SA's top companies are expected to succeed in black empowerment, globalisation, governance and growth
It's no surprise to see the world's largest diversified resources group, BHP Billiton, at the top of the SA Giants pile again this year. But there's a paradox here. As with other globalised SA titans in the top 10 - notably Anglo American, Sasol and SA Breweries - the contribution of its local operations to turnover and profit has been shrinking.
Foreign listings have resulted in the SA holdings of the largest mining houses, Anglo and BHP Billiton, falling to 30% and 10% respectively. Local holdings of other groups such as Harmony and Sappi have also declined to about 30%. But local investors clearly approve. A quarter of the average equity unit trust portfolio is devoted to five shares: Sasol, Anglo American, Billiton, Stanbic and Remgro.
At what point do foreign-listed companies cease to be South African? Of those that listed abroad, only Old Mutual is still predominantly South African in assets and earnings. Perhaps the emotions around nationality are really tested when the former SA company appoints a CEO who isn't South African.
A year ago, Brian Gilbertson (now a considerably enriched former CEO of BHP Billiton, but just a year ago still being described as CEO designate) was briefing the media on his plans to achieve and sustain real growth and return on capital. Except for aluminium, he did not see much of it coming from SA. Now that Gilbertson has left Billiton, its SA links seem psychologically even more remote.
Seen in that light, it is Anglo that is arguably still the dominant force in SA business. This is despite its lower local shareholding and the perception that, under CEO Tony Trahar, it has less appetite for the sociopolitical role marked out and pursued with such finesse by Ernest and Harry Oppenheimer. Appetite or not, Anglo has continued to play an unofficial but important representative role for business in SA.
The challenges for all senior SA executives are formidable. Not only must they deliver returns for shareholders and be globally competitive, while observing the highest standards of corporate governance, but they also have to respond to the imperatives of redressing the huge imbalances created by apartheid. You might call it the BEGGG challenge - black empowerment, globalisation, governance, growth. Perhaps it's time for a BEGł index, to rate companies that are succeeding in all four areas.
The point is that globalisation is irreversible and we must be thankful that we have some really big companies that can (in Harry Oppenheimer's phrase) do big, difficult things.
SA's executives are renowned abroad (even resented) for their good qualifications, broad experience and work ethic. Their handicap is that they are perceived to come from a risky neighbourhood.
Sasol remains in fourth place, despite a remarkable 49% increase in turnover that chairman Paul Kruger described as "a splendid performance", achieved against lower oil and commodity chemical prices. But its results were also inflated by the weak rand.
Another company to be somewhat flattered by the rand was SA Breweries, which moved up two places to seventh on the strength of some organic growth and several acquisitions. But since the March 2002 year-end, SABMiller's turnover has more than doubled to R86,6bn as a result of the Miller acquisition. This means that on next year's table SABMiller could easily be in third place after the two resources giants. But operating profit increased by just 26%, which hints at the problems in the US operation.
At first glance, Sanlam was the only company in the top 10 that reported a drop in turnover. But though Sappi's turnover in rand was up 4%, it reports in US dollars and in that currency sales were down 11%.
Sanlam is still in fifth place but turnover dropped 5% as it battled operationally in the SA market. Its expanding international exposure has yet to deliver returns. By contrast, rival Old Mutual consolidated its third place with a strong performance in SA, based on its core life assurance activity. But subsidiary Nedcor's results were disappointing.
Sanlam took a long time to find a successor to Leon Vermaak, who resigned last December after just 18 months as CE. Such a delay indicates caution in a sector where sober judgment is highly prized - but also that the giant assurer was taken by surprise by Vermaak's departure. After he resigned the share fell 11%, close to a 12-month low. The FM noted in February that "one thing this group needs badly is to exude a sense of urgency, in its operations and at top level." The subsequent appointment of Johan van Zijl, former Santam CE, still needs to be assessed against those criteria, but he has begun with that customary gesture of the incoming boss who means business: cut back the head office.
Four other financial-sector giants - Standard, Nedcor, Absa and FirstRand - are in a stable cluster just below the top 10. In contrast to Sanlam's style, Absa moved smoothly to appoint Rupert Pardoe to a new post of deputy CE, groomed if not guaranteed to take the top job when Nallie Bosman retires. When Liberty's Roy Andersen announced his retirement - a shock to the market but not to insiders - successor Myles Ruck's transfer across from Simmonds Street was announced almost immediately.
There was a strong performance by Bidvest, consolidating its number eight position with a 42% increase in turnover. Executive chairman Brian Joffe said his company was "structured for performance in any economic environment". The three operational divisions reported double-digit operating profit growth.
Black economic empowerment (BEE) is not an issue for the resources sector alone. The big Investec empowerment deal last month made waves partly because there had been so little progress towards a BEE charter for the financial services sector. Progress is needed urgently because of the sheer size of the sector and its influence in the economy. But there is caution. Nobody wants a repeat of the market reaction when details of the mining empowerment charter were leaked.
The minds of Sanlam and Old Mutual will have been concentrated by the revival of the debate on whether pension funds should be used to pay for social investment.
As SA's biggest companies steadily increase their global operations, they become more prominent back home. They are expected not only to deliver profits for shareholders, but to support economic growth, empowerment and social investment. That is the price they must pay for being big and successful. By and large, they seem admirably equipped to do so. But they also need to understand what is demanded of them.
