Botswana Insurance Holding Limited (BIHL), an investment group with interests in leading insurance and finance business across Africa continues to increases its market share and retain profitability amid increasing competition from new entrants and evolving regulatory and trading environments.
When delivering a review on the lapsing 5 year strategy which commenced in 2013 BIHL Group Chief Executive Officer (CEO), Catherine Lesetedi-Letegele noted that the strategy delivered sustainability and continued profitability for the group with increasing market share. Letegele shared these at the BIHL 2018 interim results announcement in Gaborone this Tuesday.
The BIHL chief explained that since the commencement of the “The Tomagano” five-year strategy the company has been able to protect its leading status and position in all its businesses, penetrated new markets as well as introduced new segments. “When growing our businesses we did so closely monitoring profitability and risks in new investments, we did not just aim at increasing our market share without protecting profitability and sustainability,” she said.
She highlighted that in the past five years the Botswana Stock Exchange (BSE) listed BIHL acquired 25 percent stake in Nico Holdings based in Malawi, 50 percent stake in Botswana Insurance Company as well as increased share stake in Pan African outfits Letshego Holdings and Funeral Services Group. She also noted that BIHL disposed some assets that were no longer serving the interests of BIHL‘s strategic expansion targets.
Stakeholders were informed that BIHL increased efficiencies in group operations through establishment of a program office, group business development office, HR and IT administration and monitoring bases. “These business suits have delivered and continue to deliver efficiencies within the group, we also introduced new technologies across the group to harness synergies in ensuring that we run a well managed business and create a pull of individuals that are not just specialists but also generalists,” she said
Letegele also echoed that BIHL has within the five year strategy entered into collaborations with strategic corporate entities in the interest of the company and its workforce. “We have signed agreements with the likes of Baisago University, sent our people to Gordon Institutes of Business Science, collaborated with Sanlam and Stellenbosch University amongst others, all of this has been done under clear management processes. We recognized that BIHL does not exist in a vacuum as a corporate citizen, we believe we have executed well on the strategy,” explained Letegele.
She revealed that a new strategy will be launched in March next year. Since 2008 Botswana Insurance Holdings Limited has realized a growth in embedded , raking in 5 billion in profits before tax since to date , paid 2.7 billion pula dividends and paid just under 800 million pula tax to Botswana government. Speaking to the half year results for the six month period ended June 2018, BIHL CEO explained that the Group continues to lead profitable operations amid trading challenges.
“In our view as management we believe we gathered resilient set of results supported by growth in revenue, growth in value of new businesses, growth in operating profits, growth in group embedded value amongst others,” she said. Letegele explained that overall expenses have been well maintained to output flat growth. “This is our dedication to ensure that we are managing cost by spending money on areas that we believe are investment geared rather than on consumption operations,” she stated.
Letegele contend that BIHL raked in an impressive 54 percent increase in premium income, because of new products, strategic partnerships, and schemes adding that the group administration system implemented during the half year under review also contributed to Group’s impressive overall performance. Letegele explained that return on group embedded value grew from 8.3 percent to 17.6 percent attributable to increased value of new business which expanded by 14 percent as well as the fact that the company didn’t incur any impairment.
On segment and subsidiary performance, Letegele revealed that the Life insurance business which is headlined by BIHL largest subsidiary, Botswana Life gathered and increase in Net Premium Income for the first half of 2018 with increase from P1.1 billion in six month ended June 2017 to P1.15 billion during period under review. Still under Life Insurance Business total New Business written grew by 7 percent underpinned by strong single premium income performance.
Recurring premium income grew by an impressive 9 percent from P605 million in June 2017 to P659 million in June 2018. “This line represents a sustainable source of profits in the long term at group level,” she said. The value of new business, which represents the present value of future profits from new business premiums written during the period, increased by 14 percent from prior year on the back of impressive new business volumes from the group lines and term assurance policies.
Operating profit grew 15 percent on prior year mainly because of good new business volumes from the group line, low new business strain and cost savings from the streamlining exercise carried out second half of last year. Operating profit increased from P142 million in June 2017 to P164 million in June 2018.
Under the Botswana Insurance Fund Management (BFIM) Letegele shared that despite the challenges of mixed economic performance reflecting both international economic uncertainty as well as domestic challenges BIHL’s asset management outfit managed to retain mandates and existing clients. However BIFM group’s overall operating profit in the 2018 first half showed a decline of 8 percent year on year.
BIHL explained that this is due to direct result of Zambia operations not performing as expected because of unrealized activities that were anticipated to take place in the year 2018. “Despite the current difficult trading conditions, where we have witnessed several new entrants into the market and pension funds adopting new strategies of splitting mandates, BIFM has continued to show resilience and continued to gain market confidence and maintain its position as a leading Asset Management Company,” explained Letegele.
Total Assets under management including Zambia’s P4.7 billion stands at P26 billion. Regarding the Short term insurance business, Letegele explained that the segment continued to face pressure on the top line resulting in an 8 percent decline in income compared to prior year. Despite the top line pressures, Legal Guard has achieved an operating profit of P1.8 million to June 2018 up from a P0.9 million loss for the same period last year.
“With the introduction of a new core operating system last year, the business has been able to provide an enhanced platform for claims administration which has resulted in turn in a decline in claims costs,” she said. Botswana Insurance Holding Limited Board Chairperson, Dambe Groth said BIHL Group remains well positioned in terms of capital management and solvency.
She explained that the board has confidence in the Group’s ability to maintain dividends at this level while ensuring that its capital position remains solid and aligned with future capital requirements across the Group, at sustained levels of Return on Group Equity Value. The Group’s embedded value increased to P4.37 billion as compared to the P4.31 billion in the half year ended June 2017. The embedded value allows for P288 million dividends paid during the period
Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry started gaining positive momentum towards the end of the year as key markets entered into thanks giving and holiday season.
However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.
The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.
The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.
This halted movement of buyers and shipment of the rough goods , resulting in unprecedented decline of sales, in turn ballooning stockpiles as the upstream operations produced with little uptake by the midstream.
The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.
However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.
De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.
Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.
De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.
“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.
The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.
The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.
Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.
“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.
In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”
All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.
After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.
However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.
Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.
These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.
For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.
Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.
The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering the year 2020 – a 12 months stretch of complete setback.
The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.
National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.
As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.
On the other hand the COVID-19 economic mess is prevailing, the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.
According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.
However reports indicate that the account could be currently holding just about P3 billion. The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.
When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively, since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances.
Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.
Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.
Meanwhile should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian aids and international donors, because foreign reserves are also on slow down.
During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.
The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020. This was revealed by President Masisi during State of the Nation Address in November last year.
The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.
However latest statistics(October 2020) from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with government’s share of these funds significantly low.
Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.
Furthermore, Value Added Tax has been signaled to go up from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.
Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio. The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.
CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.
CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.
“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.
“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”
Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities. We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.”
CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour. Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.