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This is the first time in over four decades that copper is being mined in the O’Kiep Copper District
Copper 360 announced that underground mining operations have commenced at Rietberg Mine in the Northern Cape. The target for the first month is 12,000 tonnes, which will increase over 4 months to 45,000 tonnes per month. They are targeting plant recoveries of 75% to 85%, with previous tests suggesting that 92% might be possible.
In other words, they are setting realistic targets against the backdrop of the excitement that copper is finally being mined in the O’Kiep Copper District once more. Rietberg was previously closed in 1983 and has significant copper reserves.
Copper 360 is following what it calls a Cluster Mining Model, with plans to re-open historically dormant mines in the area that have defined ore-bodies and established underground infrastructure. They have identified 12 mines and 60 historical prospects across their mining right, each with a comprehensive dataset.
You would expect the share price to jump at this update, yet it was trading 7% lower in late afternoon trade on a risk-off day for markets.
An increase in paper volumes would do wonders for them
Mpact has released results for the six months to June. It’s quite interesting to see them trying to focus on growth in the NAV in this period, which isn’t a performance metric that I would typically associate with a company like this. The real story is that revenue from continuing operations is down 1.1%, with the paper business driving the downturn.
In a business with high fixed costs like this, a dip in revenue is really problematic for revenues, especially when it comes from lower volumes. This leads to an under-recovery of overheads, with unused capacity costing money and not generating profits. Underlying operating profit fell by 20.4% for the period, suffering from the lower volumes as well as higher depreciation from major projects in 2023.
Return on capital employed for total operations fell from 18.8% to 14.4%, with capital expenditure on major projects still underway. Hopefully, the cycle will improve for Mpact as the projects are finalised, driving much better returns in future. There’s obviously no guarantee of this.
Looking deeper, Paper Manufacturing achieved flat volumes as export sales improved and domestic sales faltered. Production downtime due to disappointing demand was 13% of capacity during the period, which explains the drop in profits in the paper division. Paper Converting added to the challenge by suffering a 1.4% decline in volumes. For Paper as a whole, revenue was down 3.3% and underlying operating profit fell by 27.6% to R397 million.
The Plastics business saw revenue increase by a meaty 10.6%, with volumes up 2.7% thanks to recent product investments. Despite the substantial improvement in revenue, operating profit was only flat year-on-year. They continue to invest here, including an acquisition of a 30% stake in Africa Tanks (of the plastic water variety) for R73 million.
After a period of capital expenditure, net debt has increased significantly from R2.66 billion as at December 2023 to R3.23 billion. Net finance costs increased by 12% year-on-year. The Versapak disposal for R268 million is expected to close in the second half of 2024. Unsurprisingly, Mpact will apply those proceeds towards reduction of debt.
Despite all the feel-good stuff around the GNU and expected improvements in local conditions, Mpact still expects full year earnings to be “under pressure relative to last year” – in other words, earnings will be down year-on-year even if they have a solid second half. The Plastics business is doing the heavy lifting at the moment, with Paper suffering from lower average selling prices.
There’s still an interim dividend despite all the challenges, showing that the business is still in good shape overall. At 30 cents per share, it’s 33.3% down on the comparative period of 45 cents per share.
Like in Ghana, the business in Uganda shows what is possible
If only MTN’s story in Nigeria was anything like they are experiencing in Ghana and Uganda. Alas, Nigeria is large enough to ruin basically the entire story, even though other subsidiaries show us that there can be good reasons to do business in Africa.
MTN Uganda has released numbers for the six months to June. They reflect service revenue growth of 20.4%at a time when inflation was only 3.4%, so that’s an excellent outcome. If you can believe it, the Uganda shilling actually improved against the dollar by 2% over the six months, so it’s an particularly good result by global currency standards.
EBITDA increased by 22.4%, which means that EBITDA margin increased by 90 basis points to 51.5%. By the time we reach profit after tax, the increase is 29.7%. The cash flow story looks great as well, as capex was only 8.6% higher.
These are genuinely strong numbers, which makes the situation in Nigeria even more depressing.
The banks never wanted to own the shares anyway
Pick n Pay has released the results of its rights offer and the outcome is a great example of corporate finance in practice. In a rights offer, there are various structuring tricks available to either encourage or discourage the market from taking up the shares. It all depends on whether the underwriters actually want the shares or not.
In this case, the underwriters were the banks. They certainly didn’t want to end up owning the shares, but they needed to help support the raise to protect other exposures they might have. They were also only too happy to earn underwriting fees along the way. To encourage the market to take up the shares, the offer was at a heavily discounted price and excess applications were allowed, which means investors could take up more than their pro-rate entitlement.
If not for excess applications, only 98.7% of the rights offer shares would’ve been taken up – still a surprisingly strong outcome. Here’s the real kicker though: they received excess applications for 107.2% of the total shares being offered, which means there was vastly more demand for shares than supply. They could’ve filled the entire offer just from excess applications! Those who applied for excess shares therefore didn’t get anywhere near the full allocation they hoped for, as the remaining 1.3% had to be split among them fairly.
By all accounts, this was a successful rights offer – especially for the underwriters who ended up collecting fees without being stuck with the shares. It turns out that they were the Smart Shoppers after all.
The group has warned against extrapolating the Q1 growth rate for the full year
For the first quarter of 2024, Telkom managed to grow group EBITDA by an impressive 24.1%, a number that looks even better in the context of 3.9% revenue growth. The group is quick to point out that Q1 last year was a soft base, with much tougher comparatives for the rest of this year. In other words, don’t assume that this growth rate is going to carry on for the rest of 2024.
The Telkom Mobile business saw a particularly strong jump, with revenue up 5.3% and EBITDA up 35.7%. The number of mobile subscribers increased by 14.6% to over 21 million. As a reminder that the telecoms industry is a treadmill of note when it comes to pricing, mobile data traffic increased by 25.8% but mobile revenue only grew by 12.9%. The problem for these companies is that their services keep getting cheaper over time, rather than more expensive.
At Openserve, fixed data revenue grew 7.1% and EBITDA was up 16.8%. This is despite total Openserve revenue dipping by 2.4% thanks to voice and legacy revenue going backwards. The EBITDA performance was thanks to a huge decrease in diesel spend, as load shedding was practically non-existent in this quarter vs. the base period.
Over at BCX, revenue was up just 2.4% as this business continued to struggle. The IT hardware and software business was up 22.5%, but Converged Communications fell 3.2% as customers migrated from legacy services. EBITDA for BCX fell 8%, as the revenue growth is being experienced in a low margin area. BCXis a headache for Telkom.
As for Swiftnet, revenue increased 5.2% and EBITDA was up 7.7%. The disposal of Swiftnet is sitting with the Competition Tribunal for final approval.
On the balance sheet, Telkom is enjoying decent support in local debt capital markets and has a stable outlook on its rating by Moody’s. The expectation is for credit metrics to improve in the next 12 – 18 months.
It’s been quite the rollercoaster over the last year, with Telkom somehow finding less support in a post-GNU environment with less load shedding:
Since its debut in 2022, ChatGPT has become the fastest-growing consumer app in internet history. Its parent company, OpenAI, went from zero to more than $1 billion in revenue last year – and that’s fast even by Silicon Valley standards. You would expect this to be the startup success story of the decade, if not the century. However, the tech company that has thrown half the world into panic and the other half into giddy excitement has yet to turn a profit. And while OpenAI’s numbers are still being inked in red, competitors are catching up fast.
You can think of a first mover in any industry as a sprinter who gets a head start in a race. By being the first to introduce a new product or service, they effectively start a lap ahead of all the other runners. Their early entrance gives them a chance to build a strong brand and loyal customer base before any competitors show up. It also gives them some breathing room to fine-tune their offering, and maybe even a chance to set the market price.
However, once a first mover gets going, competitors take off from their starting blocks, hoping to get into the slipstream of that success and snag a piece of the action. If the original pioneer has a big enough head start, a solid market share and dedicated customers, or the stamina to keep innovating, there’s a good chance that they can stay ahead of the pack. More often than not, they find themselves getting overtaken eventually.
In the rush to be the first, a company might cut corners or skip essential features just to launch quickly. If the initial product doesn’t hit the mark with consumers, competitors are then incentivised to take advantage by offering something that better meets customer needs. So, while the first mover takes on the heavy lifting and risks, later entrants can often swoop in with a polished product and win over the market.
They have the benefit of hindsight, even if it wasn’t their own.
OpenAI started as a nonprofit, using around $130.5 million in donations to fund its research and development while committing to share its findings through open-source projects. But in 2019, the company shifted gears and restructured into a limited partner model, blending nonprofit and for-profit elements. They created a for-profit subsidiary that could issue equity and attract top talent, while employees working on profit-driven projects moved to this new entity.
This reorganisation allowed OpenAI to bring in venture capital, blending cutting-edge research with commercial ventures like ChatGPT subscriptions, aimed at making AI accessible and affordable. Importantly, the for-profit arm is bound to the nonprofit’s mission, with profits capped at 100 times any investment. The same nonprofit board continues to oversee all OpenAI activities.
The bulk of OpenAI’s revenue comes from licensing fees for its AI models and products. Pricing access is based on tokens, which represent the number of words generated. It also earns through partnerships, with Microsoft being the most notable partner. Microsoft invested $10 billion in 2023, pushing its total investment to $13 billion. This partnership helps OpenAI reach a broad customer base, offering API access to enterprises and developers alike. Microsoft uses OpenAI’s tech in its Bing search engine’s Copilot tool.
In just nine months post-launch, ChatGPT had been adopted by teams in over 80% of Fortune 500 companies, including big names like Block, Canva, Carlyle, The Estée Lauder Companies, PwC, and Zapier. To boost revenue further, OpenAI introduced ChatGPT Plus, a premium version of the chatbot priced at $20 per month, offering priority access to subscribers. Free users still have access, but only to older versions (like 3.5 instead of 4.0), which may experience downtimes during high demand.
OpenAI has raised a total of $13.5 billion over ten funding rounds, with investors like Thrive Capital, Founders Fund, Arrowshare Ventures, angel investor Thomas Witt, and E1 Ventures getting involved. The company also supports AI startups through its $100 million OpenAI Startup Fund, launched in May 2021, offering consulting and product commercialisation help.
It all sounds great on paper, but despite generating more than $1 billion in revenue in 2023, OpenAI hasn’t yet turned a profit. The development of ChatGPT-4 alone reportedly cost $540 million.
If OpenAI does reach profitability, Microsoft will first recover its investment with a 75% share of the profits and will then receive a 49% share up to $92 billion in profits. As of December 2023, OpenAI was in talks to raise new funding, potentially valuing the company at $100 billion, up from an $86 billion valuation earlier in the year. Co-founder Sam Altman is also exploring up to $7 billion in funding to invest in semiconductor infrastructure to support the AI industry’s growing needs.
OpenAI may have been first out the gate, but whether or not it has the legs to stay in the lead remains to be seen.
Jumping into the game early comes with a hefty price tag. For OpenAI, creating ChatGPT meant pouring a ton of resources into research and development. This kind of investment can put a lot of pressure on a company, especially when competitors can simply mimic the technology at a fraction of the cost. The stats speak for themselves: various online sources suggests that it costs approximately 60% to 75% less to replicate an existing product than it does to create a new one. In the case of OpenAI, this means that even with substantial revenue, profitability remains a distant goal, given the massive upfront costs. Meanwhile, competitors like Copilot (created with OpenAI’s own technology) and Llama are free to innovate from a much smaller cost base.
One of OpenAI’s biggest challenges has been keeping up with and anticipating regulations around data privacy, AI ethics, and misuse of technology. As the first mover, they often face the brunt of regulatory scrutiny, making them the guinea pig for policymakers figuring out how to handle new tech (not to mention the recipient of multiple lawsuits). The rules aren’t always clear, and the stakes are high. A company in this position needs to move with extreme caution, often slowing down to ensure compliance, while competitors can watch and learn from their experience.
Continuously rolling out new versions like GPT-4 is exhilarating but also exhausting. It’s a relentless cycle of development and improvement to stay ahead. Keeping the excitement alive while managing expectations becomes a constant balancing act. While innovators have run a hard race already, competitors with fresher legs are able to execute on their ideas with greater speed and efficiency.
Securing funding as a first mover is often a challenging feat. Investors tend to be cautious with unproven innovations, opting instead for projects that have already demonstrated viability. OpenAI had to overcome this scepticism, convincing backers that their advanced AI technology was more than just a fleeting trend. And, truth be told, the full potential of their innovation is still being debated. Even with heavyweights like Microsoft on board, there’s no guarantee that future funding rounds for the next iteration of GPT will be smooth sailing. On the other end of the spectrum, competitors who have built on OpenAI’s foundational work might find it easier to attract investment, as the technology’s market acceptance has already been established.
So, is there a lesson to be taken from the trials and tribulations of ChatGPT? Having done the research, I would say this: being recognised as a creative genius is nice, but for most businesses, making money is even nicer. Beware of the lure of pioneering – the world needs new ideas, sure, but how many of those are still around (remember that article on Stigler’s Law)? Far more profitable, in my opinion, to refine an existing idea based on consumer feedback than to risk it all on invention and still be overtaken.
Perhaps the greater question, which I will leave unanswered, is why we remain motivated to keep creating new things, despite these clear risks. Maybe it’s because we know that between pioneering and profiteering, there’s only one that truly moves the world forward.
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.
Dominique can be reached on LinkedIn here.
A trading statement for the six months to June has been released
Curro has guided the market on earnings for the six months to June. When it comes through as a trading statement, you know that the percentage difference is at least 20%.
In this case, the difference might be as high as that, but won’t quite reach that point based on the mid-point of guidance. For the six months to June, HEPS is expected to be between 10.9% and 21.3% higher.
Curro has been operating in tough conditions in the past couple of years. A recap of HEPS over the past few interim periods shows that they have finally recovered to 2020 levels. They are still a long way off 2019 levels, a time before Covid caused much pain:
It’s been a long slog for the company in the post-pandemic period, with equity capital raised along the way that has made it more difficult to recover earnings on a per-share basis. Here’s the share price over 5 years:
At least lawyers will be making money here, even if nobody else will
In May 2024, Mantengu Mining announced the acquisition of Birca Copper and Metals for just under R30 million. This is a high grade chrome ore business in the North West Province. The mining area is the subject of a mining right granted to a company called New Venture Mining Investment Holdings, which is in force until 2045.
A prerequisite for the deal was for New Venture Mining to transfer the mining right to Birca Copper and Metals, otherwise Mantengu Mining would simply be walking into a potential disaster. There’s now high drama, with New Venture Mining claiming that Birca Copper and Metals has breached certain terms of their relationship and thus New Venture Mining is cancelling the mining right agreement with immediate effect.
Naturally, this means that the Mantengu acquisition of Birca is dead, which would be fine if it wasn’t for how much effort has already gone into the deal. Mantengu is going to engage with New Venture Mining to try and find a workable solution. If they can’t, then the lawyers will have to work to cancel the acquisition agreement and restore Mantengu as near as possible to the status quo ante.
In dealmaking, the golden rule is that no deal is ever complete until all conditions have been satisfied. The more complicated the deal, the higher the likelihood of disappointment.
Half-year results are now available
AB InBev released results for the second quarter, which means we have half-year results available as well. For both the second quarter and the six months, revenue was up by 2.7%. Volumes dipped, so it was pricing that took this into the green. This also explains why EBITDA margins have improved, as pricing power is important for protecting and improving margins.
For the half year, normalised EBITDA margin expanded by 165 basis points to 34.4%. The momentum over the period was strong, as second quarter margin was up 236 basis points to 34.6%. For the half, normalised EBITDA was up 7.8%.
Underlying earnings per share for the half improved by 21.2% to $1.66. Diluted HEPS was up 33.7% to $1.31.
Net debt to normalised EBITDA was 3.42x, which is an improvement from 3.70x a year ago but slightly worse than 3.38x as at 31 December 2023.
Looking ahead, the expectation for the full year result is for EBITDA growth to be in line with the medium-term outlook of 4% to 8%. That’s a very wide range, suggesting that they aren’t confident enough at this point to give more specific guidance. So far, so good at least in terms of hitting the top of that range for the first half.
Losses are much worse than in the comparative period
ArcelorMittal has released numbers for the six months to June and they aren’t pretty, with revenue down by 3%. That may not sound bad, but in a business with such high fixed costs, it’s a disaster. The headline loss per share came in at 150 cents, which is far worse than 40 cents in the comparable period.
Net borrowings moved 26.9% higher to R3.8 billion. That’s also a lot higher than R3.2 billion at the end of December 2023. Unsurprisingly, the net asset value of the group has taken a major knock, down 42% in the past 12 months.
It’s also important to note that EBITDA margin was negative, so this loss isn’t being driven by things like depreciation or finance costs. There’s a core problem in the business model in this environment. They are trying to save 3,500 direct jobs and 80,000 more in the value chain for the longs business, but these losses can’t carry on forever. Sales volumes were down 2% for the period thanks to weak demand and realised rand steel prices were down 3% for the same reason. To make it worse, the raw material basket increased by 3%.
Worst of all, China’s domestic steel consumption is expected to remain weak in 2024, putting pressure on steel prices globally. What ArcelorMittal needs more than anything else is for the South African construction industry to pick up. Plant capacity utilisation is all the way down at 60% and you can see in these numbers what the effect of that is. For the second half of 2023, it was up at 68%.
This is perhaps the bravest punt of all for a GNU environment of renewed investment in South Africa, but be very careful of the risk.
The company has attracted the eye of potential acquirers
Capital & Regional has announced its results for the six months to June. They look great, with net rental income up by 17.1%. The Gyle acquisition is part of this, so be careful of comparability. As we saw with Shaftesbury earlier in the week, valuations have also ticked higher – in this case, by 0.8% on a like-for-like basis.
The 17.1% increase in adjusted profit hasn’t translated into dividend growth though, with the interim dividend up by 3.6%.
It’s also worth noting that net asset value per share moved slightly lower, reflecting the impact of shares issued under the scrip dividend. The dilutionary impact of scrip dividends shouldn’t ever be ignored. The funds may retain cash, but they issue more shares along the way.
On the debt side, the loan to value has reduced to 43% from 44%, with around 80% of debt hedged for the next two and a half years.
NewRiver has until 15 August and Praxis has until 16 August to either announce a firm intention to make an offer for Capital & Regional, or announce that they do not intend to make an offer.
Trading has been in line with expectations
The paper and packaging industry is notoriously cyclical, so profits will rise and fall accordingly. It’s important to remember that earnings “in line with expectations” is no guarantee that they went up. The expectation could’ve been for them to drop, as we’ve seen in the six months to June 2024.
Mondi’s underlying EBITDA is down 17% for the six months to June. Revenue was only down by 4%, so EBITDA margin has deteriorated from 17.5% to 15.1%. Notably, cash generated from operations fell by 33% and net debt to EBITDA increased from 0.8x to 1.5x.
Despite this, the interim dividend has been left flat at 23.33 euro cents per share. They also paid a special dividend earlier in the period of 160 euro cents per share, linked to the proceeds from the Russian disposal.
The good news is that there was promising momentum over the period, with the benefit of price increases expected to be felt in the second half of the year. Be careful though, as they are planning more maintenance shutdowns in the second half and they expect to realise a forestry fair value loss.
Things should get considerably better from 2025 onwards, when the full benefit of the investment programme will be felt. With return on capital employed of only 10.8% in this period, shareholders will be counting on it.
It’s taken a few years to get this right
Back in 2021, Mpact decided that selling Versapak would be the right way forward, as the business isn’t a strategic fit with the rest of the group. It’s taken around three years to reach the point where a deal has been announced, which shows you just how long disposals can take.
Greenpath Recycling, a subsidiary of Sinica Manufacturing, has agreed to acquire Versapak for R268 million. There will be some adjustments to the price for stock on hand and employee liabilities at the effective date of disposal. The net asset value as at December 2023 was R239 million and profit before tax was R101 million excluding fair value gains. At a normalised tax rate, there’s an after-tax profit of around R74 million. This implies an earnings multiple for the disposal of around 3.6x. Much as Versapak might not be a strategic fit, it’s debatable whether they should be selling at that price.
The disposal excludes all cash, debtors and creditors, so Mpact is responsible for wrapping up most of the working capital. It also excludes two properties, which I found surprising. The purchaser will lease these properties from Mpact. I can’t think of why Mpact would want to own the properties, so I suspect that the purchaser was simply unwilling or unable to acquire the properties as well.
One of the properties is in Paarl and the other is in Gauteng. Sinica is based in Gauteng as well. Versapak is focused on styrene and PET trays, while Sinica is focused on plastic packaging products. These things are different enough that there hopefully won’t be any Competition Commission hiccups, with a planned effective date for the deal in the fourth quarter of 2024.
Interestingly, the purchaser still needs to obtain the debt funding for the deal. Mpact seems confident that the guarantee from parent company Sinica is strong enough though. The full purchase price is payable on closing date and Mpact will put the proceeds towards settlement of debt.
And growth is ahead of inflation
After the terrible numbers from MTN Nigeria earlier in the week, it was good to see decent numbers at MTN Ghana. Importantly, growth in service revenue for the six months to June of 31.2% is well ahead of average inflation for the period of 23.9%. The other good news is that EBITDA is up 31.3%, so EBITDA margins have been maintained at 56.1% and there is real growth in profits (growth ahead of inflation).
MTN Ghana is separately listed and has increased its dividend by 30%, so the earnings are being backed up by higher cash flows. They are investing heavily though, with capex excluding leases up by 68.3%.
In further good news, a reduction in debt led to a decrease in net finance costs of 44.9%.
And perhaps most impressively, the Ghana cedi depreciated against the dollar by 22.3% over six months, which is lower than the EBITDA growth. In other words, there was genuine growth in dollars.
These numbers are better in every way than what we saw out of Nigeria. Sadly, Ghana isn’t big enough to rescue MTN’s Africa story.
Exchange-Listed Companies
Following Mpact’s 2021 strategic review, its subsidiary, Mpact Operations has disposed of its Versapak division. The division was sold to Greenpath Recycling, a subsidiary of Sinica Manufacturing, for R267,75 million. Versapak produces styrene and PET trays and punnets as well as vinyl cling film out of its two plants in Paarl and Gauteng. Mpact will be apply the disposal consideration towards the settlement of debt.
Sabvest Capital has concluded an agreement with Amsterdam-based Solevo MEA to sell its 24.66% stake in agri-chemical firm Rolfes for R179,5 million. Once finalised, Solevo will dispose of 12.5% of its newly acquired stake in Rolfes to Afropulse who will be Solevo’s local partner.
BHP Investments Canada (BHP) has agreed to jointly acquire 100% of TSX-listed Filo Corp. Filo Corp owns 100% of the Filo del Sol (FDS) copper project. BHP will pay US$2,05bn for its stake. BHP and Lundin Mining have also agreed to form a 50/50 joint venture to hold the projects – FDS and Josemaria (owned by Lundin) located in Argentina and Chile. The joint venture will create a long-term partnership between BHP and Lundin to jointly develop an emerging copper district.
Zeder Financial Services (Zeder Investments) holds an 87.1% interest in Zeder Pome Investments which in turn holds 100% of Capespan Agri (CS Agri) which comprises three primary farming production units in addition to the Paarl-based operation Novo Fruit Packhouse. CS Agri is to dispose of the Novo Fruit operation, which comprises the cooling facility business and packhouse, to Dutoit Agri for a disposal consideration of R195 million, plus stock-on-hand of c.R5 million. The disposal is consistent with Zeder’s strategic review and its initiative to maximise wealth for shareholders.
Rex Trueform has entered into a subscription agreement with the remaining shareholders of Belper Investments to subscribe for additional shares in Belper. Rex Trueform first acquired an initial stake in the property company in 2022 and as part of the transactions, the company advanced a loan of R19,7 million to fund the acquisition of a portfolio of industrial properties. A further loan of R1 million was made in 2023. The consideration payable by Rex Trueform for the subscription of shares will be the extinguishment of the debt owed by Belper which amounts to R27,37 million. Rex Trueform’s interest in Belper will increase by 18.35% to 72.03%.
Sebata has alerted shareholders to the termination of transactions with Inzalo Capital. In August 2019 the company disposed of a 55% interest in the companies comprising the ‘Water Group’ namely USC Metering and Amanzi Meters and the donation of a 5% interest in the Water Group to Inzalo. In February 2020 Sebata disposed of the 55% interests in the companies comprising the ‘Software Group’ namely Sebata Municipal Solutions, R-Data and MICROmega Accounting and Professional Services and the donation of 5% interest in the Software Group. These transactions have been terminated as Inzalo Capital has not met its obligations in terms of the achievement of certain profit warranties. Sebata has, as a result, regained ownership of the equity interests originally disposed of and donated to Inzalo.
Unlisted Companies
The Mahela Group, a leading citrus and avocado producer and ZZ2 Group, a leading avocado and tomato producer, are developing a 400-hectare avocado and citrus farming operation in Weipe, Limpopo. The Skutwater project, as it is known, will see the current combined orchard size increase from 190 hectares to 400 hectares under the first phase with a potential to expand to 1,500 hectares in the second phase. There are also plans to develop expansion opportunities in neighbouring countries. AgDevCo, a specialist investor in African agriculture will take a minority equity investment.
Pepsico SA is to sell its spreads and savoury food ingredient business to Anchor Yeast, the South African unit of Canadian Lallemand International. Financial details were undisclosed.
Thebe Investment, a black-owned investment management company acquired a further 40% stake in Pride Milling earlier this year. Hybrid Capital, a division of Old Mutual Alternative Investments provided the funding to Thebe to facilitate the acquisition.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
Orion Minerals has issued 23,675,000 new shares at an issue price of A$1.5 cents, to Webb Street Capital for the provision of professional services to Orion in South Africa.
Lighthouse Properties has, on the open market, disposed of a further 111,070,447 Hammerson plc shares for an aggregate cash consideration of R765,63 million.
Listed company Ellies Holdings has been placed under final liquidation while its operating entity Ellies Electronics remains in business rescue.
The JSE has advised shareholders of Sebata that the company has failed to submit its annual report within the four-month period as stipulated in the JSE’s Listing Requirements. If the company fails to submit its annual report on or before 31 August 2024, its listing may be suspended.
A number of companies announced the repurchase of shares:
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 414,634 shares at an average price of £27.32 per share for an aggregate £11,35 million.
In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased a further 7,452 ordinary shares on the JSE at an average price of R19.11 per share and 352,595 ordinary shares on the LSE at an average price of 82.25 pence. The shares were repurchased during the period 22 – 26 July 2024.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 22 – 26 July 2024, a further 2,772,135 Prosus shares were repurchased for an aggregate €89,04 million and a further 288,256 Naspers shares for a total consideration of R999,78 million.
Four companies issued profit warnings this week: Sea Harvest, Sebata, Merafe Resources and Woolworths.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
DealMakers AFRICA
Egyptian fintech MNT-Halan has acquired Tam Finans in Turkey from Actera Group and the European Bank for Reconstruction and Development. Tam Finans is a commercial finance company with a loan booking exceeding US$300 million. Financial terms were not disclosed.
Sweden’s development finance institution, Swedfund, has invested US$10 million in the Inside Equity Fund II which looks to support SMEs in Zambia, Madagascar, Mauritius, Tanzania, Malawi and Mozambique.
Silicon Badia and Hub 71 have led a US$2 million investment in Egyptian AI startup, Synapse Analytics. The funding will be used to expand the company’s AI technologies across the Gulf Co-Operation Council (GCC) and Africa.
Cartona, an Egyptian B2B e-commerce platform, has raised US$8,1 million in a Series A extension round led by Algebra Ventures and including existing investors Silicon Badia and the SANAD Fund for MSME. Cartona connects small retailers, FMCG producers, wholesalers and distributors on its platform.
Intron Health, a Nigerian clinical speech-recognition startup, has raised US$1,6 million in pre-seed funding. The round was led by Microtraction, and included Plug and Play Tech Center, Jaza Rift, Octopus Ventures, Africa Health Ventures, OpenSeedVC, Pi Campus, Alumni and Angels, BakerBridge Capital, Google, ClEAR, NYU, and Optum. The funding will be used for its AI technology, with a focus on perfecting noise cancellation and handling multi-speaker conversations.
Egyptian edtech, Educatly, has announced a funding round of US$2,5 million led by TLcom Capital and Plus VC. The round also included Egypt Venture and the HBAN syndicate.
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When a director’s actions are not aligned with the company’s best interests, it can lead to reputational risks for the company itself, as well as the other directors involved.
In the decision of Denton v Overstreet (CT01531ADJ2023) (1 February 2024), the Companies Tribunal took a decisive stand on the removal of a director as a result of a breach of their fiduciary duties towards the company.
The procedure to remove a director has not always been clear, as the courts, as well as the Companies Tribunal, have not been consistent in their application and interpretation of the legal principles governing a director’s removal. The decision of Denton v Overstreet (CT01531ADJ2023) (1 February 2024) (Denton case) provides some clarity, at last.
Companies Act: statutory removal of a Director
The provisions relating to the removal of a director have been codified in Sections 71(1), 71(2) and 71(3) of the Companies Act 71 of 2008 (Companies Act).
Prior to the Companies Act coming into force, a director’s duties were regulated in terms of the common law. The Companies Act codifies and extends the common law principles, in that Section 76 of the Companies Act provides for an increased standard of conduct expected from directors, compelling them to act honestly, in good faith, and in a manner which they reasonably believe to be in the best interests of, and for the benefit of, the company.
Directors are entrusted with a fiduciary duty to use their authority and perform their roles honestly, in the company’s best interests, and with the expected level of care, skill and diligence. In terms of Section 77(2)(a) of the Companies Act, should they fail to meet these obligations, a director may incur personal liability for any loss, damages or costs sustained by the company as a consequence of any breach of their fiduciary obligations, and it may be necessary to remove them from their position.
The Companies Act outlines procedures for the removal of directors by the board of directors of a company, the Shareholders of the company, and removal by an authorised judicial body. The board’s ability to remove a director is restricted to the ‘closed list’ of specific grounds, which include the director’s ineligibility, disqualification or incapacity, or neglect of their fiduciary duties. Conversely, the shareholders and the relevant authorised judicial bodies are not constrained by a ‘closed list’ of specific grounds for director removal under the Companies Act, and rather have an ‘open list’, which is in line with the basic corporate governance principles that directors are appointed at the discretion of the shareholders.
Removal in terms of sections 71(1) and 71(2): procedural importance
Section 71(1) of the Companies Act provides that “a director shall be removed by an ordinary resolution adopted at a shareholders meeting by the persons entitled to exercise voting rights in the election of that director”. The judiciary and the Companies Tribunal have long since emphasised the importance of following the correct procedural steps to remove a director, which are as follows
• a shareholders’ meeting must be convened to vote on the director’s removal. Section 61(3) of the Companies Act provides that the board can convene a shareholders’ meeting if a formal request is submitted to the company. Should the board neglect its obligation to call a meeting, the shareholders’ recourse is to petition a court, under Section 61(12) of the Companies Act, to compel the board of the company to schedule the meeting;
• it is mandatory to notify the director concerned of the proposed shareholders’ meeting and provide them with the proposed resolution for their removal. The period of notice should match the one that a shareholder is entitled to when a shareholders’ meeting is called. The shareholders may not vote on the resolution to remove the director unless such director was notified of the shareholder meeting;
• the reasons for the director’s removal must be provided to the affected director in sufficient detail; and
• the director must be afforded the reasonable opportunity to make representations on their impending removal.
Any deviation or failure to apply the Companies Act’s procedures could result in the review and potential reversal of the director’s removal by the authorised judicial body.
Removal in terms of section 71(3): procedural importance
The board and shareholders have the power to dismiss a director, only if there are at least three directors in the company. As seen in the Denton case, where a company has fewer than three directors, the board cannot remove a director; instead, the removal procedure must be facilitated by the Companies Tribunal.
In the Denton case, the Companies Tribunal sanctioned the director’s removal in terms of Section 71(3) because the director concerned was found to not have acted in the company’s best interests. The director concerned was removed, in terms of Section 71(3), as the Companies Tribunal found that the director’s non-deliverance of promised funding to the company, post utilisation of the company’s services and connections, jeopardised its financial well-being and thus amounted to a breach of the concerned director’s fiduciary duties towards the company. Therefore, it is imperative for directors to meticulously follow and align their actions with the provisions of the Companies Act, in order for their actions not to be construed as a breach of their fiduciary obligations towards the company, resulting in removal from the office of director.
Additional considerations
In following the procedure set out herein, to remove a director from office, certain additional considerations should be borne in mind, such as the following:
• Per the Companies Act, all director elections, appointments and removals are to be timeously filed with, and processed by, the Companies and Intellectual Property Commission.
• From a labour law perspective, if a director is also an employee of the company, removal of said director can involve certain nuances that should be considered in order to mitigate any claims against the company. A suitably qualified legal professional should be approached to facilitate the removal of a director, especially if it becomes apparent that there will be an intersection in the law that applies to the removal of a director.
Tessa Brewis is a Director, Jamie Oliver an Associate Designate, Deepesh Desai an Associate and Ashleigh Solomons a Candidate Attorney, Corporate & Commercial | Cliffe Dekker Hofmeyr.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
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