South Africa Report

InterviewsMarch 21, 2016

Grand Parade Investments: Promoting Social Development of Western Cape

Hassen Adams, Chairman of Grand Parade Investments

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: Written by Scherzando Blaise Karasu; Published: March 21, 2016

Interview with Hassen Adams, Chairman of Grand Parade Investments

Could you begin by telling us about how your current portfolio is configured and how it underpins your group’s strategy?

We started as an empowerment company specifically designed to serve the compliance requirements for the gaming industry and that was how Grande Parade started as an empowerment partner for Sun International, which is quite a large gaming and leisure company in this country with huge resorts like Sun City. Graham Stevens is the new CEO. I have been there since the inception of CEOs like Peter Bacon, David Coutts-Trotter and now Graham Stevens. Quite frankly that is how we established ourselves: as a partner to Sun International with Casinos in the Western Cape and in Worcester and in hotels like the Table Bay Hotel which is one of the leading hotels in the world. The product that Sun International delivers is the best in this country; you can see it by looking at the resorts and the investment into gaming and leisure. As a result of that we started to grow and go into other gaming operations on our own, like the Limited Gaming machine market which is now an overseas market where you have a limited number of machines in pubs or in halls and it is well-known all over Europe. That is where we are one of the biggest. Our company Grand Slots became the biggest in South Africa as a result of our intervention and our ability to talk gaming because of our experience with Sun International. When we started with this, we were on our own. Sun International has now asked to buy us out and we are quite happy that they are getting involved. We will still keep a large part of the equity but certainly our base will become bigger and more international. By the end of this year, they will own the majority shares in the company because it is a sale that is over 3 or 4 tranches and that is good for us because it becomes an investment which is part of our original philosophy that in the gaming side we want to become an investment company. We also realised that the gaming sector has a ceiling and the world is changing to more technology betting which is cell phone betting, internet betting etc. So what we have decided to do is invest in online sports betting and move away from the bricks and mortar side. We see that as the future. We are growing that very slowly because South Africa has not promulgated the act of internet betting just yet.

Your commercial interests historically were in gaming and now increasingly in food services but you are now taking a more strategic position, let’s say with the gaming investments and increasing investment in other sectors such as the quick service restaurant (QSR) sector and the related food investments. Do you think that GPI has now reached sufficient diversification across both sectors?

The food sector was as a result of an opportunity that I managed to have access to because of a trip to Dubai.

So it came about by accident really?

Yes. I spoke to one of the 3G shareholders and that is how I got involved with Burger King. We started off and thought it was easy but Burger King is quite an intense QSR business. It involves very high standards, compliance and protocols and it is the best thing that happened to us. In gaming we had the opportunity to deal with the best and now in the QSR market we are also dealing with the best.

We would like to believe that Cape Town has great potential to develop into a Silicon Valley type of city

So as a benchmark you must have learnt an awful lot?

Absolutely. We have had to build our own factories and make quite sure that all of the EU standards are in place and that all of the protocols in terms of hygiene etc. are in place. They are now all in place from an integrated point of view. We are even able to export some of our products. More importantly we want to go into Africa but before we do that we want to make quite sure that we have learnt to swim from the shores. We don’t want to jump in from the deep end. By the end of this year we will have 100 Burger King stores that we own outright. We haven’t franchised anything. That means we have compliance in terms of staff training which can give you service excellence in terms of the food side, which can then give you the quality controls. It has been shown in South Africa: we have done a survey and we came out top. We came out as best burger three years in a row and we asked the people why they liked us and they said it was because of the quality. BK is a quality product and we have now entrenched it into the South African market and we want to take it further into Africa. That means that the ability to export all of the integrated services becomes real, from the manufacturing side to the production side and we can go into Africa with confidence by the end of the year.

We understand that GPI is looking at other opportunities outside the QSR and gaming sectors such as property, retail and other entertainment investments with a view to expanding your operations portfolio not only geographically, because historically the focus has always been on the Western Cape, but also in terms of industry emphasis. Can you outline for us the sectors and the geographic areas that you are currently targeting?

Firstly, the food division will become a very big division. We have just acquired the right to distribute Dunkin Donuts. We have become the master franchiser for Dunkin Donuts and Baskin-Robbins and for Baskin-Robbins that includes the supply side to big supermarket chains and other retail sectors. That is quite a big opportunity. Again, with that comes the integrated service of creating your own factories. We can go into Africa and look at the content of developing our own blending factories in Africa from a coffee point of view with the help of Dunkin Donuts, using their expertise and their quality controls etc. We can try to set up something for Africa similarly in terms of other food production.

You have asked me where else we want to go. Because of the fact that we have moved from a bricks and mortar gaming centre into manufacturing state of the art, world class gaming machines, we have moved into an area which is driven by tomorrow’s technology. We want to believe that we can start to look at training and developing people to start to think ahead of the game and we would like to believe that Cape Town has great potential to develop into a Silicon Valley type of city. People talk English fluently here and we have the ability from our universities to develop people to come up with incredible ideas. It has been seen already for instance with Tellumat where we are one of the suppliers of the transponders for Boing and Airbus. We are doing a lot of management systems for Halliburton and for fighter jets all here in Cape Town. We have decided to look at creating a facility to incubate these ideas by taking talent from the universities and looking at post graduate diplomas that can be developed. In so doing we will be finding people that we can take to the rest of the world. We can showcase them and the various apps that they have designed.

Grand Tellumat is quite intriguing as it was unexpected. This is a company that has gaming and leisure interests as well as fast food and then you also have this super, high tech division bolted on.

Let me just say to you this: the question that often gets asked by fund managers is “strategically what is your company about?”, but you have to understand that we started this company with nothing and if you look at Bidvest in South Africa which is one of the biggest conglomerates of various types of companies, they have grown in exactly the same way.

We met the finance director of Bidvest and it was similar, “where do you begin with this company.” You know? It was an octopus company!

Yes, we don’t want to be seen as an octopus company but the idea is that we leverage opportunities. Sometimes it is very difficult to understand but let me give you an example, if we didn’t have our own packing factories and our own production lines for kitchen and catering equipment and we had to import them because of the Burger King specs, we would have been bankrupt because of the exchange rate. We took the initiatives to build it up in South Africa. Today, Mac Brothers can produce the best catering equipment in the world because of Burger King letting them go across the borders. We have developed fire systems for extractors for instance which is a world first. We have produced refrigeration which works for Africa, where you can slip in a motor and slip it out instantly. If you are in the jungle and your fridge goes down, your product goes down. We can sell you a fridge with two motors and you will always be running. You can get service from our service stations in Africa. It is that sort of innovation that we are after.

What is the objective with Grand Tellumat? It is a leading electronic contract manufacturer. Will you see it take advantage of manufacturing opportunities? It makes transponders for Boing; it has managerial structures that are used by Halliburton...

We are doing some of the set up boxes from the analogue conversion to digital in this country. Quite frankly if you look at what they do in terms of our gaming machine company, they are critical. When I tried to do a deal with companies like Merkur in Germany, I was shocked to see what their factories looked like. They were pretty empirical in terms of what we have here at Tellumat. We can do printed circuits by computers. These factories were built way in advance for the defence force and most of those systems are now being used for our gaming machine manufacturing. We are moving away from the bricks and mortar as I said earlier. There was not one single manufacturing company of gaming machines in this country but we took that plunge and today we can gladly say that we can produce the best product in the world.

So you will take your expertise within the gaming operations and you will try to put it into other relationships that you have in the sector to leverage the expertise you have.

We are being punished by the green back and by the sterling in terms of our exchange rate. It has never been this high. If you want to import a gaming machine right now, do you know what it is going to cost you? It will cost you more than a motor car. We can produce it for far less.

Do you think weakness of currency will be a spur to innovation? This is an opportunity for you to ramp up your exports.

Absolutely because the African markets for gaming machines will encourage the development of the business. We have now done a deal with one of the biggest search engine guys that used to work for all of the big houses in Europe and we have done a joint venture with an Australian company. They are now partners and the designers in the back of house IT for these gaming machines. We also have a partner from Czechoslovakia. Very soon we will be able to export to Europe to supply our partners there and to Australia and we will be able to service Africa and all of the world. Sun International is our partner with the slots in the casinos and they have moved into Panama and Chile. They are moving all over South America and into many other overseas precincts. It is a great opportunity for us as we can now sell to them at a lower cost than what they would buy with the South African rand as it will be in dollars. It is all part of our vertical integration. When we got involved with the gaming side, we said we wanted it to be an investment company from a bricks and mortar point of view. We are going into the technology side because we believe that the supply side for the gaming business is far more lucrative than the operational side. Sun International is a great operating company that has been around since the very beginning. We believe we can do what they are doing, we can’t do it better than them but we can supply them with their equipment; hence the reason why Tellumat came along. We now use Tellumat for all of our television sets and all of our development of special methodologies in Burger King, to be ahead of the overseas market. We are producing designs of apps for menus, for ordering etc. and we can do that through Grand Tellumat. The same thing goes for Mac Brothers; we have a factory that is driven by robotics and by laser equipment and we can produce the best in the world to export and for us. That means we will get it at the right price in South Africa. We have gone into these industries without it affecting our balance sheet at all.

There is so much in the DNA of Grande Parade Investments and you make so much of the fact that it is such a proudly black owned and managed holding company. We wanted to hear it from somebody that has been in the trenches of this issue for so long, what are your views on South Africa’s broad based black economic empowerment program? How does it represent a competitive advantage do you think?

I was part of the team that designed the affirmative action protocols for public works etc. Basically it was important to introduce these types of interventions to level the playing fields. Together with the other African population we were part of the marginalised society. Twenty years ago you would find 2% of university students were black; today 50% are black. We develop being a nation through this intervention of quotas because we were denied the opportunity in a very similar way because of the apartheid regime. Today in business, which is still mainly white controlled, we are slowly but surely getting to a point where we can develop wealth. Now you can only do that by encouraging empowerment in a real way; in Grand Parade Investments we didn’t want to window dress, we wanted to get involved in whatever business it is that we started, in management systems, in understanding operations and we did that very well, to the extent that we understand that Sun International needed us but we needed them too. In doing so we have developed people that can now run huge gaming operations themselves. I have just said that we had a slots business that was the biggest in the country and we sold a large portion to Sun International. As a result of that, the cake gets even bigger and the slice that you had before becomes the same slice in this big new cake. Why did we do it? Because we want to have expandability into the rest of Africa across the South African borders and into South America etc. together with Sun International.

They have opened a big complex in Colombia.

Yes. There are in Chile with a very big casino and I think they are going into Colombia and a couple of other places. They are opening doors for us. We realised that they are one of the best operators, so basically if you ask me what GPI is about, it is about an investment company that would like to have blue chip investments that provide us an annuity income. Then it is also an operations company through its foods division and through its technology division. By the end of this year the food division will become totally self-funding and that could give the same annuity as the gaming sector. Just think about it, through these interventions we were able to leverage businesses to create the funds to pull this huge empowerment company. Today our shareholders are so proud of what we have done; we have taken people out of nowhere and given them opportunities to take their kids through school, to universities and technicons and even enjoy a nice holiday with the income that we give them. It is a great story and it is a journey that we have been on and that we will continue. Greatness doesn’t lie in the destination, it is in the journey. That is what we do. Our people are very proud of us. In Cape Town we are one of the biggest empowerment companies, if not the biggest. We featured last year in the top 50 companies in South Africa. We did exceptionally well and this year we want to do even better. Quite frankly we need to do things in such a way that we can leverage them; for instance this building that we are in, is a magnificent building, it is the first time in history that black people own a property in Adderley Street. Today we own a couple of properties in Adderley Street. We have turned things around and it works for us. We will leverage these opportunities to get to where we want to be. Yes we want to focus on food as our biggest opportunity because I think that the African basin demands that somebody do something to take on the challenge of developing this food basin in Africa. We think we have planted that seed. We may not be the biggest but we certainly can make a mark and put our footprints into Africa.

What would be the message you would like to give to investors that may be interested? What kind of investor are you looking for?

We believe that there are enormous blue skies in the development of the food basin in Africa and that is agriculture and all sorts of other forms of livestock development. Africa hasn’t got a formal way of dealing with livestock such as cattle; Botswana has, Namibia has and South Africa has and they are all EU approved but if you go up north that industry is not developed and there is huge opportunity for it. I just think that if we can start to attract investors in a confident way and show them how we have used our food outlets through the QSR markets and so on by going into the source of providing that food, whether it is agriculture or production of meat etc. we have an opportunity which could become significant in Africa, to the extent that Africa can export food.

Right now we need to educate and train people to be a lot more compliant and sustainable and we have to make sure that they have a reasonable living lifestyle. If you don’t do that they you are going to get a product that is driven by the fact that you haven’t invested in people. We need to invest in people. When you invest in people you must trust them. When you trust them you have to make quite sure that you only deal with the fire and not with the smoke because if you start to deal with the smoke you will start to do all the work yourself. That is what we believe at GPI. We have employed thousands of people. We have entrusted them with the belief that they are part of our journey and part of our ownership. Today, you see that we have entrusted in people. Our investment is in people. Africa needs investment in people and the only way that you can do that is to create wealth and that is what we need in Africa from the investment from abroad. Products like coffee, cocoa and all of those things need a hard turn around and investment needs to be into the production of the products that come out of it.

So higher up the value chain?

Exactly.

Cape Town is seen as the gateway to Africa and it always has been. Is it fair to say that if you want to go into Africa, from your perspective you have to make sure you do it correctly in Cape Town first?

There is the opportunity. If you look around you, you can see all of the developments in the city. This weekend it was so difficult to find a room because we have the big horse racing events here and the week before also. If you really want to invest in Cape Town, now is the time especially with the opportunities with the euro, the sterling and the dollar. Properties in Cape Town will become so expensive and even now we are turning these properties around. We already have investors from Germany that want to look into new hotel investment through the 25 Hour group. They want to look at new hotels in Cape Town as the city appeals to them as an opportunity to do all sorts of things. We are thinking about introducing Formula One and Formula E to Cape Town. I have had discussions with people from Formula One and Formula E.

To bring a Grand Prix here?

Yes, to bring a Grand Prix and to do a road race along our beach front. Everything has been approved by the city but the problem that we have is the exchange rate. It is very punitive for looking at where to start. We have had discussions with Formula E and from a tourism and leisure point of view there are huge opportunities in this city. Where in the world do you find a city that is so picturesque with such a wonderful climate? If you go to my hotel, the Table Bay Hotel, which I am the Chairman of, then you will find that even the cabbies of London are able to afford to go there. That is how affordable it is in terms of our exchange rate! What does that tell you? This will become a haven for tourists but we will run out of rooms very soon and that is the opportunity. If there are investors out there that want to look into Cape Town, we will gladly accommodate them. We have access to buildings that we have bought in the city, we have access to the city councils, the province etc. That is what potential investors need: accessibility to opportunity and to short circuit the red tape that is needed to get going. That is what we can do. It is part of our leverage.

Alan Winde has established what he calls his “red tape unit”, have you heard of it?

I am very close friends to Alan and to the mayor of the city and we believe that we can turn this city into one of the best in the world. We need to make quite sure that the red tape is taken away and that we can get to do things very swiftly and in a totally seamless way. I am on board that train. Quite frankly, I have been instrumental in many of the changes that you can see in this city. I was one of the founders in creating the Convention Centre and many other buildings in the city.

Do you own a stake in that building?

I own a stake in the Convention Centre. If you ask me, from an investment point of view there are huge opportunities in Cape Town. It is even better now because of the exchange rate. Once you establish your bricks and mortar here with your euros, sterling or dollars, then once the rand strengthens again you have it set! That is the beauty about investment in South Africa now, or in Cape Town. Not only in South Africa but in Africa also. The currency here in insignificant in terms of the first world currencies. Before you know it you will be able to establish the best production houses, and be manufacturing at no cost whatsoever and the good thing is that you will be providing employability in South Africa and Africa. You will create a nation that can find careers and develop themselves. That is what we are all about. We believe that in training thousands of people through this QSR business and through the premium product businesses that we have in our food division, we are investing in tomorrow. That is the future of Africa; it cannot remain a slave continent. It must get out of this rut of being abused and become able to supply to the rest of the world with confidence and with the passion that is needed to supply the best products. I am a firm believer in that. I was at the Entrepreneur of the Year and they asked me “what else I would like to do” and I said that I would like Africa to win the World Cup and they laughed at me. Mandela taught us that sport is a unifier of nations and of people. If you look at the World Cup teams, half of them are filled with Africans! Look at France or Belgium! The power of sport in a continent can build up the confidence and the mentorship in the new generation that will go on to do the right thing. Sport will unite them. That is the beauty of Africa; I am so passionate about what I do here in Cape Town that the rest of Africa is seen as huge blue skies for me.

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