Buying Allied Pinnacle — and impairing it three years later (2019)

Completing the three-pole design, and pricing growth

At the centre of this decision lies the conclusion of a long-standing course: move growth out of a mature domestic milling business and into markets abroad. The lineage built step by step through Canada and the United States gained its third pole with the Australian acquisition, and outwardly approached completion. But that completion concentrated $391.7M (¥43bn) of goodwill in a single transaction and tilted the group’s balance sheet towards foreign assets — a wager, and the tension of the decision lies there. The insistence that the judgment at the time of purchase was not wrong, set against the accounting reality of ¥55.8 billion of impairment including goodwill, can be read as the distance between the future a growth investment prices in and the external environment that actually arrives.

What came after leaves the question of how to close that distance. The Australian turnaround proceeded on plan through the company’s own measures, and pass-through pricing in the core business pushed the group back to record profits, so that on the numbers the wound of the impairment was covered over. But a second impairment, in India, showed that the unforeseeability of the external environment was not confined to one deal. For a food company drawing its growth from diversification and internationalization, how far the appraisal of investment risk can be made to price in the unexpected remains an open problem.