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THE VALUE OF BEE DEALS www.intellidex.co.za Results presentation 25 June 2015 Stuart Theobald CFA Slide 1 THE VALUE OF BEE DEALS BACKGROUND Recognised there is a lack of proper research to inform debates over BEE deals Ambition to

SLIDE 1 Slide 1

THE VALUE OF BEE DEALS

Results presentation 25 June 2015 Stuart Theobald CFA www.intellidex.co.za

SLIDE 2 Slide 2

THE VALUE OF BEE DEALS

READY BACKGROUND

Recognised there is a lack of proper research to inform debates over BEE

deals

Ambition to calculate the total amount of net value created from BEE

deals by the largest 100 JSE-listed companies

In January 2015 began the research process
Developed independent model of each deal to estimate NAV at end

December 2014 based on company circulars and announcements

Presented our results to companies for comment
Companies provided feedback including missing data
Developed estimates in light of data to finalise results
Various assumptions had to be made in some cases

SLIDE 3 Slide 3

THE VALUE OF BEE DEALS

READY KEY RESULT

R317bn

Total value generated in the 20 years to end 2014 from both matured deals and deals that were live at that stage

SLIDE 4 Slide 4

THE VALUE OF BEE DEALS

READY MAKING SENSE OF R317bn

R 179.5 R 317.0 R 0.0 R 50.0 R 100.0 R 150.0 R 200.0 R 250.0 R 300.0 R 350.0 Tax take Deal value 1.8 times the total amount of corporate income tax paid in 2014 R 285.0 R 317.0 R 0.0 R 50.0 R 100.0 R 150.0 R 200.0 R 250.0 R 300.0 R 350.0 Value of agri land & equip Deal value 1.1 times the total value of agricultural land and equipment in SA Sources: Sars, department of agriculture, Intellidex

SLIDE 5 Slide 5

THE VALUE OF BEE DEALS

READY THE TIMING OF DEALS

5 10 15 20 25 30 35 ≤2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of deals launched/matured per year Deals launched Deals matured

2004/5 was the peak period for the signing of deals (50 deals) Maturity periods range from seven to 10 years.

SLIDE 6 Slide 6

THE VALUE OF BEE DEALS

THE TIMING OF MATURING DEALS

2014 was a record year for maturing deals with R59.8bn of value delivered to beneficiaries

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Value generated by maturing deals per year (Rbn)

SLIDE 7 Slide 7

THE VALUE OF BEE DEALS

THE BREAKDOWN OF LIVE VS MATURING DEALS

Live deals still face market risk as share prices can fluctuate

R107 839 R209 203 Value by matured vs live deals (Rm) Matured Live

SLIDE 8 Slide 8

THE VALUE OF BEE DEALS

TYPES OF BENEFICIARIES

Contrary to recent comments, staff and community schemes have accrued substantial value

16% 62% 22% Value by beneficiary type Staff schemes (R52bn) Strategic investors (R196bn) Community schemes (R69bn)

SLIDE 9 Slide 9

THE VALUE OF BEE DEALS

EVOLUTION OF BENEFICIARY TYPES

This illustrates how different beneficiary groups have evolved over

time. It indicates

the cumulative value attributable to each beneficiary type as a percentage of the total, according to the date of deal initiation.

SLIDE 10 Slide 10

THE VALUE OF BEE DEALS

SOURCES OF RETURNS

KEY DRIVERS OF RETURNS

Share price appreciation
Length of deal – compounding effects
Reinvestment of dividends – compounding

effects

R24 369 R291 892 Value by returns type (Rm) Dividends Capital appreciation

SLIDE 11 Slide 11

THE VALUE OF BEE DEALS

VALUE CREATION PER INDUSTRY

Value creation per industry sector Sector Total value (Rm) Value as % of mkt cap Banks R 57,228 6.0% Financials R 32,358 5.4% Healthcare R 14,289 7.2% Industrial R 56,740 2.1% Investment companies R 10,431 4.2% Mining R 100,915 11.8% Pharmaceutical R 9,568 5.0% Property R 8,872 3.9% Retail R 7,677 1.8% Telecoms R 17,246 2.7% Travel & Leisure R 1,636 3.6%

Mining has been the biggest creator

f value in both

absolute and relative terms Retail relatively underweight. Reflects voluntary mechanism of BEE

SLIDE 12 Slide 12

THE VALUE OF BEE DEALS

SHARE PRICES AS MAJOR DRIVERS OF RETURNS

2008 recession left many deals under

water. Three fold

recovery since. Mining has struggled to recover post 2008 Global equities bull market has been important factor

50 100 200 400 800 Dec 2004 May 2005 Oct 2005 Mar 2006 Aug 2006 Jan 2007 Jun 2007 Nov 2007 Apr 2008 Sep 2008 Feb 2009 Jul 2009 Dec 2009 May 2010 Oct 2010 Mar 2011 Aug 2011 Jan 2012 Jun 2012 Nov 2012 Apr 2013 Sep 2013 Feb 2014 Jul 2014 Dec 2014 Financials Industrials Banks Healthcare Mining

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THE VALUE OF BEE DEALS

20 LARGEST BEE DEALS

Of the 100 companies studied, 17 had done no deals and eight had deals that were underwater as at end 2014

Company Deal start date Live/ concluded? Staff schemes Strategic partners Community schemes Total Value FirstRand Jun 2005 Concluded R 5,971 R 2,594 R 14,698 R 23,262 Exxaro Nov 2006 Live R 1,045 R 15,788 R 0 R 16,832 Sanlam Apr 2004 Concluded R 0 R 7,915 R 6,476 R 14,391 Naspers Dec 2006 Live R 0 R 13,884 R 0 R 13,884 MTN Nov 2010 Live R 0 R 12,200 R 0 R 12,200 Impala Platinum Jul 2007 Live R 0 R 0 R 11,339 R 11,339 Standard Bank Oct 2004 Concluded R 4,367 R 4,359 R 2,179 R 10,905 RMH Dec 2011 Live R 0 R 9,878 R 0 R 9,878 SABMiller Jun 2010 Live R 3,882 R 4,076 R 1,747 R 9,705 Aspen Mar 2005 Live R 0 R 8,684 R 0 R 8,684 South32 Jul 2007 Concluded R 0 R 7,949 R 0 R 7,949 RMI Dec 2011 Live R 0 R 7,096 R 0 R 7,096 Mediclinic Jun 2005 Live R 1,383 R 5,321 R 0 R 6,704 Anglo American Platinum Jun 2002 Live R 0 R 0 R 6,652 R 6,652 Old Mutual Aug 2005 Live R 3,716 R 1,696 R 969 R 6,381 Kumba Iron Ore Nov 2006 Live R 646 R 0 R 5,136 R 5,782 Nedbank Jun 2005 Concluded R 2,185 R 1,743 R 1,573 R 5,501 Netcare Jun 2005 Live R 2,547 R 1,329 R 561 R 4,437 Northam Platinum Jan 2008 Concluded R 0 R 3,921 R 0 R3,921 Vodacom Oct 2008 Live R 0 R 3,646 R 0 R3,646

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THE VALUE OF BEE DEALS

A NOTE ON THE DIFFERENCE BETWEEN VALUE AND OWNERSHIP

Deals are transitory. Value is created at a moment in time
BEE deals generate balance sheet – equity that can be used by beneficiaries
BEE deals involve concentrated exposures. We should expect rational

investors to want to diversify exposures to balance risk and return

To the extent that beneficiaries are natural persons (staff, strategic investors)

we should expect normal life-cycle asset class distribution

Equity is a long-term savings asset class so suits older savers focused on

retirement funding

In short, should not expect shareholdings to be held by beneficiaries for long
“Normal” racial pattern of share ownership should reflect a normal

distribution of economic resources at large. Individual share ownership is the result of transformation rather than a cause of it.

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THE VALUE OF BEE DEALS

QUESTIONS?

A report and spreadsheet with all the deals we analysed are available at www.intellidex.co.za/bee