Blog - Ghost Mail

GHOST BITES (AECI | Altvest | Merafe | MTN | Northam Platinum | Primary Health Properties | Sabvest | Safari Investments | Thungela)

Ghost Bites

-

3 March 2025

0

GHOST BITES (AECI | Altvest | Merafe | MTN | Northam Platinum | Primary Health Properties | Sabvest | Safari Investments | Thungela)

AECI announces a B-BBEE deal for AECI Mining (JSE: AFE)

This is a broad-based trust structure with notional funding

AECI is taking steps to improve the Black Ownership of AECI Mining. In that industry, it should hopefully increase the competitiveness of the business.

The AECI Foundation has been set up as a Broad-Based Ownership Scheme and will subscribe for B ordinary shares in AECI Mining, giving the foundation a 15.5% effective interest. The shares specifically reference the South African operations of AECI Mining, so they are avoiding unnecessary dilution of other businesses.

This takes AECI Mining to the all-important level of at least 51% Black Ownership, with the foundation focused on benefits for children in the areas in which AECI Mining operates.

The transaction value is R522 million. The foundation is getting a cash contribution from AECI Mining of 35% of the value, with notional vendor financing making up the remaining 65%. The funding rate on the notional vendor financing is the lower of dividends declared in respect of the B Ordinary shares and 60% of the prevailing prime rate. This is an evergreen structure, with the funding in place until it has been reduced to zero.

To help the foundation with its objectives, there is a trickle dividend of 20% of distributions from AECI Mining for the first 10 years and 25% thereafter.

Simply, this means that existing AECI shareholders are incurring a cost of 35% of R522 million, as even though the money goes out and comes straight back, their economic interest is being diluted and no new capital is coming in. Also, 60% of prime is much lower than the cost of equity, so AECI shareholders have also funded the rest of the stake at a rate that is highly favourable to the foundation.

What do they get in return? Apart from some feel-good pages in the next integrated report, they will hopefully reap the benefits of 51% Black Ownership. In a perfect world, the value of this would more than offset the cost of the deal. This rarely happens in practice, but perhaps AECI will be different!

Altvest’s credit fund gets a boost (JSE: ALV)

Executives have given personal sureties here – in return for a fee

Among larger listed companies, you’ll practically never see things like personal sureties. This is because the listed company is an institution that is completely separate from its founders and executives. But among startups and even small listed companies, the link between founder and company is much stronger.

Altvest is firmly in the startup camp and the management team is focused on scaling the group by getting the underlying financial services verticals to grow. One such vertical is the Altvest Credit Opportunities Fund (ACOF), which aims to provide predominantly women-owned SMEs with access to finance. The good news is that Altvest has managed to lock in a five-year loan of R75 million from the Small Enterprise Development and Finance Agency (SEDFA) to boost the ability of that fund to lend to SMEs.

Aside from cession of the SEDFA-funded loan book as security, Warren Wheatley and his wife Tatum Wheatley have had to give sureties over shares in Altvest that they hold directly and indirectly. In return, they are receiving an annual fee of 2% on the pledged security, which comes to R1.7 million per annum. By my maths, the fee is actually 2.3%.

The board of Altvest has approved this arrangement based on the view that these are normal commercial terms.

Speaking of the board, there are three directors who won’t make themselves available for re-election at the AGM. To help fill one of the gaps, the chairperson of ACOF (Norma Sepuma) is being appointed to the group board as lead independent non-executive director. This also tells you that ACOF is the focus area at Altvest at the moment and is perhaps their most obvious route to achieving scale.

Merafe impacted by lower ferrochrome prices (JSE: MRF)

This is how cyclical businesses work

Merafe has released a trading statement dealing with the year ended December 2024. Like all commodity companies, there are good times and bad times. This wasn’t a good time.

Due to lower ferrochrome prices, weaker volumes and the rand going the wrong way for them, HEPS is down by between 19% and 39%. This puts it on between 36.9 cents and 48.9 cents. The share price closed 4.4% weaker at R1.09, which means a trailing P/E of 2.5x!

Merafe always seems to trade at one of the lowest P/Es on the local market due to the risks of the business model.

Forex remains a headache at MTN Nigeria (JSE: MTN)

Well, more like a migraine

MTN Nigeria has released results for the nine months to September 2024. There aren’t many highlights, so brace yourself accordingly.

Firstly, total subscribers fell by 0.9%. That’s not a great start, with NIN-SIM regulations as the major driver. Active mobile money wallets tanked by 21.8%. The small silver lining is that active data users increased by 5.1%.

Despite this, service revenue increased by 33.6%. Sounds great, except EBITDA fell by 5.3% due to inflationary pressures and the impact of Naira depreciation on operating expenses. This means EBITA margin plummeted by 14.9 percentage points to 36.3%, a truly horrible outcome. The renegotiated tower lease contracts only helped by 2.3 percentage points.

Once forex losses (the translation effects, not just the impact on underlying contracts exposed to the USD) come into play, you find a loss after tax of N514.9 billion. Again, in the interest of finding silver linings, the Q3 number was a profit after tax of N4.1 billion, so at least the downward spiral has stopped.

Adjusting for the net forex loss, profit after tax was down 59.2% to N118.5 million. Sadly, that’s like me adjusting for my genetics and my enjoyment of Magnum ice creams and then claiming to be a successful 100-metre sprinter. They go and step further and adjust for the forex impact on operating expenses, in which case profit after tax would’ve been up 13.3%. I can’t even think of an analogy for that!

Capital expenditure was 27.8% lower and free cash flow was 21.9% higher. That’s probably the brightest of silver linings here.

Although the company is making efforts to reduce its foreign currency exposure, there’s also only so much that they can do. MTN Nigeria faces immense structural challenges.

A cyclical smack at Northam Platinum (JSE: NPH)

HEPS has halved

Northam Platinum released results for the six months to December 2024. As regular readers will already know, the PGM sector has been a mess. Northam Platinum is just another victim of the cycle.

Revenue is down 3.1% and operating profit has fallen by a nasty 55.2%. Operating margin has decreased from 16.1% to 7.5%. Not only is HEPS down by 49.7%, but the dividend per share has plummeted by 85%!

One of the interesting things at Northam is that you get an idea of how much variance there is in the PGM mine cost curve. For example, while Booysendal manages to produce at R18,000 – R19,000 in terms of unit cash cost per 4E oz, Eland is all the way up at R36,000 – R37,000. That’s literally double the cost! Zondereinde is at R27,000 – R28,000 and the group average is thus R25,500 – R26,500.

For context, Northam’s revenue per refined 4E ounce was R31,835/oz, so Eland is running at a loss per ounce and there’s not much headroom left at Zondereinde either.

Like all companies in this sector, all that Northam can do is try to control factors that are controllable, namely production volumes and cost of production. They have to hope that PGM prices will do the rest.

Primary Health Properties achieved decent dividend growth (JSE: PHP)

It’s just a pity about property valuations

Primary Health Properties has released results for the year ended December. This is a large UK healthcare property fund that recently added a JSE listing. Liquidity has been pretty light, but should improve over time.

The numbers for the year look respectable for hard currency returns. Net rental income was up 2.9% and HEPS increased by 8.3%. The dividend per share increased by 3%.

Property valuations did come under pressure though, with net tangible assets per share down 3.3%. That does rather blunt the benefit of growth in earnings.

The average cost of debt ticked up slightly to 3.4% and so did the loan-to-value ratio, up from 47.0% to 48.1%.

In a separate announcement, the company let the market know that they’ve acquired a clinic in Ireland for €22 million at an earnings yield of 7.1%. The property is fully occupied and leased, with a remaining term of just over 12 years and fixed rental uplifts in 2027 and 2032. That does sound like a solid deal at an attractive yield for the underlying country and sector exposure.

Cause for celebration at Sabvest (JSE: SBP)

The investment group’s portfolio did well in 2024

Sabvest released a trading statement dealing with the year ended December 2024. The company has correctly identified net asset value per share as the performance measure for trading statement purposes. There are still investment holding companies out there using HEPS as the trigger for trading statements, an approach that is as useless as it is frustrating.

Sabvest has a strong story to tell, with net asset value per share up by between 17% and 21% for the year. This takes it to between R127.95 and R132.33. With the share price currently at R90 after closing 4% higher on the day, there’s still a substantial discount to net asset value at play here. This is an issue that plagues all local investment holding companies.

Safari Investments had a solid year (and a bit) of growth (JSE: SAR)

Take note of the impact of the change to the year end

Safari Investments has released results for the six months to December 2024. The nuance here is that due to a change in the company’s year end, the comparable period is the six months to September 2023. Although it’s not a huge difference, a quarter of inflation etc. is a factor.

The numbers are strong, with operating profit up 9% and the investment property value up 10.7%. The SA REIT net asset value per share increased by 14.7% to R10.55 per share. With the share price currently at R6.75, there’s quite a discount to NAV at play here.

The interim distribution is 34 cents per share. If we take the simplified approach of doubling this number, that’s 68 cents for the year and thus a forward yield of roughly 10%. This is why there’s such a discount to NAV, as the market is pricing the company off its dividend rather than its NAV. This is standard in the property industry.

A tough year for Thungela (JSE: TGA)

And deeper exposure to Australia

Thungela released a trading statement for the year ended December 2024. Coal had a difficult time in that year, as evidenced by a drop in HEPS of between 24% and 31% at Thungela.

This was despite a reduction in the total number of shares outstanding, so the underlying pressure on the business was slightly worse than the HEPS range implies.

With results due for release on 17 March, investors will have to wait a couple of weeks to get full details. In the meantime, Thungela separately announced that the acquisition of Bowen’s 15% interest in Ensham in Australia for AUD48 million has now met all conditions precedent and the deal has closed. This deal is of course part of ongoing efforts to diversify the group and reduce reliance on key risks like South African infrastructure.

Nibbles:

Director dealings:
- There’s yet more buying of Tiger Brands (JSE: TBS) shares by the CEO and this time he’s really put the hammer down. Across two tranches, the latest purchases add up to R3.3 million.
- The chairman of Primary Health Properties (JSE: PHP) bought shares in the company worth around R540k.
- A director of Kumba Iron Ore (JSE: KIO) bought shares worth R500k.
- An associate of CEO Warren Wheatley bought shares in Altvest (JSE: ALV) worth R39k.

Barloworld’s (JSE: BAW) standby offer is open for acceptance until at least 14 April. It all comes down to whether they reach a reasonable level of acceptances, in which case the offerors will be happy to pick up the shares. Technically, unless there’s a 90% acceptance rate, the offer will lapse. The offerors do have the discretion to decrease this acceptance rate and move ahead with buying shares that are tendered by shareholders. To get more details, you can refer to this press release by the company.

This should be a big month for Orion Minerals (JSE: ORN), with the company expecting to be able to publish the results of the New Okiep Mining Definitive Feasibility Study (DFS) during the week of 10th March, followed by the Prieska Copper Zinc Mine DFS in the final week of March. These documents are the foundation for further capital raising activities.

Kudos to Equites Property Fund (JSE: EQU) for their approach to engaging with investors. They’ve released a follow-up presentation dealing with the Q&A from the pre-close presentation. Aside from more details on the UK portfolio, they also indicate that the cost of debt in South Africa is expected to decrease in FY26 by between 10 and 15 basis points depending on rate cuts and other factors. Finally, there’s more detail on the land holdings in South Africa, with land parcels being a key feature of most logistics funds that need a lot of space in exactly the right place for warehouse and DC developments. You’ll find the presentation here.

Labat Africa (JSE: LAB) has gone through major changes and is turning into an IT company. They still needed to catch up on outstanding financial reports though, so they’ve only just released results for the six months to November 2024 (and corrected some errors in the comparative period). HEPS jumped from 0.78 cents to 1.29 cents, but those results are not a great reflection of the future of the group and the recent strategic acquisition that was made.

Mantengu Mining (JSE: MCZ) announced the appointment of Shamim Mansoor as Chief Investment Officer at the company. She is highly experienced in the sector, with tons of experience at the sharp end of finance.

The disposal by Stefanutti Stocks (JSE: SSK) of SS-Construções Limitada in Mozambique has been delayed once more. The parties have agreed to extend the date for fulfilment of conditions precedent to 31 March 2025.

Rex Trueform (JSE: RTO) is further increasing its stake in Belper Investments. They are buying another 5.72% in the industrial property company, which means the stake will be up to 84.74%. The deal is worth R3.86 million, payable in monthly instalments from March to August 2025. This is also relevant to African and Overseas Enterprises (JSE: AOO) shareholders, as Rex Trueform is a 50.57% subsidiary of that company.

Sable Exploration and Mining Limited (JSE: SXM) has entered into a memorandum of understanding with Boo Wa Ndo Holdings for the acquisition of a 55% interest in the prospecting rights and mining permits over two properties in Limpopo. The properties have vanadium, titanium and magnetite resources. Sable will pay for this by issuing 6 million shares at R1 per share.

Visual International (JSE: VIS), a true example of a penny stock with a share price of just R0.02, has announced the acquisition of Stellendale Gardens. This is a long-outstanding deal that was awaiting the approval for rezoning from agriculture to business. The purchase price of R28 million is being offset against a R26 million loan receivable from a related party, so there’s a R2 million gain for the company. They will now look for partners to help with this mixed-use development.

AYO Technology (JSE: AYO) has once again missed a deadline, this time for the release of the financials that it told the market would come on 28th February. These financials are for the year ended August 2024, so the listing has been suspended by the JSE for lack of compliance. The delay relates to the auditor’s engagement quality control review. AYO has now opted to just promise the market that they are doing their best to finalise it, rather than committing to another date for release.

Salungano Group (JSE: SLG) has been suspended from trading by the JSE since August 2023. They are working on catching up on the financial reporting backlog, with results for the year to March 2024 expected to be released by the end of March 2025. The missing interims for the six months to September 2024 should be released shortly thereafter, with the suspension from trading expected to be lifted in mid-April.

African Dawn Capital (JSE: ADW) has managed to scratch around enough to find an auditor, with CBS Group appointed as the external auditor of the company.

Watch out for the wellness wave

Dominique Olivier

-

2 March 2025

4

For decades, alcohol and cigarettes have been the go-tos for taking the edge off life’s chaos. With Gen Z opting out of these vices, Big Alcohol and Big Tobacco are scrambling to stay relevant in a world where wellness is the new rebellion.

Every once in a while, I see a trend on TikTok that makes me question the general trajectory that humanity is on. The latest example is something called “rawdogging” flights. It sounds like a filthy innuendo, but the reality is far more dull: it means that people (usually young people) are choosing to sit through long-haul flights with zero distractions or comforts. No movies, no naps, no music, no books, no snacks – sometimes not even water. Just pure, unfiltered existence, staring at the back of a seat for 7 hours or more. For Gen Z, rawdogging is a flex, a test of mental endurance, and (to the horror of airline marketing teams) a growing badge of honour.

The first time I saw a TikTokker bragging about rawdogging an overnight flight, I was confused about why anybody would choose to do something like this – and why it was being applauded. But then I thought about another trend that’s become associated with Gen Z, and two circles converged to form an unexpected Venn diagram.

Think about it: this is the same generation that is making headlines for drinking and smoking substantially less than their predecessors, despite the fact that they’re living through one major event after another. Take your pick – a global pandemic, massive geopolitical unrest, a housing crisis, skyrocketing costs of living, massive job disruption caused by AI – and that’s all just in the last five years. To be fair, no world wars though. We will firmly hope it stays that way!

Past generations reached for a drink or a cigarette (or a Prozac) to take the edge off stress, social anxiety, or existential dread in the same way that most of us would tune into on-flight entertainment. But Gen Z? They’re essentially rawdogging life – no alcohol, no cigarettes, no chemical crutches. Instead of numbing out, they’re opting in: cold plunges over cocktails, breathwork over bar tabs, functional mushrooms over a pack of Marlboro Reds.

For the alcohol and tobacco industries, this shift is a crisis. After decades of selling their products as the ultimate coping mechanisms, they now have to pitch to a generation that sees water bottles as aspirational (Stanley cups, anyone?). So what does this mean for the future of these industries? And how long until Big Tobacco pivots into smoke-free meditation retreats?

What do the numbers say?

For decades, drinking (often to excess) has been a rite of passage into adulthood, especially in Western cultures. From sneaking cheap booze as teenagers to using alcohol as a social lubricant well into adulthood, previous generations have treated drinking as a fundamental part of fun, friendship, and even professional networking. Think of weddings, work functions, nights out on the town – few social settings have been complete without a drink in hand.

But Gen Z is rewriting that script. They’re drinking less, drinking later, or not drinking at all, and the numbers prove it. The UK’s largest recent study on drinking habits found that in 2019, 16-to-25-year-olds were the most likely of all generations to be teetotallers, with 26% steering clear of alcohol entirely. In the US, the number of college-age Americans who don’t drink jumped from 20% to 28% in just a decade. Youth drinking rates have also plummeted across Southern hemisphere countries like Australia and New Zealand. During lockdown, 44% of Gen Z Australians reported cutting back on alcohol, more than double the rate of any other generation. In New Zealand, binge drinking among young people has dropped by more than half since 2001, and the downward trend hasn’t slowed.

And that’s just alcohol. Cigarettes are facing an even steeper fall from grace.

According to Gallup’s latest poll, smoking rates among American adults have dropped sharply, and Gen Z is leading the decline. Back in the early 2000s, 35% of Americans under 30 admitted to smoking cigarettes. Today, that number has plummeted to just 6%.

While Gen Z is the least likely generation to smoke cigarettes, they’re the most likely to vape. Gallup’s data shows that 18% of 18-to-29-year-olds use e-cigarettes, compared to just 1% of those 65 and older. In other words, while the classic cigarette is becoming a relic of the past, the nicotine habit itself isn’t exactly disappearing; it’s just changing form. Still, the total number of nicotine users under 35 today is lower than it was 25 years ago.

Why is this happening?

There’s no single reason why Gen Z is turning away from drinking and smoking; it’s more like a combination of growing up in a high-stress and always-on world, having more information at their fingertips, and being generally more risk-averse than their predecessors.

They’ve seen the warnings, heard the horror stories, and don’t need to learn the hard way. With endless research just a Google search away, entire TikTok communities like #SoberTok, and open conversations about addiction and mental health, Gen Z has a far more nuanced understanding of what alcohol and nicotine do to the body and mind.

It’s not just about physical health – many simply don’t like the idea of being drunk. A 2019 Google study found that 60% of UK Gen Z associate drinking with a loss of control. Unlike past generations, who could afford the occasional night of debauchery without permanent consequences, Gen Z knows that every questionable decision can be documented and broadcast online in seconds. 49% admit that their online image is always in the back of their mind when they’re out drinking. And with increasing reports of drink-spiking, especially among young women, the idea of a carefree night out feels more like a gamble than a good time.

So if Gen Z aren’t spending their disposable income on booze and cigarettes, then where is that cash going? You guessed it: wellness. According to McKinsey’s latest Future of Wellness research, Gen Z and millennials are leading the charge when it comes to spending on wellness, outpacing older generations in everything from fitness to mental health. The survey, which polled over 5,000 consumers across China, the UK, and the US, found that Gen Z is particularly drawn to wellness purchases that focus on appearance and overall health. They’re also shelling out more than their elders on mindfulness-related products like meditation apps, therapy sessions, and wellness retreats (which, given their well-documented mental health struggles and the state of the world in general, isn’t exactly shocking).

56% of Gen Z consumers in the US say fitness is a “very high priority”, compared to just 40% of US consumers overall. And it’s not just about looking good now: young people are already investing in preventative health solutions, caring about longevity and healthy aging in ways that were once reserved for Boomers browsing the supplement aisle.

Raise a (water) glass to tomorrow

At first glance, the decline of drinking and smoking might seem like a problem only for alcohol and tobacco companies. But for investors, it’s a reminder that market dominance is never a guarantee, especially when consumer priorities are shifting. A company might look solid today (and for fifty years leading up to today), but if its core audience is aging out and the next generation isn’t buying in, those numbers won’t stay impressive for long. Does that verse sound familiar, De Beers?

Smart investors don’t just look at where a business is now, they look at where it’s going. Who is the future customer? What pressures are shaping their choices? And most importantly, is the business evolving to meet them where they are? Gen Z has made it clear that they’re swapping their party nights for pilates, thank you very much. Businesses that see this shift as an opportunity, rather than a crisis, will be the ones still standing in the decades to come.

Editor’s note: perhaps that position you’ve got in British American Tobacco or AB InBev isn’t so “defensive” after all, is it? I don’t hold a stake in either company for all the reasons that Dominique set out in this excellent piece.

About the author: Dominique Olivier

Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.

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. She now also writes a regular column for Daily Maverick.

Dominique can be reached on LinkedIn here.

GHOST BITES (AfroCentric | Fortress | Harmony Gold | Impala Platinum | KAP | Life Healthcare | Motus | MTN | OUTsurance | Sanlam | Shaftesbury | Spar | Truworths)

Ghost Bites

The Finance Ghost

-

28 February 2025

0

GHOST BITES (AfroCentric | Fortress | Harmony Gold | Impala Platinum | KAP | Life Healthcare | Motus | MTN | OUTsurance | Sanlam | Shaftesbury | Spar | Truworths)

AfroCentric suffered a sharp drop in HEPS (JSE: ACT)

And no, the market didn’t like it

AfroCentric Investment Corporation released a trading statement dealing with the six months to December 2024. The period is particularly important, as the financial year has changed and hence the comparison is being made to the year ended June 2024.

Unfortunately, comparing six months to twelve months isn’t the reason for the decrease in earnings. With HEPS down by between 85.6% and 95.6%, there’s clearly a lot more at play here.

The company notes a number of factors, ranging from investment in growth through to trading conditions in the retail cluster, leading to margin erosion and impairments of goodwill as well. Of course, impairments don’t affect HEPS, but they do explain why earnings per share (EPS) has slipped into a loss position.

All the worries about life-after-REIT for Fortress feel so long ago (JSE: FFB)

The fund is flying

Fortress Real Estate posted excellent numbers for the six months to December 2024. The fund has a portfolio of logistics properties in South Africa as well as Central and Eastern Europe (CEE), as well as retail properties in South Africa. For further exposure to CEE, they have a huge stake in NEPI Rockcastle, one of the best funds on the local market – although NEPI’s growth in earnings on a per share basis are under pressure lately based on recent capital raising activities.

Still, with distributable earnings per share up 29.8% at Fortress, things are going well. This is being supported by metrics such as like-for-like net operating income growth of 9.2% in the retail portfolio and 4.7% in the logistics portfolio. They sold R259.2 million in office properties in the period and they are looking to sell the industrial portfolio. The remaining office portfolio of R897 million is only 1.6% of total assets, so it’s a pretty clean overall picture right now.

Remember that Fortress isn’t a REIT, so distributions are taxed as normal dividends rather than at marginal income tax rates. When you compare its distribution yield to other funds, keep in mind that you’re most likely paying more tax on distributions from REITs, so the pre-tax numbers aren’t directly comparable.

Also, Fortress is continuing with its plan of offering shareholders an option to receive NEPI Rockcastle shares in lieu of cash dividends.

Looking ahead, guidance for FY25 was revised to distributable earnings of R1.925 billion. That’s significantly up from previous guidance of R1.78 billion and shows further expected growth on the FY24 number of R1.79 billion. They basically ran a full year ahead of expectations!

In a notable change to the board, Robin Lockhart-Ross will retire as independent non-executive chairman. Herman Bosman, currently the lead independent director, will be taking on the role.

As you might expect, earnings at Harmony Gold are up (JSE: HAR)

Cost pressures did blunt some of the benefit of higher prices, though

Harmony Gold released a trading statement for the six months to December 2024. Thanks to the average gold price increasing by 23% in rand terms, HEPS (also in rands) increased by between 24% and 42%.

If you’ve been following some of the other names in the sector, you might have expected to see a more impressive jump in earnings based on the price increase. Harmony’s year would’ve been better if not for above-inflation increases in labour and electricity costs (which they refer to as “planned” increases) as well as higher taxes.

I’m not sure what to make of the tax comment. It’s obvious that taxes are higher if revenue is higher, so I’ll wait to see what the effective tax rate (i.e. the percentage) looks like when detailed results are released on 4th March.

Impala Platinum will be hoping for better PGM prices going forwards (JSE: IMP)

Profits suffered a nasty drop in the interim period

Impala Platinum released results for the six months to December 2024. Refined and saleable 6E production increased by 2% and 6E sales volumes were up 5%. 6E unit costs were up 3%. They therefore put in a decent performance on the metrics that are within their control. Alas, rand revenue per 6E ounce fell by 8%, so the income statement is still a sad and sorry tale.

With EBITDA down 23.4%, there wasn’t much chance of survival for HEPS. Indeed, it dropped by a nasty 43.6%.

At least free cash flow was a highlight, improving drastically from an outflow of R4.8 billion to an inflow of R639 million. A large decrease in capital was a helpful contributor here. Of course, celebrating a 59% reduction in expansion capital is a fairly self-defeating approach, as the reason for less expansion is because PGM markets are so depressed.

Full-year guidance has been maintained for production and unit cost guidance. They expect to come in below guidance on capital expenditure, so that should be a further boost to free cash flow.

The ramp-up of the new PG Bison line hurt KAP (JSE: KAP)

They need a strong second half here

KAP released results for the six months to December 2024 and they don’t represent a strong start to the year. Revenue increased by just 2% at group level and EBITDA fell by 4%. By the time you reach HEPS, it’s a drop of 21%. Cash generated from operations wasn’t any better, down 18%.

As always, you need to look into the segments at KAP to see what is really going on. At PG Bison, the largest profit contributor, revenue was up 5% and operating profit fell by 28% due to the inefficiencies and costs associated with the ramp-up of the new MDF line. They’ve spent R2 billion on the thing and they need to find markets to absorb the new capacity. They think it will take four years to reach the point where they are selling its full capacity! One really has to wonder about the capital allocation model here and whether they aren’t taking on too much risk.

Over at Safripol, revenue increased 10% and operating profit jumped by 58%, so there’s a highlight for you. They had a decent production period with fewer disruptions and the results are clear to see in the numbers. They expect the global polymer industry to be depressed until at least 2027.

Thanks to a period in which profit grew by 22% while revenue shrank by 2%, Unitrans is now the second largest profit contributor in the group. Initiatives like the discontinuation of loss-making contracts made a material difference here.

Alas, there’s no good news at Feltex. Local vehicle OEM assembly volumes fell by 19% and hence Feltex’s revenue dropped 16%. Operating profit nosedived 69%. They expect better local production in the second half of the year.

Sleep Group (previously Restonic) increased revenue by 4% and operating profit by 12%. Strategies like changes to the product range have helped to bring the margins up.

This doesn’t exactly sound like the kind of group that should be incubating a start-up, now does it? Despite this, Optix is sitting there with R294 million in revenue and an operating loss of R18 million. In the comparable period, they managed to break even on R285 million in revenue. If this is the kind of business that needs years of investment with little to show for it in profits (and clearly it is), then KAP isn’t the right owner for it.

The focus in the second half of the year is on debt reduction, particularly now that the major capital projects have been completed. It’s a pity that it’s going to take so long to make the most of those projects, as the market isn’t famous for being patient with JSE-listed mid-caps. The share price is up 16% over 12 months, but down 44% over 3 years.

Life Healthcare released the circular for the LMI disposal (JSE: LHC)

This is a Category 1 transaction, so shareholders need to pay attention

The back-story here is pretty interesting. Back in 2018, Life Healthcare invested in Alliance Medical Group (AMG) and acquired what became Life Molecular Imaging (LMI) as part of it. Over time, Life invested $66 million in LMI to commercialise the NeuraCeq product. In early 2024, Life disposed of AMG and returned R8.8 billion to shareholders as a special dividend.

They decided to hang onto LMI at the time. A sub-licence agreement was entered into with Lantheus, leading to an up-front payment of $36 million that was very helpful to Life’s earnings. But here’s the interesting part: while conducting a due diligence, Lantheus decided that they wanted to acquire all of LMI.

Given the capital requirements of LMI going forward and how different the business is to the rest of what Life does, they are not really natural owners of this asset. The board therefore decided to say yes to Lantheus, leading to the release of this Category 1 circular.

Aside from a vast amount of information on Life’s remaining business, the circular notes that the selling price for LMI is based on a cash-free, debt-free enterprise value of $350 million, with further adjustments for working capital. This excludes earn-out payments from 2027 to 2029 based on net sales of Neuraceq in the United States, with Life entitled to 23% of such sales capped at $225 million in total over three years. There’s also a potential milestone payment of $125 million in NeuraCeq global net sales exceed $1.25 billion in any calendar year until 2034. Finally, there’s another milestone payment of $50 million if the sales of three of LMI’s pipeline products exceeds $500 million in any single calendar year until 2034.

As you can see, this is a complicated deal that gives Life a juicy up-front amount and exposure to the long-term success of the product.

Complex deals come with massive bills from advisors. Just take a look at this:

That’s the market cap of a JSE small-cap, eaten up entirely by fees! International dealmaking is where the advisors make the serious cash.

The shareholder meeting is scheduled for 2nd April. You’ll find the circular here.

The markets seems to have been caught off guard by Motus (JSE: MTH)

The share price closed 14% lower in response to results

The car industry is going through a tough time. Manufacturers are suffering and market share is changing rapidly. The downstream impact on this is severe, particularly for businesses that nailed their colours to the mast in the form of having dealership networks representing particular brands. This is exactly why WeBuyCars is my preferred company in the sector, as they are brand agonostic. They literally couldn’t care less whether you buy a Haval or a Ford from them.

As for Motus, they are sitting squarely in the cross-hairs of the disruptive forces in this sector. Under the circumstances, I think they actually did pretty well to grow HEPS by 3% in a period where revenue fell by 2%. Despite resilient interim results, the market had a little panic and the share price closed 14% lower. Truly, I have no idea why anyone was expecting growth here.

With roughly 20% market share in South African new passenger vehicle sales, Motus is largely beholden to the broader consumer spending story. They note that the second quarter (i.e. the end of calendar 2024) was far better than the first quarter, which suggests that some of the consumer spending we saw at the likes of Lewis in furniture also filtered through into Motus. Discretionary spending had a strong finish to the year in South Africa.

This gave Motus an opportunity to reduce inventory and net debt, which would’ve done wonders for the HEPS performance.

It’s important to remember how diversified Motus is. They generated 55% of revenue and 65% of EBITDA from South Africa, with the rest coming from the UK, Australia and Asia. The UK is problematic, with weak demand and regulations requiring OEMs to show an increasing percentage of new vehicle sales as “new energy” vehicles. They are trying hard over there to force consumers into electric cars. The Australia market at least showed some growth to growth levels of volumes in new cars.

With all said and done, the interim dividend increased by 2% to 240 cents per share. The share price has given up basically its entire gain over the past 12 months:

MTN’s earnings have plummeted (JSE: MTN)

Forex remains a factor, but it doesn’t explain the year-on-year move

MTN released a trading statement for the year ended December 2024. Unsurprisingly, forex losses continue to plague the group. What surprises me though is that the impact this year is actually significantly lower than the comparable year, yet HEPS collapsed anyway.

They expect HEPS to be between 59% and 79% lower. In reality, this means a drop by between 186 cents and 249 cents. Now, in the comparable year, they had an impact of 888 cents on HEPS from “non-operational” items like forex, hyperinflation and other charges. When you’re choosing to operate in countries like Nigeria, I’m afraid those inverted commas are necessary. Without even going down that rabbit hole, the impact on the current period of the same items was 718 cents.

This means that year-on-year, HEPS is 170 cents better off from these items. This shows you that there’s a sizable drop in earnings due to other factors, much of which came through in the first half of the year. Although MTN has noted improved performance in the second half of the year, they are clearly still facing issues.

Notably, the tariff adjustments by regulators in Nigeria have started to be implemented by MTN Nigeria. This should help with the unit economics of the business in that country.

Detailed results are due for release on 17 March.

OUTsurance shareholders are definitely going to get something out (JSE: OUT)

Even the short-term book posted strong earnings growth

OUTsurance Group released a trading statement dealing with the six months to December 2024 and it didn’t disappoint. Group HEPS is expected to jump by between 42% and 48%, a particularly strong performance even by current sector standards.

The short-term operations in South Africa are the largest contributor to group earnings and they grew by between 24% and 30%. Next up in terms of size of contribution is Youi Group in Australia, one of the very few examples of a South African corporate finding success in that market, with earnings more than doubling! In both cases, much lower natural perils claims did wonders for underwriting profits.

OUTsurance Life also posted earnings that grew by more than 100%, so this wasn’t just a short-term insurance celebration.

The start-up losses at OUTsurance Ireland are in line with expectations. The group has a track record of entering markets and doing things the “hard” way by building up from zero. In reality, it’s proven to be a better way to do things than the standard approach by SA corporates of overpaying for offshore deals.

When one of the drags on performance is the performance of the employee share scheme in response to the extent of share price growth, you know things are going well.

Detailed results are due for release on 14 March.

Sanlam had a lovely time in 2024 (JSE: SLM)

Earnings growth is excellent

As we saw at sector peer Momentum earlier in the week, times are good in the life insurance space. Sanlam has added strongly to that narrative, with a trading statement for the year ended December 2024 reflecting a juicy increase in HEPS of between 30% and 40%.

This puts the company on an expected range of 913 to 983 cents. At the current share price of R88 and using the middle of that guidance, the P/E is thus 9.3x. You can buy some excellent companies on the JSE at modest multiples.

There was a once-off in these numbers in the form of a reinsurance recapture fee after the conclusion of the funeral insurance joint venture with Capitec. Net operational earnings per share excluding that fee grew by between 20% and 30%, so there was still plenty of good stuff in the core business to support these earnings.

One of the factors was an improvement in investment returns, with the markets giving life insurers a boost in the past year as they invested their reserves.

Sanlam’s share price is up roughly 24% in the past year.

Shaftesbury is having a grand old time in London’s West End (JSE: SHC)

Life after the Capital & Counties merger is going well, it seems

Shaftesbury is a perfect example of how you can give your money a passport via the JSE. The fund is entirely focused on the UK property market and specifically London’s West End. If you’ve ever had the pleasure of walking around that part of London (note: preferably in their summertime), it’s quite a thing.

Despite some pressure on valuation yields, there was enough growth in rentals to support a 4.5% increase in the portfolio valuation. There was also sufficient cash flow for the total dividend for the year to be up 11%.

Other metrics are also encouraging, like positive reversions in rentals and decent growth in underlying tenant sales. To make sure that metrics keep going the right way, they’ve been busy recycling capital. Since the merger, they’ve completed £246.6 million in disposals and reinvested £86 million in acquisitions. The loan-to-value ratio is down from 31% to a very comfortable 27%.

Despite the increase in net tangible assets per share, the share price on the JSE is down 8.4% in the past year. The strengthening of the rand is largely to blame for that.

Spar’s Swiss headache is getting worse (JSE: SPP)

And Southern Africa isn’t exactly shooting the lights out

In a trading update for the 18 weeks to 31 January, Spar reported a decline in total sales of 1.6%. A 9% drop in Switzerland is a major worry and a 6.7% decrease in BWG Group (Ireland and South West England) isn’t far behind. With growth of just 1.6% in Southern Africa, this is a disappointing set of numbers.

Even more concerningly, grocery was up just 0.6% and TOPS grew 1.9%. The core grocery business is putting in an dismal performance. It looks like Pick n Pay’s troubles are being mopped up entirely by Shoprite. This is further evidenced by Spar’s comments that their middle- and higher-end stores had subdued growth. Checkers and Woolworths remain the market winners.

Oddly, aside from 13.3% growth in SPAR Health off a small base, Build it was the highlight with 7.3% growth. That’s certainly a lot more than we’ve seen at the likes of Cashbuild recently, so they are doing something right there.

The top-line performance is uninspiring, but Spar has noted that margins are going the right way based on lower promotional activity and other initiatives. We will have to wait and see.

As for the offshore stuff, any hopes that the disposal of the business in Poland would make the end of the troubles have been dispelled. BWG Group’s sales are down 1.6% in EUR terms, with the blame put on consumer spending. SPAR Switzerland suffered a 5.2% decrease in turnover in CHF terms. Of course, a stronger rand has made these numbers look worse in reporting currency.

Interim results for the six months ending March will be released on 4th June. In the meantime, the market dished out a 7% hiding. Still, the share price is up 35% over 12 months.

Truworths’ interim dividend dipped thanks to weak performance (JSE: TRU)

Margins are under real pressure here

Truworths has released its interim results for the 26 weeks ended 29 December 2024. As we already knew from previous updates, they weren’t very good. In fact, they were poor.

Sales of merchandise increased by just 2.5%. You would therefore hope that they locked in stronger margins, with higher prices leading to depressed sales. Alas, gross margin fell from 53.6% to 51.8%. Not only were sales disappointing, but so too were the margins at which they were achieved.

Naturally, things don’t improve from there. Operating margin fell by 200 basis points to 22.5%. HEPS decreased by 4.6% and the interim dividend followed suit, down 4.5%. Don’t be fooled by a magical uplift in cash generated from operations, as the end of the reporting period was before month-end payments went off.

Office UK managed sales growth of 11.3% in local currency in this period and Truworths Africa was down 1.1%, so it’s pretty clear where the improvements need to be made. Cute stats like 38% growth in online sales in SA don’t make up for the overall number, particularly when higher promotional activity didn’t translate into sales.

Nibbles:

Director dealings:
- An associate of a director of Afrimat (JSE: AFT) sold shares worth just over R2 million.
- A director of a major subsidiary of Altron (JSE: AEL) sold shares worth a total of R1.2 million. The announcement doesn’t explicitly say that this is the taxable portion of the share awards, so I assume that it isn’t.
- The CEO of RH Bophelo Limited (JSE: RHB) bought shares worth R27k.
- Here’s an unusual type of director dealings for you, with Afine Investments (JSE: ANI) noting that a trust associated with a non-executive director sold its shares in a company which in turn holds 77.78% in Afine. The sale was one level above the company and so no Afine shares changed hands. The announcement doesn’t clarify the stake that the trust held in the company further up the chain, nor does it give a value of the sale.

Kore Potash (JSE: KP2) has released the highlights of its optimised Definitive Feasibility Study (DFS). They assume a construction start date of 1 January 2026, with a 43-month construction period. The initial life-of-mine is 23 years and they believe that further exploratory work could extend this. They expect an average EBITDA margin of 74% and a post-tax real IRR of 18% on an ungeared basis, measured in dollars. This shows you the kind of returns that can be achieved in frontier markets. Of course, the timing of this study is important as the company is looking to finalise the funding required for the project.

Conduit Capital (JSE: CND) renewed its cautionary announcement based on ongoing engagement with the liquidator of CICL. The company remains a couple of years behind on publishing audited annual results due to the impact on CICL as its main subsidiary.

London Finance and Investment Group (JSE: LNF) has decided to go ahead with a return of capital and a delisting of the company. They expect shareholders to receive 71 pence in cash per share. If all goes to plan, they intend to wrap it up by early May.

Who’s doing what this week in the South African M&A space?

DealMakers

Marylou Greig

-

27 February 2025

0

Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

This week, shareholders of Barloworld made known their feelings of the proposed buyout of the company by the current CEO and the Zahid Group and the perceived governance issues surrounding the takeover process, by failing to pass a number of special resolutions necessary in order to approve the scheme. The company needed the support of 75% of shareholders to push the deal through but managed to garner just 36.63%. This has triggered the standby offer as per the company’s circular released in January. The company will issue the timetable applicable to the standby offer in the next few days.

Old Mutual Infrastructure Investment Trust Fund (Malawi) is to acquire a 25% stake in Golomoti JCM Solar Corporation from the Private infrastructure Development Group’s InfraCo Africa. Financial details were not disclosed.

Prosus has made an offer to Just Eat Takeaway.com shareholders to acquire 100% of the leading on-line delivery company for an all-cash offer of €20.30 per share, valuing the company at €4,1 billion. The offer represents a premium of 63% to the company’s closing share price of 21 February 2025, and a 49% premium over the three-month VWAP. The offer consideration will be funded through cash resources.

The Programmatic JV – a joint venture between Irongate (in which Burstone has a 50% shareholding) and TP Angelo Gordon, has concluded the acquisition of A$280 million of Australian industrial logistics assets in New South Wales and Queensland for an equity tag of A$133 million for the four assets. The parties committed A$200 million to the joint venture with the aim to upsize upon successful deployment.

Sibanye-Stillwater has updated shareholders that it has made the decision not to proceed with the Rhyolite Ridge Lithium-Boron Project under the joint venture with ioneer. The establishment of the joint venture announced in September 2021 was subject to various conditions precedent. Following a due diligence by Sibanye on the technical summary and updated reports, the project did not meet its investment hurdle rates.

Cilo Cybin (CC) has been granted a time extension of 7 April 2025 for the distribution of the circular to shareholders. In December 2024, CC announced the proposed acquisition of Cilo Cybin Pharmaceutical. The acquisition constitutes an acquisition of assets, a related party transaction and a reverse takeover for the company.

Unlisted Companies

Clearwater Capital, a private equity firm based in KwaZulu-Natal, has acquired SnoLink Logistics from Etlin International’s storage and logistics arm. Clearwater Capital aims to expand the logistics provider’s national footprint. SnoLink specialises in solutions for frozen, chilled and ambient temperature-controlled product warehousing, port-clearing services and long-haul distribution to retailers.

Local venture capital group Havaíc has exited its investment in emergency services technology provider RapidDeploy. The investment, which was first made in 2022, was followed by further investments in 2023 and 2024. The exit, the value of which is undisclosed, is to NYSE-listed US technology group Motorola Solutions.

DealMakers is SA’s quarterly M&A publication.
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

DealMakers

Marylou Greig

-

27 February 2025

0

Weekly corporate finance activity by SA exchange-listed companies

In a move to increase its exposure to SA Corporate Real Estate (SAC), Castleview Property Fund acquired 48,681,480 SAC shares at an average purchase price of R2.85 per share for an aggregate consideration of R138,88 million. The purchase was executed by way of on-market block trades on the JSE.

Mantengu Mining has issued and will list, 24,881,093 shares on the JSE in terms of its R500 million drawdown facility announced in April 2024.

In November 2024 London Finance & Investment Group plc announced the sale of its liquid investments and that it proposed to cease activities in early 2025 by way of returning capital to shareholders and delisting the company from the LSE and JSE. The company has now confirmed shareholders will receive an estimated 71 pence in cash for each ordinary share held. The company has 31,287,479 shares in issue of which 80,000 are not listed. It is expected that the company’s listings will be terminated in early May 2025.

On 26 February the JSE notified Ayo Technology shareholders that it had suspended the company’s listing with immediate effect following the failure, as per the JSE Listing Requirements, to publish its annual report for the year-end August 2024 within the prescribed period.

This week the following companies repurchased shares:

Netcare concluded an intra-group repurchase with subsidiary Netcare Hospital Group in terms of which Netcare acquired 25,082,254 ordinary shares at a price of R13.46 per share.

Transpaco has repurchased one million shares, representing 3.47% of the company’s issued share capital. The shares were repurchased at an average of R37.00 per share, funded from cash resources. The shares will be delisted and cancelled.

In its annual financial statements released in August 2024, South32 announced that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 324,074 shares were repurchased at an aggregate cost of A$1,18 million.

On 19 February 2025, the Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 21,500,000 shares at an average price per share of £3.26.

Schroder European Real Estate Trust plc acquired a further 85,200 shares this week at a price of 66 pence per share for an aggregate £56,232. The shares will be held in Treasury.

In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 17 – 21 February 2025, the group repurchased 348,000 shares for €17,71 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 334,920 shares at an average price per share of 287 pence.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 572,899 shares at an average price of £30.15 per share for an aggregate £17,28 million.

During the period February 17 – 21 2025, Prosus repurchased a further 5,826,415 Prosus shares for an aggregate €262,35 million and Naspers, a further 450,990 Naspers shares for a total consideration of R2,18 billion.

Five companies issued a profit warning this week: Grindrod, African Rainbow Minerals, Oceana, Afrocentric Investment and MTN.

During the week, two companies issued cautionaries: Choppies Enterprises and Conduit Capital.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A and debt financing space?

DealMakers

Vanessa Aitken

-

27 February 2025

0

Who’s doing what in the African M&A and debt financing space?

DealMakers AFRICA

Visa, the German development finance institution DEG, and existing investors, Speedinvest and Cathay AfricInvest Innovation Fund have invested in Ghana’s Oze, a provider of AI-powered digital lending solutions for financial institutions and SMEs. The financial terms of the investment were not disclosed, but the funding will be used to scale the fintech’s Lending Management System. Oze currently operates in Ghana, Nigeria, Guinea, Benin, Rwanda, Madagascar, Zimbabwe and Lesotho.

UK development finance institute, British International Investment, has announced a US$100 million Tier 2 capital facility to KCB Bank Kenya to increase lending capacity to climate-related projects and women-led SMEs.

Pelangio Exploration has announced a strategic agreement with FJ Minerals to acquire up to an 83% interest in the Nkosuo Project in Ghana’s Ashanti Region. The project is situated adjacent to Pelengio’s Manfo Project and the agreement stipulates that upon transferring a 17% stake in in Manfao to FJ, a JV will be formed which includes both projects. Palangio will hold an 83% stake and FJ, a 17% stake. The option must be exercised by 15 December 2025.

Alterra Capital Partners has acquired a majority stake in ARP Travel Africa Ltd from the founding Moledina Family. The destination management company, headquartered in the UK, specialises in tailored travel experiences in East Africa. Founded in Tanzania in 1978, the company has established partnerships with travel agents in 50 countries, spanning five continents, catering to international travellers looking to experience the East Africa region. Financial terms were not disclosed.

Fawry, the largest e-payment platform in Egypt, has announced three strategic investments in the Egyptian fintech space. The company has acquired a 51% stake Dirac Systems; a 56.6% stake in Virtual CFO and a 51% stake in Code Zone for a total of US$1,6 million.

The Private Infrastructure Development Group (PIDG) and EDFI Management Company, through the Electrification Financing Initiative (ElectriFI), have invested a total of €4 million in Zambia’s Supamoto. The investment will enable Supamoto to increase pellet production at its facility in the city of Ndola as well as allow the company to expand its logistics and distribution infrastructure to meet growing demand. The transaction will finance 14,800 new fuel-efficient cookstoves which are anticipated to deliver cost and time savings for up to 74,000 people.

Gozem, a super app that operates across Francophone West and Central Africa, has secured US$30 million in Series B funding – $15 million in equity and $15 million in debt — led by SAS Shipping Agencies Services and Al Mada Ventures. The company operates in Togo, Benin, Burkina Faso, Cameroon, Ivory Coast, Gabon, Mali and Senegal.

DealMakers AFRICA is the continent’s quarterly M&A publication
www.dealmakersafrica.com

Artificial intelligence and open-source considerations in M&A

DealMakers

Ridwaan Boda and Alexander Powell

-

27 February 2025

0

Artificial intelligence and open-source considerations in M&A

Artificial intelligence (AI) and open-source software (OSS) have become critical components of modern business, making their evaluation a key aspect of merger and acquisition transactions (M&A transactions).

While these technologies drive innovation and reduce costs, they also introduce unique risks, particularly around intellectual property, compliance and integration. Proper due diligence is essential to ensure that these assets add value, rather than liability, in M&A transactions.

A primary consideration is the ownership and licensing of AI technologies. Target companies relying on AI systems should be able to demonstrate clear ownership of their proprietary algorithms and models or, alternatively, that such target company is licenced to use the same. This includes assessing whether the data used to train these models is proprietary, licensed, or sourced from publicly available datasets, as this impacts data privacy and intellectual property considerations.

It is also crucial to understand whether the target company has either developed or procured the AI system. Depending on the scope of deployment of AI systems, these systems may be at different stages of the AI lifecycle. The acquiring company should consider raising some of the following questions with the target company:

Where do ownership rights in the AI model, training and testing data, and inputs and outputs reside?
Does the target company have mechanisms, such as policies and training, in place to regulate internal usage of the AI systems and to protect the integrity of confidential information, personal information, and sensitive proprietary or corporate information?
Have the relevant AI Terms and Conditions been vetted?
Has an Ethical Impact Assessment been conducted on the AI system?
Has a Privacy Impact Assessment been conducted on the AI system?
Generally, does the AI system comply with applicable laws and internationally accepted standards for the ethical and responsible use of AI?
Will or has the AI system impacted on any jobs and, if so, have the relevant labour law requirements been complied with?
Has the deployment of AI resulted in any tension between job losses and automation and, if so, what reputational impact has this had on the target company?
How is AI governance treated by the target company?
Does the board of directors of the target company have full line-of-sight as to how AI is being deployed and governed?

Some other important AI considerations include:
(i) whether the target company has implemented processes to monitor and mitigate data and algorithmic bias;
(ii) whether the AI system is actively monitored for cybersecurity risks; and
(iii) whether the AI system has been properly audited and accurate audit logs maintained.

Based on the risks identified in the target company’s use of AI systems, the acquiring company should consider including AI-specific representations, warranties and indemnities to bring the identified risk level within the acquiring company’s risk appetite.

While the risks around AI can be mitigated through representations and warranties insurance, the question for acquiring companies always remains whether the acquirer is in the business of purchasing insurance or whether they seek to purchase a company with a functioning AI system.

Understanding the target company’s use of OSS is equally critical. Open-source components often form the backbone of IT systems, but their use is usually governed by various licensing terms, such as General Public Licence (GPL), Apache, or MIT. These terms commonly address, inter alia, patent use, source disclosure, licence and copyright notice, liability, warranties, and trademark use. Non-compliance with such licence terms can lead to legal claims, including requirements to open-source your proprietary code or to renegotiate licensing agreements. Therefore, it is important to understand whether the target company has utilised any OSS software and, if so, whether it has complied with software security and licensing requirements. Identifying and addressing these issues early in M&A transactions is vital to avoid incurring unanticipated costs, either during or post completion of the transaction.

OSS dependencies also introduce operational risks. Acquiring companies should evaluate whether the target company has a clear process for tracking, updating and managing OSS components, such as whether the target company has implemented and maintained an up-to-date Technology Stack List (also referred to as a Software Bill of Materials), documenting which OSS and other technologies have been used or incorporated into other software or systems, and what the applicable licencing terms are.

From a cybersecurity perspective, use of outdated or unsupported open-source libraries can expose the company to security vulnerabilities, allowing hackers to gain unauthorised access to corporate systems or data. Acquiring companies should consider sunsetting any OSS software which is outdated, or mitigating to newer OSS to avoid the cybersecurity vulnerabilities and risks introduced by outdated or unsupported OSS.

Finally, the integration of AI and OSS into the acquirer’s IT infrastructure poses strategic and technical challenges. Differences between the target company and acquiring company’s technology stacks, licensing models and/or licence compliance practices can complicate post-transaction integration. A clear roadmap for harmonising these systems will realise the acquirer’s strategic vision as envisioned by the M&A transaction. Additionally, acquirers should consider how AI and OSS assets align with their broader business strategy to ensure that they deliver long-term value.

AI and OSS introduce both opportunities and risks to M&A transactions and are key components of any credible IT environment. Conducting a comprehensive due diligence on the ownership, licensing, cybersecurity and operational management of AI and OSS technologies, and the extent of their use within the target company, is critical to mitigating risks and maximising the value that can be harnessed by these technologies post transaction completion.

Ridwaan Boda is an Executive and Head of Department and Alexander Powell a Candidate Legal Practitioner in Technology, Media and Telecommunications | ENS.

This article first appeared in DealMakers, SA’s quarterly M&A publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Looking ahead: private equity trends in 2025

DealMakers

Thandiwe Nhlapho

-

27 February 2025

0

Looking ahead: private equity trends in 2025

As the new year unfolds, the private equity (PE) landscape in South Africa is marked by both opportunities and challenges shaped by economic conditions, geopolitical shifts, regulatory changes and other factors. Despite such complexities, PE, known for its resilience, remains a significant asset class and should continue to attract investment.

According to the 2024 Private Equity Industry Survey conducted by the South African Venture Capital and Private Equity Association (SAVCA), 62% of PE firms expect high deal flow in Southern Africa in 2025.¹

Several trends are expected to drive growth and shape South African PE in 2025, with the deal value in the local PE market expected to increase by 6.51% to US$62,12m in 2025.² This article considers some of the trends which are likely to influence the South African PE market this year.

There is notable optimism among local PE firms compared with their global counterparts in relation to exit activity. The African Venture Capital Association reported that the volume of exits in the first half of 2024 surpassed that of the same period in 2023.³ It appears that this will be a continuing trend in 2025. According to the abovementioned 2024 SAVCA survey, PE firms in Southern Africa are more optimistic about an increase in exit activity than their global peers.

Furthermore, as managers seek new capital sources and investors aim to reduce fees, co-investments are becoming increasingly prevalent. Offering co-investment opportunities to limited partners (LPs) has proven advantageous and is expected to remain a key strategy for improved fundraising, increased deal flow and risk mitigation.

Macroeconomic factors

The macroeconomic environment, including inflation and interest rate trends, will significantly influence PE activity in 2025. Several major economies, most notably the United States, have begun cutting interest rates and several African countries, including South Africa, have followed suit. Lower interest rates can stimulate investment activity by reducing the cost of borrowing, allowing PE firms to finance acquisitions and expand their portfolios.

Additionally, political stability will be crucial for investor confidence and market growth. Following the recent elections in South Africa and the subsequent transition to a Government of National Unity (GNU), there are promising signs of progress in addressing structural obstacles to economic growth. This has prompted both local and international investors to reassess their perspectives on South Africa as an investment destination.

However, much depends on the GNU’s ability to create and foster a more business and investor friendly environment.

LPs will seek managers capable of delivering strong performance at the microeconomic level despite macroeconomic challenges, which is essential for achieving successful exits and delivering distributions.

ESG | Impact investing

There is a growing shift towards sustainable and impact investing driven by increased awareness of environmental, social and governance (ESG) factors. As part of integrated ESG and impact investing, there is also a rise of impact orientated strategies such as gender-lens investing, which entails investing in women-owned or women-led businesses, climate action, and inclusive development. These trends are expected to continue gaining traction as investors increasingly seek to align their financial returns with positive and sustainable outcomes.

In addition, these trends are reshaping the competitive landscape, influencing capital allocation decisions across various sectors and prompting a re-evaluation of traditional investment strategies. As a result, ESG criteria and impact initiatives will be integrated into investment strategies, recognising the potential for long-term value creation.

South Africa’s historical context underscores the critical need for investments that address social disparities, driving PE firms to prioritise businesses that foster job creation and empowerment. This focus aligns with regulatory frameworks such as Broad-Based Black Economic Empowerment.

Sector specific opportunities

Attracting private capital to generalist funds is becoming increasingly challenging, compared to funds with specific strategies that align with the objectives of investors interested in particular sectors. Consequently, targeted investment and specialist funds which focus on specific industries are expected to continue receiving favourable attention.

Technology, Fintech and Innovation
Investment in the technology sector is anticipated to increase, driven by the imperative for digital transformation across various industries. This trend is bolstered by the growing need for internet services, mobile technology, and digital finance solutions, particularly in underserved populations across the country. The fintech sector provides significant opportunities to scale financial inclusion in South Africa.

PE firms are likely to pursue opportunities in innovative, AI and machine learning companies. South Africa’s tech industry is emerging as a significant growth driver, with the country being positioned as a hub for innovation and digital transformation on the African continent. The government has also expressed a commitment to foster a business environment that encourages entrepreneurship and innovation.

Infrastructure Development and Renewable Energy
South Africa’s logistics and industrial real estate sectors are notably robust, driven by increasing demand for warehousing and distribution centres to support e-commerce growth and telecommunication infrastructure development.

There is a growing demand for economic and social infrastructure projects in South Africa. The government has plans to improve its infrastructure, particularly in energy, healthcare, transportation, and water management. Furthermore, the government has opened up power generation to independent power producers, which have become key players in developing renewable energy projects. This presents collaboration opportunities through public-private partnerships and PE involvement in such projects.

The renewable energy sector in South Africa, particularly solar, wind and nuclear energy, presents one of the most promising investment opportunities. The country’s integration of renewable energy sources is not only a strategic response to climate change, but also a critical necessity due to the country’s ongoing energy crises, specifically in electricity generation.

According to the South African Institute of International Affairs, South Africa is one of the African countries with the highest share of renewables on the continent.4 This positions the nation as a key player in the continent’s transition to sustainable energy solutions, offering significant potential for PE investments.

Conclusion

The South African PE market in 2025 stands at a pivotal juncture, offering exciting opportunities despite the challenges. As one of Africa’s most developed economies, South Africa presents a diverse array of investment prospects across various sectors. By adeptly navigating the key trends within the PE market, investors can identify where growth opportunities lie and strategically position themselves to capitalise on such opportunities.

1 https://savca.co.za/wp-content/uploads/2024/08/SAVCA-PE-Survey-2024-Digital.pdf
2 https://www.statista.com/outlook/fmo/private-equity/south-africa
3 https://www.avca.africa/media/i1cjek11/avca24-06-apca-q2_5-new.pdf
4 https://saiia.org.za/research/renewable-energy-technologies-in-the-global-south-insights-from-africa/.

Thandiwe Nhlapho is a Corporate Financier | PSG Capital.

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

GHOST BITES (AB InBev | AECI | Barloworld | Bidcorp | Hammerson | Momentum | Oceana)

Ghost Bites

The Finance Ghost

-

27 February 2025

2

GHOST BITES (AB InBev | AECI | Barloworld | Bidcorp | Hammerson | Momentum | Oceana)

Alcoholic beverage volumes are dropping at AB InBev (JSE: ANH)

Sober curiosity is a global trend that isn’t great for these companies

I recently wrote a piece in my Financial Mail column that considered whether alcohol could go the way of smoking and eventually become taboo. Even if that is where we end up, I think we are still a long way off that state. Still, the trajectory is a concern for investors in this sector.

AB InBev and its peers have been having a tough time in their share prices. The market seemed to love this week’s update though, with the price closing 7.9% higher. This is despite yet another drop in beer volumes. In fact, the Q4 drop was even worse than the full-year drop. For example, own beer volumes were down 2.1% in Q4 and 2.0% for the year.

The group is therefore focused on pricing increases and manufacturing efficiencies. This is the bit that the market liked, with revenue per hl growth of 5.5% in Q4 vs. 4.3% for FY24. This led to revenue growth of 3.4% in Q4 in constant currency, or 2.5% as reported. The full-year growth was 2.7% in constant currency and 0.7% as reported. Despite such little growth, normalised EBITDA was up 10.1% for Q4 and 8.2% for FY24.

This means that there was normalised EBITDA margin expansion, which shareholders are always thrilled to see. The other cause for celebration was an improvement in the net debt to normalised EBITDA ratio from 3.38x as at December 2023 to 2.89x as at December 2024.

The improvement to the balance sheet was enough for the board to be comfortable with a dividend of €1.00 per share. Thanks to the added benefit of recent share buybacks, that’s a substantial 22% jump vs. the previous year. The underlying growth in HEPS was just 4.2%, so I wouldn’t treat the dividend as an indication of sustainable growth.

The market is backing AECI’s outlook (JSE: AFE)

The recovery momentum in the share price is strong

Before we even get into the latest financial results, just take a look at this AECI chart after the release of earnings:

Based on this, you might be expecting to see excellent numbers in the latest release. This couldn’t be further from the truth, as revenue from continuing operations fell 3.8% and EBITDA was down 12.7%.

In fact, HEPS tanked by 36%. How on earth does a share move like this happen in response?

It’s all about understanding the outlook going forwards vs. what the market was expecting. As you can see, the stock is still well off mid-2024 levels. It had suffered a precipitous drop in late 2024. This is a case of a turnaround strategy that the market has finally latched onto.

Usually, a turnaround includes a year of particularly poor numbers in which the kitchen sink is thrown at the financials. All the tough decisions around disposals and impairments tend to happen quickly, giving the company one really bad year as the new base off which to improve. The narrative in the AECI results is that the bottom is in and that things will get better from here.

If we look at the underlying segments, we find that AECI Mining saw profit fall by 24.8% in a weak demand year that was further compounded by planned statutory shutdowns. They had a strong Q4 though, which would’ve added to the share price rally. Over at AECI Chemicals, profit from operations jumped by 30% thanks to efficiencies and cost management, so that’s a good news story.

There’s still a long way to go in cleaning up the group, with six businesses identified for sale and sale agreements in place for only two of them. They are all profitable except AECI Schirm, which was so loss-making that it put the entire discontinued segment into a loss of R383 million.

I must note that the tax expense is an effective tax rate of 71%. That’s obviously not the norm and they are working on ways to reduce it. Some of the reasons for the high rate appear to be non-recurring in nature, while others are not.

Net debt reduced to R3.7 billion, helped by a significant increase in cash and cash equivalents. Net debt to EBITDA at 1.2x is in line with the prior period. Working capital improvements in AECI Mining also helped them here, as did a substantial decrease in capex.

The management team has a big year ahead of them. They need to sell the remaining businesses earmarked for sale and they need to drive improvements in the continuing operations. Against this backdrop, I was pretty surprised to see a decent dividend of 219 cents per share based on HEPS of 755 cents per share. It shows you that dividends are a powerful way to send a message to the market. If you’re interested in learning more about that topic, you’ll enjoy my latest Moneyweb podcast about the stickiness of dividends.

Barloworld shareholders shunned the scheme (JSE: BAW)

And by a far greater percentage than I think anyone expected

At the recent Barloworld AGM, directors only narrowly survived the re-election vote. They received support of roughly 57%, which is abysmal. The market was sending a key message about its views on how the conflicted position of CEO Dominic Sewela was handled.

When I saw that outcome, I figured that the scheme would be a close-run thing and that some other shareholders might join UK-based Silchester in saying no to the R120/share price on the table. I just didn’t expect the scheme to fail so spectacularly, with support from only 36.6% of shareholders present at the meeting.

Although attendance at the meetings might not have been identical, we can safely assume that roughly 20% of shareholders were happy to keep the board but reject the offer. That feels like an odd position for someone to reach. If you hated the scheme, surely you would want a new board as well?

In the past 5 years, the highest price we’ve seen Barloworld trade at was nearly R130. Bearing in mind that this is a cyclical group and that they’ve suffered the destruction of value in the Russian business, an offer price of R120/share is pretty close to that level. It didn’t look terrible to me, but clearly investors wanted more.

Sector peer Bell Equipment is a useful case study here. The share price is currently R37, so one wonders how the investors who said no to the R53 per share scheme feel at the moment.

In the case of Barloworld, the 36.6% who agreed to the scheme can still go ahead and accept the standby offer if they want to get paid out. In some respects, I think the standby offer sent a message that the price was on the light side. It’s like saying: “I’m willing to pay this for a 100% stake, but come to think of it, I’ll take what I can get at this price as well.”

The bigger question for me is around the future for the management team. Rightly or wrongly, Dominic Sewela isn’t on many Christmas card lists for institutional shareholders on the register. On the flip side, if he’s willing to be part of a consortium buying at R120 per share, institutions should welcome a CEO who is aligned with them at a price way above the current R105 per share!

For further insights into the standby offer and for the full statement by the board regarding their handling of the corporate governance situation, Barloworld has placed this article in Ghost Mail for my readers. It doesn’t reflect any of my opinions, but I think it gives great additional information around the situation and is well worth a read.

Onwards and upwards for Bidcorp (JSE: BID)

Even though the rand turned out to be the wrong flavour in this period

Food services group Bidcorp is one of South Africa’s very best business stories. They’ve genuinely built a global giant (operations in 33 countries), with consistent bolt-on acquisitions and organic growth to support the story. Of course, when the rand gets weaker, this makes the reported numbers look even better due to the global exposure. When the rand gets stronger, the opposite happens.

This is why you see a situation in which revenue for the interim period increased by 3.6% as reported, yet it was up 7.1% in constant currency. That theme continues in trading profit, up 6.8% as reported and 10.7% in constant currency. HEPS is much the same recipe, up 6% as reported and 10.0% in constant currency.

Cash generated from operations is always a very important metric here, as this is a working capital intensive group that has to manage its cash carefully to support growth. With a 17.6% jump in that metric, I think we can tick that off as a success.

The interim dividend is 6.7% higher at 560 cents per share. They have a modest payout ratio due to the level of reinvestment in the group. The context here is that HEPS was 1,221.6 cents.

In case you’re wondering, the United Kingdom saw the strongest constant currency growth among the segments. It was up 7.2% in revenue and 30.4% in trading profit. I’ll resist the temptation at this point to make any baked-beans-and-beige-food jokes.

Earnings down and dividends up at Hammerson (JSE: HMN)

The share price fell 6% on the day of release of results

Hammerson released its full-year 2024 results, capping off what they describe as a “transformative and successful” year for the group. This is a fancy way of saying that they sold a lot of assets in an effort to improve the balance sheet. There are some other positives, like a strong increase in rental rates and an uptick in occupancy.

Still, for all the fanfare, sales growth at tenants was 5% in the UK and 3% in France. Western Europe is by no means a high-growth area, but those are still unexciting numbers. This is reflected in valuation growth of 4.2% in the UK and 1.5% in France. Alas, valuations in Ireland fell by 13%. As all South Africans know, the Irish just can’t win when it really counts!

Adjusted earnings per share fell from 23.4p to 19.9p and an IFRS loss was reported due to impairments and revaluation losses. The continuing portfolio might be putting out decent numbers, but they had to take some pain to sell certain properties.

The benefit of that pain was felt in net debt, which fell by a substantial 40% year-on-year. Of course, that’s also because the balance sheet shrank due to disposals, so the right metric to consider is loan-to-value (LTV). This improved from 34% to 30%.

The full-year dividend of 15.63p is up 4% despite the pressure on earnings. That looks like a fair reflection of the underlying portfolio performance.

There’s yet more momentum at Momentum (JSE: MTM)

The stock has had a great few years

Momentum released a trading statement for the six months to December 2024 that shows why the share price has been on a charge over the past year (or three). Normalised HEPS is up by between 43% and 48%, so there’s much to celebrate.

This performance was driven by a number of supportive factors, ranging from persistency in life insurance through to underwriting margins and favourable weather conditions in the short-term book. Market returns also helped, as large insurance houses benefit from the returns earned on their reserves.

Detailed results are due for release on 20 March.

Oceana’s earnings are well off the previous interim period (JSE: OCE)

The disappointing end to the previous financial year has continued

Oceana had a truly spectacular interim period last year. Daybrook posted a record-breaking performance in an environment of record fish oil prices. Alas, those days are firmly behind Oceana, with a tough second half in the last financial year and now an interim period that needs to be compared to such a high base.

It’s therefore not surprising to see that interim earnings are lower year-on-year. The expected decline in HEPS is at least 40%, with one of the major factors being that fish oil prices have fallen off.

Although the share price is only down 13% over 12 months, it’s worth noting that this announcement came out after the market close. There’s therefore a chance of more pain in the share price when markets open on Thursday.

Detailed results are due on 9th June.

Nibbles:

Director dealings:
- A director of Altron (JSE: AEL) sold shares worth R1.2 million. This should be seen in the context of a 12-month share price performance of 118%!
- To add to the purchase earlier in the week, a trust associated with the CEO of Tiger Brands (JSE: TBS) bought shares worth R493k.
- Acting through Titan Premier Investments, Christo Wiese has bought R190k worth of Brait ordinary shares (JSE: BAT).

Sibanye-Stillwater (JSE: SSW) is taking a cautious approach to its capital allocation strategy, as evidenced by its decision not to proceed with the Rhyolite Ridge Lithium-Boron Project. This is part of a proposed joint venture agreement with ioneer Ltd, who I’m sure were less than thrilled to receive this news. In October 2024, Sibanye received updated project and technical information that didn’t fill them with confidence, as the project doesn’t meet Sibanye’s investment hurdle rates (required rate of return) based on conservative pricing assumptions. The company makes it clear that they are still committed to both the US market and the battery metals strategy, so this is a project-specific decision.

Cilo Cybin (JSE: CCC) has received a dispensation from the JSE in terms of the timing of distribution of its circular related to the proposed acquisition of Cilo Cybin Pharmaceutical as a viable asset under SPAC rules. The circular is now expected to be distributed by 7 April.

Choppies (JSE: CHP) has renewed the cautionary announcement that was first released on 16 January. They give no further details unfortunately, so this is as bland as a bland cautionary can get!

There’s more sad news from Harmony (JSE: HAR), as one of the employees injured in the Mponeng accident on 20 February has lost his life. My understanding is therefore that two employees passed away from this accident, which is exactly two too many. Mining remains a dangerous way to make a living.

The listing of AYO Technology Solutions (JSE: AYO) has now been suspended due to the company failing to publish its annual report for the year ended August 2024 within the prescribed period. Sigh.

Barloworld: standby offer triggered following scheme of arrangement vote

Sponsored

Barloworld

-

26 February 2025

0

Barloworld: standby offer triggered following scheme of arrangement vote

Note: this release has been provided by Barloworld to the readers of Ghost Mail and does not reflect any opinions of The Finance Ghost.

As a result of the resolutions tabled at today’s EGM not being passed by the requisite majority of Barloworld Ordinary shareholders present and entitled to vote, the Standby Offer has been triggered, as contemplated in section 7 of the Circular in respect of the proposed transaction.

The timeline applicable to the Standby Offer, will be announced on SENS and A2X in the coming days. The procedure for acceptance of the Standby Offer is outlined on page 37 (section 7.5) of the Scheme Circular, available on the Company’s website.

The Standby Offer

The Standby Offer is now open for acceptance by Barloworld shareholders at ZAR 120.00 per share in cash, maintaining the same value as proposed in the scheme of arrangement. The total value unlock of the offer continues to represent a significant premium of 87% to Barloworld’s 30-day VWAP as at 12 April 2024, being the last trading day prior to the first transaction-related cautionary announcement, with the total transaction value remaining at ZAR 23 billion.

The period for which the Standby Offer will remain open for acceptance and the detailed acceptance procedures are set out in the Circular.

Implementation mechanics

The Standby Offer is conditional on its acceptance by Barloworld shareholders holding at least 90% of Barloworld ordinary shares (excluding shares held before the Newco Offer by Newco, ZTHM, Entsha, and their respective related or inter-related persons, persons acting in concert, nominees or subsidiaries).

Shareholders are reminded that Newco has the right to waive this 90% condition at its sole discretion. This means that Newco could elect, at its own discretion, to acquire a lower percentage from shareholders who wish to tender their shares. In such an instance, and should the Standby Offer become unconditional (following the fulfilment of all other conditions precedent that it is subject to), Barloworld would remain listed on the JSE and the shareholders who have not accepted the Standby Offer would remain shareholders in Barloworld.

Process and timelines

It is anticipated that the Standby Offer announcement (Standby Offer Announcement) will be published in the coming days and will contain a detailed indicative timetable in relation to the Standby Offer.
Not later than 16:30 South African time on the 45th business day after the Standby Offer Opening Date, Barloworld and Newco will release an announcement on SENS confirming whether the Standby Offer condition as to acceptances (requiring 90% of Barloworld Ordinary shareholders, excluding members of the Consortium, accepting the Standby Offer) is fulfilled or waived, and whether the Standby Offer is terminated or will proceed.
The Longstop Date for fulfilment of all the conditions precedent to the transaction is 11 September 2025.
The Longstop Date will be automatically extended by 3 months if any regulatory approval has not been obtained by 11 September 2025.
The Standby Offer will be open for acceptances by Barloworld ordinary shareholders for a further 10 business days after the fulfilment or waiver of all the conditions precedent to the Standby Offer has been announced (Standby Offer Closing Date).

Path forward

The Standby Offer is now open and a Standby Announcement will be published containing a detailed indicative timetable in relation to the Standby Offer. Detailed information about the procedures to accept the Standby Offer is set out in the Circular. The timing for the implementation of the transaction will depend on acceptance levels of the Standby Offer and receipt of the required regulatory approvals. The business will continue to operate as usual throughout this process.

Response from Barloworld Board regarding Governance

The Barloworld Board has taken note of market commentary, particularly related to the alleged lack of transparency in relation to the process as well as the board’s handling of the conflicts of interest in relation to the Barloworld CEO.

The Barloworld Board wishes to provide further clarity in this regard.

As Barloworld is a “regulated company” as defined in section 117(1)(i) of the South African Companies Act, an offer such as the one brought forward by the Consortium is regulated by chapter 5 of the Companies Act read with chapter 5 of the Companies Regulations, 2011 (the “Takeover Regulations”).

In accordance with section 119 of the Companies Act, the Takeover Regulation Panel (“TRP”) is the primary regulator in respect of transactions of this nature. Given Barloworld’s JSE listing, the JSE also acts as a secondary regulator, enforcing applicable rules set out in the JSE Listings Requirements.

In accordance with section 95 of the Takeover Regulations, all negotiations between the Independent Board and the offeror must be kept strictly confidential and any communication with the market needs to be pre-approved by the regulator as set out in s117 of the Takeover Regulations before publication. Further, if a leak of price sensitive information occurs, or there is a reasonable suspicion of such a leak, the Company must immediately release a cautionary
announcement disclosing that information to shareholders.

From the onset, the Independent Board has abided by the regulations governing this transaction and has accordingly, timeously issued communication to the market.

From the time the Consortium approached the Company with a non-binding indicative offer, the composition of the Consortium and the nature of the Group Chief Executive’s involvement was fully disclosed to the Board and the resultant conflict of interest was declared. The Group Chief Executive was immediately recused from Board discussions related to the proposed transaction. In line with the Board’s statutory and fiduciary duties, the Board sought legal advice and
implemented strict governance measures, based on global transaction precedent and best practice, to ensure a thorough and unbiased evaluation of the offer in the best interests of the company and its shareholders. The Independent Board has duly discharged its duties in this regard.

The Independent Board reiterates that management led buy-out transactions, are not unusual in capital markets. Whilst recognising that such transactions do present an opportunity for conflicts of interest in relation to the management members involved, the Independent Board also recognises that if properly managed, they could result in positive outcomes for shareholders of the Company.

Further, in such instances it is the Independent Board’s responsibility to institute robust governance processes whilst ensuring minimal disruptions to the day to day running of the business. The board has to consider the merits of the transaction including, as per the TRP requirements, obtaining external advice from an independent expert on the fairness and reasonableness of the offer. In this instance, the Independent Board appointed Rothschild. Finally, if appropriate, the board has the duty to not to frustrate the process of bringing a fair and
reasonable offer to shareholders, for shareholders’ consideration.

It should also be noted that it is not market practice, nor a regulatory requirement to place conflicted members of management on long-term gardening leave during a management buy-out process.

The Board continues to engage openly with its key stakeholders on matters of governance. To this end, it has recently concluded its governance roadshows where it has engaged with key shareholders on matters of concern to them.

The Independent Board remains committed to ensuring that the Standby Offer strictly follows the regulatory process and is managed and governed transparently, in the best interest of all stakeholders.

Responsibility Statement

The Independent Board (to the extent that the information relates to Barloworld), individually and collectively, accepts responsibility for the information contained in this statement and certifies, to the best of its knowledge and belief, that the information contained in this announcement is true and that this announcement does not omit anything that is likely to affect the importance of the information included.

Note: in case you missed it right at the top, this release has been provided by Barloworld to the readers of Ghost Mail and does not reflect any opinions of The Finance Ghost.

Cookie	Duration	Description
cookielawinfo-checkbox-analytics	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional	11 months	The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy	11 months	The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.