Following subdued performance in 2016, Group 4 Security (G4S) Botswana reported a sterling come back during the financial year ended December 2017. The Botswana Stock Exchange (BSE) listed security services outfit raked in over 25 percent increase in profit before tax in 2017.
This is in comparison to the 2016 financial year which the Group faced a number of challenges owing to economic, political and social forces. The uncertainties, complexity and volatility hit G4S hard as it realised profit before tax decline of 19 percent against 2015. Chairman of Board of Directors, Lebang Mpotokwane, observed in the company‘s 2017 annual report released on Wednesday that 2017 brought a change in fortunes for the company. Mpotokwane noted that the reorganization of the company’s portfolio beard fruits as G4S became more resilient and competitive during the period under review.
“We are now more stable and on more sound financial footing” he said. The company recorded profit before tax of P40.22 million, mirroring an increase of 25.6 percent from 2016 while revenue grew by 2.2 percent, considering the subdued economy; G4S said the revenue performance struggled to break the 4 percent growth mark amid a record number of closures in the mining sector.
“This is by far the best performance, from a Profit before Tax perspective, that G4S has ever recorded and it buttresses the trust we have placed in our financial prudence and good governance approach to issues, “underscored Mpotokwane. G4S explains that on the backdrop of a weaker performance in 2016, management implemented stabilisation plan, which focused on restoring growth to both top and bottom lines in an overly tough trading environment.
This renewed focus meant that G4S went back to the basics in which it is firmly rooted, which are improved customer service and operational efficiency. The growth, reflected by the gross profit, which stands at 16.3 percent, indicates a highly efficient organization, which has re-assigned resources to its core business in order to service its customers better.
“What is pleasing is that we saw a turn-around in financial performance that was coupled with a general rise in employee satisfaction. Our employee satisfaction survey carried out in 2017 posted a 4 percent improvement in the staff morale index. This depicts a hopeful workforce that believes in the direction and future of the company,” submitted the company Chairman.
Mpotokwane lamented credit to the Re-Organization and Stabilization strategy which the business used to ameliorate from the 2016 challenges which led to a subdued performance. “These challenges necessitated the implementation of a plan to stem the tide as well to offer a rapid turn-around to our business” he said. According to the annual report this plan was anchored around motivated employees, operational excellence, customer centricity, cost containment and profitable revenue growth.
“It is evident from the massive growth in our gross margin that the plan yielded the desired results in the areas of efficiency and optimization. Even more gratifying is the fact that through implementation of this plan, the business was able to generate more revenue,” reiterated the G4S Chairman. G4S Managing Director Mokgethi Magapa alluded that the company‘s overall 2017 performance can be described as a watershed year given the impressive results.
“Under the current trading conditions, a net profit growth of 22.4 percent is incredible by any standard given the environment of foreclosures in the mining sector, increased unemployment and a generally sluggish economy. What is even more exciting for us is the fact that we managed to grow our gross margin by a 16.2 percent increase over the previous year,” he said.
Magapa emphasized that the company’s satisfactory performance was mainly driven by the stabilisation plan that was put into effect in June 2017, spearheaded by core strategy of re-aligning processes and systems and repositioning the business in the market as a customer centric one . He said great emphasis was placed on value chain review and the outcome was the freeing up of resources for re-investment in critical areas.
“Our drive on customer excellence underpinned by operational excellence managed to achieve revenue growth of 2.2 percent. The gross margin growth of 16.2 percent over last year, demonstrates that our plan yielded the desired results as we realized very high conversion rates,” he said. G4S MD also noted that employee-focused Change Management Programme embedded within the stabilisation strategy also significantly contributed to financials quick turn-around.
“Our view as Management was that prioritising employee engagement as well as the health and safety of our employees, would give us the required traction, employees were not only part of the change process but actually drove change within our transformation agenda,” he noted. He explained that going forward having developed and deployed the stabilisation plan, his company adopted five key pillars which were the main focus areas for the business in 2017 and beyond (2020) to ensure keen focus on what would yield the desired results quicker and sustainably.
Finance Director Peter Kgomotso said 2.2 percent revenue growth was primarily bolstered by mixed category benefits, new business and positive contract adjustments. “Our balanced portfolio offering presents opportunities for future growth reflecting both product mix and customer retention benefits – We have a solid foundation on which to build a sustainable business”
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.