The cost of paranoia about SA: Businesses have wasted trillions on overseas flops
- Ill-judged global expansions have led to incalculable value destruction over decades.
- SA shareholders are paying the price of paranoia about the country.
- Mediclinic, Old Mutual, Famous Brands and Netcare have all had global misadventures.
South African investors' belief that the country is permanently in some kind of pre-Armageddon has probably cost them trillions of rand over the past twenty years. The number of failed global expansions is ratcheting up and investors whose bias remains largely negative toward local assets are bearing the cost.
Retired FirstRand founder Laurie Dippenaar had a rule that whenever an executive came up with an idea for global expansion, the first question he would ask was: “Who on your team wants to go and live there?”
South African shareholders have paid the price for those kinds of international strategies for years as large corporations sought to diversify their earnings streams away from the country. And no doubt, some executives also saw it as a cushy way to move countries at someone else’s expense.
There have been some great success stories: SABMiller, Bidvest, Nando's, Naspers and Investec Asset Management among them.
But a growing number of South African companies' international expansions are coming unstuck.
The list of disasters and missteps is growing.
The latest to join the list is Mediclinic. Its share price this week was pulverised by a warning that its profits are going to be lower, primarily as a result of - yes, you guessed it - challenges in its international operations.
It blamed an anticipated 10% earnings decline on “customary seasonality” in Switzerland and the Middle East but also highlighted that its Swiss operations were coming to terms with regulatory changes and that was causing unforeseen complexity.
On top of that, fewer pneumonia and bronchitis cases in South Africa this year hit its domestic business. Sometimes good news can also be bad news.
Competitor Netcare this year finally chucked in the towel in the UK. Its strategy of picking up overflows from that country’s heavily burdened National Health Service didn’t make provision for austerity and cutbacks brought about by the global financial crisis and, more recently, Brexit. That, coupled with eye-watering property rental agreements, made it untenable to remain.
Famous Brands seems eager to extricate itself from its R2bn Gourmet Burger Kitchen deal and has written off a large part of its value in its accounts.
Old Mutual has just concluded its conscious uncoupling - they prefer the term “managed separation” - and brought its primary listing back to Johannesburg after squandering billions in value by overpaying for businesses across the globe
While the US market devoured one of the founders of the SA unit trust industry, Sage, Discovery saw the light in time. After ratcheting up a billion rand in losses, it rethought its global strategy.
CEO Adrian Gore is uncomfortable with any assertion that the firm's 25% stake in China’s Ping An Health, a division of the world's biggest insurance company, could be its Tencent.
And Tencent itself is finally proving to be a bit of a drag on Naspers. The latter peaked at over R4,000 a share in the hype cycle that nothing could ever go wrong for the firm in which it bought a 46% stake in 2003 for $200m.
Regulatory changes in the Chinese gaming industry are leading to some concerns about future profits. Yet despite the pull back, this is one expansion that has delivered considerable returns for investors.
Still, why not all global expansions out of South Africa have been disastrous, few have achieved their strategic objectives and returned real value to investors.
Investors need to be more circumspect about the real intentions of management teams when they spend their money on global jollies.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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