Company bosses try to downplay bad timing

As the aftershocks of Nenegate rippled through SA last year, a number of blue-chip companies announced big deals in the UK. It seemed savvy, a hedge against the increasingly frail rand.

Today, barely six months later, it looks far less smart.

Optimistic bets that the UK economy would grow by 2% in 2016 have now gone out of the window. “The UK will probably go into recession later this year,” says Ricco Friedrich of Denker Capital.

The UK treasury’s harsh prediction is that Britain’s decision to leave the European Union (Brexit) will lead to a 3.6% contraction of the country’s GDP over the next two years and 500,000 job losses. The value of the pound is predicted to fall by 12% against other major currencies.

“The UK faces serious uncertainty,” says independent retail analyst Syd Vianello. “Consumers will cut back on spending.”

Foremost of the SA companies that now find themselves rudely exposed is Brait, the investment giant of which retail fundi Christo Wiese owns 34%.

Flush with cash from the sale of Pepkor for R62.8bn to Steinhoff a year ago, Brait went on a buying spree which resulted in 77% of its assets being in the UK.

First, Brait snapped up 78% of the gym chain Virgin Active for £682m. In 2015, 47% of the health group’s £658m revenue came from the UK. Then in May, Brait doubled down, buying 89% of New Look, the UK’s second-largest womenswear retailer, for £783m. New Look, which operates 575 of its 838 stores in the UK, posted revenue of £1.5bn in its year to March.

To cap it all off, seven months ago Brait upped its stake in UK supermarket group Iceland from 18.7% to 57.1% at a cost of £172m. Iceland is almost entirely dependent on the UK market, clocking up £2.7bn in annual revenue from its 861 stores in that country.

So it wasn’t terribly surprising that Brait’s share price shed 14% in the two days after the Brexit vote — a loss of R11.4bn.

Wiese, however, isn’t panicking. “We are not having a nervous breakdown about what has happened,” he told the Financial Mail. “Our businesses in the UK are all at the value end of the market.” Still, Wiese concedes that “we do not know how the UK’s exit will play out in the medium term”.

And the value end is still a segment that will be hurt badly if the horror predictions