Beware big firms 'buying foreign'
There is a Wimpy ad, now about ten years old, where a guy is reading from a list of exotic coffees from the restaurant menu: “Macchiato, Latte, Cappuccino,” he says in his best Boksburg Italian accent. His date replies: “Oh I love it when you talk foreign.”
Turns out talking foreign is easier than buying it. Not everyone gets it wrong, but Thursday's slew of results announcements and trading updates shows just how difficult buying global companies can be.
Two companies that took big UK bets as South Africa’s politics turned sour in the aftermath of the firing of Nhlanhla Nene in December 2015, have had their mega deals turn round and bite them.
Famous Brands, which owns Wimpy in both SA and the UK, was doing fine until it bought Gourmet Burger Kitchen (GBK) in the UK for more than R1bn in 2016. It has just taken a second round of write-downs on its biggest ever investment. The company warned it would report impairments that could top R400m on the business, and property-related expenses.
As Business Insider reported earlier Christo Wiese’s annus horriblus just went from bad to worse. In addition to be being booted off the Forbes list of global dollar billionaires, primarily due to the collapse of the value of Steinhoff over the past three months, his Brait business which had already written down the R37 billion purchase price of UK retailer New Look, announced further UK woes.
The firm announced closures of more than 10% of its 593 stores and a headcount reduction of nearly 1,000 in addition to restructuring its debt.
Steinhoff’s worries are well documented. Its rapid globalisation to become the second biggest furniture retailer in Europe after Ikea, the biggest seller of mattresses in America and a value retailer across Africa, Eastern Europe and Australasia, was nothing short of astounding. The 90% collapse in its share price is linked to worries of crooked accounting which, it turns out, might have been conjured up to disguise the impact of the speed of its international growth.
While some investors have expressed concern about the rapid rate of growth at Aspen Pharmacare (to the point that market gossip was that short-sellers Viceroy were about to publish a report questioning the sustainability of its globalisation) Thursday's results appeared to put those worries at bay. The company reported record profits and a growth path funded by cash acquisitions rather than the perpetual issuing of new shares to build the business.
Aspen is easily South Africa’s most global company. It has a physical presence in 50 countries and its products from 25 factories across the planet are sold in 150 jurisdictions. Its rapid growth from a small house in Durban to a plush Umhlanga HQ - from where CEO Stephen Saad oversees operations from Australia and China in the East to Europe and the US and Latin America - is a model corporate financiers of the future will contrast with the debt-hungry approach of Steinhoff.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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