.

It also appointed the former chief financial officer of Liberty Financial Services, Angela Pillay, as its financial director.

Having succeeded his father Roland as group CEO in November, Michael said he was undertaking a strategic review. This involved the adoption of a “devolved decision-making structure”, which included moving centrally managed functions, such as marketing, into each of the group’s three pillars, Sasfin Bank, Sasfin Wealth and Sasfin Capital.

This would drive greater accountability for costs and enhanced focus in each business unit, he said. While his “gut feeling” was that full-year earnings would be behind the previous year, Michael said Sasfin, which grew assets nearly 14% to R13.2bn for the period, had a “very good base to grow from”.

He said it would launch a digital business banking platform next week.

“I don’t think the market is going to give them any benefit until this time next year,” said analyst at 36One Asset Management Wessel Badenhorst, who described Sasfin as “a patient investor story”.

The stock is down 17% over the past year, even as the JSE’s banks index has rallied 30%.

Positively, Sasfin was “perfectly positioned for an uptick in the economy”, Steyn said.

Source:Business DayDate: 2018/03/22

PayPal in search of local partners

PayPal wants partnerships with mobile money operators to grow its exposure to Africa’s unbanked population, says Efi Dahan, the Nasdaq-listed group’s general manager for Russia, Middle East and Africa.

PayPal’s digital money transfer unit Xoom partnered with Safaricom in 2016 to allow users to remit money from the US to M-Pesa accounts in Kenya.

“We want to expand our business across the unbanked population. It’s a success story in Africa and we want to do more collaborations with these kinds of players [M-Pesa],” Dahan said.

PayPal was also implementing initiatives to stimulate the growth of online shopping in Africa, he said. This included absorbing the cost of returning goods, an otherwise expensive process for consumers and retailers from the US. “Once we removed that barrier we saw incremental sales, because once I don’t have any issues with the return and I know that someone will pay, this is good for the merchant,” said Dahan.

“The big fashion retailers globally offer this kind of service, so we want to do what the best players are doing… And more consumers are buying because we removed this pain point.”

PayPal says it will cover a user’s return shipping costs up to 12 times a year.

Most people were unlikely to return goods that frequently, Dahan said.

According to a 2017 DHL report, global cross-border retail volumes are likely to grow at an annual average rate of 25% between 2015 and 2020.

PayPal expects online sales in SA to reach R53bn in 2018, from R37bn in 2016.

Source:Business DayDate: 2018/03/22

Black looks beyond video streaming to e-commerce

Thabiso Mochiko

Video content streaming provider Black is adding e-commerce servicesto its platform to enable people to order food and shop for goods while watching their favourite shows.

By adding more features Black, which is a division of Cell C, is differentiating itself from its rivals. But will it be enough to attract subscribers?

Black was launched four months ago to compete with video on demand (VOD) platforms such as Netflix, Kwesè Play and Showmax.

E-commerce is a growth opportunity in SA, with the transactions value estimated at more than $300m in 2017, according to Frost & Sullivan.

Chat services such as WeChat have monetised their services by getting more involved in e-commerce. Black is hoping e-commerce services will make it more attractive. It has an advantage over its peers as it has access to Cell C’s subscribers.

Black will leverage off the e-commerce opportunities in the industry.

Cell C’s biggest shareholders Blue Label (45%) and Net 1 (15%) offer a range of digital services that can be plugged into Black. For example, Blue Label owns TicketPro, which sells a range of tickets from transport, events and sports. Blue Label and Net 1 provide electronic payment solutions that could come in handy to expand a suite of services for Black customers.

Black also offers betting in partnership with ClickaBet.

The challenge for VOD players has been access to relevant, premium content that will attract customers. This has generally included popular TV series, movies and live sport, which in SA is dominated by the large broadcasters.

VODs also do not have access to public and free-to-air channels. This leaves them with the option of pursuing local content or having access to outdated shows.

Black says it has strategically selected its content, bringing SA the latest movies straight off the cinema circuit, channels from top European football clubs, local series and music. It has packaged it for different customer segments.

Moreover, Black’s customers are able to choose shows they want to subscribe to, something other large broadcasters are not offering. Subscribers are able to buy a US-based Fox bouquet, which includes news, dramas, movies and sports, or can subscribe to children-friendly shows only.

Black will accelerate its marketing campaign mainly in the townships as it believes it offers more affordable subscriptions than what is being paid for pay-TV services.

Black CE Surie Ramasary says the company is now about educating consumers on how they can access entertainment on their mobile devices using prepaid airtime and “super affordable black data” to stream “like never before”.

“So far we are seeing a combination of all types of users. But the main reason why high-LSM [Living Standards Measure] customers will come to us is price and choice.

“With Black, customers can choose what they want to watch, when they want to,” Ramasary says. She says content negotiations and acquisitions are a challenge as some of the big production houses have still not made any provision for digital platforms.

The business model of production houses has limited the participation of operators in the VOD space.

Production houses dictate how their content should be broadcast. Since pay-TV broadcaster MultiChoice has secured some lucrative movies and TV series, VODs will have to wait until those contracts expire in order to gain access to the shows.

“Studios have very strict conditions. They dictate how many times and where the movie can be watched.

“We couldn’t have an open access box, hence it had to be encrypted because they are worried that an open box (like those running on Android) will dilute the quality of the content,” says Ramasary.

But things are slowly changing as some production houses will do away with exclusivity once the existing contracts expire.

In the current environment, operators will find it difficult to offer popular content that will appeal to their customer, says Frost & Sullivan industry analyst Lehlohonolo Mokenela.

Large broadcasters such as MultiChoice have the opportunity to play in the space, with the potential to establish a mobile virtual network operator arm through which they would be in control of the customer experience, from content to service access.

Although the uptake of VOD services is not fully known, they are largely hamstrung by high data prices and the lack of highspeed internet connectivity in many places.

To many South Africans, discontinuing their MultiChoice subscription in favour of an online service is not feasible because of unreliable internet connectivity, high data costs and having to subscribe for streaming services. Hence DStv will still have a strong hold in the lower-income market for some time.

But what the VOD operators can hope for is a broadcaster to disrupt the industry, much like Netflix did in the early 2000s, with a business model that will be more flexible and more aligned to the needs of the operators, says Mokenela.



Source:Business DayDate: 2018/03/22

White elephant 'will be a black elephant spewing manganese'

The R9bn manganese mine the industry thought would never happen is starting to ramp up production.

Kalagadi Manganese, chaired by Daphne Mashile-Nkosi, is targeting October 2019 for steady-state production of 2.4million tonnes a year of sintered manganese, a form of manganese no other company in SA produces except South32, which uses it in its own alloy smelters.

“This white elephant which is so famous in the Northern Cape will be a black elephant spewing manganese,” Mashile-Nkosi said, referring to the black colour of raw manganese.

The 350m-deep mine has started blasting ore, with a steep ramp-up to 67,269 tonnes of manganese ore in December as the company embarks on bordand-pillar development on the thick deposit, taking delivery of machinery each month to reach the target. The mine will generate 3-million tonnes of ore a year to convert into 2.4-million tonnes of sinter, which is in demand in Chinese steel mills because of its reduced levels of pollutant gases and higher manganese content.

It has been a long and difficult decade-long project that came perilously close to financial distress a number of times, with Mashile-Nkosi telling stories of begging the Industrial Development Corporation (IDC) — the 20% partner in the mine — for money to pay salaries, borrowing money from friends and sleepless nights fretting about empty bank accounts at the end of the month.

“It’s been a humbling process,” she said, but holds up the IDC support and that of the African Development Bank as creating a model that could be used for other start-up projects and fostering true black empowerment rather than a system of buying stakes in existing companies.

Part of that self-awareness is slowing the plans to build a smelter for nearly R4bn to produce high carbon ferromanganese, which is a premium product to sell into the steel market and is fetching $1,300 a tonne.

“We don’t have the capacity right now to raise that kind of capital. When we spoke of doing a three-in-one project with the mine, sinter plant and smelter we did not realise how difficult it would be to raise capital,” Mashile-Nkosi said.

“Our focus now is to get this mine and sinter plant into steady-state production and repay our debt.

“The IDC has given us eight years. We think at these prices we can repay it sooner than that. Then we’ll look at our smelter. We have all the design and engineering work ready to go.”

Kalagadi processed and sold 500,000 tonnes of manganese from on-reef development and purchases from third parties. It loaded the ore on open wagons and into containers to rail to Port Elizabeth as well as trucking it to the coast.

Third-party purchases had dried up as the mine started to ramp up, said Mashile-Nkosi.

Kalagadi was keen to do business with its neighbour, South32, which had millions of tonnes of ultra-fine manganese stocked at its Blackrock mine and which would be a good feedstock for the sinter plant, she said. Talks had, however, proved fruitless.

Source:Business DayDate: 2018/03/22

Master Drilling upbeat on global growth

Master Drilling, whose subsidiaries provide specialised drilling services to the mining, civil engineering and construction sectors internationally, is still struggling despite better minerals commodities markets.

In the year ended December 2017, revenue inched up 2.8% to 121.4m, but operating profit fell marginally to $24.9m from 25.8m in 2016. A rise in the cost of sales offset the increase in turnover, as dollar headline earnings per share fell 18.9%. In rand terms the fall was 26.5%.

Poor demand and increased finance charges on borrowings to support future growth, along with the exchange rate effect of emerging currencies, had a negative influence on profit for the period, which at $17.5m was down from $22.3m previously.

“Despite 2017 having been a challenging year with global political changes and a tough local macroeconomic environment, we delivered stable operational results in 2017 with the continued focus on working capital bearing fruit in the form of satisfactory cash generation,” Danie Pretorius, CEO of Master Drilling, said on Tuesday.

“The uptick in the global economy and commodity cycle is expected to have a positive impact on our business going forward. Our pipeline is strong and we are excited about our entry into India and Australia, further diversifying our geographical exposure,” he said.

The recent acquisition of Bergteamet Raiseboring Europe had provided a launching pad for the group’s further expansion into Europe. This came as Master Drilling said it had turned around most of its underperforming businesses. “As a result, we expect an improvement in most global regions where we do business during the next reporting period,” Pretorius said.

The company had a stable order book of $125m, with pipeline work of $228m.

It said the adequate cash generation had enabled it to declare an annual dividend of R0.26 per share in the period. Since listing in 2012, compound annual growth in profit after tax had been 7.5% in dollar terms.


Source:Business DayDate: 2018/03/22

Reserve Bank backs Capitec again in Viceroy allegations

By Linda Ensor

The Reserve Bank has restated its belief that the key allegations made against Capitec in the report by short-seller Viceroy are not correct.

In a presentation to Parliament’s finance committee‚ Reserve Bank deputy governor and registrar of banks Kuben Naidoo said Capitec did not use rescheduled loans to hide nonpayment and to boost new lending‚ as alleged. The bank’s provisioning model met legal requirements.

The bank’s capital adequacy ratio of 34% was 2.5 times what a normal bank had. “The bank is very well capitalised relative to other banks‚” Naidoo said. Its liquidity coverage ratio of well over 1‚000% compared with the required 100%.

“Capitec is well regulated and has adequate capital and adequate liquidity‚” Naidoo said.

Naidoo said the Reserve Bank was continuing to monitor the situation as part of its ongoing supervision.

Capitec has also rejected the Viceroy allegations that it fabricated new loans and collections; approved loans to delinquent customers in order to repay existing loans; and overstated its loan book.

The bank has insisted Viceroy’s calculations and assumptions are incorrect‚ and that the rescheduling of loans and consolidated loans was based on prescribed criteria.

It has strongly denied that it grants consolidated loans for loans in arrears.

Capitec CEO Gerrie Fourie told the committee a full audit had been conducted related to the Viceroy allegations and the results would be released with the release of the bank’s annual results on Monday.

“We are quite convinced we have nothing to hide‚” he said‚ but stressed the need to handle the allegations very carefully to maintain the trust of depositors.

Capitec has laid a formal complaint with the Financial Services Board against Viceroy.

Viceroy looks for companies with a very high price to earnings ratio and shorts the company to make profits.

They talked to clients‚ suppliers‚ former employees and current employees‚ who were offered R5‚000 an hour for their financial research‚ which included questions on Capitec.

Fourie briefed the committee on the way the bank functions and its client profile.

He noted that only 20% of loans were consolidated and in each case a full affordability assessment was conducted.

He stressed that the bank adopted very conservative policies and priced for risk.

Fourie said the bank was in a closed period as it would be releasing its results on Monday but reported that it would reach about 10-million clients by mid-April‚ up from 9.2-million at end-August.

The bank had about 25% of the unsecured market‚ he said.

Source:BDproDate: 2018/03/20

Sasfin HEPS plunges in part due to ‘large credit event’

By Robert Laing

A mysterious “large credit event related to a single client” contributed to Sasfin’s interim headline earnings per share (HEPS) crashing 42% to R1.58.

The bank said in its results for the six months to end-December released on Tuesday morning that other reasons for the drop in HEPS were “a change in the accounting estimate of certain deferred tax assets and a change in the group’s estimate of a deferred tax liability.”

Sasfin cut its interim dividend by 41% to 47c from 80c in the matching period.

The results statement did not provide any further details on how much the “single client” cost Sasfin‚ but its income statement indicated the plunge in profit was mainly due to its tax bill nearly trebling to R47.5m from R18.4m.

Sasfin said its effective tax rate shooting to 46.38% from 16.43% “is largely anomalous and was impacted by the group’s decision to reverse a deferred tax asset and to change its estimate regarding a deferred tax liability due to a change in tax legislation during 2017.”

Sasfin’s total income declined 2.5% to R578m‚ which coupled with the jump in tax caused the bank’s net profit to fall 41% to R55m.

Source:BDproDate: 2018/03/20

Mall gets R400m expansion

Liberty 2 Degrees (L2D), which is the Liberty Group’s listed property vehicle, has invested R400m in its Midlands Mall to improve the retail offering for a wider range of customers in KwaZulu-Natal.

The mall which is co-owned by L2D and the Liberty Group, caters to the greater Pietermaritzburg area and the KwaZuluNatal Midlands. Its value has increased from R1.8bn to R2.2bn following the investment. Liberty Midlands Mall opened its doors in 2003 and has been expanded since. The group’s largest mall is Sandton City followed by Eastgate Shopping Centre.

A lifestyle centre made up of retail and leisure components has been added through the latest expansion of Midlands Mall, expanding its total size to a gross lettable area of 78,000m² from 56,000m².

“We are pleased to have completed the development of phase three of Midlands Mall. This development falls within L2D’s broader strategy and is a reflection of our ability to respond and invest appropriately in retail environments to meet customers’ needs,” said CEO Amelia Beattie.

L2D and Liberty have been enhancing their assets as they look to achieve better financial results. Having joined the main board of the JSE in December 2016, L2D’s pre-listing forecast was for a dividend per share of 65.07c in its first year.

Yet the company fell far short, managing only 59.22c per share in 2017. It has estimated a paltry 60c per share for its 2018 financial year.

Source:Business DayDate: 2018/03/20

Hammerson rejects Klépierre's GBP4.9bn offer

By Alistair Anderson

Shopping mall owner Hammerson plc says it will not be derailed by an opportunistic share and cash takeover proposal by France’s Klépierre‚ claiming it undervalues the JSE-listed retail real-estate investment trust’s assets.

The French mall operator approached Hammerson with a £4.9bn (R82.87bn) bid proposal as it seeks to stop the UK company taking over Intu Properties‚ and creating a large competitor in European retail.

This sent Hammerson’s share price up nearly 31% to R95 in morning trade on Monday. It closed 26.46% higher at R92.

Hammerson and Intu announced in December that their boards had agreed to a merger and their shareholders were being canvassed. If successful they would create the largest mall owner in Britain‚ which will have exposure to British and European malls.

Klépierre‚ which has a market capitalisation of €10.51bn (R156bn)‚ would face a fierce competitor in an enlarged Hammerson worth about R105bn.

Hammerson turned down what it called a “highly preliminary and nonbinding proposal”.

The proposal‚ received on March 8‚ valued Hammerson at 615p per share‚ apportioned 50% in new Klépierre shares and 50% in cash. “The proposal from Klépierre is wholly inadequate and entirely opportunistic. It is a calculated attempt to exploit the disconnect between our recent share price performance and the inherent value of our unique … portfolio‚ which is delivering record results‚” said Hammerson chairman David Tyler.

Stanlib’s head of listed property funds‚ Keillen Ndlovu‚ said Klépierre’s bid suggested malls were still highly valuable.

“The key message without debating whether the deal makes sense or not is that the deal suggests that mall real estate investment trusts are not appropriately valued or are cheaply valued and that there’s still a case for investing in good-quality malls despite concerns around e-commerce or online shopping‚” he said.

However‚ the proposed merger has had its critics‚ as it may not benefit both parties.

“Overall we think the merger is good for Intu shareholders. However‚ we are not convinced of the merits for Hammerson shareholders.

"The merger will create scale in a sector that continues to face fundamental headwinds‚ which is putting pressure on both rental values and cap rates‚” said Peter Clark‚ a portfolio manager at Investec Asset Management.

“We don’t think scale solves any of these issues and from Hammerson’s perspective it increases the exposure to the UK‚ which is a challenging market‚ and increases the leverage.”

Source:Business DayDate: 2018/03/20

Sun City the star of the Sun group

Gaming and hotels giant Sun International saw a resurgent performance from Sun City — one of its oldest properties — but reported an underwhelming start at its new Times Square mega-casino precinct.

Results released on Monday covering the year to end December showed Sun City as the star performer, with a 7% increase in revenue, translating into a 58% gain in ebitda (earnings before interest, tax, depreciation and amortisation) at R318m. Sun City benefited from extensive refurbishments, with casino revenue up 11% and hotel occupancy increasing from 68% to 72%, with an average room rate hike of 4%. Sun will be desperately hoping for a marked improvement from Times Square after a soft start to trading. Sun has already spent R4.2bn on this casino and entertainment precinct in Menlyn near Pretoria, which is one of the main reasons the company is contemplating a rights offer to reduce debt levels that have stretched over R11bn in SA.

The Times Square complex generated revenue of R827m for nine months of trading, with R744m derived from the casino operation. Times Square’s ebitda came in at R184m – but a R345m loss after tax and interest was incurred. Sun’s share of the loss was R296m.

Sun indicated that although the Gauteng gaming market grew strongly in the second half at 4.4%, Times Square captured a less-than-expected market share of around 13%.

Sun CEO Anthony Leeming said recent trading had reflected growth in activity and visitation at Times Square after the opening of the arena in November 2017. But a lower win ratio at the new venue meant growth did not translate into revenue.

Leeming believed Times Square gaming revenue could grow after the opening of the hotel at the end of this month ahead of the Easter long weekend. Sun’s other large Gautengbased casino precinct, Carnival City, had a weak showing, with revenue and ebitda down 9% and 19% respectively.

But Leeming noted a marked improvement in the second half of the year, with revenue down only 3% compared with the 14% decline in the first half. He said the improvement was driven by a revamp of the retail and food and beverage offerings.

Sun’s flagship casino, GrandWest in Cape Town, held the revenue line at R2.15bn, with ebitda slipping 2% R850m.

Sun’s Latin American operations enjoyed mixed fortunes over the trading period.

Revenue from Chile decreased by 5% to R4.1bn, with ebitda down 9% to R1.2bn.

The Sun Nao Casino in Colombia continued to incur losses and was closed in December 2017.

Revenue in Peru increased 6% but ebitda dropped from R45m to R33m.

Source:Business DayDate: 2018/03/20

Netcare finally gets nod to buy Akeso

The Competition Tribunal has finally given private hospital group Netcare the green light to acquire the Akeso psychiatric clinic chain, but has attached strict conditions that include guarantees that it will not immediately hike prices and will dispose of two of its hospitals.

The development is significant because it offers consumers some protection from tariff hikes, which have typically occurred when large hospital groups acquire smaller ones, said Alex van den Heever, chair of social security systems administration and management studies at the University of the Witwatersrand.

Small hospital groups usually have lower prices than the large JSE-listed hospital groups, but they typically do not merge with each other, he said. The three JSE-listed large hospital groups are Netcare, Mediclinic International and Life Healthcare.

“Akeso has an outstanding reputation, a well-respected and experienced management team and an excellent patient-centred clinical programme. We therefore believe that the acquisition of Akeso provides a strong platform from which to expand our mental health services in South Africa,” Netcare CEO Richard Friedland said on Monday.

Netcare announced in November 2016 that it had agreed to buy Akeso for R1.3bn, subject to regulatory approval, as it sought to capitalise on growing demand for mental healthcare services. Akeso has 12 psychiatric facilities.

However, the proposed transaction ran into trouble with the Competition Commission, which initially recommended the merger be prohibited on the grounds that it would substantially lessen competition and reduce patient choice. It said the deal would result in significant combined market share for the provision of mental healthcare services in Gauteng, and the merged entity would be likely to exercise market power.

In response to questions raised by the tribunal, Netcare and Akeso last week negotiated further conditions to the merger, which the Competition Commission accepted would adequately tackle the concerns it had raised. The commission thus reversed its recommendation from prohibition to approval, subject to several conditions. These include Netcare agreeing to maintain the base tariff agreed to by Akeso and various medical schemes, and sticking with Akeso’s tariff classifications for existing treatment modalities. Netcare also agreed to honour Akeso’s alternative reimbursement contracts with medical schemes and agreed that post-transaction tariff increases for fee-for-service reimbursement at Akeso will be tied to the tariff increase Netcare negotiates with medical schemes for its acute hospitals.

Netcare will also have to dispose of Rand Hospital and Bell Street Hospital, which have psychiatric beds, to a purchaser that can prove to the Competition Commission it has the means to develop them as active competitors to Netcare.

The commission has also prohibited a merger between Netcare and the multidisciplinary Lakeview Hospital. It said the deal would reduce competition in the Benoni area and lead to higher hospital prices for medical scheme patients who use the facility. The tribunal is due to hear the matter on April 3.


Source:Business DayDate: 2018/03/20

AfroCentric on the hunt

AfroCentric Group, the healthcare services specialist with a core investment in health-risk management services provider Medscheme, remains on the lookout for local and international opportunities.

In commentary with its halfyear results to end-December, AfroCentric CEO Antoine van Buuren said the group’s financial position remained sound, with strong cash generation.

Cash generated by operations came in at R175.5m, with cash on hand of R282m at the end of the interim period.

Van Buuren said Afrocentric had adequate headroom to accommodate expansion opportunities. “At corporate and operational level, management is assessing and implementing plans for real growth and pursuing selective local and international opportunities to complement the existing product and service offering.”

AfroCentric is focused on opportunities that will create a platform that offered a value chain of healthcare services to optimise the purchasing power of every healthcare rand through models of integration, mergers, partnerships and economic incentives.

“Several such proposals are already in place, several are in the pipeline and discussions on these initiatives are in progress, both for the public and private healthcare sectors,” it said.

Afrocentric has enjoyed a busy time of late, having consolidated about 5,600 community medical scheme members into the Bonitas medical scheme; secured the Hosmed administration contract (24,000 members) for Medscheme; and won a contract for providing administration services for a significant number of members of the South African Local Government Association.

It has acquired Wellness Odyssey, a wellness specialist, bought an 80% stake in Scriptpharm Risk Management, a chronic script claims specialist, and a 51% interest in healthcare insurer Essential Group.

Source:Business DayDate: 2018/03/20

Star overpowers minorities' pushback at first annual meeting

Ann Crotty

Steinhoff Africa Retail’s (Star’s) annual general meeting was remarkable for a variety of reasons. Not only was it the first, with Star having listed in September 2017, but it is not often that a 77%-held subsidiary goes to such public lengths to distance itself from its parent.In addition, there was not only the physical presence of institutional shareholders but also their active involvement.

It was always going to be an interesting affair but the vigour with which the board told shareholders attending Star’s maiden AGM of its determination to distance itself from Steinhoff International was unprecedented.

Given that Steinhoff owns 77% of Star, its efforts to claim independence were not entirely persuasive. The reality is that Star can only be independent if Steinhoff allows it. That Star is even listed was a contrivance orchestrated to suit Steinhoff’s purposes.

Shareholder activist Theo Botha says as things stand Star should not have a separate listing. He points out there is not enough liquidity in the share.

Lancaster 101, a vehicle controlled by Star chairman Jayendra Naidoo, owns 9% of Star, which leaves just 14% of the shares in minority hands.

Remarkably, despite his substantial interest, Naidoo is an independent nonexecutive chairman. A significant chunk of minority shareholders voted against his reappointment but with 85.58% of the shares in the bag there was little chance of any change.

When challenged about his “independent” tag, Naidoo said that was the view the board took at the time of the listing. “We’ve asked legal advisers to review the status,” he said.

News that Allen Swiegers, chairman of the audit and risk committee, had unexpectedly resigned from the board shortly before the AGM rattled some nerves, possibly because of his links with Atterbury Property Fund. Swiegers, who is chairman of Atterbury, which has a joint venture with Steinhoff, was with Deloittes for 33 years until he retired in 2016. He was appointed to the Star board in August 2017.

That Deloitte is both Star’s and Steinhoff’s auditor was sufficient reason to question why Swieger was ever appointed chairman of the audit committee. At the AGM Mehluli Ncube, representing the Eskom pension fund, wanted the auditors to tell shareholders what measures had been taken to ensure what had happened at Steinhoff had not spilled over. Naidoo refused permission to allow Ncube to direct his questions to the auditors. “I’m not aware auditors are entitled to speak at this meeting, I will take it on advisement,” he said.

Ncube said he wanted to know what resources the auditors had to detect the sort of fraud that had occurred at Steinhoff and was said to be difficult to detect. “The auditors are at the centre of all these issues and we tend to give them the green light,” he said.

After the meeting Ncube said he was puzzled by Naidoo’s response. “In the financial statements the auditors raised three audit matters they described as key without giving a satisfactory explanation. I thought the board would go all out to comfort us on these issues,” said Ncube.

He also raised concerns about the price Star paid for Tekkie Town, which was almost double what the company had been valued at a few years earlier.

“There was no growth in the business. We need to look at that valuation.”

Star CEO Leon Lourens said at the meeting that the value placed on Tekkie Town was “reasonable” based on the company’s performance.

Shareholders were reminded of just how strong the ties are between Star and its parent when Steve Muller, chairman of the remuneration committee, explained that the 2018 income statement will take a R90m hit to bail out senior Star executives who were awarded Steinhoff share options in 2016. The share options are totally valueless.

“It was crucial to keep these people and ensure they were motivated so we have bailed them out and have paid the first tranche a year early,” said Muller, adding that the money would be recouped from provisions in 2019.

the direct hit Star will take to bail out senior executives


of shares are held by minorities

Source:Business DayDate: 2018/03/20

Advetech tertiary unit lifts revenue

Private-education conglomerate Advtech is seeing acquisition opportunities in the tertiary space, but is determined not to overpay for assets.

Advtech chalked up another impressive performance from its tertiary division in the year to end-December, a showing that overshadowed the private schools segment, which has traditionally been viewed as the company’s main profit centre.

Results released on Tuesday showed the tertiary segment, which is anchored around brands such as Varsity College and Rosebank College as well as other specialised offerings, reported revenue up 26% to R1.58bn. A fattening of the margin to 20% — previously 18% — meant a 44% hike in operating profit to R321m.

Advtech CEO Roy Douglas said the group had increased the tertiary division’s offerings to include 165 accredited tertiary courses. These include vocational training, higher certificates, degrees, honours degrees, masters degrees and PHD programmes. He said the success of the “blended learning” model at Rosebank College would prompt more of these opportunities in 2018.

The group is already opening new digitally enabled campuses in Pietermaritzburg and Bloemfontein.

Advtech also recently acquired a majority stake in the Private Hotel School, which will complement the acquisition of Capsicum Culinary Studio. “We have increased our presence in the hotel, hospitality and culinary sector and now have a secure foundation on which to base future plans,” Douglas said.

Advtech opened a new hospitality campus in 2018 in Rosebank, Johannesburg.

Douglas said Advtech had looked at most of the acquisitions made by JSE-listed tertiary education rival Stadio Holdings.

“We might now have to start building some of our own tertiary offerings.”

He said Advtech was price conscious and would avoid overpaying for assets in the tertiary space.

Considering the rampant market rating applied to Stadio, Anthony Clark, an analyst at Vunani Securities, asked whether it would be smart for Advtech to consider spinning off a portion of the tertiary education business to increase the overall value of the group.

Advtech’s schools division reported revenue up 14% to almost R1.9bn.

Source:Business DayDate: 2018/03/20

Harmony to stick to Papua New Guinea

Harmony Gold will retain its stake in the potentially cashgenerative Wafi-Golpu copper and gold project in Papua New Guinea, arguing it can readily finance its stake, which is more than its R11.3bn market capitalisation, through cash and debt.

Harmony CEO Peter Steenkamp has in recent months spoken of exploring options to realise value from the undeveloped project, which will cost $2.83bn in total for Harmony and its Australian partner Newcrest Mining to bring into production over five years.

With the release of an updated feasibility study into the project on Monday, Steenkamp said Harmony would keep the project and that would repay it its capital investment in less than 10 years, generating free cash flow of an average $900m a year for the partners to share in the first decade of production.

“We would like to build this project and we feel we can do that. We don’t have the mindset of selling… At the moment we’d certainly like to keep this mine,” Steenkamp said.

Harmony financial director Frank Abbott said the company could fund the first three years of its $1.4bn share of the capital from cash from its South African mines and the restarted Hidden Valley mine in Papua New Guinea. Harmony would in the next 12 to 18 months devise a funding strategy for the remaining years.

“We do believe the updated feasibility study is more fundable than the previous one. We can easily fund the first three years and then we’ll need bank funding for two or three years. Repayment is very quick.”

Harmony’s share of the capital expenditure may fall to 35% if Papua New Guinea’s government acquires up to 30% of the project, repaying a pro rata amount towards money already invested as well as its share of the capital thereafter.

“Although the … risks to Harmony are significant, we currently assign zero value to Wafi in our $793m Harmony NPV [net present value] and $1.1bn fair value, as the project has yet to receive either permitting or development approval,” JP Morgan Cazenove analyst Dominic O’Kane said.

“Therefore if management pursue or sell its 50% stake in the project, either is likely to provide upside to our Harmony valuation,” he said in a note. The cost of building the mine and all associated infrastructure such as on-mine power generation, pipelines to the coast and processing plants, rose to $2.825bn from $2.67bn in a 2016 study. The overall cost of the project, including sustaining capital, gave a life-of-project capital bill of $5.38bn, down from $6.38bn.

The project, set to deliver on average 161,000 tonnes of copper and 266,000 ounces of gold a year, will be one of the lowestcost copper and gold mines in the world, Steenkamp said.

The boards of Harmony and Newcrest will approve the study once they have secured the special mining lease from the Papua New Guinea government.

The partners have opted to deposit tailings at sea, joining another three mining firms in Papua New Guinea doing the same.

is what it will cost for Harmony and Newcrest to bring mine to production


tonnes of copper and 266,000 ounces of gold a year will be the mine’s output

Source:Business DayDate: 2018/03/20

Hammerson shares shoot up 28% on takeover proposal

By Andries Mahlangu

Hammerson shares shot up 28% in early trade on the JSE‚ after the French real estate investment trust (Reit) Klépierre approached the UK company with a takeover offer.

Hammerson has rejected the proposal‚ which was meant to be settled in cash and shares.

“The proposal from Klépierre is wholly inadequate and entirely opportunistic‚” Hammerson chairman David Tyler said in a statement.

“It is a calculated attempt to exploit the disconnect between our recent share price performance and the inherent value of our unique and irreplaceable portfolio‚ which is delivering record results.”

The proposal was pitched at 615 pence per share‚ which represented 40.7% premium to Hammerson's closing price of 437.10p on the London Stock Exchange on Friday.

Klépierre said in a statement that the proposal did not constitute an offer or impose any obligation on Klépierre to make an offer.

The latest news came at the time when Hammerson was trying to acquire Intu Properties‚ in a deal that both company said would create a £21bn pan-European portfolio of high-quality retail and leisure destinations.

Hammerson shares were up 27.29% to R92.63 in mid-morning trade on the JSE‚ valuing the company at R73.4bn.

Source:BDproDate: 2018/03/20

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