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DISMISSAL!
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TRAVELLING WITH RICHARD QUEST
CONTINUE ADVERTISING!
ARE RESTRAINTS OF TRADE ENFORECEABLE?
BEE – NECESSARY EVIL OR ECONOMIC JUSTICE?
August / September 2009 Vol.14 No.4 R33.00 (incl. VAT) Other African Countries R28.95 (excl.tax)
CONTENTS
Management 10
• BEE: Necessary evil or economic Justice? FEATURES
• The business of sport
• Private Equity 24
Legal 16
• Facebook – Do you risk dismissal? • Business Software 64
• Rules of the tendering game
Tax 20
• The upside of tax losses GIVEAWAYS 5
• Pain-free returns
• Dell Inspiron Mini 9
Finance & Equity 40 • Handpresso
• King III: Comply vs Apply
• Restructuring in a downswing
PUBLISHER
James Scott
Assets & Investments 44
• Golden year planning EDITOR
• Beating the market Graeme Swinney / editor@busbrief.co.za
FEATURES EDITOR
Banking & Insurance Cheryl Reddy / features@busbrief.co.za
50
• Trim your insurance bill CONTRIBUTORS
• HIV programmes Please see Contributors Pg 80
OFFICE MANAGER
Jenny Horsman
Marketing & Selling 54
• Continue advertising ADVERTISING SALES
• Don’t lose your voice! James Scott / busbrief@icon.co.za
Paul Vos / paul@africantime.co.za
Justin Lavers / justin@africantime.co.za
Human Capital 58 DESIGN & LAYOUT
• Are restraints of trade enforceable? Design Bandits
• Chair sanction overturned Bryan Maron / bryan@designbandits.co.za
Tel: 083 460 3633
COVER DESIGN & CONCEPT
Information Technology 74
James Scott
• Selecting your ISP Bryan Maron
• Black or white?
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United Litho (JHB)
Tel: (011) 402 0571
SETS &
STMENTS
I
TAX
EDITOR’S NOTE
N CAPITAL INFORMATION TECHNOLOGY BANKING & INSURANCE
HC IT B& O
HUMAN CAPITAL
TECHNOLOGY
INFORMATION
CPD/E
INSURANCE
BANKING &
popular travel and business presenter. We are excited to launch
The following in this edition the first of his articles on business travel. Richard
I
bodies, subject
is the host of CNN’s monthly Business Traveller programme and
to individual
requirements, hour-long weeknight business show Quest Means Business. He
have accredited has worked in broadcasting for more than 20 years covering
BusinessBrief international financial markets, key world events and travel. We
for purposes of
CPD/E (Continuing
hope that readers enjoy Richard’s canny observations and wry wit.
Professional
EL & LEISURE Development/ BRIEFCASE The BusinessBrief team would like to extend a hearty welcome to
SEMINARS & CONFERENCES
Education) new readers from the South African Black Entrepreneurs Forum
(SABEF), with whom the publication has formed a partnership,
S&
T&
B
and The Association of Business Executives South Africa (abeSA),
CONFERENCES
SEMINARS &
BRIEFCASE
development programme.
L
The Association of
C
Business Executives
South Africa
A further introduction is necessary: We are delighted to welcome
Cheryl Reddy to the BusinessBrief team. She joins us as our new
features editor and will be writing the features that appear in each
edition.
URE EDITOR’S NOTE CONTACTS
As readers will no doubt be aware, social networking, and Facebook
in particular, has enjoyed a phenomenal increase in use around
F E C
the world over the last number of years. It is not surprising then
EDITOR’S NOTE
This edition’s first feature looks at Private Equity (PE) and considers what role the sector is playing in these times
of economic uncertainty. Not surprisingly PE activity has slowed dramatically around the world this past year. In
South Africa, however, while the mega deals are no longer in evidence, smaller deals are still popular and PE
remains an important contributor to the SA economy.
Business Software has become such an important part of our everyday work lives that most of us do not think
much about its role in our work anymore. But for many companies today, the selection of software solutions can
be the difference between business success and failure. Our second feature looks at some of the issues facing
management when making software implementation decisions.
Big punch in a
small package
Acer Veriton N260G desktop
The Acer Veriton N260G business desktop is a small form factor PC that
offers an optimal blend of efficiency and performance. This business
desktop uses an Intel Atom Processor N280 processor and Intel GN40
Express Chipset to deliver enterprise-class performance in a slim, space-
saving PC. The small but powerful Atom Processor is an extremely
energy-efficient solution that delivers great performance and low
electricity consumption. Despite its small size this little desktop offers
all the advanced manageability, security and performance features one
would expect from a business computer.
GIVEAWAY winner of last edition’s Polycom Communicator C100s. Your prize will soon
For a chance to win the Dell Inspiron Mini 9 from DCC and/or the be delivered to you by Southbird courier service.
Homeline Direct Handpresso please send an email or postcard (one
entry per person per Giveaway) with your name, physical address and Southbird courier and freight service delivers the prizes to
the Giveaway winners in each edition of BusinessBrief.
telephone number marked “DCC/BusinessBrief Competition” and/or
“Homeline Direct/BusinessBrief Competition”. Please note that this For further information on SouthBird contact:
competition is only open to our South African readers.
Email: editor@busbrief.co.za Tel: 086 161 5555
Postcard: PO Box 1546, Parklands, 2121 Cell: 082 667 7277
Closing date: Friday 11 September 2009 Emergency: 076 601 2609
Email: info@southbird.co.za
Congratulations to Yasmin Mall of Robertsham, Johannesburg, who is the Web: www.southbird.co.za
Stay Connected
Dell’s Inspiron Mini 9 from
Drive Control Corporation
Stay connected to your world wherever you go. Dell’s Inspiron Mini 9 is small, virtually
weightless design lets you travel light while keeping up with your e-mail, blog, video
chat and instant messenger so that you’re never out of touch. Dell Mini9 gives you
the freedom to live.
ReQuest
Air travel –
Keep it safe
T he crash of the British Airways 777 at LHR last year brought it home to me.
Although flying remains one of the safest forms of travel there are still risks
involved and it is our responsibility to remember how to look after ourselves in a
crisis. For instance, when did you last read the safety instructions left lying, gathering
dust, in the seat back pocket?
The 777 from Beijing lost power minutes from landing at London Heathrow, the pilot
skilfully glided the plane on the grass... the cabin crew got the passengers out and by
all accounts it was a textbook evacuation. (Much more worryingly they still don’t know
why the engines refused to obey the pilot’s commands for more power... worrying
indeed since the 777 is the backbone of oceanic travel.)
It gave me the jolt I needed to start paying attention again to the safety
announcements at the start of each flight. I had become one of those regular too-
clever-by-half travellers given to making huge sighs of “do I have to listen to this again”
and then noisily picking up a newspaper, pointedly ignoring the flight
attendant demonstrating the oxygen mask…
The opposite is also true: if you know what to do you stand a very good
chance of surviving!! For instance, in 2005 the Air France A340 crash
in Toronto when the plane ran off the end of the runway and ended up in a
ditch, was another case of everyone doing what they should. To view the pictures
the inferno suggested horrendous loss of life, (even more so since some of the
emergency slides didn’t automatically deploy) but because crew and passengers
alike knew what to do everyone survived. The same could be said for the China
Airlines 737 which caught fire shortly after arrival in Naha city in August 2007. Just
moments before the plane exploded, all onboard escaped safely via the emergency
chutes.
That’s not to say I believe all the safety rubbish thrown at us; for
instance the lifejacket demonstration.
Safety sounds sensible and therefore boring. It’s like the old advice Finally, I won’t
given to turn off the gas if you’re going on holiday, or lag your name the airline
water pipes in winter... And it’s true those announcements involved, but please,
can sometimes be interminable as they drone change your safety
on about what happens if you “tamper video... the people in it are smiling as
with, destroy or interfere with” the if a quick dose of emergency oxygen was just what
lavatory smoke detectors. But they’d been looking for... Safety is a serious issue.
at the end of the day it is And it’s my responsibility to do my bit. I am not so
my skin and I want to altruistic that I care too much if the other passengers
keep the blood get out safe and sound…this is all about ensuring I get
running out, preferably ahead of them!
on
Steeped in history
Franschhoek’s Allée Bleue Wine Estate
In response to the frequent requests by guests to linger Dressed in cooling hues of blues and whites, the décor is the
longer after a visit to the estate, the Estate recently opened epitome of understated elegance that includes an international
a Boutique Hotel. This deluxe addition to Allée Bleue includes collection of contemporary art adorning the farmhouse walls.
two en-suite bedrooms, a large living area with an outdoor
veranda overlooking the estate vines. Ideal for bridal couples Exclusive butler and chef services are on hand to ensure the
and business VIP’s, the restored historical Boutique Hotel is a most memorable of stays. When not dining at the Cottage,
contemporary mix of old and new. Current renovations of the guests may chose the relaxed but chic ambience of the Allée
estate’s historic manor house are paving the way for a chic Bleue Bistro or sample the many renowned restaurants of the
boutique hotel that is due for launch in 2010. Franschhoek Valley.
Allée Bleue Estate has been superbly restored and houses Kendall Cottage is the first phase of the Estate’s luxury
state-of-the-art conference facilities. Varying in size, the accommodation future offering. By mid 2010, a total of
conference rooms cater for executive boardrooms, advanced seventeen stylish suites will be completed using the existing
training facilities, product launches and corporate retreats. and historic collection of manor houses that dot the Estate’s
In addition to its world class conference facilities, the venue stunning landscape. A fine-dining restaurant will also be
can host a special event or celebration beneath its 220- opened to residents and day visitors.
seater free-form tent that is anchored to the famous 1 000-
year-old olive tree. For reservations call 021 874 1021 or email
info@alleebleue.com. For further information on
Allée Bleue Estate visit www.alleebleue.com.
Administering economic
justice after forty years of B EE has been seen on the one hand
as an ethically just initiative to
compensate previously disadvantaged
(BBBEE) Act which is a more integrated
policy integrating all previously
disadvantaged individuals including
oppression is indeed a heavy
individuals, and on the other hand as a disabled, small and medium businesses,
task. BEE policy has become
pragmatic strategy that undercuts the rural communities, trade unions and
central to administering notion of merit. workers.
justice in a legislative
environment. However, BEE began as a ruling that propagated
since its conception, the the participation of black people in the
authenticity and relevance of economic mainstream. This was aimed
Black Economic Empowerment to allow for black people who were We need a nation
previously deprived of opportunities to
(BEE) has come under scrutiny.
assume positions which would rebut the that works to
previous lack. However, a ruling which
gives a certain percent of employment achieve excellence
Prof Mthuli Ncube, to black individuals, irrespective of
Executive Director, merit implications, can be counter-
Wits Business School and President, productive.
South African Business Schools Association
However, even still, implementation
The core essence of justice is in a just manner is unfortunately
challenged at the thought of a white an ideal. BEE and BBBEE is great in
individual who meets the given criteria, theory, but in reality some see it as
but is shunned because of his skin ‘cutting the proverbial economic pie in
colour. The question then arises; can smaller pieces.’ (http://www.inside-
previous injustices be set right by the south-africa.blogspot.com/ ). What we
same system? essentially want moving forward is to
grow the pie.
Evidently, the BEE debate is a
delicate one. In its BEE strategy Another criticism is that BEE is only
document, the Department of Trade beneficial to the marginal elite. Some
and Industry states, “No economy believe that it ignores the cries of
can grow by excluding any part of the average and below average black
its people, and an economy that population. In his article entitled,
is not growing cannot integrate all “BEE Fuelling Economic Revolution,”
of its citizens in a meaningful way,” (Financial Times, May 2006), Jim
As such, this strategy stresses a Sutcliffe, former CEO of Old Mutual
BEE process that is associated with says that according to the South African
growth, development and enterprise Advertising and Research Foundation,
development, and not merely the “Nearly half a million black adults
redistribution of existing wealth. moved into the middle income bracket
in 2006 … [The] number of black people
Set out in those words, in the upper brackets grew 30% and the
the idea of a broad proportion of blacks in the top income
based policy seems bracket is now 20%, up from close to
concrete. Whether zero a decade ago.”
South Africa is
administering this Sutcliff explains further, “This was
in a ‘broad based’ perhaps inevitable as businesses
manner is the key scrambled to find what they considered
question. Born out to be bankable and ‘connected’ partners
of this debate is as a new era dawned.” He also
the Broad-Based mentions that this has lead to a growing
Black Economic culture of entrepreneurship in South
Empowerment Africa, which was required.
It gave “some of the brightest black brains” the opportunity and restoration, but it is certainly not an indefinite solution.
to open their own businesses and build our nation as opposed South Africa is synonymous for its stance in restoring justice,
to joining the never ending political struggle for justice. and it would only make sense for us to play the field in a
Companies, (both black and white) have according to Sutcliff clean and merit driven manner from here onwards.
benefited largely from the BEE policy:
Also, rewarding individuals on the basis of colour encourages
“Empowerment deals such as the ones announced by De an apathy that breeds mediocrity. Black individuals have been
Beers, Merrill Lynch and my own company over deprived of a holistic quality education. How can they be
the past year are increasingly the norm. assisted if they are deprived (yet again), of the
Beneficiaries will own a growing stake prime lesson of hard work? How can we
in these companies’ South African breed a nation that does not settle
subsidiaries. They include for mediocrity but instead works
employees, customers, to achieve excellence at all costs?
emerging businesses as This places employers in a
well as strategic black particularly tough situation
business partners who when hiring people who
bring real bottom-line will make a contribution
value to the table to an organisation, but
and are rewarded are not considered BEE
accordingly,” said candidates. As South Africa
Sutcliff. sees the change of guard in
the reigns of leadership, the question
The gap between rich and on all our minds remains, what is the next
poor still stands, however. It step to administer justice? After much
also seems the gap between the exploration, the voice of the people is
black rich and black poor is widening. what should dictate the outcome. Should
In this light, others have the perception we not focus on entrepreneurship? How
that BEE was good while it lasted, but it is now about the rural poor? How are they being
time to move on. We have seen its effects in reparation catered for?
are the most important components to ensuring success. All members of staff from factory floor to management
are skilled and need to continually upskill themselves to
Current performance is, no doubt, affected by retrenchments, improve performance. In addition, each employee needs to
hiring freezes, budget cuts and the loss of customers. However, understand the business processes and the value that they
companies with leaders who understand the overall business and individually bring to the company. Enabling staff to determine
are always considering the bigger picture can still perform well. their own performance on a daily basis contributes to their
general understanding of the bigger picture and allows them
The organisation has changed and will need to continue to see the value that is generated from what they do.
to change in order to adapt to the new market place.
Leaders must adapt the company’s vision, mission and A company is a complex system, just like an orchestra.
goals to meet these new conditions, even if the company Each action, employee and resource of the company works
is smaller and is aiming at a smaller customer base. together towards a common goal, and thus they all affect
one another. Relating that analogy to a company means that
These managers, CEOs and directors are responsible, the basic business processes, and more importantly the
not only for setting these goals, but also in value that each step adds, need to be understood. These
communicating them effectively to staff and inspiring define how the business hangs together. Once these are
passion, commitment and motivation. Getting buy- understood, rework and duplication of effort can start to
in and understanding from staff is crucial. be eliminated, thereby saving on costs. In addition, the
processes and resources that don’t add any value can be
Regardless of the economy there are still customers out there eliminated, and the processes that do add value be focused
who need your products or services and they are still willing to on to ensure that they continue to add value and grow.
SERIES PART 3
This is the third of a seven part series of articles on sports to maintain the support in terms of season ticketholders
management by Brian Naicker, Programme Leader of the and the fan base in general. Many clubs involved in rugby,
FIFA-CIES Programme in Sport Management, a programme football and cricket are having to focus increasingly on the
designed by Centre Internationale du Sport in conjunction domestic front as the quest for regional and continental
with FIFA. FIFA-CIES has a collaboration agreement glory requires massive investment on top notch players as
with UNISA to provide the tuition for this programme. In well as all the incremental expenses involved with regional
addition to heading up the Programme, Brian is also the and continental competitions. The top names and brands
Head of UNISA Centre for Business Management (CBM). in sport have not been spared the financial meltdown. One
of the largest insurers in the world, American Insurance
C
hange management plays a pivotal part of any business, CEO’s office with the support of the Strategic Development
regardless of its size or the services offered to the Office. Human Resource departments should be dealing with
public. All organisations will experience change at cultural and capacitation issues while departmental heads
some point because change is constant and necessary in a deal with matters related to operational excellence and
competitive environment. increased productivity.
Change happens when a specific entity enters the process Senior management should always be involved in the change
of transitioning from a known environment to an unfamiliar process and must be aligned with the intensity and level
situation where new knowledge is required to perform the of change. The CEO of the organisation should focus on
duties expected of individuals involved. implementing a best fit approach that will act as a roadmap
to reach the ultimate goal. Evaluating the situation closely
Approach is imperative. The execution of change from the existing
Most government departments are currently going through situation to the desired end-state, exists to facilitate in
fundamental changes as our new South African President, achievement of most predetermined objectives.
Jacob Zuma, takes over the top position in the country. The
approach used to implement these changes is vital because Structured process
the transition needs to happen smoothly without hindering As change is implemented, new insights, unexpected results
productivity. Government departments are mostly filled and crucial opportunities that could translate into productive
with intellectuals and introducing change in an authoritative and lucrative prospects arise and, if it is handled correctly,
way might be met with resistance. In this case, change will result in substantive benefits being realised. Change
management needs to be adapted and approached more management is not only about people’s emotions, it is a
carefully to suit the needs of the individuals who will be structured process supported by tools and insights designed
experiencing this change. to enable the successful and seamless execution of a project
or to address the strategic objectives of the organisation.
Resistance
Unfortunately, change doesn’t always happen effortlessly and Different disciplines
in many cases it can be met with strong hesitation from staff, Change management requires effective utilisation of a
clients, management and even executives. The reason behind number of disciplines ranging from people skills, project
this resistance could be based on various factors related to management, business management, process management,
human emotions, personal beliefs, poor leadership, lack of and technical skills. Institutions wishing to embark into a
communication or even lack of support from those in charge change journey should not hesitate to obtain the services
of implementing the change process. of a change management professional. A best fit approach
minimises mistakes and avoids change fatigue, it can
Maturity curve accelerate the key processes and dramatically increases the
Recent research suggest that 75% of all change initiatives confidence of the individuals involved in achieving project
fail or do not reach their intended objectives, nine of the ten outcomes across the entire organisation.
reasons cited for this failure are related to people issues.
The need for change management therefore becomes clear Companies throughout South Africa are increasingly
and a detailed strategy must be implemented to ensure a realising the importance of implementing effective change
smooth transition. Strategies implemented to facilitate this management processes in order to achieve strategic and
change should be designed to suit the characteristics of the operational excellence. An integrated model that takes into
organisation. account the effect of any change on the organisation as a
whole in a manner that enables an organisation to remain
Before implementing a change intervention, management agile is best. An integrated model should be designed to
should consider the current state of the economy, the culture assist businesses implement change as quickly and smoothly
of the organisation and the position of the organisation on as possible using a combination of global and local research.
the maturity curve. This will give those individuals in charge
of driving change a better understanding of what approach to Adapt
use when implementing the transition. Life changes every day and it is the responsibility of
individuals to adapt to the changes in order to become
Senior management successful. Change is inevitable and the sooner individuals of
The importance of change management in an organisation an organisation take a conscious decision to accept and adapt
should not be underestimated. Managing change should be to change, the quicker the rewards of implementing holistic
viewed as a strategic tool and should be controlled from the change will be experienced.
Conflict of interest?
by Marianne du Toit–Scholtz, Senior Associate, and Albert Aukema, Candidate Attorney, Cliffe Dekker Hofmeyr
Increasingly complex •D o you know who your critical suppliers are and how
For a number of reasons, the challenges of managing a much their failure would harm your company’s profits?
global supply chain are becoming increasingly complex. As • Do you have a complete picture of your critical
global markets have become increasingly competitive, many supply chains from raw material to customer?
businesses have introduced cost-saving supply chain strategies • Do you have routine systems for measuring
to maintain profit margins, including sole sourcing and just- the financial stability of your suppliers?
in-time deliveries of critical resources and components. With • Do you understand how natural disasters could impact
many organisations worldwide facing a major economic your key production facilities and distribution centres?
slump, some of these earlier savings are becoming operational • Have you provided risk training to your
weak links, especially in extended supply chains. supply chain management team?
An employee who disrespects his employer in a public forum like FaceBook should
expect the same treatment as that dished out to a drunken employee shouting
obscenities to his boss at the annual Christmas lunch. And an employee who punts
the opposition’s business on FaceBook or in an email to third parties can face
the same wrath as if she went on radio or television, defaming her employer. The
employee’s obligation to further his employer’s business interests, or the duty not
to do his employer’s business harm, does not keep office hours. Employees should
remember that they cannot bite the hand that feeds them.
I
epson
n January 2009, the Regulation of Interception of Communications and
Provision of Communication Related Information Act, 2002 (RICA), was
amended so as to change the requirements for certain cell phone and SIM-
card information to be collected and stored.
RICA now imposes information recording and storing obligations on, among
others, employers who provide SIM-cards to persons in their employment.
These information recording and storing obligations took effect on 1 July
advert
page 17
2009.
The rate at which tenders have been challenged in South Africa has increased dramatically over
the past year. As a result, more decisions across the country are being challenged on the tender
process as entities and tenderers are realising that there is legal recourse to action. The rules of
tendering for public companies putting work out to tender and entities bidding on that tender are
highlighted here.
requirements are not met. In a recent case, before the Supreme 1. The tender requirements
Court of Appeal a company that was awarded the tender, •T here will always be a deadline for submitting a tender which
completely relied on the strength, competence and expertise of needs to be met – make sure your application is submitted
another entity, even though the company that was awarded the timeously
tender, did not itself, satisfy the requirements of that tender. • Formal and technical requirements will need to be met,
including, for example, bank guarantees and tax clearance forms
The rules of the tendering game for companies putting work out to • BEE figures will need to be represented, including equity in
tender include: management and staff
• Any service level agreements will need to be signed
1. Advertising/public knowledge – First and foremost public
entities are obliged to advertise tenders that are valued at 2. Experience
R500 000 or more. All parties that might want to be involved in •A company will need to show their knowledge, competence
the tender process need knowledge of the tender or the public and skill within the relevant sector. In other words if you were
entity can be taken to task; bidding for, say, a catering tender to provide food, you would
2. Substance over form – If a company was formed purely for need to prove that you have registered dieticians available for
the purposes of winning the tender bid it does not, per se, have the purposes of compiling appropriate menus and the requisite
to satisfy tender requirements. However, a public entity would staff
have to satisfy itself on whether or not the company that is • If there is a joint venture, experience within this venture will
tendering is able to meet the requirements of the tender; need to be shown
3. Room for competition at all levels - The law encourages
historically disadvantaged companies to participate, and 3. Physical requirements of the tender
public entities need to ensure that they properly consider joint •A tender will often have physical requirements that need to be
ventures between SMMEs and other bigger entities; met. For example, if the tender is to supply equipment, minerals
4. Rationally connected to the objective - Be aware of the or technology, a company would need to show that they have
provisions of the Promotion of Administrative Justice Act No. 3 requisite premises and technology to implement the tender
of 2000. This means that your actions and decisions must be • Companies would also need to prove their compliance with
reasonable, procedurally fair and lawful; the necessary applicable laws, including but not limited to
5. Terms and conditions – public companies need to ensure environmental health and safety legislative requirements
that they adhere to the terms and conditions laid out in the
tender document. These would include BEE requirements, It takes a great deal of money and time for an aggrieved tenderer
percentages linked to expertise needed/equipment, technical to seek justice, and the down side is that you could
requirements etc; and be cutting off the hand that feeds you if you follow
6. Disqualification – companies tendering cannot simply be such a course of action. Bear in mind that if you
disqualified for mere non-compliance to small technicalities, for are solely relying on public entities for business,
example, submitting an unsigned document. Courts have gone you could be ruining that relationship for good if
further to say where it is obvious that certain compliance is you take them to task.
technical in nature, one cannot disqualify a company especially
if their value-add will far outweigh the technical oversight or
error.
Not effective
Employees who blow the whistle on some sort of unlawful or irregular conduct are
currently protected under the Protected Disclosures Act (the PDA). However, the
protection tends not to be very effective, as it makes no provision for the often very
subtle forms of discrimination and detriment to which whistleblowers are subjected.
In addition
Chapter 7 of the new Act is titled “Remedies and Enforcement” and provides
certain protections for whistleblowers. Significantly, it provides that to the extent
that it creates any right of or establishes any protection for an employee as
defined in the PDA, this is in addition to any protection in terms of the PDA.
Reasonable belief
Further, the whistleblower must have a reasonable belief at the time
of making the disclosure that the company or individual contravened
legislation, failed to comply with a statutory obligation, engaged in
conduct that could (or did) endanger someone’s health or safety (or
damaged the environment), or engaged in unfair discrimination.
The list of persons who would qualify for protection with regard to the good
faith and reasonable belief requirements referred to is far broader than an
employee alone as provided for in the PDA. The list, which is set out in sub-
section 4, includes: a shareholder; a director; the company secretary; a
prescribed officer; an employee; a registered trade union that represents
employees of the company or another employee representative; or a supplier
of goods or services to the company or an employee of such a supplier.
Immune
They would have qualified privilege in relation to the disclosure and are
also immune from any civil, criminal or administrative liability as a result of
the disclosure. In addition, they are entitled to compensation for damages
suffered as a result of the possible or actual disclosure from any other person
who causes detriment to them, or who threatens them with detriment. This
means that there would potentially be no limit to compensation.
Hotline
Finally, companies (whether public or state owned) must establish and
maintain a system to receive confidential disclosures and act on them. Clearly
a hotline would be the primary tool for companies to use in this regard.
TAX
H
Tax losses are one of owever, the complex tax codes Be warned that large losses offer no
around the world and the rapid protection from tax audits. In fact, in
the most immediate
reorganisation of many corporations times of falling profits and shrinking
sources of value for revenues, tax authorities will go the
will result in these tax losses easily
companies looking to vanishing if not carefully understood and extra mile to replenish public coffers.
position themselves managed. In addition, many such losses
for growth when are time sensitive and will require careful It is not enough to be aware of the risk
the market upswing treatment if they are to remain of value attached to innovative loss utilisation.
occurs. If correctly to each entity. During this period of rapid change for
many financial institutions, ostensibly
utilised, these losses
Be aware, however, that it will not be assured tax losses could be at risk as
have the potential to companies restructure, shareholders
plain-sailing for the tax department when
offset tax payments on it comes to offsetting the huge losses change and businesses refocus their
future profits, giving incurred during the downturn against strategies.
institutions a head start potentially more modest profits when the
in the recovery years markets eventually start to recover. In such an environment, it is absolutely
to come. essential that tax losses and similar
No company can assume that the tax tax attributes are managed in real time
benefit arising from operating losses is a so as to minimise risk of forfeiture and
foregone conclusion. For one thing, the maximise current and future benefits.
Chief Financial Officer and tax director
should go to great lengths to ensure Critically, tax should be considered at
that book losses are flowing through to the start of the decision-making process
the tax returns. Permanent, temporary throughout this defining period.
Nazrien Kader, or timing differences should be fully
Lead Tax Director of Financial Services, understood and managed to maximise Many companies are re-examining the
Deloitte, and former member of the the company’s ability to utilise losses way they do business, in the course of
SAICA National Tax Committee efficiently as the business recovers. the process of which they are defining
the successful core and restructuring
to focus on that core. A takeover, or a
major change in shareholding arising
from a merger, may limit a corporation’s
The tax ability to use losses incurred prior to the
transaction.
opportunities
available to Even internal restructuring on its own
may be sufficient to threaten available
businesses during a tax losses in some jurisdictions or across
multi-jurisdiction operations. The future
loss period should use of losses incurred by a specific
business may be lost or severely limited
not be missed in certain jurisdictions if that business is
terminated, even if the group as a whole
continues to trade.
against prior year profits, if available. This may give certainty losses and understand how this will be achieved. Effective tax
of use and result in a tax repayment rather than a benefit at management for a loss-making business must be measured
some time in the future. Such a strategy may require the tax over an extended period to determine effectiveness. Quick wins
department to change its behaviour and file tax returns earlier such as loss carry-back should be implemented swiftly where
if repayment of tax cannot be obtained until the tax return for possible, thus providing a more immediate cash benefit.
the loss period is submitted to the authorities.
The eventual ability to use tax losses is key. The importance of
Where tax losses cannot be immediately utilised, companies minimising the risk of future challenge by tax authorities cannot
need to consider the extent to which losses carried forward can be underestimated. Above all, tax risk is as great an issue now
be recognised for accounting purposes, as well as the value that as during high tax-paying periods.
regulators might put on deferred tax assets representing loss
carry-forwards. A final word: The tax opportunities available to businesses
during a loss period, such as the potential to implement internal
The tax director’s target should be to maximise efficient use of restructure plans, should not be missed.
SERIES PART 1
O n 1st June, the 2009 Taxation Laws Amendment Bill and the
Taxation Laws Second Amendment Bill were released for
comment. Many taxpayers saw 2009 as a year of consolidation
stepped up value in the hands of the estate and then eventually
the beneficiaries. There is however potential for double tax where
assets transfer directly to heirs, as there are no step-up rules
following a fairly benign Budget on the tax front. Nevertheless, for such beneficiaries. This will be remedied with effect from 1
the combined bills run up to over 200 pages of legislation. These January 2010 for years of assessment ending after that date.
changes are highlighted in this series.
Simplification of Learnership Allowances
Demise of the Deemed kilometre The complexity and number of variables involved with this
From 1st March 2010, it will no longer be possible to regard the incentive have rendered it unworkable. For this reason, the rules
annual kilometres from 18 000km to 32 000km to be for business have been significantly simplified and the caps, based upon
purposes. It will then become necessary to retain a logbook of employee income, have been removed. Also the learnership
business travel, which excludes commuting to the office and back. allowance programme previously only allowed for a deduction in
The PAYE rules will be amended accordingly, on a basis whereby the first year and a completion allowance in the final year. Special
the portion of the allowance subject to PAYE will be increased from rules and enhanced allowances are proposed for learnership
60% to 80%. contracts of three years or more.
Private Equity
Private Equity shows
growth despite
economic downturn
The global credit crisis has produced a mixed bag of fortunes for
private equity – the investment class in which capital is invested
in private companies. On the downside, corporate earnings have
declined but on the upside, reduced company valuations have
produced a range of investment ‘bargains’. This feature discusses
the last year, the current state of the industry, black economic
empowerment (BEE), trends in the market and international
investment, among other aspects.
“P
rivate equity represents a viable option for the funding of businesses in South
Africa. This type of funding is ‘smart capital’ as private equity fund managers
make a return from the increased valuation of a business and hence work with
management to develop the business,” says Executive Officer of South African Venture
Capital and Private Equity Association (SAVCA), J-P Fourie.
Sasfin Capital’s Private Equity Head, Malcolm Segal adds that private equity is
not just for multi-billion rand transactions. “It is a versatile form of funding
that can help companies of any size unlock their true potential without
burdening themselves with excessive debt. Private equity is well
placed to play a dynamic role in the growth and development
of smaller entrepreneurial companies,” he says.
Investments by private equity funds into companies
hold great benefits besides the mere cash injection to
develop a business. Private equity investments have
considerable impacts in terms of productivity, skills
development and job creation, as it includes the transfer
and exchange of know-how and not only buyout, says Head of Private Equity saw tightening of credit, huge gaps
the flow of capital. at Nedbank Capital Dave Stadler. This between buyers and sellers and no
was significant as the deals were being money to do deals. Deal sizes have
“In South Africa, the private equity funded by ‘Junk Bonds’ – high yielding come down drastically in the last year.
industry represents a significant sector bonds.
within the overall financial services Deloitte’s Leader of private equity
industry, and an attractive asset class A pattern emerged internationally, group, Sean McPhee says that banks,
within the broader capital markets. and even in South Africa where insurance companies and corporate
As seen across a range of indicators, deals were funded with a very high entities are not providing the level of
the profile of the local private equity level of leverage - little equity and funding for private equity that they
industry is that of a productive more gearing. Between 2000 and once did. This means that the shortfall
contributor to the development of the 2007, American businessmen started is expected to be filled by new sources
South African economy. In particular, investing in countries all over the world such as private individuals and pension
private equity facilitates BEE, addresses and eventually into South Africa, where funds.
economic imbalances of the past, the largest deal to date has been the
promotes entrepreneurial initiatives Edcon buyout valued at R27bn. “Even the nature of deals has changed
and positions South Africa to compete drastically.
successfully on the global stage,” adds Stadler says that these werethe boom
Segal. years of private equity and huge
amounts of debt were being
Then and now raised. Then the private
Private equity only really emerged in equity industry took
the 1980s with the huge RJR Nabisco a turn and
deal valued at some $25bn. RJR we
Nabisco was then bought by Kohlberg
Kravis Roberts & Co (KKR) at about
$32bn and was at the time
the largest leveraged
In 2006, buyers would put up to 40% of enough capital. If investors did have and the propensity for public issues
equity into a transaction and raise 60% sufficient funding, that would help them more limited, this renders private
of debt, now private equity firms are to recapitalise their business and help equity capital even more sought after.
ploughing in more equity and raising them trade in these tough times,” says Strangely enough, a positive aspect of
less debt,” says McPhee. Serebro. the economic crisis has in fact been
massive clean up of the private equity
The inability to ‘leverage up’ means According to Serebro, the downturn industry. The number of players in
that the private equity deals that you will lead to a realignment of wealth, a the market has been reduced, thus
will see in the next year are likely to be realignment of private equity players. benefitting the more established
much smaller than in the recent past. People will either be forced to sell their players,” he says.
Of the 400 private equity practitioners assets or indulge in a co-investment.
surveyed by Deloitte, more than half An industry perspective
believe the deal size will fall. “Deals will require more equity In 2008, the rest of the world fell into a
than before and we expect to see tailspin, but in South Africa, it appears
Director at Edward Nathan Sonnenbergs, more collaboration between private that the South African private equity
Brad Serebro remarks that before the equity and corporate co-investing in and venture capital industry remained
economic crisis, South Africa saw deals opportunities,” says McPhee. in a relatively healthy position. “Though
that were high priced. The multiples deal value and flow were lower than
that people were paying for businesses, Sasfin Capital’s recently appointed the last previous year, the industry
and the gearing ratio that they were Deal Origination and Capital Raising still reported more than R20bn of
obtaining to fund the acquisitions of Executive, Neil Eppel shares this investment activity. The South African
those businesses were disproportionate sentiment ,adding that co-investment economy, in spite of facing tough
to the actual values of the businesses. with partner private equity players times, is one of the few worldwide to be
“Basically, people were overpaying for may become a predominant feature in marginally shielded from the financial
assets and what is harder now is to pay many deals. “I believe that the private meltdown. This level of protection
for those assets and the debt that was equity industry is going back to its comes from our nominal foreign
borrowed as the economy has dipped more traditional roots. Since the term exposure and also some good policy
significantly. Investors do not have ‘debt funding’ is so much more scary decisions,” says J-P Fourie.
On a macroeconomic level, South Africa a change in how the industry views a changing and challenging market.
is also fairly well-off. The banking investment opportunities, with greater “Globally, merger and acquisition
industry remains robust, the banks are interest in businesses that invest in activity has slowed and mega deals
well regulated and their balance sheets research and development and ongoing have evaporated. Investors remain
are sufficiently capitalised. Inflation innovation – good prospects for venture cautious since earnings visibility is
is forecast to start falling, allowing capitalists. a major challenge and debt markets
the Reserve Bank greater leeway with have improved marginally. There is no
its monetary policy. Infrastructure The time for mega-deals has also shortage of debt for good deals, but the
spending continues to be robust, as passed but the industry’s greatest amount of debt offered has come down
government is ploughing billions into opportunity in 2009 lies in the along with gearing levels. We have, in
improving the country’s infrastructure midmarket. essence gone back to private equity
and social services. basics.”
In a recent jointly-hosted media
“In 2009, the drop in activity will briefing by SAVCA and Sanlam Private Fernandezshares Fourie’s sentiments in
continue. Though the economic outlook Equity (SPE), which examined the state that private equity players in developed
is uncertain, opportunities exist, of private equity locally and globally, it markets are now looking to mid-size
especially for forward-looking managers was revealed that profitable exit from companies for investment opportunities,
who are not averse to risks. As an deals is likely to be delayed due to the with a hive of activity currently
industry, we have worked hard to make downturn. However, with a slowdown underway in underperforming assets
ourselves more accessible. Though in the number of companies listing on and secondaries.
equity remains cheaper than debt, the stock exchanges, companies that
private equity will continue to remain a may previously have gone public are “The private equity industry in South
popular asset class, despite the lengthy now good prospects for private equity Africa is far better placed than its
investment cycle,” adds Fourie. investors. more mature counterparts in the first
world. South African private equity
He reckons that investors are already CEO of SPE Cora Fernandez said deals have never been geared to the
demanding intelligent, lean and value- that experienced managers have same extent as the gearing levels
based opportunities. This will drive demonstrated their ability to adapt in seen in the developed markets. As a
FEATURE - PRIVATE EQUITY
their asset allocation strategies in The survey also found that funds
search of greater liquidity. More than valued at R68.6bn were under the
50% of capital raised by PE funds management of captives -government
result, we don’t expect to see a high in the past two years was sourced or entities that are either black owned,
level of underperforming or distressed offshore, principally the US and empowered or influenced. This is up to
assets, work outs or turnarounds,” says European countries. The full extent and 16.3% from R59bn in 2007.
Fernandez. consequences of this risk is only likely
to be felt in the next 12 to 18 months,” The private equity sector maintained
She said that South Africa’s industry adds Fernandez. a lingering exuberance from 2007
may be small by international through the first half of 2008 and then
standards – it makes up only one Fernandez said that, despite these became more subdued in the second
percent of global activity – but it challenges, private equity remains half of 2008. The net result was overall
does contribute a significant 3.2% to a great source of foreign direct growth of 19.5% on R86.3bn held in
GDP, which contributes to expansion investment and of growth and December 2007 to R103.1bn
and development in the country. It is expansion finance. This is good news
sophisticated and well-organised with for the financial services sector and Watkins remarks that there is a reason
a well established network of highly the economy, meaning that we can use for cautious optimism for South
experienced players, deep and liquid foreign capital to finance and stimulate Africa, in particular with respect to
debt markets and solid legal framework. growth in South Africa. the prospect of lower interest rates,
and the forthcoming FIFA 2010 Soccer
“Currently, the biggest challenge The year at a glance... World Cup.
facing us in the aftermath of the The South African sector remains
financial crisis is fundraising. Locally, strong due to ongoing infrastructure “The scale of activity in our industry
investors into PE funds are largely spend and limited exposure to global continues to outperform most of
pension funds and endowments, many financial markets. Despite the global the major international economies,
of which are currently reviewing meltdown and a slowdown in local which bodes well for South Africa’s
www.idc.co.za
FEATURE - PRIVATE EQUITY
government stated growth targets, According to Serebro, it became clear still the leading source of raising capital
as local and international research that as the credit crunch manifested, followed by the US (29%) and then
confirms that private equity investment the massive loans used to fund Europe (20%). A potential structural
is a key driver of entrepreneurial LBOs would be the first to dry up. change is evident in the sources of
activity and growth in any economy,” Current deal multiples have changed these funds as more respondents are
says Fourie. significantly, with lower gearing levels looking to other markets such as the
(Debt/EBITDA) and significantly higher Middle East and Asia to close their
The survey found that South Africa’s equity injections required. funding gap.
funds under management (excluding
undrawn commitments) relative to GDP With adversity comes opportunity 51% of respondents envisage investing
of 3.2% were higher than 2007 and McPhee highlighted that the financial all available funds in less than two
again greater than the global average crisis and declining valuations should years, which is a crucial driver of
of 2.7%. Funds under management provide significant opportunities for the raising of new funds. 47% of
were R30.7bn in 1999 with R103.1bn private equity firms to acquire assets respondents envisage taking up to
reported in the current survey. This at attractive prices once expectations four years to invest their current
represents 14.4% compound annual between buyers and sellers converge. funds. It is these funds with their “war
growth rate. chests” already in place that will be
According to the sixth local Deloitte best positioned to take advantage of
The Credit Crunch Private Equity Confidence Survey the opportunities that are expected to
“The period before the current global (PECS) which is conducted in emerge when the economy finally turns.
financial crisis was marked by the collaboration with SAVCA, among
largest private equity boom to date. investment professionals in the private No respondents are looking to invest
For nearly four years private equity equity industry, 40% of respondents in start-up companies and seed
firms went on a buying spree fuelled expect the overall economic climate to capital. 18% of respondents believe
by the abundance of inexpensive credit decline, 33% to remain the same and that the attitude and understanding
globally. Existing shareholders of target 27% expect the economic climate to of institutional investors is worsening,
companies were bought at considerable improve. which is the highest recorded in this
premiums, pushing valuations and survey. In line with respondents
prices to new heights,” said Serebro. Despite global uncertainty and the spending the majority of their time
anticipated difficulty in raising funds, being internally focused on investee
Target companies were saddled with 62% of respondents are planning to companies, the transaction focus will
billions of dollars of debt used in these raise a new fund over the next 12 be on providing replacement/buy-out
leverage buy-outs (LBO). The change in months. Greg Benjamin, Deloitte and expansion and development capital.
the global deal multiples is: Corporate Finance Manager comments,
• D ebt/EBITDA multiples increased by “In a world where competition for 57% of respondents expect that
50% from 2001 (average 4.1x Debt/ capital is increasing, this is going to competition for new assets will decline,
EBITDA) to 2007 (average 6.2x Debt/ be incredibly tough but respondents while 79% of respondents expect
EBITDA) are under no illusion, with 76% entry multiples to decrease. This must
• P urchase price/ EBITDA multiples acknowledging this challenge.” represent a huge buying opportunity
increased by 62% from 2001 (6.0x) to however, the big question is, when will
2007 (9.7x Debt/EBITDA) According to McPhee, South Africa is the bottom be reached and will sellers’
price expectations converge with
buyers?
80% of respondents expect deal sizes industry will emerge stronger and will which measured the opinions of more
to decrease as the equity to total continue to play a significant role in than 700 venture capitalists worldwide,
transaction capital ratios increase. As capital markets and building better, also shines headlights into the post-
a result, Deloitte expects more activity more resilient businesses,” concludes recession landscape.
in the mid-market space. 64% of McPhee.
respondents expect the availability “While the recession has slowed the
of debt funding for transactions to Global Survey pace of venture investing in the short
decrease and Deloitte expects the The global economic downturn has term, it may very well have expedited
equity component of deals to increase many venture capitalists altering the global evolution of the industry
as deals are more conservatively strategies, including reducing in the long run,” says Greg Benjamin,
financed. 80% of respondents expect investment levels in the short term. Deloitte Corporate Finance Manager.
exit valuations to decrease and 76% This is according to the 2009 Global “In recent years, many entrepreneurs
expect the volume of exits to decrease. Venture Capital Survey by Deloitte. who have been educated in the United
This confirms that it is not a good time States have returned to their home
to exit. “The main findings of the survey are: countries to start companies. The
that the competitive landscape is poised playing field continues to level out in
“There is an opportunity for the to shift due to industry globalisation; terms of new innovation hot spots,
emergence of a stronger secondary the clean technology sector has been broader access to capital and growing
private equity market in South Africa,” identified for future investment; and regional ecosystems that foster risk
says McPhee. “A stronger secondary the majority are looking outside home taking and capital formation.”
market would inject liquidity and has markets for opportunities,” says Sean
been successful in achieving this McPhee of Deloitte. While investment levels may decline,
in markets such as the US, UK and the majority of venture capitalists are
Europe.” 51% of the survey respondents are not shifting their investment strategies
decreasing the number of companies in in terms of the industries where they
“Investors remain confident that which they plan to invest and just 13% are putting their money to work. A
private equity returns will outperform are increasing this activity. majority of venture capitalists (79%)
returns achievable on the JSE. We anticipate stable levels of investment
are confident that the private equity The 2009 Global Venture Capital survey, across all industry sectors with the
www.sabef.co.za | info@sabef.co.za
FEATURE - PRIVATE EQUITY
exception of the clean technology BEE He says that a number of BEE deals
sector where 63% of venture capitalists “Many of the BEE deals struck in recent will be under threat during the current
expect to increase their investments years after painstaking negotiations economic slowdown, especially those
over the next three years. may have to be renegotiated, dealing deals struck in the mining sector at
a blow to the Department of Trade and the top of the cycle, as many were
Advances in new technology, growing Industry’s goal for an unencumbered last year, to meet the Mining Charter
consumer demand in alternative 25% of the economy to be in black deadline. Van der Merwe is confident
energy and the ambitious plans of hands by 2017, says Werksmans that a large portion of deals should
governments worldwide to invest in Attorneys Senior Director in the be safe in light of the fact that a
clean technologies have made this corporate and commercial department, significant number of the latest wave
sector a key focus for the venture Morne van der Merwe. of BEE deals were struck on a vendor-
community. finance basis, using less bank finance
An estimated R41 billion worth of than was the case under the model that
The medical device sector ranked potential BEE deals have been wiped collapsed during the Nineties market
second in terms of growth potential out due to unfavourable trading correction.
with 37% of respondents anticipating conditions in the past two years,
increases in investment followed by according to statistics sourced from However, many deals (especially the
new media (26%), consumer business BEE rating agency Empowerdex. Last large value deals) were structured
and biopharma (24%) and software year, the total value of BEE deals using bank and private equity funding.
(22%). Venture capitalists are less sealed on the JSE declined fivefold to
optimistic about more mature sectors, R13 billion (from R66 billion in 2007). Paul Austin, Head of Corporate Finance
such as the telecommunications and But the real threat is that deals already at BDO Spencer Steward in the Cape,
semiconductor industries, with just struck may begin to unwind. says that where bank finance is present
15% and 16% of venture capitalists in a deal, the structure may be under
surveyed planning to increase Van der Merwe adds that a solution stress, not so much because of the
their investment in those sectors with special focus on mergers and share price collapse, but due to falling
respectively. acquisitions (M& A) would be for company earnings in an economic
government to consider a bail-out slowdown.
The recession also has a core group of package to ensure no BEE deals fail,
venture capitalists shifting their stage and the country remains on target to “A lot of BEE deals are still financed
of development investment focus. 36% meet DTI objectives. with debt, and bankers the world
of the respondents surveyed intend over are under pressure to find more
to move toward later stage investing security and reduce their exposure to
in order to support existing portfolio risk. Although banks have a substantial
companies until the exit markets exposure to BEE finance, we
improve. Just 6% intend to move have not yet seen any
toward early stage investing to take deals actually
advantage of the longer runway for collapse,
company growth.
FEATURE - PRIVATE EQUITY
Meanwhile RMB Corvest, a captive fund that has concluded Prior to the global financial meltdown values were driven
over 30 BEE deals, confirms that BEE deals can only be to unrealistic heights with less and less relationship to net
successful if the underlying company’s value increases. One asset value (NAV). While current values are distressed,
of the company’s directors, Stephen Brown adds that if you that doesn’t mean sellers can’t extract fair value. “Nor is it
have done a BEE deal at a high price earnings (PE) ratio impossible for buyers to get funding if they don’t have the
and the company’s performance comes down, those BEE cash. Interest rates are declining and lending institutions
transactions may be in trouble. “BEE is a way of life and in are looking for funding opportunities. Provided you present
the previous booming economy, BEE deals were able to use a good funding proposal and can meet more stringent
debt from banks but due to debt having dried up, more deals requirements than before, the banks will look at it,” he
will be done through private equity,” adds Brown. remarks
Brown mentions that in this economic downturn, RMB Corvest He believes companies should consider taking on private
is not fully affected as being a captive fund gives them the equity investors and using that money to get ready for the
advantage to wait for the market to turn before exiting a next upswing. A strategic capital injection at this point
deal, and to wait for growth in the business before exiting, could result in better competitiveness and the ability to take
thereby generating improved returns if they hold on, and advantage of opportunities once the economic cycle turns
possibly wait for a trade sale. more positive.
Restructuring in turbulent says KPMG Director of Restructuring business. A thorough analysis should
times Advisory, Sandile Hlophe. be conducted to ascertain where
Companies hoping to ride the costs can be optimised. A number of
economic downturn through An underperforming business usually businesses seem to have interpreted
restructuring their businesses displays the signs of a continued but cost optimisation as simply mass
could do well to approach the diminishing cash flow. This could be retrenchment or closure of certain
exercise with an informed due to a number of factors ranging operations, when, in fact, these
measure of caution. Critical from pressure on the sector in which extreme responses might not be the
to the restructuring exercise a business finds itself to inflationary correct approach to restructuring
is establishing the position of constraints or difficulty with debtors. as they may impact on sustaining
a business to ascertain where remaining business processes and
restructuring interventions will The restructuring response could operations which would hamper the
deliver the most value to continued incorporate a number of interventions growth of the business should the
operational success. intended, broadly, to release working economic environment improve in the
capital from existing operations. These near future,” adds Hlophe.
“Typically, a business that might need could range from optimising costs,
to consider some level of restructuring identifying and releasing working A stressed company is one that is not
could find itself in one of three capital trapped in inventory, debtors just facing a cash flow problem, but
positions in a continuum ranging from or capital expenditure projects, finding is also not making any profit at all.
underperforming to stressed and, new markets or rationalising operations. Typically, these companies struggle to
ultimately, distressed. To ascertain the meet their credit payment terms and
nature and depth of the restructuring “It is important to note that cost their regular expenditure deadlines.
requirements, a key consideration optimisation is not simply a case For example, they might begin to pay
is cash flow constraints, particularly of cutting costs for the sake of cost salaries late and renege on UIF and
in the latter two categories. While cutting at any cost. As the term implies, PAYE obligations.
this is always a consideration in the it should be the efficient management
operation of a business, it is especially of costs that continues to release Some responses to address the
the case during an economic downturn,” value for the ongoing operation of the situation include financial restructuring
FEATURE - PRIVATE EQUITY
and a clearer understanding of the flexibility that might declining growth in Europe, the US and Australia, there is still
be afforded not just by lenders, but by commonly good growth in China, Brazil and India and to a larger extent, the
perceived ‘inflexible’ institutions such as SARS. As a solid African continent.
turnaround plan might act as a persuasive mechanism
in addressing both these players, it is critical that such There is hope. It is time that people start properly assessing their
a plan is developed following the detailed analysis of deals as capital is quite precious right now. In these turbulent
a company that finds itself in the stressed position by times, the industry needs to demonstrate relevance and value
an independent advisor, if the plan is to win over the as there issome optimistic news in the form of infrastructure
confidence of key stakeholders. spending, limited credit crunch exposure, interest rate head room
and the FIFA 2010 Soccer World Cup to look forward to.
Looking Ahead
Fourie said that more equity-only deals were a strong
CONTRIBUTORS
possibility in South Africa and around the world. “But
raising funds in a climate of depressed corporate KPMG Edward Nathan
earnings will be a challenge. We will also see the lifecycle 011 647 7128 Sonnenbergs
of a private equity deal increase as companies take 011 269 7600
longer to convert investment funds into tangible business SAVCA
results,” added Fourie. 011 268 0041 Nedbank Capital
011 295 8316
He remarked that it looked likely that huge write-downs Sasfin Capital
would be made, particularly in the highly leverage Europe 011 445 8012 Mazars Moores Rowland
and US, and that highly profitable exits would present a 021 405 4000
massive challenge. Private trade sales will far outstrip Sanlam Private Equity
listing exits or sales to other private equity funds and 011 778 6610 BDO Spencer Steward
unfortunately some new, young private equity firms could 011 488 1816
RMB Corvest
fall victim to a low appetite for private equity fund raising.
011 380 8310 Werksmans Attorneys
011 535 8277
On the plus side, many international players are still
Deloitte
extremely interested in the value which emerging
011 209 8351
markets can offer. Because, unlike the stagnant or
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FINANCE & EQUITY
BUSINESS
by commodity price and currency volatility. These factors will
severely affect cash flow in industry and in particular working
capital. That said, high levels of cash opportunity still exist.
The figures for cash surplus, however, need to be treated with • Retail management
some caution. They are based on an external view of each
company’s working capital performance. In other words, they have
not been adjusted to reflect each company’s operational strategy,
geographical reach or product mix. Also, differences in the
accounting and disclosure of trade accruals have not been taken
into account.
Tel: (012) 429-4586 / 4212
Fax to E-mail: 086 641 7260
In addition, while process optimisation is an operation that could
lead to significant operating cost benefits and the concomitant E-mail: bussen@unisa.ac.za
freeing up of more cash, it should be remembered that additional www.unisa.ac.za/cbm
capital expenditure may be required to realise these benefits.
PO Box 392, Unisa
Ultimately, with the conservative attitude banks are presently
taking toward lending, businesses will need to look at a variety
South Africa, 0003
of methods to gain access to cash. Putting working capital at
the top of the agenda will offer organisations a chance to access
what amounts to ‘free’ capital, leaving them well placed to take
advantage of business opportunities.
claims arising from alleged professional negligence Numerous submissions to the relevant authorities have been
are increasing and the amounts claimed are made on the basis that the often spurious claims against the
rising to “staggering” levels, according profession prevent auditors from concentrating on their task of
to the recent Discussion Paper on providing the best auditing assurance possible “without fear or
the Equitable Apportionment of favour”.
Registered Auditors’ Professional
Liability. The negative spinoffs from this phenomenon include:
• T he right calibre of people are not being attracted to the
It seems clear from the paper profession (and/or are not remaining in the profession) for
that the claims levelled against fear of being caught up in a massive claim for damages;
auditors are often far in excess • T he ability and desire to expand auditing and other assurance
of the economic damage caused services to the business and investing community, thereby
directly or indirectly by the providing stability and credibility to the investment market, is
auditor. We also predict that the being stifled; and
economic meltdown will trigger • T he opportunity for mid-tier firms to expand into the upper
another round of litigation, much end of the market, and thereby create greater choice for
of it against auditors, who are users, is dampened by the threat of litigation.
Restructuring in a downswing
by Robert Driman and Riza Moosa, Directors, Deneys Reitz
D
STITUTE O
Certification
BO
OKKEE
by Luway Mongie, Associate, White Collar Crime,
Bowman Gilfillan
Programme
M any businesses are feeling the effects of the economic
IN
P
ER
downturn and in their attempts to minimise losses, E
TH S
often they unknowingly open themselves up to huge
financial and reputational risks. This is due to the fact that
when companies cut back on costs, they often increase their
chances of being victims of fraud.
As a doctor/lawyer/engineer etc, you have Finally, unlike a guaranteed annuity, when you die, the amount
probably had to make a number of important left in your living annuity is passed on to your beneficiaries. This
amount can be passed on as an ongoing annuity to generate an
decisions with long term consequences. As
income, or as an accelerated annuity that pays out all the capital
you approach retirement, you will face a and investment growth over five years. The residue is not taxable
decision that will largely determine how you in your estate, but will be treated as income in the hands of your
live out your golden years, namely, what to beneficiaries, who will be taxed at their marginal tax rates.
do with the retirement nest egg you have
built up over the years. While living annuities have the edge in many respects, if you
want a guaranteed income for the rest of your life and do not
A ccording to legislation, on retiring you are required to buy want to get involved in managing your retirement capital, then
an annuity with at least two-thirds of your retirement capital a guaranteed annuity would be appropriate. Your income is
that you have accumulated in your pension fund or retirement determined by interest rates on the day that you retire and your
annuity (if you were contributing to a provident fund, you are monthly income stays the same. This option may suit investors
allowed to withdraw the whole amount at retirement). who require the certainty of a fixed income. One of the drawbacks
is that your income may not keep pace with inflation.
The purpose of the annuity is to provide you with an income on
retirement from capital you have accumulated over the years in
your various retirement vehicles.
I
nvestors moving into capital- emotional appeal when it’s already too The well advised investor who is well
guarantee products solely because late – you should have been worried known to his adviser and fund manager
of equity market fears are probably about market performance when the and has honestly explained his or her
buying for the wrong reasons at the market was high, not after values have risk tolerance usually has little need to
wrong time. tumbled. pay for guarantees.
The investor’s personal or business need Some asset managers combine advice
for absolute certainty should drive the and portfolio management as one fee.
purchase decision. Vague fears about In other cases, an investor may be
market performance should not dictate. paying separate fees. Why should the
client then meet another set of costs
Capital guarantees will always attract for a guarantee when he has already
attention at times like these, but this paid for professional expertise that will
type of product usually has most supposedly preserve capital?
I
f you asked someone what they investment risk of the rand-dollar less risk. For example, when daily
thought was the most volatile, exchange rate. This investment tool is currency market returns are sufficiently
between June 2008 and June 2009, especially relevant to businesses in the volatile, the SAVI Dollar will tend to
the rand-dollar exchange rate, or the export and import arena that trade in spike upward, reflecting a sense of fear
Alsi Top 40 index over the last year, currency futures and options, exchange and a higher level of expected risk.
what do you suppose would be the enabling the investor to monitor ‘fear’
answer? Contrary to popular perception, forecasts daily. As the performance of It must be noted that although a
the rand tends not to be highly volatile the rand is also an indicator of market volatility index is often called the
and the rand-dollar exchange rate has sentiment for political and country risk, “fear index,” a high volatility reading
been approximately half as volatile in the SAVI Dollar gives also business is not necessarily bearish for stocks.
the past year as the Alsi Top 40 index. people an instant snapshoot of investor Instead, the SAVI and the SAVI Dollar
Investor fear and greed play a confidence in South Africa in general. are a measure of fear of volatility in
significant and often irrational role in either direction, including a market
financial markets around the world The SAVI Dollar is derived from actual rally where share prices soar.
and South Africa is no exception. traded data; investment houses are
polled regarding where they are The SAVI Dollar follows on from the
These market sentiments can be prepared to price options in the market JSE South Africa Volatility index (SAVI)
seen in the volatility of the market; this is averaged out. Investment houses that forecast equity market risk in
when the market is fearful volatility price options higher when they expect South Africa. The SAVI, which was
is high and as a result large market a high risk of a change in prices as they the first of its kind in an emerging
moves either up or down are expected, require a greater premium from traders economy, is similar to the VIX volatility
in contrast, when the market is to insure against such moves. The power index in US, with the difference being
complacent, volatility is low and of an indicator such as the SAVI Dollar that the US index measures implied
smaller market moves are expected. is that it methodically draws on a large volatility over one month, while SAVI
In essence, volatility can be seen as a amount of raw data and transforms this looks forward three months. Both the
measure of risk in financial markets. into a simple to understand reference. SAVI Dollar index and the SAVI are
Now thanks to the SAVI Dollar, the latest A high value corresponds to a more calculated and published at the end
volatility index launched by the JSE volatile market and therefore more of each trading day. It is available on
in collaboration with Cadiz Securities, risk, while a low value is indicative of the JSE’s website and the Reuters
business people can track the expected a less volatile market and therefore and Bloomberg news wire services.
While the evidence is in clear support of passive investing, The chart above clearly shows that the value investment
it is not without its shortcomings. By simply replicating an philosophy has delivered significant outperformance of both
index’s performance or characteristics, no attention is given to the growth investment philosophy and the market. However,
forecasting or subjective assessment. For instance, if one were long term market-beating performance by the value style is
to construct and manage an index of high dividend yielding not without interruption over the short and medium term. The
shares, it would take into account only historical information: difficulty with adhering to this style is that most often, value
no attempt would be made to determine whether those investing opportunities are unpopular and unloved stocks.
dividends will increase, decrease, or stop altogether. Unrefined By contrast, most people follow loved and popular stocks,
or raw tracking of a market index will be overweight growth, which are, by definition, high growth, high momentum, large
high momentum and large-cap stocks. Of these factors, only capitalization shares. As stated earlier, of these factors, only
momentum has been shown to have any merit in terms of momentum offers any evidence of success.
future success.
Since the market is the sum of all activity taking place in it,
All investors who choose active investment management do you need to be different to the market, or contrarian, to enjoy
so with the belief that they fall into the 25% of those investors market-beating results. However, most people follow popular
that beat the market. Different strategies are used in this task. and fashionable shares, and so three quarters of investors fail
They include a top-down or bottom-up approach, a belief that to beat the market. Following a value style can require nerves
one can time the entry and exit point of markets and stocks, of steel, as the short and medium term deviations from the
or perhaps that a purely quantitative investment process market’s performance may be difficult to tolerate. For those
is most successful. Different active investment strategies who are unable to step away from the comfortable stance of
provide us with examples of successful practitioners. However, ‘safety in numbers’, a passive fund is the correct place to be.
while the likes of George Soros, Warren Buffett and Benjamin For the rest, there is active value.
T he old adage that it’s better to buy a dump in the best suburb
than to purchase a palace in a more suspect area remains
sound advice for property investors. Correct? Not necessarily.
There are different sets of rules for different types of property
investors that must be taken into account when deciding which
property to buy.
Depreciate?
The traditional philosophy that underpins the residential property
market is that homes in the right locations appreciate more in
value than homes in the “wrong” locations. Indeed, those in the
wrong locations may even depreciate in value; so, because your
home is your biggest investment, you need to select it carefully.
Home
This philosophy holds true only for those investors who are
buying the home to live in it, and who basically own just one
property – and perhaps a second holiday home as well – at any
given time. For these individuals, the wrong choice of home could
well set them back financially, especially if they want to sell later.
Income
But what if your point of departure is totally different from the
basic philosophy used by the home buyer? What if you don’t
intend to ever stay in the property? If you never intend to sell the
property, but to use it as a source of income for as long as you
live as an asset in your own buy-to-let business, the question of
desirable location – and type and size of the property - takes on
a whole different complexion.
Rental income
For buy-to-let property entrepreneurs, the emphasis moves from
capital growth to rental income. You may ‘invest’ in a property
that might not be profitable in terms of re-selling it later, but will
be highly profitable in terms of deriving a constant stream of
income.
ASSETS & INVESTMENTS
•A ddressing the ownership requirements of Black Economic For the reasons set out above, the third party interested
Empowerment; in buying the business could be an empowerment partner,
• Immigration of business owners and their families; and trade buyer or even a financial buyer such as a private
• Many young South Africans would rather look for work equity firm. The need for advanced planning becomes
opportunities in large corporations, opportunities outside essential for many reasons but four of the most important
of South Africa or are interested in alternative life are:
experiences.
This means that when change of ownership occurs, it would •T o prepare the business and the staff for the impending
most likely include a third party. sale;
• Attract the right level of interest from prospective buyers;
Sellers of the businesses need to be well prepared for the • Achieve the best price and terms upon sale; and
sale in order to get the best price for their business. Buyers • C oncluding an efficient sale process.
bill by self-insuring your All Risk policy, provided that you Finally, if a client pays their
are able to self-insure the smaller day premiums annually they will incur
to day items that you may lose. Or, you a substantial discount. Similarly
may even decide that you do not need a saving can be achieved by
to insure them at all. In the event you consolidating all your portfolios
were to travel abroad you could always and paying by one debit order.
take up temporary travel insurance.
Having five insurers for five classes
Also, if you improve your risk, that of insurance is expensive. Instead,
is, make yourself less likely to suffer different classes of insurance tend to
loss your premium is also likely to subsidise one another. Having all your
come down. For example, if you insurances with one insurer will also
put in an alarm system and electric reduce your overall premium cost.
I
only to be in for a shock once they have a claim. This does nsurers have a responsibility to educate financial advisers
not only harm the individual, but also causes untold damage about the reality of unforeseen events that occur in the
to the industry. lives of consumers. People suffer needlessly everyday
because they haven’t made adequate insurance provision
Professional service providers cannot merely shrug it off by for themselves and their families. To this end, the claims-
exclaiming: “But they never asked!” There is a professional paying record of insurance companies is key information for
obligation to ensure that the client is properly informed and consumers and for financial advisers to use in their advisory
that the needs and requirements of each client are carefully capacity to consumers.
assessed.
Every well-established insurance company keeps a detailed
The public should be informed in such a way that they are record of the number and amount of claims that it honours
able to determine their risk levels themselves. For instance, in a year. These statistics should be used to highlight
a person who is totally dependent on a vehicle, needs to to consumers the importance of those monthly grudge
include a hire-car in the policy. Someone else may prefer insurance payments.
R
eports of disputes around Michael Jackson’s children, through which you have obtained the loan, so that if you die,
estate and life insurance have raised a number of the policy covers the outstanding home loan.
insurance-related issues. The first has to do with
exclusion clauses in his life policies that may result in these not Some insurers even allow you take out one policy and cede it
paying out due to concerns over the nature of his death. This to several people, divided up by the amount that you owe each
could leave his dependents with a large amount of debt and one.
without sufficient financial resources for the future.
Another issue that Michael Jackson’s death has raised is the
While life policies in some countries have a permanent suicide amount of death cover needed. Most companies follow similar
exclusion clause, in this country the typical policy will only not financial underwriting requirements, using income and age as
pay out if the policyholder commits suicide in the first two years a guide as to how much death cover is appropriate. Generally,
of taking out the policy. This exclusion clause would fall away the younger the policyholder, the more life cover is needed as
after the first two years. he or she is likely to have younger dependents who will require
financial assistance for a longer period of time. In addition,
No other exclusions are standard on life cover policies in South current income also needs to be taken into account in order for
Africa, but it remains important to check the policy wording of dependents to continue with the same standard of living.
your contract to ensure that this is the case.
Another brewing controversy over Jackson’s death is around
On the other hand, most disability policies such as permanent the nomination of beneficiaries. Individual life cover policies
income replacement and dreaded disease cover (i.e. in the generally pay out quickly if a beneficiary is nominated.
case of a coma or paraplegia) typically have more standard However, if no beneficiary has been nominated, the funds
exclusions and do not pay out if you are injured doing get paid to the estate and it can take years before the
something illegal. A disability policy would also not pay out if beneficiaries receive anything. It is also important to make
the policyholder was disabled as a result of abusing prescription sure your nominated beneficiary form is up to date as the life
medication as it would probably fall under the deliberate self company will pay to the beneficiaries you have nominated on
harm exclusion. this form.
Life cover is crucial in order to prevent leaving your dependents This is unlike death cover in a pension fund, which require the
in debt. You can take out policies for a specific reason, such as Trustees of the fund to investigate who the death cover should
covering an outstanding home loan and cede it to the institution be paid to, regardless of who is nominated by the member.
A
ll businesses are exposed to a multitude of risks bit as important as financial or facilities management.
daily. These risks can be the result of uncertainty
in financial markets, project failures, legal liabilities, The basic principle of risk management is attempting to
credit risk, accidents, natural causes and disasters identify and then manage threats that could severely impact
as well as deliberate attacks from an adversary. on an organisation. This involves reviewing operations of the
organisation, identifying potential threats to the organisation
While large corporations usually have comprehensive and the likelihood of their occurrence, and then taking
systems and processes in place to manage and mitigate any appropriate actions to address the most likely threats.
risk, it’s the small and medium enterprises (SMME’s) that
are often left exposed. This is due to a lack of understanding It is important to note that it is impossible for an
of the importance of risk management and having the SMME to focus on all the risks that it may be exposed
appropriate mechanisms in place to prevent and manage risk. to. The identification process should therefore focus
on the key risks that could threaten the sustainability
As risk management was closely linked to an insurance of the organisation or that could have a significant
package in the past, it was not taken very seriously. Today financial and/or reputational impact on the business.
however, the role of risk management in businesses has
changed dramatically, especially with the increased rules and Risks need not always be viewed as negative. The benefit of a
regulations and reliance on key resources. It is due to these risk management framework is balancing the risk and reward.
business elements, among others, that risk management It is through effective risk management programmes that
has evolved to become a management practice that is every optimum value is generated for stakeholders of a business.
Continue advertising
By John Bowles, Joint Managing Director, Newspaper Advertising Bureau
As we head into a time of budget cuts and advertising reviews, it’s important to make sure that
we are aware of the big picture. Sure, we are experiencing an economic slowdown, but the market
will and is continuing to operate.
Percentage contribution per month of total retail sales per annum (Stats SA)
Table I
Month 2001 2002 2003 2004 2005 2006 2007 2008 Average
2001-2008
January 7.4% 7.3% 7.5% 7.5% 7.2% 7.0% 7.3% 7.2% 7.3%
February 7.2% 7.1% 7.2% 7.3% 7.2% 7.2% 7.3% 7.5% 7.2%
March 8.0% 8.0% 8.0% 7.7% 7.7% 7.7% 7.9% 7.9% 7.8%
April 7.9% 7.7% 7.8% 7.6% 7.8% 7.7% 7.9% 8.0% 7.8%
May 8.1% 8.1% 8.2% 8.0% 8.0% 8.0% 8.2% 8.0% 8.1%
June 8.0% 8.0% 7.9% 8.0% 7.8% 7.8% 8.0% 8.0% 7.9%
July 8.2% 8.0% 8.0% 8.1% 7.9% 8.0% 8.0% 8.0% 8.0%
August 8.1% 8.2% 8.0% 7.8% 8.1% 8.1% 8.1% 8.1%* 8.1%
September 8.0% 8.1% 8.1% 8.3% 8.2% 8.6% 8.3% 8.2% 8.2%
October 8.5% 8.5% 8.4% 8.6% 8.7% 8.6% 8.5% 8.6% 8.6%
November 9.0% 9.1% 9.0% 9.1% 9.2% 9.4% 9.1% 9.0% 9.1%
December 11.% 11.% 11.% 11.% 12.% 11.% 11.5% 11.6% 11.8%
Total 100% 100% 100% 100% 100% 100% 100% 100.0%
* This table reads, of all retail sales in 2008, 8.1% went through the tills in August that year.
Clothing Household
Medical footwear Furniture
cosmetics Textiles Leather Appliances & Hardware Paint
Month toiletries goods Equipment and Glass
January 7.7% 7.0% 8.1% 6.6%
February 8.2% 6.8% 7.4% 8.1%
March 8.1% 7.1% 7.5% 8.0%
April 8.1% 8.5% 7.6% 8.4%
May 8.1% 8.4% 7.8% 8.5%
June 8.1% 7.8%* 8.2% 8.6%
July 8.8% 7.8% 8.1% 8.4%
August 8.4% 7.7% 8.0% 8.7%
September 8.5% 7.2% 7.4% 8.5%
October 8.6% 8.3% 8.4% 9.2%
November 8.7% 9.5% 9.3% 9.2%
December 8.8% 13.9% 12.1% 7.8%
* This table reads: 7.8% of all clothing retail sales in 2008 took place in June of that year. source: Stats SA retail sales 2008
It is dedicated to delivering
dynamic, value-added services to
its members and ensuring the
P R I S A
continued growth and Public Relations Institute of Southern Africa
professionalisation of the public ProComm House, 108 Bram Fischer Drive, Ferndale, Johannesburg Public Relations &
Communication Management
relations profession. Tel: (011) 326-1262 Fax: (011) 326-1259 www.prisa.co.za info@prisa.co.za Established 1957
MARKETING & SELLING
I f 2008 marked the year that social media burst into the
mainstream, this is the year that the concept must prove
its value to skeptical marketers against the backdrop of a
So, what does this mean for you as a South African marketer?
Social media sites have really taken off across the world, and
South Africa is no exception. MySpace, YouTube, Twitter, Flickr
worldwide economic downturn. and FaceBook all attract thousands of unique South African
users generating millions of page impressions each month.
Last year, the social networking space enjoyed stellar growth
with worldwide revenues growing to US$2 billion, up 46% It’s not a channel that any forward-thinking marketer can
from the previous year. Growth this year is likely to be less afford to ignore completely. The challenge for marketers lies
impressive - eMarketer recently slashed its growth forecast in understanding, firstly what social media is, and secondly,
for the social networking market from 32% to 17% and in how to harness its potential as a marketing and advertising
predicts that the market will be worth $2.3 billion by the end medium.
of 2009.
Social media is all about community, networking, interaction
Of course, some might argue that double-digit growth in and engagement. It’s a space where people meet others; build
the midst of an economic downturn sounds good, but the on existing relationships, and share information, feelings,
reality is that the new forecast from eMarketer is nearly half ideas and content. As such, you can’t simply advertise to them
of its earlier predictions. Growth in social networking spend as though you’re placing a banner on a news site.
around the world is slowing down not only as a result of poor
economic conditions, but also because of a lack of proven Instead, it’s all about involving consumers in a dialogue with
advertising models. your brand. Setting up communities, creating interactive
widgets, and other interactive elements are essential if you
Social media sites have a massive audience base to offer want to make the most of social networking. South African
advertisers, but most of them are still struggling to show brands are starting to understand this - a number of local
advertisers how they can tap the audience for a proper companies have set up groups on FaceBook or feeds on
return on investment (ROI). Many advertisers have rushed Twitter, with relative success. These tactics are relatively
into social media without truly understanding the space and low-cost and allow one to drive quality interactions with one’s
have been disappointed with the results. audience.
One of the major problems lies in the fact that the ROI Even though the economic downturn is taking its toll on the
benchmarks and models in the social media are still social networking space, it is becoming increasingly clear
immature. Advertisers don’t understand the economic models that there’s an enormous amount of value in the concept for
because social media owners don’t yet understand them marketers. Best of all, one can start experimenting with the
themselves. channel at a low cost.
turbulence and the type of leadership required to spot those Right now the pressure is on. The South African economy has
opportunities and grab them successfully. The past 50 years already felt the effects of the global economic crisis and while we
have been incredibly prosperous and many of today’s business may be undecided as to the extent of the impact here, there is no
leaders are inexperienced when it comes to managing through a doubt that the bigger picture has changed and local businesses,
prolonged period of uncertainty and all the changes this presents. their leaders and teams need to start changing the way they
think, hire, fire, plan, strategise and operate in order to make it
Panic often results in a reaction typified by freezing budgets and through.
following short-term cost-saving measures - at the expense of a
strategy to realign the business with new market opportunities. Professor Karl Hofmeyr, Director of Company
Specific Programmes (CSP) at the University
A favourite metaphor of Collins’ is, “Almost across the board, of Pretoria’s Gordon Institute of Business
people are worried. As a rock climber, the one thing you learn is Science (GIBS) puts it well, “In times like
that those who panic die on the mountain. You don’t just sit on the these, the speed of learning has to be
mountain. You either go up or go down, but you don’t just sit and faster than the rate of change.”
wait to get clobbered. If you go down and survive, you can come
back another day. You have to ask the question, what can we do It is a big learning curve we are
not just to survive but to turn this into a defining point in history?” embarking on but an exciting one.
The type of leader Collins’ believes businesses need in order to The businesses that survive this
see beyond the ‘tough’ and spot the ‘extraordinary’ is what he transition will be the ones that
calls the Level 5 Leader. prepare for and embrace the big
changes coming and meet the
“Level 5 leaders are differentiated from other levels of leaders in challenges head-on.
that they have a wonderful blend of personal humility combined
with extraordinary professional will. Understand that they are In Collins’ view “… the
very ambitious; but their ambition, first and foremost, is for the possibility of seeing that
company’s success. They realise that the most important step (uninterrupted prosperity) again
they must make to become a Level 5 leader is to subjugate their in our lifetimes is very, very low.
ego to the company’s performance.” What we’re experiencing now,
get used to it! It’s life, and it’s
The question to Collins is, can Level 5 Leadership be learnt or is it the normal life.”
South Africa’s ongoing efforts to train its way out of the While the traditional approach to training and skills
deepening skills crisis by using formal, traditional training development had its place in the industrial age when change
methods won’t achieve much. The current focus on training occurred relatively slowly, today’s rapid pace of range
should be shifted to a focus on performance. requires a whole new training paradigm. What is taught in the
classroom today is often obsolete in the workplace tomorrow.
Businesses spend considerable time, effort and money
on training their staff in order to speed up their time to Yet organisations keep throwing money at the ‘tried, tested
competence. However, the desired end-result of the training and failed’ way of doing things because they do not think
should be workplace performance. Yet the focus of every there is an alternative.
conventional training programme is on ‘learning’.
If the desired outcome is to optimise an organisation’s work
Research has shown time and again that 80% to 90% of what force, conventional training programmes need to be replaced
is invested in training is lost because people do not remember with organisational ‘wells’. These wells support specific-skill
or cannot apply what they have learned. Indeed, conventional development through smart workplace support. They are
training’s track record in terms of improving performance, designed with change in mind and placed strategically within
especially at the organisational level, is poor. the work environment.
BUSINESS
SOFTWARE
Is business software
coming of age?
In an effort to deal with the ongoing changes
in a dynamic and fluid environment, business
stakeholders need to invest in the best
software possible to take their businesses to
the next level. This software must be able to
translate a business vision into a realistic set of
practical steps and then deliver the appropriate
solution into the day-to-day operations of
an organisation. The question remains, are
decision makers objectively choosing the best
software for their businesses?
The test of time Accounting was one of these modules, human resources
One of the first business applications ever developed was an another, manufacturing processes a third and logistics a
airline booking system. With ticket offices all over America fourth. Customers with mainframes were surprised to note
and long waiting lists for commercial air travel in the mid that R/2 used the time-sharing facilities of IBM’s operating
1950s, American Airlines noted that it was inevitable that systems, which meant that they could work on their data
there were going to be mistakes and delays correlating directly, similar to the standard login prompt of today,
the two. In conjunction with IBM, the Sabre system was rather than sending batches of work down to the computer
written. It took 10 years and $30million to develop, but when department for processing.
completed, made a huge difference to the day-to-day running
of the Airlines, giving it efficiency and the edge it needed. A demand for SaaS
Software as a Service (SaaS) is a model of software
The term “software” was not really understood until the deployment whereby a provider licenses an application to
1960s when IBM released its System/360 series that clearly customers for use as a service on demand. This type of on-
differentiated hardware from software. By 1969, the need for demand licensing and use alleviates the customer’s burden
programmers who dealt purely in software had become so of equipping a device with every conceivable application and
large that IBM spun off its own internal software division as reduces traditional End User License Agreement software
an entirely separate entity. maintenance, patches and support complexity within
organisations.
In 1972, five former IBM employees, Dietmar Hopp, Hans-
Werner Hector, Hasso Plattner, Klaus Tschira and Claus Managing Director of Liquid Thought, Roger Strain, explains
Wellenreuther did just that. They created a company with that the SaaS model has its roots in the payroll bureaux of
the name of Systems, Applications and Products in Data the 1970s and the application service providers of the 90s,
Processing. They were a German-based operation that had a but the mechanics of delivering the service were always a
Managing Director of
White Wall Web, Peter
Flynn, adds, “The key
components for SaaS
to become a reality
include a remote
server, web
access and an
application
that works
better
than the
original version that is installed on “The advanced BI technology focuses on
the end users desktop. With data the same types of issues that a social
throughput increasing and the pricing networking application addresses i.e.
of bandwidth dropping continuously, I connectedness, information on hand,
believe all the ingredients are available networking.
to launch SaaS as a reality and to
create an entirely new industry and Rose remarks that operational BI
business approach to the way things makes the technology more integrated
were done in the past. Ultimately, in with transactional applications for
the future all software will be web- agile responsiveness and is thus
based and accessed through various more directly connected to business
devices by users, an approach which, processes. “The obvious challenge to
compared to investing in on-premises these considerations is that of security,
solution, minimises costs, reduces the more pervasive the information
time to delivery, alleviates upfront the more difficult it is to ensure that
cash-outlay and allows for OPEX verses the types of deep insights that are
CAPEX budget allocations. SaaS also now being delivered onto mobile BI
reduces maintenance issues and platforms do not end up in the wrong
increases the frequency of release hands. Operational BI talks to merging
of upgrades along with a host of the analytical capability of the IT team
additional benefits.” with the operational savvy of the people
on the ground and embeds BI in the
One of the more prominent roles SaaS fabric of the business delivering the right
will play in today’s business arena is information to the right people at the
enabling the remote workforce and, as right time, which has been the vision of
ongoing research conducted by White BI since its inception,” she adds.
Wall Web and the forecasts that can be
assumed based on current trends show, According to Dave McWilliam, regional
by 2015 there will be approximately 15- manager for BI and PM at IBM South
million remote or mobile Internet users Africa, businesses are always conflicted
and 42-million cellular users in South between building a more efficient
Africa. organization or a more compliant one.
“A by-product of compliance is better
“Bandwidth proliferation, coupled with insight into an organisation, but this
the fact that Internet as a platform is relies on an effective understanding of
widely trusted, makes for a favourable good, clean, trusted data. Information
SaaS environment and we envision is a company asset, one that is
high levels of adoption over the essential to the efficiency of any
coming months. Technical advances organization. As MDs and boards are
like Cloud Computing, H(ardware)aaS, taking a more healthy interest in their
P(latform)aaS and virtualisation are companies’ performance, they are
also indicators of future growth in this looking to the financial systems to lead
arena,” says Flynn. the way,” says McWilliam.
CRM a “hot commodity” human intelligence is still required issues, improved customer service and,
A successful CRM solution should to understand customer behaviour, as a result, the lowering of day-to-day
enable a company to simplify its analyse it and then conceive targeted operational costs.
business transactions as far as campaigns that will drive the lifetime
possible and to achieve customer value of the customer. According to Fenner, a true aspiration
advocacy. Companies need to think of of CRM is to create content and
the interactive experience from their CRM is hot on the heels of the applications that are available for
customers’ point of view. worldwide web in terms of reinvention customers and other stakeholders to
and according to Strategic Sales not only help themselves, but also to
“This is particularly true, when we Director of Softline Accpac Keith help others. As Africa demands more
consider the impact of globalisation and Fenner, CRM is a hot commodity, which online capability, it is imperative for
growth in the uptake of the Internet is drawing attention from all corners of business to deliver a platform that suits
because today’s consumers are now business. the customer.
more sophisticated, educated and
discerning. This increased level of “Businesses rely on customers to keep ERP – critical or risky?
awareness coupled with instant access them afloat, so it stands to reason that Effective and comprehensive customer
to an abundance of information on both money spent on customer retention is participation at the right level of the
products or services and competitors money well spent. Those already riding organisation is critical to get ERP
makes the requirement for real CRM a the second wave of CRM are looking implemented correctly and to ensure
business priority,” says MD of Digital for even more powerful solutions, the client’s satisfaction. Most cost
Solutions, Yaron Assabi. while those who are still sitting on overruns occur when a client fails to
the sidelines realise that CRM is an provide his best people to participate in
Assabi adds that CRM is not merely a essential business tool. CRM drives preparation, planning and blueprinting
solution, but a strategy that should ERP. This new wave of CRM, which of a solution.
be aligned to the company’s mission, extends into the entire stakeholder
vision, goals and business objectives. space, means that various departments “When the outcome of the blueprint
CRM technology is merely a tool and of an organisation, such as sales, is not satisfactory, the ERP solution
companies need to take an educated customer care and marketing, are becomes risky as the input provided
approach when choosing a technology sharing all the information they collect by the organisation on its policies,
solution that will suit and promote their from interactions with customers processes, and procedures were not
CRM strategy. with the unified view of improving the best. ERP costs can be curtailed
customer service. This collaboration and contained if the customer makes
Additionally, while technology such of input results in increased customer available the most knowledgeable and
as a web-centric or multi-channeled satisfaction and loyalty,” says Fenner. skilled team,” says MD of Cornastone,
approach has made it easy to gain Hamilton Ratshefola.
insight into customer behaviour, If used effectively with the right
technology, collaborative CRM will Since most ERP systems are process-
actually solve two business critical driven, they must be implemented
in consultation with people who are
familiar with all processes in the
T
when they should be putting forward he use of speech analytics in a contact centre environment is fairly widespread,
their best people. The result is that but its use in a post-call survey is a new application with important benefits for
when the blueprint for the solution companies wanting to raise the bar in customer service.
is presented, there is unhappiness
and dissatisfaction, which requires “Speech analytics is able to detect a customer’s mood, monitor his/her tone and react
everyone to go back to the drawing to key words (e.g. swear words) in real time. Using speech analytics in a post-call
board. And that is when the costs start survey, the contact centre can automatically detect how that customer is feeling, not
to soar. necessarily from the content of their responses, but from the tone,” says Interactive
Intelligence’s regional sales director, for UK, Middle East and Africa, Dave Paulding.
All corporates are looking for alternate
ways to cut costs in the downturn in If the contact centre decides that the customer is upset, it can be programmed to
the world economy. One of the ways in
transfer the call immediately to a team leader or supervisor who can deal with the
which to do so is by the implementation
problem there and then. This is revolutionary for problem resolution.
of an ERP Payroll software solution,
says Dave Teron, MD of Paywell.
Even without speech analytics, post-call surveys have gone a long way to help
companies get a realistic view on customer satisfaction levels. A survey of 362
Teron recently read an American survey
companies conducted by Bain & Company in the US in 2006 revealed a startling
of 650 companies that revealed:
incongruity. Companies were asked if they were delivering a superior service, and
80% replied “yes”. Their customers were asked if they were receiving a superior
•9 5 % used Creditors control
service and 8% replied “yes”.
• 9 4 % used Stock control
• 93% used General Ledger and
Debtors control
Over the past few years, contact centres have woken up to the fact that they need
And only to do more to get an accurate view of their customers’ experience of their service.
• 18% used the ERP Payroll and As technology has advanced, companies are choosing post-call surveys over mailed
• 8% used the ERP Human Capital questionnaires and follow-up calls as they have a relatively high response rate – 10%
Management modules. to 15% vs. 2% in mailed surveys – they are cheap to implement, and companies can
get the results quickly.
Because the modules are individually
tailor-made to meet the customers’ But while post-call surveys enable the company to get a view on service areas that
requirements, every time there is could be improved, as well as input into agent training that may be required, the
a change to your requirements, the customer who received the bad service is still leaving the contact centre with a
ERP vendor will have to change the problem.
software’s source code. This will be
done at considerable cost to you, the With the use of speech analytics in a post-call survey, the company still gets the
user. feedback on areas for improvement, and is also empowered to take active steps to
change a customer’s experience from a bad one to a good one.
This applies specifically to the payroll
module, where on-going changes are Another benefit for using speech analytics in post-call surveys is that contact
required for statutory purposes, trade centres can completely customise their post-call survey settings to take an action
union demands or the company’s own appropriate to their organisation. Some vendors offer a self-configuration option
employment policies. using a set-up wizard, so it is not necessary for the contact centre to call out a
technician every time that want to change their post-call survey.
Even small changes to your Payroll
will require source code changes, re- For companies wanting to change the dynamics in their customer relations and raise
compilation and testing which again will the bar customer satisfaction, speech analytics in post-call surveys is a critical step.
FEATURE - BUSINESS SOFTWARE
not only be extremely expensive but take days or even weeks to complete.
also have time constraints. •P
ayroll data cannot be restored
without restoring the entire ERP
Teron adds that many corporations database and subsequent data
believe that it is desirable to have “on- re-captured.
line real time” interfaces between the
Payroll module and other ERP modules, HR and Payroll
but says that what is not realised – do your
by management is that the payroll homework
information is very rarely required The vast majority of
in the ‘integrated’ needs of the accounting and payroll
corporation on a day-to-day basis. programs perform similar
functions. Does this mean you
In these sophisticated environments cannot go wrong when it comes
there are a number of pitfalls that are to choosing accounting and payroll
overlooked when the decisions are software? According to CEO of Softline,
made to purchase these solutions. The Ivan Epstein, there are differences
biggest one is, what is the true cost of among programs and the information
the ERP solution? they deliver, as well as companies
that develop accounting and payroll
• I t is critical to know up-front what software.
the costs will be for implementation
services and maintenance charges. When looking for the best solution for
• M inor amendments, such as a simple your business, Epstein advises that
change to a Union deduction, must you take a close look at the company
be done via a database Administrator, that develops the software and find out Can your software expand as your
usually overnight. more about its levels of back-up and business grows? This means finding
• M ajor source code updates, such as service, as well as its vision for the out whether the software manufacturer
the Medical Aid Capping, are only future, in terms of its own products has a family of products that you can
done by the vendor and implemented and the software industry as a whole. upgrade to over time in a logical, easy,
via a database Administrator and can Scalability is another important issue. and cost-effective manner? And, can
you add elements to enhance the
existing software?
South Africa could create jobs
by entering $56bn software testing market “Not doing enough homework is one
of the most common mistakes people
S outh Africa needs to move faster to seize opportunities in the $56bn computer
software and systems testing services market.
make when selecting accounting and
payroll software. Analysing and then
selecting this type of software takes
“India, which has been the preferred market, is battling to cope while South Africa time and effort, and information
with its reputation for innovation and high standards in information technology is critical to selecting the most
is lagging in seizing opportunities in an area of the global economy that is not appropriate system for your business,”
faltering, but is growing,” according to Liza van Wyk, CEO of management and says Epstein.
skills-training organisations AstroTech and BizTech
In South Africa, there is a need for
IT expert, Arthur Goldstuck of World Wide Worx says that there is not sufficient a change and better use of financial
usability testing done in South Africa and developers often convince clients that all and accounting systems. People and
is in order and once in use costly errors occur. businesses have become more cost-
conscious and therefore it is vital to
International IT industry consulting firm, Ovum says, “Software testing services invest in the ability to have easier
will grow at a compound annual growth rate of 9.5 percent from 2008 to 2013, access to the information in their
faster than most other (information technology) services.” More companies are financial and accounting systems. This
outsourcing testing services, according to Ovum. will enable greater control and insight
into businesses.
“This gives South Africa, with its excellent software developers and information
technology companies, a gap to create work and opportunities in an increasingly “Companies have always needed
important field,” Van Wyk says. “Although India has been the favourite provider, a financial package to run their
due to the high demand of testing requests, India is no longer coping and more businesses but they often do not
testing services jobs are going to places like China, Malaysia and North Africa.” have proper insight into what various
systems can offer them. Using BI in
“In our current economic times we need to maintain market share and customer conjunction with a financial solution
satisfaction and therefore testing is essential. This is also a field that is outsourced can change the way a company does
by major groups globally and South Africa needs to move to gain market share,” business as well as prevent the kind
according to Van Wyk. of situation we find ourselves in, as
Survival of
have all the information that they
need to make appropriate decisions.
They just do not have the tools that
can help them make sense of the
information – because ERP collects
rather than connects information. BI,
in contrast is better at connecting
the fittest.
information that has already been
collected.
an off-the-shelf package offered to CEO of training company, AstroTech, game-style technique to permit
organisations may be able to meet 70% Liza van Wyk said, “The virus or worm someone to command it remotely.
to 80% of what is required to achieve called Conficker or Downadup, is spread Each day it generates a new list of
this, the package is essentially not by a Microsoft Windows vulnerability, 250 domain names. To control the
tailored to meet their specific needs, by guessing network passwords and botnet, an attacker would need only
which can result in a percentage of the by hand-carried consumer gadgets to register a single domain to send
overall cost being wasted. OSS allows like USB keys. Worms like Conficker instructions to the botnet globally,
an organisation to improve and adapt harness infected computers into greatly complicating the task of law
applications accordingly, all depending unified systems called botnets, which enforcement and security companies
on how the business would prefer to then accept programming instructions trying to intervene and block the
use them,” says Davies. from their clandestine masters. Many activation of the botnet. Computer
computer users may not notice that security researchers expect that
Don’t neglect disaster management their machines have been infected, and within days or weeks the bot-herder
Last year, computer experts issued computer security researchers said who controls the programs will send
warnings about what they said was they were waiting for the instructions to out commands to force the botnet to
the worst Internet virus yet, a worm materialize, to determine what impact perform some as yet unknown illegal
that is stealing personal and corporate the botnet will have on PC users. It activity.
information and using computers to might operate in the background, using
infect others. Warnings have intensified the infected computer to send spam or “A cleverly managed worm could disable
because millions of computer users infect other computers, or it might steal a good deal of the world’s computers,
have still failed to install relevant the PC user’s personal information”. devastating economies and companies
patches that could protect them. and so it is essential that companies
The program uses an elaborate shell- revisit their disaster management
programs and if they don’t have
them they need to create them. With
computers, as an example, there are
some essentials that not all companies
have in place. System data should
be backed up regularly and should
designate the location of stored data,
file-naming conventions, media rotation
frequency and method for transporting
data offsite. It is good business practice to store backed- adopt a software package that will improve business efficiencies,
up data offsite in commercial data storage facilities that costs and save time. It is therefore vital that the company
are specially designed for this,” Van Wyk says. align itself with a reputable organisation that understands the
company’s needs and is committed to developing solutions that
Van Wyk said that growing challenges around climate will meet the company’s vision for strategic customer experiences.
change was seeing pressure on companies to manage
insurance effectively, more flood, rain, hail, earthquake
and fire damage is being recorded globally and it has CONTRIBUTORS
put pressure on companies and individuals to revisit
insurance policies and to ensure they have adequate Liquid Thought Paywell
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“For soft issues such as how the team feels about the
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add a site visit to the decision matrix, for short-listed
suppliers. This allows you to quiz their customers face-
to-face and see the software in action,” she adds.
A final word…
We all know that the pace of technological innovation
will continue to accelerate, so as we enter times of
economic uncertainty, it is imperative that businesses
INFORMATION TECHNOLOGY
The burden of increased choice in internet service providers band is preferred by WAPA as it is a proven
is making the right decision to suit your needs. That much has commodity technology which provides for
become apparent with the proliferation of not only service the low-cost extension of connectivity to
especially those areas where copper or
providers but also technologies that enable a fast, reliable and
fibre connectivity is not available. When
secure internet connection. Making the right choice now requires dealing with a good ISP, it should be in a
an appreciation of the technologies that are available and a sound position to assist you to make the right
assessment of your use case. choice based not on the technology it
advocates, but rather on your specific
Professional Administrative and Secretaries CBM Training Providing the tools to cope with the
Conference Magaliesberg increasing demands being placed on
16 – 18 August 2009 Tel: 011 454 5505 administrators.
Email: training@cbm-training.co.za
The OHS Act and the Responsibilities SA Labour Guide The application and purpose of the
of Management Cape Town Occupational Health & Safety Act and
18 August 2009 Tel: 012 661 3208 how management needs to respond.
Email: info@labourguide.co.za
Economic Scenarios for South Africa and what Endeavor A session for entrepreneurs interested in
these mean for SA Entrepreneurs Johannesburg what might lie in the future for them and
19 August 2009 Tel: 011 463 0992 how they might respond.
Email: info@endeavor.co.za
The Company of the Future and the People Global Leaders The genetic make-up of the company of
Within Johannesburg the future presented by Dave Ulrich and
19 – 20 August 2009 Tel: 011 575 6142 Lynda Gratton.
Email: marcel@globalleadersevents.com
Advanced Credit Management EES-SIYAKHA Examines the role of the credit manager
25 – 26 August 2009 Johannesburg and the credit department.
Tel: 011 726 3040
Email: ryan@ees.co.za
10th Annual BHF Southern African Conference Board of Healthcare Funders The conference focuses on the National
2009 Sun City Health Insurance (NHI) debate and what
30 August – 2 September 2009 Tel: 011 537 0236 this could mean for healthcare in South
Email: zolam@bhfglobal.com Africa.
Implementing Skills Development The Portfolio Consulting Group Update on skills development and an
3 September 2009 Johannesburg exploration of the new occupational
Tel: 0861 754557 learning system.
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Business & Franchise Opportunities Expo Thebe Exhibitions & Projects Offering companies and franchisors
11 – 13 September 2009 Midrand, Johannesburg the opportunity to meet potential new
Tel: 011 549 8300 investors.
Email: renee@tepg.co.za
Pan African Health Expo & Conference 2009 CVL Consulting The National Health Insurance scheme
17 – 19 September 2009 Midrand, Johannesburg and its likely impact on healthcare.
Tel: 021 713 3360
Email: bettermc@fairconsultants.com
20th ECSAFA Anniversary Conference 2009 ECSAFA/SAICA/SAIPA Conference of the Eastern, Central
21 – 23 September 2009 Johannesburg and Southern African Federation of
Tel: 011 621 6620 Accountants.
Email: thembir@saica.co.za
Public Relations for Office Professionals Siyanqoba The role of office professionals is moving
8 – 9 October 2009 Cape Town/Johannesburg increasingly close to public relations
Tel: 012 998 3668 officer.
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PAYE School BDO Spencer Steward Practical advice on how to reduce risk,
29 – 30 October 2009 Midrand, Johannesburg ensure compliance and add value to
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Email: ktshikomba@bdo.co.za
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