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.