Apart from ranking second overall in this year's rankings, Sekunjalo also heads the cyclical goods sector. But transport company Imperial Group has made an empowerment splash with a deal last year. (See table on Cyclical Goods.)
The group argues that empowerment deals in the past "have led to a concentration of economic power among relatively few black business people. In only a few cases have the economic power and distribution of wealth extended to a broad group of previously disadvantaged South Africans."
So when financial imperatives prompted Imperial to consider how it would approach black economic empowerment (BEE) - the need for an empowerment partner to gain government business, for example - the group decided against a deal with a high-profile black business person. Instead, Imperial's approach was to try to economically "empower as many of its black employees as possible by providing them with the means to improve their living conditions", said CE Bill Lynch.
The company, which is SA's biggest publicly traded transport group, employs 28 000 people in its operations in Southern Africa, Europe and the UK. It initially sold and serviced motor vehicles, but from the late 1970s the group expanded into car rental and tourism, transportation and trucking, vehicle and forklift leasing, logistics and fleet management outsourcing, vehicle importation and distribution, aviation sales and leasing, and a related financial services arm supplying banking, short-term insurance and life assurance products to these markets.
Management is decentralised. This, says the group, strengthens and supports management's entrepreneurial flair. With total assets and revenue of R21bn and R32bn respectively, Imperial is one of SA's largest industrial companies. Logistics and transport is the largest division in terms of revenue, operating profit and assets, with motor vehicle dealerships - the foundation of the group - making up the second-largest division in terms of revenue.
Of the 28 000 employees, up to 14 000 are black staff members who will theoretically benefit as a result of the R1,3m deal, through which previously disadvantaged staff are given the opportunity to acquire a stake in Imperial through a company owned by themselves (50,1% ) and Imperial (49,9%).
Though this is true - and laudable - Imperial's claims about the deal's effect seem overstated. A cynic might describe the deal - or rather, pronouncements about it - as calculated to create maximum impact with the minimum of real effect.
For example, Lynch claims the company, called Ukhamba, owns 10,1% of Imperial's equity. In fact, with Imperial owning just under 50% of Ukhamba's equity, black employees will only ever own less than 5% of Imperial's equity through the deal - and that after at least seven years, unless a windfall strikes. That's how long it will take for Ukhamba to convert its deferred shares into ordinary shares.
For now, Ukhamba has voting rights but no access to dividends or cash flow from the stake. Moreover, the additional 15% BEE stake claimed by Lynch is, in fact, held through public-sector pension funds - disallowed by the department of trade & industry, which doesn't permit companies to use indirect BEE shareholding to meet equity targets.
Imperial says the deal is cost-effective because it has no debt requirements and dilutes earnings only slightly. This will be compensated for by earnings-based value creation. This view is borne out by Imperial's statement in March this year that the group had been awarded contracts worth about R150m as a result of the deal.
As the FM has stated before, key elements of a good BEE deal are: facilitation by the seller, usually at a cost; access to the seller's cash flows; deferred payment terms; fair performance targets; and a reasonable "earn-in" period that allows the BEE company to acquire real equity. Clearly, the Imperial-Ukhamba deal does not fulfil these criteria. For this reason, the FM has argued, the deal is not as positive as Imperial has argued.
Through the deal, Imperial is ranked 64 in the Empowerdex survey of SA's biggest companies. It is considered a black-influenced company, but the agency's rating indicates the mixed success of Imperial's empowerment record. The emphasis is on the quantitative - equity ownership and employment equity - rather than qualitative empowerment factors such as disclosure of skills development, affirmative procurement and enterprise-development policies. These, says the group, are also to be looked at as part of Imperial's empowerment policy. Present direct equity ownership - ordinaries held by Ukhamba - is a paltry 0,3% of Imperial's equity.
Empowerment of management is also mixed, with board and executive representation by blacks at 20% and 14,3% respectively, but no female representation. Imperial provides extensive disclosure of the group's employment equity commitment.
The purpose of Ukhamba is to generate wealth for its shareholders, inculcate a culture of investment among black employees and create employment opportunities where black employees can learn new skills and become more marketable and prosperous. This is planned through using Imperial subsidiaries to teach black employees skills; starting new companies where key positions will be filled by black people; and growing those groups and forming partnerships with other companies wanting to contribute to the advancement of black-owned companies.
Ukhamba was formed in 1998, when Imperial provided the seed capital of R15m with which to start the investment wheel rolling. The company has also borrowed money to buy into certain investments. Ukhamba holds direct stakes in businesses including 100% of Ikhaheng Human Resources and Ukhamba Fleet Services, 17% of Khaya Car Hire, 31% of Fuelogic and 50% of Executive Carports.
In March, Imperial said it had been awarded contracts worth about R150m in the past few months as a result of the empowerment initiative. Lynch said the contracts were awarded "where empowerment credentials were relevant and acknowledged".
Ukhamba's board of trustees is made up of four employee-elected representatives, two Imperial-appointed representatives and the CEO of Ukhamba Holdings.
