Sekunjalo has performed well in the Empowerdex empowerment rankings for a number of years. In 2004, it was sixth overall and first in its sector. In 2005, it was seventh in the overall table and first in its sector (general industrials).
This year it is first overall , thanks to a strong all-round performance, and again leads in its sector. It scores between 78% and 100% across six of the empowerment categories evaluated, its only weak area being preferential empowerment.
It does particularly well, with 100% scores, in skills development, enterprise development and corporate social investment. It also has high scores in board composition and top management.
The continued improvement in the group's empowerment scores was a feature in a year of significant progress across several fronts.
It has extended its recovery from the collapse a few years ago of LeisureNet, which was then Sekunjalo's main profit generator. In the past two years, Sekunjalo has broadened its portfolio and improved its profitability.
The share's market capitalisation has risen from R60m at the beginning of 2004 to about R200m at the end of 2005.
The group has expanded its asset base through organic growth, as well as by acquisitions. At the 2005 financial year-end, at August 31, it had total assets of R443m, up from R321m at the 2004 year-end. Net profit in the 2005 year was R37,5m, up from R1,6m in 2004, and headline EPS were 4,76c, up from 1,18c.
Sekunjalo last year calculated the economic value it added to the SA economy and, says CEO Iqbal Survè, its contribution was R1,6bn.
After expansions in the past couple of years, it has a wide range of activities in health care and pharmaceuticals; aquaculture and biotechnology; IT and telecommunications; financial services; food and fishing; brands; and enterprise development, particularly small businesses.
Most of its investments are wholly owned or majority stakes, over which Sekunjalo has management control. Almost all are profitable, and the balance sheet holds net borrowings of only about R20m, after netting off the R87m cash balance.
The portfolio reflects the group's distinctive approach to its business and empowerment strategies, both of which are closely interlinked.
Survè says the board decided about 18 months ago the group would acquire companies that gave it the ability to unlock value when it chose to do so. "It was tempting to go for the big consortium-type transactions. But many of the empowerment companies that did that have not survived.
"When we looked at that model, we realised many of these companies were dependent on the share price rising. When you consider their cost of capital, including interest costs, they were going to have to grow at 30%-40% annually. Few would be able to sustain that."
Survè cites Remgro as an example of a more successful and sustainable model. It had core assets in activities such as tobacco, which were strong cash generators, and it acquired stakes in diverse businesses in which it could have considerable influence or form partnerships.
He says the debate about whether companies should be focused or become conglomerates has led to different solutions in different economies.
He says that in developing economies, companies need to reduce costs through technology, to make goods and services more affordable.
The group bases its business model on three core principles:
- It considers that the business community must provide solutions, services or products that are affordable and accessible to the broad population, but also commercially sustainable and profitable.
- Its businesses must enter into partnerships with companies owning established businesses, to provide a combined solution to the consumer.
- Every business venture must be based on the development economic model, which allows for the development of both the business participants and the consumer. The aim is to help develop entrepreneurial skills, and educate consumers.
The group realised that to follow this strategy, it needed the appropriate technology platforms; governance and regulatory controls; and managers who buy into the thinking.
It made further investments in strategic assets and several more are planned for the next few months. With these investments, it expanded into new areas such as financial services.
"The idea was that if we had appropriate technology platforms, we could offer affordable products such as life assurance, health care, funeral benefits and savings accounts to people in emerging markets," says Survè. "We now have a successful financial services operation that's turned profitable sooner than expected."
Investments are also being made in organic growth projects, including the expansion of an abalone farm, which the group's aquaculture division recently acquired from Premier Fishing. The farm produces more than 45 t/year, all for the export market. With new technology, and expansion of the farm into adjacent areas, output is planned to increase soon to 100 t/year.
The strategy has led to shifts in the group's approach to empowerment.
"The whole empowerment debate needs to change," says Survè. "Even the debate about broad-based empowerment has become sterile. The emphasis must be on building a new society. We need to be more inclusive. We have a lot of young people who are committed and hard-working but they don't always have the skills and experience. The emphasis should be on integrating black and white skills, and on the value system, rather than on colour."
The group is complementing its black skills with experienced white managers. And this more inclusive approach extends to senior levels. In December 2005, the board appointed Norman Noland, a white manager with nearly 40 years' experience in banking and financial services, as COO and deputy chief executive.
The appointment is expected to allow Survè to devote more time to securing growth opportunities, and also to give attention to unlocking value for shareholders.
Though the market capitalisation has risen, helped by an R80m rights issue in 2004, the share price has lagged behind the growth in the group's net asset value (NAV).
At the 2005 financial year-end, the company's NAV was stated as R826m, or 291c/share. Survè considers this figure conservative because it didn't include fixed assets and brands at fair value, though that will happen in the 2006 accounts, in line with international financial reporting standards.
The group surprised many outsiders with the sale of its Redro and Peck's brands last year for R40m. Sekunjalo says an estimated value of R170m has been placed on the brands it holds.
Survè says the aim is to realise the value in all the group's existing businesses over the next three years. This could be done through listings, disposals, mergers or unbundling. At the same time, it intends to add "a lot more" businesses over the next six months.
