Botswana ‘s home grown diversified retail & wholesale group Sefalana ,which portfolio runs across Southern Africa successfully managed to emerge from 2017 difficult trading environment. The Group recorded a whopping 34 percent increase in profit before tax for the year ended 30 April 2018, raking in P232 million.
This is in comparison to the prior year which ended 30th April 2017, a year which the Group operations faced one of the most difficult trading circumstances in years, especially in its major market, Botswana. This was predominately because of the effects of 2016 closure of some major mining companies and parastatals, which spilled over into 2017 and shrunk macroeconomic cash flows as well as domestic purchasing power.
For the year under review, the Botswana Stock Exchange(BSE) listed diversified goods and commodities conglomerate put in place several cost saving initiatives in a bid to extract value from the company‘s well diversified group of businesses across the Region. Sefalana Operates in Botswana, Namibia, and Lesotho and of late entered the lucrative South African market and the Zambian property space.
According to the company’s audited financials released this week several customer services nectarines such as online shopping beard fruits as the Group registered a total comprehensive income of P189.1 million representing a 21 percent increase on the prior year. The Group‘s revenue hit P4.8 billion mirroring a satisfactory rise of 12 percent compared to the prior year.
“We are pleased to report that through this approach, we have been able to close this year on a very positive note. We are confident that our shareholders and potential investors will be pleased with our performance and will be enthused with the forward-looking prospects of our business,” said Chandra Chauhan, Sefalana Group Managing Director this week when addressing stakeholders on the Group performance. One of Sefalana‘s key market is Botswana. The company was conceived in Botswana in the early years of Botswana‘s economic development epoch.
During the year under review Botswana operations continued to contribute significantly to the Group‘s financial performance. Though the division businesses experienced increased pressure on margins for both wholesale and retail segments the operations registered a 3 percent increase in turnover, collecting P2.6 billion compared to 2.52 billion gathered during the financial year ended April 2017. Sefalana Cash & Carry Limited contributed 54 percent and 23 percent of the Group’s revenue and profit before tax for the year, respectively.
However, overall profitability for the division fell significantly. “Efforts are being made to limit the impact of these pressures as we anticipate restored market conditions and improved results in the ensuing year,” underscored the Group Sefalana boss. At the beginning of the financial year, Sefalana operated three Hyper Stores, 25 Cash and Carry stores and 23 supermarket retail stores across the country, giving the Group a total of 51 stores in Botswana.
“We have taken a cautious approach to new store openings over the last three years as we recognize the saturation levels in the market, and have tried to avoid increasing our overhead costs in any particular area where the market size remains unchanged,” he said. According to Sefalana Executives, strategic approaches enabled the Group to cut cost and save for more profitable operations given the unfavorable trading circumstances that the year under review was.
“Where we are present, we strive to work towards offering our customers a one stop-shop experience and pride ourselves on being first in the market to introduce a number of initiatives” added The Group MD. Sefalana launched several initiatives to enhance customer service, convenience and efficiency in the process also cashing in big for the company through cost cutting and reduced overheads. This includes Sefalana Online shopping site, Sefalana Mobile App, Sefalana rewards and credit facilities amongst others.
According to Sefalana Executives, the Sefalana Online Shopping site which the company prides itself for being Botswana ‘s first FMGG online purchasing offering did exceptionally well as it started off in Gaborone and surrounding areas gathering satisfactory feedback. “Initially, the online service was only offered to our customers in and around Gaborone. In November 2017, we extended this service to Francistown and Maun where our customers in the area requested that we also offer this service to them.”
Namibia operations contributed 32 percent and 23 percent of revenue and profit before tax for the year, respectively. Turnover amounted to P1.5 billion, a growth of 15 percent on the prior year. Profit before tax for the Namibia division amounted to P54 million, up 19 percent from the prior year. “Our operations in Namibia continue to grow from strength to strength, making a larger contribution to overall Group results each year, as we enhance our customer engagement and offering,” reads the statement.
During the year under review Sefalana pursed expansion plans in Namibia in a bid to broaden market access and performance for existing stores. The Group’s division in Lesotho which has been operating for the past year and half delivered strong financials for the company: “We are delighted to have built a strong presence in the market in a very short space of time, “said Chauhan. Lesotho operations registered total turnover of P388 million for the year under review, contributing 8 percent of total Group revenue.
The segment achieved an EBITA of P9.5 million for the year, and a profit before tax of P2.1 million after taking into account finance charges. This according to Sefalana executives is a significant improvement on the loss of P5.6 million experienced in the first six months of trading since acquisition. “We operate in a very low margin environment in Lesotho and therefore look to improve the profitability of this business through top line growth and by offering our customers an excellent service,” he said.
Sefalana also operates heavy duty commodities dealership in Botswana which consists of Commercial Motors (Pty) Limited and Mechanized Farming (Pty) Limited, under this segment the company pushes industrial locomotives, automotives, cars and farming machinery amongst others. The segment contributed 3 percent and 9 percent to Group turnover and profit before tax, respectively.
CML historically relied on tender business, and over recent years has been focusing on growing its private sales as a result of a general decline in tender activity. During the year, the business secured the sale of a number of vehicles to the private sector thereby improving its performance compared to the prior year. Another segment, Manufacturing, consists of Foods Botswana (Pty) Limited, the division contributed 5 percent and 9 percent to Group turnover and profit before tax for the year respectively.
Chauhan, said a greater level of profitability was achieved as compared to the prior year, mainly due to short term orders placed by Government and growth of our house brands within the Beverages division. The company underscores that for the Milling and Beverages more strategies and expansion efforts were being put in place to diversify business windows for the two divisions in a bid to reduce reliance on government tenders. On the 26th of July 2018, the Board of Directors of Sefalana Holding Company Limited declared a final gross dividend of 23 thebe per ordinary share.
“Our focus will continue to be on our core segments that generate strong returns for the Group. We identified the need to expand into the Region and have successfully done this through a careful and cautious expansion plan into three countries over the last four years, taking into account the impact of the various macro-economic environments and also considering the foreign exchange risk of retranslation of returns,” said Managing Director Chauhan.
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.