Shadow over Sanlam’s Van Zyl appointment

Perhaps it is only those who recall the very old days when powerful, large conglomerates controlled much of South African business who feel some unease about Johan van Zyl’s recent appointment as Sanlam chairman.

As recently as the 1990s, five entities — Old Mutual, Anglo American, Liberty, Rembrandt and Sanlam — dominated the South African economy.

Few significant deals were done without one or other of these parties being involved.

Transactions often involved the exchange of assets between two of them.

The control structure inevitably meant little more than a handful of individuals ruled the roost and decided who bought what and for how much.

The background helps to explain why SA has been dogged by so much collusion and lack of competitiveness despite the opening up of the economy after 1994.

For all its faults and difficulties, the economy has come a long way since the National Party shuffled off stage.

But, given this historic setting, it is difficult not to see the appointment of Van Zyl as a step backwards. It is not so much because Van Zyl was CEO of Sanlam until as recently as June 2015 when he retired as CEO and as a director of Sanlam, it is because he is joint CEO of African Rainbow Capital (ARC).

ARC was set up in April 2016 with an estimated R17bn starting capital. This of course is chicken feed in comparison to Sanlam’s muscle, but ARC has stated its plan is to build a financial services company controlled by black people and spanning everything from life insurance and healthcare to money management and banking.

Surely, this sort of ambitious growth strategy puts ARC on a collision course with Sanlam. At some stage, the Sanlam board could be looking at an acquisition that might look very good in ARC’s portfolio, or vice versa.

How will the board and its chairman deal with that?

And should they have to? It is all a bit too 1980s for comfort.

Global paper and packaging group Mondi, long the darling of JSE investors, continues to shoot out the lights with its constant expansion into high-growth, consumer-focused markets. It is modernising and expanding its Steti mill in the Czech Republic, where it makes container board, sack kraft paper and speciality kraft paper.

The group has been prolifically acquiring packaging assets, and spending heavily to keep ahead in a competitive market.

It says the key benefits of the Steti project are greater electricity self-sufficiency and reducing its environmental footprint.

The upgrade will also increase pulp production, lower costs and avoid about €105m in maintenance capital expenditure over the next five years, Mondi says.

It has invested heavily in high-quality, low-cost packaging paper assets in central Europe. This has long given it big cost advantages over rivals in western Europe and the US.

It says that the new boiler and rebuilt lines are expected to start up in late 2018, while a new paper machine is expected to start up in the first half of 2019.

Mondi says capital expenditure is expected to be €600m-€650m in 2017 and €800€850m in 2018. In the six months to June 2016, it saw operating profit of €529m, rising 8% on the same period in 2015.