Without compromising its black ownership status, this firm continues to produce stellar profits.

It won’t surprise many people that Hosken Consolidated Investments (HCI) is again the most empowered financial services company on the JSE.

After all, HCI is unlike any other company on the JSE. At least 40,5% of the firm is owned by the SA Clothing & Textile Workers’ Union (Sactwu). And the union’s members have been the main beneficiaries of the 57%/year growth in returns that the company has produced.

But what may surprise some is the extent to which HCI has been able to produce stellar profits without compromising either its black-ownership status or its investment strategy.

In round numbers, this meant HCI made R1,3bn in pretax profits last year.

This comfortably out-punched the pretax profits of the two companies higher in the empowerment ratings: Adcorp (R56m for the eight months to August) and Merafe Resources (R144m).

This makes HCI the largest most empowered company on the JSE.

But rather than resting on its laurels, HCI has bolstered its empowerment credentials this year. scoring 76% on the department of trade & industry scorecard — only a few notches below Adcorp (81%) and Merafe (79%).

Last year, HCI scored 70 points out of 100, with the most distinguishing characteristic being that it scooped the maximum 20 points for black ownership.

Though this seems as good as it could have got, HCI went one better this year, scooping three bonus points to score 23 for ownership. To hoot, it inched U the employment equity tables and preferential procurement by getting extra points by buying more goods from black-owned companies.

Empowerdex’s Stephen Hawes says it wasn’t too surprising that HCI improved its performance this year. They’re one of the most consistently empowered companies around.

The company is effectively run by trade union Sactwu, and their skills development and employment equity are particularly strong,” he says.

HCI was created in 1997 when Sactwu and the National Union of Mineworkers (NUM) reversed their empowerment assets into the JSE shell.

The architects behind this deal were former Sactwu secretary-general Johnny Copelyn and Marcel Golding, a former deputy to Cyril Ramaphosa at NUM. These two have since formed a formidable combination, with a steely eye on making astute deals that ultimately benefited union members.

As Copelyn will tell you, the important thing about HCI is that it’s not merely an investment firm with small stakes in larger companies, it actually controls and directs businesses — something of an enviable position for an empowerment company.

Hawes says this investment philosophy is evident, “benefiting themselves and their investments”. Though the trade union members have certainly benefited, so have Copelyn and Golding. At last count, Copelyn owned 10% of HCI, while Golding held 7%.

Among HCI’s impressive assets are free-to-air channel (now with 10,7m viewers, and soon to break into the lucrative pay-TV market), radio station Yfm (1,2m listeners), Golden Arrow Bus Services, dairy company Clover, niche finance house Mettle and Gallagher Estate.

But perhaps the most fundamental shift in the past few years has been its spurt in gaming assets. The jewel in HC1’s crown is Tsogo Sun, which HCI now controls through Tsogo Investment Holdings (TIH).

Tsogo is a sprawling empire. and owns a number of casinos across the country, including Montecasino in Johannesburg, and Suncoast casino in Durban.

Besides that, it owns Southern Sun, which has a portfolio of 81 hotels, in eight countries. Last year, Tsogo made earnings of R1,8bn — providing a significant boost to HCI’s bottom line.

One of the fringe benefits of HCI’s efforts to take control of Tsogo was that it also won control of Johnnic into the bargain. In 2005, Johnnic clashed with HCI as both companies sought control of Tsogo. Ultimately, HCI prevailed by buying more than 51% of Johnnic.

Johnnic is now the staging ground for some of HCI’s most ambitious projects, by paying R428m to buy 91% of US energy company Montauk, which operates landfill gas plants.

But it was quite a gamble for Golding and Copelyn, who served as members of parliament during Nelson Mandela’s presidency until 1997.

It started as many empowerment companies do — taking small strategic stakes in companies — but while its 5% of Vodacom turned out to be a moneyspinner, its investment in looked anything but sound in 1998 as the station haemorrhaged heaps of money.

As Copelyn says: “Institutional shareholders, who owned close to 50% of HCI, were at pains to point out their lack of confidence in us managing assets, particularly start-up ventures. Their vision was simply: Hang on to Vodacom, get rid of everything else.”

However, Sactwu and the company weren’t keen on taking this low road. Instead, HCI sold its stake in Vodacom and used the money to buy back 73% of the company’s shares for R2.37.

Those institutions who sold for that must be kicking themselves now, with the share skirting R80/share — roughly 33 times the level at which they sold their stock.

This buyback also resolved another tricky problem — tensions with one of its founding partners, the Mineworkers Investment Consortium (MIC). MIC also accepted the offer, leaving HCI with Sactwu as its major union shareholder.

But, disillusioned with the travails of being a public company, HCI then made an offer to buyout minority shareholders for R35O/share.

It met stout resistance, however, from its last institutional investor — the UK-based Marathon Asset Management — so Copelyn and Golding scrapped the plan. Shareholders who are now sitting pretty will be pleased they’ve been able to remain on board for this ride.

As a company with trade union assets, it is only appropriate that HCI has been pumping money into various social programmes for union members. It provides cash for 2 500 children of Sactwu members to attend universities and technikons, and another 1 000 bursaries directly through the HCI Foundation.

The foundation itself is interesting. Two years ago, Copelyn and Golding donated 4,5m of their own shares to the foundation to give it capital to fund its social projects.

With a capital base now exceeding R400mn, the HCI Foundation last year spent R16,5m (141% higher than the previous year) on its education, HIV/Aids and various welfare plans. For this year, it plans to spend R34m.

Little wonder that HCI scooped the full five points under the socioeconomic development section of the scorecard.

One might wonder how HICI could improve on any empowerment ratings. but there are areas where it didn’t do as well as it would have liked. For skills development, for example, HCI scored only 7,7 out of 15 possible points. Though this is a sharp improvement from last year’s 4.86. there is room for improvement.

Equally. its procurement score was just above the halfway mark and HCI was trumped in this category by all the big banks and other financial companies.

Also, it got fewer points this year for enterprise development (11,3 out of 15) than it did last year.

But as the largest empowered company on the JSE with a market capitalisation of R10bn (compared with Adcorp’s R1,8bn and Merafe’s R2,4bn), HCI has set the benchmark for profitable empowerment.

Source: Financial Mail – Supplement – Rob Rose