Brait strategy turns New Look around
The investment holding company has narrowed its losses and looks to New Look to recover value.
Brait, the investment holding company controlled by Christo Wiese, is seeing its turnaround strategy for New Look starting to bear fruit as the UK clothing retailer improves its operations and market share in womenswear.
Flush with cash after selling its Pepkor stake to Steinhoff in early 2015, Brait bought 90% of New Look for R14.2bn in May 2015. But due to the sustained deteriorating performance of the company, Brait was forced to write-down the full value of its investment in the retailer.
New Look’s poor performance has weighed on Brait over the past two years, turning the formerly profitable company deep into the red. The poor performance has also weighed on the share price, with Brait trading 77% lower at R38.10 from its 2016 high of R167 a share.
The company has four primary investments — local fitness chain Virgin Active, Premier Foods, the maker of Blue Ribbon bread and Snowflake flour, UK budget food retailer Iceland Foods, and New Look.
Virgin Active saw its memberships and revenue increase, as gym users in SA tend to be on the wealthier end of the spectrum and more insulated from the country’s economic downturn. While Iceland Foods got a boost from price increases fuelled by inflation, Premier posted lower revenue as the weak economy in SA weighed on consumer spending.
Overall, Brait announced interim results for the six months ending September, posting a comprehensive loss of R302m, a sharp reduction from the R5.44bn loss reported in the corresponding period a year earlier. Brait’s net asset value declined marginally from R55.86 per share at the end of March to R55.23 at end September.
“Brait has performed in line with expectations with a broadly flat performance in a tough environment in both SA and the UK,” Brait chair Jabu Moleketi said. He added that the company would continue to progress strategies “to reduce debt on Brait’s own balance sheet and increasing cash flow at Brait itself”.
The group said it is preparing for a new phase of acquisitions over the next 18 months to achieve a broader spread of investments. The focus will primarily be on consumer-facing and industrial firms in SA and the UK, in line with its existing strategy.
Brait disclosed in the interim financial results that it had used a special purpose vehicle (SPV) to purchase 18.2% of the outstanding bonds related to New Look. Brait had previously announced the existence of the SPV but never disclosed what instruments it was being used to acquire.
New Look bonds tracked the performance of the company and fell in value until Brait announced the existence of the SPV. Brait disclosed buying New Look bonds with a nominal value of £189m. The carrying value was £111m as at September 30.
The purchase of the bonds is a strong sign Brait expects New Look to recover. “They clearly have taken a view that New Look will be worth something in the future,” said Brad Preston, head of listed investments at Mergence Investment Managers.