An Update from Sphere October 2022

Sphere Celebrates 19 Years of Existence

We remain energised and committed to our founding ideals of being agents of transformative growth.

The world has changed significantly since we last spoke. Yet here we all are, still standing, working, and creating. Despite the near-term future being somewhat murky – both at home and across the globe – as a business, we continue to believe in and care deeply about the future of our country, and remain encouraged by the resilience of our portfolio, and continue to see interesting opportunities for investment.

While we’re not oblivious to the risks that exist in our economy and society, using our own capital and with a long-term view, we remain excited about the prospects of partnering with management teams and fellow shareholders to build enduring value.

Our Portfolio: Where We Are Today

Earlier this year, we successfully concluded the sale of Consol Holdings to Ardagh Group, a leading global supplier of recyclable, sustainable metal and glass packaging for brand owners worldwide. This sale marked the successful culmination of a fantastic partnership between Sphere, Consol, and private equity shareholders, including BraitOld Mutual Private Equity, and Sanlam Private Equity. This partnership began in 2017 when Sphere became a significant minority shareholder in Consol.

This is exactly the kind of opportunity-driven investment that we seek; one in which we can play an active role in supporting and adding value to management teams, and one that creates and delivers value for funders, shareholders, and business partners. We are in a strong position following the realisation of this investment, and have our eye on viable investments where we can deploy our capital in South Africa.

BBD, our software business, has done particularly well. Today, we employ well over 900 software engineers in South Africa, India, Netherlands, and the United Kingdom. The shift to remote working, and subsequent demand for exceptional software engineering skills, has benefitted BBD, broadened its scope, and driven growth within the business. BBD, led by Kevin Staples (CEO) and Gus Pringle (CFO), working alongside a deeply skilled and motivated team, have been consistent in making incremental gains for the business in established and new market segments, as well as in new geographies. We continue to support them as we have to assert the company’s position as the leading software development house in the country.

Our portfolio company, Pearson South Africa, will soon go through a change of control. Sphere’s incumbency and long track record of adding value to this business led to incoming shareholder Novus Holdings, securing our continued involvement. We will continue to make a difference to the education landscape in the country through this business, with a like-minded South African partner.

While we have traditionally focused on and built our experience in late-stage businesses, we are particularly excited by our foray into early-stage investments. We are very pleased that we were part of an early growth round for HearX, a South African-incubated health-tech business involved in audiology solutions, whose investors now include leading strategic and financial investors, whose combined experience will support the exponential growth expected from this business.

We have also partnered with Endeavor South Africa, whose model is geared to helping scale high-growth businesses locally and prepare them for the global stage. Endeavor operates in 38 markets and has over 2,000 entrepreneurs and over 5,000 mentors as part of its global network. In February 2021, we invested in its Harvest Fund II, where with other leading local institutions and high net worth individuals, we are committed to funding high-impact, early-stage South African businesses poised for growth.

As you would expect in any portfolio business, and in life itself, there are always ups and downs.

While Babcock Ntuthuko Engineering continues to work with Eskom on other projects, we were disappointed that it lost a material contract with the utility. However, the South African Government’s renewed energy and focus on ensuring electricity supply in the country includes bringing back lost skills, strengthening maintenance outputs, and adding generation capacity. We have worked closely with the Babcock management team since 2004, and believe the company is well-placed to provide some of the solutions required.

Deploying Our Capital

More generally, retaining a healthy capitalisation is imperative to mitigating risks and remaining resilient during uncertain times. Our business model was validated, in that in general, we have steered clear of using high levels of debt or gearing. As a result, even where under pressure or where revenues declined as a result of the pandemic, both Sphere and our partners remained well-capitalised.

In making the investment into Consol Glass, we combined our own capital with that of Standard Bank, through a partnership that began in 2017. Like many businesses who have had to navigate a tumultuous journey through the pandemic, the fact that both Consol and Sphere were geared during this time made it more critical to deploy our risk mitigation strategies. The way that we managed this gave Standard Bank comfort, which led to their unwavering support. We were very pleased to have been able to meet the bank’s return expectations when we exited Consol.

While we deploy our own capital most of the time, there are times where we actively engage our institutional shareholders. When we do, we are extremely mindful of our role, and the obligation that we have towards other people’s capital. Our capital partners know that we’re all in, both in terms of guiding and actively supporting our portfolio partners, and in using our own capital. This has made for excellent, solid partnerships.

Our Impact

South Africa was traumatised by the riots that took place in KZN and Gauteng a year ago and the many ongoing demonstrations of civil protest. As a country, we will need to urgently address the fact that there are too many people that are excluded from the formal economy, and that the current levels of inequality are, frankly, unsustainable. It is up to every one of us to do our part.

As Sphere, we are extremely proud of what we are able to do through the shareholding that Ditikeni, Disability Empowerment Concerns Trust, and the Student Sponsorship Programme have in our business. In excess of 5 million people benefit from the shareholding held by the three organisations in Sphere.

We are even more determined to play a bigger role, which is why we have increased our commitment to Partners for Possibility and are working with Citizen Lab to scale our education-based programmes. We understand deeply that if we are able to improve and support educators, we will have a greater impact on learners, teachers, and parents. Good schools make for good communities, and the more good communities we have throughout the country, the better-off our country will be.

Partners for Possibility has already changed the fortunes of 1,600 schools and communities across our country, but there are more than 27,000 schools in South Africa, so we need to do all we can to reach many more. We will be tapping our partners from time to time to walk this path with us.

As we head into our twentieth year, we bring with us the wisdom accumulated over many years, our trusted partnerships, and our broad relationships to continue to make thoughtful investments that build value, and make a lasting impact to our communities and our country.

Looking Ahead

As we approach our 20th year, we carry with us the wisdom of our journey, trusted partnerships, and broad relationships to continue making thoughtful investments that build enduring value and lasting impact for our communities and country.

One Last Word

If you are a founder, business owner, or management team looking for partners who can contribute capital and deliver on their value-add promise, please get in touch with any member of the Sphere team.

Until next time,

The Sphere Team

SCAM ALERT!

In the context of alarming increases in general cyber fraud and digital scams we would like to note the following: Sphere Holdings is an investment holding company. The nature of our business implies that we do not engage in or offer promotional campaigns, cryptocurrency or any other investments and/or financial services or products or advice aimed at the public or individual investors. Any approach of this nature – especially via social media – by any party assuming the Sphere Holdings’ name or the names of our executives and soliciting money or personal information should be regarded with extreme caution. Prior to investing always seek independent legal or financial advice from an accredited financial advisor who is registered with the Financial Sector Conduct Authority (FSCA).