Lean fare for empowerment investors
No wonder executives resigned
A POOR FINANCIAL performance by Best Cut Holdings, a meat group that reverse listed on the JSE at the beginning of this year, probably explains the unexpected resignations of its two top executives. In June this year Best Cut CEO Nick Serfontein stepped down and Alexis Steenkamp – the founder and group MD – resigned with immediate effect last month.
No surprise then that only a few weeks after Steenkamp’s resignation, Best Cut issued a trading statement warning earnings for the year to end-June would be between 60% and 80% lower than the figures forecast in listing documentation issued in October 2007. Its trading statement indicated a significant increase in costs of raw materials that couldn’t be passed on to the market “due to market resistance to price increases”.
The group’s planned geographic expansion also hit a wobbly. More specifically, production at its abattoir came on line later than anticipated and the proposed expansion from Best Cut’s KwaZulu-Natal base into Gauteng and Mpumalanga is progressing slower than planned, due to prevailing trading conditions. Developments at Best Cut are a major disappointment in its first year as a listed company – especially since large numbers of empowerment shareholders took a chunk of equity in the company via two black empowerment deals facilitated by Pretoria-based financial services company StratCorp. At least Best Cut director Thomas Hill – who
facilitated the company’s reverse listing through Intergear – can take some comfort from its empowerment proceedings. Hill unloaded more than 16m Best Cut shares at 80c/share to clients of StratCorp subsidiary StratEquity in April this year. At a buy-in price of 80c/share, the empowerment deal was dressed up as a fairly juicy option, with Best Cut pencilling in earnings of 10,6c/share for the year to end-June 2008. Its trading statement now suggests earnings of between 2,5c and 4,4c/share are a more realistic expectation – which means Best Cut has endured a torrid second half of its financial year.
Considering that earnings of 3,3c/share were posted in unaudited interim results to end-December 2007, it would seem Best Cut may have operated at a loss for most of its second half. It seems safe to assume its forecast earnings of 17c/share for the new financial year can be disregarded.
Ironically, interim commentary – signed off at end-March by Serfontein and financial director Ben Jones (who also resigned from the board) – discounted the effects of higher meat prices as well as rising interest rates.
No longer in the driving seat. Nick Serfontein