After announcing an exit from the Zambian market in the 2016 financial results, Furnmart Holdings’ exit has had a positive impact on the 2018 half year results.
The 2016 results reflected that the closure of the group’s operations in Zambia had an effect on its profits. This though has not affected the newly released unaudited half year financial results for a period ending January 31 2018 results. A year and a half later, the decision to shut down the Zambian market still a say on the Group’s results. The Furnmart Group through its 2016 annual report explained that exiting the Zambian market was a disruptive process that required considerable focus and effort from management.
With the exception of the remaining debtors’ book the management confirmed then that all assets in the Zambian operations have been realised. The statutory winding up of the Zambian entity will commence subsequent to extracting final value from the debtors’ books. These books have been reported to have been fully provided as at the end of January 2018.The operations, with few exceptions, are reported to have all performed very well during this period. However, they noted these actions will have a positive impact on the Group’s profitability in future.
On a comparable basis the group results show that revenue increased by 12.4 percent. Gross profit margins increased compared to the prior period. The comparatives however, also included the low margin closing-down sales of the non-performing operations. Operating income of P100.0m was P44.2m an equivalence of 79.2 percent higher than the corresponding period. Even so, it is evident that the furniture retail market in Botswana and Namibia remains overtraded and imminent sweeping regulatory changes in these markets may present future headwinds.
The furniture retail industry continues to consolidate, particularly in South Africa, where store closures occurred across the board. As a result, to maintain growth, the South African furniture retailers maintained their expansion drives into Africa and are becoming more competitive in the territories where the Group traditionally dominated.
The regulatory environment for consumer credit providers is becoming increasingly challenging and complex as regulatory bodies introduce more restrictive laws, regulations and limitations in an attempt to protect consumers from high levels of indebtedness or exploitation by credit providers.
Furnmart, with a market capitalization (Market Cap) of 327.48M has realized Revenue of P660m for the just ended period which is 5.8 percent higher than the prior year. The growth in revenue is explained to have been partially offset by the closure of the non-performing operations included in the prior year.
On a comparable basis the group results show that, revenue increased by 12.4 percent. Gross profit margins increased compared to the prior period. The comparatives however, also included the low margin closing-down sales of the non-performing operations. Operating income of P100.0m was P44.2m an equivalence of 79.2 percent higher than the corresponding period.
This improvement resulted from the closing down of some of the Group’s non-performing business units and increased revenue and gross profit margins. Operating expense ratios have improved or were held constant in all continuing business units. Total debtors’ costs have increased by 31.6 percent during the period under review. The management under the Chairmanship of JT Mynhardt has cited that increase will most likely be seen against the backdrop of the strong growth in the debtors’ books during this period.
Management believes that the impairment provision on the debtor’s book is at an adequate level. Supported by a lower interest expense, due to lower borrowing and higher cash reserves, produced a profit after tax of P62.5m, which is P38.8m 164.0 percent higher than the previous year. The group’s revenue for the half year has been registered 36 million more than the corresponding period ending January 2017. The Group has confirmed and presented a very strong first half year.
The financials show that Furnmart strives to establish lasting relationships with its customers through the value for money and smart credit policies. Management is of the view that trading in the second half of the year will be comparatively less resilient. However, management is confident that the Group will produce earnings growth for the full year as a result of the growth in the debtors’ book which will highlight a focus on debtor book quality and cost control. It is further noted that opportunity seeking is on the plan to ensure a wide spread footprint. It is further explained that efforts to seek out opportunities for new store growth are appropriate.
The remaining non-performing stores will attract further focus from management in an attempt to turn them around. The Group opened three new Furnmart stores during the period under review and is now trading out of 124 stores in three countries. Management has noted that they will be opening another six stores during the current financial year.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at 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. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”