Johannesburg - The founder of a local smartphone brand that has gone bust has blamed a weak rand and "high demand" for the company’s liquidation.
In 2015, Fin24 reported that local smartphone brand AG Mobile was planning an aggressive expansion in the country.
But AG Mobile took a turn for the worst and founder and CEO, Anthony Goodman, confirmed to Fin24 that the business has been liquidated.
In an exclusive interview with Fin24 in Johannesburg, Goodman said that numerous factors have led to the closure of AG Mobile - ranging from trading losses, an inability to meet timelines and low profit margins.
AG Mobile was one of very few South African smartphone brands that managed to enter the market at a low-cost. The devices were sold through mobile network operators and a majority through clothing retailer Pep.
“The reason the business was liquidated was because of cash funding, we grew too big and the ability to manage and maintain a very high growth capital intensive business with exceptionally owner-risk borrowing terms impacted the business,” Goodman told Fin24.
Goodman explained that the exchange rate fluctuation had a significant negative impact on the company.
He told Fin24 that fast growth for the business coupled with the exchange rate fluctuation "really hurt us terribly".
"We lost a lot of money on the exchange rate towards the end of 2015,” he said.
Goodman, though, said the AG brand saw success from sales within the country and around Africa as the company grew its turnover from R180m in 2014 to R550m in 2015.
“We saw an exponential growth, so our sales were really strong. But the market itself commands very cheap prices therefore your gross profits are always under pressure,” he added.
“The Pep African chain was a key client of AG Mobile, in some countries AG Mobile saw 60 to 65% of total sales from the chain,” he said.
Sea vs air freight costs
AG Mobile products were produced by a Chinese manufacturer with major input in design coming from South Africa - the devices were white labeled and packaged locally before being sold in the market.
Goodman explained that AG Mobile units could only be transported to the country by air freight and not by sea - driving up import costs.
“Three million units were transported in 2015 and the difference between air freight and sea freight is approximately R25 per unit which equates to a difference of R75 million off our bottom-line,” Goodman told Fin24.
“The business at that time was geared incorrectly and we were stuck in the cycle because we did not have alternatives. Our interest borrowings were very expensive, our trade funding interest 3% per month in dollars,” he added.
“We had to bring in equity, permanent capital into the business. I found two very good opportunities for permanent capital. We turned over a fortune of products from a profit perspective but in the end the trade fund actually pulled the plug,” Goodman told Fin24.
B-Mobile, which produces mobile phones in South and Central America, expressed interest of a 51% stake in AG Mobile, said Goodman.
“They came to South Africa and did a due diligence on the business and wanted to buy half of the business and the deal would have been that they owned 51% of the business and 49% would have laid with the creditors until it was paid in full, that’s how the equity transaction would have worked,” he said.
Goodman said that trade funders who were involved in negotiations of the deal had shook hands; however the deal was botched at the end.
He added that another undisclosed South African JSE-listed company was brought in on the deal as an equity opportunity, but fell short of the mark.
AG Mobile was marketed aggressively in South Africa with Goodman pioneering the space of personality branded devices.
In 2015, local rapper, Cassper Nyovest was the brand ambassador of the #Hashtag smartphone by AG Mobile, with the Ghost device being released in 2014.
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