from the editor
few things fascinate me more about business than watching the difference a management team can make to the fortunes of a company and its stakeholders. Though the CEO often gets most of the praise (or flak), the board and controlling shareholder have an equally important role to play. What to make then of the mess at South African Airways (SAA), on which the state has already spent R23.8bn in guarantees and bailouts since 2008? Nobody disagrees that there are easier ways to make money than running an airline, but there are plenty of examples of companies where management does get it right. Comair is the obvious local example; Ethiopian Airlines, another state-owned enterprise (SOE), the shining light on the continent.
In the 2016 financial year, the latest available, SAA reported a loss of R1.47bn for the year based on revenue of R30.4bn, compared with Ethiopian Airlines’ profit of 6.13bn Birr (roughly R4.1bn at the time), on revenue of 54.4bn Birr. SAA’s management can use the Ethiopians as a benchmark to find room for improvement in many areas. Staff costs provide a starting point – SAA spent more than R5.8bn on its 10 706 employees in the past financial year (an average of R541 752 per employee); Ethiopian Airlines’ staff complement of about 12 000 cost an average of roughly R236 543 .
At the time of writing on 27 September, SAA urgently required R6.8bn to pay creditors who refused to roll over debt by the end of September. I have no doubt that the Public Investment Corporation (PIC), which invests mainly government employees’ pension money, will eventually be strong-armed into providing at least some of the relief required.
Another company to watch come 30 September is platinum miner Lonmin, which faces its own battles with creditors. It will be in a world of trouble if debt covenants are breached at month-end. Here another PIC “bailout” will probably not be as forthcoming as it was in December 2015. Lonmin has world-class ore bodies, but the company has been mismanaged for years, and Ben Magara, appointed as CEO after the Marikana tragedy in 2012, has few options but to try and keep bankruptcy at bay.
Contrast this with Northam Platinum (see page 36), which hardly anyone’s been paying attention to. Flying under the radar, management has been expanding the business, snapping up new assets at bargain prices without overstretching the balance sheet – as you expect listed companies’ bosses to do at the bottom of the market.
Matter of fact
In the article Mission-based social and ethical investing, published in our 21 September - 4 October issue, two sentences were accidentally combined and an important section left out. The section should have read: “The Old Mutual Albaraka Balanced Fund is a Regulation 28 compliant fund. It is suitable as a standalone retirement investment.” We regret the error.