Paul Dunne from Northam Platinum, Jannie Durand from Remgro and Stephen Koseff from Investec shared their strategies for dealing with the labour instability, structural challenges and market volatility of their respective sectors.
Durand attributes their Remgro's success to being a family-controlled company. "That means we can take a long-term view and look through the cycles. We don't have to sell when the market turns against us."
Infrastructure development is one of the key requirements for long-term growth. To improve SA's infrastructural deficit, Remgro has stepped into the breach, funding port and rail infrastructure, and telecommunications through Seacom, for example. Remgro believes that Africa will again become a net exporter of food in the future and should be a great exporter of commodities.
"We are firmly of the belief that infrastructure will underpin the growth in this country, as well as in the rest of Africa. We will then be well-placed. We see a lot of opportunity outside of South Africa in terms of infrastructure," said Durand.
Northam Platinum recently acquired Everest from Aquarius Platinum for about R500m, much less than what it's worth. "In bad times, good assets get sold at reasonable prices," Dunne pointed out. He views the Booysendal ore body as Northam's prime asset, as its shallow and mechanisable nature provides the business with an opportunity to migrate to a mechanised process. Northam Platinum has both organic and step-change growth opportunities available.
When acquiring new holdings, Remgro is very careful about the entry point of an investment, as that determines the return on your investment. "Dividends are crucial to us," said Durand. "Over an investment period of 20 to 30 years, dividends make up about 50% of your IRR."
Remgro firmly believes the African growth story and is therefore establishing production facilities in Nigeria, Ghana and Kenya. "You need people on the ground, talented young South Africans. We see Africa as a diversification out of our risk in SA. We are de-risking the Remgro portfolio, opening new revenue streams," added Durand.
Within the bank sector, Investec is a rare success story in terms of offshore expansion, but it didn't happen overnight. It entered the UK in 1992, and had to work hard on building the brand and recruiting the right kind of people. "We try to build capital-light businesses alongside capital-heavy businesses," said Kosseff. "The foundation came with the acquisitions, which were well integrated and successful. You have to integrate with the local society."
Northam Platinum views stability as the most important requirement now for the mining industry in South Africa, as it is the main driver of mining productivity. Northam has just signed a three-year wage increase agreement with Zondereinde, which may appear in favour of labour when compared to CPI. "But," said Dunne, "the work force is not exposed to CPI. Their inflation (food and transport) is higher and it's worth paying for."
In 2008, when the average UK bank was leveraged 50 times, Investec was leveraged only eight times, and could absorb the shocks. "We've always believed in having a lot of liquidity and more capital than you would ordinarily require. That does affect your return on equity and makes shareholders impatient, but at least you survive the rough times," said Koseff.
