It's a bit of an anomaly to talk about SA's largest listed companies. Of the top 10 corporate giants in the Financial Mail's Top Companies ranking, six have a dual listing and four of these a primary domicile in London.
The latter list includes four of the top five companies ranked by the most recent available revenue figures: the world's largest resources company, BHP Billiton, tops the list for the third year in succession, followed by its mining rival Anglo American, SABMiller in third spot and Old Mutual in fifth.
The only SA-domiciled company among the top five is petrochemicals group Sasol in fourth spot. And even Sasol has a secondary listing in New York, the same as Telkom in 9th. Though many might dispute the SA status of companies such as BHP Billiton and SABMiller, not only do they retain an SA listing, they also still have a sizeable exposure to the local operation.
The offshore expansion of SA's corporate giants should come as no surprise; in fact, it was inevitable once SA become integrated into the global economy after 1994. A successful, big company concentrates on one activity, has the ability to exploit the advantages of size and the disadvantages of diversity - boundaries are almost irrelevant to the pursuit of these goals.
As they pursued their offshore expansion the limited financial markets in SA presented a huge obstacle; an overseas listing was the necessary next step, not only to raise additional equity capital but also to familiarise the broader financial markets with the hitherto relatively unknown SA corporates.
The ANC government recognised this need early enough in its administration; by the late 1990s finance minister Trevor Manuel gave the go-ahead for Anglo's listing on the London Stock Exchange, followed soon by SA Breweries, Investec, Old Mutual and Dimension Data. In 1999 President Thabo Mbeki urged Africa to embrace corporate globalisation and not to resist it at every turn.
Still, the fact that the political doors have been opened does not automatically guarantee financial success, and the story of SA's corporate expansion is mixed. Though Anglo and SABMiller have generally adapted well on the international landscape, the same can't be said for Old Mutual and Dimension Data. After some misguided and expensive acquisitions, both quickly lost their lustre on the London Stock Exchange. Investec's performance since its London listing has also been mixed.
The rand's strength has undermined the benefits of geographic diversification and many of the companies now reporting in US dollars or pounds find themselves with reduced assets, revenues and profits when these are recalculated in rand. This has had an impact on some of the financial results featured in the table that follows.
The globalisation of SA companies also accelerated a trend that had been in evidence on the JSE since the early 1990s, namely a change in the controlling structure of large listed SA companies. Before 1990 control of corporate SA rested with strategic and hands-on corporations, such as Anglo American, but this has gradually been handed over to institutional fund managers.
Robin McGregor, of research group Who Owns Whom, estimates that institutions are now the majority shareholders in more than 75% of JSE companies. This has meant there are few controlling shareholders because "most companies have a raft of institutions holding about 10%-15% of the equity each", McGregor says.
Diversity of control has meant that, in relative terms, SA giants aren't as large as they used to be. Consider some of the market capitalisation statistics prepared by Who Owns Whom: in 1987 Anglo American and the companies it controlled comprised 60% of the JSE by market cap; that figure was down to 18,7% last year. Similarly Sanlam and Old Mutual controlled about 15% each at their peak in 1992; that's been reduced to 2,7% and 4,5% respectively. Even the Ruperts' Remgro empire, which can still be regarded as an old-style corporate shareholder, had its share of market cap reduced from 16% in 1989 to 7,9% in 2004.
A trend that has remained consistent, at least for the past few years, is the top ranking of resources groups BHP Billiton and Anglo American on our giants list. They are one and two respectively as measured by turnover and net profits, though Anglo heads the market cap and equity fund rankings ahead of BHP.
Both have grown chunky on a Chinese diet and the appetite from the Far East for the groups' metals and minerals shows no sign of diminishing. BHP has maintained its lead over Anglo on the basis that it has far greater exposure in the oil & gas and base metals arenas that are favoured by China. Anglo has a smaller presence in these raw materials and so far CEO Tony Trahar's efforts in trying to gain a foothold have had mixed success.
Unperturbed, Trahar recently announced that Anglo would continue its disposal of noncore assets, after US$9bn worth of sales over the past six years. In return it is seeking acquisitions that will boost its presence in base metals as well as bulk commodities. Trahar said the group had spent $15bn to diversify into areas such as coal and iron-ore over the past five years.
The company should also benefit from a significant pick-up in Chinese demand for precious metals and diamonds. The country already accounts for about 44% of global platinum jewellery demand, as the income level of its urban population rises steadily.
Despite Anglo's efforts, there is no doubt that BHP has the upper hand in the battle for China. Turnover in the six months to end-December rose by more than 40% to $15,5bn and basic earnings per share more than doubled. Its half-year earnings were almost equal to the total profits for the 2003/2004 financial year. And to illustrate its confidence (and fat wallet) BHP announced a project pipeline in excess of $10bn and returned $1,8bn to shareholders.
Industrial companies SABMiller and Sasol overtook Old Mutual in third place, as Cape Town's Big Green experienced a slump in revenue as a result of lower contributions from its offshore operations and continued poor results from Nedcor. There are signs, though, that it is making progress on both fronts under the leadership of CE Jim Sutcliffe.
Old Mutual retained top spot in the asset league, with total assets of R668bn, almost unchanged from 2003's R661bn. Standard Bank's assets, however, surged by R150bn to total R539bn in the year to December 2003 and the bank has, according to preliminary results, added a further R61bn in banking assets alone during 2004.
Not only did Standard Bank overtake FirstRand in second position in the asset rankings, it did so extremely comprehensively - FirstRand's asset base was R425bn in June last year, only R30bn higher than a year earlier.
SABMiller has become a consistent performer in the FM's rankings. This time around is no different, with the brewer delivering solid growth in both turnover and profits last year. Overseas investors, initially critical of the SA upstart and its ability to turn the ailing Miller group in the US around, have now warmed to Charles Glass & Co; its market cap was up by more than R35bn in the 12 months to end-March this year.
Once again, SABMiller is set for a good performance in the year ahead as the interim results to end-September 2004 showed strong growth in both revenue (14% higher) and profits (up 38%).
Sasol, on the other hand, had a miserable year in the 12 months to June 2004 as the strong rand played havoc with its results; turnover was slightly down but it was at the net profit level that the impact was really felt, with earnings plummeting by almost R3bn to R7,1bn. The group has since reversed some of those losses, helped by record high oil prices.
CEO Pieter Cox also indicated that the group was reconsidering its investment in Condea, the European chemical operation it bought four years ago. Investors have also rewarded its improved performance with Sasol's market cap rising sharply from R66bn to R98bn in the 12 months to March.
Industrial group Barloworld moved into 10th spot on the rankings, helped by the delisting of Metro Cash & Carry (last year's 6th largest group), and jumping ahead of Absa and FirstRand. Barloworld has benefited strongly from the spending and investment boom in SA, with cement subsidiary PPC one of the star performers.
