CFOs discuss successful asset strategies

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A look back at how top CFOs remedied underperformance this year by adjusting their asset strategies.

Previously seen as a remedy for underperforming companies, asset-light strategies are now being used by companies to manoeuvre through the market changes caused by the Covid-19 pandemic to create continued growth.

This strategy is being embraced by businesses in South Africa, who are already realising the benefits.

The most notable is mobile companies releasing ownership of cell towers in favour of using the capital to build other capabilities within the business.

Telecommunication company Cell C has jumped on the opportunity to build a comparable network. Cell C’s former CFO, Zaf Mohamed (featured), said the company’s new asset-light operating mode “would need more than R5 billion capex annually to build a comparable network. This would also take several years to implement.”

Instead, the operator is deploying an asset-light infrastructure model and plans to invest capex of R1 billion a year, which includes technologies to support the platform model it is implementing as it evolves to being a technology company.

Read more: Special Feature: Asset-light vs asset-heavy (Part one)

Getting rid of non-core assets
As part of a turnaround strategy to focus its attention on the agricultural and mining sector Omnia sold 90 percent of its share in petroleum company Umongo to shed non-core assets.

This will not be the only asset that the company is considering. “Management is committed to the continued strategic execution, which includes the sale of assets identified as non-core,” said group FD Stephan Serfontein.

Umongo, which is part of Omnia’s chemicals division, supplies lubricant additives, base oils, process oils and chemicals, as well as technical solutions to lubricant blend manufacturers in sub-Saharan Africa

Read more: Special Feature: Asset-light vs asset-heavy (Part two)

Balance needed in shedding assets
George de Beer, CFO for Imperial Logistics, said there is a balance between shedding core and other assets that are not of benefit to the business and retaining assets that ensure that the business is able to still service its customers. He referred to this as an ‘asset-right’ model.

Supporting his sentiments, Rand Merchant Investments (RMI) CEO and FD Herman Bosman both agreed restructuring marks a significant milestone for a business.

Attacq CFO Raj Nana said the group has seen the benefits of balancing the shedding sheets as it reduced its gearing ratio to 43.3 percent in the financial year under review of its non-core assets compared with 45.7 percent in the prior year. As a result, the group isn’t planning to incur further debt to undertake further development.

The group resolved to not pay a final dividend for the 2021 financial year in order to optimise its capital structure for development capacity.

Read more: Special Feature: Asset-light vs. asset-heavy (Part three)

Learner strategy for positive results
According to Sasfin FD Angela Pillay, the company prioritises a leaner operation as a core asset. As a result, the financial benefits that include the leaner operation strategy have borne results. Sasfin reported headline earnings of R141.1 million for the year ended 30 June 2021.

According to the company, this improvement was largely driven by an 11.65 percent increase in total income to R1.303 billion and improved credit performance. The group also reported a return on equity improvement to 9.11 percent.

Read more: Special Feature: Asset-light vs. asset-heavy (Part four)

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