Botswana’s largest hotel chain group Cresta Marakanelo Limited board of directors, according to its latest financial results, has recently decided not to declare an interim dividend for the 2019 financial year in order “to fund the refurbishments currently underway and new projects in the pipeline.”
This is after Cresta made a huge move of metamorphosing from the hospitability business to a property sector, a move which has cost the company more than quarter of a billion Pula. Cresta, has been operating hotels around the country, but it is now owning the property which these hotels were renting. This means Cresta is now a landlord for its Cresta hotels.
In June this year, Cresta acquired hotels the President Hotel, Cresta Lodge, both in Gaborone, Thapama Hotel in Francistown and Cresta Bosele in Selebi-Phikwe from its former landlord Letlole La Rona. Cresta also acquired Cresta Maun (formerly Riley’s Hotel) from Botswana Hotel Development Corporation, a subsidy of government wholly owned Botswana Development Corporation (BDC). To get these hotels Cresta went on related party transaction. The BDC holds a 27 percent stake in Cresta and has 66 percent equity in Letlole La Rona.
Other shareholders of Cresta are; Cresta Holdings which holds 24 percent of shares, Botswana Insurance Company Limited with 13 percent, LHG Malata Holdings Limited has 8 percent, while Motor Vehicle Accident Fund holds 5 percent stake. Cresta has been operating the hotels on lease agreements with the property owners. The current tenancy of the properties is provided for by a 10 year lease agreement which expires at the end of June next year. However in June this year, Cresta acquired these properties worth P251 million, fully debt funded by Barclays Bank loan facility, according to the company’s Half Year Financial Results released last week.
Its interim condensed consolidated financial statements for the six months which ended 30th June 2019, achieved a revenue growth of 13 percent and a significant growth in profit compared to the same period last year. This is credited to the newest addition to the Cresta’s portfolio of Cresta Maun hotel, as it is said to have achieved revenue growth and had a positive contribution to the cash generated by the Group.
However, the glitter that shines in Cresta revenues were dimmed partially by a decline in cash resources from P45.3 million last year to P29.9 million this year, this is according to Cresta’s latest released HY financial results. According to the once big hospitality company which dived into an opportunity on the property sector, this decline in cash and cash equivalents was as a result of VAT paid for the properties acquired, which in this case would be the hotels. According to Cresta the VAT refund was received in August 2019.
As Cresta board has resolved to withhold harvest, its eye has been on investment according to the company. “The net cash utilised in investing activities increased to P263.4 million, from P20.8million in the prior year, as a result of the acquisition of the hotel properties, as well as refurbishment projects undertaken in the Group. With regards to financing activities, P251 million was utilised from the Barclays Bank loan facility during the period, to fund the hotel property acquisitions,” the company said in its Half Year results.
The acquiring of new hotels increased Cresta asset base, as total assets increased by 154 percent compared to the financial year which ended 31st December 2018. As much as a gain in assets was due to hotel properties acquired, the recognition of Right-of-Use assets for the first time in the current financial period also contributed to the increase. While the Barclays Bank loan funded the acquisition, there was a realized increase in equity of 28 percent.
Cresta also believes the centralised procurement and cost containment initiatives in the hotels resulted in improved margins and higher profitability. “The Group will continue to focus on improving margins, as well as product improvement across all hotels. Additional resources will also be directed to various marketing initiatives in order to increase occupancies across the portfolio. The Group continues to explore local and regional growth opportunities in order to diversify its portfolio and increase shareholder value,” said a financial statement signed by Cresta board chair Moathodi Lekaukau and MD Mokwena Morulane.
Cresta on the crest of markets
Recent market analysis have shown an improvement on Cresta’s share price just after the release of its financial results. Just in the same week Cresta was the biggest gainer of the week, ticking up by 6 thebe to close at 129 thebe. This is the same time when ETF NewGold was the sole loser, shedding 930 thebe to close at 15140 thebe. The Domestic Index gained 0.06 percent to close the week at 7433.00 points while the FCI was flat, closing at 1564.55 points.
On the week that ended on 6 September 2019, Cresta was at 123 thebe. Cresta share price increased by 6 thebe, a 4.88 percent change. The week where the Cresta share price shook slightly it had a volume of 1500 securities which were traded and the bid ended at 130 thebe. This week Cresta’s market capitalization was at P238.18 million while 184,634,944 shares have been offered for the public for trading.
A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.
With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.
After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.
Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”
Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.
However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.
The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.
In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.
“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.
This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.
On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.
However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.
Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.
Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.
According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.
The two entities are South African retailers whose services stretched to Botswana shores. Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.
South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.
However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.
When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.
“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.
The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.
This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.
What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.
“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.
Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.
CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.
Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.
“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.
CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.
Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.
“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.
According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of: i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.