Investing in a crisis - a focus on Zimbabwe Stuart Bradley

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Investing in a crisis - a focus on
ZimbabweStuart Bradley Managing
PartnerAureos Southern Africa
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Presentation Overview

• The Zimbabwe Crisis
• 3 Key Lessons
• Summary Lessons Learned
• The Takura Experience

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The Zimbabwe Crisis
Began in 1997 (just after we launched!) The
result being Currency devalued by over
50,000 GDP decline for 4 years Unemployment
risen to 70 Inflation at 600 Ranked 2nd worst
investment climate in the world in 2000 Massive
negative impact on business
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3 key lessons

• Management
• Structuring
• Value Addition

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Lesson 1 - Management

• Remains the golden rule
• More pronounced in a crisis
• Test track record
• CVs reference checks
• instinct!
• Non-Executive Directors

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Lesson 2 - Structuring

• Devaluation is a big killer of returns in
  emerging markets
• Unsophisticated financial markets to hedge
• Natural hedges are available (but dont be
  fooled)
• Structuring to get cash out quickly

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Structuring - example

• Charhons - private placement
• Takura Invested US94,000 for 25
• US670,000 shareholder loan
• Currency devalued by 4,500
• Exited in December 2002
• Cash returns of US1.2m
• Equity sold for US650,000
• IRR in US terms of 36

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Lesson 3 - Value Addition

• Cant just invest and sit back
• Need to be more hands on in a crisis
• Example Construction services business
• MBO in 1997
• Encouraged regional expansion
• MD did not perform
• Loss making in first part of 2000
• Removed MD
• Now established in Zambia Botswana
• Exited at breakeven in US terms

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Summary of Lessons

• Lessons are applicable for any environment
• Need to evolve
• Management - dont compromise!
• Structuring - ungeared deals need growth
• Value Addition - more hands on in a crisis
• Regional funds - to avoid beating the odds in
  a crisis - need local physical presence.

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The Takura Experience
The environment Currency devalued by
50,000 Unemployment risen to over 70 GDP
declined for 4 years Voted worst investment
destination Takuras achievement backed 15
companies Taxes paid of US9.5m Employees
totaling 6,800 Realised Gross Return of 27
(US) Total Gross Return of 30 (US)