CAPE TOWN – One of the marks of a good CEO is that he or she sees the world a little differently. They have insights that set their views apart from the general consensus.
This was clearly apparent at the recent Glacier by Sanlam Investment Intel event in Cape Town, where three local CEOs shared a stage and gave their views on their businesses and the current environment. Michael Mark of Truworths, Sisa Ngebulana of Rebosis and Danie Meintjies of Mediclinic each made some thought-provoking contributions.
Here are some of their insights:
Michael Mark on Truworths’ acquisition of Office Retail Group in the UK
“It became obvious a few years ago that we had to expand into the rest of Africa. But Africa outside of South Africa is complicated. It is a long term opportunity, but it’s a slow process, and it’s not obvious that there’s room for enormous expansion in the short term.
“So we’ve been looking for years at the northern hemisphere. Taking our own brands there is very difficult because we buy for the southern hemisphere, so we are effectively six months behind. But we have a lot of processes and expertise that we can export. After many examinations of alternatives, we felt that Office Retail Group has the same DNA as us and believes philosophically in the same things we do, and yet we saw massive opportunity for us to improve the business.”
Sisa Ngebulana on whether you should invest directly in property or buy listed property
“Direct property has its own risks. If you don’t have the skill to manage it correctly it might look good from a yield perspective, but there are real challenges.
“All the real estate investment trusts (reits) in the listed sector offer attractive yields. At the moment Rebosis is trading at about an 11.3% forward yield and you can expect 10% capital growth on top of that. You are never going to get that in physical property.”
Danie Meintjies on the growing demand for private healthcare
“The ageing population is definitely one of the drivers of demand, and at the same time technology is also making it possible for different surgeries to be done more safely on older people. With minimally invasive surgery we are now able to do relatively small and safe procedures that weren’t possible ten years ago.
“The growing middle class is another factor. And in some countries like ours, the declining ability of government to provide proper services also drives demand.
“But the negative side is the affordability. It is expensive to provide quality healthcare. So we need to become more efficient, and find better ways of doing things.”
Michael Mark on why foreign investors love Truworths
“One of the main reasons why we are so attractive to foreign investors is because South Africa has an unusually high level of young people who over the next ten to twenty years are going to form an emerging, and growing, middle class. In places like Europe, the middle class is shrinking. That’s the attraction and why we feel we are in the sweet spot because our business aims at youthful people, selling an aspirational product.
Sisa Ngebulana on the challenging economic environment
“In the property space at times like this it’s most important to ensure that are you correctly geared from a debt perspective and that you have the right quality in your underlying properties. If you are more exposed to convenience centres and neighbourhood centres, that is where you have bigger vacancies, where the estate agent or the hairdresser may close. But the bigger regional centres tend to be far more resilient because people go to one place to shop where there is critical mass.
“We also run programmes to help smaller retailers because they are generally not ready for the down cycles. These try to make sure that they stay relevant to their customers from a service, product, and pricing perspective, because if we have a failure we are going to have bad debt and have to replace the tenant with someone else.”
Danie Meintjies on the NHI
“The NHI is a noble social idea. Governments feel that they have an obligation to ensure the basic right of access to quality care. The problem is whether you can afford it. And can you, in an economy like ours and in a very disparate society like ours, have one system where one-size-fits-all?
“Our point of departure is you need a tiered system. Food is also a basic human right. Government starting a feeding scheme is good, but you shouldn’t then stop the baker who is making expensive French bread.”
Michael Mark on foreign competition
“Zara, H&M and Cotton On are the major international players that have come here, but when we look at our numbers they don’t seem to have had any material impact on any specific store. H&M is now in four malls, in all four the numbers for our stores in those malls have improved relative to the rest of the chain. I expect that its because they attract more people.
“I have a view that competition is life. But we have a big advantage in that we have 3.5 million credit customers. Those are loyal customers which gives us an enormous advantage over our international competitors.”
Sisa Ngebulana on government as a tenant
“We are very particular about the type of government we are exposed to, but our experience with national government has been fantastic. It’s based on building a good relationship. We’ve enjoyed good long-term leases, we get paid on time and we have zero bad debt.
“What’s also important for us is that we a treat government just like we treat the private sector. A lot of other real estate funds made the mistake of not treating government the same way as their private sector clients, but we make sure we look after them. The buildings must be properly maintained, the lifts must be efficient, the air conditioning must work. Those little things are very important.”
Danie Meintjies on a potential credit downgrade for South Africa
“I cannot look into the crystal ball, but I think its factored into prices already. In our own local operations, there will be an increase in costs, but more than 70% of our business is now offshore, so the impact on us as an entity will obviously be less. You should rather ask what would happen if we have a Brexit.”