Lean fare for empowerment in­vestors

No won­der ex­ec­u­tives re­signed

Finweek English Edition - - Companies & Markets - Marc Hasen­fuss

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

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