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.
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.