POSITIVE CHANGES - JSE MAGAZINE

POSITIVE CHANGES

Newly JSE-listed firm Brainworks, which has extensive Zimbabwe-focused operations, is well positioned to reap benefits from that country’s transformation, says CEO Brett Childs

POSITIVE CHANGES

It’s been seven years since Brainworks was established as an investment holding company with an exclusive focus on Zimbabwean investments that are consumer-facing and cash-generative. Its current substantial portfolio offers exposure to assets in Zimbabwe’s hospitality, real estate, logistics and financial services sectors.

Despite its success, it hasn’t been the easiest of journeys for Brainworks, as CEO Brett Childs, explains. ‘We’ve had to adapt to the ever-changing Zimbabwe economy along the way. While our strategy in terms of the type of assets we target remains constant, we do react to market fluctuations, an example of which saw us exit commercial banking in 2015 to focus instead on microfinance, which presented better opportunities for growth,’ he says.

‘Challenges included policies that deterred foreign investment in the country, not helped by the fear that the potential to return to high inflation was never far away and, of course, the issues of foreign currency and liquidity volatility.’

The good news is the recent amendment to the Indigenisation and Economic Empowerment Act, introduced by the new government in an effort to open up the Zimbabwean economy. Childs notes that this amendment has resulted in an increase in investor interest in the country with the government now focused on improving the ease of doing business.

‘While we are beginning to experience a positive change in the investment climate, access to foreign currency continues to remain a challenge, especially for international investors that had invested in Zimbabwe and are now struggling to repatriate their funds,’ says Childs. ‘This is exactly the type of situation that validates Brainworks listing on the JSE because we can provide investors with a single point of entry and exit into and out of the country, without having to deal with the in-country foreign exchange challenges.’

Childs is very optimistic about Zimbabwe’s future, largely because Brainworks has intentionally targeted assets anchored in improvements in the social, political and economic fortunes of the country, which he says, are now imminent. ‘The momentum arising from the change in the political landscape and improved investment climate sentiment is expected to drive performance, particularly within the hospitality sector where we own and/or operate 11 hotels.’

Growth in that sector is expected to be driven by increasing international tourist arrivals, which in the case of Brainworks’ hotels, increased by 29% in 2017. ‘Indicators suggest another double-digit increase this year. This is particularly good for our subsidiary, African Sun, the largest hospitality operator in Victoria Falls, where we operate three hotels, inclusive of the Victoria Falls Hotel. We also have operations located within all the prime tourist locations in Zimbabwe, with hotels located at four of the country’s five Unesco World Heritage Sites.’

Dawn Properties is Brainworks’ real estate subsidiary and has a large land bank in and around the capital Harare. ‘Here we see an ever-increasing housing backlog, and opportunities are presenting themselves to provide affordable middle-class housing.’

Key objectives for 2018 will be to raise capital to restructure the group’s debt, and to consolidate and strengthen its portfolio companies. The group recorded a loss before income tax of $6 million in 2017, largely because there were a number of non-recurring costs that negatively impacted profitability. However, the group’s revenues did increase by 22% to $58.6 million compared to 2016.

According to Childs: ‘Revenue growth was recorded across all the group’s operating segments, with major growth coming from the hospitality industry. Post elimination of inter-group revenues, other investments contributed $6.8 million to the 2017 revenues.’

Investment in existing hotels and similar new opportunities, a revitalisation of the agriculture portfolio, development of its land bank, and a refreshment of its financial services investment strategy are all planned to build Brainworks shareholder value.

‘We intend to focus on a vertical integration strategy to grow our business by investing down the supply chain in our core sectors, and will continue to partner with reputable international operating partners, providing a unique blend of local knowledge combined to international know-how,’ he says. ‘It helps that we operate in a market with minimal investor competition, so can acquire assets at competitive prices.’

For Childs, assets include people development, the success of which he says can come from providing opportunities to help others achieve their goals and develop a self-improvement culture. His management style is based on two ideals, which relate particularly well to the hospitality industry: ‘Treat people as you want them to treat you, and always have respect for others – it is theirs to keep or lose.

By Kerry Dimmer