Johncom’s acting CEO Prakash Desai’s initial unsmiling face and probing eyes create the impression that he would rather be working than be subject to a media interview.
Small in stature and dressed in a well-tailored navy blue pinstriped suit with a striking yellow tie, his office is modest and his desk is piled with files and a copy of the Sowetan newspaper.
He has been acting CEO for more than six months, and many are becoming increasingly impatient with Johnnic Communications as it drags its feet in appointing a CEO.
While the media and entertainment business posted revenues of R2.6-billion by the end of 2006, it does not reflect well that the company has made no announcement as to who will lead it.
“The CEO position has been advertised and therefore in the public domain. I believe it’s important that the process be followed to a conclusion,” says Desai, Johncom’s acting CEO, almost impatiently.
The succession question must be one he is asked quite often.
He describes his relationship with his predecessor, Molusi, as “amicable”.
“We worked for four years together. I think we had a professional relationship. I don’t believe there were any difficulties between the two of us and we worked well over the four years.”
Under Desai’s leadership, the company reported an excellent performance with an income statement revealing a revenue increase of 17 percent to R2.6-bllion in September 2006. Profit from Johncom’s operations increased by 62 percent to R330-million, and headline earnings per share rose by 69 percent to 300 cents.
But that is to be expected from a man whose attention to detail and ability to play with numbers has earned him respect in the industry.
Prior to his appointment as Johncom’s deputy CEO in April 2005, Desai was the group finance and operations director, and previously financial director.
But in November last year, the media and entertainment group made headlines again, this time for announcing the sale of its only assets in television – its 38 percent stake in M-Net/Supersport. This accounted for about 44 percent of Johncom’s profits in 2006.
The second-largest profit contributor was its media division, which contributed 38 percent or R244-million.
The assets were sold to Naspers for R3.9-billion, no doubt leaving a big gap in the group’s income statement.
“We had an unsolicited offer that culminated in the decision to sell our stake,” explains Desai.
“We considered a number of inputs in coming to our decision and also took external advice. At the end of a very robust discussion, there was consensus that it was appropriate to sell the asset.”
He points out that not so long ago Johncom went through a process of addressing the historical non-performance of some of its assets.
“That process having been completed we have initiated a number of growth opportunities that we are currently pursuing. The sale of one asset could be followed by the acquisition of other assets.”
Does this mean that Johncom intends acquiring some of the assets Primedia will sell when it de-lists? Or does it have an interest in the much-awaited pay television channel licence applications?
“I think our growth will come from within media and entertainment (sector) across a couple of segments,” he says, smiling. “The door is not closed to pay-television. At the end of the day, it’s a question of value. We believe that we are creating value and we would continue to pursue value.”
Commenting on what the sale of M-Net means for Johncom’s vision of becoming a leading player in media convergence, Desai says it is all a matter of timing.
“I think convergence is still on our horizon but it’s primarily an issue of timing. The pay-TV landscape will change in the near future with deregulation and this will create opportunities for Johncom.”
Moving into the rest of Africa
In 2003 Johncom announced it is expanding into the rest of the continent, starting with Nigeria and Kenya. However, by the end of November last year, the company was still experiencing substantial losses after investing more than R60-million in the venture.
“I think our investment in Africa concentrated largely in Kenya and Nigeria and must be seen in terms of a long-term investment,” says Desai.
He says the initial losses arose from “unexpected” and “abnormal” entry costs which had to do mainly with the numerous regulatory changes especially at implementation stage.
“The challenge in Africa is that there’s constant change and you can’t plan for constant change. The infrastructure is also inconsistent. We have had some very unusual experience there, which were even above the uncertainties we had planned for. I think it’s a new territory and there are costs for entering a new territory.”
Johncom has a CD and VCD manufacturing plan in Lagos producing both “Hollywood” and “Nollywood” (the Nigerian Hollywood) products.
The company owns a media store selling books, music and home entertainment products and a movie complex with six screens in Lagos. It is planning to launch another media store in the city and also owns one in Abuja. In Kenya, it owns four movie complexes and a media store and is planning to launch a second media store in Nairobi.
On the print side, Johncom Africa owns Business Day Nigeria and the group launched a soccer magazine called “four four two” for Nigeria last June.
Desai is quick to point out that their experiences in the rest of the continent are no different to those of other South African countries operating outside the borders.
“The initial entry costs in new territory have been similar to those of South African companies that are now successful there. In the early years, they also incurred similar costs for a number of years before becoming an ongoing establishment was created.
“The costs that have been incurred are non-recurring costs and the future picture will be very different when we have had a full trading year without the initial costs.”
Desai says what Johncom has achieved in those two countries is establishing a “large” foot print and market share which will stand them in good favour in the “longest” term. How large a foot print, it is not clear.
While Johncom had earlier announced an interest in expanding into other parts of Africa, Desai says that is not a priority for them right now. Getting their house in order in Lagos, Nigeria and in Nairobi, Kenya, is.
“Our primary aim is to obtain market share and now that we have it, it is appropriate that we have operational focus to put some runs on the board. We hope that once we have a successful number of entities it will grow.
“We have invested a considerable amount of money in Africa, in a business that we hope to turn cash positive in approximately 18 months from now.”
Asked whether it has been worth it for Johncom to branch off into Nigeria and Kenya, Desai says: “Our investment in Africa, relative to the size of the company, it’s not the largest initiative.
“We are a R9-billion company and to invest R100-million, relative to the size of the company our investment in Africa is appropriate as a growth initiative. For me the jury is still out on Africa.”
The Caxton-Johncom merger
There have been talks of a possible merger between Terry Moolman’s Caxton/CTP Publishers and Johncom for a long time.
These were fuelled further by allegations that Johncom’s former CEO Molusi was pushed out of the organisation for trying to block a broad-based black empowerment deal which involved Moolman and the “usual suspects” Cyril Ramaphosa, Patrice Motsepe and Tokyo Sexwale.
Johncom also owns 36 percent of Caxton and the two companies have common media and publishing interests. In fact, a large part of the Sunday Times, Johncom’s biggest media asset, is printed by Caxton.
“Johncom has a shareholding in Caxton, and therefore rumours will persist about the possibility around the merging of the two entities,” says Desai.
“I think we are constantly looking at, again, creating value which will be mutually beneficial with both entities being in the printing and publishing business, it does not require a merger to explore opportunities.”
Strategy going forward
While last year saw a lot activity from the Media24 and Primedia camp with the former launching several magazines and the latter acquiring more assets, Johncom has been relatively quiet.
“We are not the same size,” Desai explains. “In their magazine division, they have the printing and distribution, and we have a handful of magazines dependent on third party distribution. So you can’t compare apples and pears.
“They have been launching a lot of magazines to buy market share. What we are doing in Africa, is what they are doing with magazines. In down time, a lot of things will close. It’s a strategic move.”
He notes that for five years ago Johncom was “awarded a wooden spoon” in the media sector.
“What we have achieved is reflected in all our profit margins, whereby for example, the media percentage has gone from four to six to 17 in the last few years. This has come from a lot of internal focus on operational issues.
“Johncom was at a phase when it needed to have a lot of internal focus. The focus will now move external. Get the foundation right, and then you can expand and grow.
“We are at a stage where we have every single business generating cash. We have articulated a vision for the company for the next few years. It’s a strong balance sheet that we have now established growth from.”
Going forward, Desai says they have a succession plan in place to bring in a generation of black managers.
Leaving the office, one wonders whether indeed Desai will one day officially head the media and entertainment giant. After all, the advert for the position of Johncom CEO states that the applicants should be indigenous people of South Africa. One cannot help but wonder what that really means.
As I leave, Desai is forced to take an urgent phone call. I hear him tell the caller that he will let him know if they needed his services.
Right now Desai is all the stability that Johncom can get. And as a veteran businessman once pointed out, business needs stability to operate.
Three things you didn’t know about Prakash Desai
What are you currently reading?
Fooled by Randomness by Nassim Taleb
How do you spend your extra time?
Extra Time!? I spend it with family.
How many children do you have?
Three teenagers.
Which is the one goal or dream you have realised?
Having three teenagers chasing professional degrees at Wits .