Follow the money, and it tells a story the headline asset figures don’t.
Rules-based, or indexed, balanced funds still account for only about a tenth of assets in South Africa’s Multi-Asset High Equity segment, according to our analysis of industry assets under management (AUM) data. Yet this cohort is attracting a far larger share of new money, drawing around 23% of category flows over the past year and 53% over five years.
That shift is hard to ignore in a category that has become the mainstay in local discretionary and retirement savings.
Active managers still hold the lion’s share of the assets here. However, flows are where you see behaviour change first. Money moving today is a signal of where conviction is heading, and right now a disproportionate share of it is going to systematic, lower-cost strategies.
Looking through the promise
The shift comes down to investors becoming more discerning.
The promise of active management in a balanced fund is appealing. You have the most degrees of freedom to add value. Here, you can pick securities within each asset class, and you can tilt between asset classes through tactical calls. The pitch is that a manager will navigate changing markets on your behalf, adding value through increased performance to compensate for the higher fee. However, what more investors are doing is looking through that promise to what has actually been delivered.
On S&P Dow Jones Indices’ mid-year 2026 SPIVA South Africa scorecard, the cross-category average showed that 75% of active funds underperformed over the past 10 years. Among equities, which do most of the heavy lifting in portfolios, 97% of active funds underperformed.
The explanation for this shift is structural, not cyclical. Most of your long-term return is determined by your strategic asset allocation. Get that right, capture it cost-effectively, and you’ve done the hard work. A decade ago, that was a theoretical argument. Now there’s actual evidence, and investors can see it for themselves.
Transparency before cost
Lower fees are the obvious draw, but we believe there’s more to this shift.
Investing works in reverse. With a car or a meal, paying more usually means getting more. With investing, a higher fee raises the hurdle a manager must clear before the investor is better off. The burden of proof rises with the fee.
So, the bigger story is transparency. For example, at Satrix, we tell clients what our strategic asset allocation will be before we implement it, which is rare in this industry, where positioning is usually disclosed after the fact. Investors know exactly what they own and why. That lowers the governance burden on advisers and trustees, and it facilitates greater confidence when allocating.
Consistency that compounds
An oft-quoted myth about indexing is that tracking the market means settling for the average. That’s a misinterpretation of how the maths plays out over time. Think of a consistent tennis champion like Roger Federer. On any single point, it might be a coin toss whether he wins. But he won most of his matches, because he was never on a long losing streak.
A representative index-based fund is the same. It’s rarely at the bottom, so it never has to make up lost ground. Add a cost advantage compounding quietly underneath, and that consistency carries you towards the top over the medium to long term.
The local data reflects this. According to the September 2026 Corion Report, over the year to end-August 2026, the Satrix Balanced Index Fund drew the third-highest inflows of any fund in the Multi-Asset High Equity category, and according to Morningstar data it attracted the fourth most flows over the last five years.
A long-term game
Our message for investors is, therefore, a reminder about time.
Volatility is a feature of these assets, not a bug. It’s part of what drives the long-term risk premium. Most people, especially those saving for retirement, have time on their side. The job is to take that well-rewarded risk, stay the course, and let compounding do the work.
The flows suggest a growing number of South Africans have decided to do exactly that.
Satrix Investments (Pty) Ltd is an authorised Financial Service Provider (FSP) in terms of the Financial Advisory and Intermediary Services Act, 2002 (FSP no 43670). Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange.
ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance, and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. A feeder fund is a portfolio that invests in a single portfolio of a collective investment scheme, which levies its own charges, and which could result in a higher fee structure for the feeder fund. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. The manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate.
In Season 2 of this podcast, The Finance Ghost talks to South African entrepreneurs about the ideas, choices and turning points behind building a business from scratch.
Listento the podcast:
In this episode of The Finance Ghost Plugged in with Capitec, The Finance Ghost sits down with Lorraine Mekwa, founder of Earned Africa, to talk about her leap from corporate executive to entrepreneur.
After two decades in financial services, Lorraine had worked her way up to a divisional executive role at a listed group. She then made the leap into entrepreneurship, driven by a desire to help businesses grow and create broader economic opportunities.
Throughout her career, Lorraine had seen a recurring challenge: businesses needed access to highly skilled professionals, but traditional hiring could be costly and complex. She set out to find a better way.
Lorraine shares the vision behind Earned Africa, a platform designed to connect businesses with independent talent, while using technology to make contracting and consulting simpler. From the challenges of building a two-sided marketplace to the realities of startup life, she offers a candid look at life beyond the corporate world.
This is a story about entrepreneurship, problem-solving and having the courage to bet on yourself.
Episode 6 covers:
Leaving corporate life for entrepreneurship
Building a two-sided marketplace
The future of independent work and the gig economy
Using technology and AI to improve talent matching
Early wins and lessons from building a business
Creating opportunities for professionals and small businesses
The Finance Ghost plugged in with Capitec is made possible by the support of Capitec Business. All the entrepreneurs featured on this podcast are clients of Capitec. Capitec is an authorised Financial Services Provider, FSP number 46669.
Read the transcript:
The Finance Ghost: Welcome to this episode of The Finance Ghost plugged in with Capitec. Really enjoying the season thus far, and another good podcast coming your way today.
I’m here with Lorraine Mekwa and she has a fantastic story.
Lorraine had a really good career in financial services, I must say – Lorraine, I saw you on TV many times doing your thing. She made it all the way up to a divisional exco role at a listed financial services business, and then she did a crazy thing and said, “No, thank you. I’m going to go off and start my own business instead.”
Which is a really fun and brave story (maybe slightly insane, Lorraine, but we’ll talk about that on the show), and certainly very exciting, what you’re doing. So, welcome. Thank you for doing this with me and I can’t wait to learn more about your journey and what you’re building.
Lorraine Mekwa: Thank you for having me, Ghost. I think definitely crazy. But, yeah, I’m enjoying it.
The Finance Ghost: [laughing] Well listen, enjoying it is half the battle won. So, it’s a big call. Let’s just start right there. To walk away from a divisional exco role at one of the most impressive financial services groups (on the continent, I guess) is a big decision.
I think what makes it even more interesting is that you were relatively early on in that journey. It kind of feels like you’d done the hard part, and you were at the point where the rewards were going to really start coming through, and that’s the moment at which you decided you want to do something else with your life – which I would imagine was a very interesting thought process that I really want to tap into.
So, what can you share with us about this decision that you’ve made, this unusual path that you’ve taken?
Lorraine Mekwa: There are a few things that have contributed to it and, for me, they’re all equally important. And I think, importantly, I don’t look at it as “walking away from a career”. It does feel like I’m still achieving some of the bigger objectives that I have for my career, just in a different way.
I don’t see it as “you’re closing one door”, necessarily. I think that the skills that I have are transferable and the skills which I get here will be transferable to something else in the future. So, I don’t necessarily look at it like that.
But I think the most important thing that’s a driver for me (and I found this out recently when we were tested at work for personality types in terms of understanding what drives you) – I am classified as an Enneagram Type One.
That’s a personality classification. I think it’s got nine types, and all the different types are driven by different things. Understanding why I was a One, I think, has made me understand a lot of the decisions that I make.
So, Enneagram Ones, they want to see changes in the world. They’re very much driven about making sure that they’re part of that change, and I think there’s a big part of that which is at play here.
And then also, I’ve been in financial services for 20 years, which is a long time. I think a lot of the problem solving that we’re doing, we’re trying to make people’s lives better by giving them value, by making decisions which give them better returns for their money.
And, more and more, in all the conversations that we’re having, it’s always about, “This is great, but how do we increase this pie?”
That conversation has been happening in this country in some form or another over my whole career. I think I saw an opportunity for me to partake in that conversation and to be part of that problem solving for: “How do we actually grow the pie?”
I got involved with Business 20 (B20) policy work last year as part of my role, and I think that really made me get into a lot of detail around the systemic problems that we have in the country and where the blockages are for that growth. I think that is also part of that reason.
You know when you know so much and you feel like you know what some of the solutions are? Sometimes it’s very difficult not to act on that knowledge. I think that’s sort of where I am right now. I couldn’t move away from acting, and this is what I’m doing.
The Finance Ghost: I love that. Something that definitely comes through there: a career is not a job. Absolutely. You can leave a job, carry on a particular career, of course, by building something wonderful, which is what you are trying to do now.
I was researching Enneagram Type Ones while you were talking there. You come out as a Reformer, which, according to this particular website I found, puts you in good company here. Nelson Mandela, among others. Don’t get too excited though, because Osama bin Laden is on this list as well, Lorraine…
Lorraine Mekwa: [laughing]
The Finance Ghost: …so you’ll have to just manage yourself quite carefully here. It seems as though Reformers can really go in one of two directions [laughing]. I have no doubt that you’re going in the right one, but I guess the point is it’s people who feel strongly about something and want to make change. That’s essentially the personality type, right?
Lorraine Mekwa: Absolutely.
The Finance Ghost: I think that suits an entrepreneur quite well, because that’s what entrepreneurship is, specifically. I think, again, and maybe we need to distinguish here between entrepreneurship in the form of just going and starting a business that already exists – so, you know, going and opening a florist for example, or a hairdresser. Those are just silly examples that come to mind. These are cool businesses, they come with their own challenges for sure, but everyone knows what they are, they exist. Whereas you’re doing something different. You’re in Startup Land. You are trying to create product-market fit. You are trying to build something that doesn’t actually exist in South Africa, certainly not at scale. And that is really, really interesting.
I was going to ask you about some of the shocks from going from corporate into your business, but I think people by this stage must be very curious what you’re doing, so let’s jump to that and we’ll circle back later to the other stuff.
Talk to us about Earned Africa. This is the business that you’ve decided to just throw yourself at now. What does this thing do and why do you feel like it needs to exist? What is the reason you’ve chosen to apply your personality in this direction?
Lorraine Mekwa: So, once Earned Africa is fully formed – let me talk about what it will do because it will grow to that, so let me talk about when it’s fully created.
It will be a marketplace where professionals who want to work independently (so, they want to work and not be in full-time employment, whether it’s consultants, freelancers, even people early in their career that just do not have the capacity to work full-time jobs) will be able to find their employers on this platform.
And businesses of all different sizes will also be able to recruit this talent, find it very easily, and be able to secure their services.
So, you asked me why I think this thing needs to exist. I think for me, I can speak about the different sides.
For employers – in my career, I’ve worked for big businesses (listed companies, mostly) and I’ve worked with some smart people.
When I was on the trading floor, I worked with some of the most numerical people. You work with the lawyers who are helping us put the transactions together. There are all sorts of skills in a room.
And the reason we’re able to achieve all those great outcomes (which you sometimes talk about) is because we have very different skills which are making sure there is value in the work that we’re doing, which are partaking in those discussions. And a lot of listed companies benefit from those skills.
But my assessment here is that as you go down in terms of the sizes of the companies, the ability for those companies to benefit from the top minds in the country becomes lesser and lesser.
By the time you get to small businesses, small business owners are on their own. They need to be all of those things. They need to know how to do marketing. All of the things that they need to do, they are responsible for that until they can get enough money to hire someone.
And for me, that’s a big hindrance to growth for businesses. They need to be able to get access to these top skills just like the rest of the listed companies are getting.
So, for me, from the employer perspective, it’s about making sure that there is access. It’s about democratising that access of skills and saying that if you are at this level and you can’t really afford to hire a Ghost-level of skills, maybe what you need to be doing is hiring just a fraction and being able to grow your company and get those skills in and move quicker in terms of the ladder of where you see this business going.
It’s about making sure that those skills are becoming accessible to the businesses. Because we keep looking to businesses to grow the economy. For me, it’s about making sure that we get them there quicker by giving them the skills that they need.
The Finance Ghost: Lorraine, what I’m hearing is a lot of very gig-economy-type thinking, right? Using technology, allowing professionals to almost carve themselves up into little pieces and actually be available to multiple users and then allowing those users to afford the piece of that skill that they need. Right?
And I guess that’s where this comment probably comes from on your website, which is: “The cost model doesn’t work, the trust infrastructure doesn’t exist. We’re fixing both.”
I think that sends quite a good message about not just how exciting this will be if you get it right, but also the task at hand is no joke, right?
Lorraine Mekwa: Exactly, yeah. That’s why I was saying that it’s such exciting work and I’m having so much fun because I keep thinking about that end product and what it can do for small business owners and I think it will be game changing.
So being able to create the infrastructure so that there’s that trust in the system. That I can work for the smallest business owners, but I trust that I’ll get paid. I trust that I won’t be chasing invoices. So, this platform will take care of all of those things. It’ll take care of the contracting, making sure that you, as a professional who is doing this work, you’re not sitting there worrying about all the other logistics. The platform will take care of that.
And that’s really the value that we will be adding for the professionals. It’s to say that you don’t need to be the biggest business development person to go find your next client, because this platform will bring those clients to you.
It’s about making sure that you are sure that you’re going to get paid for the work that you’re doing. That the scope of the work that you’ve been asked to do is not going to be changing whilst you’re mid-work. That it becomes a dependable way for you to work with these businesses. So, it almost brings the type of structure that we have in big corporates in order for us to be able to work there.
The Finance Ghost: And people underestimate how difficult it is to consult into enterprise-level clients, in particular. Just the onboarding, just the procurement side, waiting to get paid. I mean, anyone who’s consulted into these companies will understand just how much of a headache that can actually be. It is quite remarkable.
It’s also very frustrating because when they want to go faster, when they have to go fast, they can, but most of the time they will take their sweet time to pay you. It’s just the way these big businesses work. So, there are a number of friction points even when it comes to big business.
What I’m hearing is, from an SME perspective and maybe just starting with that side of the marketplace, SMEs struggle to get access to skills and it’s very expensive. And they almost never need a full-time person with 20 years of experience in a particular thing. But if they get that person for just a small amount of time, it can have a huge impact.
It’s very much your “Bomb Squad in the Springboks”-kind of situation. You know, it’s, “Bring on the heavy hitters for a short period of time and see what happens.” And even for enterprises, ironically, that can make a huge difference.
People think that Big Enterprise is this slick machine and it just always works and every team is always exactly what it needs to be – you know, and I know, that that’s not true. All the problems you get in an SME just scale up into an enterprise [laughing]. You go and have a look at individual areas of that business and you think, “Okay, that’s… quite different.”
That was one of my biggest takeouts, I think, of moving into what I would call a blue-chip for a short amount of time – just how many problems there actually still are and how it’s really just a big SME in so many ways. And that’s what you’re trying to allow for here, right? To just help these companies find the exact thing they’re looking for?
Lorraine Mekwa: Absolutely, because there’s lots of friction currently. You rightly pointed out that even big enterprises are struggling with this. I mean, as a divisional head, in my role, I had a lot of problems that I would want to solve, and I can just see that it’s about getting someone in quickly. I don’t necessarily need the headcount forever. I just need someone to come in quickly.
But the frictions, the gatekeepers that are sitting in that whole conversation, it becomes so much more expensive than what it really needs to be. And I would have really appreciated being able to just quickly get someone in to fix a problem and out when we’re done. Being able to have that flexibility even in a big enterprise would have saved me a lot of pain. So, it’s about being able to get that access, even at that level.
And big enterprises, I think, are probably going to be the biggest users of this platform, because they still have the most demand. And I think that the way big enterprises work is that they almost have to hold on to the talent in case they need it.
There’s a lot of fat, of people, in businesses, and obviously this weighs down businesses and they end up with costs that they shouldn’t have. This will allow them to be able to also only use what they need because you’ll be able to see that the talent is there and there’s so much work that they’re doing out there.
Also (and this is an additional benefit that you have with this), because the people are working for so many different organisations, they are learning so much, so their knowledge is always just top of the crop. You’re able to get so much more from them because they’re seeing everything else and not just necessarily stagnating in terms of learning because they’re sitting in one organisation.
The Finance Ghost: Another interesting point here to talk about is that, at enterprise level, it’s actually really hard to add headcount. You have to really justify, especially in this world now with AI and everything else.
You need to go and say, “Well, we need this person,” and it’s expensive now because for a corporate to bring on a professional, the salary tends to be quite high. There are lots of benefits they need to think about. There’s all the other stuff like leave policy, etcetera, etcetera. And it’s often just complete overkill.
Maybe the right analogy is just to imagine you’re going on holiday to Europe and you need to rent a car. All you need to do is rent a car. You don’t need to buy a car that lives in Europe when you’re not there. It makes no sense. You need a car for three days, that’s it. Just rent a car. Don’t buy one.
Lorraine Mekwa: Absolutely.
The Finance Ghost: So yeah, it’s almost that level of thinking. You know, just rent the car you need for the time you need it, pick the car that suits your needs and that’s it. You don’t have to justify additional headcount, long-term stuff, or all the other issues that come with enterprise.
This hits that consulting line item and solves your problem pretty much straight away. Now that, obviously, in and of itself, is not a new concept – nor is the concept of finding an expert. All you’re trying to do is just make that much easier, right?
And I can imagine it’s very hard to build this because a two-sided marketplace is very much a chicken-and-egg problem. If you have too many people who want the skills and not enough people saying, “Hey, pick me,” then you end up with a problem.
Similarly, if you have hundreds of people who have said, “Yes, I’m available to work,” but you’re not finding opportunities for them, that’s also an issue.
So, this is a tough business to build. How are you managing that chicken-and-egg issue in the early stages of the business, now? Because that must obviously be quite a challenge.
Lorraine Mekwa: Yeah, it’s very much the challenge that I’m dealing with every day, currently. Because what we are doing in phase one of the business is, when you build something like this, you need to build it for this market.
It’s great to look at what’s happening in the rest of the world and how they’ve built their platforms, because there are platforms in other parts of the world, even platforms that some South Africans are using.
But here you need to make sure that whatever we build for a South African context is what’s going to really solve our problems. You need to really be able to listen. So, in this first phase, there’s a lot of listening. Sitting with people who have worked as independent consultants for a long time, understanding their pain points, understanding what they deal with when they work with entrepreneurs.
Because what you want is for this platform to be so compelling that consultants don’t want to sit there and work by themselves. You solve their problems for them. So, it’s a lot of listening, which is why the build is not there yet. Because we need to be going through the listening to both sides, what the consultants need and listening to what the entrepreneurs and the bigger businesses need out of this.
So, that is all we’re doing right now. We’re recording all of the interactions – this works; this does not work; this is part of the frustration; if you do this for me, this will be really compelling – really gathering all of that data so that we end up with a platform that is really solving the problems that we have to actually move us to where we want to go.
Because I think one of the problems with building something like this is that for a lot of people it just intuitively makes sense that we need something like this. But if you don’t listen enough to all the different users that one could have in a platform like this, then you run the risk.
The Finance Ghost: So, the early days of a business like this, as you say – lots of listening to people, lots of understanding the problem, which is obviously a very hands-on situation as you develop the product.
I would imagine that the longer-term dream is to then scale this using technology, etcetera, because otherwise what you’re basically acting as, essentially, is a glorified headhunter, right? Which I don’t think is at all the business that you’re looking to actually build.
So maybe if you look a few years ahead, if you think about how technology can scale this, what does the longer-term dream look like once you’ve understood all the problems and you’ve kind of started to solve them?
Because I think what you’re doing is really interesting. I think the biggest challenge is going to be to scale it, right? And to try to turn it into something that can be replicated rather than needing your involvement on each and every little bit of matchmaking.
Lorraine Mekwa: Yeah. Definitely, the goal is not to have this just be a headhunting or recruitment business. It’s about a platform that will use AI and the data about both sides to be able to make sure that the match happens.
What we’re doing right now is trying to capture the logic of what the platform will need to do in the future, but it will not be done by individuals. So, there won’t be a consultant who will be trying to help a company get the perfect candidate. All of that will be using the data that sits in the platform.
So, when we get a professional coming in, we capture their data, and all of the interactions that are happening on the platform will be enhancing the data that we have to make sure that, increasingly, this professional is matched to the right employer.
And similarly for employers, when they engage, we will capture their information when they come in, and increasingly there will be enrichment of that data as professionals also give feedback around what working with that employer is like. So, it’s about making sure that we use that data to make the matches increasingly better in the future.
So, it’s not at all like some of the platforms that currently exist. There are a lot of platforms that do exist currently in the country, but there’s nothing like it at the moment. It’s about almost adopting what some of the platforms which are currently in the country do, but there’s a lot more that will be happening also.
Also, to my knowledge, I don’t think that even the mechanism of the contracting and the payments and all of that, there aren’t platforms that currently do that…
The Finance Ghost: It’s going to be a very interesting journey, that is for sure.
Lorraine Mekwa: …Yeah, it’s an exciting way to solve for a big problem that we have in this country, right? Of getting people used, of getting people who have skills to be more productive. And I think that this is definitely one way to do that.
The Finance Ghost: Yeah, absolutely. So, maybe last question about this early stage in this business in particular, and then I just want to end off with what some of the big surprises have been, moving from corporate into entrepreneurship.
But you must have had some early wins that are just giving you a little bit of wind in your sails right now. I think that’s important for anyone who’s starting a business, to just feel validated early on. And it can be a small win, right? I mean, that’s certainly been my experience, if I think back, what, six years now?
So, has that been the experience for you? Have there been some small wins that have validated your decision? Maybe a big one here or there? What’s getting you up in the morning at the moment? What’s keeping you believing in this very early stage in the journey?
And I specifically ask that question because most of the guests on this podcast are a long way down the road. They’re like 10, 15 years down the road. Not all of them, obviously, but I think no one has been earlier than you in your journey. And so, it’s a very interesting way to just give people context to what this leap is like.
Lorraine Mekwa: Absolutely. The feedback that we have received from both sides has been amazing. From a professional’s perspective, with the high unemployment that we have in the country, one would expect that the feedback would be great there because there are more people than there is work.
The quality of the people that we have signed up has been absolutely amazing. Senior people, some of them are former excos of listed companies, and all the way down to people who have recently started their careers and they have some experience.
And I’m talking marketing, lawyers, engineers who can do process management, all sorts of professions. I mean, there are the accountants. Everyone has really been open to this way of work. And there are a lot of people who are just giving us the feedback of, “If you do this, then this would really be valuable for us.” So, for me, that has been quite amazing.
From the companies’ perspective, that has also been shockingly positive, quite early on. We have had a private equity fund that is starting out. They’ve just raised their first fund and they’re trying to get all sorts of skills that they need, really specialised skills, of people who will help with all sorts of tasks, investment analysts, all sorts of work. But their budget is not quite there yet because this is their first fund and they’re trying to preserve as much as possible. They’re seeing such great opportunity to work with the people that we have, get what they need, but not keep them on, full headcount.
And we have even more established, smaller financial services players that have also just signed up some of our talent. So, for me, the feedback is definitely positive.
One of the things I think I am most excited about is the variety of the companies that are using the people that we have. I’ve been surprised by just that variety. And it means that the demand, once we roll it out to a much bigger group of people, will continue to be sustained.
And all of these people who we have signed up will then be used continuously, because I think you want this to also be able to work as a way of having a career and I’m getting the feedback that this is definitely something which will be available for both sides. [hadedas cawing in the background]
The Finance Ghost: It just wouldn’t be a South African podcast with a guest from Joburg if there weren’t some hadedas in the background. I love it.
Lorraine Mekwa: [laughing]
The Finance Ghost: It’s hysterical how many times those have been a feature of The Finance Ghost podcasts. So, you are building at the coal face there, Lorraine. You are building in the economic capital of the country and you’re doing something very exciting, that’s for sure.
Last question I have for you, and it was something I wanted to ask earlier, but I’m glad that we got into the weeds of the business first. So, you’ve gone from this big listed company infrastructure – you have an IT problem, there’s a department for that. You don’t have to worry about HR and, well, I mean just everything, right?
You’ve now had to step out into a world where there isn’t really any of that infrastructure. You’ve chosen Capitec Business to bank with, so good choice on that one, obviously. But in terms of the bigger changes that you’ve experienced, how much of a shock is it to step out of the hallowed halls of a JSE-listed company and go out on your own?
Lorraine Mekwa: [chuckling] We would need a whole hour to go through the shocks that I’ve actually experienced. There are so many. And it’s not like it’s a big dramatic crisis with all of them, but they’re so small and you’ve taken them for granted for so long.
I mean, you mentioned the IT person who you can just always call whenever you get stuck. Because right now what happens is that, when I have an IT problem… I’ll tell you a funny one. When I was registering my Outlook and trying to get my email registered into my Outlook, I took an embarrassing amount of time to figure out how to do that, you know, and it’s just small things that are just, “How do you get this done?”…
The Finance Ghost: It happens to the best of us. Don’t worry [laughing]. Honestly, it really does.
Lorraine Mekwa: … It’s frustrating because you’re not used to dealing with those problems and you just don’t have the tools to do it. And sometimes I find myself waiting for my husband to come back home [laughing] to help me with some of these things that I’m struggling with.
Those are the big things, but there’s also a lot of benefit to being in a big organisation that one doesn’t have here. One of the ones that I took for granted was the amount of inertia that you get in a big business. As an example, when I sit in a big business, my inbox is full. There are lots of people who want me to do things, and I almost don’t need to sit and think from the top every single day about what we’re going to do today because I’m being pulled in so many different directions.
Whereas in a business like this, you are the initiator. If you do nothing, nothing happens. You know, everything just needs me. And that is shocking. I’ve had to do a lot of rewiring of my brain.
Something as simple as after I agree to a meeting with Ghost that we’re going to have another session, and I’m going to arrange it. It doesn’t seem to arrange itself. I need to actually send out that calendar invite myself [laughing].
So, little things and big things. But it’s fun because you are also realising how much you’ve taken for granted for so long. But yeah, it’s really exciting.
The Finance Ghost: Yes, I can absolutely echo all of that. I think for anyone thinking of doing this and stepping outside of corporate and starting a business, brace yourself for things that will make you pull your hair out in ways you could not believe.
Things that are so difficult that you thought were so easy, like just having a working Microsoft account and Outlook and Teams and all the rest set up in a way that actually functions. Website hosting, dealing with stupid cybersecurity things and firewalls. Oh, it just never ends. There is a huge prize on the other side if you get it right. But it is not an easy thing.
And I think, Lorraine, you’re doing it on hard mode. You’re building something that isn’t out there right now. It’s a two-sided marketplace. I think it’s very exciting and I would certainly encourage companies listening to this who wish they could get access to really impressive skills for just the amount that they need, they should absolutely be talking to you.
And also, professionals listening to this who are looking to access more of those clients with less of the headaches, they should also be talking to you.
From my side, I just wish you the very best with this. I think it’s always so exciting to see someone following their passion, following a dream. Who knows where it goes and if it ends up looking the way you think it might – it rarely does, to be honest. But you’re on the right path and I think you’re doing some exciting stuff, so carry on.
Lorraine Mekwa: Thank you so much for having me as a guest. I think one of the things that I didn’t mention about some of the shocks is that you need motivation to continue doing what you’re doing, and definitely discussions like this are encouraging me that I am on the right path.
And, as tough as it is, as much as I sometimes hit those walls, every time I have these conversations, it just reminds me that I’m on the right path and I can just draw from these discussions as sources of energy to make sure that I’m going past those obstacles when I hit them.
So, yeah, like I said, I’m quite excited about the possibilities of what we can achieve here, and I just cannot wait to see all the different things that we can achieve here, and they’ll start happening quite soon. So, yeah. Thank you for having me.
The Finance Ghost: It’s a great pleasure. Thank you, Lorraine, and all the best. Ciao.
With fewer people getting married each year, the wedding industry has had to innovate
Stats SA registered 97,510 civil marriages in 2024, down from 150,852 a decade earlier. That’s a lot less in the way of “I do”.
When volumes are down, businesses must get their pricing up to survive. That means charging more for existing services, or selling new things. The wedding industry seems to be doing both.
What used to be a single day has turned into a whole season, with a proposal, a hen weekend and a two- or three-day wedding, each with its own suppliers.
If your proposal involved a quiet moment and a nervous question, then congratulations – you’re officially vintage. These days, there are proposal planners, not just wedding planners. There might even be a helicopter.
Or a crane.
Before we get to that, we need to start with the wedding itself. Most of what we call “tradition” is a lot younger than it looks.
Something old
For most of recorded history, marriage was a transaction. Families negotiated dowries and bride prices, land changed hands and alliances were sealed. Love, if it was present, was a nice bonus, but not a requirement.
Lobola, very much alive in South Africa, has its roots in this concept of two families talking terms around a table.
Although we may feel like we’ve associated white dresses with weddings since forever, that idea is not so ancient after all. For centuries a bride simply wore her best dress, in whatever colour it happened to be. If she was rich, she wore the family fortune. When Princess Charlotte married in 1816, her gown was made of silver lamé and reportedly cost about £10,000 (or around R28 million in today’s money).
Then along came Queen Victoria. In 1840 she married Prince Albert in plain white silk trimmed with English lace, with a wreath of orange blossom instead of a crown. The newspapers and women’s magazines talked about that dress for months. By 1849, the American magazine Godey’s Lady’s Book was declaring white the most fitting colour for a bride, as if it had always been that way.
A small tangent, if you’ll permit me: when Albert died in 1861, Victoria put on black and wore it exclusively for the remaining 40 years of her life. She didn’t invent the mourning dress (that was already an existing custom), but she wore it so long and so publicly that black now says “funeral” as firmly as white says “wedding” in the public subconscious.
One woman’s wardrobe choices gave us both!
The next big leap came with a TV crew. On 29 July 1981, a reported 750 million people watched Diana Spencer walk up the aisle of St Paul’s Cathedral in a dress with a 7.5 metre train. The day reportedly cost $48 million. A whole generation watched it and absorbed a brand-new idea: a wedding is a thing you can broadcast.
Popping the question (with a production crew)
If the wedding is the main feature, then the proposal has become its trailer. And these days, the trailer has its own budget.
It wasn’t always a performance. Victorian etiquette manuals were firm on this point: a proposal was a private matter between two people, and the suitor’s first challenge was simply getting a moment alone, away from the chaperones and watchful mothers. One guide from 1875 warned that even announcing your engagement should involve “nothing in the shape of an advertisement”.
Oh, how times have changed.
Dodger Stadium installed the first stadium video board in 1980, and the scoreboard proposal wasn’t far behind. By 2019, Fenway Park in Boston was hosting 50 to 60 of them a season, at $350 a pop. Then came YouTube, the flash mob and the camera phone. By 2015, 45% of American grooms told wedding site The Knot that they had proposed in a public place, up from 34% just four years earlier.
And once a proposal could be watched by a million strangers, it had to be worth watching. Naturally, an industry popped up to help.
In London, Daisy Amodio started The Proposers in 2011 after helping her brother pop the question, charging 500 euros a time. Her typical client now spends about £2,500. Her priciest commission? £800,000, with a team of seven sent around the world to pull it off. Closer to home, Gold Reef City will sell you a R5,000 package: a hotel night, a picnic for two and a helicopter flight with a proposal banner.
The trouble with more moving parts is that there’s more to go wrong.
Will you marry me? (Mind the crane)
Take the man in Sheffield, England who, in August 2020, filled his flat with hundreds of tealights, balloons and a bottle of wine, then popped round the corner to fetch his girlfriend. They came back to find the flat on fire and three fire engines on the way. South Yorkshire Fire and Rescue reported, with some glee, that she still said yes, and that the crew was awaiting their wedding invitation.
Or the man in the Dutch town of IJsselstein who, in December 2014, hired a crane to lower him past his girlfriend’s bedroom window, where he planned to serenade her and then ask. The crane hadn’t been properly secured, and it toppled through the neighbours’ roof (the neighbour had been asleep in the room underneath and had fortunately gotten up just moments earlier). Then, when a second crane arrived to lift the first one off, the sling came loose, and the crane was dropped onto the house again, making the hole bigger.
She said yes.
With the police’s permission, the couple left for a weekend in Paris. Behind them, 32 homes were evacuated and three were declared unfit to live in. To their credit, the pair cut the trip short to come home and apologise, but the neighbours, the bride-to-be told a local broadcaster, weren’t quite ready to chat. As for what the repairs cost and who ended up paying, I went looking and couldn’t find a single report. Perhaps that’s a kindness.
Both couples got engaged despite their disastrous proposals. Hold on to that thought, because money doesn’t improve your odds. In November 2014, on the eve of China’s Singles’ Day, a programmer in Guangzhou bought 99 brand-new iPhone 6s at a reported cost of 500,000 yuan, or roughly two years of his salary. He arranged the boxes into a heart, gathered his friends around it, invited his girlfriend to step inside and proposed.
She said no.
Photographs of him standing dejected in the middle of his heart, flowers in hand, spread across Weibo, where commenters called the whole idea stupid. The one consolation, as the tech press pointed out, was that the phones were in such high demand that he could probably sell them on and get most of his money back. As for his pride… that’s not so easily regained.
And now, the main feature
So what does the actual wedding cost? Nobody keeps an official figure for South Africa. The numbers we have come from the people selling weddings, and the national averages they quote look almost reasonable: about R200,000 according to wedding platform Bridebook, or R150,000 to R350,000 for 100 guests according to The Wedding Directory.
If you’ve been anywhere near a Cape Town wedding lately, you’re probably laughing at those numbers. Price a Saturday in the Winelands and they stop making sense. According to prices compiled by wedding site Novia in August this year, the most exclusive venues in the Western Cape can easily cost hundreds of thousands of rands just for the venue. That’s before anyone has eaten, taken a photograph or stepped onto a dancefloor.
No wonder credit provider RCS publishes a guide to how much wedding credit a couple needs.
Witnesses: now on Instagram
There are still (relatively) affordable ways to get married. But for those with big budgets, the wedding industry stands ready to sell them a season of experiences for an audience that won’t even be in the room on the big day.
For most of history, a wedding needed witnesses, because a community had to know that these two people were now one household. Today the witnesses have become an audience, and most of that audience isn’t even in the room. The proposal is filmed, the hen weekend has a hashtag, and the big day is planned around how it will photograph.
Burstone has evolved from a traditional property company into something very different. Instead of relying on shareholders to fund growth, the company is increasingly using institutional partners and private capital to scale its platform.
But can that model deliver the returns that investors are looking for?
In this episode of Ghost Stories, Andrew Wooler (CEO of Burstone Group) joins The Finance Ghost to unpack the thinking behind the strategy.
This includes details on the launch of the Core Plus platform in South Africa with Nedbank Property Partners, as well as a reflection on the Blackstone journey in Europe.
Along with more technical concepts like first-loss exposure and the ring-fencing of debt, this podcast offers a great insight into how Burstone uses “Other People’s Money” to drive returns.
In this episode, we cover:
Why Burstone moved away from the traditional REIT growth model
The logic behind the Nedbank Property Partners Core Plus platform
What went wrong, and what was learned, from the Blackstone partnership
First-loss exposure, ring-fenced debt and look-through gearing explained
Whether Burstone’s platform strategy can ultimately drive stronger returns for shareholders
This podcast has been sponsored by Burstone, but The Finance Ghost was allowed to ask whichever questions he felt were most pertinent for an investor audience. Please always do your own research and do not treat this as an endorsement of the stock.
Transcript:
00:00 Intro
01:48 How Burstone evolved from Investec Property Fund
05:35 The platform strategy: using partner capital to grow
10:03 Private capital vs. public markets
12:15 The Core Plus platform in SA explained
17:54 What happened in Europe with Blackstone?
22:14 First-loss exposure explained
24:11 Ring-fenced debt, recourse and the loan-to-value ratios
28:39 Burstone’s outlook and long-term strategy
The Finance Ghost: Welcome to this episode of Ghost Stories. Another fantastic opportunity to really get to grips with the strategy of one of the listed companies on the JSE.
Today, I’m excited to bring Burstone Group to you. They’ve never been in Ghost Mail before (other than me writing about them, of course), so this is a really cool opportunity for us to learn about something new.
And to do it today, I have Andrew Wooler. He’s the CEO, so right at the top here.
Let me just set the scene here. I noticed on your pre-close presentation that as much as the official name might be Burstone Group, in the corner it said Burstone Real Estate Partners.
That might sound like one of those typical corporate nuances, but the word ‘partner’ there, I suspect, is doing quite a bit of work, because that is very much the way you and the group think about this thing.
You’ve got an unusual approach to creating value from transactions. You’ve got a platform strategy. You tend to bring capital partners on board.
There’s going to be a lot to talk about today, ranging from the exit of the Blackstone relationship in Europe to the announcement of your Nedbank relationship in South Africa.
Thank you for joining me on this podcast, and it’s very nice to have Burstone in the ecosystem.
Andrew Wooler: Good to be here. Appreciate the opportunity.
The Finance Ghost: Let’s start, then, with an elevator pitch of the group, because I’m not sure that the retail investor audience necessarily knows Burstone as well as they should, and even some instos. We all know that in South Africa, not everyone gets to everything.
So, I think let’s kick off then with just a brief history of the group within the broader Investec stable, how it then became a separate entity, and then what the group looks like today, basically?
Andrew Wooler: Sure. I’ll try to keep it relatively succinct because there has been a lot that has happened.
Burstone was formerly known as Investec Property Fund, or IPF. We listed that business in about 2011 with R1.7 billion of South African assets.
I joined the team about a year later, and I think the majority of the team that sits here today probably joined at a similar time. It was a time when listed markets were very supportive of IPOs and new listings. The Investec property team had been heavily involved in the listed sector previously with Growthpoint, and it was time to get going again.
If you looked at the portfolio back in 2011/2012 – small, kind of cobbled together, some interesting assets that sat in there, but it was all about growth and trying to build scale with good underlying real estate.
And over the course of the next 10 or 12 years, we built IPF from R1.7 billion of assets to what we have today, around R42 billion of assets sitting across multiple jurisdictions.
Over the last 12 to 14 years, you saw us start the Australian business. I think we listed that in 2013/2014. That, we very smartly named Investec Australia Property Fund (I think our marketeers had probably got a bit bored by then). IAPF started with about AU$130 million of assets and inward listed that on the JSE.
The Australian team built it up to about AU$1.6 billion of assets over the course of the next eight or nine years before they were bought out by Charter Hall. In the interim, they had been rebranded as Irongate Group when they internalised the business. I think that was about 2021.
And funnily enough, we’ve gone full circle with Australia because that management team and the Irongate management business now sits back within Burstone.
And yeah, we’ve been in different markets. We’ve been in Europe since 2017/2018. Again, that started with a partnership with Ares Management Corporation and an operating partner on the ground, a guy called Paul Rodger. That team is still with us today. Ares is no longer with us. We bought them out in February 2020, just before COVID hit. That portfolio now serves as the platform that we have with Blackstone.
And so, yeah, it’s been a really interesting journey going international, but at the same time being very focused on what our South African business can do.
I think there’s been a lot of learning and experience gained over the last 10, 12, 14 years as we’ve navigated very volatile and uncertain markets at different times. So, yeah, happy with where we are today, but it feels like we’re very much at the starting line and nowhere near that finishing line.
The Finance Ghost: Yeah, thank you. At least the marketing team has been kept busier now with the Burstone name, as opposed to “Investec fill in the blank”, as you say [laughing].
It is very much a new era for the group, and it’s quite interesting to track what you’ve been up to and then just dovetail that against what we’ve seen in the broader property sector over the past 15 years or so, right?
If you go back a decade, there was so much capital-raising activity on the JSE and so much of that capital was going offshore. And understandably, you’ve got to go where the action is when you’re actually looking to raise money and build out these things and, certainly, that would have informed some of the offshore decisions, I guess.
It does now feel like South Africa is back in vogue to some extent, which ties in with your recent announcement of the platform that we’ll get to just now.
Before we actually go into detail on what you’re doing with Nedbank Property Partners, I think we need to just understand the platform thinking.
Now, I’ve always understood this to cheekily be the ‘Other People’s Money’ strategy, which speaks to banking DNA, and it’s actually a very clever way to generate capital-efficient income. If you can bring partners on board who can provide capital and you can bring expertise and capital, then you’ve got a way to basically gear up the returns you’re going to get – not just through using debt, but also through using your brains and actually managing the property.
So, that’s my overall understanding of the platform thinking. I’m very keen to hear it in your words and perhaps just understand why that is Burstone’s strategic differentiator?
Andrew Wooler: Yeah, maybe we should hire you for investor presentations [laughing], because you’ve summarised it really simply. And it isn’t more complicated than that, right?
Capital is so scarce, and as you say, pre-2016, 2017, as a listed company, you had tremendous access to equity capital markets. That has changed massively over the course of the last 10 years. And so, as you think about creating value, leveraging not just your balance sheet, but also leveraging the people that you’ve got in your business, what are the other options in terms of access to capital?
You mentioned Other People’s Money, as we think about it, and I guess it is a fair amount of the DNA that comes out of the banking side from Investec, but it was very much around: what problems are out there that need solving?
And one of those is that, from a private capital markets perspective, big institutions and big pension funds require access to opportunities and real-estate opportunities. They require access to best-in-class management teams, and they require access to very strong governance structures. And, if you look at all three of those and then look within our business, we pretty much tick all of those boxes.
So, the ability to go and find both on-market and off-market opportunities, to build and aggregate platforms to scale with best-in-class management teams that operate on the ground in the different regions. And then, from a listed perspective, you’ve obviously got a very strong governance structure and DNA to the business. So, what better offering to take to the private capital markets?
And we’ve seen the benefit of that in a lot of the offshore markets in which we operate. I think Australia is probably the best comparative. Strong management team sitting within those listed REITs; big pension funds; the supers there needing to allocate capital to real estate and they just don’t have the people in-house to do that necessarily, so it creates a solution for them.
From our perspective, the way that we think about it, it’s not just about enhancing the return on our capital – that ultimately becomes the end-product. But we’re able to use our real-estate management team and not just the balance sheet.
We significantly increase the diversification of our real-estate investments because we are putting less capital into every transaction or every asset acquisition. And so, we’re able to invest more widely, more broadly, across different regions, different asset classes, into different risk and return profiles, but still putting effectively the same amount of capital to work as you would have if you had financed everything 100% yourself.
Put that all together, and it becomes really exciting. I think we’re at the start of that, pretty much across all of our regions. South Africa being the last one to kind of join that fund and asset management model.
But ultimately, the test for us will be not just whether we can continue to scale the platforms, but also whether we can bring in additional and new partners, and new mandates, over time.
What gives us the confidence there is, if you look at the partners that we’ve got across the globe, they really are some of the world’s best. I think it’s a real vote of confidence in us in terms of them wanting to partner with us.
Obviously, we love the idea of partnering with the best on the planet. Look at the suite of names: Blackstone and Hines in Europe; in Australia, we’ve got TPG Angelo Gordon; La Caisse (they rebranded from Ivanhoé Cambridge), a massive Canadian pension fund; Phoenix Real Estate Partners. And then to partner up with Nedbank Property Partners here in South Africa.
It is really exciting and great to work with people like that because not only do they test you and really push you, but also, from a partnership perspective, from what they bring to the table and what you learn from them, one plus one more often than not equals three.
The Finance Ghost: It is a very interesting way of thinking. And you’ve tapped into one of the big changes there, of course, which is private capital markets as opposed to public capital. I think that is what’s changed so much over the past decade or so.
We always read about alternative assets and how much value is actually flowing into private funds. I guess the overarching point here is that, instead of trying to raise capital continuously at listed level (which can actually become really difficult and is often at a discount to NAV), you can go and actually build out these platforms, and there you’re not necessarily raising at a significant discount to NAV. Sometimes you have to do a small one, and we can talk about that just now with Nedbank.
But I just want to understand that final point, which is that raising into these underlying funds does seem like a more efficient way to access capital markets these days, rather than trying to do book builds all the time at listed level, right?
Andrew Wooler: Yeah. I think the equity capital markets are volatile, and [laughing] have probably been more volatile in the last couple of years than certainly over the last 10 to 15. They turn on and off as they do all over the world. And so, as we think about our business, real estate is naturally a capital-hungry machine, right? So, accessing different pools of capital at different times is important.
And if you’re reliant solely on the listed market, you can find periods (like we had in South Africa, really, from pretty much 2017, 2018, right through to probably the last 18 months) where it’s really difficult to raise capital. And so, the only access you had to capital was from recycling the assets on your balance sheet. Those private capital markets are incredibly deep, and there’s a constant need for deployment into real estate.
It doesn’t mean that they’re always open. We’ve seen that more recently in Europe and Australia, where it’s a bit of a risk-off, so those private capital investors are sitting on cash rather than deploying, just given the broader global uncertainty. But what it does is it creates that second potential pool or outlet for capital.
And I’m sure there will be more times over the future where the listed capital markets come back; you’re able to raise at the appropriate sort of pricing, but you’ve then got the flexibility and optionality in terms of where you go and raise capital to support the growth of your business.
The Finance Ghost: Absolutely. Speaking of growth and raising capital, let’s then turn to the South African news, because I think it’s quite exciting. I mean, just as a South African myself who still lives here, I’m obviously always happy to see investment in our country.
Look, in this case, some of it is just reshuffling what’s there, I suppose. It’s a joint venture, ultimately. It’s a platform you’ve put together with Nedbank Property Partners. As I understand it, you’ll have a 50% stake in it when all is said and done, at least for now.
You’re selling at a modest discount to the NAV. But I think the one point that came through in your pre-close, which I appreciated, was that if you’re selling at a discount into a thing that you still own 50% of, then the discount is smaller than it initially looked.
It’s going to unlock a lot of capital for you. It’s admittedly going to be a highly leveraged structure on day one. There’s a lot to think about here, and there’s a lot for investors to try and understand.
So, having set out some of the complexities and some of the key points I know you’ve focused on describing this joint venture, maybe just walk us through what you’re doing here, what it means for the South African strategy, and then also why Nedbank? Why have you chosen to partner with them on this?
Because it’s been a long time coming, right? You’ve been talking about this platform for a while now.
Andrew Wooler: Yeah, so we’ve had a long-standing relationship with the Nedbank Property Partners (NPP) team – Jean and Claire. That goes back to the Investec days, and so we’ve done some exciting and interesting deals with them over the last 10, 12 years. Really easy to deal with. And not only do they bring equity to the table, but they also obviously bring debt capital (which is great) and they are able to move pretty quickly.
Certainly, in our working relationship with them, they’re pretty dynamic and agile, very like-minded when it comes to real-estate investment and able to look through cycles, which is important, right? Because they’re not just a day-one yield investor. Very much like us, they’re thinking about total return over time.
And then they also bring to the partnership distribution capabilities. As we think about looking to bring in further capital into the SA Core Plus platform over time, they’ve obviously got a significant investment book themselves, and potentially this platform becomes a nice exit vehicle for those investments over time.
And there are certainly assets and platforms in there which we’d love to get our hands on and bring into the platform. But they also bring an incredible brand and level of reputation as a partner to a platform.
We’ve been speaking about catalysing the platform. I don’t think there are many better to catalyse an opportunity with, and really then look to build on that over time. So, we’re really excited to get going with the guys and build that out.
I think from a South African perspective, we don’t have our heads in the sand about the broader SA macro situation and position. It’s definitely better than it was. And this is a country where there’s almost always opportunity. We’re well networked. We’ve got a long legacy here, right from our days obviously with Investec and post, and we believe that we can build something quite interesting and get access to opportunities and take that into the platform and build that out over time.
We’ve been quiet here over the last five or six years as we’ve looked to build our offshore footprint, but we’re excited to get running in SA.
This platform will become effectively the growth strategy for our South African business.
It starts off with retail and industrial logistics assets, and we’ll look to build that up over the next few years while we also raise further capital to come in alongside Nedbank and ourselves. And then there’s always the ability to expand into different asset classes.
And we’ve got Myles Kritzinger, who joined us about a year or 18 months ago from Transcend. There was a residential play, and there have been discussions internally and externally about that possibility. So, I think you’ll see us adding new things over time and bringing in new opportunities, new asset classes, to that platform. But also, importantly, looking to catalyse and bring in additional third-party capital alongside ourselves and Nedbank.
The Finance Ghost: Yeah, it all makes a lot of sense. Nedbank has a really good reputation in the property space, so that obviously lends itself well to this. You guys have been doing this for a very long time. You’ve got this great portfolio to just seed this joint venture, and I think you’ve also mentioned there that it provides an exit for not just other stuff that might be in their ecosystem, but also other property funds in South Africa.
And therein lies that point again around private asset platforms. Because if we went back 10 years, there’s a very good chance that this joint venture would have been listed in one way or another and might have actually tapped capital markets in that way. But in this environment, there’s actually just so much liquidity in private markets looking for a home and looking to lock up these assets that it probably makes sense to do this. And again, it just speaks directly to what’s happened in the past decade, right?
Andrew Wooler: Spot on. It does give management teams or families who have been building real estate portfolios just another alternative to a listing. And the listed markets, you’ve seen it over the last kind of five years – huge amounts of volatility and uncertainty and, obviously, increased regulation and processes and control. So, listing is difficult.
Certainly, our view is that you really need to have scale to warrant bringing something to market. So, this platform does provide that opportunity to guys who have been building up portfolios over time and looking to monetise and create liquidity for themselves.
Then we give them that potential exit and platform to exit into and then provide those opportunities to the private capital markets that may not have had the access to those opportunities if the platform didn’t exist.
So, we’re not reinventing the wheel. We don’t think it’s that smart. We think it’s just a really simple, neat solution that can play into everyone’s benefits over time.
The Finance Ghost: Speaking of alternative assets, the biggest name in the game internationally is Blackstone (not to be confused with Burstone, of course, there are a lot of stones going on here). And that was one of the big focus points of your pre-close update, actually – that the European journey with them seems to have run its course.
And maybe this is a good opportunity for you to just explain what the lifecycle of that journey has been – the value created for shareholders along the way, how you feel about how that all played out – and also the learnings from that which you may have applied to thinking about the South African joint venture, for example, and platforms down the line.
Because I think that’s the one point you raised earlier in the podcast, was just how much has been learned over the past 10 to 15 years of doing this thing.
I’m keen to understand, specifically from the European experience, what some of those learnings might be?
Andrew Wooler: Yeah, so, it has been a really interesting and, at times, challenging process. First of all, picking a name that was so similar to what could become (or who would become) our single biggest partner at a point in time is quite interesting. I remember going in to introduce ourselves to Blackstone and I thought that if we could just rewind the clock, it might have made the conversation easier at the time.
But there’s a long history with Blackstone. I mentioned Paul Rodger earlier, who runs our European business. Blackstone had bought Hansteen in about mid-2015 or 2016, and Paul ran the European side of Hansteen. It was a light industrial business, and that got sold into Blackstone, and he exited and ultimately then became (a couple of years later, alongside Ares) our operating partner and is still with us today.
So, there’s a strong relationship between Paul and the Blackstone team. We also sold them a small portfolio in, I think it was 2021 – a light industrial portfolio in Europe. And so, we’ve obviously done multiple transactions with them over time.
And we were looking to catalyse (similar to South Africa) a European platform utilising the €1 billion of logistics assets that we had across six or seven countries. We’d been exploring opportunities with them and a couple of others for a while, and they pinned their ears back and made it happen.
At the time, doing a deal like that and creating a partnership with the biggest (and ultimately some of the best) real-estate guys in the world was really exciting. And if you look back at it, there are certainly things we could have done differently. There was massive opportunity in that relationship and that partnership, if we thought about growth opportunities.
There’s a great saying: “You miss every shot you don’t take.” That would pretty much summarise the situation that we got with Blackstone. We did the best deal we thought we could do at that point in time.
It hasn’t played out from an overall platform perspective the way that we would have hoped. And so, what was meant to become a real growth platform over the course of three to five years, we’ve unfortunately not seen that happen.
It hasn’t been from a lack of trying. I think we’ve worked through about €1.5 billion worth of pipeline with the team. But there have also been broader macro challenges. We haven’t exactly found ourselves in the best market, from a capital deployment and transactions perspective. So, we find ourselves today in a position where it feels right to kind of bring it to an end.
Certainly, they’ve got their own strategy, and they’re looking to combine a lot of their legacy investments under what is going to be called the PROXITY platform. And so, our European platform, or Pan-European Logistics (PEL), will ultimately roll up into that, and we’ve worked with them to agree on a framework that ultimately creates a good exit for both parties.
We’ll come across Blackstone again in Europe over time, no doubt, and we’d like to continue to work with them on other ideas and opportunities as they come up. And so, I think we’re both working towards a way or a solution that should work out for both parties.
From our perspective, it obviously gives us the equity back that we’ve got invested in that platform. It kind of frees up our management team to look for new opportunities again. So, they’re effectively unencumbered.
We have to deal with a few things in relation to – we talk about ‘first-loss assets’, but there’s a solution to that – and, again, it creates certainty and gives us clarity as a business in terms of how best to move forward.
The Finance Ghost: That concept of first-loss exposure is something that came through quite strongly, actually, in your pre-close, and I’m not sure that that’s a term that the majority of investors would necessarily understand.
It’s not something that comes up too often.
Perhaps you can just explain what that actually means in the context of Burstone?
Andrew Wooler: Yeah, sure. Ultimately, it comes down to a valuation differential. When we concluded the transaction with Blackstone in November ’24, there were three assets that were fairly chunky – €240 million in assets out of the portfolio of just north of €1 billion – in which there were fairly significant value differentials in terms of how they were looking at it versus how we looked at it.
We had agreed on a price of €240 million. They were lower. We said, “Well, tell you what. Pay us the €240 million today in the deal, and then there’s a period of time,” – which we agreed would be two years – “in which we will look to take those assets to market and effectively sell them out of the platform, and any shortfall relative to the €240 million, we’ll top up.”
And obviously, if we achieved more than the €240 million, there would be a sharing of that value, and there were other ways to solve that differential. But ultimately, the total potential differential for us was about €52 million. So, R1 billion. Not a small number.
Markets have changed and transaction activity has been very limited, so we haven’t been able to trade those assets in the open market at a value that we thought justifiable. And so, the decision that we’ve taken is that we’re going to take the majority of those assets back onto our balance sheet and effectively just pay Blackstone what they paid us on the way in.
And that’s the simplest way to effectively solve what is called the ‘first-loss position’. But ultimately, it arises because of a valuation differential on the way in.
The Finance Ghost: Excellent, thank you. I think the other concept that is really important is to just understand the way your loan-to-value (LTV) ratios actually work in the group and how much recourse you’ve got from these underlying platforms into the holding company.
Because, as much as the platform strategy is very interesting and clever and it can have some real benefits, it does obviously create some complexities for investors when they look at this thing and they’re trying to understand the extent to which they’re actually exposed to certain things – as you’ve described there, the first-loss exposure. Debt recourse would perhaps be another one.
So maybe just walk us through, from a debt perspective, what is ring-fenced? Just the concepts in the platforms versus exposure potentially to other assets in the group.
Andrew Wooler: At a platform level, all the debt that goes into that platform is fully ring-fenced to that platform. Ultimately, it means that the banks can only get access (or have limited access) to those assets only.
So, if there was ever a situation or a scenario where you’re in default, for whatever reason, the banks are limited to effectively attaching value to the assets in that platform, as opposed to coming back and looking up to the Burstone balance sheet or to your other capital partners who are in that strategy and platform alongside you.
The important thing is we don’t look at it as a way of trying to keep the banks at bay. Ultimately, reputation for us is the single most important aspect of how we do business. And so, we don’t just see it as a way of being able to get off the hook, but we do think about it from a risk-return perspective.
So, when you’ve got really strong assets – and I think the platform that we’ve put in place with Nedbank is a really good example, where the quality of the real estate that has gone in there and the cash flows that are coming out of those assets is so strong – Finance 101 tells you to use the most effective and efficient way of structuring the balance sheet around that.
Debt is a lot cheaper than equity, and if those assets are as strong as they are, leveraging them up is a really efficient way of creating your returns over time.
We wouldn’t go and put a 60% or 70% leverage number against high-risk assets, or assets that have a high risk of vacancy in the short term, or have a significant risk factor associated with them. So, we think very carefully about when to use a lot of leverage and when to reduce that leverage profile in the asset base
Ultimately, that deals with the platform side. Most of our platforms across the globe are in that really strong real-estate space – strong cash flows and well-located real estate.
And then we’ve obviously got the assets that sit on our balance sheet at a group level that currently, from a South African perspective after the Nedbank deal, will be around R8.5 billion. We will have debt against those assets (typically secured, but we also have unsecured debt that finances the group’s activities) and that will look up at the group’s balance sheet for support.
As we then report our numbers, and we always talk about two levels of gearing.
We talk about reported LTV, which really is straight out of the accounts. Post-Nedbank, I think that’ll be sitting at about 19%, which is really nice and low.
But we also think very carefully about look-through gearing. And really, for context, that’s almost like the old-school proportional consolidation. So, thinking about our share of leverage in the underlying platforms and our share of the assets in the underlying platforms and running a calculation based on that to give you effectively proportionally consolidated (or look-through) gearing.
And, given our shift away from owning direct assets towards having co-invest positions in these platforms, that look-through number is probably going to be more important over time as we think about the risk that we’re willing to take on, because we’re thinking about how much exposure we’ve got to the underlying debt across the business, even though a lot of that debt (or all of that debt) in the platforms is ring-fenced.
And so, naturally, what you’ll find in our business over the next three to five years is that the reported gearing number actually comes down and settles quite low – so probably in the 20s, whereas your traditional REITs will probably be sitting in the 30s. But our look-through gearing needs to be managed between, call it, the 40% and 50% number. And that’s going to be the key metric for us, from a risk perspective over time.
The Finance Ghost: Old-school proportional consolidation, indeed. You’re giving me some varsity accounting PTSD there, Andrew, I’m not going to lie, but it is complex stuff and thank you for explaining it so clearly.
I think let’s bring it home now with a final question around the future, which at the end of the day is what investors would probably care the most about. You’ve still got a directly held SA portfolio. You’ve got quite a tilt there towards offices, so some interesting optionality there for recovery, but also risk in what has been a difficult asset class.
You’ve highlighted there a low overall LTV at holdco level, but obviously you’ve got to think about the look-through. You’ve got lots of decisions that you’re going to have to make around how you recycle and deploy capital, which I think is interesting.
And, perhaps cheekily, I think investors would love to see an uptick in your distributable income per share growth. It’s hard to compare across REITs, but we have seen some pretty high growth levels coming out of some of the JSE counters recently, so obviously investors will contrast these things.
Bringing it home now: what is the message you want to leave current and prospective investors with around the investment case for Burstone? Where’s your head at, what might the next few years look like and what are you hoping to achieve?
Andrew Wooler: We’d all like to see the earnings line grow at double digits. I think we’re in the position where our focus is really on how we build the fund and asset management model out on a measured basis. Not slowly, but certainly thinking very carefully about how we do it and where we put capital to work. And so, as we build that business, we think about total return and we kind of ignore very short-term earnings numbers. The way that we think about it is that those earnings numbers will follow.
And if you look at the model, we’re not just reliant, obviously, on the underlying real estate driving the earnings line for us. The growth in that funds management model really does enhance overall returns. Our hope is that the bottom-line earnings line over time certainly would outpace those without a funds management model within their business, so that’s the hope and that’s the strategy.
There are a couple of things that we’ve got to deal with in the relatively short term, obviously, execution-wise in relation to Blackstone in Europe, etcetera, etcetera.
And then you think about what’s sitting on our balance sheet and, as you mentioned, an office portfolio of around about R5 billion and some residual assets that didn’t go into the Nedbank deal. So, we’ve got R8.5 billion that’ll sit directly on the balance sheet for a while.
We’ve got to think about recycling that capital. So, do we sell out or trade out of those assets directly and release capital back into the group? There are one or two assets that I think, after a little bit of leasing work and a bit of repositioning, will fit perfectly into that Core Plus platform with Nedbank. So, that’s a possibility.
Office liquidity, we haven’t seen that in the market for a long time. But if you look at the underlying metrics of our portfolio, I think we’ve only got around 3.5% vacancy, a decent weighted average lease expiry (WALE) in there of around 3.5 years. So, it’s a portfolio that has stood the test of time.
And there are green shoots coming through that broader market. Not to say that we think it’s going to be a hugely rapid and exciting space to be in the very near term, but certainly those fundamentals are improving. And I think there is optionality in office over time and the things that we could do with that platform.
But the other key focus is: how do we raise additional capital into these platforms? How do we get away from single mandates? Going back to the Blackstone piece, it’s a lot of risk to have with one partner. It’s almost like having a massive single-tenant building that makes up 30% of your balance sheet. You want to avoid that.
So, massive focus for us is getting to market, raising third-party capital from existing capital partners, but also bringing new partners into the fold. That means we’ve got to show them interesting ideas. We’ve got to show them track record.
We’ve still got the better part of R4 billion of capital to deploy in Europe and Australia from our existing relationships with Hines and TPG, so that’s critically important for us over the next six to 12 months.
Over time, if we try to fast-forward three to four or five years from now, we would hope to have significantly more capital alongside us in multiple platforms in multiple regions. Balance-sheet-wise, we’d hope to have the same amount of total capital deployed, but pretty much only into those co-invest decisions, and to have the balance sheet being used to warehouse very opportunistic deals or take advantage of distressed situations, but looking to convert the risk and then move those assets on.
Distributable income per share (DIPS) should follow, but it’s going to take time.
That’s one thing that we’ve been trying to say to the market, “This isn’t an overnight strategy. It takes patience, but we’re giving it our best shot.” And some of the early signs here and the partners that we’ve got alongside us certainly give us that conviction, that we’re going to get this right.
The Finance Ghost: Of course, funnily enough, when you say, “the DIPS will come”, what we mean is distributable income per share, not ‘dips’ in the way that a lot of investors would think about it. That’s exactly what you don’t want to see, of course.
Andrew, that’s a lovely way to finish it off. I really appreciate the additional insights that you’ve brought to the Ghost Mail audience about Burstone – and to me. I’ve learned a lot as well, which I’ve really enjoyed. Thank you.
And congrats on this exciting news around the South African platform. As I said earlier, always nice to see this kind of thing in the home market. So, good luck. I look forward to tracking how it all goes, and hopefully at some point we can have you back to update us on the strategy.
Andrew Wooler: Great. And again, thanks so much for the opportunity. It’s been really good talking through it.
Debt has never been simple, but the shift from JIBAR to ZARONIA has added a whole new layer of complexity.
In this episode of Ghost Stories, The Finance Ghost is joined by Ian Norden of Intengo Market to unpack what South Africa’s new benchmark rate means for borrowers, lenders and treasury teams, and why debt management is becoming increasingly data-intensive.
From covenant tracking and hedging strategies to AI-powered administration and access to capital markets, the discussion explores the real-world challenges facing CFOs and treasurers. Ian explains how Intengo is helping companies move beyond spreadsheets, improve governance and unlock funding opportunities in a rapidly evolving debt landscape.
In this episode:
Why the transition from JIBAR to ZARONIA is changing the way debt is managed
The hidden operational risks that come with growing debt portfolios
How poor administration can affect lender relationships and funding outcomes
The role of AI in treasury management, covenant tracking and debt reporting
How Intengo helps corporates access funding while reducing complexity and manual effort
This podcast has been sponsored by STADIO, but The Finance Ghost was allowed to ask whichever questions he felt were most pertinent for an investor audience. Please always do your own research and do not treat this as an endorsement of the stock.
Read the transcript:
The Finance Ghost: Welcome to this episode of the Ghost Stories podcast, and today we will be learning a lot more about the complexity of debt in the corporate space and how to address it, which is going to be really interesting.
There’s something out there called ZARONIA. It sounds a bit like a town in a fantasy novel, but it’s actually the South African Rand Overnight Index Average. We’re grateful here for the acronym, which is a little bit easier.
It replaced the Johannesburg Interbank Average Rate (JIBAR). It has a different calculation methodology, but it does mean that a lot of other stuff has changed too, and is changing, in terms of how debt needs to be managed by companies and lenders.
Now, to help us understand more about this very interesting world of actually managing debt, we’ve got Ian Norden here of Intengo Market. Day in and day out (and probably a few weekends as well), he’s trying to figure out how to make this easier for companies in a complex debt environment.
So, Ian, welcome back to the show. Not your first one. We’ve had Intengo in Ghost Mail before. Lovely to have you and the team back.
Why don’t you kick us straight off with an understanding of the sources of complexity – what actually makes this world so difficult?
Ian Norden: Hi, Ghost. Yes, thanks. Good to be back. Lucky number three for me on the podcast series.
I think debt in isolation, in one loan agreement or one bank facility, is probably not complex. We can get into ZARONIA and the exact reasons it makes things more complex.
But what becomes complex is the burden that comes with the accumulation of small, recurring obligations.
So, say you’ve got a loan or a bank facility or an overdraft, and then you want a loan, or a revolving credit facility as well, or your banker comes and says, “Well, let’s give you a guaranteed bank facility for longer-term debt.”
All of these together, once they start adding up, become more complex.
Now, as you’ve very eloquently summarised and explained what ZARONIA is, the practical challenge of ZARONIA is, because it’s an actual rate, it looks back and says, “What was the actual rate at which banks transacted with each other yesterday?” That makes it very practical, not theoretical, but it happens every single day.
So, if you historically had a loan that reset four times a year, say you had a floating interest rate loan, it would most often reference three-month JIBAR, and that would be four interest rates you’d have to capture.
Now you have 365. You have to capture them. You have to store them. You have to be able to show a calculation to your shareholders or stakeholders if they ask for it. So, you can see how that now compounds over multiple facilities very quickly.
The Finance Ghost: Very interesting, Ian. So, ZARONIA is certainly bringing a lot more complexity to this. As you say, lots of small, recurring obligations and lots of interest rate calculations. That all sounds like work.
And on top of that, you’ve got other complexity, right? It’s not just that. Because, yes, that’s just the rate, that’s maybe what’s changed. But underneath that is a whole lot of other things that have always been complex about debt, right? Covenants, forex, all sorts of things.
Ian Norden: Good point and spot on as usual. We haven’t even touched on that. So, you’ve got the hedging complexity. Again, just the availability of ZARONIA hedges is going to be an interesting transition.
As we see more and more ZARONIA instruments being issued in the capital markets, hedges will become better priced and more available.
But then again, the complexity of sourcing them is half the challenge. Now you’ve got to manage those hedges.
And then you’ve got covenant certificates. So, you’ve got to track different covenants across multiple facilities.
I think we’re talking more in general now about the complexity of debt, not just ZARONIA, because these, again, have always been there.
But when you add these extra things and you say, “I’ve got to now be focusing on sourcing the correct rate,” you don’t want to be worrying about sending the wrong covenant certificate to the wrong party or sending a covenant certificate late.
These aren’t breaches (to send a certificate late), but it certainly creates friction and it doesn’t paint you in a good light with your lender.
Then you add in cross-currency. Maybe you’ve got some foreign currency revenue you have to look at. Do you have reliable FX feeds? Do you have reliable cross-currency swap hedges? Do you have the most accurate, up-to-date hedging available to you so that you know you’ve got best execution?
As you can see, if you’re a large, listed Top 40, this is much more easily managed by a large, sophisticated team. But if you’re a company that’s growing up and you still have a relatively lean, or even no treasury team (maybe you’ve just got a finance manager or a finance director), this can become very, very intensive very quickly.
The Finance Ghost: Okay, so lots of complexity there. That’s the message. And as you say, it’s not always easy, particularly for finance teams to deal with this kind of stuff – even in big corporates actually, let alone in your mid-sized corporates, where there’s even more of a burden relative to the size of the thing. And we can talk about that as well.
But there’s an opportunity, obviously (and this is where you come in at Intengo), to provide solutions into this space. But what is the real-world cost of not looking at those solutions? Not solving for the complexity? Having an inefficient relationship with lenders, for example – or even worse, outright governance failures, which we see less often in the private sector than in the public sector in South Africa)?
There’s a real cost with this stuff, right? It actually costs you money if you are not managing this debt properly.
Ian Norden: Yes, we must remember that markets price risk. So, credit risk is certainly a big component of lending, but there are other risks at play, and we’re talking here about operational risk.
As I mentioned earlier, the late covenant isn’t a breach, but I’ve been in conversations with bankers where it does create a headache. Because that banker’s got to go back to credit and explain that it wasn’t a breach and it was just a lapse in admin.
That then leaves a bit of a bad taste in credit’s mouth. And maybe next time that banker goes to credit with that deal, there’s a history there or a memory from the credit team around, “Well, we could lend to this counter, but they’re not the most admin-friendly for us.” So, you have to think of that dynamic.
And then, we can look at the municipalities in South Africa over the last few years, how poor governance can really turn you off lending completely. And I think we are seeing that still with misappropriation. We won’t get into who’s who, but it’s probably the most public example of how poor governance can ultimately lead to no lending coming to you.
The Finance Ghost: So, Ian, you’ve mentioned there that markets price risk. It’s such a powerful statement because that’s exactly how financial markets work. At the end of the day, everything we do is just the pricing of risk versus return.
And in the world of debt, your return, inevitably, is relatively capped. Sometimes things might be participating instruments or whatever, but generally speaking, lenders are managing downside risk, whereas equity investors are thinking about the upside potential.
So, it stands to reason that, if you are dealing with lenders, they will care a lot about how you manage your risk.
Can we say that doing this properly (actually having these systems in place and everything else) can reduce your cost of funding? Can it have a real cost benefit if you are perceived as being a better-quality borrower by the lenders on the other side of the table?
Ian Norden: I think we must start with the fact that better governance and better admin in your treasury team or your finance department doesn’t reduce the credit risk of your company.
The answer maybe everyone wants to hear is, “Yes, definitely, improve your admin and you’ll get cheaper funding.” But I think let’s look at the knock-on effects.
If you’re a borrower and you’ve previously been turned off by the potential complexity of accessing capital markets – because you think there’s now going to be an influx of debt instruments and you’re struggling with (or you’re already managing) your small portfolio – an automated AI admin system can significantly help you overcome that ‘insecurity’, if you want to call it that. So, now you’ve got the confidence to access new markets.
What that does is it leads to improved competition and diversity of funding, and those two factors we’ve seen can reduce the cost of borrowing. Again, depending on the name and the creditworthiness. But all else equal, increased competition should bring down the price of something. And that’s certainly a big benefit of having strong governance and strong automation in your treasury debt management.
The Finance Ghost: Something you’ve raised with me before is this gap between perceived complexity versus actual complexity.
I know that this is part of where you operate with your Concierge offering and just helping corporates actually realise that, as much as this sounds difficult and scary – especially for mid-sized, because obviously your big corporate treasury teams as much as they’re looking for efficiencies, they understand debt markets, they’re in there already – there are a lot of mid-sized corporates that are probably not really accessing debt markets the way they could.
Maybe they have one historical banking relationship, one term loan, and they’ve never really paid much attention to whether or not they can actually optimise that part of their balance sheet.
So, just help us understand how Intengo’s Concierge offering and all your broader solutions actually really help to plug this gap. Because I think that’s what CFOs and treasurers want to understand: why should they be speaking to you? Why should they be getting this?
Ian Norden: We see our role as taking a lot of the heavy lifting away from you, but we also see our role as becoming a bit of an AI partner. Let’s not say advisor, let’s say partner. Because you might be able to go to your Copilot on Excel and say, “Right, work out how much debt I owe.”
But in our experience (and I’m going to talk specifically to AI because a big part of our solution is AI-driven), a big part of AI is the reliability of the data underlying it. So, if you’re not receiving credible data, we have a direct feed from the Reserve Bank for a daily ZARONIA rate, and that is the rate, so we know it’s real and we know it’s correct, and we manage that sourcing risk for you. Because you, as a treasurer, want to be making strategic decisions. You don’t want to be spending all your time on operational complexity and trying to check your rates.
Imagine a world where your Enterprise Resource Planning system (ERP) doesn’t reconcile with your bank account and doesn’t reconcile with your feed? How do you know which day in that 90-day period is the rate that was rounded to half a decimal incorrectly?
So, you can see how this complexity might sound simple. “Oh, I’ve just got to get a rate and work it out.” But the knock-on effects can become very real, very quickly, and very complex to solve without the right tool.
If we move that to the second part of debt management, like covenant reporting and tracking or hedging, we can bring in a different way to manage your hedging risk, for example, by doing those valuations for you in the same system where your debt and interest rates are being calculated and in the same system where we have FX feeds. So, another part of our role is to consolidate your information.
You mentioned the larger companies with the larger treasury teams. Yes, they have their handle on the admin, but they still have multiple systems. I think what AI is doing at the moment is creating a huge amount of tech for a treasurer to now navigate. So, what Intengo Concierge tries to do is create a kind of front-end dashboard.
Now, we can sit in front of a treasury management system (we aren’t directly a TMS), or we can sit behind one, but our goal is not to create extra screens. It’s to consolidate with the reliable feeds and a reliable database.
And the last part is then that the scale of AI automation is covered by us, and the cost of that is managed by us. So, using Copilot in Excel is great. But our AI model that reads loan agreements is 14 different agents talking to one another.
And it’s really about the edge cases. It’s about, “What if my covenant is worded slightly differently to the one that Microsoft or another company thought might be how covenants are drafted?”
Our team has spent a lot of time with a lot of diverse corporates, from small, medium to large, understanding those edge cases, so you can trust that system a lot better and you’re not spending the opex on it.
And you also have a person to talk to. We haven’t talked about human intervention yet, but we spend a lot of time thinking about when the human should come in. And equally, you have us as humans on the other side to talk to if things do go wrong.
The Finance Ghost: Yeah, Ian, having been in a financial services environment where I, for my sins, early in my career, was very involved in a systems implementation that didn’t go as smoothly as perhaps it should have, I’ve seen how tough those recons are and how difficult it is to go and figure out an issue.
It sounds ridiculous to people who aren’t involved in this space. It’s like, “Just go to, you know, cell C12 in your spreadsheet. What’s the problem? Just go plug it in.”
Ian Norden: [laughing]
The Finance Ghost: That is not how these organisations work and these treasury management systems. As you say, it’s not that straightforward. So that is a very good point.
I like what you said there, as well, about the AI models that have been trained specifically for the edge cases. Because, as anyone who has engaged with AI will know (and really, that should be everyone by now. You should at least be playing with it), it hallucinates at every opportunity – if you use the typical free models or you don’t actually use the right thing and you haven’t trained it properly.
And hallucinating a small fact is already bad enough, but hallucinating a rate or a covenant or something else is not going to endear you to the credit committee at your friendly local lender who will be debating how to price your loan. So, all of this makes a lot of sense.
Ian, let’s make this practical now. Without actually naming any clients, are there any examples that you can perhaps give us of a business you’ve worked with and the types of problems they were facing before you became involved there, from an Intengo perspective?
Ian Norden: Absolutely. I think there’s a very real and recent one. We worked with an established corporate who’s still growing and very reliant on debt, and we saw the spreadsheet that they were using for managing the interest payments alone. It was an impressive spreadsheet, but it was probably 15 to 20 tabs of different facilities across multiple banks.
I think it’s important to say that nothing was broken and there weren’t any defaults or breaches, but you could just see how fragmented the administration had become over time. Because whilst interest was in this sheet, you had covenant tracking somewhere else, and you had lender communication, often through email or phone calls, and then key dates were reliant on someone putting that into an Outlook calendar or just remembering them and taking note of them.
I think the challenge here for that client isn’t credit risk – they’re highly creditworthy and they weren’t in default or missing payments or covenants – but the operational complexity just increases the risk of that maybe happening.
So, it was great for us because it really proved the value of consolidation. Putting this all into a single environment, having our AI readers come in, process the agreements, pull out all the information into one place, but then having one system that can monitor the calculations, audit those calculations and provide the covenant certificates automatically and provide a ready-to-send email or even send that email. That provides much better visibility (and, I think, much more peace of mind) to management.
One extra very interesting point was that the benefit wasn’t limited to the borrower here. The banker who introduced us (well, one of the bankers. We have many banking relationships), he received very positive feedback from the client because their interactions were now smoother. The reporting was not reliant on the manual process, it was much more consistent, and they were spending less time doing that.
So, I think that’s something to also highlight: good governance for a treasury isn’t just creating value for their funding process, it’s creating value across the whole funding ecosystem.
The Finance Ghost: Ian, when I hear you speak about a spreadsheet like that, I just immediately think about risk. So, as you say, it’s not like they were in default or not meeting covenants or that something was particularly broken or there was a calculation error. But what if someone just sends that spreadsheet to one of their lenders and then reveals the pricing they get on everything to basically everyone? Or if it falls into the wrong hands – or gets sent to a competitor?
I mean, these are extreme examples, but this stuff does happen. I think there was a recent story, actually, of an international investment bank leaking its entire pipeline basically out into the market because it was all sitting on a spreadsheet.
So, I would imagine that part of the Intengo value-add is to actually have a system that allows for things like proper access control, where you can’t just attach the wrong file to an email and suddenly you’ve shared a whole lot of personal information or business information with the wrong person.
Ian Norden: Yeah, that’s a very fair comment. I think, to your point, mistakes do happen and obviously this could be quite catastrophic for your funding book if you told everyone what you were paying to everyone else. And that’s very much where we play a part.
We are owned by a very large banking group, at Intengo, and we inherit a lot of incredibly robust security in our systems and our software, and that is a direct pass-through to the client. So, while a lot of the software we’re providing is through a cloud service, I think it does add an extra layer of security that there’s not a file floating around. It’s a system and it’s secured.
The other nice thing about how we implement is we rely on the existing controls. So, if your company has a multi-factor system, or generally we use the Microsoft front end, so if you’re using Microsoft software already, the login becomes seamless. It’s not another password you have to remember. So, it’s a very easy implementation and it inherits any existing protocols your company needs to use software.
The Finance Ghost: Ian, you’ve given us some really good examples around administrative improvements, governance improvements, risk improvements for that matter. But Intengo isn’t just a debt management business, because part of the value-add here is that your solution often helps clients actually access funding. So it’s not just about managing it once it’s there, it’s about making it easier to bring that funding in. And as we know, funding is the lifeblood of any business really, in whatever form it comes.
So perhaps just walk us through how Intengo has actually helped clients and generally helps clients get lenders across the line and bring them to the party.
Ian Norden: I think that’s where the story becomes interesting because when you look at one solution in a vacuum, it can obviously do a certain amount of good and make a certain amount of improvements, but when you combine it into an ecosystem, you can really start seeing multiplier effects.
So if we go back to Intengo’s history, our bread and butter is facilitating listed bond auctions and commercial paper fundraisers. And I think we’re coming up for R450 billion now of bids processed through that system.
And when we look at the market, we say, well, what is stopping mid-sized corporates from tapping into that? We’ve got asset managers on our system who are saying to us, “Oh, I’d like to lend to that name, do you know that name?”
We’ll know that name and we’ll approach that corporate and they will be hesitant because I’d almost call it the fear of the unknown. What is that lender going to expect from me? What are they going to want me to provide that’s different? And what is the operational burden that I’m going to take on for the relative or perceived improvement in cost of funding?
If we can make that admin the same, then it’s a straight pass-through of an improved funding rate – if that lender were to offer an improved funding rate. But in most cases they offer a diverse approach to funding and we have seen that sometimes funding rates can be improved. So we need to be thinking, “What does that mid-cap need from us to tap into that?”
And the thought of multiple lenders, multiple debt instruments, covenant obligations is not scary anymore when you’ve got an automated system that can scale and really improve your access to multiple funders with minimal operational increase.
Access, I think, is then only one part of the puzzle. So the concierge solution is really designed to be your lifecycle partner.
So it’s not just the admin of accessing that funding, it’s then the access of servicing that funding. In the same way that you’re familiar with servicing your bank funding, business as usual can be your focus.
So instead of hiring additional treasury specialists and increasing headcount and buying multiple systems and building complex internal processes with new governance, a finance team can now leverage technology and automation to achieve an almost identical outcome, but in a much more cost-effective way without increasing risk.
And I think the result is Intengo doesn’t magically make you a better credit, but we certainly make it easier to access a wider funding ecosystem. And increased competition for funding can often lead to better outcomes for borrowers.
The Finance Ghost: It sounds like you’re carrying a lot of the hard work around the feeds; the AI that’s been built; the understanding of the complexities of these things. It sounds like it would save a lot of time for someone on the other side at a client.
And is that the idea here, in terms of how Intengo justifies its existence in these corporates and why it makes economic sense?
Ian Norden: We certainly think so. I’m going to jump on something you said around using the AI in the business. We see a lot of corporates afraid to start with AI because of that question you’ve touched on – how do you explain to people that you’re using it?
There was a very interesting article on Moneyweb this weekend around how AI is now in the boardroom. Why I want to bring that up is because we must differentiate between AI doing everything and AI supporting humans in their day-to-day.
This is important is because we’re not going to build a system (for you or anyone) that’s going to work out the interest and send that payment directly through your bank account to those people. We’re going to build a system that does a calculation, presents it to you at the right time and lets you apply your judgment.
Because treasurers will intuitively have a sense of, “Ooh, this looks wrong,” or “I’ve done this so many times and this isn’t right.” Yes, we’ve talked about they might not know exactly which cell, if it was C12 or B12, was the error, but we want to bring that human experience in.
And, in our experience of bringing AI technology and automation to companies, it also lands a lot easier when you say, “Here’s how your team can use AI to support their roles. We’re not replacing anyone, no one’s getting fired. However, maybe your next hire, you don’t have to make, because your team has operational leverage now.”
The Finance Ghost: I guess that leads me then to I suppose a cheeky question, which is: “Does this product then pay for itself?”
Ian Norden: So, Ghost, with that context, we have to look at value, not cost. Let’s talk about the value of this to your organisation. We obviously want to look at what the replacement is. Often, it’s a full-time employee (FTE) cost, and we certainly try to be a fraction of that.
Now, those hires can also vary, depending on the skill involved. But we look at it and say, “If you’ve got a relatively straightforward treasury operation, the fee will be relatively good value for what it is.”
And then there are add-ons. If you want to add a derivative package onto that or an FX feed package (we have seen certain corporates paying a lot for just FX feeds from a particular system), we can incorporate that as an extra cost very, very cost-effectively.
And as you can see, you can start building this up and you add, “Okay, I’ve got less than five debt instruments,” then you’re in our Essentials package range. Or you’re in our Enterprise package range, because what we haven’t talked about is portfolio lenders. So, maybe you’re actually looking at this tool to manage your investment portfolio and people who owe you money. Then we have a different model.
So, you can see it’s quite diverse in client type, and the value for money, I think, scales proportionately.
The Finance Ghost: Yeah, absolutely. So, if you are a corporate treasurer or CFO and you’ve been listening to this and thinking, “Hmm, that’s interesting.” Or, for that matter, any exec in a mid-sized corporate who has debt or looking to break into that market, looking to perhaps improve your cost of funding and just create some competitive tension among lenders and actually just improve the way you deal with this stuff, then all of these are good reasons to contact Ian and have a conversation.
Ian, as we start to bring this to a close, it’s a connected ecosystem, right? That’s the point here. You’ve got the banks lending, you’ve got the borrowers, and you’ve got other service providers who can be involved in that value chain, like Intengo Market. That’s really what we’re talking about here.
To understand that ecosystem and to understand the role you play, what is the one thing that you would want a treasurer, CFO or executive to take away from this discussion when they think about Intengo and specifically when they consider reaching out to set up a chat?
Ian Norden: Sho. Only one? I can immediately hear my whole team in my head shouting at me…
The Finance Ghost: I mean, I’ll give you two.
Ian Norden: [laughing] I think you’ve touched on the first point: the ecosystem matters. So, we’re going to pull back to a global trend. There’s a shift in capital allocation from public to private. Are you, as a company, benefiting from that?
There is more liquidity than ever outside of the banks looking for a home in your company. Those investors are going to want a certain standard for that capital to make it to you. Are you able to provide that standard? That would be the first one.
I think the second one would be linked to that. It’s much easier to get there than you think. And with the right partner, with the right tech and with the right use of AI – AI and tech and digitisation is a very, very powerful lever into this space, like it is with most things. But if you haven’t yet thought about it in your debt space, now is a great time.
The Finance Ghost: Ian, thank you so much for sharing all of this with us. For anyone listening to this conversation who thinks there’s an opportunity here to chat to them, go to intengomarket.com.
You’ll be speaking to the right people because, might I point out, that Intengo has been recognised as a finalist in the FinTech Association of South Africa Awards for Innovation of the Year. Very cool. Well done, Ian – and to all the team members on that side, obviously. It’s certainly not just you.
It’s very cool to see this kind of growth, so thank you for coming and sharing more about the offering. It’s developing really quickly, so by the time we get to our subsequent podcast in a few months’ time (and some articles along the way, for those who read Ghost Mail), it’s going to be quite interesting to see how this develops and the conversations you’re having in the market.
Thank you, Ian, and to the listeners, reach out. Chat to Intengo. I’ll make sure that the details are in the show notes.
Bottled water has been sold to us as medicine, status symbol and safety net. This is a short history of paying for something that falls from the sky.
In the summer of 1789, as revolution simmered in France, a nobleman called the Marquis de Lessert decided to cool off in a small town on the shore of Lake Geneva.
He was unwell, by most accounts suffering from kidney trouble. During his stay he would take long walks every day, and often stop to drink from a spring in the garden of a local man named Cachat. With time, the Marquis’s health improved. There are many possible reasons for this – the effect of a prolonged period of rest, for example, or perhaps the fresh mountain air. But the Marquis declared with conviction that it was the water he drank from Cachat’s spring that healed him.
Doctors took note and began prescribing the magical “mineral water” to their patients. Cachat fenced off his spring and started charging for the water. And thus, the little town of Évian-les-Bains found its fortune in what would later become known as Évian water.
Whether the water really cured the Marquis hardly matters. There’s even some debate about whether the Marquis ever really existed at all, or whether he was invented by the clever folks over at Évian (I certainly can’t find any evidence of him that isn’t entangled in the Évian origin story).
What matters is what this story inspired: a series of concepts that nearly every bottled water brand has followed since – purity, place of origin, healing – all poured into a container and sold back to us at a premium.
For most of its history, bottled water was considered medicine. Medieval pilgrims carried small flasks of holy water home from shrines to ward off misfortune. The first recorded bottling of spring water took place in 1622 at the Holy Well in England’s Malvern Hills, a spring long credited with healing powers. People travelled to “take the waters” at healing centres at Bath, Vichy and Saratoga, convinced that spring water could fix whatever ailed them.
The water cures may have faded, but the belief they instilled in us hasn’t. Somewhere in the back of our minds, the idea persists that what comes out of the bottle is still cleaner, safer and better than what comes out of the tap. The Marquis’s kidneys (if they ever existed) are long forgotten. But the sales pitch they inspired is still on every label.
The tap fights back
Back in the 19th century, the bottle certainly had a strong case for being the safer option. Cities were growing faster than their plumbing, and the water that reached people’s homes often came from the same rivers that carried their sewage away. Unsurprisingly, cholera and typhoid moved through these supplies with devastating ease.
In 1854, the London physician John Snow (yes, I see you, Game of Thrones fans) famously traced a cholera outbreak in Soho to a single contaminated public pump on Broad Street. Against that backdrop, buying bottled water from a spring wasn’t vanity; it was a reasonable precaution for anyone who could afford it. As for the people who couldn’t afford it… well, they took their chances at the tap.
Then, on 26 September 1908, a chlorination plant at the Boonton Reservoir began disinfecting the water supply of Jersey City in New Jersey. The idea came from Dr John Leal, a public health advisor who was on the frontlines of fighting typhoid. Despite the fierce resistance from his peers, Leal’s idea worked. Waterborne disease fell, the practice spread, and by the 1920s chlorination had become the standard across America.
No doubt this was an anxious moment for Big Spring Water. After all, if the tap was proven to be safe, and could deliver drinkable water right into people’s homes, there was no reason to pay for a bottle. In America, the industry wobbled, but didn’t collapse. It retreated into offices, where the gurgling water cooler became a fixture of working life, while in Europe the bottle never really lost its place at the table.
In 1974, the tap’s saviour turned suspect. Scientists in Rotterdam and New Orleans found that the chlorine used to purify drinking water could react with organic matter to form compounds linked to cancer. The risks were small and the water was still far safer than anyone in the 19th century could imagine, but the seed of doubt had been planted.
Three years later, someone came along to water it.
In 1977, Perrier made its big push into the United States with a campaign voiced by Orson Welles, the man whose (very believable) 1938 radio adaptation of The War of the Worlds had famously sent listeners into a panic about a Martian invasion. Now that same voice promised water that was naturally sparkling – aka not chlorinated – and drawn from the centre of the earth. Perrier priced it with care: cheap enough to buy, just aspirational enough to say something about you.
Bottled water had become a statement.
Pure, until proven otherwise
Purity is a powerful concept to sell. Unfortunately, it also shatters easily.
In 1990, a laboratory in North Carolina found benzene, a known carcinogen, in bottles of Perrier water. The company first blamed a worker who had cleaned equipment with the wrong solvent. It later admitted the real cause was a filter that hadn’t been changed. Around 160 million bottles were recalled worldwide. To add further insult to injury, Perrier was also pushed to drop the words “naturally sparkling” from its labels.
Then came the Dasani debacle. In 2004, Coca-Cola launched its Dasani bottled water in Britain with a multimillion-pound marketing push, promising a highly sophisticated purification process. The press soon discovered that the source wasn’t a mineral spring at all, but rather plain old tap water from a factory in Sidcup, a London suburb.
Weeks after launch, tests found bromate, a suspected carcinogen, at up to twice the legal limit. It hadn’t come from the tap, which inspectors confirmed was clean. It had been created through Coca-Cola’s own purification process. Half a million bottles were recalled, and the brand left the UK with its tail between its legs.
So should we trust what’s marketed to us?
Perhaps not on the strength of words like “pure”, which is marketing language rather than a guarantee.
In much of the world, municipal water is tested constantly, and the results are a matter of public record. In South Africa, for instance, the Department of Water and Sanitation publishes Blue Drop reports grading the water systems of municipalities across the country. South African public bodies have an extremely patchy track record, but the principle is there.
Of course, bottled water is regulated too, but you’re far less likely to see its test results. Most of the time, all we have to go on is the label, and the label is written by the people trying to sell you the bottle.
Who owns a drink of water?
In a 2005 documentary, We Feed the World, Nestlé’s then-CEO Peter Brabeck-Letmathe dismissed as “extreme” the NGO push to declare water a public right. Water, he argued, should instead have a market value like any other foodstuff. The clip still circulates, and Nestlé is still fielding questions about it to this day. In fairness, Brabeck-Letmathe has since clarified that he believes the water people need to survive is a human right. But the remark touched a nerve because it voiced a tension the industry would rather we didn’t notice: if water is a right, why does access to it so often depend on what’s in your wallet?
In 2010, the UN General Assembly formally recognised safe drinking water and sanitation as a human right. No country voted against it, though 41 abstained. South Africa got there earlier: our Constitution guarantees everyone the right to access sufficient water.
Yet we know how quickly that right can start to feel like a product.
During the Day Zero crisis in 2018, Capetonians queued at springs and stripped supermarket shelves of bottled water. In Johannesburg, repeated outages have pushed households towards boreholes and bulk buying. When the public system falters, the bottle fills the gap, but only for those who can afford it.
Back to the spring
Today, in Évian-les-Bains, the Cachat spring where the Marquis drank still flows. Locals and tourists alike turn up with their own bottles and fill them for free.
The water that launched an industry is, at its source, still a public tap. What we buy in the bottle is mostly reassurance. Sometimes that’s worth paying for, but the real luxury, and the one worth protecting, is a tap you can trust.
About the author: Dominique Olivier
Dominique Olivier uses her love of storytelling and ideation to help brands solve problems.
Her first book, Lessons from Loss, has been published by Penguin Random House.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
RESULTS COMMENTARY FOR THE SIX MONTHS ENDED 31 AUGUST 2026:
Overview
Capitec Limited reported headline earnings growth of 19% to R9.5 billion for the six months ended 31 August 2026 (August 2025: R8.0 billion), a result underpinned by momentum across every one of its South African businesses. Despite heightened global macroeconomic uncertainty, the Group’s diversified model delivered broad-based, quality growth in Personal Banking, Business Banking, Fintech and Insurance while it maintained a return on ordinary shareholders’ equity (ROE) of 31%.
As Graham Lee, CEO of the Capitec put it: “Our results show the power of the diversified business we have built over decades on strong fundamentals of simplicity, affordability, accessibility and a personalised experience. Every one of our South African businesses grew earnings this period, even as the global environment stayed uncertain and economic growth remained muted. We kept fees unchanged for a second year running, invested in technology and in serving our clients better, supporting our strategy to build a banking platform that delivers shared value at scale.”
Reflecting confidence in the sustainability of earnings, the Board declared an interim dividend of 3 110 cents per share, up 19% (August 2025: 2 620 cents). The cost-to-income ratio improved to 36% from 40%, evidence that investments made over the past several years are increasingly translating into scalable growth and stronger operating leverage.
A diversified engine firing on all cylinders
The growth of Capitec’s headline earnings over the period is a testament to the strength of the Group’s fundamentals, the resilience of its diversified business model and the disciplined execution of its strategy. Personal Banking contributed 37% to group earnings and provides the platform on which the other businesses grow. Insurance contributed 27%, Fintech 29% and Business Banking contributed 6% to total earnings. The Group’s fundamental approach remains unchanged: simplicity, affordability, accessibility and a personalised experience across all its businesses.
Net interest income grew 7% to R12.7 billion, driven by 21% growth in loan disbursements. Net non-interest income rose 21% to R16.1 billion and now contributes 70% of income from operations after credit impairments (2025: 65%), underscoring the quality and diversity of the Group’s earnings.
More clients, more fully banked, more digital
Growth was powered by a rising and increasingly engaged client base. Active clients grew to 26.6 million, while fully banked clients increased 11% to 10.4 million and now represent 41% of active clients (2025: 38%). The shift toward fully banked relationships continues to lift the number of transactions per client. Clients using the Capitec app in the last month increased by 18% to 16.5 million, supporting Capitec’s position as SA’s leading digital bank.
Digital transaction volumes (excluding VAS) grew 26% to 662 million as clients transacting digitally rose 15% to 17.1 million. Adoption of digital payments accelerated sharply, with Apple Pay, Garmin Pay, Google Pay and Samsung Pay users up 68% to 2.4 million, supporting an 87% increase in spend to R52.1 billion.
“What inspires me most is to see how that translates into tangible value for almost 5 million young people between 18 and 25 as well as for 686,000 business owners ranging from the small informal trader to some of SA’s leading commercial companies. We believe that if we continue to create value for our clients, they will in return continue to create value not only for our employees and our shareholders, but for South Africa at large.“
Graham Lee, Chief Executive Officer
Access to affordable credit remains key
Personal Banking extended affordable, accessible credit to more South Africans, growing its gross loan book beyond R100 billion for the first time, while maintaining credit granting within its through-the-cycle risk appetite. Solutions including the credit card and term loans for purposes like education, vehicles or home improvement realised 9% growth in lending income to R11.4billion for the period. Capitec also boasts the best credit card for international travel since clients benefit from zero international card fees, zero forex commission, 1% cash back on all spend and free airport lounge access.
Fintech: scaling beyond traditional banking
The Group’s Fintech businesses, Value-Added Services (VAS) and Capitec Connect, grew net income 30% to contribute R2.7 billion to Group headline earnings (2025: R2.1 billion), demonstrating how Capitec is extending its value proposition beyond traditional banking. Net income from VAS increased 30% to R3.5 billion, driven by everyday services such as prepaid airtime, data and electricity.
Capitec Connect continued to scale with the number of active clients in the past 3 months reaching 1.8 million (2025: 1.1 million), as more clients adopted it for affordable everyday connectivity, with data usage more than doubling from 14.9 million to 34.3 million gigabytes and voice usage growing 84%. Free Capitec-to-Capitec callswere launched to strengthen the proposition, with 70 million free minutes used during the reporting period. The business also launched the sale of cell phones on the Capitec app, and 27,000 devices were sold in the past 6 months.
Insurance: protecting more clients
The Insurance business grew headline earnings by 22% to R2.5 billion, with the net insurance result increasing 28% to R3.0 billion (2025: R2.4 billion) on strong performances from Credit Life and Funeral Cover. Active Credit Life policies increased to 2.2 million, all now underwritten on Capitec’s own long-term insurance licence, while the total funeral book grew to 3.8 million active policies covering over 17 million lives, reflecting the continued trust of Capitec’s clients. The Life Cover sum assured increased by 75% in its 3rd year since launch to R126 billion. Capitec’s competitive pricing is reported to have saved Capitec clients R4.8 billion since the category was introduced.
Business Banking hits its stride
Following several years of investment, Business Banking is scaling rapidly. Headline earnings surged 52% to R609 million (2025: R402 million), supported by increased lending income, higher transaction volumes and improved operating leverage. Total Business Banking clients increased by 123% to 686,000 of which 237,000 are simple businesses using the Entrepreneur account. Growth in merchant accounts accelerated to 141,000, up 66%, off the back of new payments devices and simple transparent pricing. Credit to businesses also grew by 37% to R35.5 billion, 12% of which is now made up of scored lending, which is opening up a new market designed to empower SMEs to grow.
Beyond banking
Capitec continued to invest in initiatives that extend its impact beyond traditional banking. Since launch in March 2026, it has processed over 594 000 Smart ID applications in partnership with the Department of Home Affairs, expanding Smart ID access to 248 branches. The Group recently launched the Capitec Stokvel Account, a digital savings account enabling South Africa’s roughly 800 000 stokvels to save together with transparency and security.
Outlook
The Group remains focused on becoming the leading payments provider and expanding its embedded finance capabilities to bring more value-adding solutions to clients that extend beyond banking. Part of this journey is the recent name change from Capitec Bank Holdings Limited to Capitec Limited, reflecting the Group’s growing focus on delivering a wider range of value-adding solutions to its clients.
More than a century ago, two titans clashed over a groundbreaking new technology, each claiming that the reckless advancement of the other would put countless lives in danger. In 2026, there’s something about that story that sounds weirdly familiar.
On the 12th of September this year, Anthropic chief executive Dario Amodei published an essay calling on the few labs at the frontier of AI – his peers, but also his competitors – to agree to slow down their progress. Together.
It’s an odd thing to read in the context of AI, which appears to have operated under the Silicon Valley motto of “move fast and break things” since an artificial intelligence chatbot first became a household name in 2022. From the outside looking in, there seems to have been little regard for the violation of copyright, sweeping job losses, the spreading of harmful information or the increasing environmental toll that has become broadly synonymous with AI use. And now, at an unexpected time and from an unexpected source, a call to put on the brakes.
Amodei’s statement is neither subtle nor reassuring. Referencing the Hugging Face incident in July of this year, which saw AI agents being tested by OpenAI slip out of their test environment and autonomously hack into Hugging Face’s live systems, he writes that a swarm of AI agents working together could, within six to twelve months, be “capable of taking over the entire internet”.
That does not sound good.
The plan he outlines to stop this from happening has three steps. First, outside safety testers would get employee-like access inside each lab, something Anthropic has committed to and wants governments to require of everyone else. Second, leading labs in democratic countries would agree on common safety standards and limits on the rate of unchecked AI progress, ideally through regulation covering every US frontier AI company. Third, the US and its allies would try to reach international agreements with China.
Perhaps more surprising than the essay was the response: according to Forbes, Sam Altman and Elon Musk, hardly Amodei’s natural allies, have both backed the call.
So is the danger real? Or is something else going on?
The doomsayer in me believes that we really are on the verge of intelligent tech that could wipe out our species. The sceptic in me recognises that Anthropic is on the verge of going public (vs. OpenAI that is lagging behind), and that a coordinated slowdown just happens to suit the companies already in the lead. As for the history nerd in me… well, that one is getting a strong feeling of déjà vu.
The War of the Currents
In the 1880s, Thomas Edison was the undisputed king of light. His Pearl Street Station in Manhattan was America’s first central power plant, serving 59 customers with direct current in 1882.
Edison’s system ran on direct current (DC), which flows steadily in one direction. He delivered it at a low voltage, which made it reliable and comparatively safe, but it couldn’t travel far without losing power. Customers needed to be within about one and a half kilometres of a power station, which is not ideal if you’re planning to light up a whole country.
Enter George Westinghouse, an industrialist who had made his fortune with the railway air brake. Westinghouse backed alternating current (AC), which reverses direction many times a second. Its great advantage was the transformer: AC could be pushed out at very high voltages across long distances, then stepped down to something manageable at the other end. Westinghouse later licensed the AC motor patents of a brilliant young engineer named Nikola Tesla, who had once worked for Edison.
Edison had built an empire on DC, with patents, royalties and a lot of expensive copper buried under New York’s streets. Westinghouse’s AC threatened all of it. Edison was so incensed that he predicted in 1886 that Westinghouse would kill a customer within six months of installing a system of any size.
He wasn’t entirely wrong about the danger. But he was wrong about where it came from.
The electric spiderweb
Look up to the sky in 1880s New York and you’d have seen a sky crosshatched with wires, like a giant spiderweb over the city. Telegraph, telephone and electric companies all shared the poles, and the city was strung with hundreds of wires from a dozen electric light companies. Much of it was poorly insulated and haphazardly hung. The high-voltage lines powering outdoor arc lamps ran right alongside low-voltage telegraph cables.
On 11 October 1889, the city saw exactly what that meant. A Western Union lineman named John Feeks was working high above a downtown Manhattan street on what were supposed to be low-voltage telegraph lines. As the lunchtime crowd watched, he grabbed a line that had, unknown to him, been shorted many blocks away with a high-voltage AC line. He died instantly, but his body fell into the tangle of wires and smouldered there for the better part of an hour as thousands gathered below, engrossed in the gory spectacle.
It was horrifying. But for the man who wanted the world to turn against AC, it was extremely useful.
Edison interferes
Edison had gone on the offensive against AC long before the Feeks incident. In 1888 his company circulated a pamphlet (with a blood-red cover, subtlety not being the point) that warned of the dangers of AC. It named Westinghouse directly.
That same year, along came Harold P. Brown, an electrical engineer with a flair for theatre. He wrote an impassioned letter to the New York Evening Post that mourned the “scores killed and maimed” by alternating current and demanded political action. Edison took notice and let Brown use his laboratory, where Brown began electrocuting dogs with AC.
Ethical science has thankfully come a long way since then.
He later repeated the experiments in public, moving on to larger animals, to show how deadly the current was. He also challenged Westinghouse to a duel, in which each man would take a dose of his own current to see who survived. The duel never happened.
Brown’s biggest opportunity came when New York started investigating a more “humane” alternative to hanging. He was hired to help build the state’s new electric chair, and he made sure it would run on AC, using Westinghouse generators that Westinghouse himself had never agreed to supply. The implication was obvious: if it’s deadly enough to kill a condemned man, would you want it in your home? Edison even suggested that execution by electricity be called being “Westinghoused”. Mercifully for Westinghouse, the name didn’t stick and “electrocuted” won out instead.
All the while, Brown insisted he was an independent expert with no stake in the fight. That claim collapsed in August 1889, when letters stolen from his New York office were published in the press. They showed that Edison’s company had been financially supporting Brown’s campaign behind the scenes all along.
The art of grifting may have been accelerated by social media, but it was invented a long time ago.
How it all ended
Marketing, it turns out, can’t beat physics and economics forever. In 1893, Westinghouse won the contract to light the Chicago World’s Fair. A few years later, AC generated at Niagara Falls was carried more than 30 kilometres to Buffalo, which proved that power could be produced in one place and used in another. Meanwhile, Edison’s own company was merged into what became General Electric, and Edison himself became less involved. In his absence, his company silently got on with building AC systems.
DC never completely disappeared, though. It took until November 2007 for Con Edison (a major energy company) to cut New York’s last direct current service, 125 years after its start in Pearl Street. The final customers were mostly old buildings on the Upper East and Upper West sides that still ran their elevators on DC.
So was there ever really any danger? Absolutely. AC did kill people, and not only in New York. But look closely at the evidence and it doesn’t point where Edison wanted it to.
Brown’s own list of electrical deaths, sent to Edison in late 1889, included men killed by Brush arc-lighting circuits, and those high-voltage systems weren’t always AC. The real killers were high voltage, cheap insulation and an unregulated tangle of competing companies stringing wires wherever they liked.
What made electricity safe wasn’t declaring a winner between AC and DC. It was moving the cables underground, setting safety standards and stepping the voltage down before it reached homes. In other words: it was regulation.
The man sounding the alarm
The parallel between Amodei and Edison isn’t perfect, and the differences are what make the comparison interesting. Edison pointed at a rival’s product. Amodei is pointing at the entire field, his own company included. Edison hid behind Harold Brown. Amodei signed his name and is inviting outside inspectors to set up desks in his own offices. And where Edison wanted AC legislated into uselessness, Amodei is asking for the very thing that eventually made electricity safe: rules, inspections, and someone other than the companies holding the pen.
Still, it’s worth noticing who a slowdown suits. Staying at the frontier is ruinously expensive, and a coordinated slowdown freezes the race while you’re in the lead. Amodei writes that pacing would let labs do their safety work “without sacrificing commercial advantage or the United States’ lead in AI”, which is a reassuring phrase if you happen to hold the advantage. He’s clearly aware of how this looks, too: he acknowledges that Anthropic’s calls for regulation have got it accused of hype, “doomerism” and regulatory capture. And it all arrives just as Anthropic prepares to go public.
None of that makes him wrong. Edison had every reason to exaggerate, and linemen still died. The lesson from 1889 isn’t that a warning from an interested party must be a lie. It’s that the person who profits from ringing the alarm shouldn’t be the one who decides what happens next.
So is Dario Amodei our Edison, sounding an alarm that just happens to protect what he’s building? Maybe. But the more useful question is who writes the rules. Amodei would like to see regulation, but until it arrives, his plan leaves the labs to agree on standards among themselves.
In 1880s New York, the rules already existed on paper. It took a man dying in the wires above a crowded street before the city truly enforced them.
What will it take for AI?
About the author: Dominique Olivier
Dominique Olivier uses her love of storytelling and ideation to help brands solve problems.
Her first book, Lessons from Loss, has been published by Penguin Random House.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
A year after becoming the first JSE-listed company to join Ghost Stories for a results podcast, STADIO returns to discuss the next chapter of its growth journey. CEO Chris Vorster and CFO Ishak Kula unpack how the group reached its 56,000-student target and, more importantly, how it plans to grow to 80,000 students by 2030 while maintaining academic quality, affordability and attractive returns on capital.
The conversation explores the building blocks of the STADIO growth formula, from new campuses and blended learning to operating leverage and curriculum development. We also discuss employability, the role of industry partnerships, the Springboks sponsorship, and why management believes the group can continue expanding while investing heavily in the future.
In this episode:
The roadmap from 56,000 students today to 80,000 students by 2030
How STADIO balances contact, distance and blended learning
The economics of operating leverage in higher education
Campus expansion plans and capital allocation priorities
Why management believes the Springboks partnership will help build the STADIO brand
This podcast has been sponsored by STADIO, but The Finance Ghost was allowed to ask whichever questions he felt were most pertinent for an investor audience. Please always do your own research and do not treat this as an endorsement of the stock.
Read the transcript:
The Finance Ghost: Welcome to this edition of the Ghost Stories podcast. This is quite a special one for me actually because, a year ago, STADIO was the first company on the JSE to do a results podcast with me.
And here we are today – I think everyone on this call has been very busy in the last year. I’ve managed to do a lot more of those podcasts and thank you to the team from STADIO for kicking that off.
Much more importantly, this team – that’s CEO Chris Vorster and CFO Ishak Kula – has been busy delivering on their promises. They promised 56,000 students for 2026; that’s what they delivered, but they’re not done yet. They have an ambition to grow to 80,000 students by 2030, and they certainly plan to grow beyond that, as well.
I’m excited today to get a much better understanding of what that journey is going to look like.
Chris, Ishak, welcome to this podcast. Thank you for coming back, and thank you for doing the first one with me a year ago. I think you guys really did kick off that snowball effect.
Chris Vorster: Yes, thank you, Ghost. Good morning from our side and thank you for inviting us back to the podcast.
Ishak Kula: Good to be here with you, Ghost, and to share more about our journey.
The Finance Ghost: Yeah, and what a journey it’s been! So, I met both of you in person, finally, at your recent earnings presentation, which was at your Durbanville campus.
Quite an impressive facility, now that I’ve been there myself. Definitely, a different take on tertiary education to what I experienced at a public university all those years ago. It’s amazing how things evolve.
Something that really struck me when we were doing the campus tour – and this is where I want to start – was the extent of specialist programmes versus your more generic degrees. I’m not sure if I just lived in a bubble maybe when I was at university, but it felt like everyone was just doing a more generic thing and they’d figure out later on what they were going to specialise in. But when we did the tour of the Durbanville campus, the stuff was really specialised, which I found incredibly interesting.
So, I wanted to start by understanding if this tells us something about how you compete in the tertiary space when you build these new facilities. Do you look specifically for qualification gaps and then try to plug them? Or do you say to yourself, “Well, we’re going to compete in qualifications that already exist at competitors in the region; we’re just going to try to do it better, or a little bit differently.”
Chris Vorster: Yes, thank you. I’m actually very happy to hear that you enjoyed the campus and the layout. I think the Durbanville campus was a very special project for us, Ghost, in the sense that we started from a blank piece of paper and were able to design and develop the campus as we believe a new, modern, high-facility campus should look. So, it was a very exciting project for us as a management team, along with our specialists, architects, and designers.
And we think we’ve managed to really get that flow between the different faculties – we have some engineering labs and IT labs next to general lecture halls, so you get that very nice flow between the different faculties on the campus. That was always something we wanted from day one, and I think we have managed to get that right.
Looking at the programmes we’ve identified – yes, we definitely do a lot of research in a specific area whenever we identify programmes. But I also think that what guides us in the number of programmes and faculties that we put on these comprehensive campuses is our ambition to become a university.
And to be a university, you need to offer a number or variety of programmes and faculties.
So, it’s a bit of both. Obviously, we do our homework. We won’t offer programmes for which we believe there is not a demand in a specific area, but we are also guided by our ambition to put down a comprehensive offering at these campuses.
Ishak Kula: Ghost, if I may add to what Chris has just said there, I think invariably, strategically, part of our underlying philosophy in our organisation, to Chris’s earlier point, is what we dubbed ‘the world of work’. And part of that is obviously to make sure our qualifications remain relevant in the workplace, but also importantly that we financially back that.
So, as part of our capital allocation strategy, you would see over the last number of years, we’ve invested between R10 million and R20 million at least in the development of the curriculum. And that we believe is a strategic responsibility of us as an institution to make sure our qualifications are relevant to the industry, but it also gives our graduates the best opportunity of employment and making sure that what they study remains relevant. But also, the investment is allocated to make sure that students have a fantastic education experience as they venture into the group.
The Finance Ghost: Yeah, I think the point you made there, Chris, around labs near lecture halls, is interesting.
Because now I’m reflecting on the university I went to – and maybe that’s why this seems so different to me, because we had this campus where it was just commerce and law, and there were obviously no labs involved there, so it was kind of just stamped-out lecture halls (maybe I didn’t see enough of the engineering campus). So, it’s very cool that it’s a bit more integrated. I quite like that.
And Ishak, as you say, lots of curriculum development going on, and that’s a big part of the capex decision that you have to make as a group.
But the other thing that came through there is employability, and I just want to touch on that for a moment because I think that’s an important part of the offering, right?
If I look at what STADIO is doing – it’s a very practical approach to tertiary education, and I would imagine that from a business-case perspective, that’s important. Because for someone to come and pay for a tertiary qualification, they need to know that on the other side of that, they’re improving their earning potential; their chances of getting a job and what they can earn.
It’s not so much ‘academic programmes for the sake of it’, if I can call it that. At the moment, at least, it’s very practical stuff.
Is that a fair take on the strategy at the moment?
Chris Vorster: Absolutely, I think you’ve got it spot on. What we’ve done from day one to align with the world of work was to invite industry into the institution.
What do we mean by that?
Right from when where we design a new programme, industry will be involved to ensure that we have the relevant industry needs captured in those new programmes. Obviously, there are certain academic standards that we must meet, but we always try to accommodate the needs of the work environment as much as possible.
From there, we then also invite industry into the classroom. We think that’s important – for experts in the field to come and offer lectures and specialised classes to students and give them the opportunity to engage with experts in their fields. We see that is also very popular with our student base.
Thirdly, and something that’s also very important, is then to get industry involved in the evaluation of our programmes. What we mean by that is, where industry employs STADIO graduates, we engage and find out how they are actually performing in the workplace. We get that feedback and take it all the way back to the curriculum, as well as to what we offer in the classroom.
So, it is a continuous process to ensure that our graduates are actually desired and that they are employable in the different industries that they go into, after obtaining their qualifications.
The Finance Ghost: Yeah, and I think that’s really important, particularly given the consumer pressures that are out there – and we’ll talk about that a little bit just now.
Before we do that, I just want to take the spotlight off of the Durbanville campus for a moment, because that’s been a big part of the story in the recent financial period, but there’s obviously much more to the group than that.
One of the other campuses that was opened in the year was AFDA Hatfield. We made a joke just before hitting the record button – Chris couldn’t get the camera on his iPad to work, which is mildly hilarious when AFDA is part of the group, so we almost needed to parachute in a couple of film students to sort that out [laughing].
But perhaps this is a great opportunity to walk through the rest of the group, some of the other offerings – maybe for someone listening to this podcast who isn’t as familiar with the STADIO offering. Just high level, the sorts of brands and those centres of excellence and the different verticals they operate in.
Chris Vorster: Yes, in the holdings group we have the three brands. The biggest one, without a doubt, is STADIO Higher Education, our big comprehensive institution. That is the institution where we have four comprehensive campuses, and within that brand we offer contact and distance learning.
Then we have our two more niche, specialised brands. The first is Milpark. Milpark Education is very well known for its programmes, especially in the accounting, finance, and business sectors. And Milpark is a pure online offering.
Thirdly, there is our well-known and award-winning film school, AFDA. AFDA is the smallest of the three entities, and they are doing only contact learning.
So, looking at the year thus far, we’ve seen very good growth in STADIO Higher Education. 18% growth in that institution, 33% in contact learning, and then 16% in our already big distance learning offering. So, very happy.
At the other two institutions we’ve seen more muted growth. Both of these institutions are operating at a higher price point, but we have seen some headwinds, especially in the film industry.
I’m sure many of your listeners will know about the turmoil currently in the entertainment and film industry – with Canal+ and the closure of Showmax, and then also the DTI (the Department of Trade and Industry), who have withdrawn their funding to the industry, also at the beginning of this year.
So, we did see some headwinds in our AFDA brand, but I’m also excited to report back that, with that new campus which we opened in Hatfield in Pretoria, as well as Canal+’s commitment to really invest in local productions, there are a lot of green shoots already.
We see our application numbers for next year in AFDA tracking way ahead of last year, so we’re still positive that that was just a glitch in the road and that AFDA can still show growth, come the 2027 academic year.
At Milpark, it’s that B2B business (I think Ishak talked a lot to that during our results presentations). That still hasn’t recovered since COVID, where a lot of the big corporates decided to move away from your formal three-year, four-year degree programmes for employees and rather go to shorter, specific learning programmes. That has an effect on our Milpark business, but as the years go on, that is starting to phase out and will have less and less of an impact on the group’s results.
But there are also very good prospects for Milpark especially. They are introducing a few very exciting new programmes that we believe will do very well, come the 2027 academic year.
The Finance Ghost: My take on what’s happening in the world is we’re very much in the era of the specialist. It feels like generalists… I don’t know, I don’t have data to back this up, but it just feels to me like in an AI world, being a generalist is quite dangerous and being a specialist is probably where you want to be. And that strikes me as what the STADIO offering is really built around – achieving specialisation in specific industries, which is probably not a bad thing.
So, yeah, headwinds there, that’s going to happen. Anyone who has built a business knows that it doesn’t happen in a straight line. And that’s why I think diversification is important, right?
Chris Vorster: Definitely. That is exactly how we think the group is well balanced. Looking at where these different brands are positioned, and also how we’ve positioned them, price point-wise. So yeah, we are actually happy with the balance of the three brands thus far.
The Finance Ghost: Let’s dig into some of the recent financial results, then (so, that’s for the six months to June).
One of the slides in that deck, which I think was pretty good, shows that over the past five years, your student numbers were up roughly 60%, but revenue was up 97%.
Now that’s obviously not per year. That’s in total. But some of that would be pricing increases, over and above volumes (just to be clear, student numbers would be your volumes growth for anyone who’s just thinking about STADIO like they would think about any other business), and then the other levers you can pull are pricing and mix.
So, if a student comes in and does a more expensive course rather than a cheaper course, that is net positive for revenue without you having to have implemented price increases – that’s what we mean by ‘mix’.
Ishak, this one’s probably for you, I would imagine.
These levers, as part of your planning for the next few years – you have student numbers, you have pricing, you have mix effects. How do you think about these things when you’re doing target setting, when you’re wondering where the business might go, when you’re explaining this to your institutional shareholders?
Maybe you can also just speak to, as part of this, some of the pressure that you’ve seen in the higher-priced qualifications, which I know have had a bit of a struggle lately.
Ishak Kula: Ghost, I think if I didn’t know any better, I would have said you’re an accountant. You gave your listeners quite a good view there.
The Finance Ghost: You’re outing me here. You’re outing me. I’m just a podcaster! What are you talking about?
Ishak Kula: [laughing] No, you’ve done well there. Yeah, to give that a bit more colour, we’ve seen fairly good growth over the last couple of years. And maybe for the listeners again, it’s important to understand contextually – I think strategically, as a group, we have always said that we want to accommodate 80% of our students studying via the distance-learning mode of delivery, and 20% via contact learning.
At the half-year, we were around about 87% of our students studying in the distance mode of delivery and 13% via contact learning.
I think over the last two to three years, and particularly post-COVID, we’ve really seen that more students want to have a contact learning experience. Particularly those school leavers, they want to have an experience with fellow students. They want to hang out together. They want to socialise. And they have so many things in common that we have definitely seen incredibly good growth there.
So, from a strategic levers-perspective, invariably, the distance-learning mode of delivery has high economies of scale. You can scale that business quite quickly. It never comes at zero incremental cost in the distance learning world, but there is limited incremental cost in that distance-learning mode of delivery.
Ghost, that gives us quite a nice ability to unlock a lot of leverage in the distance learning space in particular. But I think what’s helped our numbers fairly nicely (particularly in a year of investment when the margins, although we’ve invested, have still sort of expanded) is that we’ve really seen this contact-learning momentum coming through.
I think Chris cited it quite nicely earlier. Particularly in STADIO Higher Education, we’ve seen contact learning as a whole growing by 33%, which really demonstrates the demand for our product.
But similarly, if you look at the financial metrics that sit behind that, in education, Ghost, you obviously incur a lot of your costs up front. You need to put down the infrastructure and the academic staff complement, and incur a lot of those operating costs before the first student walks through the door. So, there are a lot of costs that you front-run, and invariably as student numbers grow, you start to unlock those efficiencies and the J-curve, so to speak, plays out.
So, in a year where we’ve seen very good contact learning growth and investment, I think that J-curve has played out and has allowed us to expand our margins.
But, to your point and specifically to respond to that part of the question, we have definitely seen a lot more pressure on the high price-point products, particularly in our AFDA business. That we believe has been compounded by the broader macro film industry, as Chris cited earlier.
We are under no illusions that the broader macroeconomic conditions definitely play a role in students’ and sponsors’ ability to pay these accounts.
Therefore, strategically, we believe that in AFDA’s particular case, even though the price point is higher, if we offer a world-class service there… I mean, that product in particular, you get an amazing experience. You work on industry-grade equipment there, and it is quite a high-end and very expensive product, so we believe the price point is justified. But in saying that, there’s recognition that the consumer remains under pressure.
And then the question is: What do we do? How do we respond as an institution? So, sticking to our philosophy of widening access, I think it’s also our responsibility as an institution to make our product as affordable as we can.
One of the levers we are able to pull, given the fact that our distance learning and contact learning are on different growth trajectories and we can also unlock leverage there – we think of our price increases quite cleverly and, I believe, responsibly.
What’s important strategically, over the years, is that we have always tried to track CPI from a price-point perspective. We haven’t gone significantly beyond that, and I think that’s important. We want to really make our prices and our products attractive to students, within the confines of a challenging economy.
The Finance Ghost: You know, someone listening to this might be tempted to think, “Well, if it’s such a volumes game and it’s leverage and it’s all the rest, then why not just lower your prices and just really fill these things?”
But I guess the challenge there – apart from the fact that it’s just not good business practice – is that once you rebase yourself lower, it’s really hard to come back from that. And I guess the other issue is, in a multi-year degree, it doesn’t help you to make the first year more affordable and then in year two and year three you need to do a huge jump. That’s actually more unfair. Then you create this lower baseline for the whole thing.
I mean, it’s tough. That’s why I love asking you this question, because I think the pricing decision is not straightforward.
Ishak Kula: Yeah, that’s correct, Ghost. The pricing decision isn’t straightforward. But I think we keep ourselves honest, partly as a management team and being listed as well, it is easy to quickly pass that pressure back onto our consumers and hike prices, but that isn’t the strategy. We believe we need to stay well priced.
And to your earlier point, when we’re thinking about our pricing increases and where we do see good demand or some pricing pressures, we’re also not afraid to reinvest in those margins. I think that’s an important component for us, and that sticks to our values and our norms within our business.
Chris Vorster: If I can add to that, obviously STADIO’s purpose is to widen access. Now, that is something we take very seriously, and to truly really stand for widening access, affordability is obviously very important in that regard.
So, if we look at the different pricing of the programmes that we offer, we really believe it is well and fairly priced.
And we have done work, especially in our distance-learning offering, to ensure that the majority of South Africans will have the opportunity to have access or to study at higher education institutions with those fees. We believe that is affordable for a lot of people.
And then I think something we would also like to mention to you today is our excitement about a new mode of delivery which we call our blended mode. We will start implementing it at the beginning of next year. This, we believe, will attend to the affordability issue – especially for school-leavers who want a contact-learning experience and want to be on a campus, but at the same time, affordability is of utmost importance to them.
So, we will launch a new blended mode next year, which will be a combination of contact learning, on-campus learning, and distance-learning support in the background. We believe that can really address the market who can’t afford the R70,000 to R80,000 per year tuition fees at a normal comprehensive campus.
The Finance Ghost: Yeah, I guess that blended offering is very much about just driving return on assets, right? You’ve got the campus, you’ve got the online tech, you’ve got the ability to do all of this stuff, and it’s about trying to find the sweet spot for each individual student’s needs and how you then bring them into the STADIO ecosystem. Which makes a lot of sense because of things like operating leverage and everything else, right?
Chris Vorster: Exactly that. Our research has also shown a lot of people or students attending higher education institutions – especially campus life – of your total costs, more than half will go to auxiliary costs.
What do I mean by that? It’s more accommodation, travelling, where less than half of the total cost of studying on a campus is going towards tuition fees. We think we can address this with our blended and city-campus model, bringing education closer to people in major towns and cities in the country.
The Finance Ghost: I want to dig into the point around leverage a bit more, and Ishak this is something that you raised where, what you’re essentially saying is you need to have the same stuff in place whether you have 1, 10, or 40 students in a class.
You still need a lecturer, somewhere for them to sit, the curriculum, everything. You need all that stuff.
And so, your contribution margin of additional students is very strong, but you essentially can lose money if you don’t have enough students. That is possible. It’s that J-curve that you’ve referenced there.
So, when I look at those numbers (and again, I’ll reference your recent results and take the longer-term view here), student numbers are up 60% over 5 years, we’ve talked about revenue being up 97%, but core headline earnings are up 152%. So, that is the beauty of leverage coming through.
If anyone listening wants to understand more about leverage, that’s what we’re talking about. It’s when you’re basically taking a revenue growth number and turning it into much higher profit growth number.
Now some of that is capacity utilisation, but some of it would probably be operational efficiencies as well. And so, beyond just the obvious of bums-on-seats and people on the other end of a video where they’re learning (which is just basically getting more people in the room), how do you think about the rest of your cost base? Where do the opportunities lie?
I would imagine AI is a conversation at the moment around saving costs and everything else. Just help people understand a little bit more about the efficiencies you think are in there.
Ishak Kula: Yeah, good question, Ghost. I’ll have a stab at it, and then there’s an element of it that I think Chris can speak to. So, when I think about our organisation, to the point I made earlier about how we think about particularly the long-term trajectory of our business, I think the big benefit we have is firstly this mix of contact learning and distance learning.
To make that point again, I think we are very fortunate that we’ve overseen very good growth in the distance-learning mode of delivery over the years, and we continue to see that good growth and remain the leaders in the distance-learning space, but this is really supported well now by contact learning.
And, as those two growth trajectories align and are both going let’s call it full steam ahead, that unlocks a significant amount of efficiency. And I think that’s the benefit we are starting to see in our margins.
If I look at our cost base in specific terms, we’ve talked about our revenue mix. I think there the price point and what drives revenue and our strategy is clear.
If I think about the biggest cost line next, it’s probably our academic contingency. We’re an academic institution, and as a consequence, we always need to be innovative and creative in that space. And I think this is where Chris can touch on that new academic model.
We’ve invested quite heavily into a brand-new academic model, which we believe will yield efficiencies and further scale over time. And Chris, maybe it’s a good opportunity you could touch on that point as I delve further perhaps into one or two other opportunities.
Chris Vorster: Yeah, without going into too much technical detail on the academic model, it is something that is very important in our world. The challenge here is to scale, but to scale a higher education institution, one of your biggest threats would be that you lose quality. And that is something we have really unpacked, and we believe that with our new academic model, we will tick the quality box first while we scale the business.
We looked at everything – from the curriculum design and how we offer programmes in the classroom, to evaluation and assessments – to ensure that we have that all aligned and of the best quality across our different campuses, but also very importantly, across our different modes of delivery.
So, we’ve launched our new academic model, and it’s now to capacitate it to make sure that we get the right academic quality and resources in place. And yeah, we are very excited because we believe that by doing this now and investing in this model now, it will bring a lot of potential margin growth over the coming years because we will grow into it. So yes, the academic model is definitely important.
Just to add to that point, we still have a lot of growth ambitions, Ghost, in the sense that we’ve set ourselves the next target of 80,000 students. So, I think for the next couple of years we will continue investing into our operations and systems as well as infrastructure.
But we have proven to ourselves this year. If we look at our EBITDA margins, even in this year of investment, we’ve reached 31.3%. So, we believe we can continue expanding, investing in systems and infrastructure, and still maintain a healthy margin.
Ishak Kula: To add to Chris’s point, despite the year of investment, we’ve opened these two new campuses. And to Chris’s earlier point, we continue to invest significantly into the business.
The investment areas also included our brand awareness, right?
We’ve invested and strategically aligned with SA Rugby, which we believe will assist us in becoming a household name. We believe there’s brand synergies and that’s alignment. And I think it will put us in good stead in the long term as an institution.
To your earlier point, significant amount of time and effort is going into investing into the AI domain, which we believe also over time, not only is it a relevant topic of conversation globally, but also in the academic world and how we think about AI and incorporating AI into every single module.
How we teach our students to be AI-literate so that they ultimately take relevant workplace AI capabilities into the world of work when they eventually graduate.
So, a significant amount of investment has gone into that.
And then also, more broadly, a significant investment in the IT domain. At the heart of our institution, being an academic institution, the reality is, to run this business at scale, you need to have the IT capability. And although we’ve got infrastructure in place, there’s always an optimisation element. And speaking to our levers, there’s significant amount of recognition that we need to continue to invest in this space as technology evolves.
The Finance Ghost: I think we’ve got time for one more question. You’ve been on your roadshows, you’ve spoken to your institutional investors, and I’m sure some of what would have come up would have been things like EBITDA margin expansion in a period of investment, which is excellent. I’m sure you got asked some interesting questions about the Springboks partnership as well.
I guess if it was me wearing my analyst hat, I would probably have asked you about capex and the extent to which you believe you can hit your target over the next few years without any major investment in new facilities versus what you have today.
So, it would be quite cool to understand a little bit more about that, and obviously there’s the blended offering to think about, etcetera, and how that all comes in with your targets and capex.
And perhaps then, to just finish off the show, if there’s anything else that was raised by the institutions that you think is worth highlighting to the wider audience who will listen to this podcast and who don’t necessarily have the ability to attend that roadshow.
So, let’s start with capex in the context of your big goals, and then anything else that you just want to bring to the fore here.
Chris Vorster: Ishak, do you want to talk to the capex, especially with the expansion we are currently busy with at our four contact-learning campuses in STADIO Higher Education?
Ishak Kula: Yeah, thank you Chris. I think, contextually, it’s important to recognise that in our ambition to reach 80,000 students, we believe we have the existing footprint to reach that target when considering our contact-learning and distance-learning mix. But importantly, there is still an amount of capex investment that is needed to get there.
If we think of our four campuses in STADIO Higher Education specifically, to support the growth that we’ve seen in contact learning, you would have seen our Durbanville campus, where we’re concluding the second phase of that project. That total spend for phase one and phase two was circa R325 million, which we spent over the last two-and-a-half years. That will conclude in Q4 of this year. Then there is still land available at Durbanville which allows us further expansion, but the capex up to date will allow us 5,000-plus students on the Durbanville campus.
Looking at our second-largest campus, Centurion. In student numbers, it’s currently the largest, but if you think of the growth story there, we’ve invested significantly there as well. This year, in 2026, we have converted the existing hall into more lecture facilities to optimise for space.
But our investment into the future to allow for growth there involves constructing a brand-new 1,500-seat hall there. That will commence next year, which will probably allow us to take that campus to about 4,000 to 5,000 students. And there is further land available to expand our Centurion campus.
This year, on our Waterfall campus, we acquired one of the Curro buildings that’s situated on the existing land that we rent there. We acquired that land for R18 million and there’s an opportunity, perhaps, to acquire another building on that site. So that will also allow us in future to probably get to 4,000 to 5,000 students on that site.
Then, if we think about our Musgrave campus, in 2025 we signed a new lease there to cater for that expansion. It was a block situated across the campus, so very convenient for our students. But that, over time, will likely remain more equivalent to a city campus, while we seek, perhaps, a comprehensive campus in the KZN region.
And if you look at the capex levels over the next two to three years, we believe that, if you look at 2026, we cited a R301 million capex investment, it will probably remain at those levels for the next two to three years to get us to that expansion strategy and to be able to unlock the growth that we have cited.
I want to add, importantly, for the listeners: strategically, I think we have always been a very lean business when it comes to debt. I think at the half-year we had R120 million of debt which we repaid post the half-year. So, it’s important for us to remain lean.
This allows us to continuously reinvest into the business, yet it also balances the capital returns to our shareholders and what they expect of us.
And also, I think in the macroeconomic conditions it allows us to move quite quickly if other opportunities come our way, because we have a lean balance sheet.
Chris Vorster: Thanks, Ishak. Also, some of the topics which came up during our roadshow, as you put it, was definitely to understand the whole Springbok partnership and why we decided on that.
For us, as a very young brand, it made sense to partner with one of the most respected and beloved brands in the country. We see a lot of synergy between the two. We’re South African first, very passionate about our product, and it made sense for us to partner with them and use the Springbok branding to become a household name. So, that was the vehicle that we identified.
Already, in this test series that just concluded (The Greatest Rivalry with the All Blacks), there were three STADIO students playing in that test series, which we are very excited about. But I think over the next few years we will really start to see the benefits.
If we look at the under-20 group who won the Junior U20 World Cup, 16 out of the 30 are STADIO students. So, these are all brand ambassadors, and we believe they will do great branding work for us in the years to come.
So, we are excited about that partnership. It comes at a cost now, but I strongly believe it will serve us well in becoming a household name in the next few years.
The Finance Ghost: Yeah, look, the Springboks are the best brand in the country at the moment, so I think that’s a fantastic partnership there. And what’s also very cool is that it feels very full circle from when I went to high school where, let’s be honest, rugby was not associated with academic excellence.
Generally, either you crashed into other okes very successfully, or you did maths. And I really enjoy the fact that these things are starting to come together. There are no prizes at all for guessing which of those two groups the Sorting Hat put me into, genetically, so we’ll leave it there.
Chris, Ishak, it’s been a really, really cool conversation. It’s lovely to come full circle over the past year. And I think one of the interesting takeouts for me from this is what you said right now, Chris, which is STADIO as a young brand and how that’s the brand that has partnered with the Springboks.
So, it’s not just AFDA or Milpark or STADIO Higher Education – it’s really lifting it now to what used to be, I suppose, seen as a consolidator in this space and what has now grown into its own brand, and I think that says a lot about where the strategy is going.
So, I hope we’ll be doing another one of these a year from now, and I wanted to just wish you luck in the current financial period as you continue to deliver towards those 2030 goals. And yeah, looking forward to following the progress.
Ishak Kula: Thank you, Ghost. Looking forward to our next conversation.
In Season 2 of this podcast, The Finance Ghost talks to South African entrepreneurs about the ideas, choices and turning points behind building a business from scratch.
Listento the podcast:
In this episode of The Finance Ghost Plugged in with Capitec, The Finance Ghost sits down with Gelato Mania Financial Director Kosta Kappatos to unpack the journey behind one of South Africa’s favourite gelato brands.
From making gelato in the basement of a Cape Town shopping centre to building a national brand and manufacturing base, Kosta shares the highs, challenges and lessons of growing a family business over 20 years.
Along the way, he explains why quality matters, what entrepreneurship really looks like behind the scenes and why the family remains focused on sustainable growth rather than chasing a quick exit.
This is a story about family, resilience and building a business that makes people happy.
Episode 5 covers:
How Gelato Mania started
The realities of entrepreneurship
What makes gelato different
Flavour trends and customer favourites
Expanding from Cape Town to Johannesburg
Turning accounting theory into business practice
Why family is at the heart of the business
The long-term vision for Gelato Mania
The Finance Ghost plugged in with Capitec is made possible by the support of Capitec Business. All the entrepreneurs featured on this podcast are clients of Capitec. Capitec is an authorised Financial Services Provider, FSP number 46669.
Read the transcript:
The Finance Ghost: Welcome to this episode of The Finance Ghost plugged in with Capitec. I always enjoy it when I get to speak to the entrepreneurs and families who sit behind household names, and this is a household name.
In fact, this is a business that I have used many times. My kids love it. I love it. My wife loves it. Chances are pretty good that you love it too, and that is Gelato Mania.
Who better to speak to today than Kosta Kappatos? He is the… Well, actually, Kosta, you’re just part of the founding family, really. I feel like you’re just the get-everything-done officer, now.
I wanted to say a fancy title and this and that, but I’m probably right in guessing that actually, having grown up in this thing, you just get involved. That’s your job – to just get involved. Am I right?
Kosta Kappatos: [laughing] I guess, like anyone else who’s got a family business or who started from very humble beginnings – you’re the IT department, the finance department…
The Finance Ghost: [laughing] Exactly.
Kosta Kappatos: …the Customer Complaints, HR… Every department kind of put into one. The title’s kind of there for when people say, “Oh, what do you do?” But it’s so much more than that.
The Finance Ghost: No, absolutely. So, tell us the title, Kosta. We may as well start there, then everyone knows.
Kosta Kappatos: The actual title is Financial Director.
The Finance Ghost: There we go. And Chief Tasting Officer, I hope. There have to be perks to this, right?
Kosta Kappatos: That’s one. There are definitely a couple of perks to what we do.
The Finance Ghost: Love it. So, you’ve been involved in this thing, well, I guess from the start. You’ll tell us now about your parents starting this business, and I’m obviously keen to hear about that journey along the way, but you’ve certainly grown up with it.
And you’ve decided to be part of the family business, which I think is wonderful. I’m sure your folks are thrilled – because actually, that’s quite rare. People think that’s kind of the default, but it’s actually not, so that is really lovely to hear.
Just walk us through the most rewarding part of this journey. Is it the free ice cream, or has it been something else?
Kosta Kappatos: Look, the ice cream does help along the way, but I wouldn’t say that it’s the most rewarding. We started 20 years ago, exactly, this year. We started back in 2006.
At the time, we had just immigrated back to South Africa from Greece (we were living there for a couple of years) and my parents had started a coffee shop. They started getting ice cream supplied by one of the local suppliers, and it just wasn’t up to scratch.
So, my dad booked a flight to Italy. Where better to learn to make gelato? He went to Italy, learnt how to make gelato. I think he spent about two weeks there, learnt, then came back to South Africa and we started making ice cream in the basement of a shopping centre in the Northern Suburbs in Cape Town, called Willowbridge. That’s really where we started.
Fast-forward 20 years, and we’ve got 16 stores across two provinces.
Definitely, the most rewarding part of the journey is looking back at all those old photos. Looking back at where we’ve come from and actually being amazed at where we are today. We had six, seven staff to start, and now we’ve got over 150 staff in our company.
The looking back is definitely the most rewarding part.
The Finance Ghost: I love that. I’m never going to look at Willowbridge the same again…
Kosta Kappatos: [laughing]
The Finance Ghost: …I had no idea that that was really the genesis of this journey, but I love that. I’m guessing that today you are not manufacturing the ice cream in a broom cupboard somewhere at the bottom of Willowbridge, are you?
Kosta Kappatos: No. Look, making gelato the way we make it, we hold ourselves to very high standards. So, we’ve got a factory in both Cape Town and Johannesburg. We’ve kitted it out in a way that allows us to produce the highest quality gelato. It’s not in a broom closet anymore. We’ve got proper facilities in both provinces.
The Finance Ghost: Fantastic. Now, obviously, a journey like this, like all businesses, cannot possibly just be Pino Pinguino and the sunshine. We’d all love it to be, but unfortunately, it’s not.
Even something as wonderful as this has got some tough stuff along the way. The product might be ice cream and you might be in the business of making people happy, but I know from my experience, from speaking to other entrepreneurs – anyone listening to this who’s been involved will know – that even when the product going out the door is a wonderful thing, life is not easy.
As a business owner, perhaps you can give us an idea, especially as you’ve grown up with this business, what has been the journey, in terms of the difficult memories?
It’s wonderful to look back and think back to making the stuff at Willowbridge – I really do love that, but there has to be some tough stuff that happened along the way. Some big challenges, some moments where maybe the family thought this thing wasn’t going to make it.
Kosta Kappatos: Yeah. And I think every business will have it, right? When you do start off so small, it almost feels like everything can completely derail the train. Like, even the smallest little issue, when you’re so small, can just cause everything to collapse.
Some of the key standouts… It’s not just one thing. I can sit here and tell you about Covid – and Covid was incredibly tough. I don’t want to sound like a broken record. I think every business was rocked with that. You make a product, you can send a product out the door, but then it’s all the small things around you that you almost don’t pick up.
When I first joined, I did not know that you have to pay licences to play music in your store. And even that’s just a small headache to get your head around.
What was definitely one of the standout tough things when we were in our fledgling years was the importing of the products from Italy. You’re looking at three, four months for anything to get here from Italy on a ship. Flying is just too expensive, when you’ve first started out.
And you then have to order the right products, but you still want to offer 24 flavours, and you’re running out. You don’t have enough money when you’re so young to actually go out and buy a whole bunch of stock. That was quite a challenging balancing act.
You mentioned this idea of wearing lots of hats. The one person who did that more than I am doing it right now was my dad. Hermanus was one of our very first stores, and I remember so many Saturday and Sunday mornings, delivering ice cream to Hermanus with my dad, who also had to do everything else.
We’ve come a long way. There’ve been a lot of speed bumps along the way that we’ve had to navigate.
The Finance Ghost: Yeah, it’s great. Growing up with a business is quite a special experience. I come from a family where my parents had a crack at entrepreneurship. It definitely didn’t turn out even 0.1% as well as Gelato Mania, but I do have a lot of fond memories of my dad picking me up in the afternoon in high school.
I’d go with him to deliver these whacking great loudspeakers and help him carry, then I’d flick through the invoices in the car on the way home, and we were bombing around in this delivery van.
It was great. I wouldn’t change those memories for the world. It was fantastic. And it probably had a big influence on me in terms of what I’ve chosen to do with my life. It certainly didn’t put me off entrepreneurship (even though it probably should have [laughing]).
But it didn’t put you off either. I mean, you haven’t exactly gone the whole Sandton, suit-and-tie, investment banking route. You’ve chosen to get stuck into the business, right? So, obviously there are reasons beyond just the family and love. You’ve chosen to do this with your life. There must be a reason.
Kosta Kappatos: Yeah. You’re 16, 17, you want to get your first job. My dad always had a knack for being able to direct us in what we should do but always giving us the decision.
So, instead of, “Cool, I want to go get a job. What are the other jobs paying?” My dad would always make sure that he would pay the best out of everyone, so that we would then work in the business.
I just look back at that and I’m like, “It’s such a clever way.” Because he’s not telling you, “You have to work in the business.” He’s making you make the decision for yourself, in a way that ends up benefiting you in the long run – and benefiting everyone else. It was such an incredible way of looking at it.
You’ve touched on the whole Sandton suit-and-tie. There was a momentary point where it was like, “Okay, do I go ahead and do that?” And it was really like, “What really makes me happy?” And at the end of the day, it’s actually business.
Some of my best memories are behind the gelato fridge, whether it was at Camps Bay or at the Waterfront, serving customers and interacting with people. And I didn’t know if I could do that to the full extent, being somewhere high up in a skyscraper in Sandton.
The Finance Ghost: Yeah. I often fantasise about the pizza restaurant that I dream of owning one day. I don’t know if it’s a Mediterranean-background thing. You are as Greek as the day is long; I’m only half Italian. Maybe it’s just a Med thing – you just desperately want to open a food restaurant.
I don’t know if there’s a hive mind controlling us from the Med and being like, “Go, do food. Do your thing. This is what you were born to do.” It does seem to exist, right?
Kosta Kappatos: It does! You mentioned the hive mind. I think it’s more that food is central to pretty much every Mediterranean country. There’s so much love that gets transmitted through food.
When people say to me, what do you do? I say, “I make people happy.” Because at the end of the day, you’re selling something that does make people happy. Kudos to all the Meds out there who are running restaurants and ultimately making people happy.
The Finance Ghost: It’s a tough gig, hey? Regardless of where you’re from in this world, it is not an easy way to make money. But you’ve certainly made it work.
One of the things that you touched on there was supply chain. So, importing stuff from Italy. I’m starting to get a better understanding, now, of why Gelato Mania stuff is so yummy and, in many cases, is better than some of the so-called “gelato” I’ve had in Italy.
I think the word “gelato” gets abused, because quality varies dramatically. That’s actually what I wanted to ask you – there’s a difference between the different kinds of ice cream, and obviously, in your business, there’s a big commitment to quality. I mean, you run the manufacturing side like a bakery. I know you get very early starts every day.
Just talk to us about the quality that you’ve baked into this business and how it differs, then, from ice cream of varying quality that you can get all over the place?
Kosta Kappatos: When we first started in South Africa, gelato wasn’t really a thing. You’d maybe heard about it in a movie – the Americans saying “gelato” or something like that – but we didn’t really know.
We had to try to find a way to explain to people that not all gelato is the same. What has happened is that there’s this distinction between what gelato is and what we know as “ice cream”.
Ice cream – you’ve got a higher fat percentage. Fat isn’t necessarily bad, you do need fat, but you’ve got a higher fat percentage. The product can be frozen at, let’s say, –5 °C, –6 °C.
More often than not, ice cream is made in bulk quantities. Gelato, on the other hand, is using higher quality ingredients. You still need fat, as I mentioned, but here you’ll replace it with good fats, so it’s not necessarily going to be animal fats or things like that. You find alternatives to make the product much better.
And then one of the key hallmarks with gelato is that it’s made in smaller batches. Gelato you eat at roughly –14 °C. At –5 °C, gelato is like a milkshake, so it’s one of the key differentiators to ice cream.
What we found, when we first started – people didn’t understand what is ice cream, and what is gelato. What has subsequently happened is gelato is growing in the country, which is absolutely amazing.
But, just like not all boerewors is the same, not all gelato is the same. So, you get really, really good boerewors. You get really, really bad boerewors. You can make small batches, you can still make gelato, but your ingredients might not necessarily be the highest quality. We focus on the highest quality, constantly.
The Finance Ghost: Thank you. I was sitting here, listening to you talking about the different temperatures and, you know, at this temperature it’s a milkshake, basically, and at that temperature it’s solid. It must be quite difficult to be around this stuff all the time.
I’ve met your family recently, at a Capitec-sponsored event, and none of you look like you spend too much time digging in the ice cream tub. Do you just eventually generate the sort of self-control required to spend this much time around gelato?
[laughing] Obviously, it’s a business at the end of the day. You’ve tasted the flavours. But the temptation feels enormous. Every time you’re going to a store or to just check that it tastes good and that it’s fresh – how on earth do you have the self-control here?
Kosta Kappatos: The funny thing, and everyone thinks that I’m talking hogwash when I say this, but gelato, made well, is not necessarily unhealthy. Now, I’m not going out there and saying that it’s healthy – by no means. But, knowing what goes into the product.
Yes, there’s sugar, but I eat a lot of ice cream. Whenever I go to a store to make sure what’s happening, I’m eating the ice cream coming out of the things here to make sure that it is what it needs to be.
We actually eat a lot of ice cream. Look, it could be our good genes.
The Finance Ghost: I was about to say! It’s like when you go to Italy (this is the half of the genetic pool that I did not get), and you’re like, “Wow, all these people are so beautiful and in such great shape – how do they do it?” And then they’re chowing their third plate of pasta and I don’t know what it is. It’s remarkable.
I didn’t get those genes, unfortunately. Maybe you did. So just, disclaimer for everyone else out there: just tone it down on the ice cream [laughing]. Because Kosta and his team there, they can have the gelato, but the rest of us have to be a little bit careful, hey? As delicious as it is.
Kosta Kappatos: That is the case, but I think that if you are going to have something… I know what goes into the product. People might not know me from a bar of soap, but the proof is in the pudding. We’re making you happy.
The Finance Ghost: Absolutely. Look, my dad is diabetic. I must say, I appreciate the fact that you do actually have sugar-free options. Do you find that those are quite good sellers? I think there is demand among diabetics and more health-conscious people for the “healthier gelato”, if I can call it that.
Kosta Kappatos: No, there definitely is demand, and so our sugar-free options are great. What was really funny is that we have two flavours – we’ve got a hazelnut and a chocolate – which are the sugar-free ones. That’s because the hazelnuts and the chocolate are pure. It comes either from the cocoa seed or the hazelnuts, and so there’s no added sugar in them, so you can make it sugar-free.
Anyone that has had our product or anyone that does have it will pick up that it doesn’t taste that much different to the normal thing with sugar and with everything. Because we’re using the pure nut.
There was such a great success for it. We tried to increase the number of flavours. There aren’t that many flavours which you can do sugar-free, but, for example, we brought in a vanilla and a pistachio – again, centred around nuts or a pod or a bean – and, Ghost, they never really sold! People just went for the hazelnut and chocolate.
Yes, we offer lots of flavours in our stores, but almost every one of those spots is prime real estate. If a flavour is not doing well enough, there’s someone else knocking on the door who wants that spot.
The Finance Ghost: And that must be one of the most interesting things about the business, right? As you say, it is literally prime real estate. You’ve got a serving counter there; you have X number of flavours that can fit.
Every additional flavour is a supply chain and manufacturing consideration, and potential wastage, and how that impacts gross margin – we’re starting to get into the juicy business stuff now.
And I’m guessing you do sometimes just have flavours that surprise you to the upside, and some that are long-term winners, others that are just a trend.
I mean, I feel like I see Dubai Chocolate everywhere I go now. For whatever reason, that’s just become a thing. And then you’ve got, as I say, Pino Pinguino, which has been my cousin’s favourite for longer than I can remember (I’ll definitely get her to listen to this podcast) and it’s one that I love, as well.
Do you find that there are just flavours which last forever and others which just come and go?
Kosta Kappatos: Definitely. And I describe flavours almost (and I’m going to make a really bad metaphor, but) like fashion. Flavours will go through a run where they are absolutely flying.
One of the flavours that does this quite a bit – I don’t know why – is Snickers. Snickers is our peanut-butter-chocolate flavour. And sure, it will be on an absolute run. Flying. We can’t make enough Snickers. And then, all of a sudden, it will hit a wall, and it will just stop.
And so, going back to that idea of “we’ve got so many flavours knocking”, we’ll pull the flavour, we’ll put a new flavour in. You reintroduce Snickers in a couple of months’ time, and then it starts flying again. So, we don’t often know why a flavour works and doesn’t work.
There obviously are the ones that come and go. Most recently, the one I can remember is matcha. I think there’s still a huge craze around matcha, but matcha seems to have taken a bit of a backseat. We’ve stopped making matcha.
Dubai, though, is still on a very, very hot run. It really just depends on what’s happening and what people are feeling like. To what you mentioned about the Pino Pinguino – there are some of those flavours that have never left the fridge. Pino Pinguino is one of them.
The Finance Ghost: I know where to find you now, so if I ever go to a Gelato Mania and there’s no Pino Pinguino, then you and I are going to have a talk, my friend. That is what’s going to happen. Because that is the stuff. It is really, really good.
I also want to just get an understanding from your side. You’re also a Chartered Accountant, like me, and real-world business is very different to the stuff we learned in our textbooks, that’s for sure. I’m just curious about some of the, let’s call them “shocks” on one hand, but also, perhaps, happy surprises you’ve had as you’ve moved into an operational role.
Maybe you’ve had a slight advantage in that you grew up with it, so you had a better idea of what to expect, but – for people listening to this who are looking at this and going, “Well, I’ve got a path ahead of me which is the big corporate world, and another path which is to get my hands really dirty in a proper operational business,” – what has been your experience with that?
Kosta Kappatos: If I had to put it into one sentence, it’s kind of like, “Throw the theory book out of the window.” I don’t think it’s quite like that. I think that I’m sure you might have seen it, but we’ve both been blessed by having the CA background. What that certainly prepares you for, is change.
Moving from a purely academic background to an operational background, change is everywhere. When you read about theory or you read about this, even basic contract law, you don’t really talk about what happens when the other guy doesn’t do what he says he’s going to do.
Things don’t always work as they’re meant to work and not every net present value (NPV) calculation that turns out positive is actually a good idea. You’re trying to merge these two things together.
For anyone entering from an academic background, you almost have to park your theory, park what you’ve learned, and kind of say, “Okay, it’s there. I can’t use it as a crutch, but I can use it to help me.” That would probably be the best way to do it.
You’re kind of saying, “I’m going in with a blank slate, but I’ve got this toolbox of tools that I can use. But it’s not like I can solve everything because I learned it in a textbook somewhere.” Because you are going to get found out, if you do something like that.
What I will say is that not everyone does what they say they’re going to do, whether that be staff or landlords or suppliers, all of these things. You don’t really learn about that at varsity.
The Finance Ghost: No, you absolutely don’t. You learn that you go and do these wonderful technical calculations and then you speak to people who have been doing this for a long time and you realise how decisions actually get made in the real world, and the extent to which forecasting on a spreadsheet is maybe an interesting exercise and definitely has a place, but that’s not actually how small businesses are run in the real world. At least, in my experience. It really isn’t.
Kosta Kappatos: The best example that I can actually give… We spend so much time learning about the discount rates. You spend three, four, five weeks trying to calculate the discount rate. And then you get into the operational world, you’ll talk to the bank or whatever the case is, and they just slap 10% and they call it a day.
And [laughing] it’s kind of like, “So what did I go and study all of that for? If we’re just going to slap a basic number and move on?”
The Finance Ghost: In my corporate finance career, I’ll never, ever forget – I prepared this whole model. It was for a big JSE-listed client (they’re still listed today). I went in and presented it to the CFO. We show him this whole valuation and it’s great and it’s all wonderful, and he’s like, “That’s fine, but I pay 7x.”
What do you mean you pay 7x? He’s like, “I pay a 7x P/E. That’s what I pay. Whether you tell me it’s 6x, or 8x, or 9x, or 5x, or 12x, or 14x, I’ve been doing this for, like, 30 years, and trust me when I tell you I pay 7x.”
I remember that day, just getting back into the car, I was like, “Okay, that was interesting.” I’m so grateful to have actually had that experience because it tells you so much about how decisions are made in the real world.
That’s from someone who’s paid 9x before and been burnt, and paid 5x before and also been burnt (because it was probably actually too cheap and not a good asset). 7x is what he pays. I respect that.
So, these are the kinds of rules of thumb that you develop over time. And that’s the difference between experience and the textbook, right?
Kosta Kappatos: Absolutely. It’s so funny. In business, a lot of the time you’ll see really successful businessmen make decisions at the drop of a hat, and you look at that and you’re like, “Wow, that was incredible.”
And it’s almost that they have certain key tenets that they just stick to the whole time. One of them is, as you mentioned, what am I paying? What is the cash implication? Cash is always king in a business. A lot of the theory gets cut out in business decisions sometimes.
The Finance Ghost: Yeah, 100%. And of course, one of the things that you have had to deal with in this business is obviously seasonality. This is something I’ve always wondered about, and I’m sure anyone listening to this is also thinking about it.
You need to have a lease, you need to be there all year long, you need to have fresh gelato – because, if I treat myself to that Pino Pinguino in the middle of July, it has to be just as good as it tastes in December. And that’s a hard thing to manage.
Without obviously giving away anything silly publicly (this is genuine trade-secret territory), just give us an idea of how you actually manage the business and deal with the seasonality?
Firstly, is the summer-versus-winter split as severe as I would imagine? And then secondly, how do you get through the cold and make it to summer?
Kosta Kappatos: I’ve almost got three ways that we look at that. So yes, there definitely are big swings in summer versus winter, also buoyed by the school holidays, which are a major impact for us. People are out and about.
One of the things that’s actually been really great to see (with our move to Joburg in the last three years) has been that the bumper December period that you have in Cape Town doesn’t actually get reflected in Johannesburg. Because the Joburgers are all down, sitting on Camps Bay and Clifton Fourth.
That’s been quite interesting. Joburg is a bit more stable, as opposed to Cape Town’s peaks and troughs.
And what I can say, having lived for 20 years in Cape Town (I may be a bit fledgling in saying it, but), the weather here in winter far surpasses that of Cape Town. Big swing, summer, winter, to answer your question.
So, the first thing is almost a diversification of locations of our stores. If I just look at Cape Town, we have quite a lot of stores that are outside, exposed to the elements. We’re talking our Hermanus store, our Camps Bay store, our new Sea Point store on Regent Road.
In winter, you might have some days where you suddenly want two ice creams and that’s it. But then in summer, everyone wants to be outside, Hermanus is pumping and all the rest.
Now, what we’ve tried to do to offset some of that is you, for example, have locations in shopping centres. When the weather is miserable in Cape Town, where do people go? They’re not going to go to Camps Bay to walk along the promenade, but they might go to Canal Walk or they might go to the Waterfront.
And in a small way, you’re kind of balancing (inasmuch as you can) your fluctuations because of seasonality, due to your locations.
What’s been difficult to try and manage – and especially if you’ve got such high peaks compared to your troughs – you can’t, for example, spend a whole bunch of money on machinery and make sure you’re good for summer, but then that machinery is sitting idle in winter. Trying to balance that has been quite tricky over the last couple of years.
We’ve tried to get it so that, yes, you’ve gone up in summer, but you’re not leaving whole machines completely idle. It’s a tricky thing, but it’s just a bit of a balance. And what has been great, as I mentioned – the Johannesburg element to our business has also flattened those peaks and troughs a little bit.
The Finance Ghost: Yeah, that certainly makes a lot of sense. I can imagine that (again, just from a supply chain perspective) it must have been a big decision to go past your original Western Cape roots.
To actually go up north, which is a huge consumer market and, as you say, is actually kind of a steady one with (in some ways) a better winter. I think it depends on how much rain there is.
I did it the other way around. I grew up in Joburg; came down here. Any thoughts around that? What it was like to actually take the business national?
Kosta Kappatos: So, there are three siblings. It’s myself, I’m the oldest. My sister’s a year behind me, and I’ve got my brother, who’s six years behind me (a bit of a laat lammetjie).
And, because my sister and I were always so close in terms of age, we were involved in the business pretty much at the same time. We would work during school holidays and everything. And we always said, “Okay, we want to take Gelato Mania to Johannesburg.” That was kind of our big goal.
And after finishing our studies and joining the business, we were like, “Cool, let’s go to Johannesburg,” fully knowing that one of us was probably going to end up being here and living here; sacrificing the promenade, Lion’s Head. And I think that it was a great time in our business.
Not to give too much of a shout out to our banks, but we were definitely helped in terms of this expansion. It wasn’t done alone. You have a lot of partners in the business to make this happen and a lot of things that fell into place.
We also started small. When we moved up to Johannesburg, we got a really big store in Rosebank and we actually produced out of the store, which was a bit of a different modus operandi to what we were doing in Cape Town. But, because we couldn’t set up a store and a factory, that was what we had to do.
Very quickly, probably within eight or nine months, we outgrew that factory and were then able to set up another factory here in Johannesburg to then supply our now seven stores.
To answer your question, how do you jump from different areas? You want to try and make those steps as small as possible, so that you can get them. Any hill can be surmounted when you make those steps small enough and have help along the way. That certainly helped for us.
It wasn’t, “Oh, we need to set up a factory. Oh, we need to do this. Oh, we need to do that.” No, there are different ways to skin the cat to get to where we need to be, and I think that that’s been a great move.
And all my friends will tell me that I’m absolutely bonkers for saying this, but I’m actually enjoying Johannesburg and everything that it has to offer.
The Finance Ghost: There is definitely upside to Joburg – and nowhere is all bad or good. There are downsides to Cape Town. I’m glad you are enjoying that side of things. It is a very high-energy place, that’s for sure.
Glad to hear that you are enjoying it up north and, I think, just particularly enjoying that you had that goal to say, “Well, let’s take this thing national. Let’s go.” Because it’s hard. It’s not an easy thing to do.
And, as you mentioned there, credit to Capitec, who no doubt has helped you along the way. I love how it always comes through so organically in these discussions. I never have to say to someone, “Oh, tell us about Capitec.” It’s always like, “Actually, as part of the journey, this was really helpful, and it was them.” Always nice to see that.
As we bring it to a close, Kosta, last question from my side.
Walk us through the big dream. You’ve taken it from Cape Town to Joburg. Where does this thing go long term?
Do you think it’ll be a family business forever? Are you waiting for someone to knock on your door and send you guys away with a big cheque to go and retire somewhere pretty? Tell us what the story is long term.
Kosta Kappatos: Before I answer your question, I’ve got a funny thing. I joke about it the whole time, but there are periods where it’s 100% true.
There have been weeks and months where I’ve called my banker at Capitec more than I’ve called my mother, because of everything that it takes to continue building a business. So, there’s definitely been a lot of help along the way.
But now, to get to your actual question, I think the big dream… I certainly am not wise enough to make it seem like these are my words, but I think that the journey is often more important than the destination. And we’ve seen that more and more.
We’re not chasing any specific number of stores, we’re not chasing a turnover figure, we’re not chasing anything like that. We’ve been blessed with the ability – we’ve got hands, we’ve got feet, we’ve got minds – to put us in a position where we can impact not just our customers through great gelato, but also our staff and the environment around us.
The big dream is to continue building Gelato Mania sustainably, while being able to offer gelato to more people around the country. I don’t know if fortunes lie further than the boundaries of our beautiful country. If they do, I hope we get there sustainably and not crashing and burning.
The other thing which has been super important for us is keeping it a family business. It’s not easy running a family business. You’ve mentioned about your family and having seen what your childhood looked like as well. Family businesses are tough.
You can’t sit around a lunch table or a dinner table and not talk about work. The notion of, “Oh, leave work at the door,” – it works in theory. In practice, it doesn’t really work that way.
There’s a lot of headbutting. We all are fiery, Greek. We will go to war to make sure our point is heard.
But at the end of the day, it is a very fulfilling job, and it’s a very fulfilling thing knowing that you’re working with family and working for family.
One of the things that my parents always like to remind us of is what a big privilege it is for them to be working with us every day.
I’m reminded of my own mortality quite a bit. I read a lot of philosophy.
Our formative years, our young years before we’re 18, we spend a lot of our time with our parents. And the vast majority of people move away. They go overseas, and the time with your parents grows shorter and shorter.
Myself and my siblings have been blessed to be interacting with our parents on a daily basis. And yes, it comes with its struggles, but it is so rewarding. My sister’s just had two beautiful kids. The next generation’s here, and that’s kind of why we’re all doing it.
So, Ghost, we’re not interested in franchising. We’re not really looking for anyone to knock on our door.
Getting up in the morning and being able to provide more people with our product that we’re super proud of, being able to create spaces that we’re proud of – that’s what kind of gets us up in the morning. And, yeah, it probably will be a family business forever.
The Finance Ghost: Yeah. People always say that the family you’re born into makes a big difference in life. And of course, it’s complete luck. It’s completely beyond your control.
I’ve got to say that being born as the grandkids into this ice cream family feels like luck. That is quite the blessing for those little ones. They will appreciate this as they get older, but they’ll certainly have the best ice cream at their birthday parties, and I love that.
Kosta, thank you so much for your time. You’ve gone over time, actually, but it’s been such a great chat and I’ve really enjoyed it, so thank you so much. All the best, and I just can’t wait to watch this family business go from strength to strength. I will certainly continue to buy my gelato from you (I mean, I would have already, but now even more so).
Good luck and thank you for sharing your insights so openly with us on the show.
Kosta Kappatos: It’s been great. Thanks, Ghost.
The Finance Ghost: Real stories and real people. Yours could be next. Plugged in with Capitec. Capitec is an authorised financial services provider. FSP 46969.
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