When Sekunjalo's main income generator, LeisureNet, was put into liquidation in October 2000, few analysts expected the black-owned industrial group to survive.
With an 18% stake in the health and fitness company worth R180m, a huge investment for the empowerment company before the crisis, Cape-based Sekunjalo's share price fell sharply.
The company claimed that auditors Deloitte & Touche's audited statement of LeisureNet was inaccurate and did not fairly represent its financial position.
In response Deloitte denied liability, claiming full compliance with Generally Accepted Accounting Practice. The matter was set down to be heard this year.
"Sekunjalo was almost on its knees," says CEO Iqbal Survè candidly. Though the group's other assets - a minority stake in Premier Fishing, an IT division, property and financial services - were profitable, in 2000 they were only marginally so.
The fishing business is acknowledged to have kept the group afloat.
Moreover, LeisureNet had not been the only difficulty to strike the group; Prosper Packaging went belly-up at about the same time.
Sekunjalo's shareholders, some of them the original funders of the company, were devastated.
But the analysts were wrong: by last year Sekunjalo controlled and managed all of its businesses in the IT, health-care and fishing industries.
The company has also launched a R160m legal action against Deloitte & Touche.
Last year Sekunjalo won two black economic empowerment (BEE) awards: the BEE market performance by BusinessMap ; and the Black Business Quarterly performance award in recognition of the recovery that the group had made since LeisureNet was put into liquidation.
According to the Empowerdex ranking, Sekunjalo rates second overall and second in the top 10 cyclical goods companies. That's because the company scores high on almost all factors.
The whole board and executive team at head office is black, as is 72% of total staff; black shareholders have 56% direct ownership and 63,1% total ownership (including indirect) of the group; 64% of procurement spend is directed to black-owned suppliers and the company's enterprise development programme is rated highly.
According to Empowerdex, Sekunjalo does not demonstrate many negative factors relating to empowerment. The main drawback is that, in contrast with Sekunjalo's 100% black representation, female employees make up only 25% of the management team. And though 64% of procurement is directed towards empowered businesses, the company doesn't have a verification process to ensure that BEE claims made by suppliers are valid.
Considering the rationale for Sekunjalo's formation - the economic development and empowerment of SA's historically disadvantaged - the ranking should not be a surprise.
Survè says Sekunjalo is a good example of an investment holding company with a diversified portfolio in which one investment failed and the others recovered value for the company.
He is not short of optimism about Sekunjalo and its place in the history of BEE in SA.
"Sekunjalo is a great comeback story and perhaps the beginning of a rising tide in BEE this year.
"After LeisureNet, suppliers wouldn't supply us," he says. "The banks wouldn't extend credit. A lot of management left. It was critical for staff to see me leading from the front."
Sekunjalo's financial fitness was further improved by an R80m rights offer in January.
Survè says the group needed the cash to lower group debt and fund acquisitions. At its year-end in August 2003, Sekunjalo's interest-bearing debt was about 13 times equity (extremely high, though the number is virtually meaningless because Sekunjalo's assets are valued at cost and have climbed in value since acquisition). The rights issue helps significantly by replacing debt with equity.
About R39m of the funds raised through the rights offer was funded by Sekunjalo's directors, who gained more control of the group, improving its empowerment credentials. This came just two years before directors were to have diluted their control because of a voting rights agreement put in place when Sekunjalo listed in 1999. The rights issue was held in Sekunjalo's less powerful B shares; the directors maintain control of the A shares. In 2006, all investors will have equal voting rights.
Sekunjalo - an Nguni word meaning "now is the time" - was formed in the Western Cape in 1997.
At the time, the National Party retained control of the province and former activists saw the political control, for which they had struggled, continuing to elude them. The mood was low. Empowerment deals, starting to take place in Johannesburg, weren't happening in Cape Town.
Survè and his colleagues saw that action was needed to kick-start economic empowerment in the region.
"The question was how to get people involved in the community," says Survè. "We decided to form a small company; there was no vision of becoming a big business."
The group began collecting seed capital from investors, limiting individual investment to R20 000 to spread ownership of the group.
Sekunjalo was formed from a capital base of R250 000 invested by a consortium of former political activists, professionals, informal savings groups and black business people.
Survè volunteered to set up the company, a role that was initially to last six months before a permanent CEO was appointed. That was seven years ago, and he is still there.
In an Enterprise magazine article in November, Survè describes the board's approach during the infancy of the company.
"In the first year we spent more time discussing how we were going to distribute our profits than making money. The main driver for us was that we wanted to have a different kind of empowerment. We wanted to believe that as a socially progressive black business we could affect the macroeconomy, not necessarily in bottom-line terms, but in terms of ideas. We wanted to set an example that others would want to follow. We soon realised that was meaningless unless the company was profitable.
"So Sekunjalo has gone through three phases. The first was a visionary phase about the type of business we need in this country, and how we can affect the economy. The second was the businesslike approach of setting up the infrastructure, buying companies and making them profitable. [This phase included the LeisureNet incident.] The third phase is the one Sekunjalo is in now - a phase of real transformation. Not just replacing white managerial faces with black ones, but transformation through the development of our people."
The group expands on its view of empowerment in its latest annual report. "A sustainable model of [BEE] takes into . . . account a commitment to the development of the Southern African economy by the creation of employment and increased exports. The strategy emphasises entrepreneurship. The ethos of the development of all stakeholders, including employees, the community and the environment in which the group operates, is central to this business strategy."
Despite this broad focus, Survè is critical of the debate about grassroots versus narrow-based empowerment, arguing that it approaches the issue the wrong way.
"The question we should be asking ourselves is: What's wrong with this country from a business perspective?' " he asks in the Enterprise article.
"What's wrong is there are too many people who are poor, who don't have jobs. What's also wrong is that there are too few black people involved in the macroeconomy. We must separate development from empowerment. We live in a capitalist society and there is nothing wrong with wanting to be rich, but how do I use my wealth or my position to bring other people into this economy? Have your mansion, have your Merc, but commit to more development of our country at the same time. That's how the debate should be framed."
At present the fishing assets hold the most potential for the group. In May last year, Sekunjalo increased its stake in Premier Fishing from 56% to 80% through a R70m recapitalisation, funded by Nedbank. Its increasing of its stake was the first sign of the empowerment group's comeback as an empowerment contender after the LeisureNet crisis.
"Sekunjalo's black shareholding should stand us in good stead when long-term fishing quotas are awarded in 2005," says Survè.
The deal entrenched management control of Premier Fishing in the hands of Sekunjalo. It also strengthened the effect of Premier's returns from the empowerment group.
Previously, the fact that the Industrial Development Corp's (IDC) stake was complemented by loans made to the seafood group meant that much of the cash flow from Premier never entered Sekunjalo's cash flow, but was diverted to service the IDC debt.
Premier exports rock lobster and fish to Asia, Europe and the US. Premier has also invested in an abalone aquaculture farm. It also owns household brands such as Pecks Anchovette and Redro. Apart from owning these brands, Survè has hinted at possible acquisitions in the local fishing sector and a willingness to embark on joint-venture partnerships with smaller, community-based fishing groups.
After an attempt to resign from his operational post at Sekunjalo and concentrate on strategy - "My board didn't allow me to think that way" - Survè is determined that the time is right for him and the company to make this move.
"The ideal would be to take a sabbatical," he says. "But that is unlikely. I am now head of strategy & operations. I don't believe CEOs should be in the job too long; the company needs the new energy that a successor would bring."
Early this year, an unexpected twist to the LeisureNet saga occurred when LeisureNet liquidators issued a summons in the Cape high court for an order in terms of section 424 of the Companies Act, declaring LeisureNet directors personally liable for the company's total debt of R1,2bn. Survè was a member of the board.
In March, Survè said he would oppose the bid and was considering joining Deloitte & Touche to defend the action. Other directors were considering similar action.
