Slide 1

THE VALUE OF BEE DEALS

Results presentation

25 June 2015

Stuart Theobald CFA

www.intellidex.co.za

Slide 2

THE VALUE OF BEE DEALS

READY

BACKGROUND

• Recognised there is a lack of proper research to inform debates over BEE deals

• Ambition to calculate the total amount of net value created from BEE deals by the largest 100 JSE-listed companies

• In January 2015 began the research process • Developed independent model of each deal to estimate NAV at end

December 2014 based on company circulars and announcements • Presented our results to companies for comment • Companies provided feedback including missing data • Developed estimates in light of data to finalise results • Various assumptions had to be made in some cases

Slide 3

THE VALUE OF BEE DEALS

READY

KEY RESULT

R317bn

Total value generated in the 20 years to end 2014 from both matured deals and deals that were live at that stage

Slide 4

THE VALUE OF BEE DEALS

READY

MAKING SENSE OF R317bn

R 179.5

R 317.0

R 0.0

R 50.0

R 100.0

R 150.0

R 200.0

R 250.0

R 300.0

R 350.0

Tax take Deal value

1.8 times the total amount of corporate income tax paid in 2014

R 285.0

R 317.0

R 0.0

R 50.0

R 100.0

R 150.0

R 200.0

R 250.0

R 300.0

R 350.0

Value of agri land &equip

Deal value

1.1 times the total value of agricultural land and equipment in SA

Sources: Sars, department of agriculture, Intellidex

Slide 5

THE VALUE OF BEE DEALS

READY

THE TIMING OF DEALS

0

5

10

15

20

25

30

35

≤2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of deals launched/matured per year

Deals launched Deals matured

2004/5 was the peak period for the signing of deals (50 deals) Maturity periods range from seven to 10 years.

Slide 6

THE VALUE OF BEE DEALS

THE TIMING OF MATURING DEALS

2014 was a record year for maturing deals with R59.8bn of value delivered to beneficiaries

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Value generated by maturing deals per year (Rbn)

Slide 7

THE VALUE OF BEE DEALS

THE BREAKDOWN OF LIVE VS MATURING DEALS

Live deals still face market risk as share prices can fluctuate

R107 839

R209 203

Value by matured vs live deals (Rm)

Matured

Live

Slide 8

THE VALUE OF BEE DEALS

TYPES OF BENEFICIARIES

Contrary to recent comments, staff and community schemes have accrued substantial value

16%

62%

22%

Value by beneficiary type

Staff schemes (R52bn)

Strategic investors (R196bn)

Community schemes (R69bn)

Slide 9

THE VALUE OF BEE DEALS

EVOLUTION OF BENEFICIARY TYPES This illustrates

how different beneficiary groups have evolved over time. It indicates the cumulative value attributable to each beneficiary type as a percentage of the total, according to the date of deal initiation.

Slide 10

THE VALUE OF BEE DEALS

SOURCES OF RETURNS KEY DRIVERS OF RETURNS

• Share price appreciation • Length of deal – compounding effects • Reinvestment of dividends – compounding

effects

R24 369

R291 892

Value by returns type (Rm)

Dividends

Capital appreciation

Slide 11

THE VALUE OF BEE DEALS

VALUE CREATION PER INDUSTRY Value creation per industry sector

Sector Total value (Rm)

Value as % of

mkt cap

Banks R 57,228 6.0%

Financials R 32,358 5.4%

Healthcare R 14,289 7.2%

Industrial R 56,740 2.1%

Investment companies R 10,431 4.2%

Mining R 100,915 11.8%

Pharmaceutical R 9,568 5.0%

Property R 8,872 3.9%

Retail R 7,677 1.8%

Telecoms R 17,246 2.7%

Travel & Leisure R 1,636 3.6%

Mining has been the biggest creator of value in both absolute and relative terms Retail relatively underweight. Reflects voluntary mechanism of BEE

Slide 12

THE VALUE OF BEE DEALS

SHARE PRICES AS MAJOR DRIVERS OF RETURNS

2008 recession left many deals under water. Three fold recovery since. Mining has struggled to recover post 2008 Global equities bull market has been important factor

50

100

200

400

800

De

c 2

00

4

May

20

05

Oct

20

05

Mar

20

06

Au

g 2

00

6

Jan

20

07

Jun

20

07

No

v 2

00

7

Ap

r 2

00

8

Sep

20

08

Feb

20

09

Jul 2

00

9

De

c 2

00

9

May

20

10

Oct

20

10

Mar

20

11

Au

g 2

01

1

Jan

20

12

Jun

20

12

No

v 2

01

2

Ap

r 2

01

3

Sep

20

13

Feb

20

14

Jul 2

01

4

De

c 2

01

4

Financials Industrials Banks Healthcare Mining

Slide 13

THE VALUE OF BEE DEALS

20 LARGEST BEE DEALS

Of the 100 companies studied, 17 had done no deals and eight had deals that were underwater as at end 2014

Company Deal start date Live/

concluded?

Staff

schemes

Strategic

partners

Community

schemes Total Value

FirstRand Jun 2005 Concluded R 5,971 R 2,594 R 14,698 R 23,262

Exxaro Nov 2006 Live R 1,045 R 15,788 R 0 R 16,832

Sanlam Apr 2004 Concluded R 0 R 7,915 R 6,476 R 14,391

Naspers Dec 2006 Live R 0 R 13,884 R 0 R 13,884

MTN Nov 2010 Live R 0 R 12,200 R 0 R 12,200

Impala Platinum Jul 2007 Live R 0 R 0 R 11,339 R 11,339

Standard Bank Oct 2004 Concluded R 4,367 R 4,359 R 2,179 R 10,905

RMH Dec 2011 Live R 0 R 9,878 R 0 R 9,878

SABMiller Jun 2010 Live R 3,882 R 4,076 R 1,747 R 9,705

Aspen Mar 2005 Live R 0 R 8,684 R 0 R 8,684

South32 Jul 2007 Concluded R 0 R 7,949 R 0 R 7,949

RMI Dec 2011 Live R 0 R 7,096 R 0 R 7,096

Mediclinic Jun 2005 Live R 1,383 R 5,321 R 0 R 6,704

Anglo American Platinum Jun 2002 Live R 0 R 0 R 6,652 R 6,652

Old Mutual Aug 2005 Live R 3,716 R 1,696 R 969 R 6,381

Kumba Iron Ore Nov 2006 Live R 646 R 0 R 5,136 R 5,782

Nedbank Jun 2005 Concluded R 2,185 R 1,743 R 1,573 R 5,501

Netcare Jun 2005 Live R 2,547 R 1,329 R 561 R 4,437

Northam Platinum Jan 2008 Concluded R 0 R 3,921 R 0 R3,921

Vodacom Oct 2008 Live R 0 R 3,646 R 0 R3,646

Slide 14

THE VALUE OF BEE DEALS

A NOTE ON THE DIFFERENCE BETWEEN VALUE AND OWNERSHIP • Deals are transitory. Value is created at a moment in time • BEE deals generate balance sheet – equity that can be used by beneficiaries • BEE deals involve concentrated exposures. We should expect rational

investors to want to diversify exposures to balance risk and return • To the extent that beneficiaries are natural persons (staff, strategic investors)

we should expect normal life-cycle asset class distribution • Equity is a long-term savings asset class so suits older savers focused on

retirement funding • In short, should not expect shareholdings to be held by beneficiaries for long • “Normal” racial pattern of share ownership should reflect a normal

distribution of economic resources at large. Individual share ownership is the result of transformation rather than a cause of it.

Slide 15

THE VALUE OF BEE DEALS

QUESTIONS?

A report and spreadsheet with all the deals we analysed are available at www.intellidex.co.za/bee