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 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 READY Slide 2
THE VALUE OF BEE DEALS 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 READY Slide 3
THE VALUE OF BEE DEALS MAKING SENSE OF R317bn 1.1 times the total value of agricultural land and 1.8 times the total amount of corporate income equipment in SA tax paid in 2014 R 350.0 R 350.0 R 300.0 R 317.0 R 300.0 R 317.0 R 285.0 R 250.0 R 250.0 R 200.0 R 200.0 R 179.5 R 150.0 R 150.0 R 100.0 R 100.0 R 50.0 R 50.0 R 0.0 R 0.0 Tax take Deal value Value of agri land & Deal value equip READY Sources: Sars, department of agriculture, Intellidex Slide 4
THE VALUE OF BEE DEALS THE TIMING OF DEALS Number of deals launched/matured per year 35 2004/5 was the 30 peak period for Deals launched Deals matured the signing of 25 deals (50 deals) 20 15 Maturity periods 10 range from seven to 10 years. 5 0 ≤2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 READY Slide 5
THE VALUE OF BEE DEALS THE TIMING OF MATURING DEALS Value generated by maturing deals per year (Rbn) 2014 was a record 70.0 year for maturing 60.0 deals with 50.0 R59.8bn of value 40.0 delivered to beneficiaries 30.0 20.0 10.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Slide 6
THE VALUE OF BEE DEALS THE BREAKDOWN OF LIVE VS MATURING DEALS Value by matured vs live deals (Rm) Live deals still face Matured market risk as Live share prices can R107 839 fluctuate R209 203 Slide 7
THE VALUE OF BEE DEALS TYPES OF BENEFICIARIES Value by beneficiary type Contrary to recent comments, staff 16% Staff schemes (R52bn) and community 22% Strategic investors (R196bn) schemes have Community schemes (R69bn) accrued substantial value 62% Slide 8
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 9
THE VALUE OF BEE DEALS SOURCES OF RETURNS KEY DRIVERS OF RETURNS Value by returns type (Rm) • Share price appreciation • Length of deal – compounding effects • R24 369 Reinvestment of dividends – compounding effects R291 892 Dividends Capital appreciation Slide 10
THE VALUE OF BEE DEALS VALUE CREATION PER INDUSTRY Value creation per industry sector Value as % of Mining has been Sector Total value (Rm) mkt cap the biggest creator Banks R 57,228 6.0% of value in both Financials R 32,358 5.4% Healthcare R 14,289 7.2% absolute and Industrial R 56,740 2.1% relative terms Investment companies R 10,431 4.2% Mining R 100,915 11.8% Retail relatively Pharmaceutical R 9,568 5.0% underweight. Property R 8,872 3.9% Retail R 7,677 1.8% Reflects voluntary Telecoms R 17,246 2.7% mechanism of BEE Travel & Leisure R 1,636 3.6% Slide 11
THE VALUE OF BEE DEALS SHARE PRICES AS MAJOR DRIVERS OF RETURNS 800 2008 recession left many deals under water . Three fold 400 recovery since. 200 Mining has struggled to recover 100 post 2008 Global equities bull 50 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 market has been important factor Financials Industrials Banks Healthcare Mining Slide 12
THE VALUE OF BEE DEALS 20 LARGEST BEE DEALS Live/ Staff Strategic Community Company Deal start date Total Value concluded? schemes partners schemes 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 Of the 100 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 companies MTN Nov 2010 Live R 0 R 12,200 R 0 R 12,200 studied, 17 had 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 done no deals and RMH Dec 2011 Live R 0 R 9,878 R 0 R 9,878 eight had deals 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 that were 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 underwater as at Mediclinic Jun 2005 Live R 1,383 R 5,321 R 0 R 6,704 end 2014 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 Slide 13
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. Slide 14
THE VALUE OF BEE DEALS QUESTIONS? A report and spreadsheet with all the deals we analysed are available at www.intellidex.co.za/bee Slide 15
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