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Finweek English Edition - - FEEDBACK - Jeremy Samp­son

ket­ing sorts:

Terms such as in­tan­gi­ble as­sets and good­will have long tripped up the ac­count­ing pro­fes­sion. It was only a cou­ple of years ago that good­will could be writ­ten off at the stroke of a pen.

In your ar­ti­cle you sniff that in­tan­gi­bles are as­sets that don’t have phys­i­cal sub­stance. This is to make a mock­ery of com­pany’s most valu­able as­sets.

To­day, brands are of­ten the ma­jor as­sets of com­pa­nies. Af­ter all, where would SAB­Miller be with­out Cas­tle, Peroni and the other 200 or so brands that it ac­quired un­der the in­spired lead­er­ship of Gra­ham Mackay. A share that in the last six years has in­creased over four­fold.

You quote War­ren Buf­fett as say­ing: “Price is what you pay, value is what you get.” You might have added that be­fore look­ing to in­vest, Buf­fett looks first at the brands and only then at the man­age­ment and bal­ance sheet. Just that sim­ple mantra ex­cludes mak­ing many in­vest­ments.

Build­ings fall down, ma­chines wear out, peo­ple die, what live on are the brands. You don’t need to amor­tise neatly down to zero when they can go on in per­pe­tu­ity if man­aged prop­erly, in­vested in and kept rel­e­vant, all the time pro­vid­ing a pre­mium profit mar­gin and on­go­ing suc­cess. Re­mem­ber Coca-Cola is 127-years old, and Buf­fett has been heav­ily in­vested for years.

In the last cou­ple of months Ja­panese drinks com­pany Sun­tory has made two

L sig­nif­i­cant ac­qui­si­tions, buy­ing up brands as di­verse as Jack Daniels and Lu­cozade, mov­ing it into third place by size af­ter Pernod Ri­card and the big­gest, Di­a­geo.

One in­ter­est­ing rule that the ac­count­ing pro­fes­sion ap­plies is that only ac­quired brands can be put on the bal­ance sheet, not home grown – a rea­son why SAB­Miller and other com­pa­nies’ bal­ance sheets some­times do not even in­clude th­ese ma­jor as­sets. That John­nie Walker has zero value on Di­a­geo’s bal­ance sheet as it is home grown is plainly non­sense!

One of the high­est amounts ever paid for a brand was €5.63bn in 1998 paid by Pernod Ri­card to the Swedish gov­ern­ment to ac­quire Ab­so­lut Vodka. A nudge to gov­ern­ments that pri­vati­sa­tion can un­lock huge value of state as­sets.

I un­der­stand why SAB, Distell, BAT and Richemont are such great in­vest­ments. It’s all due to those funny in­tan­gi­bles called brands that don’t have any phys­i­cal sub­stance.

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