COGNIZANTJANUARY 2017

ENDURING QUALITY | VISA CASHING IN ON A CASHLESS SOCIETY | SPAR GOOD FOR YOU | THE ECONOMY IN 2017 IN SEARCH OF SILVER LININGS | THE QUALITY OF LIFE

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COVER IMAGE – FABERGÉ EGGSFounded in 1842, the House of Fabergé was commissioned by the Russian royal family to create jewel-encrusted eggs for Russian Tsars as a gift for their wives. Known for their intricate detail, impeccable quality and unbridled beauty, the imperial eggs took a year or more to make and involved a team of highly skilled craftsmen. Today, the House of Fabergé produces a range of quality jewellery and timepieces that cater for the elite.

TABLEOF

CONTENTS

INTRODUCTION 3

ENDURING QUALITY 4

VISA CASHING IN ON A CASHLESS SOCIETY 10

SPAR GOOD FOR YOU 15

THE ECONOMY IN 2017 IN SEARCH OF SILVER LININGS 19

THE QUALITY OF LIFE 23

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INTRODUCTION CHRIS POTGIETER – HEAD OF PRIVATE CLIENT SECURITIES

What a tumultuous year 2016 has

been! The surprises ranged from

unpleasant to pleasant and mostly left us

asking “what next”? In South Africa, we

faced a troubling start to the year and

an uncertain future path, but as the year

progressed we slowly came to terms

with the factors that led to our collective

confidence collapsing at the start of the

year. All three ratings agencies gave SA

the benefit of the doubt and our investment

grade status was maintained – a rarity

among commodity-exporting emerging

market countries. On the global front, the

big surprises included the results of the

Brexit vote and the divisive US presidential

election. Another (positive) surprise was

the resilience of markets in the face these

events. Despite short-term volatility, markets

mostly recovered to their long-term trends

– even in the global fixed income market

tentative interest rate normalisation can

be seen. It is during these (often brief)

times when negative sentiment weighs

on markets that investors have the best

opportunity to acquire quality companies

at a better price.

As we enter 2017, what can we expect?

While none of us have the proverbial

crystal ball at our disposal, it does appear

fairly certain that the world is moving from

monetary stimulus to fiscal stimulus and that

this shift will be led by the US. The market

is expecting the Trump administration to

spend up to US$1 trillion repairing and

building the US infrastructure, which

should boost the real economy in a

way monetary stimulus could not. If this

happens, it should benefit equity and

commodity markets and lead to a gradual

normalisation of interest rates. Locally,

stable politics coupled with a strong rand

will help SA navigate the risks that the

global economy still presents. On the risk

side, the world faces the demise of old

orders and alliances – both politically and

economically. New orders and alliances

still need to be tested and that will take

many years. These developments could

be good or bad depending on where

you stand. It is in such an environment

where one would want to be invested

in quality companies.

In our feature piece, we unpack what

“quality” means and why it should be

considered, together with valuation, as

the bedrock for long-term investments.

We then look at two companies from our

model portfolios – one local (Spar) and

one global (Visa) – to explain in practical

terms how a quality-focused investment

philosophy plays out. We have invited

economist Roelof Botha to give us insights

into the local economy and an overview

of the economic outlook for the year

ahead within the global context. The title

of the article does give something away:

“The economy in 2017 – in search of

silver linings”.

So, we are still facing many uncertainties

in the markets over the next year. But there

will also be many excellent investment

opportunities. Herein the words of John

F. Kennedy ring true: “The Chinese use

two brush strokes to write the word 'crisis'.

One brush stroke stands for danger;

the other for opportunity. In a crisis, be

aware of the danger – but recognise the

opportunity.”

Wishing you a prosperous 2017!

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ENDURING QUALITYSAMEER SINGH – RESEARCH ANALYST

“Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skilful execution; it

represents the wise choice of many alternatives.” – William A. Foster

Most investors know about the traditional Value and Growth investment strategies. However, "Quality" as an investment strategy

has been gaining traction due to its success in adding long-term value in the context of increasingly volatile and uncertain markets.

Quality investing is based on a deep understanding of the factors that influence a company’s performance over the longer term.

However, quality means different things to different people and unlike other investment strategies such as Value and Growth, there

is no universally agreed upon definition of Quality.

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RESEARCH AND QUALITY

FACTORS

Putting aside the lack of consensus, decades

of research provide us with a notable body

of knowledge to draw from. Interestingly, it

was the father of Value Investing, Benjamin

Graham, who in 1949 introduced the

importance of recognising the quality

of a business in addition to the price

(valuation) being paid for it. In Graham’s

seminal work, The Intelligent Investor1, he

highlights that an investor should “apply

a set of standards to each purchase, to

make sure that he obtains a minimum of

quality in the past performance and current

financial position of the company, and

also a minimum of quantity in terms of

earnings and assets per dollar of price”. He

further outlines seven quality and quantity

criteria by which purchases should be

evaluated. These include: adequate size

of enterprise; strong financial position;

earnings stability; dividend record; earnings

growth; moderate price to earnings ratio;

and moderate price to book ratio.

The strong focus on earnings in the criteria

emphasises the importance Graham placed

on profitability. This emphasis is a common

thread through academic literature on

this topic. Examples include Fama and

French, who chose equity income to book

value, and Dimensional Fund Advisors'

direct profitability ratio2. One of the most

influential proponents of quality investing

has been Jeremy Grantham of GMO3.

He defines a quality company as one

that has high profitability, low leverage

and low earnings volatility.

Another recently popularised ratio is return

on invested capital (ROIC), espoused

by investor and Columbia Business

School Professor Joel Greenblatt4. ROIC

is often seen as a quantitative measure

of profitability and management’s skill.

Greenblatt also suggests combining ROIC

with free cash flow yield. This is used to

introduce an element of valuation into the

screening process.

Other practitioners and academics have

extended beyond a single quality measure,

opting rather for multi-metric definitions. The

F-score, developed by Joseph Piotroski5,

uses nine metrics, while the MSCI and S&P

indices also maintain investable quality

indices and rankings.

Looking through the historical context, we

are reminded that quality investing at its

core is a defensive investment strategy

– one that aims to limit volatility (risk

of capital loss) through predictability

(earnings growth track record) and

stability (strong financial position and

stewardship). The combination of the

above is that quality companies are

less affected by negative market and

economic cycles. This is what makes a

quality investment strategy attractive to a

long-term investor.

HOW WE DEFINE QUALITY

We believe the mainstream value and

growth investment styles have inherent

deficiencies. Value managers are often

ENDURING QUALITY

TABLE 1: SNAPSHOT OF QUALITY MEASURES

QUALITY DEFINITION CRITERIA

Benjamin Graham • Adequate size of enterprise • Strong financial position • Earnings stability • Dividend record • Earnings growth • Moderate price to earnings ratio • Moderate price to book ratio

Fama and French • Equity income/book value

Dimensional Fund Advisors' Direct Profitability

• Operating income before depreciation and amortisation less interest expense scaled by book value

Jeremy Grantham – GMO • Low leverage • High profitability • Low earnings volatility

Joel Greenblatt • Return on invested capital • Free cash flow yield

Piotroski F-Score • Return on assets • Net income • Operating cash flow • Leverage • Liquidity • Issuance • Gross margins• Asset turnover • Stability of earnings

MSCI Quality Indices • Return on equity • Debt to equity • Earnings volatility

S&P Quality Rankings • Using earnings per share and dividends over the last 10 years. A score is created based on changes in the growth profile, stability with long-term trends and cyclicality

1 Graham, Benjamin. 1973. "The Intelligent Investor" (4th Rev. ed.). Harpers & Row, New York, New York.2 Robert Novy-Marx, “Quality Investing” (2014)3 GMO. 2004. “The Case for Quality–The Danger of Junk.” GMO White Paper.4 Greenblatt, Joel. 2010. “The Little Book That Still Beats the Market.” John Wiley & Sons, Hoboken, New Jersey.5 Piotroski, Joseph D. 2000. “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers.” Chicago GSB, Selected Paper 84

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classed as contrarians, purchasing stocks

that they believe are trading below their

intrinsic/net asset values. Sometimes,

this is done in the face of falling share

prices. This results in "lumpy alpha" or

outperformance being concentrated in

short periods of recoveries in those stocks.

The problem with this strategy is that it

is difficult to pinpoint when sentiment

shifts and negative market momentum

turns positive, resulting in the potential

of holding ever-cheapening stocks (i.e.

catching a falling knife). Growth managers,

on the other hand, seek out strong share

price and earnings momentum resulting

in periods of excess returns. However,

these returns may come under pressure

over the longer term as trends reverse.

At PCS we build resilient portfolios, with the

objective of generating attractive long-term

returns while minimising risk. We do this

by combining a top-down methodology

with bottom-up stock selection. Top-down

analysis is long term and secular in nature,

incorporating analysis of economies

and markets. We use these findings to

highlight themes that then warrant research

into particular industries and sectors for

attractive stock selection opportunities.

Our bottom-up selection focuses on strong

fundamentals combined with quality

characteristics.

We seek companies with high returns

on invested capital, strong free cash

flow generation, operating margin

expansion (increasing profitability),

long-term earnings and dividend growth

prospects, balance sheet and financial

strength, exemplary management

quality, an economic MOAT and

reasonable valuations. The value of

a good quality management team must

not be underestimated, as they have the

ability to enhance a company’s brand

and reputation, protect it against risks,

increase its efficiency and boost its profits

and position.

THE IMPORTANCE OF

VALUATION

Going back to Graham, valuation pays

an important role in quality’s attractiveness

as an investment strategy. Arguably the

most successful investor of all time, Warren

Buffett, stated that, “It’s far better to buy a

wonderful company at a fair price than a

fair company at a wonderful price.” While

there are historic analyses that show quality

investment strategies deliver favourable

performance over time, there are also

studies that demonstrate the investment

returns generated by quality are actually

quite small. However, when quality is

combined with value, investment returns

improve substantially.

A study released recently by MFS

Investment Management6 showed that

investing in a portfolio of inexpensive stocks

(low valuation) would have outperformed

investing in high quality stocks by a small

amount. However, when investing in

a portfolio of stocks that are both

high quality and inexpensive, the

investor would have outperformed the

market by almost 5% per year over the

38-year analysis period. In addition,

the study found the level of persistency

of returns to be greater in the high quality

group of stocks.

TABLE 2: THE PCS QUALITY METRICS

METRIC MEASUREMENT

Return on Invested Capital Assesses a company's efficiency at allocating the capital under its control (equity and debt) to profitable investments

Free Cash Flow Yield Gauges a company's ability to generate cash and essentially self-finance. Also used as a valuation metric similar to a dividend yield

Operating Margin Indicator of profitability of a company, measuring how much earnings are generated per dollar of sales

Balance Sheet Strength Multiple measurements including solvency ratio, activity ratio, degree of leverage and capital structure – measures a company’s resilience to downturns

MOAT Measures a company's ability to maintain competitive advantages over its competitors in order to protect long-term profits and market share from competing companies

Management Management depth and experience, a solid track record of delivering on key metrics and clear articulation of future strategy and targeted results

6 “Quality and Value; The Essence of Long-Term Equity Returns”; MFS Investments; White Paper Series, June 2015

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ENDURING QUALITY

CONSTRUCTING QUALITY

PORTFOLIOS

We build concentrated portfolios of quality

companies, aiming to own between

20 and 25 companies at any given

time. It is not enough to simply identify

a quality company. Investors need to be

discerning as to the price paid, as this

sets the base for future returns. Some have

argued that quality stocks always trade

at a premium to the market. While some

quality companies do generally trade at a

higher value than the market, we believe

there is enough opportunity to find quality

companies at an opportune price through

active portfolio management. This same

approach is needed to determine when

to sell a quality company. We mitigate

the risk of holding only “expensive”

quality companies by applying a portfolio

approach to quality stock selection.

This is achieved by splitting investments

into groupings of stalwarts and growth

opportunities (future stalwarts). Stalwarts

are companies with long-term track records

of profitability, low leverage, sound

financial and business management and

established, strong market positioning.

Examples of these are Visa, Johnson &

Johnson and Nestlé. Growth opportunities

are companies that we believe are on

their way to becoming great. Some

examples of these are Starbucks, Nike

and Alphabet (Google). Maintaining a

mix contributes to portfolio diversification

(risk mitigation) and provides a “value

unlock” element as good companies

rerate to great companies, and this is

reflected in share price appreciation.

REAPING THE REWARDS

At PCS, we manage a range of model

portfolios and consistently apply our

quality investment process across these

portfolios. These portfolios are used as

reference points to implement our clients’

investment strategies, which are tailored

to their particular investment objectives.

For example, our Equity Income Model

Portfolio is primarily focused on providing

stable income streams, so our process is

geared towards identifying companies

that have shown an ability and willingness

to consistently return cash to shareholders

through meaningful dividend payments.

Our flagship Core Equity Model Portfolio,

on the other hand, blends a mix of growth-

oriented quality companies with mature

stalwarts with high revenue and earnings

bases that return cash to shareholders via

dividends and stock buybacks.

It is important to emphasise that reaping

the rewards of quality investing requires

patience and perseverance. Ultimately,

we believe that owning high quality

businesses over the long term is the best

route to achieving outstanding investment

returns. In the words of author Leo Tolstoy,

“The two most powerful warriors are

patience and time.”

Considering our clients’ goals of long-term

wealth creation, we believe investing in

quality companies that endure over time

presents a good fit. From an academic

point of view, there have been numerous

studies showcasing quality’s merits as an

investment strategy. Two of the world’s

largest index providers, MSCI and S&P, produce investable quality indices and rankings allowing for meaningful comparisons to market returns.

According to MSCI, quality growth companies are characterised as companies with durable business models

QUALITY BEYOND THE RATIOS

and sustainable competitive advantages. Companies that tend to have high return on equity (ROE), stable earnings that are uncorrelated with the broad business cycle, and strong balance sheets with low financial leverage, are targeted for

quality growth.

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MSCI use their three factors (ROE, stable

earnings growth and debt to equity ratio)

to create quality indices, including the

MSCI World Quality Index1.

MSCI highlight that their factor indices are

highly cyclical. So while the MSCI World

Quality Index has outperformed the generic

World Index over the long term, there are

sub-periods where investing in the quality

factors result in relative underperformance.

The difficulty for investors is to resist

capitulating during these periods of relative

underperformance. In a recently published

edition of their Research Insights, MSCI

conducted a bi-variable analysis of the

MSCI World Quality Index, the MSCI

World Index and MSCI’s World Sector

Indices. Their findings are presented in

the table below:

It is during periods of slowing growth

that quality factors display the strongest

relative performance, further validating

quality as a defensive investment strategy.

S&P rate companies on quality metrics

with a focus on earnings and dividend

criteria. In “The Case for Quality”2,

Gevorgyan and Orr conduct holdings-

based analysis using components of the

Russell 3000 Index. They split the index

according to the S&P Quality Rankings,

A-, B-, C-rated and unrated companies.

From their analyses, there are some

noteworthy highlights:

• There are fewer A-rated financial

companies – most of them are

C-rated. This could be owing to

leveraged balance sheets and

inconsistent earnings. The few that

were A-rated encompass large

insurers and firms with fee-oriented

business models.

• Consumer staples feature prominently

among A-rated companies. These

businesses typically enjoy stable

demand for their products, which

leads to more consistent earnings.

• Healthcare companies feature across

both A- and C-rated companies. The

larger pharmaceuticals, medical

device and care companies comprise the majority of high quality healthcare

companies. As with staples, these

larger firms maintain relatively stable

demand for their products and

services. This is in contrast to lower

quality healthcare companies, which

mainly contain small biotechnology

companies where economic success

is usually linked to one or a few

products which may still be in trial

or development phases.

Typically, the above companies are large

capitalisation businesses. These findings

inform the holdings within our Global

Equity Model Portfolio, which has a

preference for quality companies with

stable earnings, strong balance sheets

and competitive market positioning.

This portfolio maintains an overweight

exposure to the information technology,

consumer discretionary and consumer

staples sectors.

Source: Market Vectors, Gupta et al, 2014

ECONOMIC CONDITIONS

QUALITY FACTORPERFORMANCE SECTOR COMMENTS

Rising Inflation/Rising Growth

Moderate outperformance

IT sector outperforming, financials and telecommunications underperform

Falling Inflation/Rising Growth

Moderate underperformance

Energy and materials outperform, healthcare and consumer sectors underperform

Falling Inflation/Slowing Growth

Strong outperformance

Healthcare and consumer staples outperform, materials, energy and industrials underperform

Rising Inflation/Slowing Growth

Strong outperformance

Healthcare, energy and consumer staples outperform, consumer discretionary and materials underperform

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MSCI World QualityMSCI World

CHART 1: CUMULATIVE INDEX PERFORMANCE

1 Gupta, Abhishek, Altaf Kassam, Raghu Surtanarayanan, Katalin Varga. 2014. “Index Performance in Changing Economic Environments.” MSCI Research Insight2 Arman Gevorgyan and Amy Orr. "The Case for Quality."

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EVOLUTION OF THE ELECTRONIC

PAYMENTS INDUSTRY

Despite cash still being king, the

electronic payments industry has evolved

rapidly over the last two decades. The

trends in both emerging and developed

markets are well entrenched. Within

emerging economies, mobile payments

have been the main beneficiary. With

formal banking in emerging markets

reaching only 40% of the population

compared to 90% mobile phone

penetration, the preference for mobile

payment technologies has been driven

by the high percentage of an "unbanked"

population and the high usage of mobile

devices. The relatively low cost of

mobile money infrastructure (no ATMs or

point-of-sale terminals are required) has

endeared the technology to emerging

market consumers.

VISA − CASHING IN ON A CASHLESS SOCIETY

VICTOR MUPUNGA – RESEARCH ANALYST

Former IMF chief economist, Dr Kenneth Rogoff, recently published his latest book titled "The Curse of Cash". In the book, Dr Rogoff

argues that society would be better off phasing out paper money as it is making us "poorer and less safe". His contention centres

on his findings that the primary users of large denominations (and sums) of cash are tax evaders, terrorists, human traffickers and

generally the underground economy (the recent, drastic move to demonetise the 500 and 1 000 rupee notes in India is a case in

point). An additional argument put forward is that part of central banks’ policy arsenal, specifically negative interest rates, would

be more effective if there was no paper money for individuals to hoard.

From his arguments, it is clear that we are fast approaching a time in economic history where terms such as "a cashless society" will

not be idealistic expressions used by futurists, but rather a reality that defines how we transact daily. However, until we reach that

point, cash remains the most widely used payment method. In the US, it is estimated that over US$1.4 trillion in cash is currently in

circulation. This is not unique to the US, as over US$3 trillion of Europe’s personal consumption is still transacted with cash and cheques.

Within developed markets and largely

banked countries, like South Africa, the

most reliable and secure payment solution

remains the bank card. According to BNP

Paribas, payment cards are the leading

non-cash instruments used globally and

increased by 12% over the past year.

Factors that contributed to the growth

in card use include enhancements to

the card, such as contactless cards

and superior security features. Outside

of the aforementioned technologies,

the likes of PayPal, an online payment

platform, and even virtual currencies

(Bitcoin) have all emerged as contenders

to replacing cash.

0

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2008 2011 2015

Mill

ions

Cheque Credit Transfer Direct Debit

Credit Card Debit Card

CHART 1: GLOBAL NON-CASH TRANSACTION VOLUMES

Source: Celent

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85.0

57.8

32.8 26.7

8.51.5

163.6

101.390.7

64.0

22.3

6.00

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100

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Asia/Pacific Africa North America Europe Latin America Middle East

Mill

ions

2012 2016

CHART 2: MOBILE PAYMENT USERS BY REGION

Source: Statista

VISA – CASHING IN ON A CASHLESS SOCIETY

VISA – OUR FAVOURED

EXPOSURE

Our preferred exposure to this dynamic

and fast-growing sector is through Visa Inc.,

the global leader in payment technology.

Despite the proliferation of alternative

payment systems, we believe that the

incumbents (Visa and Mastercard) retain

strong positions primarily due to the

arduous barriers to entry, network effect

of their operating models and brand equity that draws users to their offering.

Visa’s dominant market position can easily be confirmed by the evidence that about 50% of all the credit cards around the world are Visa-branded. Furthermore, around 70% of all global debit cards are Visas. Despite this and the fact that consumers interact with Visa’s offering numerous times a day, Visa does not regard the consumer as its client. Instead, Visa’s client relationship is with the banks that issue Visa-branded credit or debit cards to consumers. Essentially, Visa’s offering is the network or technology that connects a consumer, a merchant, the consumer’s bank and the merchant’s bank.

CHART 3: PROCESSING STEPS INVOLVED IN A TYPICAL TRANSACTION ON VISA’S NETWORK, VISANET

Source: Company reports

AUTHORISATIONAuthorisation request messages are switched

between acquirers and issuers.

DAILY CLEARING & SETTLEMENTClearing files sent from acquirers are processed for final settlement between issuers and acquirers.

FRAUD AND RISK MANAGEMENTReal-time transaction monitoring, alerts and

encryption.

VALUE-ADDED SERVICESAccount level processing, loyalty, commercial reports and dispute resolution.

NETWORK PROCESSING

ACQUIRER PROCESSORISSUER PROCESSOR

ISSUERACQUIRER

MERCHANT ACCOUNT HOLDER

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THE VISA TRANSACTION

CYCLE

A typical transaction begins when a

consumer presents a Visa-branded

card to a merchant for payment. The

transaction information is conveyed

through VisaNet to the merchant’s bank

(acquirer) and then to the consumer’s

bank (issuer) for authorisation. Once

authorised, a clearing file containing

the final transaction data is submitted to

the acquirer and is processed for final

settlement. All these stages, with the

exception of the settlement which usually

happens at the end of the day, occur in

a matter of seconds. In exchange for the

use of its network for authorising, settling

and other value-added services, Visa

earns a fee from the merchant.

The gatekeepers to the payment network

are the issuing banks, who ultimately

decide which card (Visa or Mastercard)

to issue to their clients. Visa, along with

its major competitors, pay about 20%

of their gross revenues as incentives for

banks to issue their cards and thereby

use their network. The incentives paid

by payment networks to banks are the

primary source of funds for banks’ loyalty

programmes. This symbiotic relationship

between the banks, consumers and the

payment networks is one reason why

the barriers to entry are so high – each

additional user of the Visa network

increases the value to others. From a

merchant’s point of view, they want the

assurance that they will receive the funds

in their account and that they can trust the

card that the customer uses in their store.

This explains why merchants will only

accept certain branded cards, regardless

of the issuing bank. From a consumer’s

perspective, they would need to know

that their card is accepted everywhere,

even when transacting across borders.

Given how pervasive the scheme is, all

banks want to be part of the network,

so that they can easily settle transactions

with other banks across the globe. In

our opinion, this strong network effect is

a significant moat that any noteworthy

entrant into the electronic payments

industry will have to overcome if they are

to compete with the incumbents. Visa’s

partnerships with PayPal, Apple Pay,

Swatch and Android Pay corroborate

our view that it is much easier for new

technologies to leverage off Visa’s network

rather than circumvent it.

KEY RISKS

Despite the decidedly favourable theme,

it would be remiss of us to ignore

the inherent risks of our large holding

in Visa. Chief amongst our concerns

are the litigation and regulatory risks

that payment networks and companies

within the financial sector contend with.

Like many dominant businesses, Visa

attracts the scrutiny of regulators. Our

expectation is that adverse changes to

regulation in different geographies will

continue to act as a ceiling on Visa’s

pricing for the usage of its network. An

additional risk that payment networks are

exposed to is the threat of new entrants.

A marvel within the technology sector

is how quickly businesses emerge and

dominate, but also how quickly they

can shrink due to new trends. Our view

regarding new technologies within the

electronic payments industry is that they

present both risks and opportunities for

Visa. We have seen new entrants like

Apple and Android enter the payment

"ABOUT 50% OF ALL THE CREDIT CARDS AROUND THE WORLD ARE VISA-

BRANDED. FURTHERMORE, AROUND 70% OF ALL

GLOBAL DEBIT CARDS ARE VISAS."

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space by partnering with Visa and

Mastercard. On the other hand, the

advent of mobile money has sidestepped

the banking and payment network sectors.

However, on the whole, we believe

that Visa’s trusted brand and extensive

global network afford the group time to

adapt to new technological changes

by partnering with the new entrants or

acquiring them. Regarding pricing and

regulation, we believe that the growth

in electronic payments at the expense

of cash usage will outweigh the pricing

pressure from merchants and regulators

over the coming years, although it is a

dynamic worth watching closely.

SOLID FUNDAMENTALS

Payment network operators are highly

profitable businesses. Revenue growth is

driven by strong tailwinds of increased

numbers and volumes of transactions.

Outside of staff costs, marketing is Visa’s

single largest operating expense. Over

decades, the group has spent billions

of dollars to build its brand. Owing to

high operating leverage, Visa’s margins

compare favourably to related peers.

Chart 4 highlights the consistency of

Visa’s high margins, barring the distortions

from one-off litigation expenses and the

recent Visa Europe acquisition.

Visa is highly cash generative, it

consistently converts all of its accounting

profits into cash. The group’s high free

cash flow has afforded it the ability to

return most of its profits to shareholders.

In fact, in 2013 and 2014, the

group returned all of its net income to

shareholders through share buybacks

and dividends. Group debt to equity

for the 2016 fiscal year rose to 58%,

as a result of the debt-funded acquisition

of Visa Europe. Prior to the acquisition,

Visa’s balance sheet was debt free, a

clear indication of a solid balance sheet.

THE QUINTESSENTIAL QUALITY

COMPANY

Despite the regulatory concerns alluded

to, we believe that Visa presents one

of the most cogent investment themes

in our global universe. A key attribute

supporting this view is the secular shift

towards electronic payments, which is

evidenced by the consistent growth in

electronic transactions and volumes. In

many respects, Visa is the quintessential

quality company – it is the market

leader in a growing sector, has strong

fundamentals and has a deep moat in

the form of a strong brand and benefits

from the network effect. This, together

with management’s good record of

capital allocation, give us conviction

to retain Visa as the largest holding in

our Global Equity Model Portfolio.

CHART 4: LAST REPORTED FY OPERATING MARGINS CHART 5: VISA’S STABLE OPERATING AND NET MARGINS

Source: Thompson Reuters Source: Thompson Reuters

52.3% 52.5%

15.8%

23.8%

41.3%

25.1%28.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Visa Inc.

Mastercard Inc.

PayPal Inc.

American Express

Discovery Financial Services

Capital One Financial

Synchrony Financial

52.3% 52.5%

15.8%

23.8%

41.3%

25.1%28.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Visa Inc.

Mastercard Inc.

PayPal Inc.

American Express

Discover Financial Services

Capital One Financial

Synchrony Financial

0%

10%

20%

30%

40%

50%

60%

70%

80%

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

Operating Margin Net Margin

VISA – CASHING IN ON A CASHLESS SOCIETY

15

16

DIFFERENTIATED MODELVarious retail models exist around the

world. Among these are chain, franchise

and independent retailers. Each operating

model has its pros and cons. Spar Southern

Africa largely employs the independent

retail model, where each store is owned

by an entrepreneur who essentially partners

with Spar (the wholesaler) to the mutual

benefit of both parties. Spar Group,

in effect, acts as a warehousing and

distribution business that serves retailers

under its brands. Importantly, there is a

voluntary trading arrangement between

the individual stores and the group,

which means that there is no obligation

for any of the independent retailers to

source from the group. Yet, despite this

provision, about 90% of the goods in

the Southern African stores are sourced

from the group. We believe that this high

percentage is a strong indication that

the model works. A key attraction of the

model is the complement of entrepreneurial

drive and flair at store level coupled with

the support from a wholesaler with scale

SPAR GOOD FOR YOU

VICTOR MUPUNGA – RESEARCH ANALYST

Spar barely needs an introduction. The group has been operating in South Africa for over 50 years and globally since 1932.

Since obtaining the right to use the Spar brand in Southern Africa in the early 1960s while servicing about 500 small retailers, the

business has grown and now operates six Spar distribution centres and one Build It centre in the country. Recent forays into Ireland,

England and Switzerland complement the local operation and present a compelling investment.

Our investment case for Spar centres around three core attributes that we believe differentiate the retailer from its peers: the business’

attractive operating model, its global diversification and its favourable financial metrics.

and a recognisable brand. The tough operating environment that South African retailers have faced over the past few years has further put this model to the test. Some independents have struggled and received assistance from the wholesaler, which allowed them to survive. Some store owners could not keep their doors open, in turn allowing Spar to purchase distressed stores with the expectation that when the market turns, new entrepreneurs will be able to repurchase those stores from Spar, which lets the group retain key locations. We favour this long-term thinking by the group.

The independent retail model is also appealing in that it easily allows for diverse store formats. The success of this is evidenced by Spar Southern Africa trading under nine different store formats, ranging from the large layout SuperSpar to the smaller Spar Express and Tops. Each brand and store is unique, tailored to its specific location and consumer preferences, culminating in a well-balanced portfolio. The group currently services over 2 000 Southern African stores providing them with groceries, fresh produce, liquor, pharmaceuticals and building materials across the LSM spectrum.

51%33% 25% 22%

40%

33%

44%51% 53%

45%

16% 23% 23% 25%15%

0%

20%

40%

60%

80%

100%

2004 2009 2011 2014 2016LSM 1-4 LSM 5-7 LSM 8-70

Source: Macquarie Research

CHART 1: SPAR'S EXPOSURE ACROSS THE LSM SPECTRUM

17

SCALE & BARGAINING POWER

As a diverse warehousing and distribution

business, Spar’s key performance driver

centres around its ability to use its trading

power to competitively price the products

that it warehouses and distributes to its

retailers. Scale is vital in this quest. The

footprint of its retailers is the largest in the

country, nearly twice as many stores as the

closest competitor. The group sources from

more than 5 000 suppliers, once again

benefiting from bulk procurement. The scale

of the group’s operations enables them to

negotiate drop shipments, i.e. suppliers

delivering directly to stores instead of

via the warehouse. This represents about

30% of turnover and allows the group to

streamline logistics. To give context, Spar’s

trucks travelled in excess of 31 million

kilometres during the 2016 financial year.

GLOBAL DIVERSIFICATION

In 2014, Spar Southern Africa launched its

global strategy with an acquisition of the

BWG Group (Spar Ireland and South West

England). Subsequent to that purchase,

the group has added ADM Londis, Gillett

and Spar Switzerland. We estimate

that the foray into these three European

countries will result in Spar generating

about 40% of its 2017 revenue outside

Southern Africa. Apart from the obvious

benefits of currency diversification, the

dynamics in the European food retail

market are notably different to South Africa.

For example, the Irish retail landscape

is dominated by small owner-managed

shops, convenience or forecourt stores, as

we refer to them. Spar Ireland is estimated

to have about 40% market share in the

Irish convenience market and between

15% and 18% of the total Irish food

market. Similar to Southern Africa, Spar

Ireland operates distribution centres, which

service six varied grocery brands (1 340

stores in total). Over the last few years,

the Irish economy has been recovering

from the devastating effects of the financial

crisis. Spar’s entry into Ireland was at an

opportune time, and we expect the Irish

business to continue to recover along with

the rest of the economy. We anticipate

that the benefits of cross-learning from the

variegated geographies that the group

operates in, coupled with increased focus

on supplying perishables, will aid in the

group’s quest to grow the Irish business.

Chart 2 shows the growth across various

retail channels in Europe. Convenience

and forecourt formats are expected to

grow well ahead of competing formats at

5.3% per annum over the next three years.

Spar Switzerland adds a different mix to

the group. The Swiss business services

301 stores across three brands and

11 cash and carry outlets. The business

owns 53 of the 301 stores and expects

to reduce this over time, as the group

focuses on distribution and warehousing.

The Swiss retail market is highly competitive

and contends with a macro backdrop

of deflation, stable salaries and private

consumption that is growing just below 1%.

Naturally, this is a challenging environment

for retailers. Yet, we are confident that in

time, this will turn out to be another well-

timed acquisition. Plans are underway to

grow the Swiss business’ retail offering

(increasing product depth), improve and

increase the number of stores. This will

go some way to increasing the group’s

market share in Switzerland from the

current 3% and into improving operating

margins. Chart 3 shows the divergent

grocery spending power across European

countries. Switzerland, England and

Ireland rank highly on spend per capita,

highlighting the attraction in the European

markets Spar operates in.

CHART 2: TOTAL EUROPEAN FOOD RETAIL SALES PER CHANNEL (2008 – 2018F)

CHART 3: GROCERY SPEND PER CAPITA

Source: Planet Retail Source: Planet Retail

0

50

100

150

200

250

300

350

400

Hyp

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Supe

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Disc

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20082013

2013 - 2018 CAGR

2008 - 2013 CAGR2018f

1.6%

2.0%

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2.6%

4.5%

4.2%

2.8%

5.3%

0.1%

4.4%

0.1%

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0

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100

150

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5.3

3.83.7

3.53.43.33.22.82.6

2.5

2.52.42.1

2.11.91.8

1.81.61.61.51.51.51.41.41.31.11.11.00.90.80.80.60.50.30.30.20.20.2

0.0

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18

CHART 4: SPAR'S RETURN ON CAPITAL EMPLOYED VS PEERS (LAST REPORTED FY)

CHART 5: SPAR’S CAPEX SPEND RELATIVE TO PEERS

Source: Company reports Source: Company reports

0.0

1.0

2.0

3.0

4.0

5.0

6.0

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20%

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30%

35%

Spar Pick n Pay Massmart Shoprite

0.0

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4.0

5.0

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€'00

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0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Rm

Shoprite Pick n Pay Spar

We expect Spar to continue to look

for acquisitions outside of its existing

markets. The group is in the early stages of

expanding into Zambia, and has formed a

joint venture with plans to enter Sri Lanka.

While we do not expect Zambia and

Sri Lanka to be material in the short to

medium term, we believe that management

will continue to look for additional

opportunities, further strengthening the

group’s appeal as a well-diversified retailer.

FAVOURABLE FINANCIAL

METRICS

One market feature that has stood out in

the low growth environment experienced

post the financial crisis, has been that

companies that generate high free cash

flows are highly rated. The reasons are

intuitive. When economic growth is low,

companies that are not capital intensive

can return more cash to shareholders,

are more defensive and have stronger

balance sheets that can fund acquisitions.

We believe that Spar fits this bill. Net

debt to EBITDA as at September 2016

was 1.5x and interest cover was 24x.

This is despite the distortions of the recent

acquisitions that were only included for

part of the financial year.

Unlike its local peers, Spar’s wholesale

and distribution model has resulted in Spar

reinvesting significantly less capital while

maintaining an attractive 66% payout ratio

over the years. For the capital that the

group has employed, it has generated

returns that exceed those of its peers. This,

in our opinion, underscores the quality of

Spar. Charts 4 and 5 show Spar’s low

capex profile and the return on capital

employed relative to peers.

THE BOTTOM LINEWe regard Spar to be a well-managed, diversified food retailer. The business’

earnings tend to be defensive in tough times, it generates strong cash flows, and

can augment organic growth with acquisitions. The benefits of scale serve as

a moat against competitors and recent acquisitions provide broader diversity.

With the share trading at an undemanding forward earnings multiple of

15.5 times, in line with its historic average, we believe that this quality company

will contribute significantly to our clients’ portfolios.

SPAR GOOD FOR YOU

19

20

The fall-out from the axing of former Finance

Minister Nhanhla Nene in December

2015 and the very public animosity

between the Directorate for Priority Crime

Investigation (the so-called “Hawks”) and

the executive leadership at National

Treasury continues to reverberate through

society, especially via policy uncertainty.

Recently, this has been exacerbated by

the President’s refusal to sign the Financial

Intelligence Centre (FIC) Amendment Bill

into law. The Bill has been drafted by

National Treasury in accordance with

the recommendations of the Financial

Action Task Force – an intergovernmental

body developing and promoting policies

to combat money laundering and terror

financing. The current stalemate could

have dire consequences for South Africa’s

financial sector due to global concerns over

the country’s money-laundering controls.

THE ECONOMY IN 2017 – IN SEARCH OF SILVER LININGSDR ROELOF BOTHA – ECONOMIC ADVISOR TO PwC

DUBIOUS ENERGY POLICY

One of the most notable aspects of

compromised public policy in South

Africa is in the energy sector, with much

of the spat between the two camps in

Government emanating from the apparent

intention to pursue a nuclear power deal

with a Russian firm that is simply not

affordable from both a fiscal and an

economic perspective. Numerous energy

experts have warned that the Department

of Energy (DoE)'s Integrated Energy Plan

overstates the costs of renewables and

gas as future sources of electricity.

Representatives from institutions such as

the Council for Scientific and Industrial

Research, the Energy Intensive User

Group, the South African Renewable

Energy Council and the South African

Independent Power Producers’ Association

have also raised concerns over the

limitations on renewables set by the DoE.

Combined with lethargic economic

growth, higher inflation, rising interest

rates and rising public debt, it is no

surprise that the international ratings

agencies were making threatening

noises and that the rand exchange

rate fluctuated significantly. The key

reasons for the ups and downs of the

rand provide a nutshell overview of

the trials and tribulations experienced

by the country during the past year, as

depicted by Table 1 on the next page.

Although some of the problems faced by

the South African economy during 2016

were home-grown, much of the lethargy

in output was caused by the lingering

effects of a five-year commodity slump,

which played a key role in forcing two

BRICS partners (Brazil and Russia) into

recession.

To describe 2016 as a tumultuous year in South Africa’s modern history is probably an understatement.

On the political front, it became clear that the ruling party was experiencing mounting friction between two opposing groups.

One group seems to have been compromised by evidence of state capture and ongoing tender irregularities, while the other is

committed to combating corruption and improving corporate governance standards in the public sector at large.

21

DEFLATION STIFLING RECOVERYThe search for possible causes of what

may be termed a form of near-global

secular stagnation reveals a common

denominator, namely deflation, which

can be defined as a decline in asset and

consumer prices. Deflation results from a

lengthy period of insufficient demand,

during which unemployment rises, economic

growth is lethargic and recessionary fears

are widespread. Two of the obvious

responses of the business community are

lower production and increased price

competition, which aggravates deflation.

Once a critical mass of consumers and

investors expect prices to decline in future,

purchases of non-essential goods are

deferred, leading to even lower demand

and, ultimately, a downward spiral of

demand and production.

In most of the world’s post-industrial

economies, the policy response since

the 2008 Global Financial Crisis has

been rather predictable: with fiscal deficits

increasing, the burden for much-needed

economic stimulation fell squarely on

monetary policy, with fairly aggressive

accommodation by central banks leading

to record low interest rates in most high-

income countries and, as an inference,

every prospect of a meaningful recovery.

It was a false dawn, however, with the

initial recovery in most commodity prices

having petered out again during the last

quarter of 2016.

The villain of the piece was lurking in an

unintended consequence – cheap money

made it possible for large companies

to continue expanding their production

capacity, especially in capital-intensive

industries, thwarting the narrowing of the

gap between demand and supply.

Fortunately, the International Monetary

Fund is cautiously optimistic that several

key regions and countries will gain some

economic momentum in 2017, including

sub-Saharan Africa, with India leading

the way among the top 10 economies.

RAND RESILIENCEApart from the unprecedented degree of

volatility in the rand/US dollar exchange

rate, the other key observation is that

the rand is slowly but surely clawing its

way back from a grossly undervalued

position. Between mid-January and early

December, the rand has been one of the

world’s best-performing currencies, gaining

an impressive 21% against the world’s

dominant currency, the US dollar.

Since the end of 2015, the rand has been exposed to various economic and political influences, leading to unprecedented

volatility against the US dollar.

DATE MAJOR REASON FOR DEPRECIATION OR STRENGTHENING

% CHANGE FROM PREVIOUS DATE

DECLINE INCREASE

13-Dec 15 Nene dismissal -9.6

17-Dec 16 Appointment of Mr Pravin Gordhan as Minister of Finance 6.1

07- Jan 16 Reaction to the downgrade of SA's largest banks by Moody's -5.0

16-Jan 16 Concerns over China's economy -6.0

25-Feb 16 Minister Gordhan's Budget Speech 8.9

29-Feb 16 Conflict between the Hawks/Moyane & Minister Gordhan -4.7

04-Apr 16 US Federal Reserve decides to maintain low interest rate policy 10.0

22-Apr 16 Positive Chinese trade data 2.9

20-May 16 US economy gains momentum -10.2

24-Jun 16 Brexit (pound sterling takes a hammering) 9.4

28-Jun 16 Post-Brexit fears and stronger economic data from the US -5.1

08-Jul 16 Gold price at a three-year high and large monthly trade surplus for SA 3.2

12-Aug 16 Municipal election results and another large SA trade surplus 11.1

02-Sep 16 Conflict between the Hawks and Minister Gordhan intensifies -9.2

22-Sep 16 Rise in China's iron ore imports 8.4

12-Oct 16 Minister Gordhan charged with fraud charges -5.5

02-Nov 16 Fraud charges against Gordhan dropped and strong SA trade data 6.4

18-Nov 16 Stronger US dollar/fears over SA credit rating downgrade/gold slides -6.9

05-Dec 16 Investment grade status for SA sovereign bonds retained 4.9

Total % change between 16 January and mid-December 2016 21.6

TABLE 1: FLUCTUATIONS IN THE RAND

Sources: Oanda; own research

22

The role of the gold price recovery in the

gradual strengthening of the rand since

the beginning of 2016 should not be

under-estimated. As a rule of thumb, for

more than half a century, the higher the

dollar gold price, the stronger the rand

becomes, and vice versa. Therefore,

any further improvement in 2017 in the

demand for precious metals, especially

gold, will almost certainly assist the rand

in gradually eliminating its undervalued

status, while also benefiting the economy

as a whole.

A more stable and modestly stronger

currency is certainly on the cards in 2017,

on condition that the domestic political

situation remains calm and that National

Treasury is allowed to pursue pragmatic

measures to combat corruption with the

awarding of tenders by Government and

state-owned enterprises.

Further rand resilience, combined with a

recovery in agricultural output, should lead

to substantially lower inflation in 2017,

with every prospect of a return to more

accommodating monetary policy.

THE ECONOMY IN 2017 IN SEARCH OF SILVER LININGS

CHART 1: IMF GDP GROWTH FORECASTS CHART 2: GOLD PRICE

Source: IMF Source: World Bank

52.3% 52.5%

15.8%

23.8%

41.3%

25.1%28.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Visa Inc.

Mastercard Inc.

PayPal Inc.

American Express

Discover Financial Services

Capital One Financial

Synchrony Financial

-1.5

0.0

1.5

3.0

4.5

6.0

7.5

Russia US Sub-Saharan Africa

China India

2016

2017

-1.5

0.0

1.5

3.0

4.5

6.0

7.5

Russia US Sub-Saharan Africa

China India

2016

2017

1 050

1 100

1 150

1 200

1 250

1 300

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Jan-

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6

GROWTH DRIVERS During 2016, growth in private sector credit

extension was zero in real terms, and this

needs to be lifted urgently for economic

growth and employment creation to gain

momentum. Other potential growth drivers

include the strong showing of the volume

of mining output towards the latter part of

2016, as well as a return to job creation

in the formal sectors of the economy in the

third quarter of 2016. Furthermore, the

country’s leading business cycle indicators

have both recovered by more than 3% from

their earlier lows, while real retail sales

growth continues to remain in positive

territory.

Now that all three of the leading ratings

agencies have re-affirmed the investment

grade status of South Africa’s sovereign

bonds and a partnership approach towards

job creation is developing between

the public and private sectors, 2017’s

economic performance may surprise on

the upside.

ABOUT THE WRITERDr Roelof Botha has a diversified and distinguished career in management accounting, financial journalism, lecturing, consulting and economic research. He is a regular commentator and columnist on topical macroeconomic and socio-political issues and has authored more than 500 articles, books and research publications. In 2005, Dr Botha received the prestigious Finmedia Economist of the Year award, based on the accuracy of forecasts of key economic indicators. He remains involved with macroeconomic research and is a Senior Adjunct Faculty member of the Gordon Institute of Business Science (GIBS). Over the past three decades, more than 400 companies and employer organisations have utilised his services in providing forecasts of economic indicators, mostly for purposes of strategic planning. As a seasoned veteran of the public speaking circuit in Southern Africa, Dr Botha has managed to captivate audiences with his unique style of blending the serious matters of economics and politics with the lighter side of life. His presentations are regarded as broadly motivational, in terms of highlighting research that confirms numerous positive structural changes in the Southern African economy.

23

24

CANADA

TABLE 1 QUALITY OF LIFE

SWEDEN

SWEDEN

SAUDI ARABIA

DENMARK

AUSTRALIA

NETHERLANDS FRANCE

GERMANY SWEDEN

AUSTRIA JAPAN

UNITED KINGDOM

LUXEMBOURG

SOUTH AFRICA

1

2

8

10

9

4

5 5

7 7

8 8

9

10

49

DENMARK3

DENMARK6NEW ZEALAND6

NEW ZEALAND8

CANADA2

CANADA5 CANADA5

TABLE 2 EDUCATION

UNITED KINGDOM1

CANADA3

SWEDEN1

TABLE 3 RAISING KIDS

DENMARK2

AUSTRALIA

AUSTRALIA

5

6

NETHERLANDS

NETHERLANDS

4

10

SOUTH AFRICASOUTH AFRICA 4328

LUXEMBOURG10

UNITED KINGDOM9

AUSTRIA7

IRELAND8

NEW ZEALAND6

SWEDEN1

TABLE 4 GREEN LIVING

NETHERLANDS4

SOUTH AFRICA27

UNITED KINGDOM9

UNITED KINGDOM4

CHINA1

TABLE 5 CAREERS

AUSTRALIA7

SOUTH AFRICA23

SOUTH KOREA

RUSSIA

7

9

UNITED STATES3

UNITED STATES10

UNITED STATES3

GERMANY4

GERMANY3

GERMANY2JAPAN2

JAPAN6

THE QUALITY OF LIFEINSIGHTS INTO THE RANKINGS OF COUNTRIES WITH THE BEST QUALITY OF LIFE

What does quality of life mean to people? For some, it may mean material wealth or access to the best education and healthcare,

while for others it may be job security and political stability. US News & World Report, together with BAV Consulting and the

Wharton School of Business at the University of Pennsylvania, created the Best Countries rankings report in 2016 to identify how

countries are perceived on a global scale.

HOW QUALITY OF LIFE WAS MEASUREDQuality of life not only focuses on a

country’s social support structures such

as public health and safety, but also on

the opportunities that are available to

people, such as education, employment

and economic security. These are typically

the factors that influence where people

want to live, pursue career opportunities,

or raise a family.

To determine quality of life, these were

considered:

• A good job market

• Affordability

• Economic stability• Family-friendliness• Income equality• Political stability• Safety• Well-developed public education system• Well-developed public health system

TABLE 1: TOP 10 COUNTRIES FOR QUALITY OF LIFE Canada was rated as the best country for quality of life and was a consistent top achiever in almost all the factors considered. European countries also scored relatively well, with two Scandinavian countries coming in second and third. Out of the

African countries included in the survey,

Tunisia was the highest-placed, at 47th.

HOW SOME OF THE QUALITY

OF LIFE DIMENSIONS SCORED

INDIVIDUALLY

EDUCATION

The scores were based on three equally

weighted country attributes:

• Top quality universities

• A well-developed public education

system

• Consideration for attending a university

in that country

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TABLE 2: THE BEST COUNTRIES FOR

EDUCATION

Most of these countries place an important

emphasis on government spending for

education. For example, Denmark,

Norway, Sweden and Finland spend

most of their money on education as a

percentage of their GDP. Some countries,

like Canada, offer free primary and

secondary education while Denmark offers

free higher education. The results also

showed that the lower performing countries

have lower literacy and enrolment rates.

According to www.educationuk.org,

the strength lies in their world-class

colleges and universities.

• Four of the world’s top eight universities are in the UK.

• The UK ranks in the top five in the world for university-industry collaboration.

• Student satisfaction in the UK is higher than ever, with 86% of students satisfied with their course, and the region has the lowest drop-out rate in Europe.

• 93% of UK postgraduate students rated the quality of teaching positively.

• International undergraduate

satisfaction in the UK is very high,

at 91%. 85% of international

undergraduates would recommend

their UK study experience, higher

than any major English-speaking

study destinations.

• The UK is also a world-leading

research nation – 54% of the research

conducted by UK universities and

colleges is classed as ‘world-leading’

and the region ranks second in the

world for the quality of its scientific

and research institutions. In fact, UK

universities and research institutions

have produced 107 Nobel Prize

winners. Furthermore, researchers

in the UK gain more citations and

produce more articles than anywhere

else in the world.

MOST FAMILY-FRIENDLY

COUNTRIES

TABLE 3: BEST COUNTRIES TO RAISE

CHILDREN

Sweden tops the list as the best country

to raise children and has several policies

and practices that provide support for

young families. In addition, this support

is not limited to just mothers, but also

extends to fathers.

SPECIAL CARE FOR EXPECTANT

MOTHERS

Before a baby is born, expectant mothers

get prenatal care through free or subsidised

courses that help them prepare for the

delivery.

LONG, PAID PARENTAL LEAVE

Parents are entitled to 480 days of paid

parental leave when a child is born or

adopted. For 390 of the days, parents

are entitled to nearly 80% of their normal

pay, with the remaining 90 days paid

at a flat rate. Those who are not in

employment are also entitled to paid

parental leave. Parental leave can be

taken up until a child turns eight and the

leave entitlement applies to each child,

so parents can accumulate leave from

several children.

A STRONG FOCUS ON GENDER

EQUALITY

In Sweden’s efforts to achieve gender

equality, each parent is entitled to 240

of the 480 days of paid parental leave.

Each parent has two months reserved

exclusively for him or her. Men in Sweden

currently take nearly a quarter of all

parental leave – a figure the government

hopes to improve by providing a gender

equality bonus in the form of an extra

daily payment if 270 days of the paid

parental leave are divided evenly between

mother and father.

MONTHLY ALLOWANCE FOR

CHILDREN

Aside from paid leave, the government

provides an additional monthly child

allowance until a child reaches the age

of 16. Those with more than one child

receive an extra family supplement, which increases further with each additional child.

WHAT MAKES SWEDEN SO

FAMILY-FRIENDLY?

WHY IS THE UK’S EDUCATION

SECTOR SO HIGHLY RATED?

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THE QUALITY OF LIFE

FREE SCHOOLINGSchool for children aged 6 to 19 is free of charge, with free lunches. The free education continues into university for students from the EU.

HEALTHCARE IS NEARLY FREEHealthcare (including dental care) is essentially free until the age of 20. Infants get free Vitamin D drops until the age of two – important in Sweden’s cold climate.

FREE PUBLIC BUS RIDES WITH PRAMSIn some Swedish cities, parents pushing infants and toddlers in prams and pushchairs can ride for free on public buses.

STAYING HOME WITH SICK CHILDRENMost Swedish companies are flexible regarding parental duties, and employees still get 80% of their pay when they have to stay home with sick children or dependents. This temporary parental leave is available for up to 120 days per child per year for children under 12 years. Children aged 12–15 require a doctor’s certificate. Parents whose children are sick or disabled for more than six months can also receive an additional allowance until the child turns 19.Source: www.sweden.se

BEST COUNTRIES FOR GREEN LIVINGThe scores are based on a compilation of three attributes:• How much the country cares about

the environment• Whether the country is health

conscious • Innovation

TABLE 4: BEST COUNTRIES FOR GREEN

LIVING

Sweden was seen by respondents as

the best country to offer its citizens a

“green” lifestyle. The country has become synonymous with sustainable development.

Many initiatives have been undertaken, with the Swedish government increasingly pushing for more to be done, with funding being allocated to deliver on an environmental technology strategy that helps to grow and develop environmental technology companies.

According to www.sweden.se, Sweden ranks as the top nation with regard to the purchase of organic food. Sweden is also leading the way with the creation of sustainable cities for the future, as well as sustainable transportation.

TABLE 5: BEST COUNTRIES TO START A CAREERAccording to the World Bank, the global labour force has grown by more than 200 million people in the last five years, most of whom are millennials (adults younger than 35 years).

The rankings were based on scores from nearly 6 000 millennials on a compilation of seven equally weighted country attributes:• A good job market• Economic stability• Entrepreneurial ability• Income equality• Innovation• A good place to reside

• Progressiveness

Most respondents felt that China was an

excellent place for start-up companies to

thrive given its low barriers to entry. From

an entrepreneurial view, China scored

well based on attributes such as access to

capital, infrastructure and tech expertise.

Innovation also plays an important role

here, as China is seen as a country that

has a platform for young people to unleash

their creativity.

Weighted % to Overall Best

Country Score

Sub-

rankings

Citizenship 16.95%Cultural influence 12.93%Entrepreneurship 17.42%Quality of life 16.89%Power 7.42%Heritage 3.17%Open for business 11.99%Movers 10.00%Adventures 3.24%

HOW SOUTH AFRICA FARED OVERALLOVERALL RANKING CATEGORY SCORE RANKING

#31Adventure 3.5 #25

Citizenship 1.1 #26

Cultural Influence 1.4 #34

Entrepreneurship 1.8 #25

OVERALL SCORE Heritage 2.4 #31

Movers 7.4 #9

Open for Business 2.7 #55

Power 1.0 #27

Quality of Life 0.5 #49

2.3

ABOUT THE REPORTThe Best Countries report was released in 2016 and ranks 60 countries across a number of categories and sub-rankings.

About 16 200 key influencers, business leaders and citizens from 36 countries in Asia, America, Middle East, Africa

and Europe were surveyed.

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CONTACT US

DEREK ALTONTel: 021 524 4566Cell: 072 290 4220derek.alton@omwealth.co.za

SHANE LAWRENCETel: 021 524 4656 Cell: 079 526 6369shane.lawrence@omwealth.co.za

PAUL STEVENTel: 021 524 4572Cell: 076 719 3958paul.steven@omwealth.co.za

JOHANN VAN ZYLTel: 021 524 4574Cell: 083 261 0140johann.vanzyl@omwealth.co.za

CAPE TOWN

DEAN GINSBERGTel: 011 245 3818Cell: 083 650 8223dean.ginsberg@omwealth.co.za

TREVOR O’CALLAGHANTel: 011 245 3801Cell: 083 660 8321trevor.ocallaghan@omwealth.co.za

MIKE SITHOLETel: 011 245 3741Cell: 083 352 9070mike.sithole@omwealth.co.za

GARY SMITHTel: 011 245 3802Cell: 082 464 3691gary.smith@omwealth.co.za

FRANCOIS STRYDOMTel: 011 245 3806Cell: 082 442 3777francois.strydom@omwealth.co.za

JOHANNESBURG

LOUIS FOURIETel: 012 369 7232Cell: 083 391 8610louis.fourie@omwealth.co.za

GREGORY POTGIETERTel: 012 369 7234Cell: 082 823 2731gregory.potgieter@omwealth.co.za

JACQUES THERON Tel: 012 369 7235Cell: 082 495 6465jacques.theron@omwealth.co.za

PRETORIA

HELMAR BREYTENBACHTel: 031 581 0773Cell: 082 564 0223helmar.breytenbach@omwealth.co.za

BRADLEY REEDTel: 031 581 0699Cell: 063 454 0333bradley.reed@omwealth.co.za

BRIAN VERMEULENCell: 083 408 0528brian.vermeulen@omwealth.co.za

DURBAN BLOEMFONTEIN

PRIVATE CLIENT PORTFOLIO MANAGERS

CHRIS POTGIETERHead of PCSTel: 021 524 4582Cell: 082 827 9777chris.potgieter@omwealth.co.za

SAMEER SINGHResearch AnalystTel: 021 524 4529Cell: 072 383 4490sameer.singh@omwealth.co.za

VICTOR MUPUNGAResearch AnalystTel: 021 524 4466Cell: 072 838 2919victor.mupunga@omwealth.co.za

MOOSA HASSIMInvestment Analyst Tel: 021 524 4609Cell: 072 448 6369moosa.hassim@omwealth.co.za

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